This year India’s economic growth will once again be among the fastest in the world, even ahead of China. The real GDP growth rate that is adjusted for inflation will be more than 7 per cent this fiscal year, whereas China may fall below 6.5. Economic growth is an input to improve the quality of life of citizens. It measures the value of goods and services, and of spending on infrastructure and even social “bads” like security and pollution control.
Along with GDP, we also need to measure the actual improvement in people’s lives. These are captured by human development indicators. The most widely used indicators is the Human Development Index (HDI) developed by India’s Nobel winner Amartya Sen and Pakistani economist Mahbub ul Haq back in the 1980’s. This was under the auspices of the United Nations Development Programme.
Prior to the HDI was an indicator called Physical Quality of Life Index (PQLI) which was developed by American sociologist and economist Morris D Morris in his work for Oxfam. The PQLI focused only on outcomes and completely ignored income and GDP, which are considered inputs, not ends in themselves. Thus, the PQLI was extremely parsimonious and used just three indicators, which were life expectancy, infant mortality and literacy. They capture health, education and children’s well-being. Much later HDI developed by Sen and Haq (who were classmates at Cambridge and lifelong friends), was partly inspired by the frugality of PQLI.
But as a compromise, they included the income indicator as well, so now the HDI is a combination of three indicators: per-capita GDP, life expectancy and literacy. It is computed as a number between 0 and 1, and is an index. It measures relative performance, and also improvements over a period of time. The first world HDI report was published in 1990. The remarkable thing about the HDI is that it can be disaggregated to a very low level. So, you can measure HDI of a country, a state, a city or a village. You can disaggregate it by gender, or age groups.
Its methodology is very simple, objective and makes it easy to compare across time and across countries or regions or sub-groups. Since 2010, the UNDP publishes an inequality adjusted HDI called the IHDI, which corrects for inequality within the country. More than GDP, income, value of goods and services produced in a country, the ultimate metric is how healthy are its people? How educated are the children?
This year India’s HDI is 0.64, slightly higher than last year. However, India’s rank is 130 out of 189, and is below Sri Lanka (76) and only slightly ahead of Bangladesh (136). It’s been almost thirty years since the first HDI report was published, and India’s index shows improvement of about 50 per cent. Life expectancy went up by 11 years, and average schooling went up by around 5 years per child. Per capita income measured in international dollars adjusted for differing purchasing power, is up nearly 300 per cent since 1990. So, clearly India has done well in income generation, but failed to translate that into gains for health and literacy (as compared to say neighbouring Sri Lanka).
More worryingly, if adjusted for inequality, India’s index drops from 0.64 to 0.47. This means that the HDI improvements are happening to a smaller subset of the population. By comparison Sri Lanka’s HDI with and without inequality adjustment differs by 0.11. Sri Lanka, of course, is a much smaller country, but a useful reference benchmark from South Asia.
As if to corroborate the UNDP’s measurement, the World Bank too published its first ever Human Capital Index this week. For every country, the HCI captures the accumulation of education, skills and health by its people, in order to realise their full potential as productive members of society. Countries which are very rich and have a high HDI also happen to be ones where people have high levels education, skills, health and longevity. The deficiency in HCI is also supposed to help countries focus their development policies, not only to reduce poverty but also to enhance human capital.
The first ever HCI report of the World Bank puts India at rank 115 out of 157 countries, and below Nepal, Bangladesh, Sri Lanka and Myanmar. This was quite upsetting, and the government of India responded with its reservations about the report. It questioned its advisability, utility and methodology. For a country which took pride in having climbed its rank on Ease of Doing Business, compiled by the very same World Bank, it was ironic for India to reject the HCI report, simply because it was ranked so low. Ultimately the competition is not with other countries, but with one’s own self, and one’s own past. So long as India keeps improving its score both on HCI and HDI consistently over a period of time, that would be commendable. Being ranked lower than one’s (poorer) neighbours should help us focus on our priorities rather than complain to the referees.
Undoubtedly, India has invested substantially in health and education, both at the Central and State level. But more needs to be done. Not only in terms of outlays, or more school buildings and toilets, but actual outcomes in terms of learning, and health ie reduction in the ratio of stunted and wasted children. Reading, math and vocational skills have to vastly improve for the youth to be ready for jobs of tomorrow.
This calls for not just more budgets and infrastructure, but substantial reforms in the education and health sector. And lastly, the phenomenon of rising inequality, of income, wealth and HDI is something we can ill afford to ignore. It would be misguided and wrong to say that inequality is a problem of the West and not of India. Thus, the two recent reports on human development indicators, both the HDI and HCI, are timely reminders of reorienting our priorities.
Ajit Ranade is an economist and Senior Fellow,
Takshashila Institution.
(Syndicate: The Billion Press)
