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Tuesday, 9 February 2016

A Data-Driven Baseline for Understanding Indian Development


Written by Dr. Seshadri Kumar, 11 February, 2016

Copyright © Dr. Seshadri Kumar.  All Rights Reserved.

For other articles by Dr. Seshadri Kumar, please visit http://www.leftbrainwave.com

Disclaimer: All the opinions expressed in this article are the opinions of Dr. Seshadri Kumar alone and should not be construed to mean the opinions of any other person or organization, unless explicitly stated otherwise in the article.

Disclaimer 2: Every attempt has been made to ensure the accuracy of the data presented herein. However, it is always possible that some errors may have crept into the work, despite the most diligent efforts of the author. The author accepts the responsibility for any errors found and humbly requests those who may find these errors to inform him via comments and the same shall be rectified if found to be in error.

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Abstract

The word “development” has been bandied around quite freely in Indian economic and political discourse recently, without much understanding of what it really entails. This study attempts to provide a quantitative baseline for development in India by identifying key development indicators and then studying how these indicators are changing in India, based on data from three past governments at the centre in India: the NDA government of 1999-2004 and the UPA governments of 2004-2009 and 2009-2014.

Development is a complex concept comprising a number of macroeconomic, financial, infrastructural, health, social, environmental, and innovation dimensions. This study explores 38 key indicators comprising all these dimensions. These are: GDP, GNI per capita (PPP), exports, FDI, GCF, total reserves, percentage of non-performing loans, bank capital-to-assets ratio (CAR), inflation, unemployment rate, electricity consumption, energy consumption, highways, railways, container traffic, internet penetration, mobile telephony, transport investment with private participation, telecom investment with private participation, energy investment with private participation, ratio of industry and services to agriculture, population growth rate, sanitation, clean water, life expectancy, under-5 mortality, measles immunization, DPT immunization, gender parity, secondary school enrolment, adolescent fertility, total fertility, forest cover, protected area percentage, trademark applications, patent applications, new businesses registered, and hi-technology exports.

The achievements and shortcomings of the two administrations with respect to these development indicators should give pause to those who are interested in the future of Indian development and should help them define more sharply what is meant by development in a quantitative way and how much can realistically be achieved. 

Introduction

For the last 3 years, probably the most overused word in Indian political and economic discussions has been the word “development” – or its Hindi equivalent, “vikas.”

This topic took centre stage starting in 2013, when the election campaign for the 2014 general elections began. The present government, led by Mr. Narendra Modi, came to power in a landslide victory in May 2014 mainly on the promise of much better development than the previous ruling dispensation. Even after that victory, the topic of development has been the focus of much debate.

But better development relative to what?

The term development has been very loosely defined. Economic development encompasses many dimensions – macroeconomic, financial, infrastructural, environmental, social, health, financial, and scientific. Political parties, in their posturing, have often chosen to constrain the debate in narrow ways so as to benefit themselves. For example, the BJP has often talked about its government’s achievements in the road sector, while the UPA has focused on malnutrition and declines in the Human Development Index (HDI).

How can one talk of more development unless one understands what the current state of the nation’s development is? What are the different facets of development and what is the country’s current status on each of these aspects? And, finally, what kind of growth has historically taken place in the country in the sphere of development? These questions have to be answered if we need to critically evaluate the performance of an elected government with regard to economic and social development.

Developing a baseline on the key components of development and understanding the historical data on development is the focus of this article. I have focused on what has been achieved in the three governments preceding the current one – the UPA governments of 2004-2009 and 2009-2014 and the NDA government of 1999-2004. Once we have a clear idea of what the current and past development indicators of India are, we will be in a position to engage in a more meaningful and intelligent debate on what "greater" development to expect from the present government.

To do this, I have used the most reliable data I could find – that from the World Bank. The World Bank has data on an astonishing number of parameters from every country, which it gleans from various sources, chiefly the countries’ own statistics offices, such as the Ministry of Statistics, Planning, and Implementation (MOSPI) in India. Since the website of the World Bank is much easier to navigate than the website of MOSPI, I have chosen to take data from the World Bank website.

Metrics/Indicators

I have categorized the various development indicators into the following buckets:


·       Economic and Financial
o   Gross Domestic Product (GDP) Growth Rate
o   Gross National Income (GNI) (Based on Purchasing Power Parity - PPP) Per Capita
o   Total Exports
o   Inflation
o   Unemployment Rate
·       Infrastructural
o   Electricity Consumption
o   Energy Consumption
o   Highways
o   Railways
o   Container Traffic
o   Internet Penetration
o   Mobile Telephony
o   Transport Investment with Private Participation
o   Telecom Investment with Private Participation
o   Energy Investment with Private Participation
o   Ratio of Industry and Services, Combined, to Agriculture
·       Health
o   Population Growth Rate
o   Sanitation
o   Clean Water
o   Life Expectancy
o   Under-5 Mortality
o   Immunization – Measles
o   Immunization – DPT
·       Social
o   Gender Parity
o   Secondary School Enrolment
o   Adolescent  Fertility
o   Total Fertility
·       Environmental
o   Forest Cover
o   Protected Areas
·       Innovation and Science
o   Trademark Applications
o   Patent Applications
o   New Businesses Registered

o   High-technology Exports

·        The World Bank site has many more metrics, but data on several of them is incomplete and too scarce to make a comparison. Also, data on highway construction was not available. I had to use data that I had previously collected (see here) to get the data – and it is not as fine-grained as the rest of the data, so the reader may see a difference in the way it is presented.

Methodology

The results shown in the next section are based on data for all the above metrics from the last three governments: NDA (1999-2004) and UPA (2004-2009 and 2009-2014). Understanding this data should serve to help understand what may be possible in the future. Averages shown are multi-year averages over the period of rule of the NDA (5-year) or UPA (both 5-year and 10-year), to the extent that data is available (some data was not available beyond 2012, for example).

Some data are presented only as averages because there is no logical reason to expect them to increase each year. In other categories, especially health and social indices, it makes logical sense to compare overall percentage improvement over the duration of the rule of the party, because those indices are expected to improve with time. Similarly, growth rates may vary from year to year depending on various factors, including international market conditions, oil prices, and the like, so it makes most sense to look at long-term averages. FDI is also something that can, technically speaking, vary from year to year; however, it is an accepted national objective to increase the level of FDI in the Indian economy, and so it makes sense to track its percentage growth rate. 

Also, in some cases, increases are shown rather than or in addition to percentage increases because the starting value may have little to do with the final value. One example of a case where I have preferred to use increases rather than percentages is in mobile telephony: here the starting number for the NDA government was so low that percentage improvements would lead to drastically high and meaningless percentage increases – mobile telephony was only starting then.

In any case, the raw numbers are there in case someone wishes to interpret them differently. I have chosen the method that seemed to me most appropriate for any given data set.

Some of the data will favour the party which ruled most recently. For example mobile phone and internet penetration will favour the UPA because the technology has greatly developed in the last 15 years.

One other thing to keep in mind while interpreting the data is that the UPA had 10 years of rule whereas the NDA had only 5 years. So in some categories where a long-term improvement trend is expected, it would be reasonable to expect that the UPA’s overall improvement rate should be roughly double that of the NDA. For this reason, the individual statistics for UPA-1 and UPA-2 are also provided. 

Another fact worth noting is that improving health and social metrics from a higher base is more difficult than improving them from a lower base. So, for example, the UPA and NDA rates of improvement of access to clean water are comparable; however, the UPA’s achievement is greater owing to starting at a higher base.

It is notable that on many of the social metrics, despite starting at a higher base, the UPA’s performance has been impressive. For example, on Under-5 mortality, the UPA’s improvement is 36% compared to the NDA’s 15%. Similarly, the UPA seems to have shown remarkable effort in last-mile immunization efforts, as its 28% improvement in DPT immunization relative to the NDA’s 9% shows.

Summarized Results

Economic and Financial Metrics

·       GDP:

·       GNI Per-Capita Based on PPP (USD):


       The GNI is different from GDP in that it accounts for all income, including income generated abroad. The figures reflect purchasing-power parity (PPP) - essentially, based not on just the exchange rate but on what money can actually buy.


·       Total Exports (Billion USD):

·       FDI (Billion USD):

·       Average Gross Capital Formation (GCF):
     
       The GCF measures how much of a country's income is invested in generating new fixed assets instead of just being saved. This is important for a developing country like India.

·       Total Reserves (Billion USD):
·      
     Non-Performing Loans (% of Total Loans):

       A Non-Performing Loan is a loan that is given by a bank and not repaid for a variety of reasons, such as the business that borrowed the money failing. Often there is an element of corruption involved, as the bank manager may know in advance that this is a bogus business. A high percentage of non-performing loans means the bank is susceptible to collapse and is bad for a country's economy.

      Bank Capital-to-Assets Ratio (CAR):
      
       The CAR is the ratio of a bank's capital to its risk. A high value means that the bank can absorb a certain amount of loss without collapsing. The higher the CAR value, the more stable the economy and the safer consumers are in depositing their money in the bank. This, in turn, enables the bank to lend money to businesses to boost growth. Note that some approximations had to be made in getting the above figures, since data were not available for 1999, 2004, 2005, and 2006.

     Inflation Rate:

       Inflation clearly rose significantly in UPA-1 after being low for all of the NDA years, and then came down in UPA-2.

     Unemployment Rate:

The unemployment rate came down during the UPA years because of the tremendous growth of the economy.

Infrastructural Metrics:

·       Per-Capita Electricity Consumption (kWh):

     Per-Capita Energy Consumption (kg of Oil Equivalent):

       High per-capita electricity usage and energy usage are desirable in a developing country like India because they indicate that the country is getting more industrialized and modernized. Electricity demand is important because of both rural electrification and industrial electricity use, and energy consumption in terms of fuel is also important as an indicator of industrialization. For the energy consumption table, data were not available in the World Bank database for 2013 and 2014, so the actual figures for UPA-2 might be better.

·       Total Length of Highways, Km (data from this study):

       Highways are a crucial part of infrastructure development, as are railways. Highways are extremely important because of their ability to transport containers, and railways are needed for really large-scale freight transport.

·       Total Length of Railway Lines (km):

·       Total Container Port Traffic (Measured in Million 20-Feet Units)

       Container port traffic is affected both by the quality and capacity of sea-ports as well as the downstream infrastrucure of highways.

·       Internet Penetration (Number of Connections Per 100 People):

·       Mobile Telephony (Number of Subscriptions Per 100 People):

      The telecom revolution happened during the UPA years - both UPA-1 and UPA-2. This was an important part of development, as it allowed the nation to leapfrog over the limitation of conventional phone lines. The internet boom has happened mainly during UPA-2.

·       Transport Investment With Private Participation (in Billion USD):

·       Telecom Investment with Private Participation (in Billion USD):

·       Energy Investment with Private Partnership (in Billion USD):

      These three are measures of privatization in key infrastructure areas. The UPA-1 government seems to have done outstanding work, but privatization in infrastructure suffered heavily during UPA-2. Privatization is necessary because it brings funds to infrastructure projects through debt and equity and allows faster growth in infrastructure. This allows the government to develop more infrastructure than it could with tax revenues and cesses alone.

     Ratio of Industry and Services, Combined, to Agriculture:

      This is an important metric for a developing country, especially a traditionally agrarian economy like India. There are three main sectors of any economy: agriculture, industry, and services. The conventional wisdom is that the share of agriculture in the nation's economy needs to go down and the share of the industry and services sector should rise for the country to become a developed country. For instance, the USA's share of agriculture in GDP is around 1.4% of GDP; the corresponding figure in the UK is 0.7%; in Russia it is 4.2%; in Italy it is 2.2%; and in France it is 1.7%. The remaining share is that of industry and services. India's combined share of industry and services should aim to be close to 90-95%; we are still far away from that, but it is improving.

Health Metrics:

·       Population Growth Rate (%):

      The population growth rate in India has been steadily decreasing for a few decades now, and the numbers are near constant across all governments. This is because population control measures such as family planning education that were started decades ago have been continued steadily by successive governments.

·       Sanitation (% of Population With Access to Better Sanitation):

      As can be seen, improvements in sanitation have been happening at a steady rate over the years, but the absolute numbers are abysmal. Even at the end of UPA-2, only 40% had access to clean sanitation. It remains to be seen how much the present government's "Swacch Bharat" initiative can remedy this situation.

·       Clean Water (% of Population With Access to a Clean Water Source):

      Even though the absolute increases seem about the same for all the three governments, the achievement is greater for the latest government, because achieving the same absolute increase at a higher base is more difficult (harder to access deeper rural areas, etc.) This is especially true for the clean water figures as the numbers are approaching 100%.

·       Life Expectancy (Years at Birth):

·       Under-5 Mortality (Per 1000 Children):

·       Measles Immunization (% of Children Aged 12-23 Months):

·       DPT Immunization (% of Children Aged 12-23 Months):

      Most of the health-related metrics are constant across governments, because they are the result of long-term public health policies, such as vaccination, that have continued unabated across administrations.

Social Metrics:

·       Gender Parity Index (Ratio of Girls to Boys in Primary and Secondary School):

      Although the NDA government's performance seems much better on the basis of percentage increases, it should be noted that the ratio was already 0.9 by the start of the UPA government and they did not have much room to improve - the ideal of near 1 was reached during the first UPA administration itself. Also note that data were not available for 2004, 2013, and 2014.

·       Secondary School Enrolment (% of Children Enrolled):

      Again, the data were not available for 2013 and 2014, so data from 2012 was used to calculate the % increase and the end value. Hence the figures for UPA-2 and the overall UPA improvements might be understated.

·       Adolescent Fertility Rate (Births Per 1000 Women Aged 15-19):

·       Total Fertility Rate (Births Per Woman):

       The same continuous improvement story continues in these health/social metrics. For total fertility, too, as before, data was not available for 2014, so the numbers for UPA-2 might be below actual values.

Environmental Metrics:

·       Forest Cover (Total Area, sq. km.):

      Data were not available for 2013 and 2014.

·       Protected Areas (% of Total Area):

        It is difficult to comment on these environmental metrics. Increasing forest cover is not easy in a developing nation with constant demand on land for housing. Creating protected areas is an important part of environmental conservation, and creating new sanctuaries is getting progressively more difficult.

Innovation and Technology Metrics:

·       Number of Trademark Applications, Annual:

·       Number of Patent Applications, Annual:

      In both these metrics of innovation, the UPA-1 government has an outstanding record. Data for both these categories were not available for 2014, so 2013 data was used as the final point.

·       Number of New Businesses Registered:

       There was no data on this metric for the NDA years. But the pace really seems to have increased in UPA-2.

·       Average Hi-Tech Exports (% of Total Manufactured Exports):

        Clearly, the percentage of high-tech exports has been increasing with time, with the UPA-2 government having the best figures. One key reason is the continuing influx of software companies into India, which now has a momentum of its own.

Summary

Development as a concept has been given a quantitative basis by characterizing India’s development using 38 key indices. The performance of the past three governments has been analysed using these indices. The 2004-2009 UPA government seems to have done better in most of the indices than the other two governments; but there are areas in which the other two governments have also done better. Together, the high watermarks of these three administrations give us an idea of how much development has been possible in India in the past.

These results are important in setting expectations of the current government. It is well-known that this government was elected on the promise of greater development. Until now, what exactly greater development meant has remained quite vague. It is hoped that this study will give much-needed clarity to the concept of development in the Indian context and that citizens of India will now understand what benchmarks the present government needs to exceed in order to fulfil its promises and take India on a higher-growth trajectory.

Acknowledgments


I would like to thank my wife, Sandhya, for her valuable inputs and thoughtful and intense discussions which have greatly helped improve the quality of this article. I would also like to thank my friend Nilesh Rathi for reading an early draft of this article and for offering valuable suggestions that have greatly improved the article.

Appendix: Graphical Year-By-Year Results

In the previous sections, the summarized results were presented and discussed. To get a more fine-grained idea of the trends in the development indices, these are graphed on a year-by-year basis. The data for all three administrations (NDA, UPA 1, and UPA 2) are shown as a function of the year of their administration. So, for example, Year 1 would correspond to 2000 for the NDA (their first completed year), 2005 for UPA 1, and 2010 for UPA 2.