Numerous global programs – AID, loans, etc – are based on economic and human development indices. The 2004 Human Development Index published by UNDP provides a fresh look at South Asia from within the filter of such indices. In the second of a series of articles, we analyze some economic numbers and gauge the direction of various South Asian nations. China is included in this analysis for the purpose of a more complete analysis of South Asia.

There are numerous problems with the measurement of GDP, in fact with the process of development that results from a commitment to increasing GDP, as has been presented by numerous analyses including Dani Rodrik, Noam Chomsky, among many others. There are similar problems with the measurement of the health of a community based on extent of consumption of health or measurement of certain indices. However, these numbers do provide us some indication of the current state of South Asia as well as its direction for the future.

The Gross Domestic Product is one of the most used indices (and one the most critiqued ones). It provides an understanding of the size of the market economy. Other nations follow the GDP as an easy way to identify the size of a nations market, their strategies vis-à-vis participation in a give market – through trade and investment – as well as for purposes of aid. Financial institutions as well as corporations also follow the GDP for similar reasons.

In South Asia, India clearly has the largest GDP at $US 510 Billion which is less than half of China’s and yet about 10 times the GDP of Bangladesh (at $US 48 Billion) and Pakistan (at $US 59 Billion). Sri Lanka (at $US 17 Billion) and Nepal (at $US 5.5 Billion) are followed by Bhutan and Maldives whose market economies are much smaller (less than $US 1 Billion)

GDP Per Capita
While GDP provides a snapshot of the size of a nation’s market economy, it is skewed by the population. A better index is the per capita GDP. Here it is expressed in terms of Purchasing Power Parity. Expressed thus, it is an indication of the buying power of an individual within the nation. It gives no indication of the distribution of wealth within the nation, though. While the per Capita PPP in China is much higher than countries in South Asia, within South Asia, Sri Lanka is way ahead of all other nations followed by India and then Bangladesh and Pakistan.

Economic Inequalities
Even the per Capita GDP expressed in PPP does not reflect the distribution of wealth. One index is the fraction of the population under a nation’s poverty line. South Asian nations have very high fractions of their people below their respective poverty lines with Bangladesh as high as 50%. Others are between 25 to 35%. Compare these numbers with China with about 5% of its population below the poverty line.

Other indices that analyze wealth distribution are the ratio of the wealth of the riches 10% to the poorest 10% and the ratio of the richest 20% to the poorest 20%. While China has a smaller fraction below the poverty line, its ratios are much higher. India has a better distribution of wealth compared to other South Asian nation.

Official Development Assistance
South Asian nations are the recipient of a significant amount of Official Development Assistance. ODA is defined broadly as grants and subsidized loans received by a country from other nations. Pakistan receives over $US 2 Billion in assistance – a significant portion of its GDP. India, at $US 1.5 Billion receives about the same amount as China. ODA (at almost $US 1 Billion) makes up almost 2% of Bangladesh’s GDP. The Nepali and Sri Lankan economies are also similarly dependent on ODA (at about $US 350 Million each).

Trade Balance
Trade, as a contributor to the nation’s GDP, is analyzed to understand the dependence of one nation on others. It is also an indication of the extent of participation of a nation in the global market. Maldives, with a very high fraction of its GDP dependent on trade, is highly dependent on global market forces. Changes in external trends will affect the economy of the nation. Its balance of trade is significantly tilted towards exports, thus allowing for a favorable reserves situation. However, given that its GDP itself is very small, it has little influence in the global market place.

External trade is also a significant portion of Sri Lanka’s GDP. Given the small sizes of the economies of these nations, higher imports imply that the countries trade situation leads to a depleting foreign reserves situation.

Export Portfolios
The export portfolios provide a glimpse of the technological advancement of nations. In more economic terms, it provides an indication of where along the supply value chain, a nation’s economy participates. South Asian nations have a rather small section of their exports based on advanced technology processes and processes. For most part, the exports are based on bulk manufactured products – which include milled parts, processed foods, and heavy industrial goods. Primary exports also play a significant part and these include minerals, and agricultural produce.

Spending Priorities
Spending Priorities provide a snapshot of the economic health of a nation as well its commitments to the future. Pakistan and Sri Lanka, with over 4% of the GDP given to servicing external debt, are working to resolve a difficult debt situation. India’s debt position is good (though it has a significant internal debt). Bangladesh has a low debt servicing commitment. The commitment to debt servicing does not give an accurate picture of a country’s situation. In the recent years, financial institutions have allowed for softer terms of debt in exchange for a country opening up its markets and allowing for structural adjustment programs. This allows for foreign countries and corporations to more easily access a countries resources and markets making it difficult for local enterprises to compete with larger economies, thus putting the countries future at risk. This is the situation with Bangladesh.

Pakistan has a very high fraction of its GDP committed to military spending – and this is a reflection of its relationship with India. Sri Lanka’s high military spending is a reflection of troubles in the island nation. India and China have committed about 2.5% to military expenditure.

India, given its economic growth over the last decade, has committed extremely small fractions of its GDP to health and education – and this is reflected in other health and education indices. Even Pakistan, despite its higher debt servicing and military commitments, has greater fraction of its GDP given to health and education. Bangladesh, Nepal and Sri Lanka also have shown a high commitment to the health of their people and education for their future generations and this reflects in the trends in these indices.