According to Professor Samuelson, “An underdeveloped or developing economy is that in which per capital actual income is less than the present per capital income of Canada, America, Great Britain or Western European countries”. In the first five-year plan, the Planning Commission has given a definition “Underdeveloped country is one which is characterized by the co-existence, in greater or lesser degree, of unutilized or under-utilized manpower on the one hand and of the unexploited natural resources on the other”. Economies of India, Bangladesh, Pakistan, etc. are called underdeveloped economies.
Following are the basic characteristics of developing economies :
- Low level of national income and per capital income : In developing nations, the level of national income and per capital income is lower as compared to developed economies.
- Low standard of living : Due to lower level of per capital income of people in underdeveloped or developing countries, their standard of living is also very low, due to which their work efficiency also becomes less. The consumption level of necessary things such as food, clothing, housing, etc. also remains on the lower side.
- Excessive dependence on agriculture : In underdeveloped countries, about 30 to 70 percent population depends on agriculture. Even after dependence on agriculture, low level of agricultural development also is another characteristic of developing economies, due to which the contribution of agricultural sector in per capital income declines and the income which is derived from agricultural sector remains low in ratio of the population engaged in this occupation.
- Industrial backwardness : Industrial structure of underdeveloped or developing countries is usually backward and imbalanced and the development of basic and heavy industries such as iron ore, heavy engineering, machinery equipment, heavy chemicals, transportation, etc. is also comparatively less. Due to this, people get less employment in this sector and the contribution of this sector in gross domestic product is less.
- Low level of labour productivity : The level of labour productivity is low in developing countries. This is both a cause and consequences of low standard of living of an individual. Due to less productivity, the level of income is also low and this gives rise to poverty. Low level of labour productivity is caused by poor health of the workers, undeveloped skills, less motivation to work, institutional structure, etc.
- Widespread poverty : The vicious circle of poverty goes on in the less developed countries. Due to the lower level of income per person and due to the income inequality, widespread poverty is prevalent.
- Obsolete technique : Level of research and development is low in developing economies. Due to lack of resources, lack of capital and high labour availability in these economies, use of modern technology is also affected negatively. This results into a negative impact on productivity and level of quality of production.
- Unemployment and disguised unemployment : Level of unemployment is very high in developing countries. In rural and urban areas, involuntary unemployment is largely found while disguised unemployment is found in agricultural sector.
Other characteristics :
1. Level of human welfare is low in underdeveloped countries. Their achievements regarding expected actual income, health and education are also low.
2. Inequality in distribution of income and wealth is found in underdeveloped or developing economies. In developing countries, less attention is paid on taxation system, social security system, educational training, employment, etc. as compared to developed countries.
