8 Unique Characteristics of an Underdeveloped Economy with Special Reference to India

by Anjana Mazumdar


Anybody would know an underdeveloped country when he sees one. It is a country characterised by poverty, with
beggars in the cities, and villagers eking out a bare subsistence in the rural areas.


It is a country lacking in factories of its own. It usually has insufficient roads and rail-roads, insufficient government
services and poor communication. It has few hospitals and few institutions of higher learning.

Most of its people cannot read and write. In spite of the generally prevailing poverty of the people, it may have
isolated islands of wealth with a few persons living in luxury. Its banking system is poor, small loans have to be
obtained through money-lenders who are little better than extortionists.

The exports of an underdeveloped country usually consist of raw materials or ores or fruits or some staple products.
Often the extraction or cultivation of these raw material exports is in the hands of foreign companies.

Whatever be the criteria, India is at present an underdeveloped economy.
Characteristics

The following characteristics of an underdeveloped economy are found in the Indian economy:
1. Low per Capita Income:

An underdeveloped country is a poor country. The per capita income of the people of India is very low in
comparison with that of the USA, the UK, Canada, Australia and Japan. In 1992-93 Indias per capita income was as
low as Rs. 6248 (current prices) while it was 40 times higher in the USA, Indias poverty was the legacy of the
colonial rule.

The low per capita income is reflected in the low standards of living of the people. In India food is the major item of
consumption and about 75 per cent of the income is spent on it compared to 20 per cent in advanced countries.

People in India mostly take cereals and other starches to the total absence of nutritional foods such as meat, egg, fish
and dairy products. Education is an integral part of the countrys development process; yet only 52 per cent people
of India are literate.

People live in extremely insanitary conditions and without any proper medical care. Thirty-five per cent of the
people are below the poverty line, who are ill-fed, ill-clothed, ill-housed and ill- educated. Poverty is the basic
problem facing the country.
2. Inequitable Distribution of Wealth and Income:

Like most underdeveloped countries the distribution of income and wealth in India is inequitable. The gap between
the haves and the have-nots over the years has actually widened and there has been concentration of wealth and
economic power in the hands of a few to the detriment of the common people.

This is not surprising because private ownership of the means of production inevitably leads to concentration of
wealth in a few hands. Income inequalities result from the concentration of wealth and capital.

Economic growth in a capitalist economy has a tendency to increase disparities in income distribution. The various
estimates made by different committees indicate that the inequalities of income and wealth have widened rather than
narrowed as a result of planned economic development in India. The problem of mass poverty is a corollary to
income inequalities.
3. Predominance of Agriculture:

In an underdeveloped country two-thirds of the people live in rural areas and their main occupation is agriculture. A
developed economy is generally a highly industrialised country where agriculture occupies a comparatively less
important place.

The larger part of the national income is derived from agriculture and allied pursuits whereas the share of the
manufacturing sector is only 17 per cent of the national income. In a developed economy, a comparatively smaller
proportion of the population is dependent on agriculture; it is only 3 per cent in the USA whereas in India about 65
per cent of the population is dependent on agriculture.

The heavy concentration in agriculture is a symptom of poverty. Agriculture as the main occupation of the people of
India is mostly unproductive. It is mainly carried on in an old fashion way with obsolete methods of production.

As a result, the yield from land is very low and the peasants continue to live at a bare subsistence level. In the recent
past, attempts have been made to adopt modern agricultural technology which has increased agricultural
productivity. Even then yields for major food crops in India are much below those in the USA or Japan or UK.
4. Deficiency of Capital:

Another criterion of underdevelopment is the low ratio of capital availability per head of population. An
underdeveloped economy is an economy in which the available stock of goods is not sufficient to employ the total
available labour force on the basis of modern technique of production.

Not only the existing stock of capital is small but the current rate of capital formation is also very low. Because of
shortage of capital, there is a tendency to invest the available capital in farming and labour-intensive consumer
goods industries rather than in the heavier capital-intensive capital goods industries.

There are a number of reasons for capital deficiency: (i) shortage of savings, (ii) the tendency of the meager savings
to go into conspicuous consumption and (iii) speculative investment rather than productive investment.

Over the planning period both savings and investment rates have risen in India. In 1992-93, the rates of gross
domestic saving and gross domestic capital formation were 13.5 and 16.0 per cent respectively.

Such rates of capital formation are generally considered enough to achieve a reasonably high rate of growth but in
India this has not been the case. This appears to be due to the fact the capital-output ratio has become more
unfavourable than was assumed by the planners.
5. High Rate of Population Growth:

Like all other underdeveloped countries, the population of India has been increasing at an alarmingly high rate.
Indias population was 85 crores in 1991 as against 68 crores in 1980 and the country has the second largest
population in the world next to China.

The country is passing through the second stage of demographic transition which is characterised by a falling death
rate without a corresponding decline in birth rate. At present the rate of increase of population in India is 2.5 per cent
per annum which comes to 15 million persons per annum.

This has resulted in population explosion which neutralises the small gains of development which the country has
made during the period of economic planning. An increase in population raises the ratio of people to land and other
sources of raw materials and as a result, production tends to decline per unit of variable cost in the concerned
industries.

This trend is clearly visible in Indian agriculture. Over the years per head agricultural land has steadily declined due
to rapid growth of population.

Underdeveloped countries have also a shorter life expectancy which means a smaller fraction of their population is
available as effective labour force.

Life expectancy at birth is 59 years in India whereas in the USA it is 70 years. Low life expectancy means that there
are more children to support and few adults to provide for them which inhibit the rate of economic growth.

Another feature of the demographic pattern in underdeveloped countries is that a much larger proportion of the total
population is in the younger age group. In India, population below 15 years of age accounts for nearly 40 per cent of
the total population while it ranges between 23 and 25 per cent in the USA and the UK.
6. Unemployment and Underemployment:

Widespread unemployment and underemployment is an important feature of the Indian economy. Owing to huge
population, the supply of labour far exceeds the demand for labour. It is very difficult to provide gainful
employment to all.

The main reason is that there is a shortage of capital. India does not have sufficient amount of capital to expand
industries so that the entire labour force is absorbed.

The nature of unemployment in India is different from what it is in the developed countries. In a developed
economy, unemployment is of a cyclical nature and occurs due to lack of effective demand. In contrast,
unemployment in India is structural and has arisen due to lack of capital.

The Committee of Experts on unemployment pointed out that 30 million persons were unemployment in India in
1981.

What is more serious is that the number of unemployed is on the increase. In agricultural sector there is widespread
disguised unemployment while in the urban areas there is open unemployment.

There are two reasons for urban unemployment. First, the failure of the industrial sector to expand at a fast enough
rates has resulted in industrial unemployment. Secondly, expansion of education has created demand for white collar
jobs which the countrys urban economy has failed to provide.
7. A Dualistic Economy:

All the underdeveloped countries including India have a dualistic economy. One is the market economy and the
other is the subsistence economy.

One is in the urban areas and the other is in the rural areas. One is developed and the other is undeveloped. The
modern or the developed part contains mainly the large scale industry, mines and plantations.

It is well organised and highly monetised. It uses the modern techniques of production. Workers and employers in
this sector are well organised. Monetary and fiscal measures of regulation are quite effective. This advanced sector
of the economy accounts for a small part of the whole economy.

The primitive part mainly comprises agriculture and is confined to rural areas. This is very backward and money
does not play an important part in this sector. There is a high degree of self-sufficiency and people do very little
buying and selling as most of the transactions are of a barter type.

A large part of the credit is supplied by the traditional money-lenders. Monetary and fiscal measures of regulation
are not very effective. Indian peasant is born in debt, lives in debt and dies in debt. Income of the people of this
inorganised sector is very low. Thus, the Indian economy is characterised by economic dualism.
8. Technical Backwardness:

The state of technology in the underdeveloped countries is backward. On account of the absence of technological
development, India has continued to use old, outdated and primitive methods of production which were discarded by
the developed countries long ago.

Deficiency of capital hinders the process of scrapping the old techniques and equipment and its replacement with
modern techniques, etc. Illiteracy and absence of skilled labour are the other major hurdles in the spread of
techniques in the backward economy.

However, it is gratifying to note that the level of technology is rapidly increasing in the country and India has the
largest number of technically qualified personnel in the third world countries
Basic Characteristics of Under Developed Countries




Question: What are the basic characteristics of under developed economies?
Question: What are the main characteristics of less developed countries?
Question: What are the main characteristics of under-developed countries?

Answer:
The general nature of an under-developed economy may be gathered from common economic characteristics of such
an economy. It may be too much to talk of the common economic characteristics of under-developed countries in
view of the wide diversity of among under-developed countries as revealed by numerous case studies that have been
made. While it would be very difficult to locate a representative under-developed country, it is much easier to bring
out some fundamental characteristics common to under-developed countries. These main characteristics of under-
developed countries are given below.

1. Low per Capita Income:
The per capita income in under-developed countries is extremely low. The average annual income in under-
developed countries like India Pakistan and Srilanka is nearly $130 per head as compared with $6640 in the USA.
Low per capita income is an out standing feature of an under developed economy and is a significant measure of a
countrys development.

2. Deficiency of Capital Equipment:
The insufficient amount of physical capital in existence is also a characteristic feature of all under-developed
economies. Hence they are often called simply capital poor economies. One indication of the capital deficiency is
the low amount of capital per head of population. Not only is the capital stock extremely small but the current of
capital formation is also very low. In most under-developed countries investment is only 5 percent to 8 percent of
the national income, where as in the USA, Canada and Western Europe it is generally from 15 percent to 18 percent.
The low level of capital formation in the under-developed country is due both to the weakness of ducement to invest
and to the low propensity and capacity to save. In under developed economy at the root of capital deficiency is the
shortage of savings. The per capita income being quite low most of it is spent in satisfying the bare necessaries of
life, leaving a very low margin of income for capital accumulation. Even with an increase in the level of individual
incomes, there does not usually follow a higher rate of saving because of the tendency to emulate the higher levels
of consumption prevailing in the advanced countries.

3. Excessive Dependence on Agriculture:
Most under developed countries are predominantly agricultural. A great majority of their population are engaged in
agriculture and allied occupations. This excessive dependence on agriculture is due to the fact that non-agricultural
occupation have not grown at a rate of commensurate with the increase in population for lack of sufficient
investment outside agriculture. The labour-land ratio being high agricultural holidays have become sub-divided into
small plots, which do not permit the use of modern mechanical methods of production.

4. Rapid Rate of Population Growth:
Although there is diversity among under-developed economies in respect of their population, there appears to be a
common feature namely a rapid rate of population increase. This rate has been rising still more in recent years.
Thanks to the advances in medical science which have greatly reduced the mortality due to epidemics and diseases.
While the death rate has thus fallen phenomenally, birth rate does not yet show any significant decline so that the
natural survival rate has become much larger. IN countries like India, Pakistan, Burma a veritable population
explosion is faced.

5. Unemployment and Under-employment:
An important consequence of rapid rate of population growth without a corresponding increase in the level of
economic development is that there is large scale unemployment in urban areas and disguised unemployment in
rural areas. More and more people are thrown on land, since alternative occupations do not develop simultaneously
to absorb surplus population. It means that there are more persons engaged in agriculture than are actually needed,
so that the addition of such persons does not add to lands productivity. Even if some of the persons are withdrawn
from land no fall in production will follow from such withdrawal.

6. Under-utilization of Natural Resources:
The natural resources are an under-developed economy is either unutilized or under-utilized. Generally speaking
under-developed countries are not deficient in land, water, mineral, forest or power resources, though they may be
untapped. In other words they constitute only potential resources. The main problem in their case is that such
resources have not been fully and properly utilized due to various difficulties such as the deficiency of capital
equipment, the inaccessibility of natural resources, primitive techniques and the small extent of the market.

7. Foreign Trade-Orientation:
An under-developed economy is generally foreign trade-oriented. They export raw materials instead of utilising
them at home and import manufactures instead of making them at home. Since in some cases like Srilanka Burma
and Thailand, they export a significant proportion of their national output, they may be termed export economies.
Excessive dependence on export makes these economies precarious and unstable and affects adversely their terms of
trade. The marginal propensity to impart too is high in such countries.

8. Low Levels of Technology and Skills:
The under-developed countries employ primitive methods of production and inferior and less productive techniques.
There is also a terrible death of skilled personnel. Poor techniques and lower skills result in inefficient and
insufficient production, which cause general poverty.

9. Economic Backwardness:
The people of under-developed countries are economically backward. The economic backwardness manifests itself
in lower efficiency, illiteracy, poverty, factor-immobility, lack of enter preneurship and ignorance in economic
matters. Their value structure and social structure reduces incentives for economic change
Developing Economy :-
According to Prof. Nurkse, "Under developed countries are those which when compared with the advanced
countries are under equipped with capital in relation to their population and national resources."

According to United Nations experts. "A developing economy is that in which per capita income is low when
compared with the per capita incomes of U.S.A. Canada, Australia and Western Europe."

There are various definitions which have been offered by the different writers but these are not satisfactory. Any
how we describe here the basic features of developing economy which are commonly found in the developing
countries.
These are following :

1. Poverty :-
In the less developed countries the standard of living is very poor. Basic needs like food, clothing, housing,
education and medical facilities are not available. People are leading miserable life.

2. Dependence on Agriculture :-
Most of the less developed countries like India and Pakistan depend upon agriculture sector. The majority of
population is engaged in agriculture. But unfortunately agriculture is hopelessly in a backward stage in the
developing countries, the average land holding and per acre yield is low.

3. Shortage of Natural Resources :-
There is a shortage of natural resources like land, forests, rivers, and minerals in the poor countries, on the other
hand, these are not utilized properly to achieve prosperity. So national product remains very low in these countries.

4. Population Pressure :-
In the under developed countries the size of population is greater than the size of natural resources. The rate of
population growth is very high while the rate of economic development is very low. So high birth rate is the main
obstacle in the way of economic development.

5. Lack of Capital :-
It is the main cause of poverty in the under developed countries. These countries can not establish the industries and
can not utilize their resources due to the non availability of capital.

6. Unemployment :-
In the less developed countries rate of unemployment is very high. Disguised unemployment is also found in these
countries. It is an obstacle in the way of economic development and in India and Pakistan it is increasing with
urbanization and spread of education.

7. Lack of Technology :-
In the developing countries like India and Pakistan there is a use of low level technology in various sectors. So the
cost of production is very high and rate of production is very low.

8. Unequal Distribution of Wealth :-
It is an important feature of under developed economy. In these countries society is divided into two classes rich and
poor. The rich class enjoys all the facilities of life while poor class suffers poverty and hunger.

9. Political Instability :-
In the under developed countries political condition is also not favorable. For example in Pakistan the rate of
development remained low due to political crises. Uncertain conditions creates many problems for the investors.

10. Deficit Balance of Payment :-
The less developed countries are producing and exporting the primary commodities while these are importing the
finished and capital goods. In the international market the prices of raw material are very low while the prices of
capital goods are high. So balance of payment remains unfavorable , due to this reason.

11. Limited Home Market :-
In the less developed countries like Pakistan, the purchasing power of the people is low. Producer is unable to
increase the supply of various goods due to low demand. So limited market is also an obstacle in the way of
economic development.

12. Burden of Debt :-
It is an important characteristic of the under developed countries. All these countries receive foreign aid of their
development program. For example Pakistan spends a huge amount of foreign exchange for the repayment of debt
interest every year. It is an obstacle in the way of economic development.

13. International Forces :-
The rate of economic growth in the third world has also been adversely affected by the advanced countries economic
policies. The advanced countries are not ready to transfer technology in these countries.

14. Inflation :-
The rate of inflation is high in all the less developing countries which affects the economic performance. In these
countries level of prices is rising which is creating the problems for producer and consumer.

15. Imperfection of Market :-
In the under developed countries prices of commodities vary from shop to shop and place to place. Labour and
capital are less mobile in search of higher returns. So imperfection of market is an obstacle in the way of
development.

16. Poor Performance of Industrial Sector :-
In the under developed countries there is hold of few families on the industrial sector. The small scale industry has
also been ignored. There is also a shortage of entrepreneur.

17. Low Per Capita Income :-
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.

18. Vicious Circle of Poverty :-
A poor country is trapped in its own poverty. In the less developed countries production, per capita income, saving
and investment is low. So low investment leads to low production.

19. Frequent Changes in Fiscal Policy :-
The frequent changes are made many times in the same year in these countries which affect the rate of investment
adversely.

20. Unproductive Expenditure :-
In the under developed countries a huge capital is used for unproductive purpose which increases the rate of
inflation and affects the rate of economic development, adversely
CHARACTERISTICS OF AN UNDERDEVELOPED COUNTRY
In order to examine the problems of an underdeveloped country, it is useful to have in mind a
general sketch of the economy of such a country. Though it is difficult to locate a representative
underdeveloped country on the world map, yet it is possible to focus attention on some of its
characteristics.
GENERAL POVERTYan 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.
Further, the World Bank Report pointed out vast income disparities among nations. Among the
low-income countries were Nepal and Tanzania with GNP per capita of $ 210, Nigeria $ 300,
Uganda $ 320, Zambia $ 330, Bangladesh $ 350, Ghana $ 390, India $ 430, Pakistan $ 480,
Zimbabwe $ 610, Indonesia $ 680 and China $ 750. Some of the middle-income group countries
were Sri Lanka with GNP per capita of $ 810, Philippines $ 1,050, Kenya $ 1310, Namibia $1,940,
Russian Federation $ 2,300, South Africa $ 2880, and Malaysia $ 3,600. Of the high-income
countries, Luxembourg led with GNP per capita of $ 43,570, followed by Switzerland $ 40,080,
Norway $ 34,330, Denmark $ 33,260, Japan $ 32,380, Singapore $ 30,060, United States $ 29,340
and so on.
However, it is not relative poverty but absolute poverty that is more important in assessing
such economies. Absolute poverty is measured not only by low income but also by malnutrition,
poor health, clothing, shelter, and lack of education. Thus absolute poverty is reflected in low
living standards of the people. In such countries, food is the major item of consumption and
about 80 per cent of the income is spent on it as compared with 20 per cent in advanced countries.
People mostly take cereals and other starches to the total absence of nutritional foods, such as
meat, eggs, fish, and dairy products. For instance, the per capita consumption of protein in
LDCs is 52 grams per day as compared with 105 grams in developed countries. The per capita
fat consumption in LDCs is 83 grams daily as against 133 grams in developed countries. As a
result, the average daily calorie intake per capita hardly exceeds 2,000 in underdeveloped
countries as compared with more than 3,300 to be found in the diets of the people of advanced
countries.
The rest of the consumption of such countries consists mainly of a thatched hut and almost
negligible clothing. People live in extremely insanitary conditions. More than 1,200 million
people in the developing countries do not have safe drinking water and more than 1,400 million
have no sanitary waste disposal. Of every 10 children born, two die with in a year, another three
die before the age of five, and only five survive to the age of 40 years. The reasons are poor
nutrition, unsafe water, poor sanitation, uninformed parents and lack of immunisation. Services
like education and health hardly flourish. Recent data reveal that there is a doctor for 2,083
persons in India, for 5,555 persons in Bangladesh, for 20,000 persons in Nepal, and for 870
persons in China, as against 410 persons for the developed countries. Most developed countries
are expanding educational facilities rapidly. Still such efforts fall short of the manpower
requirements of these economies. In many low-income countries about 70 per cent of the primary
Characteristics of An Underdeveloped Country 43
school age children go to school, at the secondary level, enrolment rates are lower than 20 per
cent and enrolment in higher education hardly comes up to 3 per cent. Moreover, the type of
education being imparted to the majority of the school and college-going children is ill-suited
to the development needs of such countries. Thus the vast majority of the people in LDCs are
ill-fed, ill-clothed, ill-housed and ill-educated. The number of people in absolute poverty in
LDCs, excluding China, is estimated at about 1,000 million. Half of them live in South Asia,
mainly in India and Bangladesh; a sixth live in East and Southeast Asia, mainly in Indonesia;
another sixth in Sub-Saharan Africa; and the rest in Latin America, North Africa and the Middle
East. Poverty is, therefore, the basic malady of an underdeveloped country which is involved in
misery-go-round. Prof. Cairncross is justified in saying that the underdeveloped countries are
the slums of the world economy.9
AGRICULTURE, THE MAIN OCCUPATION
In underdeveloped countries two-thirds or more of the people live in rural areas and their
main occupation is agriculture. There are four times as many people occupied in agriculture in
some underdeveloped countries as there are in advanced countries. In low-income countries
like China, Kenya, Myanmar and Vietnam, more than 71 per cent of the population is engaged
in agriculture while the percentages for the United States, Canada and West Germany is 3, 3
and 4 respectively. This heavy concentration in agriculture is a symptom of poverty. Agriculture,
as the main occupation, is mostly unproductive. It is carried on in an old fashion with obsolete
and outdated methods of production. The average land holdings are as low as 1 to 3 hectares
which usually support 10 to 15 people per hectare. As a result, the yield from land is precariously
low and the peasants continue to live at a bare subsistence level.
Such countries mainly specialize in the production of raw materials and foodstuffs, yet some
also specialize in non-agricultural primary production, i.e., minerals. For example, Sri Lanka
specializes in tea, rubber and coconut products; Malaysia in rubber, tin and palm oil; Indonesia
in rubber, oil and tin; Pakistan in cotton; Bangladesh in jute; India in tea; and Brazil in coffee.
An underdeveloped country is thus a primary sector economy. Besides the primary sector there
is the underdeveloped secondary sector with a few simple, light and small consumer goods
industries and an equally underdeveloped tertiary sector, i.e., transport, commerce, banking
and insurance services. In some of the low-income countries such as Bangladesh, Ethiopia,
Nepal, Uganda, Ghana and Tanzania the share of agriculture in GDP continues to be more than
40 per cent and the share of industry and manufacturing less than 20 per cent.
A DUALISTIC ECONOMY
Almost all underdeveloped countries have a dualistic economy. One is the market economy,
the other is the subsistence economy. One is in and near the towns, the other is in the rural
areas. One is developed, the other is less developed. Centred in the towns, the market economy
is ultra-modern with all the amenities of life, viz., the television, the car, the bus, the train, the
telephone, the picture house, the palatial buildings, the schools and the colleges. Here too
government, offices, the business houses, the banks and a few factories are visible. The subsistence
economy is backward and is mainly agriculture-oriented.
Dualism is also characterised by the existence of an advanced industrial system and an
9. A.K. Cairncross, Factors in Economic Development, p. 15.
44 The Economics of Development and Planning
indigenous backward agricultural system. The industrial sector uses capital-intensive techniques
and produces a variety of capital goods and durable consumer goods. The rural sector is engaged
in producing agricultural commodities with traditional techniques. Both perpetuate
unemployment and disguised unemployment. There is also financial dualism consisting of the
unorganised money market charging very high interest rates on loans and the unorganised
money market with low interest rates and abundant credit facilities. This aggravates economic
dualism between the traditional sector and the modern industrial sector.
In many underdeveloped countries, there are foreign-directed enclaves thus making a triplistic
economy. They are highly capitalistic and are found in petroleum, mining and plantations. The
native hired labour working in these plantations and mines spends a considerable part of its
wages on imported consumer goods. The standard of living of the workers working there differs
from that of their brethren living in the subsistence sector.
The dualistic or triplistic nature of the economy is not conducive to healthy economic progress.
The primary sector inhibits the growth of the secondary and the tertiary sectors by putting a
limit on their expansion and development.
UNDERDEVELOPED NATURAL RESOURCES
The natural resources of an underdeveloped country are underdeveloped in the sense that they
are either unutilized or underutilized or misutilized. A country may be deficient in natural
resources, but it cannot be so in the absolute sense. Although a country may be poor in resources,
it is just possible that in the future it may become rich in resources as a result of the discovery of
presently unknown resources or because new uses may be found for the known resources.
Thus, instead of saying that underdeveloped countries are absolutely deficient in natural
resources, it is more appropriate to say that they have not been successful in overcoming the
scarcity of natural resources by appropriate changes in technology and social and economic
organization.10 Generally speaking, they are not deficient in land, mineral, water, forest or power
resources. Africa possesses considerable reserves of copper, tin, bauxite, and gold; Asia is rich
in petroleum, iron, bauxite, manganese, mica and tin; and Latin Americas reserves of petroleum,
iron, zinc, and copper are immense. The forest wealth of Africa and South America still remains
unpenetrated and unexplored. Thus underdeveloped countries do possess resources but they
remain unutilized, underutilized or misutilized due to various inhibitions such as their
inaccessibility, lack of technical knowledge, non-availability of capital and the small extent of
the market.
DEMOGRAPHIC FEATURES
Underdeveloped countries differ greatly in demographic position and trends. Diversity exists
in the size, density, age-structure and the rate of growth of population. But there appears to be
one common feature, a rapidly increasing population which adds a substantial number to the
total population every year. With their low per capita income and low rate of capital formation,
it becomes difficult for such countries to support this additional number. And when output
increases due to improved technology and capital formation, it is swallowed up by increased
population. As a result, there is no marked improvement in the living standards of the masses.
Warning about the increase in numbers, Keenleyside writes: The womb is slower than the
10. G.M. Meier and E. Baldwin, Economic Development, pp. 291-92.
Characteristics of An Underdeveloped Country 45
bomb but it may prove just as deadly. Suffocation rather than incineration may mark the end of
the human story.11
Almost all the underdeveloped countries possess high population growth potential characterized
by high birth-rate and high but declining death-rate. The advancement made by medical science
has resulted in the discovery of marvellous drugs and the introduction of better methods of
public health and sanitation which have reduced mortality and increased fertility. Declining
death-rates and increasing birth-rates give a very high natural growth rate of population. The
average annual growth rate of population in developing countries is 2 per cent as compared
with about 0.7 per cent in developed countries. This rapid increase in numbers aggravates the
shortage of capital in such economies because large investments are required to be made to
equip the growing labour force even with obsolete equipment.
An important consequence of high birth-rate is that a larger proportion of the total population
is in younger age group. The percentage of population under 15 years of age is about 40 in
developing countries, compared with only 20 to 25 per cent in developed countries. Moreover,
90 per cent of the dependents are children in LDCs whereas their percentage is only 66 in
developed countries. A large percentage of children in the population entails a heavy burden
on the economy which implies a large number of dependents who do not produce at all but do
consume. With many dependents to support, it becomes difficult for the workers to save for the
purposes of investment in capital equipment. It is also a problem for them to provide, their
children with the education and bare necessities of life that are essential for the countrys
economic and social progress in the long run.
Underdeveloped countries have also a shorter life expectancy which means that a smaller fraction
of their population is available as an effective labour force. Average life expectancy at birth is
roughly 51 years in low income countries whereas in the developed countries it is 75 years.
Low life expectancy means that there are more children to support and few adults to provide
for them which inhibits the rate of economic growth.
Lastly, in the majority of underdeveloped countries, the density of agricultural population is
very high in relation to the area of cultivated land. In Egypt, in the inhabited area of the valley
of the Nile, the density of population is 600 persons per sq. km. Though in other underdeveloped
countries it is much less, yet their density is increasing rapidly with the growth of population.
The problem is becoming serious in the river deltas of Asia and Africa and in the densely
populated islands of Malaysia, Indonesia, and Sri Lanka. Shortage of land in relation to an
excessively large agricultural population leads to overcrowding, over-cropping and soil
exhaustion, thereby impeding economic progress.
UNEMPLOYMENT AND DISGUISED UNEMPLOYMENT
In underdeveloped countries there is vast open unemployment and disguised unemployment.
The unemployment is spreading with urbanisation and the spread of education. But the
industrial sector has failed to expand alongwith the growth of labour force thereby increasing
urban unemployment. Then there are the educated unemployed who fail to get jobs due to
structural rigidities and lack of manpower planning. With the present average annual growth
rate of 4.5 per cent in urban population, 20 per cent of the labour force in urban areas is
unemployed.
11. H.L. Keenleyside, in Dynamics of Development, (ed.) G. Hambidge, p. 9.
46 The Economics of Development and Planning
But underemployment or disguised or concealed unemployment, is a notable feature of
underdeveloped countries. Such unemployment is not voluntary but involuntary. People are
prepared to work but they are unable to find work throughout the year due to lack of
complementary factors. Such unemployment is found among rural landless and small farmers
due to the seasonal nature of farm operations and inefficient labour and equipment to keep
them fully employed. A person is said to be disguised unemployed if his contribution to output
is less than what he can produce by working for normal hours per day. His marginal productivity
is nil or negligible, and by withdrawing such labourers, farm output can be increased. Disguised
unemployment is explained in Fig. 1 where TP is the
total production curve. When OL1 labourers are
employed on a farm, total production is OQ1. With
the employment of more labourers OL2, production
increases to OQ2. But by employing more labourers
OL2, production does not increase at all. It remains
constant at OQ2. The marginal productivity of labour
becomes nil when more labourers are employed
beyond OL2. Thus L2L3 labourers are disguised
unemployed on this farm. In the 1950s, economists
estimated the number of disguised unemployed at
25-30 per cent of rural labour force. Now it is agreed
that it does not exceed 5 per cent, even though precise
estimates are not available.
There are also other types of underemployed persons
in such countries. A person is considered to be underemployed if he is forced by unemployment
to take a job that he thinks is not adequate for his purpose, or not commensurate with his
training. Further, there are those who work full time in terms of hours per day but earn very
little to rise above the poverty level. They are hawkers, petty traders, workers in hotels and
restaurants and in repair shops, etc., in urban areas. Open and disguised unemployed in urban
and rural areas are estimated at 30-35 per cent of the labour force in LDCs.
ECONOMIC BACKWARDNESS
In underdeveloped countries particular manifestations of economic backwardness are low labour
efficiency, factor immobility, limited specialization in occupation and in trade, economic
ignorance, values and social structure that minimize the incentives for economic change.12
The basic cause of backwardness is to be found in low labour productivity as compared with
the developed countries. This low labour efficiency results from general poverty which is
reflected in low nutritional standards, ill health, illiteracy and lack of training and occupational
mobility, etc.
There is also occupational immobility of labour due to the joint family system and the caste
system. Certain cultural and psychological factors are more dominant than wage rates in
determining the supply of labour. The joint family system makes people lethargic and stay-athome.
In many underdeveloped countries, certain occupations are reserved for members of
some particular caste, religion, race, tribe or sex. In Latin America, cloth making falls within the
exclusive jurisdiction of women. In India, a janitor always belongs to a particular caste. According
12. Meier and Baldwin, op. cit., p. 293.
O
T
P
S3
L2 L3
S2
L1
S1
O1
O2
Fig. 1
Characteristics of An Underdeveloped Country 47
to Stephen. Enke, underdeveloped countries have what might be termed an uneconomic culture.
Primarily, this means that traditional attitudes discourage the full utilization of human resources.
More specifically, it means that men are less likely to strive for extra-consumption. In
underdeveloped countries people are mostly illiterate, ignorant, conservative, superstitious
and fatalists. Poverty in such countries is abysmal, but it is considered to be God-given, something
preordained. It is -never attributed to personal lack of thrift and industry.
There is extensive prevalence of child labour and womens status and position in society is
inferior to men. Dignity of labour is conspicuously absent. Government jobs, even of a clerical
nature, have more prestige than manual work. People are ranked not according to their capacity
to do a particular job but by age, sex, caste, clan and kinship. They are governed by customs and
traditions. Individualistic spirit is absent. Exchange by barter is widespread and money economy
is hardly understood. The value system minimizes the importance of economic incentives,
material rewards, independence and rational calculation. It inhibits the development and
acceptance of new ideas and objectives and fails to compare the costs and advantages of
alternative methods to achieve objectives. In short, the cultural value system within many poor
countries is not favourable to economic achievement and the people remain economically
backward.13
LACK OF ENTERPRISE AND INITIATIVE
Another characteristic feature of underdeveloped countries is the lack of entrepreneurial ability.
Entrepreneurship is inhibited by the social system which denies opportunities for creative
faculties. The force of custom, the rigidity of status and the distrust of new ideas and of the
exercise of intellectual curiosity, combine to create an atmosphere inimical to experiment and
innovation. The small size of the market, lack of capital, absence of private property, absence
of freedom of contract and of law and order hamper enterprise and initiative.
Besides, there exist a few entrepreneurs who are engaged in the manufacture of some consumer
goods, and in plantations and mines that tend to become monopolistic and quasi-monopolistic.
They develop personal and political contacts with the government officials, enjoy a privileged
position, and receive preferential treatment in finance, taxation, exports, imports, etc. It is they
who start new industries and thus founded individual business empires which inhibit the growth
of fresh entrepreneurship within the country.
The thin supply of entrepreneurs in such countries is also attributed to the lack of infrastructural
facilities which add to the risk and uncertainty of new ertrepreneurship. LDCs lack in properly
developed means of transport and communications, cheap and regular power supply, availability
of sufficient raw materials, trained labour, well-developed capital and money markets, etc.
Further, entrepreneurship is hindered by technological backwardness in underdeveloped
countries. This reduces output per man and the products are of substandard quality. Such
countries do not possess the necessary technical know-how and capital to evolve their own
techniques which may be output-increasing and labour-absorbing. Mostly they have to depend
upon imported capital-intensive techniques which do not fit in their factor endowments.
No wonder, LDCs lack dynamic entrepreneurship which Schumpeter regarded as the focal
point in the process of economic development.
13. Ibid., pp. 298-99.
48 The Economics of Development and Planning
INSUFFICIENT CAPITAL EQUIPMENT
Insufficiency of capital equipment is another general characteristic of such countries.
Underdeveloped countries are characterized as capital-poor, or low-saving and low-investing
economies. There is not only an extremely small capital stock but the current rate of capital
formation is also very low. In most underdeveloped countries gross investment is only 5-6 per
cent of GNP whereas in advanced countries it is about 15-20 pet cent. Such low rates of the
growth of capital stock is hardly enough to provide a rapidly growing population (at 2-2.5 per
cent per annum), let alone invest in new capital projects. In fact, these countries find it difficult
to cover even depreciation of capital and replace the existing capital equipment.
The root cause of this capital deficiency is the problem of undersaving
or, more precisely, that
of under-investment in productive instruments capable of increasing the rate of economic
growth. The per capita income being very low, people on the bare edge of subsistence level
cannot, save much thereby leaving very little for further investment. There are extreme
inequalities in the distribution of income in such countries. But this does not mean that the
volume of savings available for capital formation is high. In fact, large savings are possible only
in the case of 3-5 per cent of the people at the top of the income pyramid. Moreover, the persons
at the peak of the income pyramid are traders and landlords who have a tendency to invest in
unproductive channels such as in gold, jewellery, precious stones, idle inventories, luxurious
real estates and money markets abroad, etc.
Another reason as to why the saving ratio does not rise with the increased level of income in the
long run is the demonstration effect. In everybody there is a great urge to keep up with the
Joneses, that is, to imitate the standard of living of our prosperous neighbours. Similarly, there
is a tendency on the part of the people of the underdeveloped countries to emulate the higher
consumption standards of advanced countries. As a result of the demonstration effect, the rise
in income is spent on increased expenditure on conspicuous consumption and thus savings are
almost static or negligible. This demonstration effect is usually caused by foreign films,
magazines and visits abroad.
This tendency to emulate the consumption patterns of advanced countries is to be found not
only in the case of private individuals but also in the case of governments. The governments in
LDCs emulate social security programmes found in developed countries, viz., minimum wage
legislation, health insurance, pension and provident fund schemes, etc., but these measures put
obstacles in the way of entrepreneurship and thus retard capital formation. It is not surprising,
writes Haberler, that poor and backward economies when they wake up and set their minds
to develop in a hurry and catch up with more developed economies are tempted to overspend
and live beyond their means. Thus such countries suffer from chronic capital deficiency and
the factors responsible for this are not only economic but also socio-political in nature.
TECHNOLOGICAL BACKWARDNESS
Underdeveloped countries are also in the backward state of technology. Their technological
backwardness is reflected, firstly, in high average cost of production despite low money wages;
secondly, in high labour-output and capital-output ratios as a rule, and on the average, given
constant factor prices thus reflecting a generally low productivity of labour and capital; thirdly,
in the predominance of unskilled and untrained workers; and lastly, in the large quantity of
capital equipment required to produce, a national output. Deficiency of capital hinders the
process of scrapping off the old techniques and the installation of modern techniques, Illiteracy
Characteristics of An Underdeveloped Country 49
and absence of a skilled labour force are the other major hurdles in the spread of techniques in
the backward economy. Thus it may be pointed out that technological backwardness is not only
the cause of economic backwardness, but it is also the result of it.
This technological backwardness is due to technological dualism which implies the use of
different production functions in the advanced sector and the traditional sector of the economy.
The existence of such dualism has accentuated the problem of structural or technological
unemployment in the industrial sector and disguised unemployment in the rural sector. Under
developed countries are also characterised by structural disequilibrium at the factor level which
leads to technological unemployment. This technological unemployment arises from malallocation
of resources, the structure of demand and technological restraints.
FOREIGN TRADE ORIENTATION
Underdeveloped economies are generally foreign trade-oriented. This orientation is reflected
in exports of primary, products and imports of consumer goods and machinery. The percentage
share of fuels, minerals, metals, and other primary products in the merchandise exports of the
majority of LDCs, as revealed by the recent World Bank data is on an average about 80 per cent.
For instance, the share of Ethiopia is 99 per cent, of Myanmar 97 per cent, of Uganda 99 per
cent, of Indonesia 96 per cent, of Malaysia 80 per cent, of Algeria 100 per cent and of Kenya 86
per cent.
This too much dependence on exports of primary products leads to serious repercussions on
their economies. Firstly, the economy concentrates mainly on the production of primary exports
to the comparative neglect of other sectors of the economy. Secondly, the economy becomes
particularly susceptible to fluctuations in the international prices of the export commodities. A
depression abroad brings down their demand and prices. As a result, the entire economy is
adversely affected. Lastly, too much dependence on a few export commodities to the utter neglect
of other consumption goods has made these economies highly dependent on imports. Imports
generally consist of fuel, manufactured articles, primary commodities, machinery and transport
equipment, and even food. Coupled with these is the operation of the demonstration effect
which tends to raise the propensity to import still , further,
Of late, there has been a secular decline in the income terms of trade (capacity to import) of the
underdeveloped countries so that they are faced with the balance of payments difficulties. An
underdeveloped countrys weak export capacity relatively to its strong import needs is reflected
in its persistent external indebtedness. For instance, the gross inflow of public medium and
long-term loans to Mexico was 72,510 million dollars and the repayment of principal was 7,502
million dollars in 1985.
The foreign trade-orientation also manifests itself through the flow of foreign capital to
underdeveloped countries. It plays a dominant role in developing and expanding the export
sector. It also controls and manages those services which are ancillary to the export sector. In
this way foreign capital has tended to monopolize its position in certain selected fields like
minerals, plantations, and petroleum in underdeveloped countries. The multi-national
corporations (MNCs) from the developed countries have spread themselves in developing
countries in manufacturing, export-oriented plantations, petroleum and mining. Such a
widespread hold of foreign capital drains their resources. The foreigners are interested only in
maximizing their gains at the expense of the developing countries.