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GDP or HDI - how to measure a nation’s development?

Economic development and human well-being are often assessed using two major indicators: Gross Domestic Product (GDP) and the Human Development Index (HDI). GDP, widely used as a benchmark for economic growth, measures the total monetary value of all goods and services produced within the national territory in a given time period. Whereas, Human Development Index (HDI) measures development more holistically and includes dimensions of health, education and income, thereby providing a more rounded perspective on human well-being and overall quality of life. 

While GDP reflects economic productivity, HDI includes social factors that contribute to human well-being. For example, countries with high GDP may not have high HDI if wealth is unequally distributed or if healthcare and education services are underdeveloped.

To illustrate the above, given below is a table comparing GDP and HDI of selected countries: United States, Germany, Brazil, India, and Nigeria. These countries represent a range of income levels and development standards.

World Bank. “World Development Indicators: GDP and GDP per capita.” Accessed 2023. https://data.worldbank.org. United Nations Development Programme. “Human Development Index (HDI) Data Center.” Accessed 2023. https://hdr.undp.org/data-center/human development-index.

Key Takeaways:

United States - has a high GDP and is one of the world’s leading economies, yet it ranks lower in HDI compared to countries with similar economic output. Issues like income inequality, limited healthcare access, and high living costs contribute to its lower HDI rank. This means that high GDP does not guarantee high quality of life as social services and equitable income distribution are essential. 

Germany - demonstrates balanced development with both high GDP and HDI. Its comprehensive social welfare programs, universal healthcare and quality education contribute to a high HDI. Germany’s HDI ranking illustrates that strong economic policies combined with social welfare result in higher quality of life.

Brazil - is an example of an emerging economy where GDP growth does not fully translate to high HDI. While Brazil has made significant progress, it faces challenges in reducing income inequality, improving public health, and enhancing education access. This implies that economic growth in emerging economies does not always lead to immediate improvements in HDI. 

India - has a growing GDP that reflects in its rising economic power, but its HDI remains low due to challenges in healthcare, education and uneven distribution income. Rapid urbanization has also created issues such as pollution and housing shortages. 

Nigeria -  has low GDP and HDI. These are attributed to factors like political instability, low income levels, limited access to healthcare and education. Despite being an oil-rich country, the benefits of this wealth are not evenly distributed, affecting human development. 

Conclusion:

Combined use of GDP and HDI is essential for understanding true development in a nation. This balanced approach allows governments to design policies that foster both economic and social progress, ensuring improved quality of life for all citizens. Only when both GDP and HDI are focal points, will the economy experience sustainable development.

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Economic Impact of the Changing Demography of India & China – A comparative Analysis

China and India have the greatest populations worldwide, that have grown phenomenally in the last few decades. However, with all the population control measures, both countries are expected to lower their population in the near future, with China reducing its population far more effectively than India.

As can be seen in the table above, while the populations of the two nations are nearly the same now, India is expected to add almost 270 million more people by 2050, while China will actually see a 30 million decline in population.

An interesting observation is that the size of China's primary working-age population (25-64 age group) has already peaked, while India's labour force is anticipated to reach its peak in 2050. India's workforce age population is predicted to reach around 800 million, which is about the same as China's current working population.

It is only due to this expanding workforce population, both China and India's GDP growth appears certain to be unprecedented, going forward. Although India may take longer to reach China’s level in the near future, both countries will nevertheless achieve significant GDP growth by 2050, overtaking the growth rate of developed countries such as the USA.

India and China may have struggled with enormous problems due to their respective populations, but it is this very population that will be the reason for these countries to be the ‘rising powerhouses’ of the East.

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Rupee Depreciation & Its Effect on Common Man

The Indian rupee weakened to a lifetime low of 87.582 per US dollar on Thursday, Feb 6, 2025 before closing at 87.577/$1.  To a common man, this weaker rupee means that now one needs more rupees to buy a single dollar than he did earlier.

Source: https://wise.com/in/currency-converter/usd-to-inr-rate/history

In further clearer terms, if a year ago, it required ₹74 to purchase $1, now it will take ₹87.5 to buy the same dollar. This depreciation also means that the imported products will become costlier. So, an importer that brings in an item costing $100, will now have to shell out ₹8,750 compared to ₹7,400 a year ago. Therefore, a weak rupee increases the import bill of the country as a whole since importers pay in dollars. This causes the cost of importing edible oils, pulses, fertilisers, oil and gas. The most significant impact is on oil and gas imports, as India's import dependency on crude oil is nearly 88%. And unfortunately for the common man, costlier the crude oil (the raw material to create petrol and diesel), costlier is transportation, and therefore costlier are all other goods that need transportation across the country. Thus, the falling rupee causes overall inflation in the economy.

The effect of rupee fall can also be seen in specific ways. A few listed as below: Impact on expenses: Higher inflation ultimately means the household budget gets tighter due to reduction in purchasing power with increase in cost of living. One needs to pay more for everything, from groceries and clothing to transport. Even electronics such as phones and laptops will become costlier since most of the components for these devices are imported. Overseas education or even foreign trips need a bigger budget as one will have to pay more rupees for the same goods and services abroad.

Impact on business: A positive impact of currency depreciation is that exports become cheap. This is because export companies receive payments in dollars, which they exchange for more rupees. Hence, export-oriented sectors such as pharma, IT, auto, gems and jewellery will benefit from the depreciating rupee. On the other side, importers feel the heat from a falling rupee.

Drop in savings: Since most people tend to have fixed incomes, inflation can impact savings too. As one spends more funds on consumption and hoarding (in expectation of further inflation) of goods and services, savings become a smaller portion of income.

Increased interest rates: During inflation, there is an increase in the money supply circulating in the market. Thus, banks have to curb borrowing to reduce the money circulation. They do so by increasing interest rates, resulting in more expensive loans.

Increased income inequality: Inflation only widens the gulf between low and high-income individuals. Low-income households end up spending more money to acquire daily necessities. On the other hand, wealthy families or the producers benefit further and become wealthier due to their sales happening at higher prices during inflationary periods.

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Understanding Inflation

Inflation refers to the gradual decrease in purchasing power, which is evidenced by a widespread increase in the prices of goods and services over time. When prices rise, each unit of currency can buy fewer goods and services. High inflation indicates that prices are escalating rapidly, while low inflation signifies a slower rate of price increases.

Inflation can be categorized into two main types:

Demand-pull inflation arises when an increase in the money supply and credit availability boosts overall demand for goods and services, surpassing the economy's production capacity. This heightened demand results in price increases.

This graph showcases how the increase in quantity demanded increases from Q1 to Q2 (demand is shown through slopes D1 to D2), it leads to increase in price from P1 to P2

2. Cost-push inflation occurs when rising costs of production inputs lead to higher prices for finished products or services. When the prices of various intermediate goods increase, it contributes to rising consumer prices as these costs are passed along.

This graph showcases how the decrease in quantity supplied due to increased costs (shown through supply curves), leads to increase in price from right red dot to the left red dot.

In 2022, inflation rates surged globally to unprecedented levels. While no single factor can fully explain this sharp rise in prices worldwide, a combination of events contributed to this inflationary trend. The COVID-19 pandemic caused significant disruptions to global supply chains due to lockdowns and restrictions, resulting in factory closures and bottlenecks at ports, causing cost-push inflation. Following that, as vaccines became widely available and economies began to recover, demand surged beyond supply capabilities, triggering demand-pull inflation.

Additionally, Russia's invasion of Ukraine in early 2022 led to economic sanctions and trade restrictions that impacted the global supply of oil and gas, given Russia's status as a major fossil fuel producer. The inability to export Ukraine’s substantial grain harvests also drove up food prices. As energy and food costs increased, these higher expenses cascaded through supply chains, contributing to cost-push inflation.