Introduction to Human Development Index (HDI):

Growth in national income (GNP) or per capita income considered

above as indicator of economic growth does not represent a true and
adequate measure of welfare and economic development of the people
of a country. Therefore, a need was felt to put forward an index which
should truly and correctly reflect the level of economic welfare and
economic development of a nation.

Thus, Human Development Report (1997) states, “Income is clearly

only one option that people would like to have, though an important
one. But it is not the sum total of their lives. Income is also a means,
with human development, the end”. Human development index is a
composite measure of three aspects of good life and well-being. Three
questions were raised regarding what people want in order to have a
good and cherished life.

The concept of human development has been developed by a number

of economists, prominent among who are Dr. Mehbub-ul-Haq and
Nobel Laureate Dr. Amartya Sen. Explaining the concept of human
development, Prof. Amartya Sen writes, “The process of widening
people’s choices and the level of well-being they achieve are the core of
the notion of human development. But regardless of the level of
development, the three essential choices for people are to lead a long
and healthy life, to acquire knowledge and to have access to the
resources needed for a decent standard of living. Human development
does not end there, however, other choices highly valued by many
people range from political, economic and social freedoms to
opportunities for being creative and productive and enjoying self-
respect and guaranteed human rights.”

Indicators of Human Development Index (HDI):

The three criteria or indicators which represent different
aspects of good life or the three goals of human development
are:
1. Longevity: It is measured by life expectancy at birth. Life
expectancy at birth means how many years a newly born infant can
hope to live in this world. This represents element of health in the
Human Development Index (HDI).

2. Education or Knowledge:
It is measured by the weighted average of adult literacy and mean
years of schooling. For this 2/3rd weight is given to adult literacy and
1/3rd weight is given to the mean years of schooling.

3. Standard of Living:
It is measured by real per capita income of a country at purchasing
power parity (PPP) prices, that is, adjusted for purchasing power of
currencies of different countries.

Let us explain how Human Development Index (HDI) is estimated for

different countries. There are three goals of development, namely,
better health as measured by life expectancy at birth, better education
or knowledge as measured by literacy rate and standard of living as
measured by per capita income measured in terms of purchasing
power parity prices (PPP) in US dollars. To construct human
development index, fixed minimum and maximum values are taken
for each variable or component included in the index.
For example, for life expectancy at birth the range is 25 to 82 years, for
literacy rate the range is 0 to 100 per cent and for per capita income
the range is $ 100 to 40,000 in terms of PPP (US $). The value of each
component of human development index is calculated by using the
following formula –
HDI for individual component = (Actual Value – Minimum Value) /
(Maximum Value –Minimum Value)

If the actual value of an individual variable in HDI of a country is

equal to the minimum, the index of that variable for a country is zero.
On the other hand, if the value of an individual component is equal to
the maximum value, the index of that component will be equal to one.
For example, India’s life expectancy at birth in 2011 was 65.5, the life
expectancy index for India according to the above formula (with the
given range of 25-85) will be-

Life expectancy Index of India = (65.5–25) / (85 – 25) = 0.673

Similarly, with 3460 PPP (US $) of India’s per capita income, its
individual index (with range 100-40,000) = (Yj– Y̅)2 = 0.084
In constructing overall HDI we take average of three individual
indexes with each having 1/3 weight. Thus,

HDI = 1/3 (per capita income index) + 1/3 (life expectancy index) +
1/3 (literacy index)

After finding the values of Human Development Index (HDI) for

various countries they are ranked from the highest to the lowest.

Shortcomings and Critique of Human Development Index

(HDI):  
Some shortcomings of HDI as a true indicator of well-being
for purposes of estimating development disparities among
nations may be noted:
First, for estimating literacy rate, expected years of schooling by
children at the entrance age is used which overstates the literacy rate
as in many countries (including India) many children who join
primary school later drop out at some stage.

Secondly, in preparing HDI equal weight of 1/3 is given to each of the

three variables, namely, life expectancy, literacy rate and GNI per
capita. This involves some value judgement and seems to be quite
arbitrary. Besides, since these three components of HDI are measured
in different units, to give equal weight to each component of HDI does
not make much sense.

Thirdly, in constructing human development index, role of quality has

been ignored. For example, there is a big difference between extra year
of life for a healthy well-educated person and extra one year life for a
person who is bed-ridden and has limited capability to do work.
Similarly, in constructing HDI only the number of years of schooling is
taken into account while the quality of education also matters a lot for
good living. Due to lack of adequate data about quality of health and
education, it is not incorporated in the construction of HDI. But
without the quality of health and education being considered, HDI
does not represent the true index of human development.

But the important drawback of human development index (HDI), is

that it is of composite character which makes it an imperfect indicator
of development or well-being of the people. If these three components
are highly correlated to each other, then a single one will serve the
purpose of comparing the levels of development and well-being of the
people of different countries.

However, in our view it is not proper to put the three variables

reflecting development into a single composite index. It is better and
much more revealing if performance of different countries is
compared in respect of various indicators separately because putting
them together obscures the performance of development of various
countries in respect of some crucial areas. Thus, in our view, human
development index hides more than it reveals. Besides, in constructing
human development index (HDI) there is a problem of what to be
included and what to be excluded and what weights be assigned to the
various variables included for construction of the index.

In fact until recently human development index was prepared taking

into account three variables, namely, life expectancy, literacy and per
capita income and inequality in income distribution which also
determines well-being of the people was ignored. Realising the
importance of inequalities in income distribution, recent Human
Development Report, 2013 has also given ‘inequality-adjusted HDF in
addition to the HDI without such adjustment.

Besides, human development index still does not take into account
social, economic and political freedoms as well as human rights on
which Amartya Sen laid a great stress in his book “Development as
Freedom”. Further, human development index as it is being presently
constructed is not comprehensive as it does not include the two
important indicators such as poverty and unemployment as reduction
in them are important indicators of development. However, UNDP
which constructs human development index separately calculates
‘human poverty index’ (HPI) which has now been replaced by ‘multi-
dimensioned poverty index’.

But the existence of unemployment which is an important aspect of

human development still remains excluded. Thus in our view, the chief
drawback of human development index (HDI) is that it obscures many
dimensions of the concept of development. The concept of
development is so much wider, deeper and richer that single
composite measure like HDI cannot adequately measure it. Therefore,
it is better to judge and assess the development performance of
different countries by a number of indicators that reflect different
aspects of development rather to judge it by a single composite index
of HDI.