Development strategies: big push, balanced vs unbalanced growth, stages

Detail

1. Why these theories were written

• After 1945, many newly free countries were poor, mostly farming, and short of capital (machines, factories, roads).
• The Harrod-Domar model (1940s) gave a simple link between saving, investment and growth:
• g = s / k
• g = growth rate of national income. s = saving rate (the share of income saved and invested). k = capital-output ratio (ICOR), which tells us how many rupees of capital are needed to produce 1 extra rupee of output each year.

• Worked example: s = 10%, k = 4 → g = 10 / 4 = 2.5% a year. If population grows 2% a year, per-capita income grows only about 0.5%.

• Development economists asked two questions. How can a poor country raise s quickly? Where should the new investment go? The big push, balanced growth and unbalanced growth theories are three answers.

2. Big push theory (Rosenstein-Rodan, 1943)

• Big push: a poor economy needs a large, coordinated investment in many sectors at the same time. Small, scattered investments fail.
• He compared it to an aeroplane. It must reach a minimum speed on the runway before it can take off.
• He gave three reasons.
• (a) Indivisibilities (some things cannot be built in small pieces):
• Indivisibility in supply of social overhead capital: power plants, railways and ports come only in big lumps. Half a bridge is useless.
• Indivisibility of demand: one factory alone cannot find enough buyers (see b).

• Indivisibility in supply of savings: a big investment needs a big pool of savings. Poor people save little, so this is hard to collect.

• (b) Complementary demand:

• Workers in one factory spend their wages on the products of other factories.
• So if a shoe factory, a textile mill and a food-processing unit start together, each creates buyers for the others.

• Rosenstein-Rodan's shoe-factory example: one shoe factory alone fails, because its workers cannot spend all their wages on shoes.

• (c) Coordination failure:

• Each investor waits for others to invest first, because the market is too small.
• Since nobody moves, nobody invests. The economy stays poor even though joint investment would pay for everyone.

• The State (or a plan) can break this deadlock by coordinating the investments.

• Link to India: India's Five Year Plans were a State-led attempt at a big push in which the government coordinated investment in power, steel, irrigation and transport.

3. Balanced growth theory (Nurkse, 1953)

• Balanced growth: invest in many complementary industries at the same time, so that each one creates demand for the others.
• Nurkse saw the main problem as a small market. Poor people have little money to buy things, so no one wants to invest.
• Vicious circle of poverty (a chain that keeps a poor country poor):
• low income → low saving → low investment → low productivity → low income.
• Demand side: low income → low buying power → small market → low investment → low productivity → low income.

• Supply side: low income → low saving → shortage of capital → low productivity → low income.

• In Nurkse's words: "a country is poor because it is poor."

• Rosenstein-Rodan and Nurkse differ in emphasis:
• Rosenstein-Rodan stressed large lumps of investment and infrastructure.
• Nurkse stressed a balanced spread of consumer-goods industries, so that the market widens.
• Both are grouped under "balanced growth" in exams.

4. Unbalanced growth (Hirschman, 1958)

• Unbalanced growth theory (Albert O. Hirschman, The Strategy of Economic Development, 1958):
• A poor country does not have the resources to invest everywhere at once. So balanced growth is not practical.
• It should invest in a few key sectors with strong links to the rest of the economy.

• This creates shortages and bottlenecks (points where supply cannot keep up). The shortages send price and profit signals, which induce (push) private and public investment in other sectors.

• Scarce resource: Hirschman argued that the scarcest resource is not capital. It is the ability to take investment decisions. Deliberate imbalance forces these decisions.

• Backward and forward linkages:
• Backward linkage: the demand an industry creates for its inputs. Example: a steel plant needs iron ore, coal and limestone, so it pulls mining forward.
• Forward linkage: the supply of an industry's output as an input to other industries. Example: steel feeds automobiles, construction and machinery.
• The best targets have strong linkages both ways, such as steel and power.

• Agriculture has weak linkages in Hirschman's view. This view has been criticised in India, where farm growth drives rural demand.

• Two types of imbalance:

• Social overhead capital (SOC) first (roads, power) → this invites directly productive activities (DPA) such as factories. This is called "excess capacity" imbalance.
• DPA first → factories face shortages of power and roads → there is pressure on the State to build SOC. This is called "shortage" imbalance.

5. Balanced versus unbalanced growth

	Balanced (Nurkse, Rosenstein-Rodan)	Unbalanced (Hirschman)
Strategy	Invest across many sectors at once	Invest in a few key linkage sectors
Logic	Mutual demand creation	Shortages push further investment
Weakness	Needs huge resources	Bottlenecks can persist
Role of State	Coordinator of a big push	Picks leading sectors, then responds to bottlenecks
Main constraint seen	Small market size	Scarce decision-making ability

• The two ideas can work together: growth can be unbalanced in the short run and move towards balance in the long run. Hirschman's "imbalance" is a route to balance.

6. Threshold theories

• Critical minimum effort thesis (Leibenstein, 1957):
• Every economy faces growth-raising forces (investment, skills, new technology) and growth-depressing forces (population growth, falling returns, weak institutions).
• A small effort is cancelled out by the depressing forces. Investment must go above a threshold, so that the growth forces win.

• Worked example: an investment effort adds 1% to income. Population growth then takes 1% back, so per-capita income does not change. An effort that adds 4% still leaves +3% after the population effect. That is the "critical minimum".

• Low-level equilibrium trap (Richard Nelson, 1956):

• When per-capita income rises a little above subsistence (the bare minimum needed to survive), death rates fall, so population growth speeds up.
• Population then grows faster than income. Per-capita income is pulled back to near subsistence.
• Worked example: income grows 2%. Population growth jumps from 1% to 2.5%. Per-capita income falls by 0.5% a year, back towards the trap.

• Way out: a big push or critical minimum effort, so that income growth stays above the highest possible population growth rate.

• Link to Solow (1956): the Solow model also shows that higher population growth lowers the steady-state (long-run stable) income per worker. But in Solow there is no trap: the economy moves smoothly to its steady state.

7. Rostow's stages of economic growth (1960)

• Set out in The Stages of Economic Growth: A Non-Communist Manifesto (1960) [2].

• Five stages [2]: 1. Traditional society. Farming-based. Limited technology. Fixed social order. 2. Preconditions for take-off. Modern ideas and a new business class appear. Banks, transport and a stronger State emerge. 3. Take-off. Investment rises from about 5% to more than 10% of national income. Leading sectors (such as textiles or railways) appear. Growth becomes self-sustaining. 4. Drive to maturity. Technology spreads to all sectors. The economy becomes varied. 5. Age of high mass consumption. Durable consumer goods and services dominate. A welfare state appears.

• The take-off is the key stage, marked by rapid industrialisation and investment [2].

• Worked example (Rostow + Harrod-Domar, ICOR = 3.5):
• Investment 5% of income → g = 5 / 3.5 ≈ 1.4%. With population growth of 1.4%, per-capita income does not grow.

• Investment 10.5% → g = 10.5 / 3.5 = 3%. Per-capita income now grows about 1.6% a year. This is why Rostow chose the 10% mark.

• Critiques of Rostow:

• It is linear (every country is said to follow one path) and is based on Western history (mainly Britain and the USA).
• Stages overlap and cannot be tested. It is hard to say exactly when one ends.
• It ignores colonial history and external dependence. Dependency theorists (such as Frank) argued that poor countries were kept poor by their links with rich ones.
• Kuznets said a stage theory must show clear, measurable features for each stage, and Rostow's does not.
• The subtitle "Non-Communist Manifesto" shows that it was also a Cold War answer to Marx's stages.

8. Spatial (regional) theories

• Growth pole theory (François Perroux, 1955):
• Growth does not appear everywhere at once. It gathers in dynamic "propulsive" industries or centres (growth poles).
• These poles later spread development to the region around them.

• Indian official planning uses the same idea. The industrial cities under the corridor programme are described as "growth centres" meant to turn whole regions into economic hubs [3].

• Cumulative causation (Gunnar Myrdal, 1957):

• Backwash effects: a growing region pulls labour, capital and trade away from lagging regions. Young workers migrate and savings flow to the rich region's banks.
• Spread effects: benefits flow outward, such as demand for farm produce and raw materials from the lagging region.
• In poor countries, backwash is stronger than spread, so regional disparity widens. Success breeds more success, and failure breeds more failure (a "circular and cumulative" process).

• Policy lesson: the State must act deliberately (with transfers, public investment and backward-area programmes) to reduce the gap between regions.

• Perroux and Myrdal compared: Perroux expects spread from poles. Myrdal warns that poles may suck resources from the periphery unless policy intervenes.

9. Indian applications

• Mahalanobis strategy (Second Five Year Plan, 1956-61):
• Heavy industry (steel, machine tools, heavy engineering) was given priority. This was India's unbalanced-growth choice (see planning-mixed-economy).
• Mahalanobis used a two-sector model of the Soviet Feldman type. It gave top priority to investment (capital) goods, which were seen as crucial for future growth [4].
• One stated aim was "to develop basic heavy industries for the manufacture of producer goods" to strengthen economic independence [4].
• He later built a four-sector model. It kept the focus on investment goods and split the rest into (a) industry, (b) agriculture and cottage industry, and (c) services such as education and health [4].

• Weakness: capital deepening, meaning large amounts of capital locked in heavy industry for low returns [4]. It also created few jobs, and agriculture was neglected. These gaps became visible in the food crises of the mid-1960s.

• Industrial corridors (DMIC and others): a growth-pole idea:

• The Delhi Mumbai Industrial Corridor Development Corporation (DMICDC) was set up on 7 January 2008 as a Special Purpose Vehicle (SPV) (a separate company created for one project) under DPIIT, Ministry of Commerce & Industry [3].
• The DMIC Trust was widened into the National Industrial Corridor Development and Implementation Trust (NICDIT) in December 2016. DMICDC was renamed NICDC Ltd. in February 2020 [3].
• 11 industrial corridors now form part of the National Infrastructure Pipeline. Examples are DMIC, Amritsar-Kolkata (AKIC), Chennai-Bengaluru (CBIC), Vizag-Chennai (VCIC) and the Odisha Economic Corridor [3].
• On 28 August 2024, the Cabinet Committee on Economic Affairs approved 12 new industrial nodes/cities with an estimated investment of ₹28,602 crore. They span 10 states along 6 corridors [3]. Examples: Khurpia (Uttarakhand), Rajpura-Patiala (Punjab), Dighi (Maharashtra), Palakkad (Kerala), Agra and Prayagraj (UP), Gaya (Bihar), Zaheerabad (Telangana), Orvakal and Kopparthy (AP), Jodhpur-Pali (Rajasthan) [3].
• The programme expects about 10 lakh (1 million) direct jobs and up to 30 lakh (3 million) indirect jobs [3].
• The cities are built "ahead of demand", with plug-and-play (ready-to-use factory land) and walk-to-work designs. They are aligned with the PM GatiShakti National Master Plan [3]. "Ahead of demand" is a big-push, SOC-first logic in Hirschman's terms.
• Completed greenfield smart cities (built on fresh, unused land) are:
  • Dholera SIR (Gujarat). It is India's first platinum-rated industrial smart city. Its SPV is 51% owned by Gujarat and 49% by the NICDC Trust [3].
  • AURIC (Shendra-Bidkin, Maharashtra), on 10,000 acres [3].
  • Integrated Industrial Township, Greater Noida (UP) [3].
  • Vikram Udyogpuri (near Ujjain, MP) [3].
• Four projects were completed and four were under implementation as of August 2024 [3].

• The programme is linked to India's target of $2 trillion in exports by 2030 [3].

• SEZs: export enclaves with tax and customs benefits. They act as small growth poles, but critics point to weak spread effects and land-acquisition conflicts.

• Persistent inter-state gap: richer states (Maharashtra, Gujarat, Tamil Nadu, Karnataka) keep attracting capital and migrants, while poorer states (Bihar, UP) send out workers. This is Myrdal's backwash effect in action.
• Correcting tools include Finance Commission transfers that give weight to income distance, the Aspirational Districts Programme and backward-region grants.
• Placing new nodes in states such as Bihar (Gaya) and UP (Agra, Prayagraj) is an attempt to create spread effects [3].

10. Post-COVID relevance

• The 2020 contraction was followed by recovery. India then stepped up public capital expenditure (roads, railways, corridors) to "crowd in" private investment. This means public spending encourages companies to invest more.
• This mirrors big-push logic: the State coordinates lumpy infrastructure when private investors hesitate (a coordination failure).
• Sector-focused schemes (PLI for electronics, semiconductors) follow Hirschman's idea of backing sectors with strong forward and backward linkages.

Prelims Hooks

• Big push theory → Rosenstein-Rodan (1943). It rests on three indivisibilities (supply of social overhead capital, demand, and savings).
• "A country is poor because it is poor" → Ragnar Nurkse, in the vicious circle of poverty and balanced growth (1953).
• Unbalanced growth; backward and forward linkages → A. O. Hirschman (1958), The Strategy of Economic Development.
• Critical minimum effort → Leibenstein (1957). Low-level equilibrium trap → R. R. Nelson (1956). Trap: do not swap these two.
• Rostow's take-off: investment rises from about 5% to more than 10% of national income. The book is A Non-Communist Manifesto (1960) and has five stages [2].
• Backwash vs spread effects → Myrdal (1957), cumulative causation. Growth pole → Perroux (1955).
• Mahalanobis model = a two-sector (later four-sector) model of the Soviet Feldman type, used for the Second Plan (1956-61) [4].
• Harrod-Domar: g = s / k. For example, s = 12% and ICOR = 4 gives g = 3%.
• NICDC (renamed in 2020 from DMICDC, set up in 2008) works under DPIIT. The 12 industrial smart cities were approved on 28 August 2024 for ₹28,602 crore [3].
• Trap: Hirschman saw decision-making ability, not capital, as the scarcest resource.

Mains Points

• Balanced vs unbalanced growth in Indian planning:
• The Mahalanobis heavy-industry push was an unbalanced choice. It built a base in steel and capital goods [4].
• But it caused capital deepening, weak job creation and neglect of agriculture [4].
• After 1991, the strategy became more market-led and balanced across sectors.

• Today, public capex plus PLI is a hybrid: State-led big push in infrastructure, plus linkage-based sector targeting.

• Growth poles vs backwash:

• Industrial corridors and nodes such as Dholera and AURIC are designed as growth centres [3].
• Myrdal warns that without spread-effect policies (skills, local supplier links, fiscal transfers), they may widen inter-state gaps.

• Placing nodes in Bihar and UP [3] is a test of whether spread can beat backwash.

• Relevance of Rostow and the trap theories today:

• India's savings and investment rates are well above Rostow's 10% threshold, but growth has not been evenly inclusive. This shows that a stage theory is too simple.

• The demographic dividend reverses Nelson's trap: a falling fertility rate now helps per-capita growth, if jobs are created.

• Coordination failure as a case for the State:

• Lumpy infrastructure and "ahead of demand" industrial land [3] justify public leadership.
• But the State must avoid building capacity that no one uses (Hirschman's "excess capacity" risk) and over-crowding by public borrowing.