Why India underperforms on HDI

Looking beyond India’s unflattering 129th-place ranking on the Human Development Index, the long-term trend lines of its performance in the various sub-indices may seem disarmingly positive. As the UNDP’s HDR Report 2019 notes, India’s gross national income per capita has more than doubled since 2005, and the number of “multi-dimensionally poor” people fell by more than 271 million in the decade since 2005-06. Additionally, inequalities in “basic areas” of human development have reduced: for instance, historically marginalised groups are catching up with the rest of the population in terms of education attainment.

But beneath these upbeat data points, there is disquieting validation that the malefic effects of deep-rooted societal and economic entrenchments are proving hard to negate. It is this that accounts for such a lowly rank for an economy that is in the global Top 5 by size. For instance, based on the pre-tax income share of the top 10 per cent, income inequality in India has risen from 31 per cent in 1980 to 55 per cent in 2016. In India the income growth of the bottom 40 per cent between 2000 and 2018 (58 per cent) was significantly below the average income growth for the entire population (122 per cent). Such income inequalities amplify failings on other HDI indices of human development. Intergenerational income mobility is lower in countries with high income inequality: it manifests at birth, and determines access to quality healthcare, education, and opportunities. The cumulative impact of this spills over across generations.

Typically, policymakers respond to income inequality with a sledgehammer distributive approach: taxing the well-off and transferring money to the relatively dispossessed. But as the HDR Report points out, the impact of such redistributionthis varies: in developed countries, for instance, taxes and transfers led to a 17-point reduction in the Gini coefficient, whereas in developing countries it reduced by just 4 per cent. If the intergenerational cycle — which denies opportunities to those at the bottom of the pyramid — is to be broken, policymakers need to look beyond knee-jerk redistribution and address underlying social mechanisms as well.

The writer is Associate Editor with BusinessLine