Priority for human development

There is much discussion now about India becoming a developed country by 2047 or before. For this to happen, we will need changes in several areas of development policy. The top two areas of policy where substantial change was required would be human development, particularly education and health, and technology innovation. In some ways the second depends to a significant extent on the first and hence my focus on priority for human development. The national accounts data shows that in 2021-22 education and health had a modest size in our economy, accounting for 4 per cent and 1.6 per cent, respectively, of the gross value added. This will have to change if we aim to become a developed country. Education and health matter not just for growth but are also as an essential part of the goals of development, which should include the quality of life of individuals.

A correlation between the rate of economic growth and some measure of human development does not tell us whether high economic growth leads to better human development or whether better human development leads to high economic growth. A better understanding requires a more careful statistical analysis.
 

A recent article by Janak Raj, Vrinda Gupta, and Akanksha Shravan does this for the link between the human development index (HDI) as measured by the United Nations Development Programme and economic growth at the state level for 1990-2019.[1] Their analysis shows a long-run relationship between the HDI and economic growth in India. But the relationship in terms of causality is bidirectional, which means that accelerated growth requires higher human development and improvement in human development requires growth. They could not find a clear impact of public spending on education and health on the HDI. An analysis of the impact of education shows improvements in primary education have no discernible impact on inter-state growth variations but that improved secondary education has a significant impact on growth in agriculture and manufacturing and improved higher education on services.
 

Could the lack of impact of public spending be a result of an inadequate level of funding? According to the World Bank’s Development Indicators, in India government spending on education as a percentage of government expenditure was about 14.7 per cent in 2021 —broadly comparable with the data for lower middle-income countries. However, government spending on health, which was 3.5 per cent of government expenditure in 2018, was significantly below the 5.1 per cent in lower middle-income countries.
 

How dependent are education and health on spending by the Union and state governments? The two account for about 80 per cent of the national accounts sector labelled “Other Services”. The public sector accounted for 17 per cent of gross fixed capital formation (GFCF) in “Other Services” and 83 per cent came for the private sector and households. The relative neglect by the governments is reflected in the fact that the share of “Other Services” in public-sector GFCF was just 5.9 per cent in 2021-22.

The outcomes in education and health have been disappointing. The recent report of Pratham titled “Annual State of Education”, which focuses on students in the 14–18 age group, states that 25 per cent in this category cannot read a standard II level text fluently in their regional language and more than half struggle with division (three-digit by one-digit) problems. The quality problem among younger students is worse.
 

As for health outcomes, there are positive developments, for instance in the reduction in infant mortality. But the persistence of under-nutrition in children and the continuing prevalence of communicable diseases are two aspects of underperformance. The crucial defect is the inadequacy of public provision for poor people. The out-of-pocket expenditure of households accounted for 52 per cent of current health expenditure, according to the health ministry data and a significant part of this is because of the inadequate provision of free medicines even in public health facilities. A recent study using data from Consumer Expenditure Surveys estimated in 2011-12 around 46 million people faced catastrophic health expenditure, amounting to 10 per cent or more of their total expenditure, usually for extreme illnesses. In such situations they are forced to sell productive assets, borrow money, and sometimes even reduce expenditure on education by moving children to inexpensive schools and many move into the poverty category.
 

Substantial improvement in human development will depend both on higher and better-organised public spending and on promotion and policy regulation of private activities in education and health development.
 

The primary focus of public policies and spending on health care has to focus on its impact on people’s lives rather than on an economic impact. The primary focus had to be on reducing the substantial out-of-pocket expenditure incurred by poor households. In fact, the impact on poverty looks even worse when one takes into account the costs incurred on travelling out of a village or small town for treatment.
 

A broader approach to health care that also seeks to improve the environment will have an economic impact. I remember a nutrition specialist who advised the Planning Commission that safe water supply was a more reliable way of improving nutrition than supplementary food supply. One must also recognise that better health will have an economic impact. I remember a vigorous argument by an eminent economist from Punjab that malaria eradication was a contributory factor in the advancement of agriculture in the state.
 

The spread of schools and colleges is now widespread. One exception is the need for a better spread of higher education for engineering. The challenge is improvement in the quality of education not by rewriting textbooks for political reasons but better teaching —from primary schools to higher institutes. This requires a rigorous performance assessment system for public and private educational institutions. If Pratham, a non-government organisation, can undertake plausible performance assessments, why can the states not set up a more comprehensive system for this purpose? A more radical approach to promote better performance in higher education would be to shift public funding from grants to institutions (and abolishing the excessively dominant University Grants Commission) to grants or loans to students and rely on them to choose institutions on the basis of established teaching quality.
 

A substantial emphasis on health and education advancement will require substantial and variable innovative actions by state governments as the underlying reasons for underperformance vary. In any case the Union government’s spending on health and education is significantly smaller than that of states, particularly if one deducts spending for working and retired employees. Hence the Union government should allow federalism to function more effectively if it wishes to push human development at a pace that is required for attaining the long-term objective that it wishes to promote.

[1] Janak Raj et al, Internal linkages between economic growth and human development in India, Indian Public Policy Review 2024,5.1:113-155

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