One Economic Success – Are We Really Winning?
It’s been a decidedly good year for India’s economy. Earlier this year, with an average 7% growth rate, India overtook China as the world’s fastest growing economy (the International Monetary Fund predicted a 7.6% growth rate of the Indian economy) and now, it’s overtaken Britain as the world’s sixth largest economy. This is an unprecedented feat for a country that is still classified as “developing”. India’s economy now only stands behind United States, China, Japan, Germany, and France. This achievement can be attributed to multiple factors, the most significant ones of the lot being Britain’s post – Brexit slump and a decrease in the cost of global commodities.
With our economy entering its proverbial adolescence, its growth spurt is being accompanied by a heavy dose of growing pains. According to a report by the Center for Strategic and International Studies, many reforms-ranging from creating unified national taxes (GST bill) to deregulating the agricultural industry’s fertilizer pricing are incredibly complicated and may not go down very smoothly. It is also worth mentioning that many analysts aren’t sure if India can hold on to this rapid growth in the medium term. With the bold demonetization move, it is also expected that employment may fall and salaries will be slashed due to the evident cash crunch. As a major player in the global economy, India will have to work hard and long to retain its position in increasingly competitive markets.
Despite what lies ahead, it’s not a stretch to presume that people will bask in the joy in becoming the sixth largest economy. All while beating Britain, our colonial rulers, for the first time in a hundred years. However, it will not serve us well to take this title at face value. Economies are ranked on the basis of nominal GDP, that is the gross domestic product (GDP) evaluated at current market prices. GDP is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period.
The problem arises when we allow our leaders to use this as an indicator of their success. GDP is often used to make welfare comparisons across countries. The argument is as follows – GDP is a good indicator of the consumption possibilities people have and consumption is a good indicator of well-being/welfare. Therefore, we can use GDP per capita for comparing welfare between countries, and GDP growth as an indicator of social progress within a society. A rhetoric that is often propagated by our leaders and media. But it is incorrect to assume that the GDP, and its derivatives, are an accurate social welfare indicator for a variety of reasons.
As pointed out by Richard Easterlin, in the eponymous Easterlin paradox, people do not become happier when they grow richer, even if they’ve crossed some rather low threshold in terms of income. GDP also fails to include a meaningful part of the economy- household work, which is integral in the functioning of an economy. Take for example, U.S.A , it is known for its culture of “outsourcing” household work, many things Europeans may do on their own, that is cleaning, washing etc, Americans do against payment. This makes the U.S GDP higher by trend but fails to interpret the welfare consequences especially because they are rooted deeply in culture specifics. In developing countries like India, there also exists an “informal economy”, that is transactions that are neither taxed nor monitored by any form of government. Their specifics aren’t included in GDP statistics despite their influence on the welfare of people in a country.
Perhaps the biggest flaw in accepting sweeping statements of our country’s growth on the basis of GDP is that GDP remains a measure of the total output of an economy. It doesn’t include the distribution or equity effects. This means that the richest 1% of the country may hold 90% of the wealth, and India would still remain the sixth largest economy. A World Bank Overview in 2013 states – “Poverty rates in India’s poorest states are three to four times higher than those in its more advanced states. While India’s average annual per capita income was $1,410 in 2011 – placing it among the poorest of the world’s middle-income countries – it was just $436 in Uttar Pradesh (which has more people than Brazil) and only $294 in Bihar, one of India’s poorest states.”
This economic disparity alone explains why, despite us being the fastest growing economy, we rank lower than Nepal in the Social Progressive Index. When news like the aforementioned breaks, we are greeted to an onslaught of Facebook statuses hailing our ruling authority, no one cares to mention that on the flip side our ranking in the human rights index remains a dismal 105 out of 140 nations (as of 2016). Ideally, the ruling government should invest larger amounts of money into infrastructure and social welfare schemes to tackle the increasing disparity.
As we near the election cycle of 2017, we will be treated to inflammatory rhetoric from all sides, and as a part of the electorate, it’s important for us to remember that the facts spewed by politicians and mainstream media shouldn’t be taken at face value. As a country, we’re finally starting to find a footing in the global arena. If we play our cards right, equipped with the youngest work force, we can be a force to be reckoned with. But to overestimate or overstate our progress could prove to be a costly misstep. To paraphrase from Robert Frost’s poem Stopping by Woods, we have miles to go before we sleep.