Growth and development

The first principle

Growth is a rise in output per person, while development is a rise in what people are able to be and do: to live long and healthy lives, to learn, to work with dignity and to take part in decisions. Output is a means to these ends, not the end itself. Whether growth becomes development depends on three links, namely jobs, public spending on health and education, and how income is shared, and that is why two countries with the same income can offer very different lives.

The core

Two ideas, and how they differ

• Economic growth is a sustained rise in real gross domestic product (GDP) per capita. It is one number, measured every quarter, and it says nothing about who gains.
• Economic development is broader. It includes better health, education and living standards, and also structural change in what the economy produces, stronger institutions and the sustainability of the whole process.
• The capability approach. Amartya Sen argued, most fully in Development as Freedom (1999), that development should be judged by the real freedoms people enjoy, which he called capabilities, rather than by income or goods alone. His colleague Mahbub ul Haq turned this into the Human Development Index (HDI) in the first Human Development Report of the United Nations Development Programme (UNDP) in 1990.
• Growth without development, and the reverse. Growth can be jobless, can concentrate gains at the top, or can come from extracting a resource while schools and clinics stay poor. Kerala shows the reverse: decades of public investment in schooling, health and land reform gave it social indicators close to those of richer countries well before its income caught up.

Measuring development: the HDI

• Three dimensions. A long and healthy life is measured by life expectancy at birth; knowledge by expected years of schooling for a child entering school and mean years of schooling of adults aged 25 and over; and a decent standard of living by gross national income (GNI) per capita at purchasing power parity (PPP) in 2021 dollars.
• The formula. Each indicator is turned into an index as (actual value − minimum) ÷ (maximum − minimum), with fixed goalposts: 20 and 85 years for life expectancy, 0 and 18 years for expected schooling, 0 and 15 years for mean schooling, and 100 and 75,000 dollars for income, the income index using natural logarithms because each extra dollar adds less to wellbeing. The education index is the average of the two schooling indices, and the HDI is the geometric mean of the three dimension indices, that is, the cube root of their product. A geometric mean means that a very low score in one dimension cannot be fully made up by a high score in another.
• The family of indices. The inequality adjusted HDI (IHDI) discounts each dimension for how unequally it is shared; the Gender Development Index and Gender Inequality Index compare women and men; and the global Multidimensional Poverty Index (MPI) of UNDP and Oxford University counts overlapping deprivations in households.

Structural change

• The classical path. In the dual economy model of Arthur Lewis (1954), workers move from farms, where an extra worker adds little to output, to factories and cities, where output per worker is far higher. That shift alone raises average productivity, and it is how East Asian economies grew rich, with manufacturing absorbing the workers.
• India's path. India's output moved to services before factories absorbed its workers. In 2025-26 agriculture produced about 18 per cent of nominal gross value added (GVA), computed from the National Statistics Office (NSO) figures, while it employed 43.0 per cent of workers in calendar year 2025 according to the Periodic Labour Force Survey (PLFS).
• A worked example of the productivity gap. Output per worker in a sector, relative to the national average, is its share of output divided by its share of workers. For agriculture that is 18.0 ÷ 43.0 ≈ 0.42, and for the rest of the economy 82.0 ÷ 57.0 ≈ 1.44, so a farm worker produces about 0.42 ÷ 1.44 ≈ 0.29 of what a non farm worker produces, under a third. The two shares come from different surveys and slightly different periods, so the ratio is a rough guide, but the gap is the reason moving workers out of agriculture raises growth.
• Premature deindustrialisation. The economist Dani Rodrik showed in 2016 that manufacturing now peaks at lower shares and lower incomes than it did for early industrialisers. In India manufacturing is about 15 per cent of GVA (NSO, 2025-26) and 12.1 per cent of jobs (PLFS 2025), well short of the role it played in East Asia.

Dimensions

• Demographic. The demographic dividend is the boost to growth when the share of people of working age rises and the dependency ratio, the number of children and elderly per working age person, falls. It arrives because fertility falls, and it pays only if the extra workers find productive jobs; otherwise it becomes a burden of unemployed youth.
• Social. Development shows in health, nutrition and learning. Stunting among children under five was 35.5 per cent in the National Family Health Survey (NFHS-5, 2019-21), a sign that growth had not yet reached the bodies of the young.
• Gender. Female labour force participation was 40.0 per cent in 2025 against 79.1 per cent for men (PLFS 2025), so half the potential workforce is underused; India ranked 131st of 148 countries in the World Economic Forum's Global Gender Gap Index 2025.
• Regional. States are at different stages of the same transition. Kerala and Tamil Nadu had a total fertility rate of about 1.8 in NFHS-5 and are already ageing, while Bihar's was close to 3.0, so the south needs care for the old and the north needs jobs for the young.
• Environmental. Development that runs down soil, groundwater and air borrows from the future, which is why UNDP now also publishes an HDI adjusted for planetary pressures and why sustainable development is a separate note.

In practice

• India's HDI. India's HDI was 0.685 in 2023, ranked 130 of 193 countries, up from 133 a year earlier, and it remains in the medium human development category just below the high threshold of 0.700 (UNDP, Human Development Report 2025). Life expectancy reached 72.0 years, mean schooling 6.88 years and GNI per capita about 9,047 dollars at 2021 PPP.
• Long run progress. Since 1990 India's HDI has risen by more than 53 per cent, life expectancy has gone up from 58.6 to 72.0 years and GNI per capita has risen more than fourfold (UNDP, 2025).
• The cost of inequality. Inequality in health, education and income lowers India's HDI by 30.7 per cent (UNDP, 2025), which is why the inclusive growth note follows from this one.
• Fertility and the dividend. India's total fertility rate fell to 2.0 in NFHS-5, below the replacement level of 2.1, so the working age share will keep rising for some years and then fall; the United Nations Population Fund (UNFPA) has put India's window of opportunity at roughly 2005 to 2055.
• Programmes that target development directly. The Aspirational Districts Programme of the National Institution for Transforming India (NITI Aayog), launched in 2018, ranks 112 lagging districts on health, nutrition, education, agriculture, infrastructure and financial inclusion, so that districts compete to improve outcomes rather than spending. The Sustainable Development Goals (SDG) India Index of NITI Aayog rose from 57 in 2018 to 71 in 2023-24.

Issues and way forward

• Growth that does not create enough jobs. Growth led by services and capital intensive industry absorbs few workers from farms; labour intensive manufacturing such as garments, footwear, food processing and electronics assembly, together with construction and tourism, is the route most economists recommend.
• Human capital lags income. Learning levels and child nutrition improve slowly, because spending on schools has gone into buildings and enrolment more than into learning; foundational literacy targets under the National Education Policy 2020 and better nutrition in the first thousand days are the answer.
• Women out of paid work. Care duties, safety and a lack of suitable jobs near home keep women out, so childcare, safe transport and jobs in services and light manufacturing would raise both growth and development.
• A closing window. The dividend lasts only while the working age share rises, so skilling under the Skill India Mission (2015) and job creation must happen now, especially in the young northern States.

Common confusions

• Growth and development. Growth is a quantity, a rise in output per person, while development is a quality, a rise in capabilities, and it is possible to have one without the other for a time.
• HDI and MPI. The HDI uses national averages to rank countries, while the MPI uses household data to count people who are poor in several dimensions at once.
• Demographic transition and demographic dividend. The transition is the shift from high to low birth and death rates, while the dividend is the possible growth gain during one stage of it.
• Structural change and deindustrialisation. Structural change is the movement of workers and output across sectors; premature deindustrialisation is the specific failure of manufacturing to peak at the level earlier industrialisers reached.
• GNI at PPP and at market exchange rates. The HDI uses PPP, which corrects for lower prices in poorer countries, so India's income per head is about three and a half times higher at PPP than at market exchange rates.

For the exam

• Keyword bank: capability approach, Human Development Index, geometric mean, inequality adjusted HDI, structural transformation, Lewis dual economy, premature deindustrialisation, demographic dividend, dependency ratio, total fertility rate, jobless growth, human capital, female labour force participation, Aspirational Districts Programme.
• Previous year questions: Practise the previous year questions on this topic →
• Use in an answer:
  • Introduction with data: India's HDI rose to 0.685 in 2023, ranking it 130 of 193 countries, yet inequality lowers that value by 30.7 per cent (UNDP, Human Development Report 2025).
  • Introduction with a source: Amartya Sen's Development as Freedom argues that development is the expansion of the real freedoms people enjoy, of which income is only one means.
  • Conclusion: India's growth will become development only when farm workers move into productive jobs and women enter paid work, which makes jobs the bridge between the two.
  • Conclusion: With fertility already below replacement, India's demographic dividend is a window that is open now and will not stay open, so investment in health, skills and jobs cannot wait.