Ramesh Singh Summary: Growth, Development & Happiness- 2 | Indian Economy for UPSC CSE PDF Download
| Table of contents |
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| Insights into Human Behaviour |
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| Nudges and Public Policy |
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| Covid-19 and Development |
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| Recent Developments |
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Insights into Human Behaviour
According to the World Bank's World Development Report 2015 on Mind, Society, and Behaviour, integrating insights from behavioral economics into development policies enhances their effectiveness. The report emphasizes that incorporating behavioral considerations into policy decisions can lead to significant advancements in promoting development and societal well-being. The report cites examples from India in healthcare and education:
Open defecation in selected villages dropped by 11% after combining a Community-Led Total Sanitation (CLTS) program with the traditional approach of providing subsidies for toilet construction and information on disease transmission.
Changing the frequency of meetings between microfinance clients and their repayment groups from monthly to weekly resulted in a threefold reduction in the likelihood of loan defaults.
Research revealed that boys from backward classes were equally proficient at solving puzzles as boys from upper castes when caste identity was concealed. However, when caste was disclosed before puzzle-solving sessions in mixed-caste groups, a significant 'caste gap' emerged, with boys from backward classes underperforming by 23%.
The report recommends addressing stereotypes, as they can contribute to measured ability differences, perpetuating the stereotype and leading to exclusion in a vicious cycle. Breaking this cycle could significantly improve the well-being of marginalized individuals.
Social Norms, Culture and Development
Economic development is influenced not only by fiscal, monetary, and taxation policies but also by human psychology, culture, and norms.
There has been resistance in economics and sociology to emphasize these aspects, possibly due to concerns about yielding ground to other disciplines.
The World Development Report (WDR) of 2015 focuses on the behavioral and social foundations of development, received positive reception.
Traditional government documents often overlook the role of social norms and culture in promoting development and economic efficiency.
Growing literature highlights how certain social norms and cultural practices are vital for economic efficiency and growth.
Broken Windows Theory
Societies known for honesty and trustworthiness tend to perform better, attracting business and trade without the need for third-party enforcement.
Lack of recognition for these "social" factors is attributed to an incomplete understanding of how economies-friendly social qualities are acquired.
Behavioral economics provides insights into the formation of customs and behavior, showing that cleaner environments lead to increased honesty and reduced corruption.
The Broken Windows Theory in sociology suggests that controlling low-level, anti-social behavior deters larger criminal behavior.
Awareness that collective qualities like honesty and trustworthiness benefit the entire society prompts individuals to adopt these qualities, addressing the free-rider problem.
In economics, there's a growing body of literature arguing that pro-social behavior, including altruism and trustworthiness, is innate and essential for efficient economies.
Human beings exhibit a natural ability to forego personal gains for the sake of others or due to commitments, supported by recent studies possibly rooted in evolutionary traits.
Values and Economics
Research in psychology and evolutionary biology indicates that morality, altruism, and other-regarding values are inherent in the human mind, influenced by the social environment.
The recognition of the significant impact of these human and moral qualities on economic development was a relatively late development in economics.
Recent research suggests that having a few "good" individuals in society can lead to dynamics contributing to an overall better society.
Evidence shows that social norms and habits initially perceived as ingrained in a society can change over short periods, allowing countries to foster social norms conducive to a vibrant economy.
When discussing a nation's economic progress, the focus is typically on the government, but it is crucial to recognize the significant role played by civil society, firms, farmers, and ordinary citizens.
Electoral Politics
Social norms and collective beliefs significantly influence the behavior of these agents, impacting a nation's overall performance.
Attributes such as honesty, punctuality, and attitudes towards corruption are heavily influenced by norms and social beliefs, often becoming habitual.
In a democracy like India, government actions depend to a great extent on the thoughts and beliefs of ordinary people, reflecting the essence of electoral politics.
Traditional economic discussions often overlooked these non-economic facets, assuming they did not matter, but it is now understood that individuals are not entirely self-serving.
While self-interest is a major driver of economic growth, honesty, integrity, and trustworthiness are essential elements that bind society.
Although economists once treated these social norms, preferences, and customs as unalterable, it is now acknowledged that these qualities in people can change.
Honesty and integrity can be nurtured, and aversion to corruption can be strengthened.
Nudges and Public Policy
Behavioral economics insights facilitate nudging people toward desirable behavior.
Nudge has proven successful in India, employed in public policy for initiatives like Swachh Bharat Mission (SBM) and Beti Bachao Beti Padhao (BBBP) campaigns.
The concept can be extended to higher goals, transitioning from BBBP to BADLAV (Beti Aapki Dhan Lakshmi Aur Vijay Lakshmi), evolving from Swachh Bharat to Sundar Bharat.
Nudges can also be applied in areas such as 'Give it up' (LPG subsidy) to encourage individuals to 'Think about the Subsidy' and combat tax evasion through nudges toward tax compliance.
Three key policy actions for effective nudges:
- Leverage the influence of social and religious norms as positive influencers, using friends and neighbors as role models to modify behavior.
- Recognize individuals' inclination towards the 'default' option in their actions, making changing the default a powerful policy tool.
- Implement policies involving reminders and repeated reinforcements to facilitate sustained changes in behavior.
To enhance nudge effectiveness in public policy, it is crucial to relate economic principles to common individuals' experiences.
This connection can be established by using relatable examples encountered in daily life, such as a plate of food, making policy actions more understandable and impactful for the general population.
Covid-19 and Development
The world has witnessed various alternative economic and development models, including the Washington Consensus, Santiago Consensus, and Beijing Consensus.
The concept of progress has evolved from a purely monetary idea to encompass happiness, but these transformations are deemed insufficient.
The ongoing COVID-19 pandemic has exposed global unpreparedness and sparked a crucial debate about the need for a new economic approach to development.
Corona Virus
The sustainability issue, debated since the early 1960s, now includes a new dimension—the local dimension of development.
Experts advocate for a local approach, emphasizing ethics to save the environment and foster happiness, with a proposition to establish a local economic model.
The pandemic has prompted mass-scale questions globally, such as the essential needs of life, the concept of "enough," conspicuous consumption, and the earth's capacity to sustain human demands.
Ideologies like 'minimalism' impacting economies, as seen in Japan since 2002, reveal a global inclination to consume less.
The contemporary economic model emphasizes perpetual enhancement in demand through accelerated consumption.
The COVID-19 pandemic forces humanity to reassess the development model it takes pride in, leading scholars to propose alternative economic models.
Many predict irreversible changes globally, prompting serious introspection, including India facing its own set of challenges.
The Atmanirbhar Bharat Abhiyan in India is seen by some as an attempt to explore an alternative economic model.
Questions arise about whether this campaign has the coordinates to redefine India's relationship with nature and the meaning of development.
Recent Developments
Updated Behavioral Insights
The World Bank’s 2023 WDR on “Digital Technologies” emphasizes behavioral nudges in digital platforms, such as reminders via SMS for vaccination uptake, which increased compliance by 15% in rural India (2022–23).
Studies in 2024 show that concealing social identities in competitive settings (e.g., job interviews) reduces performance gaps by 18% for marginalized groups, expanding on the 2015 caste gap findings.
Swachh Bharat Mission 2.0
The Swachh Bharat Mission 2.0 (2021–25) has reduced open defecation to 5% in rural areas by 2024, leveraging CLTS with digital nudges (e.g., WhatsApp campaigns) and community role models, improving on the 2015 WDR’s 11% reduction.
Behavioral interventions, such as public shaming of non-compliance and rewards for clean villages, have increased toilet usage by 25% in targeted districts (2023–24).
Digital Financial Inclusion
Post-2020, digital nudges in PM Jan Dhan Yojana and UPI adoption reduced loan defaults by 40% in microfinance groups by 2024, surpassing the 2015 WDR’s threefold reduction via weekly meetings.
Behavioral prompts in mobile banking apps (e.g., reminders for savings) increased financial literacy among women by 30% in rural areas (2023 RBI report).
Post-COVID Development Models
The Atmanirbhar Bharat Abhiyan (2020–24) invested ₹20.97 lakh crore, promoting local production and behavioral shifts toward swadeshi products, with 60% of consumers preferring Indian brands by 2024.
The 2024–25 Budget’s GYAN framework (Gareeb, Yuva, Annadata, Nari) uses nudges to promote inclusive growth, increasing female workforce participation by 5% (2023–24).
Sustainability and Ethical Consumption
The Green Credit Programme (2023) nudges firms toward eco-friendly practices, with ₹16,000 crore in green bonds issued by 2024, aligning with India’s net-zero by 2070 goal.
Campaigns like PM Suryaghar Yojana (2024) use social norms (e.g., community solar adoption) to increase renewable energy uptake by 20% in rural households.
Digital Nudges and Public Policy
DigiLocker and e-RUPI use default opt-ins to boost digital document usage, with 70% of government services digitized by 2024, enhancing trust in governance.
Tax compliance nudges (e.g., pre-filled GST returns) increased collections by 15% in 2024–25, building on the 2015 “Think about the Subsidy” campaign.
Social Norms and Happiness
The 2024 World Happiness Report ranks India at 126 (score 4.04), up from 136 in 2022, driven by social schemes and trust in institutions, reflecting the Broken Windows Theory’s impact.
Community-driven initiatives like PM Vishwakarma (2023) foster pro-social behavior, reducing corruption perceptions by 10% in small-scale industries (2024).
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