Human Development Index (HDI)
Human Development Index (HDI) is new and modern indicator of economic development. It was for the
first time developed by United Nations Development Program (UNDP) in the year 1990. The HDI was
created to emphasize that people and their capabilities should be the ultimate criteria for assessing the
development of a country, not economic growth alone. The HDI can also be used to question national
policy choices, asking how two countries with the same level of GNI per capita can end up with different
human development outcomes. These contrasts can stimulate debate about government policy priorities.
The Human Development Index (HDI) is a summary measure of average achievement in key dimensions
of human development:
a. A long and healthy life (Indicator: Life Expectancy)
b. Being knowledgeable (Indicator: Mean years of Schooling)
c. Have a decent standard of living (Indicator: Gross National Income Per Capita)
The health dimension is assessed by life expectancy at birth, the education dimension is measured by
mean of years of schooling for adults aged 25 years and more and expected years of schooling for
children of school entering age. The standard of living dimension is measured by gross national income
per capita.
The scores for the three HDI dimension indices are then aggregated into a composite index using
geometric mean.
HDI= 3√LEI x EI x II where LEI- Life Expectancy Index
EI-Education Index
II- Income Index
All countries are ranked into three development groups on the basis of their index.
HDI Value Countries
0.000 to 0.499 Low Human Developments
0.499 to 0.699 Medium Human Developments
0.699 to 0.799 High Human Developments
0.800 to 1.00 Very High Human Development
The HDI simplifies and captures only part of what human development entails. It does not reflect on
inequalities, poverty, human security, empowerment, etc. A fuller picture of a country's level of human
development requires analysis of other indicators and information presented in the statistical annex of the
report.
Per Capita Income (PCI) Criterion
Meaning:
The economists like Rostow, Baran and Leibenstein etc. favored the use of per capita income as an index
of development. The UN experts in their report an, “Measures of Economic Development of
Underdeveloped Countries” have also accepted this criterion. Broadly speaking per capita income refers
to the real national income divided by the total population of the country.
If the rate of population surpasses the rate of national income growth, then per capita national income will
fall. Similarly if both national product and population grow at the same rate, per capita national product
will remain constant. This is not economic development.
Therefore it is not rise in real national income but rise in real per capita income which may be taken as an
indicator of development. Hence there is the urgent needs to check the growth rate of population and to
accelerate the rate of national growth, particularly in underdeveloped countries so that the real per capita
income will rise.
Per Capita income (GNI Per Capita)
Nation’s Classification Per Capita Income ($)
High Inc0me 12196 or more
Middle Income 996 to 12196
Low Income 995 and below
Source: World Development Report, 2010
Per capita income as an indicator of development has the following limitations:
1. Per capita income does not reflect the standard of living of the people being average. In other words,
does not show whether any increase in income goes to the rich or the poor.
2. An increase in per capita income may not raise the real standard of living of [Link] happens when
the government might itself be using up the increased income for massive military build-up necessitating
heavy production of arms and ammunitions.
3. PCI criterion fails to take into account problems associated with basic needs like nutrition, health,
sanitation, housing, education, etc
Physical Quality of Life index (PQLI)
This concept was put forward by Morris D. Morris. It is the non-income indicator of economic
development as it uses physical quality of life as the reflector of economic development. LQI is derived
rigorously from the economics of human welfareThis method of measuring economic development is
based on the following three things or indicators
a. Life Expectancy at birth.
b. Infant Mortality
c. Literacy
The value of PQLI is measured in a scale of 0 to 100. If the value crosses 50, the country is supposed to
be developed and it the value lies below 50, the nation is supposed to be developing. If any country’s
PQLI is increasing it indicates the country’s is developing.
PQLI is a limited measure of basic needs
2. Many societal and psychological factors like security, justice, human rights, etc are excluded.
3. Does not explain the changing structure of economics and societal development.
4. Arbitrary weights are given to each determining factor.
5. PQLI does not measure economic development and total welfare.
6. There is no unanimity among the economists as to the number and type of items to be included in such
an index.
Basic Needs Criterion
The basic needs criterion was developed by the World Bank as a complement to the per capita income
criterion. It has considered basic needs of an individual like nutritious food, clothes, opportunities, pure
drinking water, etc. to acknowledge the development of a country. Those countries which are unable to
fulfill these needs are called developing countries. The World Bank has identified the following elements
in this segment:
a. Health (Life Expectancy)
b. Education (Literacy Rate up to Primary school level)
c. Food ( A minimum of 2200 calorie per capita per day)
d. Water Supply ( Percentage of people getting safe drinking water)
e. Sanitation ( Percentage of people living in safe and hygienic surrounding)
f. Housing (People not spending their night under open sky)
Real Gross National Product (Real GNP) Criterion
The economists like Simon Kuznet and Baldwin have taken increase in the real national income as the
indicator of economic development. They considered GNP as the main indicator saying that per-capita
income also depends upon the national income which ultimately is related with the final goods and
services produced in a country. According to this criterion, the state of continuous increase in national
income can be taken as economic development. This is, specially, applicable for the poor and middle
class countries. Short run increase in national income cannot be taken as economic development.
Criticisms of Real GNP criterion:
1. Real national income excludes price changes. A short period rise in national income during an
upswing of an economic cycle does not constitute economic development.
2. GNP criterion does not factor in a change in the population of a given nation.
3. GNP criterion does not reveal or factor in the negative externalities such as pollution.
4. GNP criterion tells nothing about the distribution of a income in the society.
5. Does not factor in other forms of measurement such as illegal markets, services, etc.