The Problem with GDP | How India’s GDP works? | Road To Recovery
A few days from now, the National Bureau of Statistics will release its first GDP estimate for the ongoing financial year (2021–22). Although these estimates will be revised later — based on only eight to nine months of the year — the predictions of many economists so far have suggested that the Indian economy will pass, although slightly, its pre-epidemic rate by the end of this year.
However, the rapid spread of Omicron has now created great uncertainty. As for the fact that the third wave of infections, as well as job cuts, will have an impact on the economy in the last quarter, services, in particular, will only be visible in the coming weeks and months. In addition, GDP data will confirm the growth of the lost two years.
For others, however, the loss will be too high. The sectors of the economy continue to struggle, operating below their 2019–20 levels.
How India’s GDP works?
Key GDP figures conceal the state of extreme recovery inequality — the legal or organized sector performs better, benefits at a lower cost, and within the legal system, larger firms perform better than smaller ones. As a large part of the country’s workforce is employed in the informal sector, especially in MSMEs, this growing growth in economic power contributes to employment. Labor market data from CMIE suggests that the scars will still heal.
Staff participation rates have dropped, indicating that many have simply stopped looking for jobs. The high unemployment rate indicates that unemployment is still high. The result of this ongoing pressure on the labor market is that private use may remain low. Families remain very optimistic as evidenced by the RBI’s consumer loyalty survey.
A few weeks from now, the union’s finance minister Nirmala Sitharaman will present the 2022–23 budget. Given the financial constraints, it is difficult to see a dramatic increase in government spending to support the economy.
However, given the unequal distribution of economic losses over the past two years, the government should consider all options before it. It must begin by conducting an in-depth analysis of the state of the economy, indicating that it aims to alleviate the ongoing economic crisis, and present a clear framework for economic recovery.
However, when the first quarter GDP data was revealed (April, May, June), the picture was not as bad as critics said and it was not as good as the government would have us believe.
With the release of the second quarter (July, August, September) GDP estimates, it became clear that India’s economic recovery was still difficult and there was no way near a “V-shaped” recovery.
The next chapter on this will be written on January 7, when the government releases the First Advance Estimates of GDP for the full 2021–22 financial year. However, the main concern — reduced consumer demand levels — will likely dominate negotiations in the new year. As the data show, the record is very different from the popularity enjoyed by the Prime Minister.
The Problems Associated with this:
But while GDP growth is undoubtedly the most popular variable to track economic health, as the year progresses, it became clear why high unemployment, not GDP growth, is the biggest challenge facing India.
As the clip explained, Indian policymakers have been misreading the problem of unemployment. The sad truth is that there are fewer people (almost 14 million less) employed in India in August 2021 than in August 2016.
A major component of the problem was the relatively low level of Indian labor participation. And the biggest reason for India’s lower LFPR is its participation in the workforce by women. The data suggests that India is not a country of working women and this has far-reaching economic consequences.
In addition to these structural problems — such as the limited participation of women in work — many policy-related reasons have exacerbated job-related stress. Take, for example, the story of jobs in the manufacturing sector. In just four years (2016–17 to 2020–21), and despite the pressure of the Make in India policy, the number of people employed in the manufacturing sector has dropped by almost half. As the piece explains, Indian policymakers have ignored the important need to focus on areas that need more workers.
One of the biggest concerns for the Indians in 2021 has been inflation. For the second year in a row, inflation rates remain relatively high. Part of the reason was the RBI’s reluctance to contain inflation so as not to disrupt India’s new growth. Read this passage to understand why the RBI continues to point to GDP growth instead of inflation.
But there are RBI traps that continue to prioritize economic growth over inflation.
However, as things stand, this clip explains why high prices are here to stay.
Inequality and poverty:
Whichever way you look at it, Covid has deepened the inequalities in wealth, education, and gender as evidenced by Oxfam’s report, entitled “The Inequality Virus”. These concerns were also shared in the World Inequality report.
Poverty has increased. According to economists Santosh Mehrotra and Jajati Parida, the unprecedented decline in poverty between 2004 and 2011 followed by unprecedented increases between 2012 and 2020. However, as this passage shows, growing inequality should not cause India to move away from economic transformation and return to India in 1960.
Economic changes and conflicts:
The year has also been marked by conflict and economic change.
The government has announced the establishment of an improper banking system that will address the problem of inefficient assets in the banking system. Here is a clip that explains what is good about a bad bank.
The government eventually repealed the three laws on the farm. Farmers are still requesting a guaranteed refund for their produce. The government has not yet agreed on it but the question remains: Will the legal guarantee in MSP resolve the plight of the Indian farm?
Finally, this year’s Nobel Prize for Economics was presented to three US-based economists “for their new understanding of the labor market and for showing what conclusions about cause and effect can be drawn from environmental testing”.
This was one of the highlights of 2021.
How GDP is defined?
The International Monetary Fund states that “GDP measures the amount of goods and services that the final product — that is, those purchased by the end user — produced locally (in a quarter or year)”.
It is important to note that GDP makes a map of “last” goods and services, not the middle ones. Therefore, if a tree is cut to make three cricket bats the final value of those three bats is the number added to GDP, not the market value of wood.
In 2019, when Arvind Subramanian, the former Chief Economist in government, questioned the validity of the new GDP data set unveiled in 2015, we explained the issue in detail and you can read about the controversies and controversies here.
But what about the big question about the suitability of GDP as a measure of economic growth?
For a long time now, GDP domination has been questionable.
Most notably, in 2008, Nicholas Sarkozy, then President of France, sent a report from Joseph Stiglitz (President of the Commission), Amartya Sen (Advisor) and Jean Paul Fitoussi (Coordinator) “to point to GDP limits as an indicator. and social progress, including measuring problems; to determine what additional information may be needed to produce the most accurate indicators of social progress; to assess the feasibility of other measurement tools, and to discuss how to present accurate mathematical information ”.
The 2018 book, “Without GDP: Measuring What Is Important in Economic and Social Action” by Stiglitz, Fitoussi and Durand based on a Stiglitz-Sen-Fitoussi report to find alternatives to GDP.
Similarly, in “The Growth Delusion” (2018), David Pilling, a senior journalist for the Financial Times, raised what sounded like a common question: “Our policies are relentlessly aimed at increasing our growth rate, Gross Domestic Product. “Why have we not heard so much?”
This is a controversy raised by a few critics and those who do not like GDP being the most important change to follow.
In short, they argue that GDP is the wrong way to measure social well-being, and that pursuing policies that focus solely on increasing GDP often ends up harming human well-being. Too bad, sometimes representatives of the government or members of the ruling party have tried to hide because of this widespread disappointment with GDP to avoid answering questions about India’s stagnant GDP growth rate.
How far do these GDP allegations apply?
Few people express their bookings differently and no single answer can completely disprove all allegations.
For example, is GDP the error rate?
GDP measures the total market value of goods and services in the economy per year.
Does it say it measures well-being or well-being? No.
Does it say it equates happiness? No.
Does it measure equality? No.
Is it a measure of corruption or lack thereof? No.
Does it measure the strength of democracy? No.
Therefore, because of the conflict, you may have an economy with rising levels of inequality, declining levels of democracy, declining levels of social freedom, increased air and water pollution, worse gender equality and so on. and still has rising GDP levels.
The question is: Does the existence of any (or all) of these abnormalities mean that GDP is an erroneous measure of “the total market value of all goods and services”?
The answer is: No.
GDP is a simple measure, and to argue it by judging it based on social or moral norms would be a complete lack of point to use GDP.
For example, GDP could also increase both in prostitution and in coal mines. That he does so is not his fault. The question of whether the economy should allow prostitution or mining or both or completely different from what happens to GDP if one of these activities is done openly.
Even if there is no error in each, is it enough?
In the paper, the 2015 review brings India’s GDP estimates in line with international norms. But many have shown otherwise.
Alternatively, in an economy like India, there are few restrictions on data availability. For example, the fact that much of India’s economy operates in the informal sector suggests that “official” GDP estimates will be missed to accurately capture GDP.
What about the criticism that GDP often fails to account for all the things that undermine our well-being and diminish our well-being? For example, damage caused by fossil fuels.
This is true; yes, GDP failed to pick up social losses. But the opposite is true. GDP generally does not adequately calculate all social benefits. For example, as we have seen during the Covid violence, soap or a simple mask, both of which can be obtained for less than Rs 10, provide well-being in excess of Rs 10 (their final market value) for saving lives.
It is true that focusing only on GDP can lead to policies that do not see human well-being. For example, the full provision of basic services such as health and education may increase GDP but may also reduce social welfare as poor and disadvantaged people find it difficult to access these services. Similarly, policies that promote industrial productivity may or may not adequately promote industrial employment.
But it is also true that it is easier to challenge GDP than to find a replacement. Instead of lowering GDP, it is better to look at a broad set of variables to get a nuanced understanding of human well-being.