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GDP is a very important indicator of measuring economic growth and it doesn't need reiteration that a plunge from 9% to 5% is definite cause for worry for any economy. Low GDP has implications on a country's social objectives. It delays the effort to reduce poverty and has massive ramifications on consumption demand, employment creation and standards of living.
Growth at 9% rather than 6.5% for instance can lead to 15 million more jobs, 49 million more people out of poverty, 2 million more cars sold and nearly a 1,00,000 more homes being bought in India's top 10 cities according to recent estimates put out by CRISIL. Since GDP is defined as the sum total of all the output (of goods and services) that a country generates, it is obvious that higher the GDP, higher is the amount earned and available to citizens for spending.
Growth at 9% rather than 6.5% for instance can lead to 15 million more jobs, 49 million more people out of poverty, 2 million more cars sold and nearly a 1,00,000 more homes being bought in India's top 10 cities according to recent estimates put out by CRISIL. Since GDP is defined as the sum total of all the output (of goods and services) that a country generates, it is obvious that higher the GDP, higher is the amount earned and available to citizens for spending.
Much importance has been attached to GDP in mainstream economic debate in India and particularly so during the recent slowdown. There is breathless urging by commentators asking policymakers to devise ways to get GDP back to 9% and high expectation that should Narendra Modi become the country's next Prime Minister, he will repower GDP growth and take the country back to the road of economic prosperity.
Meanwhile in other parts of the world, there is a raging debate on whether the time has come for conversation around development and progress to move beyond GDP.
"National accounting’s founding fathers – Hicks, Kuznets, Samuelson, Tinbergen – were always clear GDP was not a good measure of economic wellbeing, let alone a wider measure of social progress " writes Joe Grice chief economist and director, Office for National Statistics recently in the Economia, a publication for ICAEW chartered accountants.
In a Framing Paper seeking draw an outline for transitional governance in Europe, Olivier De Schutter, the UN Special Rapporteur on the Right to Food also draws attention to the need for the use of multiple indicators to measure development and a need to “shift the emphasis from measuring economic production to measuring people’s well-being”.
Schutter quotes a report on “positive economy” submitted to the President of the French Republic to argue that there has been a growing recognition of the need to move away from classic measures of economic progress in recent years. "GDP growth per capita as a measure of progress is especially criticized, but indicators such as the rate of employment or the low level of inflation, also classic measures of economic “success”, have been subjected to various critiques" he says.
The value of GDP as a tool to measure economic well-being diminishes after countries reach a certain level of affluence. In fact the correlation between growth and wellbeing "may cease being positive beyond a certain point" says Schutter. "And may sometimes turn out to be negative. For instance, the more cars are put into circulation, the more traffic jams increase and the more air is polluted in cities: beyond a certain point, these negative impacts cancel out any benefit may accrue to the individual consumer from acquiring a car, thus decreasing the utility each individual car-holder derives from his possession. In such a case, not only is more not better: it is worse. The same is true for all growth that depletes resources, or increases waste beyond the absorptive capacity of the ecosystems, thus reducing general well-being."
India may be still be far from that stage where high growth will have negative implications on citizens' welfare. And so, much of what Schutter proposes may seem irrelevant to us at this point. But it is nonetheless pertinent to acknowledge this wider debate on the kinds of goals countries must pursue to ensure the interests of its citizens. Rather than have a one track focus on high GDP which in India has often come at a cost of a relentless plunder of natural resources, destruction of local habitats and a lopsided expansion of the economy that's not benefitted a vast section of the society, can we too begin to think of a more holistic tool to measure progress?
India has consistently remained at the bottom of the pile on the various other indices that Schutter insists must be used to measure success. On the “Human Development Index” for instance, India performed miserably even while its GDP was accelerating to 10%. On areas like health, education, sanitation and environment, we continued to remain laggards even as our GDP was whooshing.
A complex economy like India is all the more in need of multiple indicators if one must gauge whether progress has taken into account factors beyond output. It is only when policy frameworks are not solely centered on achieving GDP growth at any cost that adequate emphasis will be laid upon issues of inequality, social development, ecology etc. Emerging economies have made some movement in this direction. An organization called HESCO in India for instance is campaigning for a 'Gross Environmental Product' to go alongside a 'Gross Domestic Product' to better reflect the depletion of our environmental capital. Bhutan's 'Gross National Happiness Index' is all too famous.
The broader discourse however still emphasizes a great deal on the senseless pursuit of high headline GDP, more so as panic about a growth slowdown engulfs policy corridors. It is perhaps time to restrict the value we give to it. GDP is after all a narrow measure of aggregate output, not of the costs we pay to achieve it.
