What is Balance of payments?

Balance of payments

The Balance of payments is a statement that contains the transactions made by residents of a particular country with the rest of the world for a specific time period. It is also known as the balance of international payments and it is often abbreviated as BOP. Balance of payments summarises all transactions that country's individuals, companies and government bodies complete with individuals, companies and government bodies outside the country. These transactions consists of imports and exports of goods, services and capital, as well as transfer of payment such as foreign aid and remittances.

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Balance of payments is different from balance of trade.

The Balance of payments divides transactions into two accounts. They are current account and capital account. Sometimes the capital account is called the financial account.

Current account

The current account includes transactions in goods, services, investment income and current transfer.
The current account consists of four major components.

They are:

  1. Visible trade - this is the net of export and imports of goods of visible items. It is also known as trade balance. Imports are higher than the exports, then there will be a trade deficit. Similarly when the exports are higher than imports it is known as trade surplus.
  2. Invisible trade - this is the net of exports and imports of services of invisible items. They constitute shipping, IT, Banking and Insurance services.
  3. Unilateral transfers to and from abroad - it refers to the payments that are not factor payments. These are one way transactions. For example, gifts or donations sent to the resident of a country by a non resident relative.
  4. Income receipts and payments - this include factor payments and receipts. They are generally rent on the property, interest on capital and profits on Investments.

Capital account

This account shows the change in ownership of foreign Assets and transactions in financial instruments. It is used to finance the deficit in a current account or observe the surplus in the current account. It has three major components.

  1. Loan to and borrowings from abroad - consists of all loans and borrowings given to a received from abroad. It includes both private sector loans as well as the public sector loans.
  2. Investments to / from abroad - these are investments made by non residents in shares in the home country or investment in real estate in any other country.
  3. Changes in Foreign Exchange Reserves - foreign Exchange Reserves or maintained by the central bank to control the exchange rate and ultimately balance the Balance of payments if it is not.

Note that any transaction resulting in a payment to foreigners is entered as debit and is given a negative sign. Any transaction resulting in a receipt from foreigners is entered as credit and is given a positive sign.

Current account deficit is financed by surplus in the capital account and similarly the Current account surplus is financed by deficit in the Capital account. This can be done by borrowing more money from abroad or lending more money to non residents.

The International Monetary Fund accounting standards of the balance of payment statement divides International transactions into three accounts. They are the current account, the capital account and the financial account. Where the current account should be balanced by capital account and financial account transactions. But in countries like India, the financial account is included in the capital account itself.

Financial account

This is a record of all transactions for financial investment. It includes -

  1. Direct investment - this is net investment from abroad
  2. Portfolio investment - these are financial flows, such as purchase of bonds, gilts, or savings in banks
  3. Short term monetary flows - known as hot money flows, chantage of exchange rate changes.

Q. Can a country have a trade deficit and a current account surplus simultaneously?
A. 
It is possible when the earnings from services and private transfers are greater than the trade deficit.

Balance of payment surplus and deficit

A country that has a deficit in its current account that means spending more abroad than it receives from sales to the rest of the world, must finance it by selling assets or by borrowing abroad. So, any current account deficit is of necessity financed by a net capital inflow.

Alternatively, the country could engage in official reserve transactions, running down its reserves of foreign exchange, in the case of a deficit by selling foreign currency in the foreign exchange market. The decrease in official reserves is called the overall Balance of payments deficit, similarly the increase in official reserves is called the overall Balance of payments surplus. The basic premise is that the monetary authorities are the ultimate financiers of any deficit in the Balance of payments or recipients of any surplus.

The Balance of payments deficit or surplus is obtained after adding the current and the capital account balances. This was the amount of addition to official Reserves. A country is said to be in Balance of payments equilibrium when the sum of its current account and its non Reserve capital account = 0, so that the current account balance is financed entirely by international lending without reserve movements. Note that the official reserve transactions are more relevant under a regime of steady exchange rates than when exchange rates or floating.

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Autonomous transactions

International economic transactions are called autonomous when transactions are made independently of the state of the Balance of payments for example due to profit motive. These items are called 'above the line' items in the balance of payment. Balance of payments is said to be in surplus if the autonomous receipts are greater than the autonomous payments, similarly, the Balance of payments is said to be in deficit if the autonomous receipts are less than autonomous payments.

Accommodating transactions

The accommodating transactions are termed as below the line items of the balance of payment. These are determined by the net consequences of the autonomous items, that is whether the balance of payment is in surplus or deficit. The official reserve transactions are seen as the accommodating items in the Balance of payments, all others being autonomous.

Errors and omissions

These constitute the third element in the Balance of payments apart from the current and the capital accounts, which is the balancing item reflecting our inability to record all International transactions accurately.

Significance of the Balance of payments

The Balance of payments data is important to a lot of users. Investment managers, government policy makers, the central bank, Businessman, etc. all make use of the Balance of payments data to make important decisions. Balance of payment data is affected by vital macroeconomic variables such as exchange rate, price levels, interest rates, employment and Gross Domestic Product, GDP.

And fiscal policies were formed in a way to achieve very specific objectives, which generally exert a significant impact on the Balance of payments. Policies can be formed with the object used to induce or curb foreign inflows and outflows.

Businesses use Balance of payments to analyse the market potential of a country, especially in the short-term. A country with a large trade deficit is not as likely to import as much as a country with the trade surplus. If there is a large trade deficit, the government may adopt a policy of trade restrictions such as quota or tariffs.

What is Lead Bank scheme?

Lead Bank scheme


The origin of The Lead Bank scheme can be traced to the committee headed by Professor D R Gadgil on the organisational Framework for implementation of social objectives which submitted its report in October 1969. This committee highlighted the fact that commercial banks did not have adequate branches in rural areas and also lacked the required rural orientation. Therefore this committee recommended the adoption of an Area approach to implement plans and programs for the development of an adequate banking and credit structure in the rural areas.

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A committee of banker on branch expansion program of public sector banks was appointed by the Reserve Bank of India under the chairmanship of Shri FKF Nariman. This committee proposed the idea of area approach in its report submitted in November 1969. This committee recommended that in order to enable the public sector banks to discharge their social responsibilities, each bank should concentrate on certain districts where it should act as a Lead Bank.

Based on this above recommendations, the Reserve Bank of India has introduced Lead Bank scheme in December 1969. This scheme aims at coordinating the activities of banks and other developmental Agencies through various meetings in order to achieve the objective of enhancing the flow of bank finance to priority sector and other sectors and promote banks role in overall development of the rural sector. For coordinating the activities in the district, a particular bank is assigned the lead Bank responsibility of the district. The Lead Bank is expected to assume leadership role for coordinating the efforts of the credit Institutions and government.

Keeping in view the several changes that have taken place in the financial sector, The Lead Bank scheme was last reviewed by the high level committee headed by Shrimati Usha Thorat the Deputy Governor of The Reserve Bank of India in 2009.

This high level committee held wide range discussions with different stakeholders including state governments, banks, development Institutions, academicians, NGOs, MFIs etc.  This committee also noted that the scheme has been useful in achieving its original objectives of improvement in branch expansion, deposit mobilisation and lending to the priority sectors especially in rural / semi urban areas. Based on the recommendations of this high level committee, guidelines were issued to, state level bankers committee, SLBC convener banks and lead banks for implementation.

The lead banks were advised to ensure that private sector banks are more closely involved in the implementation of The Lead Bank scheme envisaging the greater role for private sector banks. The private sector banks should involve themselves more actively by leveraging on information technology, bringing in the expertise in strategic planning. They should also involve themselves in the preparation as well as implementation of district credit plan.

What is banking ombudsman scheme?

What is banking ombudsman scheme?


The banking ombudsman scheme is an expeditious and inexpensive forum for bank customers for resolution of complaints relating to certain services rendered by banks. This scheme is introduced under section 35a of the Banking Regulation Act 1949 by the Reserve Bank of India with effect from 1995. At present the banking ombudsman scheme 2006 amended upto July 1st 2017 is in operation.

Banking ombudsman is a senior Official appointed by the Reserve Bank of India to address customer Complaints against deficiency in certain banking services covered under the grounds of complaint specified under clause 8 of the banking ombudsman scheme 2006.

Till now, 20 banking ombudsman have been appointed.

The banks that are covered under the banking ombudsman scheme 2006 include all scheduled commercial banks, regional rural banks and scheduled primary cooperative banks.

A customer can complain to the banking ombudsman if the reply from the bank is not received within a period of 1 month after the bank concerned has received one's complaint; or when the bank rejects the complaint; or if the complainant is not satisfied with the reply given by the bank.

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There are some guidelines that even the banking ombudsman will not considered a complaint.
They include;
  1. If one has not approached his bank for redressal of his grievance first
  2. If one has not made the complaint within one year from the date of receipt of the reply of the bank / if no reply is received from the bank
  3. If the complaint is made to the banking ombudsman after the lapse of more than 1 year and 1 month from the date of complaint made to the bank
  4. If the subject matter of the complaint is pending for disposal / has already been dealt with it by any other forum like Court of law, consumer court etc.
  5. If the complaint is frivolous(senseless) or vexatious(irritating)
  6. If the institution complained against is not covered under the scheme
  7. If the subject matter of the complaint is not pertaining to the grounds of the complaint specified under clause 8 of the banking ombudsman scheme
  8. If the complaint is for the same subject matter that was settled through the office of the banking ombudsman in any previous proceedings.
So, these are all some of the situations when the banking ombudsman donot consider the complaints of the customer.

The banking ombudsman does not charge any fee for filing and resolving customers complaints.

If there is any amount to be paid by the bank to the complainant by way of compensation for any loss suffered by the complainant is limited to the amount arising directly out of the act or omission of the bank or rupees 20 lacs whichever is lower.

The banking ombudsman may provide compensation not exceeding 1 lakh rupees to the complainant for mental agony and harassment.

What happens when the complainant is not happy with the decision of the banking ombudsman?

In such cases the complainant can approach the appellate authority. The appellate authority is vested with a deputy governor of The Reserve Bank of India. The recourse and the remedies available to him as per the law can also be explored. The bank also has the option to file an appeal before The appellate Authority under the scheme.

One can file Appeal against the decision of the banking ombudsman rejecting the complaint within 30 days of the date of receipt of the decision. The appellate authority may also allow a further period not exceeding 30 days, if he or she is satisfied that the applicant has sufficient cause for not making an application for appeal within time.

What actions can an appellate authority take?

Appellate authority may:
  1. Dismiss the appeal;
  2. Allow the appeal and set aside the award;
  3. Send a matter to the banking ombudsman for fresh up disposal in accordance with such direction as the appellate authority may consider necessary or proper;
  4. Modify the award and pass such directions as may be necessary to give effect to the modified award;
  5. Pass any other order as it may deem fit;

In the next part, we will learn about, what are all the deficiency banking services that banking ombudsman can receive and consider any complaints about?

What is money supply?

What is money supply?

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Money supply means the total stock of money flowing in an economy. It is the entire stock of currency and other liquid instrument circulating in a country's economy at a particular time. This circulating money involves currency, printed notes, money in the deposit accounts and in the form of other liquid assets. Money supply is also referred to as Money stock.

Money supply data is collected and published periodically by the countries government or Central Bank. The Reserve Bank of India follows M1, M2, M3 and M4 measures of money supply in India. These M1, M2, M3 and M4 are called monetary aggregates. The money supply data is based on these monetary aggregates.

M1 includes currency that is paper notes and coins that are held by the public, demand deposits in banks and other deposits in the Reserve Bank of India.

M2 includes saving deposits with post office savings banks along with M1.

M3 includes M1 + net time deposits of banks

M4 is equals to M3 Plus total deposits with post office savings organisation, this excludes national saving certificate.

Effect of money supply on the economy

An increase in supply of money lowers interest rates. This will in turn generates more investment and puts more money in the hands of consumers. This process stimulates the spending. With an increase in the money supply, business activity raises and with this the demand for labour also increases. This shows that if the money supply falls down the demand for labour also decreases.

Poverty alleviation and Employment generation in India Part 1

Introduction


Out of the many challenges that India face today, poverty is the most important one. It is not a problem of today, but it is a problem since British time. It is to be considered as not only an economic problem but also as a socio economic problem of our country or any Nation.
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The way each country treat the problem of poverty and the degree of poverty in a country is different for different countries. We, that means India, before 2005, used to measure poverty officially based on the intake of food. They used to measure the calorie consumption of the people. But after that, the government started to use Tendulkar methodology to measure poverty.  Tendulkar methodology measures the urban, rural and regional per capita expenditure required for livelihood.

World Bank changed its way to measure poverty since 1990. Since that time World Bank took into consideration and income of 1.25$ per day on the basis of purchasing power parity to define the poverty line.

Many factors can be linked to poverty in India. They are deficiency, malnutrition, illiteracy, ill-health, poor quality of life. A really poor person is in a bad need even of the basic livelihood.

There are some characteristic that make poverty.

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They include :

  • When a person cannot get 2 meals a day that is satisfactory and nutritions to fill him 
  • Having not more than a few basic assets to live
  • When a person does not have a pucca house or he or she is living in a hut or on the footpath or under the bridge 
  • The literacy rate of the poor is extremely bad 
  • When a person suffers from any disease oral health he or she is deprived of basic health facilities
  • They don't have proper access to safe drinking water 
  • They can't afford to use electricity 
  • To cook food they use firework or other alternatives
  • When a person doesn't have any land to practice agriculture 
  • They spend the lives mostly living on debts and in return getting manipulated by the money lenders.

Concept of poverty


In India poverty means not having or not earning enough to get a minimum date for livelihood

Needs for minimum livelihood


  1. Nutritional diet to survive 
  2. Clothing 
  3. Adequate health facilities 
  4. Safe drinking water


UNDP's view on Poverty


As per the United Nations development programme(UNDP), poverty means restraining restricting opportunities and varieties which is a degradation of human dignity. It means there is a lack of fundamental abilities to contribute effectively to society. It also explains that poverty means not jut not having nutritious diet and being unable to provide clothing to the family members, it also includes being unable to go to school, being unable to go to hospital and being unable to grow one's own food nor being unable to earn a job for a living and being unable to find money when in need. All these factors may lead to insecurity, powerlessness and rejection of individuals or household or sometimes communities. Poverty makes one sensitive to violence and makes one to live in very frail surroundings made by the lack of clean water and sanitation

What World Bank says about poverty


World Bank defines poverty as the ostensible deficiency of people with dimensions. The form of poverty varies from having low income to being unable to get basic goods and services that are needed for the survival. Having low levels of health low levels of education, poor access to clean water and sanitation, lack of physical security, unable to raise avoice,  lack of opportunities also suggest the cases of poverty.

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The Reserve Bank of India was established on April 1, 1935. It was established as a private bank. It was established as per the instructions of the Reserve Bank of India Act 1934. The Reserve Bank of India came completely under the control of the government of India after the Nationalisation of the banks in 1949.

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In the beginning the head office of the Reserve Bank was established in Calcutta. But, the head office was permanently moved from Calcutta to Mumbai in 1937. The governor of the RBI will be in the head office. And from there, different policies and regulations are framed.

Preamble


Just like the Constitution of India has The Preamble, the Reserve Bank of India also has a Preamble.

"to regulate the issue of bank notes and keeping of reserve with a view to securing monetary stability in India and Generally to operate the currency and credit system of the country to its advantage; to have a modern monetary policy framework to meet the challenges of an increasingly complex economy, to maintain price stability while keeping in mind the objective of growth."

Administration


The matters of the Reserve Bank of India are handled by a central board of directors.  This board of directors is appointed by the government of India. The Government of India follows the rules of the Reserve Bank of India act, while appointing the Board of directors. These directors are appointed or nominated for a period of four years. The directors are divided into two categories. One- Official directors, and the other- Non-official directors. 

The duty of the official directors is full time. Official directors consists of one governor and not more than four deputy governors. Non-official directors are nominated by the government. Ten directors from various fields, two government officials and four from the local board are nominated by the government as non-official directors.

Present official board of directors (as of August 2017)


Governor: Dr. Urjit R Patel
Deputy Governors: Shri S S Mundra; Shri N S Viswanathan; Dr. Viral V Acharya; DR. B P Kanunga

Functions of RBI


The main functions of the Reserve Bank of India includes, Monetary Authority, Regulation and supervision of financial system, Managing of foreign exchange, Issuing of currency.

The Reserve Bank of India formulates and implements and monitors the Monetary Policy. The objective of this function of the Reserve Bank is to maintain price stability while keeping in mind the goal of growth.

The Reserve Bank of India prescribes the broad parameters of the banking operations. Within these banking operations, India's Banking and Financial System works. It's goal is to maintain the trust of the people in the system, protects depositor's interests and to provide cost-effective banking services to the public. This explains the function of Regulation and supervision of the financial system.

The Reserve Bank of India manages the Foreign Exchange Management Act 1999. It aims to help external trade and payment. It also targets to promote orderly development and maintenance of Foreign Exchange market in India. That is why it is called the manager of the foreign exchange.

The Reserve Bank of India issues and exchanges currency. It also has the power to destroy the currency notes and coins, which are not fit for circulation in the market. It aims to give the people, required quantity of supply of currency notes and coins which are of good quality. This is the reason why it is also known as the issuer of currency.

The Reserve Bank of India also performs different promotional functions to help the country in achieving its targets. The Reserve Bank also works as a merchant to both central and state governments. That is why it is also known as the banker to the government. RBI also maintains banking accounts of all scheduled banks. This i why it is also known as Banker to the banks. 

The Reserve Bank of India also fulfills the function of financial supervision under the Board of Financial Supervision (BFS)

Local Boards


There are four local boards, one each from the our regions of the country. They are located at Mumbai, Calcutta, Chennai and New Delhi. 

Each local board consists of five members. Each one is appointed by the central government. Each one has a team of four years.

These local boards function by advising the central board about the local matters. They represent the regional and economic interests of local cooperative and domestic banks. They are also present to perform functions delegated by the central board.

Acts that are managed by RBI


  • Reserve Bank of India Act 1934
  • Government Securities Act 2006
  • Government Securities Regulation Act 2007
  • Banking Regulation Act 1949
  • Foreign Exchange Management Act 1999
  • Securitisation and Reconstruction of Financial assets and Enforcement of Securities Interest Act 2002
  • Credit Information Companies Act 2005
  • Payment and Settlement Systems Act 2007
  • Factoring Regulation Act 2011

Other Facts about RBI


  • Before the Reserve Bank became the central bank of India, printing of the currency was done by the government of India. This authority of printing currency was later transferred to RBI.
  • RBI governor signs the currency notes from Rs. 2 to Rs. 2000. Finance secretary signs the Rs. 1 note.
  • Currency paper of cotton is printed in Hosangabadh in Madhya Pradesh. 
  • Currency printing is done by the Reserve Bank of India at different places like Nasik in Maharashtra, Mysore in Karnataka and Bewas in Madhya Pradesh.
  • To print currency, the Reserve Bank of India has to maintain gold stock up to Rs. 200 crore. More currency requires maintaining more gold. 
  • India follows deficit financing policy. It means that the expenditure is more for the government and the income is less.
  • RBI's monetary policy committee decides the policy rates like Cash Reserve Ratio, Repo Rate, Statutory Liquidity Ratio etc. To decide these rates and to discuss other issues, the monetary policy committee meets two times in every month.

There are 20 regional offices, mostly in state capitals. There are two colleges as a part of the Reserve Bank of India. They are College of agricultural banking and Reserve Bank of India staff college. They are three other colleges that run under RBI. But they function autonomously or independently.

There are three subsidiaries of the Reserve Bank of India. They are Deposit Insurance and Credit Guarantee Corporation of India DICGC, Bharatiya Reserve Bank Note Mudran Private Limited BRBNMPL and National Housing Bank NHB. These Subsidiaries are fully owned by the Reserve Bank of India.

Measurement of Growth and Development

In general context, their meaning differs a lot from each other in economic scenario.

Growth means to increase in the output, the results that can be seen and measured comes under growth, whereas Development means improvement in the quality of goods and services and measuring how these improvements are affecting the quality of life of people in an economy. Though measurable, it is not so easy as measuring Economic growth.

Measuring Economic Growth


Economic growth which is a measure of output can be measured easily. It is a quantitative one. It is also not dependent on development. It doesn't care if there is development or not, it will grow when the conditions are favourable.

Economic growth of a country can be measured in percentage increase or decrease. This shows that economic growth may be positive or negative over a period of time. Economic growth follows the concept of 'annual' that means economic growth during one year period. If there is a decrease in the economic growth during that period, it is called negative growth. Gross Domestic Product or Gross National Product represents the Economic growth.

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Measuring Economic Development


When economic growth is being implemented, then why there came a need for economic development?

During and after 1960s, there came many countries with high economic growth, but their quality of life was very poor. During that time, economists felt the need for developing the new concept of economic development. The economists set some variables to measure the quality of life of people of a country, to measure economic development. This shows that economic development is qualitative and is not so easy to measure, unlike economic growth. The different variables set by economists to measure economic development are the availability of education, health care, employment opportunities, safe drinking water, clean environment and levels of crime.

Economic development is dependent on economic growth. To achieve high economic development, there should be high economic growth. Growth can increase just by the increase in income. But development needs increase in certain variables. Some variables that achieve economic development are directly depending on economic growth. For example, one variable of development is availability of education. But it is an open fact that, not everyone in an economy can afford quality education. It comes at a cost. So, this needs an increase in income, which shows that development is dependent on growth.

Also, higher economic growth doesn't ensure higher economic development. It needs proper implementation and utilisation and also good governance.

The economies may vary in economic growth and development like - 
  • High Growth, High Development
  • High Growth, Low Development
  • Low Growth, High Development
  • Low Growth, Low Development

To measure Economic Development


New measures of economic development are being developed since the need for development arose. The economists cannot define one fundamental scale for measuring development. It is like the testing state of development, where trials are made and modifications are made from the lessons learned through the errors and again new concept comes in place. This process continues till a fundamental scale is approached. But it is a difficult process to measure the quality of life of people. It is forever changing. Some measures to measure Economic development are - 
  1. National Income and Per capita Income
  2. Physical Quality of Life Index
  3. Human Development Index
  4. Gross National Happiness
  5. Green GDP

National Income and Per capita Income


The traditional method to measure economic development is the Gross National Income, GNI or the per capita GDP. Gross National Income was previously known as Gross Domestic Product. World Bank uses the concept of per capita Gross National Income to measure the economic development of the countries and to classify them into categories accordingly. World Bank classified countries into four categories. They are :-
  • Low income countries - ≤ $ 1045
  • Low middle income countries - $ 1046 - $ 4125
  • Upper middle income countries - $ 4126 - $ 12735
  • High income countries - ≥ $ 12736

India falls into the category of Low middle income countries. Measuring all the countries based on the dollar value is not correct, it shows inequalities. These inequalities are due to the difference in exchange rates and the products purchased for the same amount may varies in different currencies.

To overcome this problem, economists introduced a new method to compare countries. That is PPP, Purchasing Power Parity. This means, how many goods can a local currency buys in the same amount as one US Dollar would buy in USA. The Purchasing Power Parity of India in 2015 is Rs. 17 per 1 USD.

The GDP growth rate target of India in the 12th five year plan is 8%. Per capita income alone cannot measure the economic development of a country. Economic development of a country can be seen through reducing poverty, providing basic needs for citizens, reducing the income inequalities, providing education and healthcare, providing safe environment and also good governance.



Physical Quality of Life Index PQLI


The Physical Quality of Life Index was developed by Morris D. Morris. This index has three indicators. They are life expectancy, Infant Mortality Rate and Literacy Rate. Each country is calculated according to the scaling of the index in each of the indicators. Then an overall measure is made by averaging the measures of all the three indicators together.

The PQL index shows the benefits attained by economic growth through improving the quality of human life. Still, the PQLI is criticised, because it gives more importance to health which includes life expectancy and infant mortality rate. It shows less focus towards the material end. It is also objected for not including social and psychological properties which are again the measures of quality of life of a human being.

Human Development Index


The United Nations Development Programme published ts first Human Development Report in 1990. The report contains Human Development Index. This was the first attempt to measure the economic development. The rank of India in 2015 Human Development Index out of 188 countries is 130.

This Human Development Report uses three parameters to measure development. They are - Health, Education and Standard of Living.

The education in the Human Development Index is measured by two indicators. Mean of years of schooling for adults and expected years of schooling for children. Health is measured by the life expectancy at birth. And the Standard of living is measured by the Gross National Income.

The team that developed the Human Development Index was led by Mahbub ul Haq and Inge Kaul. In 2010, the Human Development Index added three more parameters of measurement to make the index more precise. They are :-
  1. Multidimensional Poverty Index MPI
  2. Inequality-adjusted Human Development Index IHDI
  3. Gender Inequality Index GII

Multidimensional Poverty Index identifies people who are poor in all the dimensions of health, education and income. In this index all the three dimensions are given equal weightage. The MPI of India according to the 2015 Human Development Index was 0.282.

Inequality-adjusted Human Development Index measures the effect of inequality in the economic development of a country. The overall loss % of Inequality-adjusted Human Development Index of India according to 2015 Human Development Index was 28.6% and it's difference from HDI rank was 1.

Gender Inequality Index shows the downfall in achievement due to inequalities in reproductive health, empowerment and work participation. The rank of India in Gender Inequality Index according to 2015 HDI was 130, same as the rank of India in Human Development Index.

Gross National Happiness GNH


Bhutan rejected the concept of GDP and developed its own way of defining development. This way of measurement includes both material and non material aspects of life. This new concept f measurement of developed by Bhutan is called Gross National Happiness.

The parameters followed in the Gross National Happiness are:-
  • Higher real time per capita income
  • Good governance
  • Environmental protection and
  • Cultural promotion - This includes the ethical and spiritual values in life

The United Nations Sustainable Development Solutions Network publishes the World Happiness Report. In 2016 World Happiness Report, India stands at 118th place out of a total 157 countries, whereas the happiest country is Denmark. This report was released before United Nation's World Happiness Day which will be observed annually on March 20.

This World Happiness Report ranks nations based on six factors.
They are :-
  1. GDP per capita
  2. Healthy life expectancy
  3. Social support
  4. Freedom to male life choices
  5. Freedom from corruption
  6. Generosity

The first United Nations high level meeting on happiness and well being was held in April 2012. The meeting was chaired by the then Prime Minister of Bhutan, Jigme Thinley. In the same year, the first World Happiness Report was published.

Green GDP


Green GDP concept was introduced in 1990s. It makes an attempt to include the cost or expenditures caused by the loss or usage of natural resources and pollution that affected the human welfare. It is a measure of how a country is prepared for Sustainable Economic Development.

In India in 2009, the centre announced its plan to introduce the concept of Green GDP by 2015. For this purpose it appointed a committee in 2011 chaired by Partha DasGupta, to work out a framework for Green National accounts in India. But the concept of Green GDP is yet to come into force in India (it is 2016 now). The delay s due to the lack of micro level data and high costs. This is because the Green GDP takes into account the natural resources used and the costs involved.

A recent World Bank Study showed that in 2013, India suffered a loss of $ 550 billion only because of air pollution. If taken into account, the other types of pollution and depleted natural resources affecting the human welfare, the amount may be gigantic.

Living Planet Report from the World Wildlife Fund WWF, shows that 25% of India's total land is undergoing desertification. Another 32% is facing degradation. When all this costs and effects are included in the GDP as Green GDP, the economies may show negative growth. This is because the costs involved due to environmental degradation are so huge, which we are overlooking at present.

This is the reason why China discontinued the use of Green GDP in 2007 which it started in 2004 because of negative growth shown by several provinces.

Counting in the costs of environment will make a huge impact on the economic growth of a country.