Why Human Development Index is the New GDP? Why is India ranked so low in the Human Development Index (HDI)?

GDP is an imperfect economic metric. Is the Human Development Index a viable option?

I believe the answer is yes because the key metric indicators for these two economic measurements are completely different. GDP measures the total value of goods and services in a country over time, whereas HDI measures the quality of life in a country over time. GDP will eventually become obsolete as renowned economists despise its irregularities.

Development of GDP as a measure

Gross Domestic Product (GDP) is the most common method of measuring an economy; it is the total value of all final goods and services produced in a country over a given time period. GDP can be measured per capita, which measures total output per person, or as a percentage of national output over time.

However, critics of GDP measurement argue that it is an outdated method of analysis. Between the World Wars, economists wanted to assess the economic damage of the Great Depression and compare production capacities across nations. However, GDP only measures a country's productive capacity, not its overall well-being.

Over time, economists recognized the shortcomings of GDP and sought to develop a system of analysis that provides a more accurate picture of an economy's health. Economists with the United Nations Development Program wished to develop a statistic that would shift the focus of development economics away from national income accounting and towards people-centered policies. These economists believed that people and their capabilities, rather than economic growth alone, should be the ultimate criterion for assessing a country's development.

As a result, they developed the human development index, a summary metric that incorporates three key dimensions of human development: health, education, and living standards. Life expectancy at birth, which is calculated into the life expectancy index, determines health. The education index is calculated using the mean years of schooling and the expected years of schooling. And the GNP index, which is based on Gross National Income per capita, determines living standards. The Human Development Index is calculated by combining these three indexes.

Why HDI is more superior to GDP?

The HDI places a greater emphasis on human development than the GDP. It considers a country's quality of life as well as its production capacity. A country's education and health are regarded as equally important as its economic power. GDP is viewed as a means to an end, not an end in itself. GNP per capita, which is essentially the purchasing power of the average person, is an important factor in calculating the Human Development Index, but it is only one of several.

The Human Development Index, as opposed to GDP, provides a more comprehensive picture of a country. Countries with similar GDPs, for example, can have vastly different HDIs. If two countries have similar GDPs but different HDIs, it can help policymakers identify fundamental issues that need to be addressed in their respective countries, such as education or health. Finally, it depicts changes in living standards more accurately over time.

As an extreme example, if every employee in a country's tobacco and weapons industries suddenly became academics or joined the health industry to treat people, find cures, develop vaccines, and so on, GDP might not improve significantly. However, the Human Development Index would change significantly to reflect the country's evolution.

The HDI framework comprises three indices:

• Life Expectancy Index, based on life expectancy at birth. The index is 1 when it is 85 years and 0 when it is 20 years.
• Education Index, based on mean years of schooling (15 is the projected maximum for 2025) and expected years of schooling (18 is the projected maximum – this is the equivalent of achieving a postgraduate degree in most countries).
• Income Index, based on Gross National Income (GNI) per capita by Purchasing Power Parity (PPP), which considers exchange rates and inflation adjustments when determining individual wealth.

Simple conclusion: -

As I previously commented, GDP was created as a statistic to allow economists to attempt to quantify the extent to which the Great Depression harmed economic production and to allow countries to estimate their relative power to one another. GDP was never intended to account for technological progress or the standard of living in times of peace.

Economists agree that the GDP calculation is far from perfect, but there are few better options. In addition to GDP, the Human Development Index takes into account health and education.

What’s the reality of India in HDI (India Vs China)?

According to the Human Development Report 2021-22, India ranks 132nd out of 191 countries. We are still a poor country with the fancy label "Developing Nation."

• India’s latest HDI value of 0.633 places the country in the medium human development category, lower than its value of 0.645 in the 2020 report. The report attributes the drop in HDI from 0.645 in 2019 to 0.633 in 2021 to India’s falling life expectancy — from 69.7 years to 67.2 years during the survey period.
• India’s expected years of schooling stand at 11.9 years, down from 12.2 years in the 2020 report, although the mean years of schooling is up at 6.7 years from 6.5 years in the 2020 report.
• Although India retained its 132nd position in the Gender Development Index, the female life expectancy dropped from 71 years in the 2020 report to 68.8 years in the 2021 report.
• The mean years of schooling for females declined from 12.6 to 11.9 years in the corresponding period.
• India scored 0.123 in the Multi-Dimensional Poverty Index (MPI) with a headcount ratio of 27.9 per cent, with 8.8 per cent population reeling under severe multidimensional poverty. Over the last decade, India has lifted a staggering 271 million out of multidimensional poverty, the report noted.

China's HDI rank is 79, indicating that it is a rising Dragon on the Asian Continent. We cannot compare China's growth to India's because China is at least 50 years ahead of India in every way.

• In 2000, 2010, 2019, 2020 and 2021, China was rated 0.584, 0.691,0.762, 0.764 and 0.768, respectively in HDI Index.

List of Indian states and union territories by Human Development Index

Let's look at the Human Development Index (HDI) rating of the states and union territories of India. HDI is a composite index that takes into consideration health, education, and income.

The following values are estimates from 2021 calculated by Global Data Lab, using the same method of calculation as UNDP. It is important to note that other sources report different HDI rankings (typically higher).

High Human Development: -

1 Kerala 0.752

2 Goa 0.751

3 Chandigarh 0.744

4 Delhi 0.730

5 Puducherry 0.739

6 Lakshadweep 0.715

7 Himachal Pradesh 0.703

8 Sikkim 0.702

My Conclusion:

There are many media narratives about how India is growing, sometimes shining, sometimes a trillion-dollar economy. We're also told that India's GDP has now surpassed the 3.5 trillion-dollar mark, that India is the fastest-growing G20 economy, and a variety of other statistics, but the reality is far more concerning and depressing.

The human development index, in my opinion, is a better indicator that truly tells you about the state of the country. India is ranked 132nd out of 191. This is India at the age of 75.

This Development Narrative has come at a lower environmental cost. To ensure that no one is left behind, India's growth story reflects the country's investments in inclusive growth, social protection, gender-responsive policies, and a push towards renewables.

According to reports, India has the most billionaires, with the number increasing from 102 to 166 between 2020 and 2022. However, there is another figure that increased from 2020 to 2022: the number of hungry people in the country, or those who do not have enough food. Despite being the world's second largest producer of food, India has the highest number of malnourished people.

As a result, I believe India's greatest challenge is population control, as well as educational and cultural reforms.

References:

Human Development Index | Human Development Reports (undp.org)

Specific country data | Human Development Reports (undp.org)

2022 Global Multidimensional Poverty Index (MPI) | Human Development Reports (undp.org)

List of Indian states and union territories by Human Development Index - Wikipedia