Interlinkages Between Economic Growth and Human Development in India: A State-Level Analysis
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This study explores the relationship between economic growth and non-income components (health and education) of the Human Development Index (HDI) for 26 Indian states during the period from 1990 to 2019. By applying the auto-regressive distributed lag (ARDL) model and Granger causality technique, we identified a strong two-way relationship between economic growth and non-income components in the long run. We found that public expenditure on health and education did not impact human development outcomes, whereas total expenditure (public and private) did. However, public expenditure on health is crucial in ameliorating households’ financial burden and preventing impoverishment due to catastrophic health expenditure. Furthermore, the analysis of the relationship between different educational levels (primary, secondary, and tertiary education) and the gross state sectoral value added revealed that while education limited to the primary level had no discernible influence on economic activity, secondary and higher education played a pivotal role in determining sectoral economic activity. Secondary education positively influenced agriculture and manufacturing, while higher education significantly shaped the services sector. The impact of higher education on services was four times greater than that of secondary education on manufacturing.
Q&A with the authors
- What is the core message conveyed in your paper?
India’s prosperity hinges on nurturing a virtuous cycle where human development and economic growth reinforce each other. Past policies prioritising economic growth have not paid adequate attention to health and education. This study establishes a strong and mutually reinforcing relationship between economic growth and non-income aspects of human development (health and education) over the long run in India. Additionally, our findings show that while public spending alone may not directly influence human development indicators, it nonetheless plays a vital role in reducing households’ burden of healthcare and education costs. Therefore, increasing direct investments in health and education is key. This will not only alleviate immediate financial pressures on poor households but will also strengthen the crucial link between human development and economic growth. The paper also finds that while secondary and tertiary levels of education influence economic activity, primary level education does not. Overall, a well-educated and healthy workforce has a huge potential to propel India’s economic growth to a much higher level, which, in turn, can foster human development.
- What presents the biggest opportunity?
India’s vast working-age population holds immense potential, but it needs a vital trigger to unlock its full economic potential. Investing in health and education, particularly in economically weaker states, can ignite India’s latent demographic dividend and propel overall economic growth. Furthermore, our findings underscore the crucial role of secondary and higher education in fuelling growth in the manufacturing and service sectors. Consequently, prioritising higher education (at least up to the secondary level) is imperative for boosting the growth prospects of both the manufacturing and services sectors.
- What is the biggest challenge?
India’s public spending on health and education remains among the lowest globally. This chronic underinvestment, caused by high committed expenditure and low political prioritisation, has hampered the nation’s progress in these crucial sectors. As India navigates the post-pandemic landscape of high debt levels, improving the fiscal space for health and education poses a huge challenge. This could disproportionately burden households still recovering from COVID-induced income losses.
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