India's improvement on human development a sham? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

India's improvement on human development a sham? 

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In this issue:
» Despite full granaries, cereal prices rise
» Can this boost affordable housing?
» RBI may cut rates under pressure?
» Greenspan wants to allow big banks to fail
» and more....

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Just yesterday we talked about how India has a reason to celebrate. The reason was in the form of an improvement in the Human Development Index (HDI). India has emerged in the top 5 countries that have shown maximum improvement in HDI over the past 2 decades. But an article in the Firstpost brings out a harsh and contrary view of India. It talks about how India has fared poorly in terms of Human Development.

The HDI report of the United Nations Development Program (UNDP) stated that India has been able to narrow its shortfalls through tertiary education and investments in the drug industry. It went on to compliment the country for the growth achieved in the gross national income per capita. The latter was a byproduct of the stellar economic growth witnessed by the country in the past 2 decades.

But the article states that these indicators do not talk about the grass root reality in India. The reality is that it is the home to one of the largest number of people below poverty line. More than half the population of the country is either below or close to the poverty line. It is also the home to nearly 40% of the world's poor. Under no circumstance can this be labeled as an 'improvement' in human indicators. The country also has one of the most skewed gender inequality measures. The fact that nearly 200 women out of every 100,000 die at child birth is also reflective of the state of the healthcare situation in the country.

Therefore the so called improvement in human indicators is just an illusion. It is judging only a few superficial factors rather than taking into account all aspects of human development. And if all factors are taken into account India would rank poorly in terms of human development. To improve this we need to concentrate on reducing the income gap. Ensuring that proper healthcare, sanitation and education are available to everyone. Only then will we truly improve in HDI.

Do you think that India has actually made an improvement in human development? Please share your comments or post them on our Facebook page / Google+ page

01:15  Chart of the day
Foreign exchange reserves are important for any country. But unfortunately for India, it does not fare too well when it comes to forex reserves. As shown in the chart, India has the lowest level of forex reserves in the BRIC peer set. Given that forex reserves are an important resource for the central bank, it does not portray a good picture for India. The reserves are available to the central bank to manage the currency in the foreign markets. The bank can use these reserves to intervene in the currency markets to insulate the currency against any untoward shock. This means that the Indian central bank has lower resources available to support the Indian Rupee in the global currency markets as compared to its BRIC peers.

Souce: Financial Express

India has been battling a steep rise in inflation. At 10.9%, the country's inflation in February 2013 was the second highest among the emerging economies. Rising food prices have been fuelling the inflation fire. But the irony is that the country's granaries continue to have excess stocks of food grains. The godowns of Food Corporation of India (FCI) had 66 m tonnes of food grains despite exports being allowed freely. With supply far exceeding demand, cereal prices should have fallen. However, as per Economic Times, hoarding by FCI has been responsible for the increase in prices. In fact, it is partly responsible for almost a 20% spike in cereal prices during the month. The reason behind the hoarding is the Minimum Support Prices (MSP). MSP set by the government for essential commodities have also contributed to increased hoarding. States like Madhya Pradesh and Rajasthan offer bonus above the MSP, compounding the problem still further. The solution to this lies in the increased participation of the private sector and making the release mechanism more transparent.

Affordable housing. Any one tracking the Indian realty market closely will be forced to admit that the term has now become an oxymoron. Forget the economically weaker sections, even the middle class these days finds it difficult to buy a decent home in India. Sample this. As per studies, despite urban India having a greater disparity in terms of shelter, around 11 m urban homes are lying vacant. All of this for want of affordability.

Little wonder, the Government is concerned about this development and has outlined plans to set things in order. And what exactly are these plans? Well, they range from providing non-financial incentives to builders to a single window clearance system. Besides, serious implementation of existing norms and financial support to poor to buy homes is also being looked into. Thus, as is often the case with Government plans, they look very good on paper. But lesser said about the track record of implementation the better it is. Though we would be happy to be proven wrong here. A country loses every right to call itself a developing one if it cannot provide even the basic needs to its poor. We believe it's high time we go about solving this issue on a war footing.

The entire market is keenly looking forward to March 19, 2013. After all, it is the due date for the Reserve Bank of India (RBI) policy review - the first one post Union budget. So RBI's review this time will be a good pointer where our economy might be headed. Further, it will indicate if Finance Minister and RBI see eye to eye on matters of growth and inflation. While the broad consensus or rather hope is on a rate cut, the economic signals look conflicting. A bounce back in manufacturing output suggests odds in favor of a rate cut. However, if latest data on inflation is anything to go by, the outcome might be different. Both WPI and CPI have inched up thus making task tougher for central bank. While FM's commitment to bring down the fiscal deficit may make RBI cut rates, we believe it will take more to sustain growth. The latter will need reform initiatives and effective implementation to boost economy in the long run.

The Dodd Frank financial reform law has not been able to deal with the issue of "too big to fail" it seems. The financial act was signed to find solutions regarding recession in the US economy. However, as per Mr Alan Greenspan, former Federal Reserve Chairman, Dodd Frank seems to have done very little so far to address this most important regulatory issue.

He believes that the solution for crisis does not lie in more bail outs but in allowing the big banks to fail. The banks should go through the standard Chapter 11 type of process of liquidation. Presently, there is significant discount to what these big banks are paying for their liabilities relative to their smaller peers. This is because people consider these as being immune to any upcoming financial crisis. It is believed that none of the big banks will be allowed to fail in the next crisis. Mr Greenspan now is not in favour of breaking the complex banking entities into separate commercial and investment banking entities. It is interesting to note here that this is the same Mr Greenspan who was at the helm of affairs during the economic crisis. Also, he had earlier (in 2009) himself advocated breaking up of bigger banks instead of letting them fail.

The week gone by was a mixed one for global stock markets. Japan led the gains with its benchmark index ending higher by 2.3%. US and Germany followed suit with gains of less than 1% each. The positive sentiments in Japan were led by higher expectations of an ease in the monetary policy under its new leadership. In fact, the country's index closed at its highest levels in about 4.5 years. Gains in the US were largely on account of better than estimated retail sales and jobless claims data, which boosted optimism. On the other hand, stocks of emerging markets namely Brazil, China and India were amongst the top underperformers this week. While Brazil was down by about 2.7%, markets in Hong Kong and China were down by 2.4% and 1.7% respectively.

Indian share markets ended the week lower by 1.3%. Sentiments in India were negative largely due to the pessimism surrounding the banking and auto stocks. While banking stocks were under pressure due to news elated to money laundering, stocks from the auto space were not in favour on concerns related to declining sales volumes.

Source: Yahoo Finance, Kitco

04:50  Weekend investing mantra
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    Equitymaster requests your view! Post a comment on "India's improvement on human development a sham?". Click here!

    3 Responses to "India's improvement on human development a sham?"

    Gopal Kalpathi

    Mar 17, 2013

    Wheather it is UNDP's or Firstpost's review of India's HDI, one of the oft repeated, in this very columns, is the fact that any development anywhere in the world should start with looking after the poor. Initially it was thought that democracy is the best form of governance to address this aspect. However, after the recent global crisis, the credibility of democracy is in question and when it comes to India, it is a well known fact that our politicians offer the most lip service.

    I have often said in these forum, as well as in others, that education and making the legal system more strong in dispensing the justice may help our poor better than the most programs that the government announces (with the very intention of not implementing it.)



    Mar 17, 2013

    I sometimes wonder whether all the inequality in access to food, healthcare and shelter is purposely left as it is in order to keep the poor in a perpetual state of want! The Government would rather let the grains rot and rats eat them in the godown than feed those who desperately need them. Similarly, floods ravage the country on one side and drought hits the farmer on the other. What happened to the linking of rivers that Dr. Kalam wanted to happen. All of us intellectuals keep talking/ writing about it in the comfort of our homes, but who is to make it happen? How ever much we keep patting ourselves on the back that we are a "developed country" (with gap between the haves and have-nots getting wider), the world sees through the facade and reports like the HDI proclaim the real state of affairs in India.


    R V Iyengar

    Mar 16, 2013

    We have been independent for 67 years.In these many years we should have made stupendous improvements if politicians had really meant business. Instead they started filling their coffers and in the process became very corrupt.
    Thus in spite of enormous amount of money earmarked for social spend in every budget, the results are hardly visible.
    Every MP gets area development allowance of Rs 3 crores.
    But the funds get frittered away mostly for we do not see much development in most places. One can see any number of instances even in premier cities, where improvements do not come about even in several years. It makes one wonder if the MPs even visit their constituency except at the time of elections. Since the MPs come from various parties ,no party can claim to be sincere enough to make a difference.
    With this kind of people at helms of affairs, it is no wonder that the country languishes around the bottom of the Human Development Index. The worst is that the situation cannot be expected to change in years to come.

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