May 30, 2024

General Studies Paper-3

Context-The recently published HDI report and a paper published by the World Inequality Lab in March 2024 reports do not reveal very encouraging trends for India. Thus, the article highlights the need for an alternate growth strategy that accords primacy to human development and converts it as a route to accelerate growth.

What is the performance of India in various development reports?

  1. Human Development Index-
    1. According to the United Nations Development Programme’s Human Development Report 2023-24, India ranked 134 out of 193 countries in the Human Development Index (HDI) in 2022.This is a marginal improvement from its rank of 135 in 2021.
    2. India’s HDI value increased from 0.633 in 2021 to 0.644 in 2022, placing it in the medium human development category. However, India still lags behind neighboring countries like Bhutan, Bangladesh, Sri Lanka, and China in terms of HDI.
    3. When adjusted for inequality, India’s loss in HDI is 31.1%, higher than Sri Lanka, Bangladesh, Nepal, and Pakistan.
  2. Gender Inequality Index –
    1. India improved its ranking from 122 out of 191 countries in 2021 to 108 out of 193 countries in 2022. However, India has one of the largest gender gaps in labor force participation, with a 47.8% difference between women (28.3%) and men (76.1%).

What is the status of income and wealth Inequality in India?

  1. According to the World Inequality Lab study, the bottom 50% of India’s population received only 15% of the national income in 2022-23. The top 1% earned an average of 5.3 million rupees, 23 times the average Indian income of 0.23 million rupees.
  2. The richest 10,000 individuals (out of 920 million Indian adults) earned an average of 480 million rupees, which is 2,069 times the average Indian income.

What are its implications?

  1. This stark income inequality has implications for aggregate demand, consumption, and human welfare.
  2. During 2014-2022, the incomes of the middle 40% of the income distribution has grown slower than the bottom 50%. This indicates a reduction in the size of the ‘middle class’.
  3. When growth mostly benefits the wealthy, economic division speeds up. This leads to the emergence of two classes-Have and Have not.

What is the status of household debt and savings in India?

  1. Household debt levels in India reached a record high of 40% of GDP by December 2023, while net financial savings plunged to 5.2% of GDP.
  2. Annual borrowings of households surged to 5.8% of GDP in 2022-23, the second-highest level in independent India.

Way forward

  1. Considering the inadequate human development, significant inequality, minimal savings, and substantial debt, there’s a necessity for an alternative approach to growth that prioritizes enhancing human development.
  2. This approach needs strong political commitment and long-term vision, looking beyond immediate electoral benefits.  As a first step, the narrative of development needs to be recast.
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