Group G2 - 7_hdianalysis

Macroeconomics assignment: Using HDI to understand the quality of life in India

Group Name – G2:7 Group Members 1. Abhishek Kekre 2. Bharath Kumar B 3. Gulab Nebhani 4. Lalima Dutta Choudhury 5. Tanya Dutta

1. What is HDI?

The HDI combines normalized measures of life expectancy, literacy, educational attainment, and GDP per capita for countries worldwide. It is claimed as a standard means of measuring human development—a concept that, according to the United Nations Development Program (UNDP), refers to the process of widening the options of persons, giving them greater opportunities for education, health care, income, employment, etc. The basic use of HDI is to measure a country's development. The index was developed in 1990 by Pakistani economist Mahbub ul Haq, Sir Richard Jolly, with help from Gustav Ranis of Yale University and Lord Meghnad Desai of the London School of Economics. It has been used since then by UNDP in its annual Human Development Report. It is claimed that ideas of Indian Nobel prize winner Amartya Sen were influential in the development of the HDI. The HDI now serves as a path towards a wide variety of more detailed measures contained in the Human Development Reports. 2. Calculation of HDI: The HDI combines three basic dimensions: * Life expectancy at birth, as an index of population health and longevity * Knowledge and education, as measured by the adult literacy rate (with twothirds weighting) and the combined primary, secondary, and tertiary gross enrollment ratio (with one-third weighting). * Standard of living, as measured by the natural logarithm of gross domestic product (GDP) per capita at purchasing power parity (PPP) in United States dollars. The Human Development Index (HDI) then represents the average of the three general indices

The Education Index is measured by the adult literacy rate (with two-thirds weighting) and the combined primary, secondary, and tertiary gross enrollment ratio (with one-third weighting). The adult literacy rate gives an indication of the ability to read and write, while the GER gives an indication of the level of education from kindergarten to postgraduate education.

GDP Index: The gross domestic product (GDP) or gross domestic income (GDI), a basic measure of an economy's economic performance, is the market value of all final goods and services produced within the borders of a nation in a year Life Expectancy Index is a statistical measure used to determine the average lifespan of the population of a certain nation or area. Life expectancy is one of the factors in measuring the Human Development Index (HDI) of each nation, along with adult literacy, education, and standard of living 3. GDP Vs HDI: The following charts show the disparity between GDP and Human Development Index of India. The charts give a comparison of India’s indexes with certain developed countries.

GDP Vs HDI 160

147

140

Rank

120

139

116

100

104

80

78

132 GDP HDI

60

48

40 20

12

0 Afghanistan

Sri Lanka

Pakistan

India

Country

GDP Vs HDI 140

132

120

Rank

100 80

GDP

60

HDI

40 23

20 0

8 2 Japan

4 Germany

USA Country

4. Reasons for India’s poor HDI:

21 6

15 1 UK

12 India

1. The most important factor is the adult literacy rate which is 39%. That means the share of India in world illiteracy is 33 percent. Although evidence of substantial increase in literacy during the nineties has become evident, still India has a long way to go. Compared to china which has increased it literacy rate to 90.9 percent in 2005, India lags behind considerably at 61 percent in this very important area of human development. 2. The combined gross (Primary, secondary, tertiary) enrollment ratio was only 61 percent in India. China had a gross enrollment ratio of 69 percent. This shows that in gross enrollment ratio, India is lagging behind the developed countries as well as behind developing countries like China. 3. Life expectancy at a birth has shown a continuous improvement from 50.7years during 1975 to 62.9 years in 2000-2005. However, India has to improve the health facilities as well as nutrition levels so that it can reduce the probability at birth not surviving to the age 40 which is 57.4 percent for males and 66.1 percent for females in 2000-05. 4. Population not using improved water sources and thus become victims of all kind of water borne diseases was 158 million. Improved sanitary facilities are not available to 33% of population in 2004. 5. 49 percent of Indian population did not have access to essential drugs in 1999. This reduces the survival rate of India. 6. Public Expenditure on education as a percent of GNP is considered as an indicator of state policy towards promoting education. This proportion has remained unchanged between 1991 and 2002-05 3.8% of GNP. 7. According to the report of the education commission, this expenditure should have been raised to 6% of GNP. Although it is nearly four decades now, but the target is yet to be realized. 8. The proportion of education expenditure devoted to pre-primary and primary education has marginally increased from 35% in 1985-86 to 38.4% in 200202. There is a strong need to enrich state-run schools at the primary level. 9. Data on priority in public expenditure on education reveals that it was 3.7% of GDP in 1990 and has slightly improved to 3.8% in 2002-05. But public expenditure on health was distressingly low at 0.9% of GDP in 2004. There is therefore an urgent need to improve the proportion of public expenditure both on education and health so as to foster human development. 10. We can also consider fuel consumption as a proximate measure for industrialization or modernization of our economy. Data reveal that traditional fuel consumption in total energy use declined from 47.5% in 1990 to 29.4% in 2004. However, it may be noted that per capita electricity consumption sharply improved from 173KWH in 1990 to 618 KWH in 2004. This only underlines the fact that sources of energy other than electric use, such as coal and oil, have contributed more to energy use. Energy becomes the basic constraint on development. India has become more dependent on nonrenewable sources of energy like coal and oil and less on renewable sources like hydropower. Thereby there is a desperate need to tap the natural resources in the various regions of the country and this will not only help improve the water and power crisis but also generate lot of employment, which enforces the fact of necessary education in the country as well. The following chart shows the rank of India in the three parameters considered for the ranking. It also shows a comparative picture of other developed countries.

160 140 Education Index-Rank

120 100

GDP index- Rank

80 60

Life Expectancy IndexRank

40

Overall HDI rank

20

di a In

US A

ly Ita

k m ar

D en

C hi na

an Ja p

ce Fr an

Ic el an d C an ad a

0

Limitations of HDI: The HDI has opened new perspectives on measuring and analysing development. But there can be no doubt that the work in this area is still at its beginning. Much more research is needed as is more experience with using the HDI for various practical purposes of assessing, planning or programming development. From the time it was created, the HDI has been criticized as a redundant measure that adds little to the value of the individual measures composing it; as a means to provide legitimacy to arbitrary weightings of a few aspects of social development; and as a number producing a relative ranking which is useless for inter-temporal comparisons, and difficult to interpret because the HDI for a country in a given year depends on the levels of, say, life expectancy or GDP per capita of other countries in that year. However, each year, UN member states are listed and ranked according to the computed HDI. If high, the rank in the list can be easily used as a means of national aggrandizement; alternatively, if low, it can be used to highlight national insufficiencies. Using the HDI as an absolute index of social welfare, some authors have used panel HDI data to measure the impact of economic policies on quality of life. Indian government’s response: Indian government’s response for the HDI rank 127 (in the year 2005) included the following points:

1. Comparing India with countries like Norway, Sweden or Singapore which are far more developed is unfair.

2. India has made ''spectacular progress'' in many fields and it was not necessarily reflected by the index.

3. The ranking is not on the basis of comparisons between equal countries in terms of size and population

4. The rankings were limited to comparable data. 5. India has been a success and was one of the few countries which produces human development reports at state levels.

The Bottom-line: In nutshell, it may be stated that human development index of India has improved from 0.0406 in 1975 to 0.619 in 2005, but India still has miles to go before she can enter the group of high human development countries. But our process of development has to accelerate the pace of human development so that India can feel proud to be a member of high human development countries. Along with this, growth process should promote equitable growth with greater people’s participation. This would require making heavy investments in the social sector, viz., health and education so that a better equipped labor force improves productivity and thus can claim legitimately a better share in the fruits of development. There is no conflict between rapid economic growth and rapid human development, both are mutually reinforcing and unless India brings about a balance between the two, the objectives of growth, equity and democracy will not be achieved and development would remain deficient for the vast mass of the poor people. References:

http://hdr.undp.org/en/media/hdr_20072008_tech_note_1.pdf http://en.wikipedia.org/wiki/Human_Development_Index