Context:
The concept of development has become a central theme for political parties during elections. Reflecting on the accomplishments of recent years, as depicted in the Human Development Report, highlights the challenges ahead and underscores the necessity for a well-defined strategy to embark on a prolonged journey.
Relevance:
GS2-
- Human Resource
- Issues Related to Women
- Gender
GS3- Inclusive Growth
Mains Question:
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. Discuss. (15 Marks, 250 Words).
Analysing the Significant Reports on Inequality:
Two recent reports shed light on different aspects of India’s development.
- Firstly, the Human Development Report 2023-24, released by the United Nations Development Programme, offers a comparative analysis and assesses achievements in human development.
- Secondly, a paper released by the World Inequality Lab in March 2024 presents long-term trends in income and wealth inequality in India from 1922 to 2023.
Human Development Report 2023-24 by the United Nations Development Programme:
- India’s rank on the UN Human Development Index stood at 134 out of 193 countries in 2022, showing a slight improvement from 2021 when it ranked 135 out of 192 countries.
- This marginal improvement is attributed to a slight increase in the HDI value, rising from 0.633 in 2021 to 0.644 in 2022.
- Consequently, India falls into the category of medium human development alongside nations like Myanmar, Ghana, Kenya, Congo, and Angola.
- Over the period from 1990 to 2022, India witnessed a significant increase in HDI value, rising by 48.4% from 0.434 in 1990 to 0.644 in 2022.
- Despite India’s advancement in ranking compared to 2021, it still lags behind Bhutan, Bangladesh, Sri Lanka, and China.
- Notably, India has made progress in the Gender Inequality Index, moving up to 108 out of 193 countries in 2022 from 122 out of 191 countries in 2021.
- However, India continues to face significant gender disparities, particularly in labor force participation rates.
- There exists a substantial gap between women (28.3%) and men (76.1%), with a difference of 47.8%.
- The report highlights concerns regarding the escalating inequality and its ramifications for advancing human development.
- The report delves into the consequences of heightened inequality, noting that the proportion of individuals reporting a high level of control over their lives is low and relatively uniform among the bottom 50% of the population.
- However, this control increases with income for deciles 6 and above. Thus, income disparities, often intersecting with other forms of inequality in human development, significantly influence individual agency.
World Inequality Lab study, 2022-23:
- According to the World Inequality Lab study, in 2022-23, the bottom 50% of the population in India received only 15% of the national income.
- The study reveals that the top 1% earns an average of 5.3 million rupees, which is 23 times the average income of an Indian (0.23 million rupees).
- Meanwhile, the average incomes for the bottom 50% and the middle 40% are 71,000 rupees (0.3 times the national average) and 165,000 rupees (0.7 times the national average), respectively.
- At the upper echelons of the income distribution, the wealthiest 10,000 individuals out of 920 million Indian adults earn an average of 480 million rupees (2,069 times the average Indian income).
- This glaring income disparity in India has significant implications for aggregate demand, consumption patterns, and human welfare.
- Analysis of real income growth rates across different percentiles of the income distribution reveals that growth for the top decile has been markedly higher than for the rest of the population.
- Moreover, within the top 10%, growth rates increase with rank, indicating that those at the very top have benefited disproportionately.
- Interestingly, during the period from 2014 to 2022, the incomes of the middle 40% of the income distribution appear to have grown at a slower pace than those of the bottom 50%.
- This skewed income distribution and the differential growth rates of income among higher percentiles suggest a potential decline in the size of the middle class.
- When economic growth becomes highly concentrated at the top, it accelerates the process of economic polarization, ultimately leading to the emergence of two distinct classes: the affluent and the marginalized.
Household indebtedness:
- Household indebtedness in India soared to a historic peak of 40% of GDP by December 2023, while net financial savings dwindled to 5.2% of GDP, as per a recent report.
- An analysis of household debt breakdown reveals a rapid expansion in unsecured personal loans, followed by secured debt, agricultural loans, and business loans.
- Annual household borrowing spiked to 5.8% of GDP in 2022-23, marking the second-highest level since India gained independence.
Conclusion:
Given India’s low levels of human development, high inequality, scant savings, and burgeoning debt, there is a pressing need to contemplate an alternative growth strategy that prioritizes human development as a catalyst for accelerated growth. Achieving this necessitates political determination and transcending short-term electoral gains. As an initial step, there is a crucial requirement to redefine the narrative of development.
