Understanding HDI, Poverty, Inflation, and Economic Policies in India

Posted on Feb 28, 2025 in Economy

Understanding Key Economic Concepts and Policies in India

The Human Development Index (HDI)

The Human Development Index (HDI) is a composite index that measures a country’s average achievement in three areas of human development: access to knowledge, a decent standard of living, and a long and healthy life. The United Nations Development Programme (UNDP) introduced the HDI in 1990 to provide a more comprehensive measure of human development than traditional economic indicators.

The HDI value ranges from 0 to 1, where:

  • 0 indicates the lowest human development (e.g., extreme poverty).
  • 1 indicates the highest human development (e.g., very high-income countries with excellent health development).

Poverty

Poverty is a condition in which individuals or groups lack the financial resources and essentials for a minimum standard of living, including basic needs such as food, shelter, clothing, education, and healthcare. It can be categorized as:

  • Absolute Poverty: Refers to a situation where individuals cannot meet basic physical needs, leading to severe deprivation of resources.
  • Relative Poverty: Involves individuals whose income is significantly lower than the average, impacting their ability to participate fully in society.

Inflation: Demand-Pull and Cost-Push

Demand-pull inflation is created by the pressure of excess demand in the market. If aggregate demand exceeds aggregate supply, there will be upward pressure on the aggregate price level. Keynesian economics uses this to describe what happens when price levels rise because of an imbalance in aggregate supply and demand. When aggregate demand strongly outweighs aggregate supply, prices go up. Economists describe demand-pull inflation as “too many dollars chasing too few goods.”

Cost-push inflation occurs when overall prices increase (inflation) due to increases in the cost of wages and raw materials. Higher production costs can decrease the aggregate supply (the amount of total production) in the economy. Since the demand for goods hasn’t changed, the price increases from production are passed on to consumers, creating cost-push inflation. It is caused by an increase in prices of inputs like labor, raw materials, etc. The increased price of the factors of production leads to a decreased supply of these goods. While demand remains constant, the prices of commodities increase, causing a rise in the overall price level.

Economic Structure Planning Policies and Factors

Key Government Programs:

  • Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA): Guarantees 100 days of wage employment to rural households, providing a safety net and reducing income disparities.
  • National Food Security Act (NFSA): Provides subsidized food grains to a significant portion of the population, ensuring food security for the most vulnerable.
  • Pradhan Mantri Jan Dhan Yojana (PMJDY): A financial inclusion scheme providing bank accounts to all adult Indians, ensuring access to financial services.
  • Pradhan Mantri Awas Yojana (PMAY): Aims to provide affordable housing to all by 2025.
  • National Health Mission (NHM): Aims to improve healthcare access and outcomes, particularly for women, children, and marginalized communities.

NITI Aayog’s Role:

  • Provide policy advice to the government.
  • Foster cooperative federalism between the central and state governments.
  • Conduct research and analysis to inform policy decisions.
  • Promote technology and innovation.

Major Factors Influencing Economic Outcomes:

  • Inequality in the distribution of income and wealth: Despite increasing national income, distribution remains uneven.
  • Unemployment and underemployment: Significant unemployment and underemployment, particularly in rural areas, contribute to poverty.
  • Low per capita income: A low per capita income indicates low purchasing power for the average person.
  • High rate of population growth: Increased dependency burden due to high population growth.

Types of Unemployment in India

  • Open Unemployment: A situation where a large section of the labor force does not have a job that provides a regular income. This is easily observable and measurable.
  • Disguised Unemployment: A situation where more people are employed than are actually needed. Even if some are removed, production does not decrease. This is common in agriculture.
  • Seasonal Unemployment: Unemployment that occurs during certain seasons of the year, common in industries like agriculture and tourism.
  • Chronic Unemployment: Long-term unemployment, often due to a rapid population growth and inadequate economic development.