Underdeveloped economies are characterized by low per capita incomes, underutilized resources, inefficient production techniques, and potential for growth. They have incomes of $1025 or less and rely on agriculture, suffering from poverty, unemployment, and low levels of living. Population growth outpaces economic growth, exacerbating unemployment and poverty. Development requires improving infrastructure, education, health, and industrialization to increase productivity and standards of living.

1. CHARACTERISTICS OF
UNDERDEVELOPED
ECONOMIES
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2. Classification of Economies
◦ ON THE BASIS OF PER CAPITA INCOME :
The World Bank divides the world's economies into four income groups:
high, upper-middle, lower-middle, and low. The income classification is based
on a measure of national income per person, or GNI per capita,
◦ High income economies : with income of $12,376 or more
◦ Upper Middle income economies : with income between $3,996 and $12,375
◦ Lower Middle income economies : with income between $ 1,026 and $3,995
◦ Low income economies : with income $ 1025 or less
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4. Classification of Economies
◦ON THE BASIS OF DEVELOPMENT
◦ Underdeveloped countries
◦Developing countries
◦Developed countries
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5. Underdeveloped Economy
◦ The co-existence of greater or less degree of unutilized manpower.
◦ Unexploited natural resources
◦ Owing to vicious circle of poverty resources are not fully utilised
◦ Per capita income is low as compared to developed countries
◦ Techniques of production is conventional ,inefficient and orthodox
◦ There is potential of growth
◦ Developing Country (DC) is a nation which lacks industrialization, infrastructure,
developed agriculture, developed natural resources, and suffers from a low per capita
income as compare to developed nations.
◦ Developing countries are also called under-developed nations (UDN)
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6. Causes of Under Development:
Economic Causes
◦ Market imperfection
◦ Immobile labour
◦ Ignorance of market conditions
◦ Monopolistic practices
◦ Inflexible economy
◦ Lack of capital formation
◦ Problem of population
◦ Lack of modern enterprise
◦ Technical obstacles
◦ International obstacles
Noneconomic Causes
◦ Social Causes
◦ Religious Causes
◦ Political Causes
◦ Administrative Causes
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7. Developed and less developed Economy
Developed Countries
◦ A developed nation is one that has a very high rank
in industrial advancements, construct its economy
in innovation in production and assembling rather
then agri-business.
◦ A nation with more Human Development Index is
viewed as a developed nation.
◦ It is not only a measures of economic
development and improved GDP.
Developing Countries
◦ A nation that is not yet industrialized.
◦ A country having less utilization of resources.
◦ Low Per Capita Income leads towards low GDP.
◦ Economy mostly depends upon Agricultural
Sector
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8. Economic Growth Economic Development
Definition
Increase in the monetary growth of a nation in a particular period
It refers to the overall development of the quality of life in a nation
which includes economic growth
Span of Concept
It is a narrower concept than Economic Development It is a broader concept than Economic Growth
Scope
It is a uni-dimensional approach which deals with the economic growth of
the nation
It is a multi-dimensional approach that looks into the income and
as well as the quality of life of the nation
Term
Short-term process Long-term process
Measurement
Quantitative Both Quantitative and Qualitative
Applicable to
Developed Economies Developing Economies
Government Support
It is an automatic process that may or may not require intervention from the
government
It requires intervention from the government as all the
developmental policies are formed by the government
Kind of changes expected
Quantitative changes Quantitative as well as qualitative changes
Examples
GDP, GNP HDI, Per capita Income, Industrial Development
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9. Characteristics of Indian Economy – Developing or Under
developed Economy
Low Per capita income
Low levels of living
Low economic
performance
Unutilized or Under
utilized natural and human
resources
Low levels of
technology
High rate of population
growth
Unemployment and
underemployment
Occupational Pattern Dependence on
agriculture
Low capital
formation
Unfinished
industrialization
Inequality Poverty
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10. Low Per Capita Income
◦ Per capita income = Total income / Total population
◦ In 2013, there are 182 countries, out of which only 34 are developed and remaining
148 are under developed.
◦ The average per capita income of underdeveloped economies is about $2 per day
while of developed economies is $30 per day.
◦ PROF.KURIHARA, ”Low per capita income is the chief feature of less developed
countries.”
◦ In the under developed countries the size of national income is low but the size of
population is very high. So per capita income remains low which is the main obstacle
in the way of economic development.
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11. Low Per Capita Income - Poverty
◦ An underdeveloped country is poverty-ridden. Poverty is reflected in low GNP
per capita. According to the World Development Report, 1999-2000, 59.6 per
cent of the world population in 1998 living in low-income economies had GNP
per capita of $ 760 or less; 25.4 per cent in middle income economies had $ 761
to $ 9,360; and 15.0 per cent in high-income economies had $ 9,361 or more. The
extremely low GNP per capita of low income economies reflects the extent of
poverty in them.
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12. Low level of living
◦ Level of literacy, per capita calorie, housing conditions, HDI is very low.
◦ HDI is readily between 0.3 and 0.4.
◦ Human development index is a collective index prepared by united nations development programme
(UNDP).
◦ It is calculated on the basis of longevity, knowledge, and level of income. It is measured on 0.1 to 1 scale.
◦ On account of low per capita income population suffers from poor health, low education, high
infant mortality and low life expectancy. In India, the life expectancy at birth was 32 in 1947
and the literacy was only 17 per cent.
◦ According to Planning Commission estimates, India’s but poverty rate was 54.8 per cent in
1973-74 and in 1993-94, the percentage of persons below poverty line being 35.97, come down
to the absolute number being as high as 281.35 million.
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13. Low economic performance – Low productivity
◦ Throughout the developing world, levels of labour productivity are extremely low compared with
those in developed countries. Low level of living and low productivity are self reinforcing social and
economic phenomenon in Third World countries and as such, are the principal manifestation of, and
contributors to, their development. Myrdal’s well known theory of “circular and cumulative causation”
in underdeveloped countries is based on the interaction between low living levels and low productivity.
◦ Low productivity is due to low level of technology. The sharp differences in productivity between
developed and underdeveloped nations can be traced to the level of technology in these countries.
Productivity level in Indian economy has been low on account of backward or poor technology and
this applies to all sectors of the economy – whether it is agriculture, industry or the tertiary sector.
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14. • One of the principal manifestations of and factors contributing to the low level of living in developing
nations is their relatively inadequate and inefficient utilisation of labour in comparison with the
developed nations.
• Developed country like USA, Japan, Germany engage less population in agriculture, below 10%. While
underdeveloped country like India, Pakistan, Bangladesh engage more population in agriculture; more
than 50% and produce less production per hectare. They follow the traditional and subsistence farming.
• In India, because of the high growth of population in the last decade, the growth rate in labour force
will be 2.48 per cent as against 1.57 per cent growth rate in population in the year 2002. Thus the
growing population leads to the fact that the labour force will also be accelerating for some time to
come. This means that jobs will have to be created at equivalent rates simply to keep pace with the
growth of labour supply.
Low economic performance – Low productivity –
Unemployment – Population Growth
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15. The average growth rate of population in underdeveloped countries is 2.1% as against 0.6% in developed
countries. This is because birth rate and death rate are high in underdeveloped countries compared to
developed countries. Birth rate ranges between 30-40 per thousand and death rate between 10-15 per
thousand. In developed countries birth rate ranges between 10-13 per thousand and death rate between 9-10
per thousand. Thus the level of consumption in underdeveloped countries goes up and savings comes
down. This leads to fall in capital formation. They are illiterate and have poor health, low quality life, low life
expectancy.
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16. The latest estimate in this regard is the Rangarajan Committee Report in 2014 according to which, the
poverty line should be Rs. 32 per day in rural areas and Rs. 47 in urban areas, as against the earlier estimate
of Rs. 27 and Rs. 33 respectively. The Rangarajan Committee’s methodology to calculate poverty line is
based on parameters like clothing, house rent, conveyance, education, adequate nourishment, average calorie
requirements, protein and facts etc. a household has been considered poor if it is not able to save.
The official method to estimate poverty above is the Head Count Ratio (HCR) which is calculated
by diving the number of people below the Poverty Line by the total population. This is the proportion of
poor in the total population.
The Planning Commission has updated the poverty lines and poverty rates for 2011-12 based on the
recommendations of Tendulkar Committee. Accordingly, with the Poverty Line at all India level at monthly
per capita expenditure of Rs. 816 for rural areas and Rs. 1000 for urban areas in 2011-12, the poverty ratio
from 37.2 percent in 2004-05 to 21.9 percent in 2011-12.
POVERTY
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17. The Human Development Report estimates the Human Development Index (HDI) in terms of three basic
parameters: to live a and healthy life, to be educated and knowledgeable, and to enjoy a decent economic
standard of living. India’s rank in HDI is 135 out of 187 countries in 2014. There is also the inequality
adjusted HDI prepared by HDR for nearly 140 countries which takes into account loss of human
development due in inequality in health, education and income.
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