GDP does not provide a complete picture of economic and societal progress. Despite being a broad measure, GDP leaves out several things. The enormous value of the country’s natural capital and ecosystems is also not reflected in the GDP. GDP growth alone cannot be a good measure of the human quality of life index (HQLI). Without holistic growth, India will lurch into poverty and squalor, reasons Navodita, our Associate Editor, in the weekly column, exclusively in Different Truths.
The question that often comes to my mind is India an expensive country to live in if one wants to live within their means with a decent lifestyle, decent wages, decent salary and a good lifestyle where you get enough time for leisure, travel, holidays along with meeting your basic needs of roti, kapda aur makaan?
The national income numbers for the second quarter of 2017-18 has come as a relief yet what it means for the ‘common man’ is anybody’s guess. Gross Domestic Product (GDP) has grown at 6.3% year-on-year compared to 5.7% in the first quarter. The trend of declining growth rate quarter after quarter, which was seen in the last one year, has been reversed. This is a welcome sign. However, doubts and concerns persist.
The most discouraging sign is the behavior of the Gross Fixed Capital Formation (GFCF). GFCF refers to 
the net increase in physical assets (investment minus disposals) within the measurement period. It does not account for the consumption (depreciation) of fixed capital, and also does not include land purchases. It is a component of expenditure approach to calculating GDP. It is true that in this quarter GFCF grew at 6.3% against 2.9% in the corresponding period last fiscal. This shows an improvement in terms of sentiment. However as the growth rate of GFCF fell below the growth rate of GDP, the ratio of GFCF to GDP has fallen from 27.1% to 26.4%. This is truly disturbing. The fall must be due to a decline in private investment, as a public investment during this period has done reasonably well. Without a rise in the private investment rate, sustained high growth cannot be maintained.
There have also been some doubts about the high growth in manufacturing. In this context, analysts draw attention to the disparities between the rate of growth in the index of industrial production (IIP) and national income statistics. For example, in Q2 of 2017-18, manufacturing under IIP grew at 2.2%. There is, of course, a difference between the national income and IIP figures, the former dealing with value added and the latter with total production. Nevertheless, such sharp differences raise some concerns. Perhaps a clear statement from the National Statistical Commission will help to put the doubts at rest.
Well, what is of concern is that what do the numbers say for the future? After staying at the same level for two quarters, Gross Value Added (GVA) has moved up. This may be broadly taken to mean that the decline in growth rate has bottomed out. Perhaps the glitches caused by GST have been overcome. That only amounts to the removal of a negative factor. Therefore, the immediate prospect is some improvement in the growth rate in the next two quarters. In the next two quarters, there is not much space for public administration to push the economy. Last year, a reasonable rate of growth was achieved because of the strong growth of government expenditure in all quarters. This year, at the end of the third quarter, fiscal deficit has almost reached the budgeted level. Even after allowing for some slippage, it is unlikely that government expenditure can act as a driver of growth. Thus, while one can expect the growth rate to pick up in the second half, any substantial increase depends on the behavior of private investment which remains intractable.
Yet another factor influencing growth is exports. India’s export performance has picked up in the current year. In terms of growth rate, it was doing reasonably well. During April-September, exports grew by 11.52%. But there was a setback in October with the export growth rate turning negative. However, the world economy is generally looking better this year. World trade in 2017 is expected to grow at 1.7% compared to 0.8% in 2016. Improvement in the external environment may help to raise our exports. This may be another positive factor influencing growth, even though it is difficult to say how strong it will be.
With so much talk of GDP, we know it gives us a good picture of market economic activity within the country. However, because it does not recognise non-market forms of production and values without market prices, GDP does not provide a complete picture of economic and societal progress. Despite being a broad measure, GDP does leave out several things: it does not capture the distribution of growth, and as a result, cannot reflect inequality. GDP also does not capture the value added by volunteer work, and does not capture the value of caring for one’s own children. In addition, the enormous value of the country’s natural capital and ecosystems is also not reflected in the GDP. It is ironic that preserving the country’s natural resources- essential to our current and future wealth- is not counted, but exploiting them in an 
unsustainable manner is. Our economic growth, thus, is increasing at a rate that cannot be ecologically sustained.
India is a country with diverse income groups and various standards of lifestyle. GDP growth alone cannot be a good measure of the human quality of life index (HQLI) which needs to be looked at to gauge the ‘real growth’ of complete India. Unless we think about holistic growth, India will lurch in poverty and inequality and squalor.
©Navodita Pande
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