GDP number & ground reality

You may love it. You may hate it. But you can’t ignore it. Perhaps, this sums up the position of India in the global stage. More than anything else, its sheer size – in terms of people – has compelled many to convince themselves to take a positive view on India. Indeed, India has edged out the U.K. to become the world's fifth largest economy.

Well, the growth numbers – as dished out by the government and predicted by assorted global and local agencies – can be dissected widely, depending on which side of the table one is standing. Numbers are indeed important. But do they really reflect the ground situation? A single number – GDP figure – alone cannot assure a sense of comfort and calmness for people at the bottom of the pyramid, whose number is quite large indeed. When read with other numbers – which are even more critical for ground level happiness, the excitement over the GDP figure just evaporates.  A common man pictured by the legendary cartoonist late R.K. Laxman doesn’t comprehend the esoteric terms such as GDP, inflation and the like a bit. But when he goes to the vegetable market in the street corner, he finds that his 100 rupees fetch far less than what he was getting earlier.

Rising numbers & different emotions

 Retail inflation hit a 5-month high of 7.41% in September, disconcertingly above the upper tolerance limit of 6% fixed by the Reserve Bank of India. Food inflation – which has political implications - was 8.6%, even higher than the 7.62% in August. The two numbers – GDP and inflation – are higher. One brings cheer and the other agony. As the famous ad lines of English daily Indian Express said, “The truth lies somewhere in between.” Rising prices hurts a common man more than anything else. We have seen a government fall because of escalating onion prices!  

Two unconnected headlines – rather numbers -- over the past week should give India's economy watchers fresh room for concern. As one of the commentators mentioned, Inflation, like Alladin's genie, is difficult to put back into the bottle. It is rather simplistic to assume that answers to the problem – especially of inflation - lie at the Mumbai headquarters of the Reserve Bank of India (RBI), and not the North Block, where the finance minister sits. Look at the other disconcerting number. India's rank on the Global Hunger Index (GHI) went down to 107 from 101 in 2021 last week out of 123 countries surveyed by two European NGOs—Concern Worldwide and Welthungerhilfe. These two numbers tell a significant tale. Indeed, as the proverb goes, one swallow doesn't make a summer. A single GDP number does not tantamount to all round happiness at the ground level.

Price rise & hole in the purse

In a rising inflation situation, the RBI has little option but to increase interest rates further. This will have a cascading impact. We are in a situation where middle-class home loan and vehicle loan EMIs go up.  The poorer sections – at the bottom of the pyramid -fret about increasing prices of food items. The net impact is that there is considerable erosion in their disposable incomes and this will have a negative fall-out on the demand for industrial goods.

Read in the context of surging food inflation, the drop in India’s rank in Global Hunger Index (GHI) requires one to ponder over. And, it is indeed a serious matter of concern for any administrator. In a situation like this, what leeway does the government have to cool the price rise? But numbers on food grain stock do not seem to provide elbow-room. The central stockpile has 44.1 million tonnes of food grains September 30, 2022 — 20.9 million tonnes of rice and 23.2 million tonnes of wheat, according to the Union Ministry of Consumer Affairs, Food and Public Distribution.  The stock was 49.28 million tonnes before September 1, 2022, with 27.95 million tonnes of rice and 24.82 million tonnes of wheat.  The depleting food grain stock has indeed raised concerns. The Goods and Services Tax (GST) was slapped on a slew of everyday food items - even packaged parathas are confirmed to carry 18% GST. 

Regressive tax

Of all taxes, indirect tax is the most regressive. Everybody knows that such tax force-collects (in an unseen way) from even the poorest of the poor! Let's look at a few basics. Inflation is a number that needs to be managed, argue economists and others. For a common man, however, price rise hurts badly not just their very livelihood but their way of life as well. In the new unfolding global dynamics, the rising fuel price is a significant factor of pain for the common man. The visible impact aside, the invisible cost of fuel hike is also loaded on common citizens as it is passed on across their purchases, resulting in the prices of consuming items escalating considerably.

Robert Kennedy on GDP

Is GDP an all-encompassing unit to signify a nation’s development, combining its economic prosperity and societal well-being? Not really. GDP is one significant number among many others. It just measures production capacity and economic growth. GDP, by definition, is an aggregate measure that includes the value of goods and services produced in an economy over a certain period of time. To be sure, it does not give a clue or two to the positive or negative effects created in the process of production and development. Robert Kennedy in his famous election speech in 1968 said, “GDP measures everything in short, except that which makes life worthwhile.”

“GDP takes a positive count of the cars we produce but does not account for the emissions they generate; it adds the value of the sugar-laced beverages we sell but fails to subtract the health problems they cause; it includes the value of building new cities but does not discount for the vital forests they replace,” wrote Amit Kapoor and Bibek Debroy in Harvard Business Review in an article on October 4. 2019. India is on the growth path. Yes indeed. Yet, Delhi’s winters are increasingly filled with smog and Chennai’s streets are inundated with water during the rainy season. GDP numbers cannot explain these. GDP cannot capture the distribution of income across society. The rising number of contract jobs in the modern context, reflects a tale of its own.

Tail piece

GDP is a flashy term that a common man may find it hard to comprehend. What a common citizen wants is a sense of happiness and a feeling of comfort. It requires a more than a robust GDP number to get him that privilege.