Measurement of Growth and Development


l 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.

Indian economy for UPSC, Civil services and RBI Grade B officers exams

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.

No comments:

Post a Comment