September 28, 2023
Over the past several weeks, four Chief Economic Advisors (current and former), three foreign university academics, members of the Economic Advisory Council and bureaucrats in the finance ministry have been arguing in the opinion pages of English print media and social media. Their bone of contention is whether India’s GDP growth in the most recent quarter was a “strong” 7.8 per cent or an “anaemic” 8 per cent or a “realistic” 4.5 per cent. If you are puzzled about how a 7.8 per cent growth can be strong while 8 per cent is deemed anaemic, brace for more economic gobbledygook.
The current CEA accused one of his predecessors of malevolent inconsistency in using “nominal” or “real” GDP data as convenient to show economic weakness. Another economist, seemingly aligned with the ruling party, admonished a foreign academic of ignorance over how India measures GDP from the ‘income side” and not the “expenditure side”, to explain the “discrepancy” line item in GDP data. Meanwhile, bureaucrats in North Block pounced on their critics about how one must use a “WPI deflator”, and not a “CPI deflator”, to distinguish between nominal and real GDP data.
Most opinion column readers were, perhaps, bewildered by this jargon-slinging among a handful of experts. But the truth is that everyone was right in their technical argument, reaffirming economist Joan Robinson’s quip, “Whatever one can rightly say about India, the opposite is also true.” The reality is that India’s GDP is like beauty. If not in the eyes of the beholder, it is judged by the lived experiences of India’s families.
Just last month, nearly 20 million families pleaded for minimum wage work under the Mahatma Gandhi National Rural Employment Guarantee (MGNREGA) programme. Let that sink in. Millions of families are signalling that, as recently as a few weeks ago, they had no other source of income except to toil for bare minimum wages under the MGNREGA unemployment insurance scheme. This was the highest demand for the month of August for MGNREGA work in the last decade, barring the two Covid years. Not just in August, but in the previous months of July and June too, the demand for MGNREGA was the highest in a decade — just when India’s economy apparently experienced one of its strongest growth quarters, according to the finance ministry. It is also not the case that the MGNREGA demand always rises with every passing year. In the fiscal years of 2016, 2018 and 2019, MGNREGA demand went down as economic opportunities rose. It is an indicator of the economic distress of Indian households. Economists sniping at each other over deflators and IMF Washington executives celebrating India’s “fastest growing economy in the world” tag are a cruel joke on these 20 million distressed Indian families.
It is also true that for some others, the economy seems to be booming. When stock markets rise continuously, billion-dollar startup unicorns emerge periodically and foreign visitors in their quest to denigrate China paint India as the next big thing, the celebrations and the optimism can seem justified. Except, it is a tiny but loud section of the population that celebrates vis-à-vis the vast majority. To put this in context, nearly 70 million people sought MGNREGA work last year while the total number of people employed by all companies listed on the stock exchange combined is just eight million.
The hand-wringing over GDP data is not the problem. It is the idea of GDP as a holy grail measure for the health of the overall economy, which is the problem. When a headline GDP number has turned meaningless and irrelevant to a large majority of people, it is puerile to obsess over the minutiae of how it is calculated. When 20 million Indian families are telling us month after month that they are unable to find opportunities for income and prosperity, it does not matter what “deflator” is used to measure GDP. A fully automated semiconductor manufacturing factory may provide high incomes to a few skilled workers and boost headline GDP but it does not employ huge numbers of low-skilled people to boost the nation’s economic prosperity. Contrary to the Washington Consensus dogma, high incomes for a few do not trickle down to incomes for many more below.
It is time for a complete reset in our economic public discourse and narrative. The change has to start with political parties and their leaders. It has to be a bipartisan effort in the national interest. For example, instead of nit-picking on GDP numbers as they normally do, the Opposition INDIA alliance can start by rejecting next quarter’s GDP release and instead demand data on median income growth and the total number of jobs created in the economy. The attention needs to shift from headline GDP numbers and towards labour market information. The health of the labour markets has to shape the economic narrative of the nation. This is what should concern the political leadership of the country the most, not under whose tenure was GDP growth higher. When Prime Minister Narendra Modi laments “freebie” politics, he should realise the fountainhead of that malaise is our obsession with headline GDP. When high GDP growth does not translate into jobs and incomes for a vast majority, the political leadership of the nation has no choice but to resort to welfare band-aids to alleviate the economic pain of their voters.
To be clear, this is not a judgement on the Modi government’s management of the economy. The correlation between headline GDP and prosperity for the median citizen is broken in most nations, driven by contemporary economic development models that have skewed the balance inordinately towards capital from labour. What we measure matters. Headline GDP is a dangerously misleading odometer for the economic engine of a nation. The enormous collective brainpower of economists can better serve the nation by helping us understand the economic well-being of the median Indian.
The writer is a senior office bearer of the Congress party