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Business Commentary/Bibek Debroy

Human development as a measure of economic prosperity

The Human Development Report for 1999 has just been released, the tenth since HDRs began in 1990.

This year, there is a special contribution from Amartya Sen and a quote is in order. "The human development index, which the Human Development Report has made into something of a flagship, has been rather successful in serving as an alternative measure of development, supplementing GNP. Based as it is on three distinct components -- indicators of longevity, education and income per head -- it is not exclusively focused on economic opulence (as GNP is). Within the limits of these three components, the HDI has served to broaden substantially the empirical attention that the assessment of development processes receives."

Of course, HDRs don't only have HDI values. Down the years, they have evolved other indicators to focus on say gender biases, such as the gender-related development index or GDI or the gender empowerment measure or GEM.

More specifically, HDRs now have five separate indicators. First, there is HDI, based on longevity (life expectancy at birth), knowledge (adult literacy rate, combined enrollment ratio) and decent standard of living (adjusted per capita income in purchasing power parity or PPP dollars). Second, there is GDI, which adjusts HDI for gender inequality. Third, there is a gender empowerment measure or GEM to capture gender inequality in economic and political participation and decision-making. Fourth, there is a human poverty index or HPI-1, calculated for developing countries and based on percentage of people not expected to survive to age 40, adult illiteracy rate, percentage of people without access to safe water and health services and percentage of underweight children under five. Fifth and finally, there is a human poverty index or HPI-2, calculated for industrialised countries and based on percentage of people not expected to survive to age 60, adult functional illiteracy rate, percentage of people living below the income poverty line and the long-term unemployment rate.

On HDI, what does HDR 1999 show for India? There have been some data and methodological changes, so that ranks this year are not strictly comparable with those last year. Methodologically, incomes above a threshold are now discounted differently (this does not directly affect India, which is below the threshold) and better data are available on life expectancy and per capita income. Subject to this, India's rank is 132 out of 174 countries, a rank six notches higher than last year's.

This is largely because of a higher per capita income figure and to a lesser extent, because of improvements in life expectancy. HDI has a maximum value of 1 and a minimum value of 0 and countries are classified into three categories -- high human development (HDI more than 0.800), moderate human development (HDI between 0.500 and 0.799) and low human development (HDI below 0.500).

Data are for 1997 and India's HDI value is 0.545. This is the first time since HDRs started in 1990 that India (together with Pakistan) has moved into the moderate human development category. This HDI value is based on a life expectancy at birth of 62.6 years, an adult literacy rate of 53.5 per cent, a gross enrollment ratio of 55 per cent and a real per capita GDP (PPP terms) of US $ 1,670.

Note the literacy rate. Firm literacy figures will next be available in the 2001 Census. But fragmentary evidence from the National Sample Survey or NSS indicate that the adult literacy rate is around 62 per cent now. Once this kind of literacy figure is plugged in, the HDI value will rise further.

This, however, is no reason for complacency. In terms of HDI values, the top five countries are Canada, Norway, the United States, Japan and Belgium, in that order. Each of these has a life expectancy at birth of more than 75 years, with Japan chipping in with 80 years. Forget such developed countries. Malaysia has a life expectancy at birth of 72 years, an adult literacy rate of 85.7 per cent, a gross enrolment ratio of 65 per cent and a real per capita GDP of $ 8,140.

Within South Asia, Sri Lanka has a HDI value of 0.721. With an adult literacy rate of 91.9 per cent, Vietnam has a HDI value of 0.664.

Only 143 countries figure in the gender-related development index or GDI rankings and India is ranked 112. The female-male differential is especially marked for the adult literacy rate, gross enrollment ratio and real per capita GDP. Against a male literacy rate of 66.7 per cent, the figure for females is 39.4 per cent. And against a male gross enrollment ratio of 62 per cent, the figure for females is 47 per cent.

While estimated real per capita GDP for males is US $ 2,389, the figure for females is $ 902. Only 102 countries figure in the GEM rankings and India has a fairly low rank of 95. Only 8.3 per cent of seats in Parliament are held by women, female administrators and managers account for 2.3 per cent of the total and female professional and technical workers account for 20.5 per cent of the total. The gender bias is evident.

When one moves on to the human poverty index, 16.1 per cent of the Indian population is not expected to survive till age 40, 19 per cent of the population does not have access to safe water, 25 per cent does not have access to health services and 71 per cent does not have access to sanitation, 53 per cent of children under the age of five are under-weight and 52.5 per cent of the population is below the international poverty line of $ 1 per day (1985 benchmark).

The silver lining is that India has made progress, predicated on growth and new forms of delivering public services. For example, India's public expenditure on education as a percentage of GNP (gross national product) was 3.4 per cent in both 1985 and 1996. The 1996 figures were 3.4 per cent for Sri Lanka, 2.3 per cent for China and 2.7 per cent for Vietnam. There is an issue of efficiency of public expenditure and this is related to modes of delivery.

(Incidentally, India's military expenditure as a share of GDP has come down from 3.4 per cent in 1988 to 2.5 per cent in 1996.) The per capita GDP (in 1987 dollars) has gone up from 251 in 1975 to 305 in 1985 and 465 in 1997. This is based on an annual GNP growth rate of 5 per cent between 1975 and 1995.

With reforms, annual GNP growth rates of close to 7 per cent are possible in the next ten or fifteen years. HDR 1999 has an annual projected population growth rate of 1.3 per cent for 1997 to 2015. Therefore, higher rates of per capita GDP growth are possible in the future.

Admittedly, as several issues of HDR have pointed out, there is no neat correlation between per capita GDP and human development indicators, which is why indices like HDI were constructed in the first place. Policy interventions lead to countries attaining higher HDI levels than warranted by per capita GDP figures alone.

But reforms have led to some changes in modes of delivery of public services in India, primary education being the most obvious example. Hence, I am prepared to bet that in 2005, India will not only have a far higher per capita GDP, but also a far higher HDI value.

Bibek Debroy

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