Global Indices: HDI, GII & Ease of Doing Business

Global Indices: HDI, GII & Ease of Doing Business

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Key Definition (1 sentence)

Global indices are comparative rankings published by international organisations that measure a country’s performance across human development, innovation, and business environment dimensions.

Why It Matters for RBI

RBI uses these indices to gauge India’s competitive position globally, which affects foreign investor sentiment, capital flows, and the country’s credit rating — all feeding into monetary policy formulation.

Must Know Facts

• HDI (UNDP) combines three dimensions — health (life expectancy), education (mean/expected schooling), and income (GNI per capita) — India’s rank: 134th (2023-24 HDR)
• Global Innovation Index (WIPO): India ranked 39th in 2024, up from 81st a decade ago — fastest rise among BRICS nations
• Ease of Doing Business (World Bank, discontinued 2021): India peaked at 63rd — replaced by B-READY framework
• MPI (Multidimensional Poverty Index, UNDP/OPHI): Uses Alkire Foster method; 23 crore Indians lifted out of poverty in 15 years; India ranked 65th among 112 countries
• GDP per capita alone fails to capture human welfare — HDI was created precisely to address this limitation

Quick Example / Application

When India climbed to 39th on the Global Innovation Index in 2024, foreign venture capital inflows into Indian tech start-ups surged, demonstrating how global rankings directly influence capital market dynamics.

1-Line Summary

Global indices give India a report card on development, innovation, and business climate — and investors watch them closely to decide where money flows.

🟡 Standard

Concept Explanation

Here’s something they’ll never tell you in a standard economics textbook: GDP is a measure of a country’s economic output, not its people’s wellbeing. A country can have a high GDP because it has oil, but if that oil wealth goes to a handful of oligarchs while most citizens live in poverty, GDP doesn’t tell you that. This is exactly why the world built composite indices — to capture what GDP misses.

The Human Development Index (HDI) was created by the economist Mahbub ul Haq and first published by UNDP in 1990. It combines three dimensions into a single score between 0 and 1:

• Health: Life expectancy at birth (how long people can expect to live)
• Education: Mean years of schooling for adults + expected years of schooling for children
• Income: Gross National Income (GNI) per capita (using purchasing power parity to make cross-country comparison fair)

India’s HDI for 2023-24 was 0.645, placing it in the “Medium Human Development” category. Its rank was 134th out of 193 countries. For context, the world’s top HDI is Norway at 0.97. China’s HDI is 0.788 (rank 75th). Sri Lanka is at 0.78 (rank 77th). Bangladesh, despite lower GDP per capita than India, has made impressive gains.

Here’s what makes HDI powerful for the exam: it reveals the India development paradox. India’s GNI per capita (PPP) has grown substantially, but its HDI is held back by relatively poor health outcomes (life expectancy of ~68 years vs China’s 77 and Sri Lanka’s 77) and low education completion rates. More critically, India’s Inequality-Adjusted HDI (IHDI) — which subtracts the inequality penalty — is significantly lower than its raw HDI, meaning inequalities in health and education access drag down the overall score.

The Global Innovation Index (GII), published by WIPO (World Intellectual Property Organization), measures innovation ecosystems across 80+ indicators. It has two sub-indices: the Innovation Input Sub-Index (institutions, human capital, infrastructure, market sophistication, business sophistication) and the Innovation Output Sub-Index (knowledge and technology outputs, creative outputs). India ranked 39th globally in GII 2024 — up from 81st in 2015. This is genuinely impressive. What drove it? ICT services exports, R&D spending by top Indian companies, venture capital deals, and a growing startup ecosystem (over 1 lakh startups recognised by DPIIT).

The Ease of Doing Business (EoDB) index, formerly published by the World Bank, ranked India at 63rd in 2019 from 142nd in 2014 — a dramatic improvement that the government prominently publicised. But the World Bank discontinued the EoDB in 2021 after methodological concerns were raised. It was replaced by the Business Ready (B-READY) framework, which India is expected to score well on given its regulatory reform momentum.

The Multidimensional Poverty Index (MPI), developed by OPHI (Oxford Poverty and Human Development Initiative) and published with UNDP, uses the Alkire Foster method. Unlike income poverty, MPI captures deprivation across three equally weighted dimensions: health (nutrition, child mortality), education (years of schooling, school attendance), and standard of living (cooking fuel, sanitation, drinking water, electricity, housing, assets). India’s MPI 2023 found that 23 crore people were lifted out of multidimensional poverty between 2005-06 and 2019-21 — that’s roughly the entire population of all European Union countries combined.

Key Terms & Definitions

Term	Definition
HDI	Human Development Index — composite of health, education, and income; score 0-1, higher is better
IHDI	Inequality-Adjusted HDI — HDI minus the penalty imposed by inequality in each dimension
GII	Global Innovation Index — WIPO’s annual ranking of 130+ countries on innovation inputs and outputs
EoDB / B-READY	Ease of Doing Business (discontinued) → replaced by Business Ready framework by World Bank
MPI	Multidimensional Poverty Index — measures poverty across health, education, and living standards (Alkire Foster method)
Alkire Foster Method	A multidimensional measurement approach that counts deprivation across weighted indicators
PPP	Purchasing Power Parity — adjusts exchange rates so the same basket of goods costs the same in every country
Gini Coefficient	Measure of income inequality; 0 = perfect equality, 1 = perfect inequality

Real-World Example (RBI Context)

When India’s GII rank jumped to 39th in 2024, RBI’s report on “India’s Innovation Landscape” noted that this directly correlated with rising venture capital inflows — ₹1.15 lakh crore in VC funding in 2023. RBI connected this to its own data on startup registrations and unicorn creation (India has 110+ unicorns, 3rd largest globally). For the exam, you should note: higher innovation ranking → better investor confidence → more FDI → strengthens rupee and widens capital markets.

Exam Pattern / How It Appears

• Conceptual: Why is India’s HDI rank lower than its GDP rank? (Answer: inequality, education deficit, health outcomes)
• Comparative: Compare India’s HDI with Sri Lanka, Bangladesh, China on any two dimensions
• Numerical/Formula: Given life expectancy and GNI per capita, calculate the health dimension index using the geometric mean formula (yes, they ask this!)
• Current: What did India’s B-READY score reveal? How many people were lifted out of poverty under the MPI?

Step-by-Step Example

Q: Suppose India’s health dimension score (life expectancy index) is 0.548, education dimension score is 0.493, and income dimension score is 0.645. Using the geometric mean method, calculate India’s approximate HDI. (HDI = cube root of health × education × income)

Answer: HDI = ∛(0.548 × 0.493 × 0.645) Step 1: 0.548 × 0.493 = 0.270 Step 2: 0.270 × 0.645 = 0.174 Step 3: ∛0.174 ≈ 0.558 Note: India’s actual HDI uses slightly different methodology with specific geometric means for each indicator — but this illustrates the principle. India’s actual 2022 HDI was 0.633, which gives you a sense of scale.

🔴 Extended

Concept Deep Dive

The story of global indices is fundamentally a story about measurement — and the eternal tension between what we measure and what matters. GDP was invented in the 1930s by Simon Kuznets to track economic activity during the Great Depression. It was never designed to be a measure of human welfare. Yet, for decades, it was treated as such. The indices we study — HDI, GII, MPI, EoDB — represent the global community’s effort to correct this narrowness.

HDI: The landmark composite index

The Human Development Index was born in 1990 when Pakistani economist Mahbub ul Haq wrote the first Human Development Report, arguing that development is about expanding human capabilities, not just expanding incomes. He famously said: “The measure of human development is not the size of the economy; it is what people can do with the economy’s output.”

The current HDI formula (since 2010, updated from the old arithmetic mean to a geometric mean approach) uses three dimension indices:

Health dimension index = (Life expectancy − 20) / (85 − 20) where 20 is the minimum and 85 the maximum used globally.

Education dimension index = [Geometric mean of (Mean years of schooling / 15) and (Expected years of schooling / 18)]² The squaring accounts for the 1/3 weight each to the geometric mean (since education has 2 components).

Income dimension index = [ln(GNI per capita PPP − 100) − ln(100)] / [ln(75,000) − ln(100)] (Ln is used because income has diminishing marginal utility — the gap between $500 and $1,000 matters more than the gap between $50,000 and $50,500)

Final HDI = Geometric mean of the three dimension indices = ∛(Health × Education × Income)

India’s 2023-24 HDI value of 0.645 (rank 134th) means: life expectancy index of ~0.548, education index of ~0.493, income index of ~0.645. The geometric mean means that a very low score in any dimension pulls down the overall HDI more than an arithmetic mean would. This is intentional — it penalises multidimensional deprivation.

The Inequality-Adjusted HDI (IHDI) for India reveals the true cost of inequality: India’s IHDI is estimated at ~0.515 (vs. 0.645 HDI), meaning inequalities reduce India’s HDI by about 20%. This gap is larger than most countries at similar income levels.

Global Innovation Index (GII): India’s asymmetric success story

India’s climb from 81st (2015) to 39th (2024) in the GII is one of the most striking development stories in recent decades. But here’s what the headline rank conceals: India’s performance is highly asymmetric.

What India scores well on:

• Knowledge and technology outputs (rank ~25 globally) — patents filed by Indian residents, ICT services exports, software services revenue
• Business sophistication (rank ~30) — venture capital deals, merger & acquisition activity, high-tech company density
• Market sophistication (rank ~35) — credit availability, investment protection, domestic market size

What India scores poorly on:

• Institutions (rank ~100+) — quality of administrative regulation, corruption perceptions, government effectiveness
• Human capital and research (rank ~80) — expenditure on R&D (only 0.65% of GDP vs. China’s 2.4%), university quality
• Infrastructure (rank ~80) — logistics performance, broadband quality, electricity reliability

This pattern — strong outputs, weak inputs — tells a specific story about India’s innovation model: it has built excellent application-layer innovation (software services, fintech, e-commerce) without the deep research infrastructure that drives frontier innovation. IITs produce world-class graduates; but India’s gross expenditure on R&D (GERD) as a % of GDP is only 0.65% — below the world average of 1.7%.

The Multidimensional Poverty Index (MPI) and the Alkire Foster method

The Alkire Foster (AF) method, developed at Oxford University, measures multidimensional poverty in a way that is both precise and intuitive. It works as follows:

Step 1: Choose indicators across dimensions (e.g., health, education, standard of living) Step 2: Set a deprivation threshold for each indicator (e.g., malnourished = deprived; no schooling = deprived) Step 3: Apply a dual cutoff: A person is identified as multidimensionally poor if they are deprived in at least 33% (or 1/3) of the weighted indicators Step 4: Count the multidimensionally poor → calculate headcount ratio Step 5: Intensity = average deprivation score among the multidimensionally poor

MPI = Headcount Ratio × Intensity

India’s MPI 2023 (NITI Aayog + UNDP): 23 crore people lifted out of multidimensional poverty in 15 years (2005-06 to 2019-21). India’s multidimensional poverty fell from 54.7% (2005-06) to 14.96% (2019-21) — a stunning decline. Rural areas saw faster poverty reduction than urban areas (driven by MGNREGA, Ujala scheme for electricity, Swachh Bharat for sanitation).

Why GDP alone fails — the philosophical foundation

The “GDP is insufficient” argument rests on three distinct critiques:

1. GDP ignores distribution: A country can have high GDP with extreme inequality (think: oil-rich Gulf states where expat workers are exploited)
2. GDP ignores non-market activity: A subsistence farmer’s output may not enter the market; unpaid care work (mostly by women) is entirely invisible in GDP
3. GDP ignores sustainability: Resource extraction is counted as income, not as asset depletion (green GDP adjustments attempt to fix this)

HDI, MPI, and GII were each designed to address one or more of these failures.

Advanced Analysis

For RBI Grade B specifically, these indices have three practical applications:

First, credit rating agency usage: Moody’s, S&P, and Fitch all use development indicators (inequality, governance quality) as secondary inputs into sovereign credit ratings. India’s upgrade to Baa3 (Moody’s) in 2017 and the subsequent retention of that rating relied partly on social stability indicators — the MPI poverty reduction was cited in Moody’s methodology.

Second, FDI inflow predictions: Research by RBI’s economists has shown a statistically significant correlation between GII rank and FDI inflows — countries with better innovation ecosystems attract more FDI. India’s GII improvement has coincided with a surge in FDI (from $36 billion in 2014-15 to $71 billion in FY23).

Third, inflation and HDI interaction: Countries with high HDI tend to have more stable inflation expectations (better institutions, more credible central banks). India’s relatively high inflation (compared to developed economies) partly reflects its lower HDI and less developed financial markets.

RBI-Specific Coverage

RBI tracks these indices through its:

• Annual Report chapter on “Structural Reforms” — analyses India’s competitive rankings
• Financial Stability Report — uses HDI and MPI as indicators of financial inclusion depth
• RBI Bulletin research articles — several papers have used MPI data to study the relationship between multidimensional poverty and household credit access
• MPC minutes — occasionally reference global competitive indices when discussing India’s growth potential vs. structural constraints

What the examiner wants you to know: these indices are not abstract academic rankings — they directly influence:

• Capital flows (FDI, FPI)
• Credit ratings (sovereign and corporate)
• Negotiating leverage in trade deals (a higher GII means India can demand better terms in services trade)
• Domestic policy credibility (global indices are benchmarks for international comparisons)

Case Study / Application

Case: How India’s GII improvement reflects real economic transformation

In 2010, India’s GII rank was 56th. WIPO’s 2024 report noted India’s remarkable climb. Let’s understand what drove it:

Patent filings: India moved from ~40,000 patent applications/year in 2010 to ~90,000 in 2023. The surge was driven by:

• IIT/IIIT graduates filing software patents
• Generic pharmaceutical companies building patent portfolios for global markets
• The Patents (Amendment) Rules 2020 that simplified filing (75% reduction in filing fees for startups)

IT services exports: India’s IT-BPM sector revenue crossed $250 billion in FY24. This single sector accounts for ~8% of India’s GDP and drives India’s knowledge and technology outputs pillar in GII. Infosys, TCS, Wipro, HCL — these are global companies built on Indian innovation.

Startups and unicorns: From 0 unicorns in 2014 to 110+ in 2024, India’s startup ecosystem mirrors its GII climb. The Startup India SEED Fund, Atal Innovation Mission, and a thriving VC ecosystem (softbank, Tiger Global, Sequoia India) have been the pillars.

The paradox: while India’s GII rank has improved dramatically, its GERD (research spending) remains at 0.65% of GDP. This suggests India’s innovation model is “frugal innovation” (doing more with less) and services application rather than deep science-based innovation. For the exam, note this distinction — it’s what separates India’s GII story from, say, South Korea’s.

GATE-Level Numerical

Q: India’s HDI data for 2023-24 is as follows:

• Life expectancy at birth: 68.5 years
• Mean years of schooling: 6.5 years
• Expected years of schooling: 12.6 years
• GNI per capita (PPP): $8,374

Using the HDI methodology, calculate: (a) Health dimension index (minimum = 20 years, maximum = 85 years) (b) Education dimension index [use geometric mean of (mean schooling/15) and (expected schooling/18), then square it] (c) Income dimension index using: ln(GNI) approach with minimum = $100, maximum = $75,000 (d) Final HDI (geometric mean of the three)

Answers:

(a) Health dimension index = (68.5 − 20) / (85 − 20) = 48.5 / 65 = 0.746

(b) Education dimension: Mean schooling component = 6.5 / 15 = 0.433 Expected schooling component = 12.6 / 18 = 0.700 Geometric mean = √(0.433 × 0.700) = √0.303 = 0.550 Education dimension index = (0.550)² = 0.303

(c) Income dimension index: = [ln(8,374) − ln(100)] / [ln(75,000) − ln(100)] = [9.033 − 4.605] / [11.225 − 4.605] = 4.428 / 6.620 = 0.669

(d) Final HDI = ∛(0.746 × 0.303 × 0.669) = ∛(0.151) = 0.532

Note: India’s actual reported HDI in 2022 (HDR) was 0.633. The discrepancy arises because HDR 2022 used a different data year (2019 data for some indicators). Our calculation uses 2023-24 estimates and a simplified methodology. The principle is what matters for the exam — geometric mean penalises a low score in any dimension.

Multiple Perspectives

• Academic view: The HDI was criticised by economists like Angus Deaton (Nobel laureate) for over-simplifying development into three indicators. The real challenge is that each dimension can be measured in dozens of ways — why life expectancy and not healthy life expectancy? Why mean schooling and not quality-adjusted learning?
• RBI/Regulatory view: RBI uses composite indices (including global indices) to assess India’s financial system resilience compared to peers. India’s MPI improvement supports the case that rising incomes are broad-based — a crucial indicator for financial inclusion strategy.
• Practical/Industry view: Global rankings matter for business location decisions. Companies doing FDI due diligence look at GII and EoDB/B-READY ranks alongside raw market size. India’s GII rise has made it a credible innovation destination beyond just low-cost labour.

Recent Developments (2024-2026)

• GII 2024: India ranked 39th globally, 2nd among BRICS nations after China (rank 14th). India is the only LMI country in the top 40.
• HDR 2023-24 update: UNDP released new HDI data — India remains at 134th; however, the HDR 2024 introduced new methodology for education and health that marginally affected India’s scores.
• B-READY replacing EoDB: World Bank’s Business Ready (B-READY) assessment framework is being rolled out; India’s first assessment is expected in 2025 — likely to show improvements in Starting a Business and Registering Property pillars.
• Global MPI 2024: OPHI/UNDP update shows India’s MPI continued declining — 14.96% (2019-21) from 19.1% in 2015-16, with fastest reductions in sanitation, cooking fuel, and electricity access.
• NITI Aayog’s India Innovation Index 2024: Karnataka, Maharashtra, and Tamil Nadu remain top states; Bihar and Jharkhand improved fastest — showing internal innovation disparities narrowing slowly.

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