Definition of Economy

What is the definition of economy? This is often a question always running into the minds of my students appearing for civil services examination conducted by the Union Public Service Commission of India. In fact, this is a question for every student. So, how can we define economy in a very simplistic way. An economy is a geographical area where goods and services are produced from a given amount of economic resources like machines, equipment, manpower, natural resources etc. and distributed to the people according to their choices. Economic growth is an important target for every economy.

Economic growth is the change in the quantity of the gross domestic product or national income of a country. For example, if the gross domestic product of a country was US dollar 100 last year and it becomes dollar 110 this year, then, the level of economic growth would be 10% for this year. Thus, economic growth is a quantitative measurement of economic progress. From economic growth, we can infer about how we are utilising our economic resources and converting them into income by way of producing more and more of goods and services.

Economic development is a wider concept. Economic development is the indicator of qualitative change in the human life. We can call economic development as human development. In economic development, we include higher income or output but we do not restrict ourselves to that aspect only. Apart from higher income or growth, we also include good health, good knowledge et cetera in the idea of economic development which is more about how to improve human life. Economic development makes people more capable by way of increasing their capabilities. A capable person enjoys more freedom. According to Professor Amartya Sen, development gives us freedom.This discussion therefore brings us in to the debate of economic growth versus economic development. This debate can be given in the following manner-

1. Economic growth is quantitative while economic development is qualitative.

2. Economic growth refers to the change in the output or production of goods and services of an economy. It also refers to the change in the income of the people while economic development refers to the change in overall human life.

3. Economic growth impacts the living standards of the people while economic development impacts the quality of life of the people.

4. In economic growth, we include only income or output while in economic development, we include health, knowledge et cetera, apart from income or output.

The economic growth of India in the present times can be better expressed through the growth rate and the total size of the gross domestic product (GDP). As per the provisional estimates released by the National Statistical Office, the total size of the GDP of India for the year 2021-22 has been estimated to be around Rs. 147 lakh and 35 thousand crore. This translates into the growth rate of around 8.7% because India’s GDP in 2020-21 was around Rs.135 lakh and 58 thousand crore. According to the World Bank, India’s GDP for the year2020 is US dollars 2.66 trillion at the current exchange rates.

See also India's gig economy