The fetish for a higher GDP

It’s a made 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. 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. 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.

Economic growth

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 fertilisers the higher is GDP growth. The more you fall sick, the higher is the health cost, and that raises the GDP in turn.

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. Company’s 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.”

Interesting, isn’t it? While India is trying to ape Shanghai model of development, Shanghai itself is not satisfied with what has been achieved.  It is therefore clear that the GDP is a flawed estimate of a country’s progress and this fact is being increasingly realised. Nor does a high GDP translate into more jobs. 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. Only 1.5 crore jobs were created in 10 years, against an annual requirement of about 1.2 crore jobs.