Unit IV - Growth Balance and Unbalance

4.1 Balance Growth

Balanced growth is a dynamic process and as such the meaning of balanced growth continues changing. The concept of balanced growth is subject to various interpretations by various authors. It was Fredrick List who for the first time put forward the theory of balanced growth.

According to Fredrick List, the theory of balanced growth is of great significance by which a balance could be established between agriculture, industry and trade.

This the concept was endorsed by Rosenstein Rodan in one of his articles titled “Problems of Industrialisation of Eastern and South-Eastern Europe.” Prof. Nurkse, Prof. Lewis and Stavisky have examined this concept of balance of growth on different bases. In the words of Kindle Berger, “Balanced Growth has so many meanings that it is in danger of losing them all.”

Definitions:

1. P.A Samuelson, “Balanced Growth implies growth in every kind of capital stock constant rates.”

2. U.N Publication, “Balanced Growth refers to full employment, a high level of investment, overall growth in productive capacity, equilibrium.”

3. Alak Ghosh, “Planning with balanced growth indicates that all sectors of the the economy will expand in the same proportion, so that consumption, investment and income will grow at the same rate

Views of Rosenstein Rodan:

In 1943 article, Rosenstein Rodan propounded this theory but without using the the term balanced growth. He stated that the Social Marginal Product (SMP) of investment is different from its Private Marginal Product (PMP). If different industries are planned accordingly to their SMP, the growth of the economy would be much more than it the industries had been planned according to their PMP. SMP is greater than PMP because of the complementarity of different industries which lead to the most profitable investment from the social point of view.

He illustrates it with a popular example to the shoe factory. If a large shoe factory is started in the region where 20,000 unemployed workers are employed. Now in case, the workers spend their entire wages on shoes, it would create a market for shoes. If a series of industries are started, in that case, the demand of different industries would increase via the multiplier process. This would lead to planned industrialization. Ragnar Nurkse has also developed his thesis on these lines.

4.2 Ragnar Nurkse's balanced growth theory

He balanced growth theory is an economic theory pioneered by the economist Ragnar Nurkse (1907–1959). The theory hypothesizes that the government of any underdeveloped country needs to make large investments in a number of industries simultaneously.[1][2] This will enlarge the market size, increase productivity, and provide an incentive for the private sector to invest.

Nurkse was in favour of attaining balanced growth in both the industrial and agricultural sectors of the economy. He recognized that the expansion and inter-sectoral balance between agriculture and manufacturing is necessary so that each of these sectors provides a market for the products of the other and in turn, supplies the necessary raw materials for the development and growth of the other. Nurkse and Paul Rosenstein-Rodan were the pioneers of balanced growth theory and much of how it is understood today dates back to their work.

Nurse’s the theory discusses how the poor size of the market in underdeveloped countries perpetuates its underdeveloped state. Nurkse has also clarified the various determinants of the market size and puts the primary focus on productivity. According to him, if the productivity levels rise in a less developed country, its market size will expand and thus it can eventually become a developed economy. Apart from this, Nurkse has been nicknamed an export pessimist, as he feels that the finances to make investments in underdeveloped countries must arise from their own domestic territory. No importance should be given to promoting exports.

4.3 Unbalance economic growth

Definition and concept:

“Unbalanced growth is a better development strategy to concentrate available resources on types of investment, which help to make the economic system more elastic, more capable of expansion under the stimulus of the expanded market and expanding demand”

- H.W.Singer.

                       Planning with unbalanced growth emphasizes the fact that during the planning period investment will grow at a higher rate than income and income at a higher rate than consumption.  “Development is a chain of disequilibria that must be kept alive rather than eliminate the disequilibrium of which profits and losses are symptoms in a competitive economy.”

If the economy is to keep moving ahead, the task of development policy is to maintain, tension, disproportions and disequilibria.”

4.4 SEZ: a solution over unbalance growth in India

A special economic zone (SEZ) is an area in which the business and trade laws are different from the rest of the country. SEZs are located within a country's national borders, and their aims include increased trade balance, employment, increased investment, job creation and effective administration. To encourage businesses to set up in the zone, financial policies are introduced. These policies typically encompass investing, taxation, trading, quotas, customs and labour regulations. Additionally, companies may be offered tax holidays, where upon establishing themselves in a zone, they are granted a period of lower taxation.

The creation of special economic zones by the host country may be motivated by the desire to attract foreign direct investment (FDI). The benefits a company gains by being in a special economic zone may mean that it can produce and trade goods at a lower price, aimed at being globally competitive. In some countries, the zones have been criticized for being little more than labour camps, with workers denied fundamental labour rights.

Definition

The definition of an SEZ is determined individually by each country. According to the World Bank in 2008, the modern-day special economic zone typically includes a "geographically limited area, usually physically secured (fenced-in); single management or administration; eligibility for benefits based upon physical location within the zone; separate customs area (duty-free benefits) and streamlined procedures.

History

Free zones and entrecote have been used for centuries to guarantee free storage and exchange along trade routes. Modern SEZs appeared from the late-1950s in industrial countries. The first was in Shannon Airport in Clare, Ireland. From the 1970s onward, zones providing labour-intensive manufacturing have been established, starting in Latin America and East Asia. The first in China following the opening of China in 1979 by Deng Xiaoping was the Shenzhen Special Economic Zone, which encouraged foreign investment and simultaneously accelerated industrialization in this region. These zones attracted investment from multinational corporations.

SEZs were introduced to India in 2000, following the already successful SEZ model used in China. Prior to their introduction, India relied on export processing zones (EPZs) which failed to make an impact on foreign investors. By 2005, all EPZs had been converted to SEZs. As of 2017, there are 221 SEZs in operation, with a further 194 approved for 2018. For developers to establish an SEZ in India, applications can be made to the Indian Board of Approval. Companies, partner firms, and individuals may also apply by completing Form-A which is available on the Department of Commerce's website. There are four types of SEZs in India, which are categorised according to size: Multi-sector (1,000+ hectares); Sector-specific (100+ hectares); Free Trade & Warehousing Zone (FTWZ) (40+ hectares); and Tech, handicraft, non-conventional energy, gems & jewellery.

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