Open Forum
New Delhi, 22 January
2020
Growth Conundrum
SHOULD GDP BE THE MEASURE?
By Dhurjati Mukherjee
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 fiscal. Obviously,
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
(Copyright, India News & Feature
Alliance)
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