Context

• California’s devastating wildfires serve as a stark reminder of the consequences of unsustainable development models.
• With economic damages estimated at around $250 billion, these disasters highlight the hidden costs of industrialized nations’ lifestyles.
• The modern world’s approach to development, often represented by indices such as the Human Development Index (HDI), promotes an aspirational model that ignores its severe ecological impact.
• Now it becomes imperative to explore the shortcomings of existing development metrics, the environmental consequences of high-income nations’ consumption patterns, and the potential of alternative models.

The Flaws of Traditional Development Metrics

• Missing the Oversight of Environmental Sustainability
  • The HDI ranks countries primarily on human well-being indicators without considering how these outcomes are achieved.
  • Nations like Norway, Switzerland, and Ireland consistently top the index, but they are also among the world’s biggest resource consumers and carbon emitters per capita.
  • Their high rankings create the illusion that their development models are universally replicable, when in reality, their levels of consumption are environmentally unsustainable.
  • If all countries aspired to the same levels of resource consumption as these high-ranking nations, the planet’s finite ecological capacity would be overwhelmed.
  • Studies suggest that if the entire world consumed resources at the rate of the United States or the European Union, we would require multiple Earths to sustain such a lifestyle.
• The Problem with the Planetary Pressures-adjusted HDI (PHDI)
  • In response to longstanding criticism, the United Nations introduced the PHDI in 2020.
  • This modified index adjusts HDI scores downward for nations with high ecological footprints, attempting to integrate sustainability concerns into development measurement.
  • While this is a step in the right direction, it remains fundamentally inadequate for several reasons.
  • Relative Comparison Rather than Absolute Limits
    • The PHDI still ranks countries only in relation to one another rather than against absolute ecological thresholds.
    • This means that countries like Norway and Sweden, which consume over five Earths’ worth of resources per capita, continue to score highly, not because they are truly sustainable, but because other countries (such as Qatar) perform even worse.
    • This relativist approach obscures the true scale of ecological overshoot.
  • Failure to Encourage Systemic Change
    • The PHDI does not incentivise wealthier nations to radically reduce their environmental impact.
    • Instead, it merely differentiates countries based on their relative environmental damage, which does little to challenge unsustainable consumption patterns.
  • Limited Scope of Planetary Pressures Considered
    • While the PHDI adjusts for carbon emissions and material consumption, it does not fully account for broader ecological crises such as biodiversity loss, freshwater depletion, and soil degradation, all of which are crucial to planetary stability.
  • As a result, the PHDI remains a surface-level improvement that does not fundamentally alter the dominant development paradigm.
  • It allows affluent nations to maintain their positions at the top while continuing unsustainable practices.
• The Myth of Development as a Universal Pathway
  • The HDI and PHDI promote the idea that all nations should strive toward the same developmental trajectory, one defined by increasing industrialization, urbanization, and high per capita income.
  • However, this Western-centric model ignores the realities of planetary limits and the diverse socio-economic contexts of different regions.
  • Ignoring Alternative Development Models
    • The HDI fails to recognize that some middle-income countries, such as Costa Rica, have achieved high human well-being with a much lower ecological footprint.
    • By prioritising economic indicators, it reinforces a model that equates higher income with better development, rather than considering sustainability as a central factor.
• Economic Growth as an End Goal
  • By emphasising income levels as a key component of development, the HDI promotes the assumption that higher GDP per capita always leads to a better quality of life.
  • However, research shows that after a certain threshold, additional economic growth does not necessarily translate to greater well-being.
  • Instead, excessive consumption often leads to environmental degradation, social inequalities, and declining life satisfaction.

The Environmental Costs of High-Income Lifestyles

• High-income nations have already exceeded multiple planetary boundaries, including greenhouse gas emissions, deforestation, and pollution.
• This disconnect, between celebrated economic success and environmental reality creates a misleading narrative that encourages unsustainable aspirations.
• The consequences of this flawed model are becoming increasingly visible. Climate disasters such as wildfires, hurricanes, and rising sea levels are direct results of unchecked carbon emissions and ecological destruction.
• The costs of these disasters, both economic and human, highlight the urgent need to rethink progress beyond traditional economic indicators.

The Way Forward

• Middle-Income Countries as Alternative Models
  • Rather than emulating high-income nations, developing countries should look to middle-income nations that have achieved significant human development without excessive ecological harm.
  • Countries such as Costa Rica and Sri Lanka offer alternative pathways that balance economic growth with environmental and social sustainability.
  • Costa Rica, for example, has made strategic investments in renewable energy and forest conservation while ensuring high literacy rates, universal healthcare, and long-life expectancy.
  • Its sustainable policies demonstrate that progress does not have to come at the expense of the environment.
  • Similarly, Sri Lanka has achieved relatively high human development indicators compared to its South Asian neighbours through investments in health and education.
  • However, its recent economic crisis and history of political instability underscore the importance of social and political justice alongside environmental considerations.
• A Sustainable Path for India and the Developing World
  • For India, a country with a population of 1.4 billion, replicating the consumption patterns of affluent nations is neither feasible nor desirable.
  • Instead, India must seek development pathways that prioritise ecological sustainability, equitable resource distribution, and social justice.
  • While models like those of Costa Rica and Sri Lanka are not perfect, they offer valuable lessons in creating a more sustainable and just society.
  • Redefining progress in the 21st century requires moving beyond GDP growth and HDI rankings.
  • True development should ensure that all citizens live with dignity while remaining within the planet’s ecological limits.

This is not just an ethical ideal but a practical necessity for survival in an era of accelerating climate change.

Conclusion

• The traditional models of development, championed by high-income nations, are fundamentally flawed as they ignore the environmental destruction required to sustain them.
• The HDI and even the modified PHDI fail to provide an accurate measure of true progress because they do not consider absolute ecological limits.
• Instead of aspiring to these unsustainable models, developing nations must

Q1. What was India's GDP growth rate in Q3 of 2024-25?
Ans. India's GDP growth rate in the third quarter of 2024-25 was 6.2%, which was an improvement from 5.6% in the second quarter.

Q2. Which sector showed the highest growth in Q3 of 2024-25?
Ans. The agriculture sector recorded the highest growth in the third quarter of 2024-25, with a growth rate of 5.6%.

Q3. What was the primary reason for the GDP slowdown in Q2 of 2024-25?
Ans. The main reason for the GDP slowdown in the second quarter of 2024-25 was a decline in Private Final Consumption Expenditure (PFCE) contribution, which dropped from 4.3 to 3.3 percentage points.

Q4. Why is the projected Q4 growth of 7.6% uncertain?
Ans. The projected 7.6% GDP growth in the fourth quarter is uncertain because it largely depends on government investment spending, which may not reach its revised target due to historical spending trends.

Q5. What is the estimated real GDP growth range for 2025-26?
Ans. The real GDP growth for 2025-26 is estimated to be in the range of 6.3% to 6.8%, with a mid-point projection of 6.55%.

Source:The Hindu

Context

• Despite persistent efforts to combat corruption, red-tapism and bribery remain significant barriers to business growth in India.
• The India Business Corruption Survey 2024 highlights a troubling reality: 66% of businesses admit to paying bribes, and 54% state that they were coerced into doing so to expedite government procedures, acquire permits, or ensure compliance.
• This problem is particularly severe in sectors governed by excessive bureaucracy, such as labour, taxation, pollution control, property registration, health, and pharmaceuticals.
• Therefore, it is important to examine the economic impact of corruption, the challenges posed by excessive compliance regulations, the need for digital transformation, and India’s global competitiveness.

The Economic Impact of Corruption

• Increased Cost of Doing Business
  • One of the most direct effects of corruption is the increased cost of doing business.
  • These costs often do not end with one-time payments.
  • Businesses, particularly small and medium enterprises (SMEs), are forced to continuously engage in corrupt practices to keep operations running smoothly.
• Hindrance to Foreign Direct Investment (FDI)
  • The impact of corruption on FDI is perhaps one of the most critical aspects of its economic toll.
  • The EY-FICCI survey indicates that 80% of respondents believe corruption is a major deterrent to FDI.
  • Global investors seek environments that offer predictability, transparency, and fairness in business dealings, and corruption undermines these elements.
  • When potential investors perceive that they will have to pay bribes or engage in illegal practices to navigate the regulatory environment, they are less likely to invest in India.
• Erosion of Entrepreneurial Spirit
  • Corruption also dampens the entrepreneurial spirit in India.
  • The high cost of compliance and the need to navigate a maze of bureaucratic red tape often discourage new entrepreneurs from starting businesses.
  • For many small businesses and startups, the fear of bribe demands or the potential for regulatory abuse deters them from entering the market or pursuing their growth ambitions.
• Negative Impact on Job Creation
  • One of the core drivers of economic growth is the creation of jobs, and here again, corruption takes a toll.
  • When businesses are forced to spend substantial resources on bribes and navigating the bureaucracy, they have fewer resources to invest in expanding operations or hiring new workers.
  • The money that could be spent on training, development, or workforce expansion is instead siphoned off to meet compliance demands or to pay for regulatory favours.
• Creation of Systemic Inefficiency
  • The constant demands for bribes and the regular alteration of compliance rules create a climate of inefficiency.
  • Businesses are often forced to spend valuable time and resources dealing with a complicated regulatory framework rather than focusing on innovation or customer service.
  • This results in delays, missed opportunities, and an overall lack of productivity across various sectors of the economy.
• Impact on India's Global Reputation
  • Corruption also has a lasting effect on India's global reputation.
  • As a major emerging market, India’s credibility on the world stage is increasingly scrutinized.
  • Countries that want to attract investment and skilled talent focus on creating transparent, efficient regulatory systems.
  • If India’s bureaucratic inefficiencies and corruption persist, it risks falling behind other emerging economies that are taking proactive steps to streamline their regulatory environments and combat corruption.

The Constant Flux of Compliance Regulations and the Reason Behind It

• The Constant Flux of Compliance Regulations
  • A major hurdle for businesses is the ever-changing compliance framework.
  • Regulatory officials frequently use compliance provisions as tools for bribery, demanding unofficial payments for approvals, even when businesses have met all requirements.
  • The scale of compliance updates further exacerbates the issue. In the past year alone, India recorded 9,420 compliance updates, averaging 36 changes per day.
  • This erratic approach either signals regulatory incompetence or a deliberate effort to create corruption pipelines.
  • Some regulatory bodies have begun to address this.
  • The Food Safety and Standards Authority of India (FSSAI), for instance, has introduced a rule that food label regulations will only be updated once a year, creating a predictable regulatory environment.
  • Similar measures should be adopted across all sectors to reduce uncertainty and minimise opportunities for corruption.
• Lack of Labour Law Reforms: A Missed Opportunity
  • A significant portion of compliance-related imprisonment clauses stems from outdated labour laws, which fall under the Concurrent List of India’s Constitution.
  • Although India replaced 29 colonial-era labour laws with four modern labour codes, they have yet to be implemented.
  • These long-promised reforms, touted as India’s biggest labour reforms in history, remain stuck in bureaucratic limbo.
  • Until state governments operationalise these reforms, businesses will continue to suffer from outdated and excessively punitive regulations.

The Need for a Digital-First Compliance System

• India’s current business registration process is highly inefficient.
• Establishing a factory requires entrepreneurs to submit hundreds of notarised documents across 40 different government departments.
• This archaic system breeds inefficiency and corruption.
• A digital-first approach can revolutionize business compliance. A single business identifier, linked to a secure digital repository (Digi Locker), could allow regulators to access verified documents instantly.
• This system, similar to India’s Digi Yatra, would drastically reduce approval times from months to days.
• Currently, Indian businesses must navigate at least 23 different identity numbers, including PAN, GSTIN, CIN, professional tax numbers, and factory licenses, each with its own renewal process.
• A ‘One Nation, One Business’ identity system could consolidate these into a single identifier, simplifying regulatory compliance and reducing opportunities for bribery.
• A small budget allocation for this initiative could dramatically enhance India’s appeal to investors.

Consequence of Corruption and Complex Regulations: India’s Global Competitiveness at Risk

• The global competition for investment is intensifying.
• The United States is actively enhancing its business environment through governance reforms, including its Department of Government Efficiency (DOGE), designed to simplify regulatory procedures.
• If the world’s largest economy ($27 trillion GDP) is becoming even more business-friendly, investors have little incentive to choose India’s $4 trillion economy, where bureaucratic inefficiencies persist.
• Without urgent reforms, India risks losing both investment and entrepreneurial talent, key drivers of its knowledge economy.
• The country stands at a critical juncture—either it modernizes its compliance framework or loses ground in the global economic race.

Conclusion

• India must move beyond piecemeal reforms and embrace a holistic approach to simplify compliance, eradicate corruption, and create a predictable regulatory framework. Jan Vishwas 2.0 is a start.
• Significant structural changes are required to eliminate outdated imprisonment clauses, reduce regulatory subjectivity, and digitize compliance processes.
• To attract global companies and encourage domestic entrepreneurship, India must act decisively.
• The time for complacency is over—India must embrace a business-friendly future that prioritises efficiency, transparency, and growth.

Q1. How does corruption affect the cost of doing business in India?
Ans. Corruption increases the cost of doing business by forcing companies to pay bribes for basic approvals and regulatory compliance, diverting resources from growth and innovation.
 

Q2. What is the impact of corruption on foreign direct investment (FDI) in India?
Ans. Corruption deters foreign investors as they seek transparent and predictable environments, making India less attractive compared to other economies with more streamlined regulations.

Q3. How does corruption stifle entrepreneurship in India?
Ans. Corruption creates an environment where businesses with political connections thrive, discouraging new entrepreneurs from starting or growing their businesses due to high compliance costs and unfair competition.

Q4, What role does corruption play in job creation in India?
Ans. Corruption hampers job creation by diverting funds that could be used for workforce expansion and innovation, leading to inefficient use of resources and fewer employment opportunities

Q5. How does corruption affect India's global reputation?
Ans. Corruption damages India's reputation as an unreliable and unpredictable business environment, causing it to lose out on investment and talent in an increasingly competitive global market. 

SourceThe Hindu