The Hindu Business Line : Developed country by 2020?<br> Indicators India must track and live up to

In an interesting look at how the Human Development Index is computed, Bhanoji Rao applies the measures and equations to assess India's chances of becoming a `developed' country by 2020. Further, he lists several conventional and non-conventio nal indicators that gauge the pace of development in a country about which India needs to do something urgently if it has to count among the high-fliers in 15 years.

INDIA hopes to become a developed country by 2020 or around that time. Three common and popular measures of development are literacy (proxy for educational attainment), life expectancy (proxy for overall health status) and per capita income (proxy for welfare in general).

These measures are useful not only to gauge the pace of development in a country, but also for comparative assessments of development across countries.

Literacy is important for individual and national welfare in the broadest sense. International evidence shows that there is a fairly strong link between literacy rate and the average level of education achieved by a population. Roughly, a nation can achieve and sustain close to 100 per cent literacy, if and only if the average education of its people is around 7-8 years.

Over a hundred years ago, in 1900-1901, the literacy rate in Japan was around 95 per cent while that of India was a little over 5 per cent.

At that time, Japan had a primary school enrolment rate of 98 per cent, a rate we apparently achieved some nine decades later than Japan. We started late, but we are moving ahead.

Per capita purchasing power, which is often taken by its proxy, per capita gross domestic product, is an important measure, however crude, of the overall level of development. To facilitate international comparability, it is taken in dollars based on exchange rates reflecting purchasing power parity (PPP) of the national currency vis-à-vis the dollar (see Box).

The third indicator is life expectancy, which really captures the composite impact of such factors as the prevailing health facilities, housing conditions and availability of clean water and good sanitation. In fact, not long ago, development economists were fond of simply using life expectancy as a proxy for overall level of development.

Long and healthy life, a certain level of education and minimum purchasing power have been the principal components in the Human Development Index (HDI) popularised by the United Nations Development Programme (UNDP) in its annual Human Development Reports.

It is useful to take a look at how the HDI is computed and then see how we might fare in terms of HDI by about 2020.

HDI is a simple average of three indicators, each obtained from the national data on life expectancy, literacy and per capita income and maximum and minimum reference points set out for each.

Consider, for instance, life expectancy. The maximum possible is set at 85 years and the minimum at 25, the two respectively taken as one and zero for the purpose of computing a standardised indicator. The estimated life expectancy level for India for 2001 of 63.3 years is translated as an indicator of [63.3-25] / [85-25], which equals to 0.638.

As for the education indicator, since the maximum possible literacy rate is 100 per cent and the minimum is zero, all that needs to be done is to express the actual literacy rate as a proportion instead of a percentage. In India's case, the adult literacy rate of about 58 per cent in 2001 translates into an indicator value of 0.58.

As for per capita gross domestic product, the value for 2001 for India was $2,840, measured in terms of PPP. UNDP uses a maximum level of $40,000 and minimum of $100 for per capita GDP benchmarks.

Also, since one need not go for the maximum level of income in order to enjoy a reasonable level of living, UNDP takes the logarithmic values and thus the income indicator is [log 2840 - log 100] upon [log 40000 - log 100], which equals 0.558.

The three indicator values [0.638, 0.58 and 0.558] together provide the simple average of 0.59, which is the recorded HDI for 2001, which gives the unenviable 127th position for India among the group of 175 countries considered.

Two decades from 2001, though difficult, India could aim for and achieve life expectancy of 70 years and adult literacy rate of 80 per cent.

As for per capita purchasing power, assuming a sustained 5 per cent growth for two decades from 2001, per capita GDP in PPP dollars would amount to $7,526.

The three indicators, when standardised, provide the respective values of 0.75, 0.8 and 0.72, together giving an HDI of 0.76, a little higher than the 2001 HDI of the Philippines (0.75) and slightly lower than that of Thailand (0.77).

The UNDP cut-off to distinguish high human development is HDI, of 0.8, which India should be able to achieve if concerted action is taken to raise the overall growth rate of GDP to 8 per cent per annum and per capita GDP to some 6.5 per cent.

Then per capita GDP would amount to a little over $10,000 in 2021 and HDI would be 0.773, very much close to that of the high-fliers.

After so much on conventional indicators, it is equally important to turn to indicators that especially apply for India.

The non-conventional indicators must include, for instance, the demise of the voltage stabiliser and the UPS; punctuality of trains and flights; end to copying in examinations; business-like behaviour of parliamentarians in both Houses.

They must also include complete banning of politicians with court convictions, publication on the Internet of revenues and expenses plus assets and liabilities of major bank borrowers, government departments, temples and trusts and NGOs; government financed publication and dissemination of legal cases in all languages with full coverage of court proceedings and final verdict, and so on.

There are also non-conventional indicators in the realm of samskaras, referring to the end of some seemingly harmless human endeavours, such as:

`speaking' over the cellular phone in public places with others having no choice but to follow the monologue of the `speakers';

spitting/ easing oneself in public;

shouting routinely as if each and every one must be audible to all others;

endless and meaningless `seminaring', `workshopping' and foundation laying using public funds;

verbal and other subtle forms of violence, especially against women and children; and

of course, corruption of all forms and shades.

Demystifying PPP

PPP is not as complex a concept as it sounds. Simply stated, it refers to that exchange rate which would allow a dollar to buy in US the same basket of goods and services that the rupees obtained in exchange would buy in India.

It is simple only in concept, for millions of dollars worth of data collection and analytical efforts are mounted by the UN and allied agencies to obtain PPP estimates from time to time.

Here is an example of how the nominal exchange rate and PPP differ and what they mean to the measure of GDP per head. In 2001, per capita GDP at current market prices was around Rs 22,000. The average exchange rate was Rs 47 to a dollar.

Thus per capita GDP at the nominal exchange rate was about $470, while UNDP estimate at PPP was $2,840, implying a PPP rate of Rs 7.75 to a dollar. The vast differential between the nominal exchange rate and the PPP rate is due to relatively low prices of services in India, a fact now increasingly recognised by the rest of the world.

(The author is Professor Emeritus, GITAM Institute of Foreign Trade, Visakhapatnam. Feedback can be sent to bhanoji@vsnl.net)

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