How Can Indians Be Happier?

From Financial Express, September 30, 2013

How can Indians be happier? 

 The most obvious aspect of the Bhagwati-Sen debate on Indian economic policy is the question of trade-offs between growth and redistribution. A subtler and deeper issue, central to Amartya Sen’s work, is that of goals. Gross domestic product (GDP, or its cousin, GNI—gross national income) per capita provides a single number, capturing purchasing power, and therefore a sense of the standard of living that people can afford. But this misses many complications, having to do with the imperfections and gaps in the ability of markets to value what we really care about.

The UN Human Development Index (HDI) creates a different numerical measure of well-being, including GDP, but also other dimensions of our lives, such as how healthy and how educated we are. But it is still somewhat arbitrary in its weightings of different outcomes, and it still misses some things that matter to us for our well-being. Can we do better in tracking average well-being?

The World Happiness Report (WHR) is precisely designed to get a better understanding of how well off people are in different countries, and what contributes to their sense of well-being. The data comes from asking people carefully calibrated questions about how they evaluate their own life circumstances, with answers chosen on a numerical scale. “Happiness” may be a fuzzy concept, difficult to pin down, but, on average, people can give an accurate sense of how they view their lives. Different surveys can distinguish between temporary and transitory feelings and emotions on the one hand, and an overall, longer-run evaluation of life conditions.

The latest WHR is the second annual effort in what may be a major step forward in understanding systematically what contributes to our overall well-being. In turn, it may help policymakers do better in setting their priorities and choosing policies. To make this concrete, look at where India stands. First, the facts. In the 2013 WHR, India ranks 111th out of 156 countries surveyed. For comparison, the US is 17th, China is 93rd, Bangladesh is 108th and Pakistan is (a surprising) 81st. The IMF GDP per capita rankings out of 187 countries, on the other hand, are: US (6), China (93), India (133), Pakistan (141) and Bangladesh (154). And the HDI rankings, also for 187 countries, are: US (3), China (101), India (136), Bangladesh (146), Pakistan (146).

Note that, unlike the HDI, the happiness ranking does not directly include GDP/GNI per capita—it is based on asking people directly how well off they feel. Hence, by comparing the happiness ranking with GDP per capita, one can get a better sense of the importance of material conditions. For the world as a whole, and for most regions and countries, GDP per capita is the most important variable in explaining happiness (there is a larger, unexplained residual). But “social support” is a very close second. Social support is measured by yes-no responses to the question, “If you were in trouble, do you have relatives or friends you can count on to help you whenever you need them, or not?” The remaining four important, identifiable variables that seem to explain happiness are, in order: healthy life expectancy, freedom to make life choices, generosity, and perceptions of corruption.

The initial take on the data does not provide anything new or surprising for India: material conditions (GDP per capita) matter, as does health. This is in concordance with our familiar indicators of progress. But there is one interesting nugget: India was significantly less happy in 2010-12 compared to 2005-07, despite being richer. What happened? The measure of perceived social support fell dramatically between the two periods. And this happened in a situation where the perception of social support in South Asia is far lower than in any other region of the world.

The data need further investigation and understanding before policy implications can be drawn from them. But the happiness index and its explanatory variables provide some beginning for possible policy innovations. If India’s lack of social support is a consequence of social fragmentation, low trust or erosion of extended family support structures, will government transfer programmes address it, or are deeper changes needed? Indeed, is government action the place to look for possible improvements in societal structures that will increase perceived well-being? The WHR finds that trust in national government is not correlated with happiness (subjective life evaluations), but that government effectiveness, reflecting aspects of honesty and effective delivery of public services, is strongly correlated with life evaluations.

Perhaps the preliminary lesson of the WHR for India’s policymakers is therefore the following one. Before trying to fix problems that have deeper social causes, stay focused on the basics, these being material well-being as measured by average income and by healthy lives; and before doing anything else, figure out how to make the government itself more honest and effective in whatever it needs to do most.

How Competitive is India?

The latest Global Competitiveness Report of the World Economic Forum ranks India 56 out of 142 countries. This is a much better rank than India gets on the UN Human Development Index or the World Bank’s Ease of Doing Business Index. Is this a good sign about the country’s future growth potential? Probably not.

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