In the run-up to polls, debate on economic development missing

Important trends are visible in the run-up to the Lok Sabha elections due in May 2014. The Congress and BJP appear to be the front runners, with their alliances and coalitions. BJP is promoting Gujarat Chief Minister Narendra Modi as its prime ministerial candidate and it can draw cheer from recent election results in Delhi, Rajasthan, Madhya Pradesh and Chhattisgarh.

Modi, often seen as a polarising figure, was recently the subject of comments by two prominent figures – Narayana Murthy, Infosys CEO, and Amartya Sen, who is probably the most influential academic of Indian origin, one with liberal leanings. Sen has been consistently critical of Modi for his reported role in the Godhra riots, and he disagreed with Murthy’s statement that Modi should be allowed to move on, putting the past behind him.

Given India’s history, communal and caste issues resonate strongly in the country’s psyche, across the wide-ranging social and economic strata. Understandably, Modi’s leanings on communal issues receive attention. However, the discourse on potential leadership by Modi, post-2014 election is lacking in an important respect; this is about economic development Indian government pursues, with GDP growth as the core measure. Arguably, the economy, its development, and distribution of benefits are at least as important as the emotional issue about communities and castes.

It is now over 20 years since the government adopted globalisation and a development model based on private enterprise and foreign investment, with the stock market as a major institution. In this model, growth in Gross Domestic Product (GDP) is treated as the sole measure of growth. Percentage of GDP growth is the only criterion of progress. With over 20 years’ experience, it is perhaps time to evaluate the GDP model and its efficacy. For the record, India has continued to run deep deficits, both fiscal and external, during this period and economic disparities have become wider. Inequality in India now attracts worldwide attention. These are some reasons to revisit the GDP model of economic growth.

GDP model

GDP is an expenditure-based measure. Every rupee that is spent is added to the GDP, regardless of how or why the money was spent. The GDP model has attracted a lot of criticism. Among the complaints, perhaps the most eloquent was made by the US Senator Joseph Kennedy in 1968. Zeroing in on the expenditure principle of GDP, Kennedy observed, “too much and too long, we seem to have surrendered community excellence and community values in the mere accumulation of material things. Our GDP... if we should judge America by that – counts… special locks for our doors and the jails for those who break them….and armoured cars for police who fight riots in our streets.”

On the other side – namely, what GDP does not count, Kennedy was equally lucid. According to him, GDP “does not allow for the health of our children, the quality of their education, or the joy of their play…It measures neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile.”

Significantly, GDP includes government expenditure. This is an open invitation for abuse in a country like India with its ethically-challenged political and administrative classes. To improve the GDP count, there will be a natural tendency to increase government expenditure and this means putting more resources into the hands of corrupt administrators and politicians. This is, by and large, the game that has been played in the name of economic growth, with ever-increasing government budgets, sub-standard public services and rise in corruption to astronomical levels.

To illustrate, a recent report about corruption in the Bruhat Bangalore Mahanagara Palike pegged the figure at Rs 1,500 crore. This volume of money was siphoned out at a local body, which is the third and lowest tier of governance under the Constitution. A large part of the money came from the Central government under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), and it was promptly pulled out by the persons in power. In the Indian context, therefore, complaints about GDP as the measure of growth stretch beyond mere issues of appropriateness or suitability. It is equally about increasing the power and resources of the government and consequent corruption and abuse.

Reflecting sensitivity to GDP’s limitations, the European Commission recently launched the “Beyond GDP Initiative” which stresses indicators that are “more inclusive of environmental and social aspects of progress.” 

The need for economic development in a country like India is self-evident and hardly need any statement. But economic growth is a very generic phrase that lacks precise meaning. It can cover two ends of the spectrum. One is about raising economic standards for large swathes of population mired in poverty and living in sub-human conditions. The other is about import of gold, luxury automobiles, and consumer goods, funding them with capital inflows and the unsustainable deficits that follow inevitably.

It may not be practicable to choose between the two, but at a minimum it is necessary to strive for a more judicious balance. The question is whether a change of guard in New Delhi can steer India towards a broader model of development. 

(The writer is an assistant professor at University of Ottawa, Canada)