Tuesday, August 11, 2015

MUSINGS FROM PRIYADARSHINI KARVE: Can higher GDP be the ultimate goal of 'development'?

Everywhere I turn, nowadays I hear about the need to increase GDP, or rate of growth of GDP. Should GDP - Gross Domestic Product - be the ultimate goal of development?


What is GDP, by the way??

The monetary value of all the finished goods and services produced within a country borders in a specific time period is defined as Gross Domestic Product or GDP. Typically, it is calculated on an annual basis. It is important to understand the tacit assumption here - that all goods and services being produced and transacted are being recorded! Can you truly say that is the case in India? 

Picture this - I grow some vegetables in my garden, and sell them to my neighbours. Or I use some discarded CDs to make a solar cooker and sell it. (How to make a solar cooker using discarded CDs? Google might know, if you don't!) How are such transactions getting captured in the GDP calculation? And what about all the 'black money'? 

So, ok, possibly GDP is an UNDER-estimate of the wealth being generated in the country. But that is actually good, right? Whatever is our calculated GDP growth rate, we must be actually doing better than that! So we are prospering more than whatever we are measuring! That is cause for celebration, isn't it?

Indeed, that would not be a problem, if someone can show me the correlation between this abstract number and the quality of life of the entire population. I mean think about it. Today we have some 270 million people living under poverty line. At the same time we have some 400 thousand millionaires. If these millionaires became billionaires, I am sure the GDP will show a hike. But how much of this wealth is going to trickle down to the the 270 million BPL? 

The GDP as a stand alone number cannot represent 'development'. It has to be accompanied by another number, which also shows how much economic inequality still exists in the country. True development will happen if this second number goes down while the GDP goes up. 

Is there any such indicator? Of course, there is, and it is called the Gini Coefficient. I bet not many of you ever heard about this one! It is one Ginny that most politicians across the world would never let out of the bottle! The GIni Coefficient varies between 0 (perfect equality) and 1 (total inequality). So what is the Gini Coefficient of India and how has it varied with time? 
Source: https://upload.wikimedia.org/wikipedia/commons/thumb/0/01/Gini_since_WWII.svg/2000px-Gini_since_WWII.svg.png

India's Gini coefficient seems have zigzagged a bit over time, but has remained above 0.3. The graph does look a bit complex with all the lines bunched together in the middle, but you can see where we stand with respect to other nations in the world. 

If you follow the line for India in this graph, you will find that since 1990, when our economy opened up, our Gini coefficient has steadily gone up towards 0.4! 

Surely, this must be a co-incidence? What do you think?


Priyadarshini Karve
Director
Samuchit Enviro Tech




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