Hue and Cry for 4.5% GDP Number

Hue And Cry For 4.5% GDP Number

Shashank Vikram Pratap Singh

Ph.D. Scholar

Department of Commerce

Delhi School of Economics

University of Delhi

ssvikrampratap@gmail.com

Friday’s second quarter financial year 2020 (Q2FY20) data released by CSO, is making lots of hue and cry across the world. The data reveals sharp slowdown across many major sectors likes; manufacturing, construction, agriculture, trade and financial services except public administration, defense & other services (grew by 11.6 percent compared to 8.6 percent Q2FY19). Manufacturing sector contracted by 1 percent against 6.9 percent growth in same quarter in FY19; agriculture, forestry & Fishing -key sector for job creation in rural economy grew by 2.1percent against 4.9 per cent  in Q2FY19; construction sector fell to 3.3 percent against 8.5 percent last year. Major drivers likes, consumption demand- measured through private final consumption  expenditure data, grew by 5.06 percent compared to 9.79 percent in Q2FY19 although its around 2 percent more than then Q1FY20; gross fixed capital formation used as proxy for government and private sector investment grew by 1.02 percent compared to 11.8 percent in Q2FY19 which is even 3 per cent less than Q1FY20. Overall GDP growth rate fell down to over six years low (4.5 %). Since Q4FY13 growth number (4.3%) it (Q2FY20 growth) is the slowest growth ever recorded. Although such sharp decline is not first time happening in India. Since independence more than ten times years long such declines have been recorded- 1961-62 and 1962-63, 1965-66 and 1966-67, 1971-72, 1984-85 to 1987-88, 1990-91 to 1992-93, 2000-01 to 2002-03, 2012-13 and 2013-14 and now from 2018-19. Drought driven agricultural slow down, wars, balance of payments (BoP) pressure, shortage of foreign exchange, oil prices and financial crisis have been the major reasons for slowdown in the above specified years. But the current one is a unique and first in its kind slowdown in India. In the last few years India have neither experienced heavy drought, wars, BoP pressure, shortage of exchange rate, financial crisis nor political instability, yet growth rate is record low. Amid remarkable political stability and unquestionable single party majority in Parliament, India has one of  highest foreign exchange reserve ($448 billion till last week of Nov.) in the world. Its macroeconomic variables like inflation, current account deficit, fiscal deficit and status of capital market all are quite impressive and within the prescribed limits. Still such slowdown, is a subject matter of intellectual debate with altogether new perspective.

Why so much hue and cry are being made for this indicator? Since last Friday- print, electronic and social media is flooding with this news. None of us raise question or discuss& debate when India scores very poor and one of the lowest in the world among socioeconomic and environment indicators that actually take cares of human life and happiness- the per capita income  at the current dollar is around $2,000 which is less than the world average of $10,722. It stands at 130^th place in HDI ranking, 140^th in Happiness Index, 147^th in World Inequality Index, 141^st  in Global Peace Index, 140^th in World Press Freedom Index, 78^th in Corruption Perception Index, 115^th in Human Capital index, 102^nd in global hunger index, 110^th in Human Freedom Index, 177^th in Environmental Performance Index, 145^th in Healthcare Access and Quality index, 108^th in WEF’s Global Gender Gap Report & 142^nd place on providing economic participation and opportunity to women and 62^nd in Inclusive Development Index. Income alone does not serve the ultimate purpose of human life that is-to be happy. If it would be like this, then all the top five countries in terms of size of economy would have also place among top five in happiness index. But it has never ever happened in the history of happiness report.

GDP is an outcome of political and intellectual battles among Clark, Stone, Meade, Keynes, Kuznets and Gilbert and two global events; great depression of 1930 and World War II (1939-1945). It was developed with the intension of measuring depression led economic progress and guiding democratic led Roosevelt government’s policies in more effective and efficient manner. It was not developed to measure human wellbeing/happiness. Simon Kuznets, one of its main originators and earlier recipient of economic science Nobel prize once said “the welfare of a nation can scarcely be inferred from a measure of national income”. GDP  increase; when there are earthquakes, a fire, environmental disaster, human disaster and higher accident, higher medical cost, higher repair cost caused by poor transport and infrastructure, and goes down when a rickshaw puller takes the afternoon off to spend time with his lady love. “It counts the labor used and wood produced, when a tree cut down, but does not deduct the shade and beauty that are lost.” This is how, Banerjee and Duflo- this year economic science Nobel laureate categorically abridged the anti-mankind nature of GDP in their latest book Good Economics for Hard Times (p.153). Amid all this discussion it does not mean the GDP is a redundant indicator and should not be part of public policy. Income is an important means to achieve wellbeing/happiness. It cannot be ignored at all.