Financing Human Development in India

Abstract:

Human development, which is about expanding people’s choices, builds on shared natural resources. Promoting human development requires addressing sustainability— locally, nationally and globally— and this can and should be done in ways that are equitable and empowering. On the need for financing the human development, we observe that even the best macroeconomic policies may fail unless they are complemented by effective policies -policies that link the macro and the micro level and that bear directly on people live. Chief among these are the level and structure of government social expenditures and the design of the policy measures and programmes they support. The present paper tries to make a study on the financing of human development in India. The entire paper is divided into four parts. The first part is introductory which gives a brief account of the basic concept of human development and the various measures through which financing of human development could be observed. The second part of the paper talks about the trends in HDI in India vis-à-vis some of developed and developing countries. The third segment discusses about the trends in India’s social sector expenditure as it affects the major dimensions of inclusive development like poverty alleviation, employment generation, health, education, and social welfare. The last section of the paper is given to concluding observations.

Key words: Human Development, Human Expenditure Ratio, Social Allocation Ratio and Social Priority Ratio.

I. Introduction:

Human development, which is about expanding people’s choices, builds on shared natural resources. Promoting human development requires addressing sustainability— locally, nationally and globally— and this can and should be done in ways that are equitable and empowering.

The ultimate objective of development planning is human development or increased social welfare and well-being of the people. Increased social welfare of the people requires a more equitable distribution of development benefits along with better living environment. Development process therefore needs to continuously strive for broad-based improvement in the standard of living and quality of life of the people through an inclusive development strategy that focuses on both income and non income dimensions. The challenge is to formulate inclusive plans to bridge regional, social and economic disparities. The Eleventh Five Year Plan sought to address this challenge by providing a comprehensive strategy for inclusive development, building on the growing strength of the economy.

The global Human Development Report 2011 puts India at 134th position on HDI with a human development index of just 0.547 as against 0.943 for Norway, a country with highest HDI value. The world’s (India’s) average HDI has increased by 22(59) percent since 1980 and just by 7.6 (18.65) percent since 2000, reflecting a dismal improvements in life expectancy, school enrolment literacy and income in the new era of globalization and after the declaration of MDGs. The average annual HDI growth in India during 2000-2011 was 1.56 percent which is even less than the average annual growth rate in HDI of 1.73 percent for the least developed countries. The countries with fastest HDI increase over 1980 are Mali, China, Nepal, Afghanistan, Mayanmar, Niger and Bangladesh. However, one of the reasons for higher rate of annual HDI growth in these countries is due to their low base value of HDI in 1980.

Norway, Austria and Netherlands are leading the HDI while Burundi, Niger and Democratic Republic of the Congo are found at the bottom of the HDI rankings. In the human development report, India’s position (134) is below China (101) and Sri Lanka (97). There was an overall loss of 28.3 percent in inequality adjusted HDI in India which was more than Sri Lanka (16.2%). India is among middle human development countries. There has been steady progress on HDI over the past 31 years and it has improved from 0.344 in 1980 to 0.547 in 2011 showing an annual growth rate of 1.56 percent over the period. India’s HDI growth during the period is above the average growth rate for countries in South Asia, Sub-Saharan Africa and least developed countries.

On the need for financing the human development, we observe that even the best macroeconomic policies may fail unless they are complemented by effective policies -policies that link the macro and the micro level and that bear directly on people live. Chief among these are the level and structure of government social expenditures and the design of the policy measures and programmes they support. To analyse how public spending on human development can be designed and monitored, the four ratios can be used:

i. The public expenditure ratio: The percentage of national income that goes into public expenditure.
ii. The social allocation ratio: The percentage of public expenditure earmarked for social service.
iii. The social priority ratio: The percentage of social expenditure devoted to human priority concerns.
iv. The human expenditure ratio: The percentage of national income devoted to human priority concern. The human expenditure ratio is the product of the first three ratios. It is a powerful operational tool that allows policy-makers who want to restructure their budgets to see existing imbalances and the available options.

If public expenditure is already high (as in many developing countries), but the social allocation ratio is low (as in Tanzania), the budget needs to be reassessed to see which areas of expenditure could be reduced. Military spending, debt servicing and loss-making public enterprise would all be likely candidates.

If the first two ratios are high, but the ultimate human development impact, as reflected in human development indicators is low (as in Pakistan), the social priority ratio must be increased. For the poorest countries, this is likely to involve seeking a better balance between expensive curative hospitals and preventive primary health care, between universities and primary schools and between focusing greater attention on the cities and on the rural areas, where most poor people live.

The present paper tries to make a study on the financing of human development in India. The entire paper is divided into four parts. The first part is introductory which gives a brief account of the basic concept of human development and the various measures through which financing of human development could be observed. The second part of the paper talks about the trends in HDI in India vis-à-vis some of developed and developing countries. The third segment discusses about the trends in India’s social sector expenditure as it affects the major dimensions of inclusive development like poverty alleviation, employment generation, health, education, and social welfare. The last section of the paper is given to concluding observations.

II. A comparative Analysis of HDI in India:

Most people today live longer, are more educated and have more access to goods and services than ever before. Even in economically distressed countries, people’s health and education have improved greatly. The world’s average HDI increased 18 percent between 1990 and 2010 (41 percent since 1970), reflecting large improvements in life expectancy, school enrolment, literacy and income. Almost all countries benefited. But a low income frustrates people's development, for they simply do not have the means to acquire the basic goods they need. Nor in many case do their governments offer a much support through health, education or other services as they should. The best strategy for human development is to increase the primary income in a society by unleashing the creative energies of its people, its resources and its capacities, and by ensuring that these incomes benefit the majority of the population. Per capita income (PCI) in Norway is around 14 times more than that of India and it is 12 times more in USA. PCI is 36 times higher in Norway as compared to least developed countries. The result is openly reflected on the HDI value. A country with high PCI is having high HDI value. The correlation coefficient between HDI and PCI between the given countries/regions is positive with a value of 0.91 which is highly significant {table-1(a)}. Further, the correlation matrix shows very high degree positive correlation between other human development indicators and PCI. From this we can easily conclude that any improvement in education level and medical facility leads to an improvement in efficiency and productivity of the labour force increasing the per capita income level. Once income increases, a larger part of income should be earmarked for the priority sector. Further, a high degree positive correlation between years of schooling and life expectancy at birth is reflective of the fact that education level and health care are interlinked. Table-1 clearly exposes this fact. Countries with high mean and expected years of schooling have high life expectancy at birth. In India, the mean years of schooling is marginally above the average for least developed countries and even less than that of Pakistan and Bangladesh. It is just 35 percent of the figures for Norway and USA. The result indicates a lower value for life expectancy at birth. A let down figure for mean and expected years of schooling, life expectancy at birth and PCI has headed for an HDI value even lower than that of China and Sri Lanka.

Table-1: India’s global position in Human Development- 2011

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Source: Human Development Report 2011.

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