Chapter 10 – Income, Health, and Fertility: Convergence Puzzles – Highlights

Union finance minister Arun Jaitley tabled the Economic Survey 2016-17 in Parliament during the first day of the budget session. Here are the major highlights from Chapter 10 of Economic Survey 2016-17.

Despite rapid overall growth, there is striking evidence of divergence, or widening gaps in income and consumption across the Indian states, in sharp contrast to patterns within China and across the world. Compared to international standards and accounting for levels of income, India does well on life expectancy, not-so-well on infant mortality rate, and strikingly well on fertility rate.

This Chapter of the Economic Survey 2016-17 focuses on the income, health and fertility indicators and relates it to the concept of convergence, thus making a strong case for measuring performance on national and international scale.

The indicators used in this chapter of Economic Survey 2016-17 are broadly divided into two:

1. Income and Consumption;
2. Health and Demographic indicators

• Life Expectancy,
• Infant Mortality rate
• Total Fertility Rate

First part of this write up focuses upon the Income/ Consumption factors, second upon Life Expectancy and Infant Mortality Rate, and lastly would deal with Total Fertility Rate.

Income and Consumption Divergences

What is Convergence?

Convergence means that a state that starts off at low performance levels on an outcome of importance, say the level of income or consumption, should see faster growth on that outcome over time, improving its performance so that it catches up with states which had better starting points.

To learn: What is Income Convergence?

How study on Income Convergence helps us?

Convergence based study show that while the poorer countries are catching up with richer countries (convergence), in India, the less developed states are not catching up; instead they are, on average, falling behind the richer states. (divergence).

While 90s saw weak divergence and weak convergence for China and India, post 2000s saw convergence in China, but not in India. This is despite the indicators showing improved performance in relatively less developed states such as Bihar, Madhya Pradesh and Chattisgarh. This leads to the conclusion that the data were not strong enough to show a change in the divergence.

How does Convergence happen?

Convergence happens essentially through :

1. Trade and
2. Mobility of factors of production.

TRADE:

If a state/country is poor, the returns to capital must be high and should be able to attract capital and labor, thereby raising its productivity and enabling catch up with richer states/countries.

MOBILITY:

Trade, is really a surrogate for the mobility of factors of production.

In the context of India, we will see in Chapter 11 that India has porous borders between the States and that the trade within Indian states is quite high. Also mobility of people has surged almost by double. Yet convergence is not seen in India. This makes India stand out as an exception.

WHY IS THIS THE CASE?

Some derivable conclusions in such cases could be due to:

Governance or institutional traps.

• When we have governance traps, capital will not flow to regions of high productivity because this high productivity may be more notional than real.
• Poor governance could make the risk-adjusted returns on capital low even in capital scarce states.
• Moreover, greater labor mobility or exodus from these areas, especially of the higher skilled, could worsen governance.

India’s pattern of development.

• Reliance on growth of skill-intensive sectors rather than low-skill ones
• (This is reflected not just in the dominance of services over manufacturing but also in the patterns of specialization within manufacturing).
• If the binding constraint on growth is the availability of skills, there is no reason why labor productivity would necessarily be high in capital scarce states.
• However these are not conclusive as to why convergence is not witnessed in the income and consumption side and therefore the Survey has left this as an open question.

Health Convergence in India

This forms the second part of this Chapter.

Two  key indicators of Health and demographic outcomes help us in analysing the trend in India :

1. Life Expectancy  (LE) at birth; and
2. Infant Mortality Rate (IMR).

What is Life Expectancy?

Life expectancy at birth (LE) indicates the number of years a newborn would live if prevailing patterns of mortality at the time of its birth were to stay the same throughout its life.

Learn FOR PRELIMS & MAINS: What is the LE in India – in 1950 and 2011?

What is Infant Mortality Rate?

Infant mortality rate (IMR) is defined as the number of infants dying before reaching one year of age, per 1,000 live births in a given year.

Learn for PRELIMS & MAINS: What is IMR/ Neo Natal Mortality rate?

Why Convergence is expected from Health Indicators, unlike the Income indicators?

1. Common availability of many medical “technologies” such as antibiotics and other medical practices across the world and India.

• Clear indicators on health that would “naturally lead to convergence”.

For example, once a country has reduced its infant mortality to near zero, it is fundamentally impossible for it to experience a drastic reduction while countries with high mortality rates have much more room for improvement.

Comparison of the level of LE and IMR against a country’s level of per capita GDP.

In LE, the Indian states are doing about the same or better on average than their international counterparts;

In IMR, most states look worse in this international comparison.

Last year’s Economic Survey had Chapter on Women and Child, which specifically pointed out this anomaly. It found that children and women perhaps bear the burden of deficient systems of health delivery.

In short, India is doing reasonably well on life expectancy on an international scale, but on IMR has scope for improvement

Fertility Indicator

What is Total Fertility Rate?

Total fertility rate (TFR) is defined as the number of children that would be born to a woman if she were to live to the end of her childbearing years and bear children in accordance with age-specific fertility rates in a given year.

Learn: What is the current TFR? Which State shows the highest and lowest TFR in India?

This area has shown one of the most striking developments over the past decade.

In what ways?

• Firstly, 12 Indian states out of the reporting 23 states have reached levels of fertility that are below the replacement rate (2.1).

Know: What is replacement level?

• Secondly, there is evidence of strong convergence across the states.

Some important stats on TFR

• All the Indian states (with the exception of Kerala which has attained levels of Replacement level), are performing much “better” (in the sense of more rapid fertility declines) than countries on average.
• The extent to which they are doing better is striking especially for the high TFR states such as Bihar, UP, MP and Rajasthan.
• High TFR states are in fact posting much stronger fertility declines than is true of the average country.

Concluding remarks

• Despite growing rapidly on average, there is sign of growing regional inequality among the Indian states.
• On health and demography, there is strong evidence of convergence amongst the states in the 2000s.
• With regards to life expectancy, the Indian states are close to where they should be given their level of income.
• This is, however, not true of IMR, suggesting that the “mother and child” (Please go through Economic Survey 2015-16 Chapter Mother and Child) bear the brunt of weaker delivery of health services.
• With regard to fertility, India has a strikingly remarkable progress. in comparison to our international counterpart. These unusually large declines in fertility have strong—and positive—implications for India’s demographic dividend going forward.

Also Read : Top 10 Key Highlights of Economic Survey 2016-17 for UPSC Aspirants

Also Read: Chapter wise highlights of Economic Survey 2016-17

Chapter 01 – Economic Outlook and Policy Challenges

Chapter 02 – The Economic Vision for Precocious, Cleavaged India

Chapter 03 – Demonetization: To Deify or Demonize?

Chapter 04 – The Festering Twin Balance Sheet Problem

Chapter-05 – Fiscal Framework: The World is Changing, Should India Change Too?

Chapter 06 – Fiscal Rules: Lessons from the States

Chapter 07 – Clothes and Shoes: Can India Reclaim Low Skill Manufacturing?

Chapter 08 – Review of Economic Developments

Chapter 09 – Universal Basic Income

Chapter 10 – Income, Health, and Fertility: Convergence Puzzles

Chapter 11 – One Economic India

Chapter 12 – India on the Move and Churning

Chapter 13 – The ‘Other Indias’ – Highlights of Economic Survey 2016-17

Chapter 14 – From Competitive Federalism to Competitive Sub-Federalism