Feb 16, 2015

The fetish for a higher GDP.

It’s a mad race. In a long drawn chase with China, India has been trying desperately to showcase a higher economic growth rate. But while China has promised to slow down to a relatively more sustainable levels of growth, India appears determined to race ahead.

By readjusting the base year, India has successfully managed to raise its GDP growth rate by about 50 per cent, from the existing 4.7 per cent to an impressive 6.9 per cent in 2013-14. By doing so, India now joins the ranks of Nigeria and Ghana, which have revised GDP estimates by 90 per cent and 60 per cent, respectively. With the overall size of the $1.8 trillion Indian economy remaining unchanged, it doesn’t however mean more money in your pocket. But surely a higher GDP provides a feel good factor to the investors and policy planners.

The significant jump has been arrived at by simple arithmetic – shifting the base year from 2004-05 to 2011-12. Measuring the market prices in addition, the GDP for the current fiscal is projected at 7.4 per cent.
In a country where a high growth rate is mistakenly considered to be a touchstone for development, including job creation and poverty alleviation the fetish for a higher growth rate is simply astounding. With media screaming at the GDP figures every now and then, and with not many analysts even understanding that a high growth rate does not automatically translate into more jobs, the Finance Minister is continuously under pressure to show a higher growth rate. Whether we like it or not, such is the economic sanctity attached that GDP is being treated for all practical purposes as a report card of the government’s performance.

Adding smart phones and LED television into the GDP calculations is therefore one way to raise the growth rate. But there are some more innovative ways to measure the contribution to the domestic economy. In the “miscellaneous goods and services” category, Britain has decided to add the contribution of prostitution and illegal drug sales to the national accounts. Illegal drug sales and prostitution brings in 9.7 billion pound Sterling’s to the British economy – raising the GDP by 0.7 per cent, almost equivalent to the contribution of agriculture in British economy. Italy is another country which adds prostitution and drug peddling in its economic calculations.

That such calculations will become a global norm is evident from what Joe Grice, the chief economic adviser at the British Office for National Statistics was quoted as saying: "As economies develop and evolve, so do the statistics we use to measure them. These improvements are going on across the world and we are working with our partners in Europe and the wider world on the same agenda.” If this becomes the global norm, I am not sure whether a country’s economic growth can be seen through more jobs created in prostitution and among drug peddlers.

Sometimes back, senior journalist M J Akbar had in one of his columns given us an excellent peep into the way economic growth is being perceived. He quoted the then Russian Finance Minister, who in the wake of declining GDP in Russia, asked fellow Russians to at least start drinking more of Vodka, which in turn will increase the country's GDP. Similarly, if you cut down more trees, the GDP goes up. Now you have to decide whether you need trees or you need to raise GDP by axing them.

It may startle you. But the fact is that the more you destroy the environment (and the planet) the higher is the economic growth. You can bomb a city, and then rebuild it. The GDP soars. Similarly, if you allow the biotechnology companies to contaminate your food and environment, the health costs go up and so does the GDP. The more the application of all kinds of deadly pesticides and chemical fertilizers the higher is GDP growth.

Now tell me, if there is an oil spill along the sea coast where you live, would you take it as an opportunity for economic growth? Or would you it is an environmental disaster that could have been avoided? Well, a Houston-based oil pipeline company has in a written submission before Canada’s National Energy Board claimed that oil spills are actually good for the economy. Oil Pipeline company Kinder Morgan says “Spill response and clean-up creates business and employment opportunities for affected communities, regions, and clean-up service providers,” It provides business opportunities and creates jobs.

It is primarily for such blunders in national accounting that at least 70 cities and smaller countries have abandoned the GDP pathway last year, reports CNBC. Accordingly, Shanghai has become the first major city in China to drop the GDP metrics as “government policy shifts towards a focus on growth quality over quantity”. The report also quotes the Chinese President Xi Jinping as saying “we can no longer simply use GDP growth rates to decide who are the (party) heroes here.” Interestingly, 26 out of 31 mainland provincial governments in China have lowered GDP targets to more sustainable levels.

That the GDP is a flawed estimate of a country’s progress is now being increasingly realized. Nor does a high GDP mean more job creation. If that were so, there is no reason why India should have witnessed a jobless growth in the past 10 years, between 2004-05 and 2013-14, when its average annual growth had remained over 7 per cent. In the past 10 years when GDP on an average remained higher than 7 per cent only 15 million jobs were created. Every year, some 12 million people enter the job market.

Even during the period when India was on a high growth trajectory exceeding 8.5 per cent annual growth, between 2004-05 and 2009-10, a Planning Commission report states that 140 million jobs were lost in agriculture. Those moving out of agriculture are generally perceived to be joining the manufacturing sector. But another 53 million jobs were lost in the manufacturing sector. The illusion that more the GDP more will be the job creation has been clearly belied. #


Neil@Work said...

Awesome Sir, I understand Fetish of GDP is madness, considering if we are only relying on it for all our decisions . I guess GDP growth should be consider as one of the way to measure growth and not only one...

Anonymous said...

Having willingly mounted the "tiger" of GDP, now our country finds itself in a spot - it can neither dismount for fear of antagonizing the "India Inc."(and subsequently loss of political funding from them!!) nor can it keep riding it forever without resulting in the concomitant socio-environmental destruction!!

And ultimately it is the people who will pay for it dearly for having participated in this dangerous game!!

What has been our economic attitude and what is best suited to the growth of our economy - were not at all the concerns that were factored into when we embarked upon building the post-Independence nation. Just blindly foisting that "ism" and this "ism" on us was what that was done by our so-called "democratic" politicians, bureaucracy and intelligentsia. Always abjectly looking for videshi inspiration ignoring the fabulous treasure of wisdom in one's own backyard. Everything has to be achieved in this janma itself - that to as quickly as possible without regard for society and environment- Is this not the besetting sin and the accursed motive of this GDP business!!

Nothing would have been lost if we had progressed slowly without setting store by the GDP! Slow and steady always win the race.

It is only a small group of committed (or enlightened individuals), which Margaret Mead had referred to in her famous quote, hear and there that are protecting the soul of Bharat today!! Let God bless us to find and be part of them.