Impact of the Economic Reform Programme on the quality of

human life in India - a study on the Health Indicators

(Dr. Srinivasa Rao Gangadharan and C.A. Yoonus)

Abstract

This paper examines the impact of the economic reform programme in

enhancing the quality of human life in India. The focus is on testing the
existence of structural changes on three crucial health indicators – Life
Expectancy at birth (LEB), Child and Infant Mortality rate (CMR &
IMR) before and after reform. The paper also attempts to find out the
level of influence of the expenditure on health by the GOI and the
number of registered medical practitioners available to provide medical
treatment on the above three health indicators. The Chow test has been
used to test the existence of structural changes and the regression analysis
to find out the level of influence.

The result of the Chow test showed existence of structural changes in

CMR & IMR and not in the case of LEB after the reform programme.
The regression analysis indicated the expenditure on Health by the GOI
and the number of medical practitioners available to provide medical
treatment had no impact in improving the three health indicators.

The paper concludes that the reform programme in India had no

significant impact in enhancing the quality of human life. In fact the
indicators show better performance before rather than after reform. The
reform programme concentrated more on the fiscal, structural and trade
adjustment rather than the social sector development. The reform
programme would have helped us reach our development goals if it was
oriented towards aspects of human development (education, health, child
nutrition, drinking water, women’s welfare and autonomy etc).

Key Words – Economic Reform Programme, Economic Growth, Quality

of Human life, Life Expectancy at Birth, Child Mortality Rate, Infant
Mortality Rate, Gross Domestic Product, Chow Test, Expenditure on
Health
1. Introduction

The economic growth rate of a country would be meaningful only if it is

accompanied by an improvement in the quality of human life, no matter what

the level of growth (8 or 9%) is. To quote J.R.D. Tata “I do not want India to

be an economic power. I want India to be a happy country”. Enhancing the

quality of human life has been the subject matter of much academic study and

public debate in India, but the focus has largely been on the performance of

the economy as a whole and not on the level of enhancement on the quality of

human life. An understanding of growth and the rationale for People Centered

Development (PCD) is imperative before examining the impact of the

economic reform programme on enhancing the quality of human life.

Is creating wealth growth? For many years, since the birth of industrial

capitalism, growth has been a major economic goal of policy makers – and

political leaders - based on the deeply ingrained view that delivering larger

and larger quantity of goods and services is the best way to improve the

quality of human life. The revolutionary methods of production used by this

system did generate fabulous new wealth and the policy makers saw this

increase in wealth as a way to eliminate scarcity and poverty.

But in reality this wealth was concentrated in the hands of small elite groups in

a few rich countries. For many other people it was in the form of enslavement.

However the focus of philosophers such as Aristotle and the political

economists such as Adam Smith, Karl Marx, John Stewart Mill and Alfred

Marshall argued that “human beings should be the ends of development rather

than mere means”. It was only after the World War II, the world community

adopted the universal declaration of Human Rights, celebrating the victory of

2
human freedom and reasserting strongly and clearly that the principle

objective of development was human well-being. In subsequent years there

followed a series of UN conventions and conferences establishing the

contention that improvement in the quality of human life as growth.

In India, it is often claimed that the current upsurge in the growth rate is the

resultant factor of the reform programme initiated by the government one and

half decades ago. Besides this, the rationale of the various economic reform

initiatives at the national level was that they would increase efficiency and

lead to higher factor productivity. Since these policies are generally applicable

to all states, there is a natural presumption that they would provide efficiency

gains that increases the growth potential.

So with the above back ground of improving the quality of human life as

growth and the rationale for examining it in the backdrop of economic reform

programme, this paper examines the impact of the economic reform

programme in improving the quality of human life in India.

2. Objective of the Study

The objective of the study is to examine the impact of the economic reform

programme in enhancing the quality of human life. The focus is mainly on

examining the structural changes in the three important health indicators (Life

Expectancy at Birth (years), Child and Infant Mortality rate) and to find out

the level of influence by the expenditures made by the GOI on health and the

number of registered medical practitioners available to provide medical

treatment before (1980-81 to 1989-90) and after (1990-91 to 1999-2000) the

3
reform programme. The study also identifies the factors responsible for the

changes.

3. Methodology

The most common methodology used in examining the impact of a

programme is by comparing the key performance indicators before and after

the implementation. But a mere comparative analysis of the absolute figures

on the magnitude of progress (increase or decrease) in the performance

indicators does not give statistically significant results. For instance the

percentage of people below the poverty line in 1983-84 was 44.48 percent,

though this is 10.4 percent less than the percentage of people below poverty

line in 1973-74, the absolute number of people below the poverty line has

increased by 1.56 million people.

The most popular and statistically significant regression model, the Chow test1

has been used to test for the existence of structural changes in the three

important health indicators between the two periods (Before and after the

reform programme). After ascertaining the changes, the level of influence of

the independent (explanatory) variables - expenditure on health by the general

government (State and Centre) and the number of registered medical

practitioners over the each dependent variables (LEB, CMR and IMR) has

been attempted separately between the two periods to find out the impact of

economic reform programme in improving the quality of human life.

4. Motivation for undertaking the study

Quality of Human life is more than economic growth. It is an environment

where people develop their full potential and lead productive and creative

4
lives according to their needs and interests. Development is expanding the

choices of the people for a long and healthy lives, access to the resources

needed for a decent standard of living and participate in the life of the

community they value. So, human development is enlarging people’s choices.

Without these choices many opportunities in life remain inaccessible.

Ensuring quality health care to its citizen is one of the constitutional

commitments of the government in power. Quality health care reflects the

quality of human life. This is especially important in a country where the

manifestation effect of the “demographic dividend2” is on the increasing trend.

According to the Technical Group study on population projections constituted

by the National Commission on Population, the proportion of population in the

working age group of 15 – 64 years increasing steadily from 62.9 per cent in

2006 to 68.4 per cent in 2026. Tapping this demographic dividend to achieve

increased economic growth rate, India need to ensure proper healthcare to this

age group of the population.

So, it is highly motivating to undertake a study that stress the importance of

the quality of human life as growth and help the policy makers to enhance it

by making suitable amendments in the health policy.

5. Research Gap

Many studies on Growth, Globalisation and Economic reform programme

(Levitt, 1983, Xabier, 1995, Wade, 2001) focused on the financial

management aspect and very little on the social aspect that will improve the

quality of human life. Majority of the studies on the social aspect deal with the

educational aspect and relatively very few studies focus on the health aspect of

5
improving the quality of human life. This is evident from the observation that

a search on “Quality of human life” in the JSTOR search engine listed out

many articles on education and very few on health. Even here the analysis was

on the construction of new quality of life index or a comparative analysis of

quality of life across countries in the world and not on examining the impact

of any reform programme on the quality of human life.

This study focuses on health aspect despite the fact that educational and

poverty indicators also determine the quality of human life. The study relies

on a time – series data that requires availability of data on a continuous basis,

while the health indicators fulfill this criterion, the educational indicators fails

on this as they (literacy rate) are decennial in nature.

This study fulfills this research gap.

6. Data Source

This paper relies on data from the authorized Indian statistical database - RBI

Bulletin, Economic Survey of India, and from the website of Indiastat.com and

the Ministry of Human resources, Government of India.

6.1. Independent variables

The level of social sector expenditure at the state level and its quality and

effectiveness has a direct bearing on human development outcomes and over-

all well-being. Because under the constitutional division of responsibility

between the Centre and State Governments, the bulk of the social services and

most infrastructure services (except for telecommunication, civil aviation,

railways and major ports) lie in the domain of state government. Hence we

have taken the expenditure on health incurred on both the Revenue and Capital

6
account by all the state governments in India as one of the independent

variable. The data has been culled out from the RBI bulletin that brings out the

Finances of the State Governments3 every year. To mitigate the inflationary

pressure we have used the proportion of expenditure on Health to GDP.

The second independent variable namely, the number of registered medical

practitioners per ten thousand populations has been taken from the various

issues of Economic survey4.

7. Organisation of the Paper

The paper has been organized into four sections. Section – 1 deals with the

Review of literature; Section - 2 examines the objectives of the study;

Section – 3 brings out the statistical examination of the hypothesis developed

and Section – 4 Summaries the paper with a conclusion.

7
 Section – 1

Review of Literature

The review of literature for the study is focused on two aspects:-

I. Studies that measures the quality of human life

II. Economic reform programme and the quality of human life.

I. Studies that measures the quality of human life

Economists, Academicians and Development experts have devised several

indices based on health and education indicators to measure the quality of

human life. Using cross-country data, Steve Dowrick, Yvonne Dunlop and

John Quiggin (1998) estimated an equation that explains that a cost reduction

in age-specific mortality rates is sufficient to save the life of one person in

terms of the prices of specific goods and services.

Shirley Cereseto and Howard Waitzkin (1988) compared the Physical Quality

of Life (PQL) of 123 capitalist and socialist countries (97 percent of the

world's population) taking into account the level of economic development.

Gary S. Becker, Tomas J. Philipson and Rodrigo R. Soares (2005) computed

a "full" growth rate that incorporates the gains in health experienced by 96

countries for the period between 1960 and 2000.

For a long time there prevailed an assumption amongst economist that the Per

capita GNP is the best index of economic well being of a country and the basic

needs such as health and education would be taken care as a by-product of the

growth in GNP. But the outcomes of many studies (Morris 1979, Ram 1982,

Burket 1985) have showed that this was not the case.

8
According to Brundtland Report5 the economic growth rate that is forceful and

at the same time socially and environmentally sustainable as an indicator of

the quality of human life.

Daniel J. Slotjee devised an index that measures and compares the quality of

life as comprehensively as possible using 20 attributes of the quality of life for

123 countries.

The above literature shows that the indices developed are better indicators of

the quality of human life in a country as compared to economic growth.

II. Economic Reform Programme (Openness) and the Quality of human

life

There are not many studies that link Economic reform programme with the

quality of human life due to the following reasons:-

a) Many economists are of the view that reform programme is only a tool

to correct the macro economic instability in the economy and has no

link with the quality of human life.

b) there are no direct studies of the poverty effects of trade and trade

liberalization and no general comparative static results about the level of

influence (increase or decrease) of trade liberalization on poverty;

c) there are no historical instances in which liberalization could be

identified as the main economic shock.

Despite the above reasons there are several highly visible and well-promoted

cross-country studies (David dollar,1992, Jeffrey Sachs and Andrew Warner,

1995 and Sebastian Edwards,1998) that foster the 1990s conviction that

openness is good for economic growth.

9
But Rodriguez and Rodrik (2001) contradict that the above conviction rest on

very weak empirical foundations such as faulty measures of openness and

serious econometric short comings. Moreover liberal trade is usually only one

of several indicators of openness used that often weighs rather lightly in the

overall result (Ann Harrison, 1996).

Besides this, economists like L.Alan Winters, Neil McCulloch and Andre

McKay, 2004 are also of the view that trade liberalization harms poorer actors

in the economy in the short and even in the successful long run open regimes.

Though the reform programme in the last 20 years around the world has more

or less enhanced the economy stronger and delivered a huge change, it has not

resulted in enhancing the quality of human life. This is reflected in a study

(Michael Pussey,2003) that validate from 1980 onwards (when most of the

economies around the world have opened their economies) to the turn of the

millennium, the total wages share has fallen down from 60 per cent to 54 per

cent despite an increase in the profit share (17% to 24%).

This was due to the fact that the demands of the capitalist classes for higher

rates of remuneration, especially higher dividends, force down the added value

distributed to wage earners as direct wages and social welfare benefits. The

government share has stayed at about the same low level, comparing with

other OECD countries, for a long time government spending had been at the

low levels and a small public sector.

The UNCTAD report of the UN conference on trade and development also

shows that the poor countries least open to globalisation have progressed most

in per capita income, whereas the most open countries have been victims of

10
their openness6. Karl Marx, in his critique of merchandise in the first chapter

of Das Kapital, predicted that Liberalization is incapable of giving any

meaning to life other than consumerism, waste, hijacking natural resources

and economic income and worsening inequality.

The Indian Scenario

A study titled “Politics of Economic Reform in India” points out that the

changes introduced in the reform programme of the 90s were dramatic by the

past standards in India, but quite unremarkable by the standards of many other

developing countries, particularly in East Asia and Latin America.

11
 Section - 2

Economic reform programme and the quality of Human life

Life expectancy at birth - a long and healthy life

The most important health indicator that highlights the quality of human life is

the Life expectancy at Birth (LEB) – measured in terms of years. Life

expectancy is the average number of years a human has before death,

conventionally calculated from the time of birth, but also can be calculated

from any specified age. Calculating life expectancy from birth emphasizes

contributions to improvement in health at lower ages; low pre-modern life

expectancy is influenced by high infant and childhood mortality. If a person

did make it to the age of forty he has on an average another twenty years to

live in. Improvements in sanitation, public health, and nutrition have mainly

increased the numbers of people living beyond childhood, with less effect on

overall average lifetimes.

An examination of the increment in the life expectancy years, before (1981 –

1991) and after (1991-2001) the reform shows that Life expectancy gap has

been closing in India. The reform programme has reduced the increment in

LEB nearly half of that witnessed before reform. It is to be noted that the

increment in life years of female is more than the male. In the last five years

the increment is almost twice that of male.

12
 Table - I

Increment in the Life Expectancy years - Before (1981 – 91) and After
Reforms (1991 – 2001) in India
In the last 5
Before After Yrs
Health Indicators
(1981 - (1991 - (2001-
1991) 2001) 2006)
Life Expectation at Birth - Male 5.6 2.66 1.51
Life Expectation at Birth - Female 6.2 3.09 2.92
Source - Economic Survey, 2006

To add more value to our analysis, we have compared the increment in LEB

years of India with its neighbours (Pakistan, Bangladesh and Srilanka), the

BRIC7 and with some developed economies (USA, UK, France, Japan and

Germany). The analysis revealed India ranks last with an increment of just

0.12 years in the LEB among the countries selected for analysis.

Table - II

Life expectancy at birth, total (years)

Country 2001 2002 2003 2004 2005 Increment
United Kingdom .. 77.59 78.40 78.75 78.95 1.36
Bangladesh .. 62.58 .. .. 63.90 1.32
China .. 70.66 .. 71.44 71.83 1.18
Pakistan .. 63.82 64.98 64.92 64.86 1.04
Brazil .. 70.30 .. .. 71.24 0.94
France 79.11 79.31 79.26 80.16 80.21 0.90
Sri Lanka .. 73.92 .. .. 74.67 0.75
Germany 78.33 78.23 78.48 78.48 78.93 0.70
Japan 81.42 81.56 81.76 82.03 82.08 0.51
United States 77.03 77.24 77.14 77.43 77.71 0.47
Russian Federation 65.49 65.09 65.01 65.42 65.47 0.38
India .. 63.38 .. .. 63.50 0.12

Source - World Development Indicators, The World Bank Group

According to the latest available data, Japan with a LEB of 82 years tops the

list followed by France (80), UK (79) and US (78). So an average person born

in Japan will live 18 years more than Indian. It is shame to know that

13
Bangladesh is a head of India in LEB. Being born in the wrong street in global

village carries with it a large risk in terms of survival prospects.

Child Mortality Rate (CMR)

The most sensitive indicator of human well-being is the Child Mortality Rate

(CMR). Perhaps more powerful than any other indicator, child mortality

demonstrates that increases in income are not equivalent to improvements in

human development. The encouraging trends at the global level are that child

mortality rates are falling: there were 2.1 million fewer deaths in 2004 than in

1990 (Pranab Bardhan, 2007). Despite these improvements in survival

prospects in all regions, 10.8 millions child deaths in 2004 bear the testimony

to the basic of all life chances – the chance of staying alive.

Now, let us see what is happening in India. The magnitude of decline in CMR

has slow down after the implementation of the economic reform programme.

Before reform (1981-1991) the CMR reduced by 14.7 while after reform

(1991 – 2001) the CMR got reduced only by 9.5.deaths. India has

outperformed Bangladesh in economic growth and average income, but

Bangladesh has out performed India in reducing child death rates, which is

more meaningful than growth in GDP and average income.

Table – III

Child Mortality in India

1981 1991 2001

Child Mortality Rate (0-4 41.2 26.5 17.0
Yrs) Per 1000 children
Before Reform After Reform
1981 - 1991 1991-2001
The magnitude of decline in 14.7 9.5
child mortality rate (0-4) yrs

14
Infant Mortality Rate (IMR)

The reform programme has not brought any impact on the infant mortality

rate. Comparing with 1981, the IMR has come down by 30 deaths per 1000

live births in 1991. After the implementation of the economic reform

programme the IMR got reduced only by 22 deaths per 1000 live births.

Table - IV

Before After
Reform Reform
1981 1991 2004
Infant Mortality Rate
110 80 58.0
Per 1000 live births
1981 - 1991 1991-2004
The magnitude of
decline in Infant
30 22.0
mortality rate per 1000
live births

15
 Section - III

Statistical Analysis on the impact of the economic reform

programme on LEB, CMR and IMR

A statistically significant analysis will give more validation in examining the

impact of the reform programme on LEB,CMR and IMR rather than a mere

comparative analysis of the above nature. Hence, the following hypothesis has

been developed to test the level of significance:-

H0 (Null Hypothesis) = the expenditure on health by the GOI and the number

of registered medical practitioners during the reform programme have

enhanced the crucial health Indicators

H1 (Alternative Hypothesis) = the expenditure on health by the GOI and the

number of registered medical practitioners during the reform

programme have not enhanced the crucial health Indicators

The above hypothesis has been tested using the Chow Test regression model –

an econometric test that examines any structural changes in the three crucial

health indicators (LEB, CMR & IMR) between the two periods (Before and

After Reform). It is nothing but the F test, where the observed value is more

than the critical value.

First we have used Life expectancy at birth (LEB) as the dependent variable

and the Proportion of General government’s (Centre and State) expenditure on

health to GDP, the number of Registered Medical practitioners per 10000

population available to provide medical treatment and the dummy (0,1) as the

independent (Explanatory) variables to test for structural changes in the LEB.

Our results showed that the observed F value is less than the Critical value and

16
 they do not hold any significance. In other words there are no changes in the

Life expectancy at birth both before and after reform.

Since LEB did not yield any significant result our next attempt was to use

Child Mortality rate as the dependent variable with the same independent

variables to test for structural changes between the two periods. The results

showed significant outcome (observed “F” value > critical) thereby establishes

the fact that there exists structural changes in the Child Mortality Rate (CMR)

before and after the programme. A similar attempt has been made with respect

to Infant Mortality rate (IMR) which also showed significant outcome. In short

the chow test conducted for the three health indicators showed that except

LEB, in the other two health indicators (CMR & IMR) there exist structural

changes.

Table -V

Chow Test
Descriptions CMR IMR LEB
Residual Sum Squares (S1) Combined Observations 97.08 164.46 148.74
Residual Sum Squares (S2) Period 1 17.96 18.58 59.08
Residual Sum Squares (S3) Period 2 16.41 27.94 43.99
S4 = (S2+S3) 34.38 46.52 103.07
S5 = (S1 - S4) 62.70 117.94 45.67
No.of.Parameters Estimated (k) 4 4 2
No.of.Obsevations (n1) 10 10 10
No.of.Obsevations (n2) 10 10 10
S5/k 15.68 29.49 22.83
(n1+n2-2k) 12 12 16
S4/(n1+n2-2k) 2.86 3.88 6.44
S5 /k
Observed F - Value = 5.47 7.61 3.54
S 4 /( n 1 + n 2 − 2 k )
F - distribution (k, n1+n2-2k) (4,12) (4,12) (2,16)
F- Critical Value @ 5% level 3.26 3.26 3.63
Not
Inference = Observed F< Critical F Significant Significant
Significant

17
 After establishing the existence of structural changes in the CMR and IMR

which means the reform programme has brought some changes in the CMR

and IMR. The next level of analysis was to determine the level of influence by

the independent variables on these two indicators.

The adjusted R2 in the regression analysis explains the level of influence of the

independent variables on the dependent variables. Our analysis reveals that the

level of influence by the independent variables (expenditure on Health by the

government and the number of Registered Medical practitioners (RMP) to

provide medical treatment) on the dependent variables (CMR and IMR) has

come down after the reform programme. These two independent variables that

were influencing 88 per cent of changes in CMR and 80 per cent of changes in

IMR before reform, their level of influence has come down to 54 per cent and

57 per cent respectively after the reform. This is further validated by the F

value that explains the significance of the whole model shows that the model

was significant before reform and not after reform.

Table - VI

Before Reform After Reform

Statistical indicators CMR IMR CMR IMR

Adjusted R2 0.88 0.80 0.54 0.57

Significance of F Value 0.0003 0.0003 0.0281 0.0001
P - Value of the Intercept 0.0001 0.00002 0.43 0.182
Coefficent X1 - Propn.of Expenditure on Health to GDP 59.26 589.99 1801.37 4721.83
Coefficent X2 - Registered Medical Practitioners/ 10000
-16.39 -21.90 -3.61 -5.76
Population
t- value of X1 - Propn. Of exp.on Health 0.031 3.00 1.55 3.13
t- value of X2 - RMP -6.89 -9.06 -3.18 -3.89

18
The next level of analysis is to find out whether the changes in CMR and IMR

have been due to Intercept or Slope or both. The P value of the Intercept of

CMR and IMR are significant before reform and not after reform. This has

been due to high variation in the co-efficient of the variable X1 (proportion of

expenditure on health to GDP) after reform. The beta co-efficient increased

from 59 to 1800 in the case of CMR and from 590 to 4700 in IMR. The above

statistical inferences show that the expenditure on Health by the Government

had no impact in improving the health indicators.

This is because public expenditure on health are labour-intensive, the bulk of

the increase has been due to sharp increases in the wages of the health service

providers, following the fifth pay commission’s recommendations in 1997.

The impact of the Commission’s recommendations on spending was

somewhat higher in education and health than in other sectors. A study by

Shariff and others (2002) points out that in some states the wage bill tops 90

per cent of the total costs. The increase in the wage bill following the

commission’s decision led to increase in pay rates and not in the numbers of

doctors and nurses. This increased spending was not likely to improve health

outcomes.

The positive aspects of the health indicators CMR and IMR is explained by

reduction in these indicators. The variable X2 (the number of RMPs) had good

influence in bringing down the CMR and IMR. The beta co-efficient shows

negative sign that explains an increase in the RMP brings down the CMR and

IMR. But here also the reform program has no impact. The beta co-efficient

got reduced to one fifth of that of the before reform for CMR and one fourth

for IMR.

19
We would like to further strengthen the above analysis by combining the data

into one single set and run a regression analysis for 20 data points instead of

the one analyzed above with respect to before and after reform as it may give a

biased results since the data set takes into account only 10 data points.

The regression analysis showed similar results of the one analysed with split

up data set. The P values of the beta co-efficient of the dependent variable X2

– the number of registered medical practitioners available to rendered medical

services are significant as their value is less than 0.05 with the three

independent variables. This implies that an increment with the number of

medical practitioners increases the Life Expectancy at birth and decreases the

Child and Infant Mortality rate. On the other hand the P values of the beta co-

efficient of the dependent variable X2 – the expenditure on health by the GOI

as a proportion of GDP is not significant.

Besides this the beta coefficient for LEB shows positive sign which signifies

increment in LEB goes with increment in the number of RMP. Similarly the

beta co-efficient for IMR and CMR shows negative sign that imply decrease in

Child Mortality and Infant mortality rate coincide with increase in RMP.

Table – VII

Regression analysis of the Crucial Health Indicators

(LEB, CMR, IMR) from 1980-81 to 1999-2000
Independent Variables
Dependent Variables
LEB IMR CMR
Exp. On improving Health as a 0.45975 0.0651 0.8848
propn. to GDP - X1
Registered Medical Practitioners/ 0.000158 0.00000 0.0000
10000 population - X2

20
 Section - IV

Summary, Recommendations and Conclusion

The study reveals that the reform program had little or no impact on the

quality of human life despite the fact that the reform programme is one of the

reasons that had unleashed the entrepreneurial forces from the shackles of

controls and regulations.

The health sector has been kept off from the Government’s (Centre and State)

reform programme due to the following reasons:-

¾ the problems of the foreign trade regime, fiscal deficits and the

constraints on industrial investments in the factory sector occupied

high priority in the minds of the reformers with the believe that once

these are handled right, trickle-down will take care of the issues that

concern the masses.

¾ The policy makers did not give much importance to the regular

monitoring of the health facilities (hygiene, mosquito control) provided

as they do not bring much political mileage. Building facilities carries

the political benefits of being very visible and having opening

ceremonies.

Recommendations

Restructure the Conventional Wisdom

A growing number of economists, independent thinkers, and citizen

organizations concerned with economic justice and environmental issues stress

for an urgent need to restructure the conventional wisdom as they deteriorate

21
the quality of human life on many economic parameters (Employment, Free

Trade, Market allocation of resources and Government interference) - David

Korten,1996. For instance the conventional wisdom about employment is that

jobs are created through economic growth. But the current scenario is an era of

jobless growth in which technology and reorganizations are eliminating good

jobs faster than growth is creating them. The new jobs being created are often

low paying and temporary without benefits creating an underlying sense of

insecurity throughout society that deeply stresses the social fabric. Similarly in

trade, the conventional wisdom is that free (unregulated) trade increases

economic efficiency (better use of resources) through comparative advantage.

Today the gains from comparative advantage are not real. More than half of all

international trade involves exchanges of the same goods with little or no

comparative advantage.

Devolution of power to Local Bodies

There is no serious involvement of the local bodies in the management or

control of basic public services like primary education, public health and

sanitation or in raising local resources. As per 73rd amendment of the

Constitution, the Panchayat Raj Institutions (PRIs) are required to be endowed

with adequate responsibilities and powers to enable them to function as the

“Institutions of self-government”. Though in the early 1990s (around the same

time economic reforms were launched) decentralization of governance was

ushered in most of the states raising the hope for better delivery of public

services sensitive to local needs, the progress in this respect has been

disappointing both in terms of actual devolution of authority and outcome

variables. A general evaluation study on devolution of powers to panchayts by

22
Mahi Pal (EPW, September 8, 2001) reveals that except Kerala,

Madhyapradesh, Tripura and West Bengal nothing worthwhile has been

devolved to the panchayts. Even in the relatively successful states like West

Bengal the major role of the panchayts has been in identifying the

beneficiaries and the management and implementation of local infrastructure

projects like roads and irrigation, funded by tied grants from the State and

Central government.

Governance in Human Development

Apart from this the reformers paid little attention to the crucial problems of

governance in matters of achieving human development, which will be

inexorably there even if trade, fiscal and industrial policy reforms were

successful. If the administrative mechanism of delivery of public services in

the area of human development remains seriously deficient, as it is today in

most states, chances of constructing a minimum social safety net are low, and

with out such a safety net any large scale program of economic reform will

remain politically unsustainable, not surprisingly in a country where the lives

of the overwhelming majority of the people are brutalized by the lack of

economic security.

Foster the Rural Industrialization

Another area where the reform programme in the social sector could enhance

the quality of human life is fostering the small-scale rural industrialization. In

India decentralization is usually visualized only in terms of delivery of welfare

services, not in terms of fostering business development, and yet if this link

could be established, economic reform programme would have been more

23
popular, as local informal-sector industries touch the lives of many more

people than the corporate sector. The Chinese success in the phenomenal

growth in rural industries is often ascribed to decentralization, by which

Central and provincial governments gave “Positive” incentives to local

government-run village and township enterprises.

Restructuring the Administrative set-up

The current administrative set-up in our country for many years has been

static, subjective, clumsy, shady and ambiguous. Promotions are seniority

based and not merit or performance based. There is also strong disincentive to

take bold and risky decisions. In such a situation any type of reform

programme aimed on the social sector would not enhance the quality of human

life. Economic reform programme is about competition and efficiency, and

government machinery that does not allow them in itself is hypocritical of that

message. So public administration reforms accompanied by changes in

information system, organizational structure, budgeting and accounting

systems, task assignments and staffing policies should be an integral part of

the reform programme focused on the social sector that aim in enhancing the

quality of human life.

Conclusion

The reform programme would have been more popular if it was oriented

towards aspects of human development (education, health, child nutrition,

drinking water, women’s welfare and autonomy etc). So we conclude that in

an environment of growing globalization, economic and human development

must be pursued together by evolving an appropriate framework to wrest

24
maximum benefits out of international trade and investment. It should fulfill

choices for all people rather than many choices for few people.

Future Research

Future Research of this paper will focus on developing a health index for India
taking into account all economic and social aspects that could play a
significant role in determining the quality of human life.

---------------0-------------

25
 END NOTES

1. Developed by Gregory Chow.

2. Rise in the rate of economic growth due to a rising share of working

age people in a population

3. prepared in the division of Fiscal analysis of the Department of

Economic Analysis and Policy based on the budgets of all the state

governments and the National capital territory of Delhi,

4. An annual publication brought out by the Ministry of Finance,

Government of India.

5. Gro Harlem Brundtland, Our common future, report of the World

Commission on Environment and Development, Oxford University

Press, Oxford, 1987. This report was the basis for the UN conference

in Rio de Janeiro in 1992.

6. 2004 Unctad Report on least developed countries, quoted by Babette

Stern in "Pour les pays les moins avancés, la libéralisation

commerciale ne suffit pas à réduire la pauvreté", Le Monde, 29 May

2004.

7. terms used in a thesis of the Goldman Sachs investment bank (2003)

to refer to the combination of Brazil, Russia, India, and China. The

paper argues that the economies of the BRICs are rapidly developing

and by the year 2050 will eclipse most of the current richest countries

of the world.

26
 Annex - I

Chow test for the LEB Function

The LEB function for the two periods is as follows:-

Before Reform - Yt = α1 + α 2 x1 + α 3 x 2 + U 1t ……………….. (1)

t = 1,2,………..n1

After Reform - Yt = β 1 + β 2 x1 + β 3x 2 + U 2t ……………….. (2)

t = 1,2,………..n2

Where Y (Dependent variable) is the Life Expectancy at Birth (Years),

Independent Variables - X1 is the proportion of expenditure on health to GDP,

X2 the number of registered medical practitioners U is the disturbance terms

in the two equations, and n1 and n2 are the number of observations in the two

periods. The number of observations in the two periods can be the same or

different.

Now a structural change may mean that the two intercepts are different, or the

two slopes are different or both the intercepts and slopes are different or any

other suitable combination of the parameters. If there is no structural change

(i.e structural stability) we can combine all the n1 and n2 observations and just

estimate one LEB function as

Structural stability = y t = λ1 + λ 2 X 1 + u t …………………. (3)

Combining all the n1 and n2 observations we estimate equation 3 and obtain its

residual sum of squares (RSS), say S1 with df = (n1 + n2- k) where k is the

number of parameters estimated, 2 in our case.

27
Equation (1) and (2) are estimated individually and obtained their RSS, say S2

and S3 with df = (n1 – k) and (n2 – k) respectively and these two RSS say

S4 = S2 + S3 with df = (n1 + n2 – 2k)

Then we obtain S5 = S1 – S4

Given the assumptions of Chow Test, it can be shown that

S5 k
F=
S 4 (n1 + n2 − 2k )

The parameters are not the same and they are different between the two

periods. We introduce dummy variable to find out whether the difference has

been due to Intercept or slope or both. Here we have introduced the dummy

variable “0” for before reform and “1” for after reform.

28
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31