02_Growth, Development and Happiness

Introduction
Historically, economists, akin to seers and philosophers, have contributed to humanity's pursuit of a brighter future.
Various concepts have emerged in economics literature, ranging from simple terms like 'progress' to more
technical ones such as 'development', 'growth', and 'human development'.

-​ During the post-war era, there was a significant emphasis on the 'economic man', leading to substantial
wealth creation.
-​ In the 1980s, social scientists delved deeper into studying human actions, challenging the notion of the
'rational man' and prompting reflections on humanity's existence on Earth.
-​ Simultaneously, the world grappled with the complex issue of climate change.
-​ Today, thanks to the United Nations Organization (UNO), we have access to resources like the World
Happiness Report.

Progress
-​ Progress is a term commonly used by experts to signify improvement in various aspects.
-​ In economics, progress historically indicated positive changes in people's lives and the economy,
encompassing both quantitative and qualitative dimensions.
-​ Over time, economists began using progress, growth, and development almost interchangeably, until the
1960s, 1970s, and 1980s when distinct meanings for these terms emerged.
-​ While 'progress' became a broad term lacking specific economic connotations, growth and development
obtained clearer definitions.

Economic Growth
An increase in economic variables over a period of time is economic growth. The term can be used in an
individual case or in the case of an economy or for the whole world. The most important aspect of growth is its
quantifiability, i.e., one can measure it in absolute terms.

Economic Developments
Economic development is the growth of the standard of living of a nation's people from a low-income (poor)
economy to a high-income (rich) economy. When the local quality of life is improved, there is more economic
development.

Measuring Development
The idea of developing a formula/method to measure the development was basically facing two kinds of difficulties:
-​ At one level it was difficult to define what constitutes development. Factors which could show development
might be many, such as levels of income/consumption, quality of consumption, healthcare, nutrition, safe
drinking water, literacy and education, social security, peaceful community life, availability of social prestige,
entertainment, pollution-free environment, etc. It has been a really difficult task to achieve consensus
among the experts on these determinants of development.
-​ At the second level, it looked highly difficult to quantify a concept as development constitutes quantitative
as well as qualitative aspects. It is easy to compare qualitative aspects such as beauty, taste, etc., but to
measure them we don't have any measuring scale.
Human Development Index

-​ A human development index (HDI) which was the first attempt to define and measure the level of
development of economies. The HDR measures development by combining three indicators— Health,
Education and Standard of Living— converted into a composite human development index, the HDI.

-​ The creation of a single statistic in HDI was a real breakthrough which was to serve as a frame of reference
for both 'social' and 'economic' development.

-​ The scores for the three HDI dimension indices are then aggregated into a composite index using
geometric mean. The HDI facilitates instructive comparisons of the experiences within and between
different countries.

The UNDP ranked the economies in accordance with their achievements on the above-given three
parameters on the scale of one (i.e., 0.000–1.000). As per their achievements the countries were broadly
classified into three categories with a range of points on the index:

(i) High Human Development Countries: 0.800–1.000 points on the index.

(ii) Medium Human Development Countries: 0.500–0.799 points on the index.

(iii) Low Human Development Countries: 0.000–0.499 points on the index.

Introspecting Development

-​ As the western world came to be regarded as developed, having top twenty ranks on the HDI, social
scientists started evaluating the conditions of life in these economies. Most of such studies concluded that
life in the developed world is anything but happy.

-​ Crime, corruption, burglaries, extortion, drug trafficking, flesh trade, rape, homicide, moral degradation,
sexual perversion, etc — all kinds of the so-called vices— were thriving in the developed world. It means
development has failed to deliver them happiness, peace of mind, general well-being and a feeling of being
in a good state.

Gross National Happiness:

Bhutan, a small Himalayan kingdom and an economic non-entity, developed a new concept of assessing
development in the early 1970s—the Gross National Happiness (GNH). Without rejecting the idea of human
development propounded by UNDP, the kingdom has been officially following the targets set by the GNH. Bhutan
has been following the GNH since 1972 which has the following parameters to attain happiness/development:

(i) Higher real per capita income

(ii) Good governance

(iii) Environmental protection

(iv) Cultural promotion (i.e., inculcation of ethical and spiritual values in life without which, it says, progress
may become a curse rather than a blessing)
A recent study by a senior economist from the UNDP on the Bhutanese development experience under the GNH
has vindicated the idea of ‘gross happiness’ which development must result into. As per the study, the period
1984–98 has been spectacular in terms of development with life expectancy increasing by a hopping 19 years,
gross school enrolment reaching 72 percent and literacy touching 47.5 per cent (from just 17 percent).
Happiness
The World Happiness Report 2020 was released on 20th March 2020 (the International Day of Happiness). The
156-nation report (though, only 153 nations have been ranked), 8th in the series (no report was published in 2014),
ranks nations on the basis of ‘reported happiness’ by their citizens. Aimed at ‘guiding public policy’ of the nations,
the report measures and ranks the nations on the basis of the following six variables:

(i) GDP per capita (at PPP)

(ii) Social support (someone to count on)

(iii) Healthy life expectancy at birth

(iv) Freedom to make life choices

(v) Generosity

(vi) Perception of corruption

India-specific Highlights:

India is ranked 144th (4 ranks lower than the report of 2019). India has lost ranks almost every year since the
report is published—from 111th in 2013 to 117th in 2015, 118th in 2016, 122nd in 2017, 133rd in 2018, 140 in
2019. For that matter fall in ranks has been seen in case of several developed countries also (notably, not caused
by economic but ‘social’ reasons).
India ranks lower than all of its neighbours—Pakistan (66), Nepal (92), Bangladesh (107) and Sri Lanka (130).
All nations in BRICS are better ranked than India—Brazil (32), Russia (73), China (94), South Africa (109).
India is ranked with the least happy nations in the world with—Afghanistan, South Sudan, Zimbabwe, Rwanda,
Central African Republic, Tanzania, Botswana, Yemen and Malawi.

India is among the world's 5 nations where the largest drops in ranks have been seen since 2008–2012 (other 4
nations are Venezuela, Afghanistan, Lesotho and Zambia).
Life evaluations have been sharply declining in case of India.
While in case of ‘current life evaluation’ Delhi is ranked 180th, in case of ‘future life evaluation’ it is ranked
182nd—out of a total of 186 cities taken from the world.
Some other peer cities ranked in case of ‘current life evaluation’ are—Karachi (117th), Lahore (122nd), Beijing
(134th), Colombo (170th), Baghdad (163rd), Myanmar (165th), and Kabul (186th).

Insights into Human Development

The World Bank in its report (World Development Report 2015: Mind, Society, and Behaviour), said that
development policies become more effective when combined with insights into human behaviour.
It sites some examples from India in the areas of healthcare and education:
Open defecation dropped 11 per cent from very high levels after a Community-Led Total Sanitation (CLTS)
programme was combined in some chosen villages with the standard approach of subsidies for toilet construction
and information on the transmission of diseases.
The likelihood of default on loans became three times less with a simple change in the periodicity of meetings
between microfinance clients and their repayment groups to weekly rather than monthly.
Research showed that boys from backward classes were just as good at solving puzzles as boys from the upper
castes when caste identity was not revealed. However, in mixed caste groups, revealing the boys’ castes before
puzzle-solving sessions created a significant “caste gap” in achievement with the boys from backward classes
underperforming by 23 per cent (making caste salient to the test takers invoked identities, which in turn affected
performance, as per the report).
Value Economics

There is research in psychology and evolutionary biology which shows that morality, altruism, and other-regarding
values are an innate part of the human mind, even though the social setting in which a person lives can nurture or
stunt these traits. However, the recognition that these human and moral qualities can have a large impact on
economic development came relatively late to economics. Hence, the literature on this is relatively recent and brief.
In fact, recent research shows that having a few ‘good’ human beings in society can give rise to dynamics through
which we end up with an overall better society. There is also evidence that social norms and habits that at first
sight seem ingrained in a society can change over short periods of time. By this argument it is possible for a
country to nurture and develop the kinds of social norms that enable a more vibrant economy.

Economic development is not only dependent on fiscal policy, monetary policy and taxation but is also rooted in
human psychology, sociology, culture and norms. In economics, there has been a bit of resistance in emphasising
other aspects of development, because it is thought of giving ground to the neighbouring disciplines.

Nudge & Public Policy

-​ Behavioural economics provides insights to nudge people towards desirable behaviour. By now, nudge has
been successfully used in India as an instrument of public policy (in the Swachh Bharat Mission (SBM)
and Beti Bachao Beti Padhao (BBBP) campaigns).
-​ It can be further used to aim even higher goals such as:
-​ From BBBP to BADLAV (Beti Aapki Dhan Lakshmi Aur Vijay Lakshmi).
-​ From Swachh Bharat to Sundar Bharat.
-​ From 'Give it up' (for the LPG subsidy) to 'Think about the Subsidy'.
-​ From tax evasion to tax compliance.

Recent Developments
Updated Economic Growth Outlook:

-​ The United Nations projects India’s GDP growth at 6.3% in 2025 due to global trade slowdowns and
geopolitical uncertainties.
-​ The International Monetary Fund (IMF) forecasts 6.4% growth for both 2025 and 2026, keeping India as
the fastest-growing major economy.
-​ The Reserve Bank of India (RBI) maintains its projection of 6.5% growth for FY 2025–26, citing strong
domestic demand.
-​ India’s economy grew 7.4% year-on-year in Q4 (Jan–Mar 2025), with full-year growth at 6.5%.
-​ Risks include new U.S. tariffs on Indian goods, which Moody’s estimates could shave off 0.3 percentage
points from GDP growth if prolonged.

Updated Human Development Index (HDI):

-​ According to the Human Development Report 2025 (based on 2023 data), India’s HDI improved to 0.685,
ranking 130th among 193 countries.
-​ The rise reflects gains in life expectancy, education enrolment, and per capita income, though
inequality-adjusted HDI still lags due to gender and regional disparities.

World Happiness Report 2025 – India’s Position:

-​ India has climbed to 118th position out of 147 countries, improving from 126th in 2024.
-​ While GDP per capita and healthy life expectancy have improved, low rankings in social support and
perceived freedom continue to weigh down overall happiness scores.
-​ India remains behind some neighbours such as Pakistan (109th) and Nepal (92nd), but has narrowed the
gap compared to 2020 levels.
Well-being and Structural Risks:

-​ A significant emerging concern is India’s rising household debt, now at about 43% of GDP. This is driven
by increased consumer lending and stagnant real incomes.
-​ Regulatory bodies, including the RBI, have introduced tighter credit norms to mitigate potential defaults and
reduce systemic risks.

Policy and Behavioural Economics Updates:

-​ Behavioural interventions (“nudge” policies) are being integrated into climate adaptation, financial inclusion,
and urban governance programmes.
-​ Examples include:
-​ Heatwave response programmes that use targeted SMS alerts and community volunteers.
-​ Digital financial literacy campaigns nudging small traders towards formal credit.
-​ Water conservation nudges under the Atal Bhujal Yojana.

Global Context – Comparative Perspective:

-​ India continues to outperform most major economies in growth, but lags behind in per capita income and
social indicators when compared with BRICS peers.
-​ Finland remains the world’s happiest country as per the 2025 report, underscoring the gap between
economic growth and perceived well-being.