GDP:  Not  a Significant Indicator for Inclusive Growth

Bhanvi

Abstract

The article highlights how the Indian economy has restructured itself from the 1950s from a poor economy to the current emerging world’s fifth-largest economy supported by GDP growth as the focus has been on multidimensional and inclusive growth. It has been reported by NITI Aayog’s multi-dimensional poverty report that there has been a steep decline in poverty over a period of time but rural and urban disparity still exists. So, to overcome the challenges of inequality several multisectoral approaches are being undertaken along with an emphasis on Sustainable Development Goals (SDG) 1 of reducing poverty and SDG 10 of reducing income inequalities.

Steps are being taken by the government for poverty alleviation, inclusive healthcare, sustainable development, financial inclusion, intragenerational equity, and inclusive education for the equitable growth of all sections of the economy. Moreover, to attain balanced growth in terms of both economic and non-economic aspects, various remedial measures have been discussed to achieve multi-faceted and compounded growth.  

Keywords- GDP, inclusive growth, government, poverty, development, economy

Background

GDP was initially developed in US and UK in the 1930s and 1940s when the world was in the mid of the upheaval of two world wars and the Great Depression. The government of that time under the rule of  President Roosevelt used statistics to justify policies and budgets that can be used to bring the US out of the Depression. Since the US was too involved in World War II (WW II) so there were concerns about whether US citizens and the economy can get rid of the depression.

As a result of which GDP estimates were used to show that the economy could provide sufficient supplies for fighting WW II while maintaining adequate production of consumer goods and services. The usage of GDP for estimating growth further increased after the Bretton Woods Conference. The key outcomes of the meeting were the establishment of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development ((IBRD)—now part of the World Bank) and GDP came to be used by the IMF and the World Bank as the primary measure of economic progress.

Introduction

According to International Monetary Fund (IMF), GDP is the final monetary value of all goods and services produced within the economic territory during a specified period of time. GDP is used as a specialized tool to measure economic development but not economic quality or welfare. Despite the continuous economic growth society is still lagging behind in overall development perspective as it is evident that though the GDP of India is growing India’s position in terms of the Human Development Index prepared by the United Nations Development Programme had fallen down to 132 from 129 which is a cause of concern.

As a result, the concept of Inclusive Growth comes into existence which means growth not only in quantitative terms but also in qualitative aspects such as the increase in the health quality of an individual, increase in the accessibility to basic necessities, etc,  by taking in consideration sources of growth and distribution of growth among people of different income groups.

Drawbacks of GDP

GDP is the sum total of goods and services produced in an economy so if there is the production of cigarettes in the economy then it will add to the GDP but it will ignore the negative externality associated with their production that is the health hazard, pollution it creates in the economy, etc. As a result, environmental degradation is a significant externality that the measure of GDP failed to record.

Black Economy and transactions in parallel economy are also ignored that give rise to illegal smuggling and exploitation of resources. It doesn’t take into account barter transactions as well as other indicators that are necessary for the measurement of growth and true development of an economy such as happiness, quality of life, literacy rate, etc. Along with it, growth is usually measured at nominal GDP rather than Real GDP which includes inflated prices and gives misleading data about the actual growth.

Hence, looking into various limitations of GDP growth, there is a burning need to shift towards a multidimensional growth approach that will reduce poverty and increase the living standards of people.

Features of Inclusive Growth

Inclusive Growth emphasizes capacity enhancement, equitable distribution, poverty alleviation, inter-generational equity, sustainable growth, and a multi-sectoral approach (ADB).

  • Capacity Enhancement- Prof Amartya Sen stressed that deprivation is not only measured in terms of money or income but it can be due to the absence of public facilities and due to discrimination in terms of gender, caste, religion, race, region, etc. that restricts people from participating in the economy.
  • Equitable Distribution- Equity implies the distribution of goods and services in such a way that no one is deprived of it. On the other hand, equality considers not only the number of goods and services distributed but also the preferences of individuals that can be achieved by giving equal opportunity to all and empowerment to make decisions freely.  
  • Poverty Alleviation– Poverty implies absolute deprivation with respect to basic necessities like food, clothing, shelter, clothes, healthcare, and education. So, the government needs to implement various effective policies to get out of the trap of the trickle-down effect.
  • Sustainable development- It focuses on adopting policies of one generation that should not compromise the development prospects of future generation via adopting methods that minimize environmental degradation and reduces the unsustainable debt burden of the government.
  • Intragenerational equity- via inclusive distribution of various resources among the same generation with the quality enhancement of physical infrastructure i.e. road development, railways, etc., and various schemes have been implemented for the same such as Gramin Sadak Yojana, Bharat Mala Yojana, etc.
  • Civic Amenities- also play a crucial role in overall development such as clean drinking water, housing facilities, drainage facilities, public transportation, and reducing the cost of living of the poor via various schemes such as Jal-Jeevan Mission, Pradhan Mantri Awaas Yojana, Swachh Bharat Yojana etc.

Steps Taken by Government

In order to achieve SDG’s target by 2030 Government of India has taken several measures for economic and inclusive development through its commitment to “Sabka Saath Sabka Vikas” by working towards the upliftment of the lower section of society. For financial development various incentives are given in the form of scholarships to the needy, scrapping off the hostel fees so that instead of being a future liability youth can be developed by inculcating various skills.

Life initiative is being encouraged for sustainable lifestyle and development. In order to ensure peace and harmony in society several acts have been passed such as the Protection of Civil Rights Act, of 1955 which prohibits the practice of untouchability and the Scheduled Castes and Scheduled Tribes (Prevention of Atrocities) Act, of 1989 provides protection from atrocities against the members of Scheduled Castes and Scheduled Tribes, including provision for special courts for the trial of such offenses as well as relief and rehabilitation of the victims of atrocities.

These initiatives of government can play an instrumental role, in uplifting the deprived sections of the economy and help in achieving, equity and equitable distribution of goods and services.

Way Forward

In order to shift the economy on the path of inclusive growth several initiatives can be taken such as –

  1. For an economy to be inclusive human-centric approach should be encouraged in which different voices belonging to diverse individuals in respect of caste, creed, race, and religion will be involved in decision-making power.
  2. Research should be conducted in socially backward regions and policies should be formulated keeping in view the reasons for existing inequalities and developing a mechanism to overcome those inequalities.
  3. Public and Private Partnership models should be developed in which both parties should work hand in hand to curb the menace of inequalities and ensure equitable distribution of resources along with the progress of the economy.

Conclusion

For the economy to develop in the long run, a multifaceted approach should be adopted by targeting marginalized and unvoiced sections of society by creating awareness among the masses to speak out aloud their opinion for inclusive and communalized growth. The major focus should be on a just and equitable society that is economically developing and offering citizens a meaningful quality of life. Balanced emphasis on both economic and non-economic growth could soon turn India into a developed economy. Improvement in infrastructure, development of financial models, better healthcare facilities, etc. can pave the way for inclusive growth with the fulfillment of the motto of “Sabka Saath Sabka Vikas”.

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Bhanvi is a Visiting Researcher, IMPRI.

Acknowledgment: The author would like to thank Sundaram Balasubramaniam, Nandu S, and Harshaa for their kind comments and suggestions to improve the article.

Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organisation. 

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