SUMMARYThe vigorous movement towards raising the levels of economic performance and consumption in the underdeveloped areas has become one of the central economic issues of our time. But so far no satisfactory theory has been constructed to explain this movement, its implications and effects.The starting‐point for any attempt to construct a theory of development in underdeveloped countries must be an analysis of the major factors and conditions responsible for economic growth in Western countries. These are: (1) capital formation of an impressive magnitude, as a continuous process increasing in breadth and intensity and including the formation of intellectual capital. The introduction of mechanical means of production was of paramount importance in this process, because it radically changed the rate of progress; (2) operation of effective incentives either in the form of material rewards (profits) or spiritual inducements or both; (3) availability of an expanding market to absorb the rising flow of goods; (4) tendency for a balanced ratio to be maintained between population growth and economic growth; (5) a succession of scientific discoveries and a readiness on the part of entrepreneurs and technicians to utilise them for the continual improvement of techniques of production; (6) apolitical regime and a social order conducive to economic development. Since several of these factors either do not obtain at all in underdeveloped countries, or obtain only partially, a theory of economic development built on the cornerstones of economic growth in the West would not fit conditions in underdeveloped countries.The gradual change to an independent existence with higher standards of living and higher levels of economic performance is being brought about by a transfer of means and techniques of economic development from outside through a process of implantation. In place of the incentives which served in the Western world and which are not reproduced to the extent required to stimulate a comprehensive process of development in the immediate future, substitutes are in operation. Modern nationalism is one of the motive forces of economic development in underdeveloped countries. On the same plane is the acceptance of entrepreneurial functions by governmental agencies.The progress in transferability of modern techniques of production has immensely facilitated the promotion of up‐to‐date processes of production and distribution in underdeveloped countries also. Finally, a difference is to be noted in the economic mechanism by which the various elements of the socio‐economic process are geared together and kept in