India ranks 79 out of 176 countries on the 2016 Corruption Index published by Transparency International.
Implementing new policies in terms of allocation of resources is the most important aspect of development in the coming quarter.
As much as 2016 was a year of reforms, it was also a year where the reformist claims were disputed. Predominantly, it was asked whether there were any real reforms, or whether it was just the Prime Minister’s speeches that talked about them. Further, it was increasingly seen that the people who supported the Prime Minister and his party were maintaining the narrative that reforms were abound, while the other faction was saying the opposite.
The 2017 Economic Survey and the annual Budget forecast a 6.75 to 7.5 per cent GDP growth rate for the forthcoming fiscal year. India’s growth rate appears to be high. Then why is it that India falls short on a number of development parameters? To assess the situation, we try to look at areas where India has grown in the past year and those where it might require a reallocation of resources. We compare India to its neighbours in 2016 and to itself by looking the Corruption Perceptions Index, the Human Development Index, and the Inclusivity Index.
Corruption
The incumbent Prime Minister has taken the narrative against corruption at different levels. While there are anecdotes and reports that suggest that corruption is being dealt with an iron hand, there are others that suggest otherwise. However, the Corruption Perceptions Index seems to favour the former.
India ranks 79 out of 176 countries on the 2016 Corruption Index published by Transparency International. In the sub-continent, we’re doing pretty well. Sri Lanka is ranked 95, Pakistan is at 116, Nepal at 131, Myanmar at 136 and Bangladesh at 145. China comes closest to India with the same rank of 79, while Bhutan is way above us at a rank of 27. So, from the looks of it, India seems to be the least corrupt of all the neighbouring countries barring Bhutan.
The fight against corruption has taken the centre stage in the past few years. In 2012 and 2013, India ranked 94 with a score of 36, with no improvement between the two years. In 2014, it moved up to 85, and in 2015 it further improved to rank 76. The 2016 rank is lower than the 2015 one, but in 2016, India’s score went up by 2 points (to 40). The addition of 8 more countries in the 2016 index impacts the ranking in its real sense. Hence despite the negative perception in the ranking, India has marginally improved its position.
Clearly, there is some ‘walk the talk’. But, it may not enough. As much as we might be the least corrupt nation-state regionally, at a global level, India still ranks below 79 countries on corruption. The consolation is that we’ve moved 20 ranks up from 2012. Whether that is enough or not is anybody’s guess. On the colour coded map, however, it is still recognised as one of the ‘highly corrupt’ countries.
Human Development
Taking cue from Nobel Laureate Amartya Sen’s remark, “Economic growth without investment in human development is unsustainable and unethical”, we look at the United Nations Development Programme (UNDP) Human Development Report that ranks countries on the basis of the Human Development Index (HDI) it formulates.
Industrial forecasts, job opportunities and social services are fundamentally designed to make policymakers more informed about ways in which they can improve the lives of the people, much like everything else that is measured. An objective judgement of this progress is given by the HDI which maps out education, health and income using the following proxies: expected years of schooling for kids and average years of schooling for adults for education; life expectancy at birth for health; and gross national income for income. The geometric mean of the normalised indices is then used to rank each country.
India currently stands 130 of 188 countries under the category ‘Medium HDI’. Bhutan is at 132 while Bangladesh is at 142. Sri Lanka and China have ‘very high HDI’, each being at a rank of 73 and 90 respectively. Nepal at 145 and Pakistan at 147 are ‘low HDI’ countries.
Clearly, India is far away from being an example of human development. Sanitation and healthcare services require attention. And even though the government has mobilised schemes to this end, in terms of outcome, it clearly hasn’t made much of a difference.
While education enrollments are increasing, the Annual Statement of Education Report (ASER) portrays that learning outcomes are still lacking, even in primary class students. Clearly, more interventions and deliberations are required to make education work in India. Income levels are extremely low too. In fact, more than 90 per cent of the people are not even on the tax grid, leading to a strong black economy that doesn’t take employee benefits vis-a-vis insurance, provident fund, etc. into account.
The top five countries on the index are European, with the exception of Australia. There are some specific policies that these countries implement which gives them the edge.
One such example is that of ‘flexicurity’ in Denmark, defined as “coexistence of flexibility, in the form of low adjustment costs for employers and employees, and security”. It aims at promoting employment security over job security. So, the labour force is flexible which helps companies and employers have the cushion of a social safety net. India too needs to make certain adjustments to its labour laws to climb up the ladder on the HDI.
Inclusive Development Index
The Inclusive Development Index, published by the World Economic Forum is quite a holistic measure of the progress a country is making. It uses 12 development parameters under three broad pillars: “growth and development”, “inclusion”, and “intergenerational equity and sustainability”.
The rankings are divided into advanced (30 countries) and developing countries (79 countries). India ranks 60 of the 79 developing countries. Most of its neighbours are ahead. Bangladesh is at 36, Nepal at 27, Pakistan at 52 and Sri Lanka at 39. Clearly, India is the worst of its neighbours.
The report specifically stresses concern on India’s rising debt to GDP ratio, questioning the fiscal spending of the country. It points out that educational enrollment rates are relatively low across all levels, consequently translating into low formal labour force participation. It also points out that the tax system could be made more progressive in order to develop infrastructure which is currently inhibiting new business creation. Another reason for lack of environment to do business in India includes corruption and a large administrative burden.
Among the top-ranked developing economies are countries like Lithuania, Azerbaijan and Hungary, and the ones that showed the most-improved five-year trend were Lesotho, Nepal and Georgia.
Where do we go from here?
The budget and economic survey have highlighted several important points, but implementing new policies in terms of allocation of resources is the most important aspect of development in the coming quarter. Education, healthcare and food will need a boost, as the HDI numbers clearly suggest. There is also a case for enhancing businesses in India, particularly small and medium-sized enterprises which carry the potential to thrive. Implementation will be instrumental in outlining the priorities of this government in the coming fiscal year, which should be based on the above data points and indices.
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Steve Ovett, the famous British middle-distance athlete, won the 800-metres gold medal at the Moscow Olympics of 1980. Just a few days later, he was about to win a 5,000-metres race at London’s Crystal Palace. Known for his burst of acceleration on the home stretch, he had supreme confidence in his ability to out-sprint rivals. With the final 100 metres remaining,
[wptelegram-join-channel link=”https://t.me/s/upsctree” text=”Join @upsctree on Telegram”]Ovett waved to the crowd and raised a hand in triumph. But he had celebrated a bit too early. At the finishing line, Ireland’s John Treacy edged past Ovett. For those few moments, Ovett had lost his sense of reality and ignored the possibility of a negative event.
This analogy works well for the India story and our policy failures , including during the ongoing covid pandemic. While we have never been as well prepared or had significant successes in terms of growth stability as Ovett did in his illustrious running career, we tend to celebrate too early. Indeed, we have done so many times before.
It is as if we’re convinced that India is destined for greater heights, come what may, and so we never run through the finish line. Do we and our policymakers suffer from a collective optimism bias, which, as the Nobel Prize winner Daniel Kahneman once wrote, “may well be the most significant of the cognitive biases”? The optimism bias arises from mistaken beliefs which form expectations that are better than the reality. It makes us underestimate chances of a negative outcome and ignore warnings repeatedly.
The Indian economy had a dream run for five years from 2003-04 to 2007-08, with an average annual growth rate of around 9%. Many believed that India was on its way to clocking consistent double-digit growth and comparisons with China were rife. It was conveniently overlooked that this output expansion had come mainly came from a few sectors: automobiles, telecom and business services.
Indians were made to believe that we could sprint without high-quality education, healthcare, infrastructure or banking sectors, which form the backbone of any stable economy. The plan was to build them as we went along, but then in the euphoria of short-term success, it got lost.
India’s exports of goods grew from $20 billion in 1990-91 to over $310 billion in 2019-20. Looking at these absolute figures it would seem as if India has arrived on the world stage. However, India’s share of global trade has moved up only marginally. Even now, the country accounts for less than 2% of the world’s goods exports.
More importantly, hidden behind this performance was the role played by one sector that should have never made it to India’s list of exports—refined petroleum. The share of refined petroleum exports in India’s goods exports increased from 1.4% in 1996-97 to over 18% in 2011-12.
An import-intensive sector with low labour intensity, exports of refined petroleum zoomed because of the then policy regime of a retail price ceiling on petroleum products in the domestic market. While we have done well in the export of services, our share is still less than 4% of world exports.
India seemed to emerge from the 2008 global financial crisis relatively unscathed. But, a temporary demand push had played a role in the revival—the incomes of many households, both rural and urban, had shot up. Fiscal stimulus to the rural economy and implementation of the Sixth Pay Commission scales had led to the salaries of around 20% of organized-sector employees jumping up. We celebrated, but once again, neither did we resolve the crisis brewing elsewhere in India’s banking sector, nor did we improve our capacity for healthcare or quality education.
Employment saw little economy-wide growth in our boom years. Manufacturing jobs, if anything, shrank. But we continued to celebrate. Youth flocked to low-productivity service-sector jobs, such as those in hotels and restaurants, security and other services. The dependence on such jobs on one hand and high-skilled services on the other was bound to make Indian society more unequal.
And then, there is agriculture, an elephant in the room. If and when farm-sector reforms get implemented, celebrations would once again be premature. The vast majority of India’s farmers have small plots of land, and though these farms are at least as productive as larger ones, net absolute incomes from small plots can only be meagre.
A further rise in farm productivity and consequent increase in supply, if not matched by a demand rise, especially with access to export markets, would result in downward pressure on market prices for farm produce and a further decline in the net incomes of small farmers.
We should learn from what John Treacy did right. He didn’t give up, and pushed for the finish line like it was his only chance at winning. Treacy had years of long-distance practice. The same goes for our economy. A long grind is required to build up its base before we can win and celebrate. And Ovett did not blame anyone for his loss. We play the blame game. Everyone else, right from China and the US to ‘greedy corporates’, seems to be responsible for our failures.
We have lowered absolute poverty levels and had technology-based successes like Aadhaar and digital access to public services. But there are no short cuts to good quality and adequate healthcare and education services. We must remain optimistic but stay firmly away from the optimism bias.
In the end, it is not about how we start, but how we finish. The disastrous second wave of covid and our inability to manage it is a ghastly reminder of this fact.