Measuring new indicators of growth

Notions of being prosperous and developed are changing around the world. The concepts of Gross National Happiness and United Nations’ World Happiness Report are gradually gaining momentum. In his February 2018 budget speech, Indian Finance Minister Arun Jaitley also outlined his government’s priority on ensuring ‘ease of living’. New Zealand is at the forefront of this issue, with plans to be one of the first countries in the world to measure its success against how it performs socially, culturally and environmentally.

Brookings India and the New Zealand High Commission co-hosted a discussion with Gabriel Makhlouf, Secretary and Chief Executive to the Treasury of New Zealand and Shamika Ravi, Senior Fellow and Director of Research at Brookings India and Member of the Prime Minister’s Economic Advisory Council. The discussion was moderated by Dhruva Jaishankar, Fellow for Foreign Policy at Brookings India.

It has taken six to seven years for New Zealand’s government to develop a living standards framework. The framework can be broadly understood in terms of four economic capitals – natural, social, financial, and physical. These capitals are meant to enhance intergenerational well-being. Emphasis is also being laid on ensuring a sustainable growth for these capitals, leading to overall growth in the economy. The Treasury has been tasked with listing the indicators and assessing the state of the four economic capitals. The government will then allocate a budget based on this assessment.

It is challenging to quantify some of the economic capitals. Social capital depends on the degree of trust people have in institutional bodies, which is difficult to measure. With natural capital, it is difficult to gauge what to measure and where to draw the boundaries. While measuring human capital in terms of education and skills is a challenge, health and especially mental health, is particularly critical. It is complicated by the fact that mental health data is often not available or is of questionable quality. One of the key challenges is to create awareness among the public and ensure practical implementation of this framework. There is a need to integrate a broader conception of economics into public policy discourse.

There is an urgent need to rethink India’s statistical capacity. While India does possess robust data systems, it does not have the capacity to collect real-time data which is critical for policy interventions.

India, in comparison to New Zealand, is far behind in terms of measuring well-being. Human development has shown a gradual improvement over time with conscious efforts by the government to improve human development indicators through Sustainable Development Goals, etc. The next budget may become the first budget to focus on gender and children. Going beyond the basic understanding of GDP as an indicator, health and education are also being recognised as indicators of well-being. While these indicators require a certain degree of ordering, emphasis is also being given to quality of public health and education services. It is important to note that in a diverse country like India, quality and functioning varies drastically across states. This variance can affect real-time decision making. Therefore, there is an urgent need to rethink India’s statistical capacity. While India does possess robust data systems, it does not have the capacity to collect real-time data which is critical for policy interventions.

Until now, the definition of growth has been understood rather narrowly, mostly in terms of fiscal policy. India is now on the way to being self-sufficient in terms of hard infrastructure that traditionally signified growth. It now needs to consider cultural growth, as well as problems of health and education in terms of quality of education, stunted growth, malnutrition, obesity, etc. For example, mental health is an important concern for all modern societies. Because mental health data is scarce in India, it is important to move beyond institutional data to formulate policy. Much more attention needs to be focused on improving health indicators among women and children in particular.

Many argue that the new indicators for wellbeing seem more relevant and applicable to developed countries like New Zealand. However, a strong case can be made for adapting the framework broadly to developing countries like India as well. For example, issues like poverty and nutrition among children are common to New Zealand and India. Ultimately, the quality of data plays a key role in policy formulation and implementation. While politicisation of data is an issue, institutional trust in organisations that collect and disseminate this data is critical and can be generated over a period of time.

Manasi Rao and Yamini Sharma, research interns at Brookings India, contributed to this report.