Thursday, October 31, 2013

Look Beyond GDP !

It is a popular quote by Friedrich Nietzsch : All things are subject to interpretation. Whichever interpretation prevails at a given time is a function of power and not truth. Elite and educated Indians have high obsession with two parameters for judging development in India either GDP growth rate and numbers of stock exchange. I will discuss about GDP and similar indicators. GDP is a good indicator but doesn't show up complete picture. It does not take into account income distribution.

Let us talk about Per Capita Income. It is calculated by taking a measure of all sources of income in the aggregate (such as GDP or GNI) and dividing it by the total population. So, its just an average ! Hence, increase in wealth of Tata, Birla and Ambani can show up good figures for India but can't really reflect development of a common citizen. Let us use three global indices of development for comparison:

1. GCI (Global Competitiveness Index): issued by World Economic Forum, and is based on a composite ranking of growth potential, business competitiveness, etc. India ranks 64 among 152 nations in 2013-2014 report.

2. HDI (Human Development Index) : issued by UN which is a composite of education, per capita GDP, longivity, etc. India ranks 136 among 186 nations in 2012.

3. Gini Index: this a part of HDI, which ranks countries according income disparities in the society. A Gini index of 0 represents perfect equality, while an index of 1 implies perfect inequality. Although income inequality in India is relatively small (Gini coefficient:0. 325 in year 1999- 2000), India's nominal Gini index rose to 0.368 in 2005. [Source]

Hence, we are a country with high growth rate and still lacking in basic facilities like health and education. Only figures does not explain this position. I will give data for the reasoning. Let us ask a basic question : Can bad policy decisions block development in a country like India that has many aspects of inclusive institutions ? Yes, that is cent percent true for India. Kothari Commission (1964-66) suggested to allocate 6% of GDP for public expenditure on education. Leave the past, even in the last decade, we haven’t spent more than 4 % of GDP. (Source). Our expenditure on public health hasn't gone up more than 4 % of GDP from may years. Figures of any developing or developed country (Turkey, USA, UK, Brazil and SA) is always more than 6.5% from last 20 years. (Source)

As an approach to development, Ferro et al. (2002) were of the view that pro-poor growth in India can rest on two pillars—by grouping policies for improving the investment climate to accelerate growth and for empowering its poor to contribute and benefit from this growth. Robustness of the economy is a must thing but a significant investment must be made in people's lives. We have today thriving yet highly privatized health and education systems (with very different opportunities for different class). With the exit of middle class using public facilities, the bargaining power of remaining users has declined. Due to less investment by state in increasing its capacity, health and education have became costly affairs in private hands. We must think of households who have to spend a good part of their income to buy good health and primary education facilities in private sector – leaving a much bigger gap in the pocket that can be invested in their own or children’s future.

There are always enough reasons to despair and hope in India. Recently, Raghuram Rajan Committee Report has recommended for evolving a Composite Development Index for States. Kudos for new way of thinking ! Development is about a healthy community of economically active people. Hence, we need to see more than one indicators in popular media as well to get the complete picture. If someone is still not convinced , please march ahead and read : It’s Not The GDP, Stupid!

1 comment:

  1. Even though the real GDP takes into account the inflation for the period being considered, it does not account for the growth in population. Last year we added 13 million laborers to our labor force. It means an increase of about 3%. Hence our GDP growth rate will take a serious beating when this growth is also deducted from the real GDP numbers.



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