Failure to address issues such as education and health will have consequences for growth

The impact of the reforms of the 1990s on the economy — production, distribution and consumption of goods and services — is very visible. But visibility does not necessarily imply pervasiveness.

The ultimate objective of economic reforms is an improvement in the living standards of the majority of the population. However, it is not sufficiently evident that the reforms have succeeded on this count.

Experts have tried to settle this by looking at poverty figures. The debate heated up especially after the latest NSS results. But methodologies of measuring poverty can be debated endlessly.

Moreover, measurements keep improving (read changing), making numbers incomparable over time. Human Development Reports from the UNDP don’t help either. The Human Development Index (HDI) is good for comparisons between countries because the construction of the index for a particular year follows the same methodology for all countries.

But as with the NSS poverty figures, over time the variables used for calculating the index are not strictly the same. Thus, it cannot be used for inter-temporal comparisons.

Ignoring this, we can make a time series of the indices. But, these are available only for the 1990s. This makes it difficult for us to compare human development in India in the 1990s with that in the 1980s.

So then, how do we compare the improvement in human development in 1990s with that in the 1980s? In an ongoing project at NCAER, we have attempted to solve this problem by looking at a number of other indicators.

As these are to be incorporated into a macro-econometric model of the Indian economy, the choice of variables was dominated by the availability of time series data. Since macro-modelling usually ignores human development variables, there was no ready-made series available for our purpose.

Our choice of variables is simple — figures that reflect improvements in the living standards of the population. The indicators include health, education and income variables as in the HDI. But these are statistics that are published annually, easily available and they allow inter-temporal comparisons.

The evidence we found is worrisome. Not only did the reforms not usher in a decade of rapid improvement in the living standards, statistics show that improvement actually slowed down compared to the 1980s.

Health statistics reveal the effect of health programmes as well as living conditions such as education and income of parents, nutrition, clean and potable water, sanitation and general awareness pertaining to diseases. As most of the data (available till 1997 or 1998) reveal, rather than speeding up improvements in infant mortality rate and the child mortality rate (children dying below five), the 1990s experienced a deceleration in the pace of improvement.

For instance, in the 1980s the infant mortality rate declined at 2.71 per cent per annum. This was a sharp improvement over 0.62 per cent for the 1970s. In the 1990s, the rate fell to 2.48 per cent!

Similarly, the rate of decline of the child mortality rate sharply improved in the 1980s. It accelerated from an annual rate of decline of 1.40 per cent in the 1970s to 4.02 per cent in the 1980s. But then it fell dramatically to 2.70 per cent in the 1990s.

Improvement in education levels also slowed down in the 1990s. Though enrolment in school does not necessarily imply attendance, and dropout rates are high, these numbers can still be illustrative.

But figures for the gross enrolment ratio (GER) for primary schools are often strange. It rises to above 100 per cent in many years because senior children are sometimes shown to be enrolled in primary schools. It is difficult to interpret an increase in enrolment from, say, 104 to 106 as an improvement!

But enrolment in upper primary and middle school should imply that the child has passed primary school. Also, the numbers move more or less with the decadal census figures for literacy. Looking at the rate of improvement in this figure, we find a slowdown in the 1990s.

While in the 1980s the annual average rate of increase in enrolment was 3.91 per cent, in the 1990s the rate fell to 0.18 per cent. Hopefully, the HRD ministry has got its numbers wrong and the revised figures will reveal that the deceleration was not so drastic!

It is not obvious why this slowdown in both health and education indices took place. Why was the very sharp acceleration in improvement from the 1970s to the 1980s reversed in the 1990s?

One reason is, of course, income growth. Surprisingly, even total output growth rate in the decade was lower than in the previous one. While the average annual growth rate of real gross domestic product in the 1980s was 5.86 per cent, in the 1990s it fell to 5.77 per cent.

Though the population growth rate fell in the 1990s, making per capita income grow much faster, slower income growth meant that the acceleration was only marginal. Per capita income rose from an annual average rate of 0.55 per cent in the 1970s to 3.39 per cent in 1980s, but only to an annual average of 3.61 per cent in the 1990s. These numbers, of course, ignore issues of distribution of income, which are very relevant.

In addition, the commitment to cut the fiscal deficit resulted in a reduction in public spending on health and education. This means expenditure on water, sanitation, etc. As regards education, it includes expenditure on primary, secondary and higher education by both central and state governments.

The annual average increase in both health and education expenditures was a little over 17 per cent in the 1980s. This rate decelerated to a little over 15 per cent in the 1990s. Again, these are aggregate numbers that ignore distribution across programmes, regions and recipients, as well as issues relating to the efficacy of public expenditure.

Clearly, there is a need to examine the reasons for these trends in greater detail. Failure to address these issues clearly cannot be a path to sustained long-run growth in the economy. Even if we allow ourselves to be obsessed with visible indicators of growth such as output growth, growth models of the 1990s clearly reveal that no country has been able to move to a higher growth path without an improvement in its core strength — the human capital invested in its population.