Lecture S. Maitra on IAS Indian Economy

Lecture No.: 3

Subir MaitraAssociate Professor and ex-WBCS(Executive)

Important Concepts of Economics Part-II

Civ i l Serv ices Study Centre (CSSC)A d m i n i s t r a t i v e T r a i n i n g I n s t i t u t e

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Important Concepts of Economics

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Today’s lecture will cover:Demography and Census

Five Year PlansPoverty

UnemploymentDevelopment Economics

Demography and Census

Subir Maitra / ATI-CSSC iasstudymat.blogspot.in

Demography: Demography is the statistical study of human population. It encompasses the study of the size, structure, and distribution of these populations.

Crude Birth Rate (CBR): CBR measures the number of live births per 1000 population in a given year.

Age-Specific Fertility Rate (ASFR): ASFR measures the annual number of births to women of a specified age or age group per 1,000 women in that age group.

General Fertility Rate (GFR): GFR is the number of live births per 1000 women ages 15-49 in a given year.

Total Fertility Rate (TFR): TFR is the sum of the Age-Specific Fertility Rates (5-year age groups between 15 and 49) for female residents during a year multiplied by 5, whole divided by 1000.

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Demography and Census


Crude Death Rate (CDR): CDR is the total number of deaths to residents in a given year divided by the total population of that year per thousand.

Infant Mortality Rate (IMR): IMR is the number of newborns dying under one year of age divided by the number of live births per thousand.

Neonatal mortality rate (NMR): NMR the ratio of the number of deaths of children less than 29 days of age in one year to the number of live births in that year per thousand.

Post neonatal mortality rate (PNMR): PNMR the ratio of the number of deaths in one year of children more than 29 days upto one year of age to the number of live births in that year per thousand.

Demographic Dividend: An increase in the working age ratio can raise the rate of economic growth. This is known as “demographic dividend.”

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Five Year Plans


Economic planning: Economic planning is a sort of conceiving, initiating, regulating and controlling economic activity by the State according to set priorities with a view to achieving well defined objectives within a given time span.

Decentralized planning: Decentralized planning is a type of economic planning based on decentralized decision-making i.e. decision-making is distributed amongst various economic agents or localized within production units. Decentralised planning is basically an exercise in multi-level planning.

Democratic planning: Planning is ‘democratic’ if people are associated at both formulation and implementation stages and it is finalized through debate among people’s representatives.

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Five Year Plans


Regional planning: Regional planning is a sort of spatial planning at various territorial levels (such as block/district/state) for achieving sustainable development for the region.

Indicative planning: Indicative planning is peculiar to the mixed economy. In a mixed economy, the public and private sectors work together. In indicative planning the private sector is neither rigidly controlled nor directed to fulfill the targets and priorities of the plan. The state provides all types of facilities to the private sector but does not direct it, rather indicates the areas in which it can help in implementing the plan.

Imperative planning: Under imperative planning all economic activities and resources of the economy operate under the direction of the state. There is complete control over the factors of production by the state. There is no consumers sovereignty in such planning.

Comprehensive plan: An economic plan that sets targets to cover all the major sectors of the national economy.

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Poverty: According to the World Bank (2000), “poverty is pronounced deprivation in wellbeing.”

Headcount Index: By far, the most widely used measure is the headcount index, which simply measures the proportion of the population that is counted as poor, often denoted by P0.

Poverty Gap Index: A moderately popular measure of poverty is the poverty gap index (PGI), which adds up the extent to which individuals on average fall below the poverty line, and expresses it as a percentage of the poverty line.

Definition of Poverty Line: A poverty line which distinguishes the poor from the non-poor is derived by estimating the value of the minimum required consumption levels of food, clothing, shelter, fuel and health care, etc.

Poverty

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Poverty


Absolute poverty: The people are said to be in absolute poverty if the minimum amounts of food, clothing and shelter necessary for survival absorb all of their income.

Poverty trap: A bad equilibrium for a family, community, or nation, involving a vicious cycle in which poverty and underdevelopment breed more poverty and underdevelopment, often from one generation to the next.

Basic needs: A term used by the International Labor Organization to describe the basic goods and services (food, shelter, clothing, sanitation, education, etc.) necessary for a minimum standard of living.

Poverty line: A poverty line which distinguishes the poor from the non-poor is derived by estimating the value of the minimum required consumption levels of food, clothing, shelter, fuel and health care, etc.

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Unemployment


Frictional Unemployment: A temporary phenomenon which arises when workers are temporarily out of work while changing jobs or are suspended due to strikes or lockouts.

Casual Unemployment: In industries /services such as construction, catering etc., also in agriculture, where workers are employment on a day to day basis, there are chances of casual unemployment occurring due to short-term contracts which are terminable anytime.

Seasonal Unemployment: Industries or occupations such as agriculture, catering, holiday resorts, where production activities are seasonal in nature offer employment only for a certain period of time in a year. People engaged in such type of work may remain unemployed during the off-season, which is known as seasonal unemployment.

Structural Unemployment: Unemployment which arises due to change in the pattern of demand leading to changes in the structure of production in the economy is termed as the structural unemployment.

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Unemployment


Technological Unemployment: Due to introduction of new machinery, improvements in methods of production, labour-saving devices etc. some workers tend to be replaced by machines. This unemployment is known as technological unemployment. For example, use of synthetic rubber is bound to reduce demand for natural rubber leading to unemployment in rubber plantation.

Cyclical Unemployment: Associated with cyclical fluctuations of economic activity due to trade cycle; Mostly found in the capitalist countries like USA etc.

Chronic Unemployment: When unemployment tends to a long time feature of a country, it is called chronic unemployment. Underdeveloped countries suffer from chronic unemployment on account of the vicious cycle of poverty, resource scarcity, high population growth, low capital formation etc.

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Unemployment


Disguised Unemployment: Refers to a situation where people may be working and apparently employed, yet their contribution to output may be zero or negative. Found mainly in agriculture, public sector enterprises etc.

Labour force participation rate (LFPR): LFPR is defined as the number of persons/ person-days in the labour force per 1000 persons /person-days.

Worker Population Ratio (WPR): WPR defined as the number of persons/person days employed per 1000 persons/person-days.

Proportion Unemployed (PU): It is defined as the number of persons/person-days unemployed per 1000 persons/person-days.

Unemployment Rate (UR): UR is defined as the number of persons/person-days unemployed per 1000 persons/person-days in the labour force (which includes both the employed and unemployed).

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Agrarian System: The pattern of land distribution, ownership and management, also the institutional and social structure of the agro-based economy.

Agricultural extension services: Services offered to the farmers, usually by the government or non-governmental organizations, in the form of transmitting information, new ideas, methods, and advice relating to use of fertilizers, pest control, soil testing and conservation methods etc. with a view to encouraging and assisting them to achieve larger agricultural output.

Appropriate technology: Technology of production that is appropriate a country given its factor endowments.

Capability: Amartya Sen introduced the concept of ‘capability’ in development economics. Sen defined capabilities of an individual as "the freedom that a person has in terms of the choice of functionings, given his personal features and his command over commodities.”

Development Economics

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Capital accumulation: Increase in a country’s stock of real capital like plants, machineries and productive equipments. Economic development of a country largely depends on the rate of capital accumulation.Foreign direct investment (FDI): Overseas investments by private multinational corporations. Broadly, foreign direct investment includes “mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intra-company loans.Amortization: Gradual payoff of a loan principal.

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Big push: A concerted effort, led often by the Government policy, to initiate or accelerate economic development across a broad spectrum of sectors and industries in the economy.Brain drain: The emigration of highly educated and skilled professional and technical manpower from the developing to the developed countries.Buffer stocks: Stocks of commodities such as food items held by some authority to be used during scarcity or to moderate price fluctuations.

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Capital intensive technique: A technique of production that uses a higher proportion of capital relative to other factors of production such as labor or land per unit output.

Capital-labour ratio: The number of units of capital per unit of labour.

Capital-output ratio: The units of capital required to produce a unit of output over a given period of time.

Capital stock: The total amount of physical goods existing at a particular time that have been produced for use in the production of other goods (including services).

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Free-trade area: A form of economic integration in which there exists free internal trade among member countries but each member is free to levy different external tariffs against non-member nations.

Customs union: A form of economic integration in which two or more nations agree to free all internal trade among nations while levying a common tariff for trade with other nations. It is a Free Trade area with Common External Trade. Example: East African Community (EAC), Customs Union of Belarus, Kazakhstan, and Russia.

Common market: A form of economic integration in which there is free internal trade, a common tariff, and the free movement of labor and capital among partner states. The European Union is an example.

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Debt-service ratio: The ratio of interest and principal payments due in a year to export receipts for that year.

Dependency burden: The proportion of the people aged 0 to 15 and above 65 to total population. The people in this age group is considered economically unproductive and therefore not counted in the labor force.

Dualism: Two situations or systems (one desirable and the other not) coexisting side by side in one place. For example, modern and traditional sectors, urban and rural, extreme poverty and affluence, etc.

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Export promotion: Government policy to increase the volume of a country's exports through export incentives and other means with a view to generating more foreign exchange.

Incremental capital-output ratio (ICOR): The amount of additional capital needed to increase output by one unit.

Infant industry: A newly set-up domestic industry which requires the protection of a tariff barrier to grow.

Informal sector: In many countries, a large part of the urban economy is characterized by small competitive individual or family firms, petty retail trade and services, labor-intensive methods, free entry and non-observance of labour laws etc.

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Innovation: The application of scientific inventions in production processes and methods to produce new products with a view to making profit.

Financial intermediary: Any financial institution, public or private, that serves to channel loanable funds from savers to borrowers. Examples include commercial banks, cooperative banks, non-banking finance companies and development banks.

Fixed exchange rate: When exchange value of a national currency remain fixed in relation to another (usually the U.S. dollar) and is not allowed to fluctuate on the international money market.

Flexible exchange rate: The exchange value of a national currency that is free to fluctuate in response to shifts in demand and supply of foreign exchange.

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Free-rider problem: Situation in which people enjoys benefits without paying for it.

Globalization: The increasing integration of national economies with the international markets.

Government failure Situation in which government intervention in an economy worsens outcomes.

Human capital: Productive investments embodied in human beings. These include skills, abilities, and health resulting from expenditures on education, training and medical care.

Inward-looking development policies: Policies that stress economic self-reliance of a nation, by promoting development of indigenous appropriate technology, the imposition of substantial protective tariff and non-tariff trade barriers to promote import substitution, and the general discouragement of private foreign investment.

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Market economy: A free private-enterprise economy governed by consumer sovereignty, a price system, and the forces of supply and demand.

Mixed economic systems: Economic systems that are a mixture of both capitalist and socialist economies. Public and private sectors co-exist in such economic system.

Multi-fiber arrngement (MFA): A set of nontariff bilateral quotas established by developed countries on imports of cotton, wool, and synthetic textiles and clothing from individual developing countries.

Common property resource: A resource that is publicly owned and allocated under a system of unrestricted access.

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Outward-looking development policies: Policies that encourage free trade; the free movement of capital, workers, enterprises; a welcome to multinational corporations etc.

Privatization: Selling public assets (corporations) to individuals or private business interests.

Property rights: Legal titles given to natural resources such as land to people enabling them freely to buy and sell their assets, and other rights to use, gain income from, or sell property.

Purchasing power parity (PPP): The purchasing power of a country's currency: the number of units of that currency required to purchase the same basket of goods and services that a U.S. dollar buys in the United States.

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Rent seeking: Efforts by individuals and businesses in an economy to capture the economic rent arising from price distortions and physical controls caused by excessive government intervention, such as licenses, quotas, interest rate ceilings, and exchange control.

Social safety net: A set of government programs such as public distribution system, welfare payments, free health clinics, and unemployment insurance designed to ensure a minimum level of living for the poor.

Urban bias: When the urban sector is favoured in the development policies, thereby creating a widening gap between the urban and rural economies.

Trickle-down theory of development: The notion that an overall growth of gross national product and income per capita would automatically benefit (trickle down) the poor.

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Tomorrow’s classBasic Concepts of Economics

Part-III


Money and BankingPrice and Inflation

Stock Market ConceptsInternational Economics


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Economy & Finance

Lecture S. Maitra on IAS Indian Economy