Underdeveloped (or in economics terms less-developed) country is simply one where the resources of the area are not used to their full potential.
The original meaning of the term indicated that existing resources had not been exploited. The word is now close in meaning to ‘poverty’ although some oil-rich underdeveloped countries have high incomes which are enjoyed by the few.
Indicators of underdevelopment include: high birth rates, high infant mortality, undernourishment, a large agricultural and small industrial sector, low per capita GDP, high levels of illiteracy, and low life expectancy.
India represents a typical case of underdevelopment. Its GNP per capita was $72 in mid-1950s. It is still in the low-income range of below $785 by the international standards. In other dimensions of quality of life, such as life expectancy, health facilities and conditions of employment, it lags behinds some of the other developing countries. Its production and occupational structure remain stagnant.
While China reduced its mortality rate from 209 in 1960 to 47 per thousand in 1997, India could reduce its infant mortality from 236 in 1960 to 108 in 1997 per thousand only. Life expectancy in China is 70 years compared to 62 years in India.
Similarly, maternal mortality rate or the numbers of women’s death per one lakh live births was 437 in India in 1996 while in Chinese case it was 115 only. This is an indicator of deprivation women suffer in India and of the poor health facilities we offer to them.
Though India inherited all the structural distortions created by colonialism, it also had certain advantages over many other colonial societies. India had a relatively strong industrial base and its capitalists had captured about 75% of market for industrial produce at the time of independence.
The indigenous entrepreneurial class had also acquired the control of financial sector. There was also a broad social consensus to attain rapid industrial transition. However, the growing capitalism failed to absorb India’s growing surplus labour. Even at present, it only absorbs about 20% labour and this also includes the capitalist service sector.
India embarked on a strategy of import-substitution industrialisation following Fledman-Mahalanobis model. It was proposed to produce a wide range of manufactures for the domestic market in order to reduce the need for imported manufactures.
It necessitated large investment in heavy industry and diversion of more resources to the production of investment goods in general and machine tools in particular so as to reduce dependence on international sources of capital goods, intermediate and components.
Exportable food and raw materials were taxed and the revenues so generated were employed to subsidies domestic manufacturing. The plan also stressed a large expansion of employment opportunities.
It was also meant to give a boost to the weak and nascent private sector. Resources were made available for capital goods sector through foreign aid and investment and also through state loans and credits. The result was that public sector’s share in the production of reproducible capital increased from 15% in 1950-51 to 40% in 1976-77.
The share of state enterprises in the net domestic product grew from 3% in 1950-51 to 16% in 1984-85. It created infrastructure and basic industrial base as an incentive to the rapid growth of private enterprises.
The system of import and investment licensing led to monopolistic controls often severing the critical link between profitability and economic performance. It led to a spectacular rise of big Indian business with a marriage of convenience with foreign collaborators.
The big industrial houses enjoyed the benefits of an infrastructure developed through revenues generated from indirect taxes on public. They also got subsidized energy inputs, cheaper capital goods and long-term industrial finance from the public enterprises. As a result of these benefits, the assets of 20 big industrial houses grew from Rs.500 cores in 1951 to Rs.23, 200 cores in 1986.
The government’s domestic debt rose to 56% of GDP in 1991. India was close to ‘technical default’ on its foreign debts as reflected in the foreign exchange crisis of 1991. At this point, the pace of ‘liberalization’ was speeded up under the IMF structural adjustment programme.
It meant easing of restrictions on imports and foreign investment,, steps to make rupee convertible, a huge cut in sugar and fertilizer subsidies, deregulation of steel distribution and a curb on government’s deficit by way of reduction in government’s spending on subsidies and social- services.
The main strategy of this phase is export-substitution with minimum public sector intervention and unrestricted entry of foreign capital. Despite all these grand designs, there is no basic structural change in the Indian economy. About 70% of our population continues to live at bare subsistence level.
About 76.6 million agricultural labourers earn about 1/10 of what an organized sector worker earns. In the 1980s, the number of unemployed youths registered in government exchanges crossed 34 million or 10% of the total active population or the total number of productive people employed in the urban manufacturing sector.