“ECONOMY” refers to all those activities and arrangements which the citizens of a country, either individually, or collectively, undertake to satisfy their wants of food, clothing, shelter, etc.

Economy is classified in several ways :-  Underdeveloped Economy  Developed Economy

An underdeveloped economy is that economy in which, owing to the vicious circle of poverty, resources are not fully utilized. Per capita income remains low along with low standard of living of the people. According to “M.P. Todaro” :- “ Underdeveloped economy is that economy in which there are low level of living, absolute poverty, low per capita income, low consumption levels, poor health services, high death rates, high birth rates, and dependence on foreign economies”

The main causes of under development can primarily be divided in two parts: (i)Economic causes (ii) Non- Economic causes.  (i) Economic Causes 1) Market Imperfections 2) Inflexible Economy 3) Vicious Circle of Poverty 4) Lack of Capital Formation 5) Problem of Population 6) Lack of Modern Enterprise and Management

7) Technical Obstacles 8) International Obstacles.  (ii) Non-Economic Causes 1) Social Causes 2) Religious Causes 3) Political Causes 4) Administrative Causes.

Under traditional approach, economic development of a nation means increase in national income. Later increase in per capita income came to be treated as economic development. But in recent years, economic development means improvement in health facilities, educational facilities, improvement in overall quality of life of living along with increase in per capita income. Two main approaches regarding meaning of economic development are as under : (i) Classical View (ii) Modern View

1) Increase in real national income 2) Increase in real per capita income 3) Reduction in income inequalities 4) Structural changes 5) Growth over long period 6) Human development 7) Reduction in poverty 8) Institutional development 9) Infrastructural development

 Increase in national income and per capita income  High standard of living  More capital formation  Less dependence on agriculture  Full utilization of natural resources  Self-sufficiency  Increase in employment avenues  Solution of vicious circle of poverty  Formation of human capital

Determinants of economic development are divided into two categories. This can be expressed in the form of a formula as under : G=f( x + y) (Here, G=economic development in a given period, f=function, x=economic determinants, y=non-economic determinant)

Determinants of economic development (i)Economic determinant (ii)Non- economic determinant

 Natural resources  Labour or human resources  Structural change  Size of the market  Capital formation  Capital-Output ratio  Scientific and technical progress  Financial stability  Able entreprenuers and organisation  Development planning

 Desire for development  Spread of education and skill formation  Political determinants  Social determinants  Religious determinants  Freedom from corruption  Law and order situation