This post has been authored by Shrutika Joshi , Economic Analyst Intern at Arthashastra Intelligence.

The three letters “GDP” are enough to make a headline, be it any economy. Gross Domestic Product (GDP) is one of the most common indicators used to track the health of a nation\’s economy. The calculation includes number of factors like investments, consumptions of goods and services, productions etc. According to latest updates, India’s Gross Domestic Product (GDP) contracted by 7.3% in 2020-21 however Government hopes to reach pre-covid level by next fiscal. Q1 of FY 2022 is expected a growth of 20.1% against 24.4% dip in the same quarter of FY 2021. But can GDP be the only factor which indicates economic growth? Keeping in mind that India is facing humanitarian crisis along with economic crisis, what about development, specifically human development? It is observed that Human Development Index (HDI) doesn’t get equal importance like GDP. Today we shall go deeper in the relation between India’s economic growth (GDP) and Human Development.

India has been experiencing stable economic growth in the past, especially from 2003 to 2007 until the economy experienced a spillover effect of the Global Financial Crisis. The GDP (%) was in the range of 7.5% – 8% for those 5 years. It drastically dipped to 3.08% in 2008 which was very much anticipated. The lesser open nature of Indian economy helped the growth to accelerate at a faster pace and India again saw a GDP of 7.8% in 2009 and 8.5% in 2010 (an all-time high since 2000).  Economic growth saw a deceleration in 2011 mainly due to the slow growth of major sectors like agriculture, manufacturing, construction. It accelerated till 2016, and reached the 8% point and saw a dip in 2017. Implementation of GST was the reason this time. This was just about the economic growth. Did the economic growth have a positive effect on human development in India? The visual below shows us the relation. It can be clearly seen that HDI has been increasing since the beginning but has reached a flat curve zone in the recent years. Of course, that doesn’t state the relationship between the two major factors of an economy.

Let’s now focus on some statistics. The Correlation between economic growth and Human Development Index will tell if growth induces Human development or not. From the figure below, there is absolutely no correlation between the two variables. Hence, we can say that in India, economic growth and human development don’t go hand in hand. The correlation coefficient estimated between the two variables was very low, only 0.28.

In addition to human development index, there are indicators like GINI Index which measure inequality. According to World Bank Estimates, GINI coefficient in 2011 was 35.7 % which increased to 47.9% in 2018. This shows that even with economic growth, the inequality persists. Today, when the entire globe is dealing with their own economic growth and pandemic, it has become more harder for India to keep a stable growth and avoid inequality trap. Income inequality has increased and the standard of living has degraded for majority of population in India. This would mean that future estimates of HDI, GINI and other economic variables are going to be beyond expectations.

From the entire story, it is very much clear, that GDP growth in India has very little or no impact on the development index per se. But one must note that there are several other factors which indicates economic growth and development like investments in various sectors, extreme heights in stock market returns, Gross Value Added, Capital Formation etc.

Lastly, the question remains, will India ever come out of the inequality trap? We shall discover that pretty soon.

References

• Dibyendu Chaudhuri, P. G. (2021, March). Why inequality is India’s worst enemy. Retrieved from Down to Earth: https://www.downtoearth.org.in/blog/economy/why-inequality-is-india-s-worst-enemy-75778
• India’s economic growth story revives, but what picture are Q1 GDP numbers painting? (2021, September). Retrieved from Financial Express: https://www.financialexpress.com/economy/indias-economic-growth-story-revives-but-what-picture-are-q1-gdp-numbers-painting/2324147/
• Misra, U. (2021, Aug). Explained: India’s GDP fall, in perspective. Retrieved from The Indian Express: https://indianexpress.com/article/explained/india-gdp-gdp-fall-7-3-per-cent-in-perspective-modi-govt-coronavirus-economy-7338852/
• Data for HDI from United Nations Development Program Human Development Reports . (n.d.). Retrieved from http://hdr.undp.org/en/data
• Data for GDP (Annual Growth %) from World Bank Open Data. (n.d.). Retrieved from https://data.worldbank.org/