Causes of Economic Growth

Causes of Economic Growth

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While the economic growth of India can be a debatable topic, it is pertinent to understand the term so that the Indian scenario can be understood properly. Economic growth essentially means an increase in the real GDP (Gross Domestic Product) of a nation. Thus, it is the increase in national output and national income which happens due to an increase in aggregate demand and product supply. On a broader scale, the two main sources of economic growth are the growth in the size of the workforce and the growth in the productivity of that workforce which can also be defined as the output worked per hour. Thus, higher productivity leads to a higher standard of living for the people while spending fewer hours in the paid labour force.

However, it is important here to note economic growth and development difference because they cannot be used intermittently. While economic growth is the increment in a country’s real goods and services output, economic development looks at the changes in its investments, income and savings along with the gradual changes within the nation’s socio-economic structure. The socio-economic structure also encompasses technological and institutional changes. Hence, economic growth is a quantitative concept while economic development is more qualitative.

The economic growth model should also be known and they include the Classical Theory, Neo-Classical Theory and Modern Theory. Despite the differences between these theories, what binds them is the objective of conceptualising growth and the different reasons behind them. The Classical theory argues that the importance of economic growth lies in the study of how economies grow and contract. Neo-Classical Theory insists that it is about how economic agents behave in a fundamental system for growth while Modern Theory emphasizes that growth lies in solving the fundamental dilemma of economics, i.e., how to meet unlimited needs with limited resources.

The economic growth causes in India has helped it to increase its GDP figures over the years and it is a mix of the Neo-Classical Theory and The Modern Theory because the country follows a mixed economy. In 2019, the economy grew at a rate of 5% while in 2020 and 2021 it was hit hard due to the pandemic. However, it is still one of the fastest growing economies mainly due to its services, agricultural, retail, industrial production and IT sectors.