Challenges of development in India
The promise of development has emerged as a rallying point for political parties for the elections.
Taking stock of the achievements of the past few years, as portrayed in the Human Development Report, underscores the task ahead and the need for a clear strategy for embarking on a long journey
Recent reports on human development and income inequality
Two recent reports reveal some important facets of India’s development.
First, the Human Development Report 2023-24, published by the United Nations Development Programme, takes a comparative perspective and maps the achievements in the area of human development.
Second, a paper published by the World Inequality Lab in March 2024 provides long-term trends in income and wealth inequality in India between 1922 and 2023.
These reports do not reveal very encouraging trends on both fronts and can be used for future course corrections.
More importantly, the evidence published is a significant guidepost for the forthcoming government, if it is to advance human capabilities and enhance the welfare of citizens, which are agendas of the major parties.
India ranked 134 out of 193 countries in the UN Human Development Index (HDI) in 2022, which was an improvement compared to 2021, when it ranked 135 out of 192 countries.
This places India is in the medium human development category.
Between 1990 and 2022, India witnessed an increase in HDI value by 48.4%, that is, from 0.434 in 1990 to 0.644 in 2022
However, even though India moved up a rank compared to 2021, it still fell behind Bhutan, Bangladesh, Sri Lanka, and China.
The medium human development category of countries includes Myanmar, Ghana, Kenya, Congo and Angola.
The index on which India registered an improvement is the Gender Inequality Index.
In 2022, India was ranked 108 out of 193 countries, while in 2021, it ranked 122 out of 191 countries.
However, India also has one of the largest gender gaps in its labour force participation rate as there exists a 47.8% difference between women (28.3%) and men (76.1%).
The Report raises concerns on rising inequality and its implications for advancing human development.
Inequality between countries at the upper and lower ends of the HDI started to increase each year since 2020.
This divergence is compounded by substantial economic concentration, as almost 40% of the global trade in goods is concentrated in three or fewer countries.
Further, in 2021, the market capitalisation of each of the three largest technology companies surpassed the GDP of more than 90% of countries that year.
The ramification of increased inequality is discussed in the Report, which states, “The share of people reporting having very high control over their lives is low and relatively equal for the bottom 50 percent of the population, but rises with income for deciles 6 and above.
Thus, income inequalities, which often intersect and are associated with other inequalities in human development, shape agency.” That is, agency increases as income grows for the bottom 50% of the distribution.
When adjusted for inequality, India’s loss in HDI is 31.1%, which is higher than that of Sri Lanka, Bangladesh, Nepal and Pakistan
The World Inequality Lab study shows that the bottom 50% were getting only 15% of India’s national income in 2022-23.
According to the study, “The top 1% earn on average 5.3 million, 23 times the average Indian (INR 0.23 million).
Average incomes for the bottom 50% and the middle 40% stood at INR 71,000 (0.3 times national average) and INR 1,65,000 (0.7 times national average) respectively.
At the very top of the distribution, the richest 10,000 individuals (of 920 million Indian adults) earn on average INR 480 million (2,069 times the average Indian)”.
This stark income inequality in India has important implications on the aggregate demand and consumption and on human welfare.
The real growth rate of incomes at each percentile of the income distribution shows that growth for the top decile has been significantly higher than the rest of the population.
Within the top 10%, growth rates rise with rank indicating that those at the very top benefited much more than the others.
Interestingly, during 2014-2022, the incomes of the middle 40% of the income distribution seem to have grown slower than the bottom 50%.
This skewed income distribution and growth of incomes of the higher percentiles indicate a forthcoming possibility of the reduction in the size of the ‘middle class’.
When growth gets very concentrated at the top, the pace of economic polarisation accelerates eventually resulting in the emergence of two classes, the haves and have-nots.
Household debt levels in India reached a record high of 40% of GDP by December 2023, and the net financial savings plunged to 5.2% of the GDP, according to a recent report.
A breakup of household debt shows that unsecured personal loans have experienced the most rapid growth, followed by secured debt, agricultural loans, and business loans.
Annual borrowings of households surged to 5.8% of GDP in 2022-23, the second-highest level in independent India.
Way forward
Given low levels of human development, high levels of inequality, low savings and high debt, it is time to think about an alternate growth strategy which accords primacy to human development and convert it as a route to accelerate growth.
This needs political will and thinking beyond short-term electoral gains.
As a first step towards this, the narrative of development needs to be recast.
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