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What does the Human Development Report 2019 hold for the Indian economy?

Last year, on 10th December 2019 United Nations Development Programme (UNDP) had released the Human Development Report (HDR) for the year 2018-19.

Human Development Index (HDI) focuses on three indicators health, education, and income to determine human development in a country. It includes 189 countries across the world.

The HDI rank of India had improved from 130th position to 129th position from 2018 to 2019 and lies in the group of countries that have medium human development.

“The improvement in the rank is due to the steady progress. 27.1 crore people were lifted out of poverty from 2005-06 to 2015-16. A dramatic reduction in absolute poverty, along with gains in life expectancy, education, and access to health care had resulted in the development.” said Shoko Noda, UNDP India resident representative.

Life expectancy at birth in India in 2018 was 69.4 years improved from 68.8 years in 2017. Over the years, life expectancy at birth in India has been improving due to improved health services. In the education parameter, India has performed low; 12.3 years were the expected years of schooling and 6.5 years were the mean years of schooling.

Gross National Income as per Purchasing Power Parity 2011 was $ 6,829 in India for 2018-19. It means that the standard of living in India is low compared to other countries. The low income also fortifies the fact that India falls into the category of a lower-middle-income country as per the World Bank. Sri Lanka (71) and China (85) rank ahead of India (129) while other neighbours rank further below. The graph below shows the HDI rank of Sri Lanka, China, India, Bhutan (134), Bangladesh (135), Myanmar (145), Nepal (147), Pakistan (152), and Afghanistan (170). Though China is not a South Asian country it is still included in the graph because of its political and economic vicinity to the region.

The theme of the HDR was ‘Beyond income, beyond averages, beyond today: Inequalities in human development in the 21st century’.

“The next generation of inequalities is opening up, particularly around technology, education, and the climate crisis. These inequalities are a roadblock to achieving the 2030 agenda for sustainable development,” the report stated.

Sustainable development will also be affected by the unequal distribution of economic growth. Therefore, the HDR also provides the economic sustainability indicators that directly affect the economy and its growth therefore, it is imperative to analyse these indicators.

The positive adjusted net savings of India not only show that India was following the path of sustainable income generation but also leads to higher levels of gross capital formation and, ultimately higher GDP growth.

As per the above-mentioned table, India’s adjusted net savings which include net national savings, depletion of natural resources, and expenditure on education from 2015 to 2017 were 16.3 percent of GNI and gross capital formation was 31 percent for the period of 2015-2018.

Though not mentioned in the table, it should be noted that a higher level of the aggregate growth rate of GDP in India 7.3 percent was observed for the same period. Although gross capital formation has been identified as an internal remedy by developing countries to meet their financial needs for investment, it has certain limitations.

Therefore, the Governments simultaneously tend towards foreign borrowings. India’s total debt service as a percent of its exports of goods, services, and net foreign income was 10.1 percent in 2018 reduced from 17.3 percent in 2016. It shows that the inflow of funds in terms of exports has increased compared to the outflow of funds in terms of debt payments.

As we say in economics, through the diversification of investments we can yield more money. Similar is the case for exports, instead of individual investor here we are talking about the exporting country.

If a country diversifies its exports amongst various products, then the inflow of funds would definitely rise. The concentration index of India, 0.139 portraits that it has a moderate level of product diversification in exports compared to China with a score of 0.094 in the index.

It has been observed that countries with greater expenditure on Research and Development (R&D) tend to have larger diversification of exports. For example, China spends 2.1 percent of its GDP on R&D and has diversified exports with a score of 0.094 in the concentration index; the USA spends two percent of its GDP on R&D and has a score of 0.099; India spends only 0.6% of its GDP and scores 0.134 in the index. Thus, it should be noted that to diversify the exports, India needs to increase the expenditure on R&D as a percentage of GDP.

Unless India has a highly educated and skilled workforce to utilize R&D funds and increased R&D expenditure would not be helpful in stimulating growth. Poor performance on the indicator of education of HDI directs us towards the need of reforming our education system at all levels and in all disciplines. For example, to increase the skilled workforce India should reform the model of skill development like the Germanic model of skill development that focuses on both theoretical knowledge and practical implementation through industry-academia linkages and mandatory apprenticeships before jobs

The slow pace of human development is mostly because of the large-scale regional disparities in India. These inequalities have resulted in a few people contributing to the growth. Equitable distribution of economic growth and balanced regional development are the prerequisites for the sustainable development of an economy.

A mechanism through which India can attain equitable distribution of economic growth and also, fasten its pace is by improving the education standards of all streams through an emphasis on providing practical knowledge, focusing on creating a healthy workforce.

Moreover, it should keep on following the sustainable income generation path, high level of gross capital formation, low level of total debt service, increase and diversify its exports and lastly, predetermined R&D expenditure on the potential industries.

All these steps would enable India to move out of the category of the lower-middle-income country where it is stuck for the past 10 years since 2009, to the category of upper-middle-income country and, also towards the path of sustainable economic growth and development.

(Article was first published by The Tilak Chronicle on January 10, 2020.)

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