Edit & Opinion

Growth Conundrum: Should GDP be the measure?

It’s indeed distressing to note the National Statistical Office forecast in GDP growth to be 5 per cent in 2019-20, much lower than the previous 6.8 per cent in the previous fiscal and in line with RBI’s estimate. If this growth is realised, then it would be the slowest since 3.1 per cent posted in 2008-09 in the aftermath of the global financial crisis. Manufacturing is estimated to slow to 2 per cent from 6.9 per cent, while services which account for nearly 60 per cent of the economy, are forecast to grow by 6.9 per cent, slower than 7.5 per cent in the previous fiscalObviously, the government’s priorities focussed on implementing its political manifesto instead of paying attention to economic priorities have resulted in such a situation.

It is pertinent to refer to a long-standing debate on whether growth or real development can be seen from a high GDP. A section of economists, with little exposure to ground realities, feel that high GDP growth will percolate down through higher spending by the government and benefit the masses. This is challenged by another section which feels that the fruits of high GDP and high spending benefit the middle and upper income sections of society.

The debate has continued with the result that the higher GDP over a couple of years has not really benefitted the poor and impoverished sections. The backward districts have not improved much; in fact the rural scenario, except some roads, remains more or less the same. On the other hand, metros and cities have expanded and got a new look, specially in areas where the upper echelons live and work. Most believe that those who pay should be the first beneficiaries.

In such a situation, it was nice to hear a ruling party MP point out “the welfare of a nation can scarcely be inferred from a measure of national income”. Perhaps the MP had forgotten that the Prime Minister had boasted of achieving the goal of a $5 trillion economy within five years and the amount was nothing but GDP at current prices.

A major section of economists have rightly pointed out that turning India into a $5 trillion economy need not transform the country into a developed nation. The obvious reason for this would be that the ground level percolation would be meagre as a result of which large parts of the country would not witness any major transformation. Former RBI Governor Dr. C Rangarajan   recently stated that even if India achieved the goal, the per capita income would still be only $3600, far below the $12,000 needed to become a developed nation.

Claims and counter claims of GDP growth have been in the air for quite a few years and even in this fiscal but it remains a fact that these have little or very little effect at the grass-root level. But the learned MP had done some homework as he referred to Robert Kennedy who had said way back in 1968: (The) GDP has no worth in the world. Our gross national product counts air pollution and cigarette advertising and ambulances to clear highways of carnage . . . . It measures neither our wit nor our courage, neither our wisdom nor our learning”.

Delving into theoretical calculation of GDP, it is known it represents the total value of all the final goods and services that are produced within a country’s borders within a particular time period, typically a year or a quarter. It can be calculated by using three methods—supply or production, income and demand or expenditure method and by definition the value of GDP should be identical, irrespective of the method used. This is because one person’s or entity’s income is another person’s spending on expenditure. For instance, what households spend in buying provisions at a local store is the shop owner’s income. Likewise, an employee’s salary is what his/her company spends.

But ironically in this calculation, the loss is not deducted say for devastations and other weather events. Floods occur almost every year in some pat of the country while droughts are also a common phenomenon. As is revealed from a recent report, presented at the COP25 conference at Madrid, India is the biggest victim of weather-related disasters and put the figure at 2081 deaths and loss of $ 37,808 million or Rs 2.7 lakh crore in 2018. This huge loss has obviously not been taken into consideration while calculating the GDP for 2018-19.

In fact, Dr. Arvind Subramanian had rightly pointed to the fallacy of calculating our GDP as he saw that around 2 per cent was higher than announced. Similarly, many economists had talked about this in many conferences but nothing had come to the public domain. Those so-called economists, speak of cutting subsidies of farmers, cutting corporate taxes, reducing rates of IT and giving stimulus for modernising factories. If all these are complied with, even assuming that GDP will rise, what will happen to the millions who live on agriculture or have small roadside shops in villages?

It is surprising to read when these ‘scholars’ write or lecture about the need for high growth rates as this obviously benefits a class of people, not the poor and the downtrodden. A comparison, of say a year when GDP growth was 8 per cent another year when it came down to say 6 per cent would reveal that most States have spent the same amount of money for school education or for primary health centres in villages.

Liz Hipple in a paper titled ‘Rising Income Exacerbates Downward Economic Mobility’ of the Washington Center for Equitable Growth, pointed out that even in the US, children born to middle-income households in 1980 would be unlikely to have a higher income than their parents even if those children managed to hold on to middle-income status as adults. The obvious reason, to her, is that the income gains from growth between 1980 and 2010 were highly concentrated at the top of the income distribution while those in the middle saw less, and those in the bottom two income groups actually lost ground. Thus, children born in 1980 needed to move up the income distribution substantially just to have the same inflation-adjusted income as their parents had.

Thus though there is lot of hype about GDP growth with national and international organisations dishing out figures, which sometimes are contradictory, one may question – how does this affect the common man, specially those belonging to the poor and EWS? If one analyses the ground reality and the conditions of the struggling masses at the time when GDP growth had peaked at 7.5 to 8 per cent and now when it is predicted to be below 5, there is not much difference. It would be incorrect to believe government statistics as one can clearly say these aren’t authentic.

Even pessimists agree that we are heading towards a climate disaster though there is hype every year about environment and climate change as also the fact that environmentalists globally are raising their voices. However, nothing concrete has been happening at the base level due to reluctance of the developed countries, whether in initiating action to curb emissions or to provide long-term finance (as per Article 9 of the Paris Agreement) to the developing nations. Thus, the future prospects are indeed grim and future generations may not pardon us for our naive and irresponsible behaviour and actions.

….INFA

 

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