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Economic Growth Development - Definition, Affecting Factors, Difference, Features & Measurement

Last Updated on Apr 24, 2025
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Economic growth development refers to the rise in a nation's income or output of goods and products compared to a previous period. In contrast, economic development involves sustained, long-term growth and increased income for a country. Developed countries or economies can address aspects like healthcare and gender equality. Economic growth refers to the prolonged increase in a country's real national and per capita income. Economic development, on the other hand, is characterized by the sustained enhancement of the material well-being of society. It's important to note that economic development is a broader concept than economic growth.

The topic of economic growth and economic development is important from the perspective of the UPSC IAS examination, and it falls under General Studies Paper 3 in the Indian Economy section.

In this article, we shall discuss in detail the terms economic growth and development, the difference between economic growth and development, the factors governing economic development, the factors affecting economic growth, and the limitations of GDP.

Also, check out the New Economic Policy 1991 (NEP 1991) here.

Recent Update on Economic Growth

The World Bank, on 6th October 2022, cut its 2022-23 (FY23) real GDP (Gross domestic product) growth forecast for India to 6.5% from a prior gauge of 7.5%. The International Financial Institution also noticed that easing worldwide interest will influence the nation’s commodities. As per the Asian Development Outlook, recent data indicates that India's Gross Domestic Product (GDP) experienced significant growth at a robust rate of 7.1 percent during the initial three quarters of the calendar year. This growth was driven by robust industrial production and substantial investment.

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What is Economic Growth?

Economic growth is defined as the total value of the final goods and services produced in an economy over a given period. It is calculated in real terms to corner the effects of inflation and to arrive at the real picture of the economy. It is usually calculated as a percent Gross Domestic Product (GDP) increase.

Fig: Importance of Economic Growth

Also, check the article on Consumer Price Index for UPSC Exam.

Factors Affecting Economic Growth

The factors affecting economic growth are as follows:

  • Infrastructure: Developing key infrastructure assets in the economy, like road machinery and railways, increases efficiency and leads to economies of scale.
  • Optimum utilization of natural resources: To ensure growth, it is of utmost importance that the resources are best utilized to reduce wastage and boost economic productivity.
  • Research and development: Investing research and development domain positively impacts development, increasing labor productivity and reducing the cost involved.
  • Human capital: Human resources are the key to the development of an economy. The higher the skills and capacities of the workforce, the greater the development of the economy.
  • Infrastructure development, including transportation and energy, impacts overall economic performance.
  • The availability and efficiency of financial resources, including banking systems, influence economic growth.
  • Global economic conditions and international trade dynamics affect India's economic performance.

What is Economic Development?

Economic development is the process of improving a country's economy over time. It involves increasing the nation's wealth and standard of living for its people. Economic development includes various factors like growth in income, better job opportunities, improved healthcare, and education. It aims to create a stable and prosperous economy for the well-being of the entire population.

Factors Governing Economic Development

The factors affecting economic development are as follows:

  • Human Resources: An increase in human capital in the economy leads to the overall growth and development of the economy.
  • Education: Better literacy rates among the population leads to better understanding. It not only raises the workforce's efficiency but also leads to the development of the economy.
  • Infrastructure development: Growth in the infrastructure parameter raises the economy's efficiency and improves the standard of living.
  • Natural resources: The availability of natural resources like forests, wildlife, minerals, etc, has the potential to result in economic development.
  • Capital formation: Capital formation is the country's savings and investment rate. The economic development of a country depends on the rate of capital formation in the country.

Check out the article on Important Economic Terms related to Union Budget here!

Difference between Economic Growth and Economic Development

The difference between economic growth and economic development is given in a tabular format for better understanding.

Economic Growth

Economic Development

It is the value of final goods and services of an economy over a given period of time

It is the development of the social-economic parameters of the economy which raises the standard of living of the population.

Economic growth is a short-term process.

Development is a long-term process.

It is the improvement in the quantitative aspects.

It is an improvement in both the quantitative and qualitative aspects.

It is narrow in scope as it deals only with the economic growth of a country.

It is much wider in scope as it covers both the economic aspects and the overall quality of life of the population of a country.

The term economic growth is concerned mainly with developed economies.

Economic development is much related to developing economies.

Measurements to deduce economic growth are Gross Domestic product and gross national product.

Measurements to arrive at economic development are Green GDP, Gender Inequality Index, Gross Happiness Index, etc.

It reflects the national or per capita growth in income.

It reflects the positive progress made by a country.

Study in detail the Goods and Services Tax (GST) here.

Features of Economic Development

The features of economic development are as follows:

  • Economic Development refers to the positive change brought about in the living standard of the citizens of the economy by development in social indicators like health education, etc.
  • Economic development leads to the reduction in poverty levels and improvement in the quality of life of the citizens.
  • Economic development is a positive process which results in structural changes in the economy in terms of infrastructural developments, etc.
  • The process of economic development is a never-ending process.
  • Economic development helps in raising the per capita income in the country which would result in a boost of national income.

Five pillars of Economic Development

The Five pillars of Economic Development are mentioned in the image below.

Check out the article on Five Year Economic Planning in India for UPSC IAS Exam.

Measurements of Economic Development

Economic development can be measured through indicators like human poverty index, infant mortality rate, maternal mortality rate, happiness index, etc. Unlike economic growth, economic development focuses on qualitative and quantitative changes. The measurements of economic development are as follows:

Green GDP

Green GDP is the measurement undertaken to adjust the environmental degradation from the GDP. It involves subtracting the causes of the environmental damages from the GDP to arrive at sustainable GDP. It was initiated first through a system of national accounts.

Gender Inequality index

  • The gender inequality index measures gender inequalities in the economy under 3 major aspects:
    • Reproductive health, which is measured by maternal metal rate and adolescent birth rates,
    • Empowerment is measured by the proportion of the parliamentary seats which females occupy and
    • The proportion of adult males and females above 25 years with some secondary education.
  • The gender inequality index helps ascertain the true position of women in the countries and highlights the major areas where gender gaps exist.

Also, check out the article on Gender Issues in India here.

Gender Development Index

GDI measures gender inequalities in achievement in three basic dimensions of human development:

  • Health is measured by female and male life expectancy at birth.
  • Education, measured by females and males, is expected years of schooling for children and adults ages 25.
  • Command over economic resources, measured by female and male estimated earned income.

Human Capital Index

  • The Human Capital Index seeks to capture the complexity of education, employment, and workforce dynamics so that various stakeholders can make better-informed decisions.
  • The Index assesses Learning and Employment outcomes on a scale from 0 (worst) to 100 (best) across five distinct age groups to capture the full demographic profile of a country.

Also, Read about the Minimum Support Price for UPSC Exam here.

Measurement of Economic Growth

The primary measure of economic growth is real GDP, which accounts for both goods and services produced while adjusting for inflation.

Real GDP can be assessed using three methods.

  • Quarterly growth at an annual rate: This method calculates the change in GDP from one quarter to the next and then annualizes it. For instance, a 0.3% quarterly change extrapolates to a 1.2% annual rate.
  • Four-quarter or year-over-year growth rate: This approach compares the GDP of a single quarter in two successive years as a percentage, helping account for seasonal variations.
  • Annual average growth rate: This method calculates the average change across all four quarters. For instance, if four-quarter rates in 2022 are 2%, 3%, 1.5%, and 1%, the annual average growth rate for the year would be (2% + 3% + 1.5% + 1%) ÷ 4 = 1.875%.

Major Principles of Economic Development and Growth

Economic growth and development are influenced by several key principles:.

  • Natural resources, such as land, drainage systems, and mines, play a significant role. Mercantilism, for instance, emphasizes that a country's wealth, including gold and trade surpluses, can stimulate growth.
  • Capital formation, as noted in Adam Smith's theory, contributes to increasing returns to economic scale. It depends on workers' activity and savings, which can be invested in producing more capital.
  • Human resources are vital, as per the neo-classical model, focusing on labor productivity, workforce size, and factor inputs. Skilled and effective labor can boost growth and productivity, fostering technological advancements and better health.
  • Population growth is seen as positive in underpopulated countries but, according to Malthusian theory, excessive population can lead to food and resource scarcity.

Read more about the Types Of Banks In India.

Importance of Economic Growth and Economic Development

The importance of economic growth and development is as follows:

  • Economic growth boosts a country's overall prosperity and standard of living.
  • It creates more job opportunities for people, reducing unemployment rates.
  • Increased economic growth means more revenue for the government, which can be used for public services and infrastructure development.
  • It encourages investment in new technologies and industries, driving innovation and progress.
  • Economic growth contributes to reducing poverty and income inequality in a nation.
  • Economic development ensures long-term and sustainable growth for a country.
  • It focuses on improving the well-being of citizens, including better healthcare and education.
  • Developing various sectors of the economy leads to balanced and diversified growth.
  • Economic development addresses social issues like poverty, hunger, and gender inequality.
  • It helps in a nation's overall progress and stability, creating a better quality of life for its people.
  • International Organizations Report and commercial institutions gauge the true picture of the economy by data available through the parameters of economic growth.

Also, read about the Banks Board Bureau here for the UPSC Exam!

Issues in India’s growth, development, and employment

The major factors impending India’s growth, development, and employment are as follows:

  • Illiteracy: Though India has made considerable progress in literacy, a quarter of the population still lacks in this aspect which adversely impacts the development and the growth of the economy.
  • Poverty: A handful of the country's population lives below the poverty line, which is a blot on the higher growth rate of the economy as it fails to result in the development of the economy.
  • Declining growth rate: The decline in the growth rate adversely impacts the development of the economy.
  • Inadequate secondary sector: India’s growth is driven by the service sector, which fields to accommodate the ever-growing workforce. The stagnation in the manufacturing sector is a major cause of unemployment in the workforce.
  • Agriculture sector dependent on monsoon: Approx 55% of the agricultural sector is still dependent on the vagaries of monsoon. Thus the primary sector, too, is left in the hands of nature.
  • Unemployment and underemployment: Due to the paucity of meaningful employment in the economy, the growing workforce is concentrated in the agricultural sector or fails to find employment that suits their capabilities resulting in a higher unemployment rate.

Check out the article on the Kuznets Curve on Economic Growth here!

Conclusion

Economic development is a broader term that encompasses economic growth within itself. A true picture of the economy can be seen with the help of both economic growth and development. The development of an economy is only possible with the growth of an economy. However, growth only cannot lead to the development of an economy.

Check out the Make in India Scheme here.

After going through this article, we hope all your doubts regarding Economic Growth and Development are addressed. Testbook provides comprehensive notes for different competitive examinations. It has always assured the quality of its product, like content pages, live tests, Gk and current affairs, mocks, and so on. Ace your UPSC preparation with the Testbook App.

Economic Growth Development - FAQs

Economic growth deals with the quantitative aspects such as the measurement of the final goods and services in an economy whereas economic development deals with both the quantitative and the qualitative aspects and the standard of living of the population.

Sustainable development is essential for economic growth because it would not only lead to the optimum utilization of resources but also in ensuring environmental justice.

Economic growth is usually coupled with growth in the financial parameters of the economy like the monetary value of final goods and services. It does not take into consideration the negative externalities or the non-monetary transactions.

Sustainable development refers to the development undertaken while taking into consideration the environment and ensuring that the coming generations are not deprived of access to such resources.

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