An Overall Guide to an Underdeveloped Economy
For any nation across the world, an underdeveloped economy can be a major concern. It reflects the financial capability, status of citizens, their living and health conditions, and similar other things that are closely associated with the economy. This article will be of help to those who wish to know about this aspect of the economy. When someone refers to this term, it means that they are referring to the per capita income and low level of the standard of living of that particular area/ place.
What is an Underdeveloped Economy?
The economy plays a fundamental role in every nation. There have been several countries including India which have righteously recovered from the image of the underdeveloped country by removing the problem of the underdeveloped economy in the country. Without clearing the concept of an underdeveloped economy, an individual cannot understand the struggle and hardships that occur along with this crisis.
The common characteristics of this form of the economy are low living standard and per capita income, high rate of unemployment, excessive population growth, lack of capital and advanced infrastructure, and lack of education. These are the key features that can separate the economy into two parts which are developed and underdeveloped.
Difference Between Developed and Underdeveloped Economy
The economies that have high per capita income and support a high standard of living are referred to as developed economy and, on the other hand, economies that have low per capita income resulting in a low standard of living is referred to as underdeveloped economy.
Developed Economies:
In such an economy there is a lower rate of poverty incidence, service and industrial sectors are thriving. There are a sufficient amount of resources and technological advancement supporting a high rate of production. Most importantly, there is a minor gap between the poor and the rich.
Underdeveloped Economies:
There is a significant amount of poverty and the primary sector like agriculture is in a leading position. The resources in this form of the economy are not judiciously utilised and there is a high rate of dependency on traditional approaches which results in a low rate of production. Most importantly, there is a significant amount of difference between the rich and the poor. In such an economy, the state or the country fails to meet the necessary standard of living for the major section of a population. This leads to materialistic deprivation, misery, hunger, deterioration of health and overall living standard.
Understanding the Concept of Underdevelopment
While talking about what is an underdeveloped economy, it is first important to understand the concept of underdevelopment. It is a relative concept as it compares the quality of life through the economy that creates the difference between a developed population and an underdeveloped population. The concept refers to the sustenance of absolute poverty which refers to the kind of poverty, where people are unable to fulfil their basic needs, like, food, clothing, shelter and similar things as such. There is a constant struggle among people to survive.
Thus the meaning of absolute poverty is equivalent to the meaning of an underdeveloped economy. Some of the common characteristics of the underdeveloped economy are low per capita income, economic inequalities, the slow growth rate of per capita, low-productivity labour and lower level of living, rudimentary techniques of production, low rate of capital formation, lack of resource utilization and similar things as such.
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FAQs on Understanding Underdeveloped Economies
1. What exactly is an underdeveloped economy?
An underdeveloped economy is one characterised by widespread poverty, low per capita income, and a low standard of living for a majority of its population. These economies typically have underutilised natural and human resources and struggle with a lack of capital and advanced technology, which hinders their potential for economic growth.
2. What are the main characteristics of an underdeveloped economy?
The main characteristics that define an underdeveloped economy, as per the CBSE syllabus for the academic year 2025-26, include:
- Low Per Capita Income: The average income per person is significantly lower than in developed nations.
- High Rate of Population Growth: Population growth often outpaces economic growth, putting a strain on resources.
- Dependence on the Primary Sector: A large portion of the population is employed in agriculture and allied activities, often using traditional methods.
- Widespread Unemployment: This includes both open and disguised unemployment, especially in the agricultural sector.
- Capital Deficiency: There is a severe lack of capital for investment in industries, infrastructure, and technology.
- Low Levels of Technology: Production methods are often obsolete and inefficient.
3. What is the main difference between a 'developed' and an 'underdeveloped' economy?
The primary difference lies in the level of economic development and quality of life. A developed economy has a high per capita income, a high standard of living, a dominant industrial and service sector, and advanced technology. In contrast, an underdeveloped economy is marked by low per capita income, a low standard of living, dependence on the primary sector, and technological backwardness.
4. Can you provide some examples of underdeveloped economies?
While classifications can change, countries often cited as examples of underdeveloped economies are typically those with very low Human Development Index (HDI) scores. Many nations in Sub-Saharan Africa (like Niger, Chad, and Somalia) and some in Asia (like Afghanistan and Yemen) are considered underdeveloped due to chronic poverty, political instability, and heavy reliance on subsistence agriculture.
5. How does a low per capita income lead to a 'vicious circle of poverty' in an underdeveloped economy?
A low per capita income is a critical starting point for the vicious circle of poverty. It works like this: low income leads to low savings by households. Low savings result in low investment in the economy. A lack of investment means low capital formation, preventing the development of industries and infrastructure. This, in turn, leads to low productivity, which keeps incomes low, thus completing and perpetuating the cycle.
6. Is the Indian economy considered underdeveloped or developing, and why?
The Indian economy is now widely classified as a developing economy, not an underdeveloped one. While it still exhibits some characteristics of an underdeveloped economy, such as poverty and income inequality, it has made significant progress. Key factors for its 'developing' status include a high rate of economic growth, a diversified industrial base, a world-class service and IT sector, and major advancements in technology and infrastructure.
7. Beyond low income, what are some social indicators that define an underdeveloped economy?
Beyond purely economic metrics, underdeveloped economies are also defined by poor social indicators, which are often measured by the Human Development Index (HDI). These indicators include a low life expectancy at birth, high infant mortality rates, high illiteracy rates, and a general lack of access to basic healthcare and sanitation. These social factors both result from and contribute to economic underdevelopment.
8. What are the primary causes that keep an economy in a state of underdevelopment?
The causes of underdevelopment are complex and interconnected. The primary reasons include:
- Historical Factors: Many nations were subjected to colonial exploitation, which drained their resources and distorted their economic structures.
- Economic Factors: The vicious circle of poverty, lack of capital formation, and a high degree of dependence on exports of primary products with fluctuating prices.
- Social Factors: High population growth, traditional social structures resistant to change, and low levels of education and skills.
- Political Factors: Political instability, corruption, and poor governance can deter investment and mismanage resources.
9. Why is there such a heavy dependence on the primary sector, like agriculture, in underdeveloped economies?
The heavy dependence on the primary sector is a direct consequence of the lack of capital and technology needed for industrialisation (the secondary sector) and a robust service sector (the tertiary sector). Agriculture often requires less capital and serves as the default source of livelihood for a large, unskilled labour force. This leads to issues like disguised unemployment, where more people are employed in agriculture than are actually needed, resulting in very low productivity per person.
