Vicious Circle of Poverty

Explain the vicious circle of poverty and how does it check the growth of capital formation in the country? or A country is poor because it is poor 

Vicious Circle of Poverty :-
The people in the less developed countries have low per capita income. Having low income their rate of savings is low. When savings are small in a country, investment will also be low. Low investment leads to low productivity. With low productivity level, the income is bound to be low. People as such remain poor. In the way vicious circle of poverty completes. Summing up, we can say that less developed countries are poor because they do not have sufficient capital resources for investment. Capital has a central position for economic development. A financially poor country is trapped in its own poverty. A country can get rid off from poverty if its rate of capital formation increases than the rate of population growth. So capital formation is the key to economic development by demand and supply of capital.

Demand Side of Capital :-
The production of the poor country is low. The low production causes low per capita income and low purchasing power. The low purchasing power reduces the demand for products. Due to low demand, market will be limited. The small size of market discourages the investment. The low production reduces the productivity per worker. When the out put per worker is low, the per capita income is bound to be low. So vicious circle of poverty is complete on the demand side of capital formation.
On the demand side vicious circle of poverty operates in the following manner :

Supply Side of Capital :-
In the developed countries due to low production, per capita income is low. The low level of income means the capacity to save is low. The low level of savings leads to low investment. The low rate of investment reduces the productivity per worker. It leads to low per capita income. The vicious circle is thus complete on

the supply side of capital formation.
The vicious circle of supply can shown by the following diagram :

Main Points of Vicious Circle of Poverty :-
1. Poverty
2. Low production
3. Rapid population growth
4. Low per capita income
5. Low consumption
6. Limited market
7. Low savings
8. Lack of capital
9. Low investment
10. Low production
11. Poverty

If any country per capita income is high, then the rate of capital formation will be high as the factors affecting the demand for and supply of capital formation are favorable to economic growth.

A country is poor and remains poor because its human and natural resources remain not utilized. In the less developed countries people are mostly unskilled and technologically backward. They are illiterate and lack the entrepreneurial ability. So the natural resources are not used properly, out put remains low and poor country remains poor because it is poor.

How you can break the vicious circle of poverty in the under developed countries? or Describe the various measures to remove the economic obstacles of

If the under developed countries adopt the following policies, they can remove the obstacles and can break the vicious circle of poverty.

1. Proper Use of Natural Resources :-
The developing countries can achieve rapid economic growth by making the efficient use of natural resources. By proper use of resources we can increase the production and per capita income of the country.

2. Self Reliance Policy :-
The less developing countries should reduce their dependence on foreign aid. The heavy reliance on foreign aid and its repeated suspension, delay and breach of agreements have created multiple problems. The policy of self reliance should be followed for financing development projects.

3. Encouragement of Private Sector :-
The less developed countries should encourage the private sector to increase the rate of investment in the country. The government has also given incentives to the private sector to promote the rate of development in the country.

4. Increase in Savings :-
The government of less developed countries should provide incentives to encourage the rate of savings in the country. New and attractive savings schemes should be introduced.

5. Increase in Exports :-
We should increase our exports to make our balance of payment favorable. We should increase the exports of manufactured goods instead of primary commodities.

6. Reduction in Imports :-
The developing countries should produce substitutes of imports in side the country to save the foreign exchange. Import of luxuries should be curtailed.

7. Development of Agriculture :-
To increase the per acre yield government should expand the credit facilities to the farmers. Due to low yield of wheat it has imported many times to meet the needs of the country.

8. Development of Industrial Sector :-
Agriculture based industries should be established in the less developed countries. All the raw material should be used in these industries, instead of exporting raw material on lower rates.

9. Reduction in Employment :-
The government should increase the job opportunities in the country. It will improve the saving and purchasing power of the people. New projects should be started to increase the rate of employment.

10. Balanced Growth Strategy :-
The less developed countries should adopt the balance growth strategy to remove poverty. Because investment in various sectors at the same time can provide market and a source of a supply for another.

11. Introduction to Technology :-
The developing countries can increase the rate of development by adopting suitable advance technology in various sectors of the economy. But they should adopt the technology according to their requirements.

12. Reduction in Population Growth :-
In the less developed countries high birth rate is the main cause of low per capita income. In India and Pakistan rate of population growth is high. effective measures should be taken to reduce the population pressure.

13. Administrative Performs :-
The professionally qualified persons should be appointed in the financial institutions and in the planning sector. Corrupt and inefficient administration should be removed.

14. Monopolies Must be Discouraged :-
The government should discourage the monopolistic associations and should protect the interest of the consumer, Govt. should keep an eye on the prices also.

15. Denationalization :-
All the poor countries should handed over the sick industries to the private sector. The present government has also decided to sell the shares of public industries to private sector. This policy will reduce the deficit of the budget.

16. Improve the Quality of Labour :-
Poor countries should improve the quality of labour by providing the education and technical skill to the labour. It will increase the efficiency of the people and the rate of production.

17. Political Stability :-
It is the basic requirement for the development of any country. All the poor countries should prevail peace and political stability if they want to achieve development.

18. Stable Economic Policy :-
The poor countries should adopt the stable economic policy. There should be no frequent changes in the taxation and import export policy. Because it discourage the rate of investment in the country.

19. Effective Planning :-
The less developed countries can prepare the development plans to accelerate the rate of development in the country.