Getting India's growth priority right

To catch up with peers, not only in size but also in per capita income, India must focus on health and education

Historically, economic growth or income alone was considered the primary measure of human development. Over the years, however, health and education gradually emerged as key elements of human development, alongside income. A major thrust to the broader concept of human development was provided in 1990 when the United Nations Development Programme began to release country-wise data on the human development index (HDI) as a summary measure of a nation’s average achievements in three key dimensions of human development: Income, health and education. 

It is significant that research in the global context clearly establishes that income and non-income components of human development (health and education) are inextricably linked and mutually reinforcing. A country cannot sustain economic growth in the long-run without adequate support from human development, and vice versa.

A recent study titled “Inter-linkages between Economic Growth and Human Development in India — A State Level Analysis”,  co-authored by this columnist with Vrinda Gupta and Aakanksha Shrawan, empirically found a strong two-way relationship between economic growth and human development in India. The bi-directional causality between human development and economic growth was also established, i.e., human development causes economic growth, and vice versa.

The above referred study also found that secondary-level of education leads to increased economic activity in the agriculture and manufacturing sectors, while higher education drives economic activity in the services sector. The impact of higher education enrolment on services was four times larger than that of secondary education on agriculture and manufacturing. Primary education was not found to impact economic activity, suggesting the critical importance of at least secondary-level quality education for developing cognitive skills. It is the development of cognitive skills of an individual rather than mere school enrolment or attainment that is positively related to economic growth.

Recent cross-country studies also support that investing in secondary education yields a significantly higher economic growth, much more than the impact that can be achieved solely through primary education.  In other words, for primary education to substantially contribute to economic growth, it is important to supplement it with widespread provision of secondary education. Notably, the UN Sustainable Development Goals now include specific targets for primary and secondary education, in contrast to the Millennium Development Goals, which solely emphasised universal primary education. 

Another recent related study titled “Economic Growth and Human Development in India — Are States Converging?” by the same authors, found that economically weaker and low human development states in India were not catching up or converging with economically well-off states. However, club convergence was occurring in the sense that when different states were divided into separate categories based on the different levels of economic growth and human development, economically weaker states were found catching up with economically well-off states with similar levels of human development.

A clear message emerging from the two studies referenced above is that for economically disadvantaged states within India to catch up with more prosperous states, and for India to catch up with its peer and developed economies not only in terms of size but also in per capita income, it is imperative to place human development at the centre of economic policymaking.

Historically, policymakers in India have prioritised economic growth with a relative neglect of health and education. Public spending on health in India at 1 per cent of gross domestic product (GDP)  has remained broadly unchanged in the last 30 years and it is nowhere close to the target of 2.5 per cent set out for 2025 in the National Health Policy, 2017. India’s public health spending pales in comparison with health spending of 3-5 per cent of GDP by its peers (5.3 per cent by Russia, 4.5 per cent by Brazil, 3.6  per cent by Thailand, and 2.9 per cent by China).

Likewise, India’s public spending on education at 4.6 per cent of GDP remains far below the target of 6 per cent, which was first articulated in the National Policy on Education, 1968, and reiterated in all subsequent education policies, including the one in 2020. It is to be noted that the target of 6 per cent was set to be achieved almost three decades ago in 1986.

Low public health allocation has been forcing households to spend on healthcare and education from their own pockets. A study suggests that out-of-pocket expenditure (OOPE) on healthcare pushed 55 million people in India into poverty in 2011–12. OOPE on health in India, constituting 50 per cent of total health expenditure, is one of the highest in the world. High OOPE can force households to adopt harmful coping mechanisms, such as liquidation of productive assets and borrowings, resulting in impoverishment.

Low public spending on education has been one of the key factors for a large proportion of children in the country still not being able to attain school education beyond the elementary level. India must significantly increase its public spending on health and education and ensure effective targeting to reduce people’s out-of-pocket expenses. 

No doubt, economic growth indirectly also contributes to human development by giving individuals and the government a greater command of resources to spend on health and education, among other things.  However, the pace of such contribution is extremely slow, with India’s HDI score improving by only 0.20 (to 0.64 from 0.44 out of a value of one) over the last 30 years. Despite being one of the fastest-growing economies in the world during the last several years, India lags its peers in key health and education indicators, let alone advanced economies. India cannot rely only on the trickle-down effect of economic growth on human development. It needs to prioritise human development by taking direct, specific, and affirmative policy measures. It is only then that India can realise its full economic growth potential.

The writer is a senior fellow at the Centre for Social and Economic Progress, and a former executive director, Reserve Bank of India. The views are personal