JULY 2019 l PARlIAMENTARIAN 17The desire to become a five trillion dollar
economy by 2024, i.e. a jump of more than 70 per
cent from its existing size
look at what’s wrong with the manner
in which we calculate economics and,
by default, social, progress.
As is now clear, policy makers can
manipulate – or tweak the GDP
figures. Leading economists, including
Gita Gopinath, Chief Economist, IMF,
have questioned India’s formula to
calculate the size of her economy, and
its growth. Earlier, 108 economists,
including former RBI Governor,
Raghuram Rajan, wrote a letter to
express doubts about India’s GDP.
A few months ago, Gopinath said,
“There were important revisions that
were made in 2015 as a part of
modernising India’s national accounts
statistics, so this is certainly welcome.
That said, there are still some issues
that need to be fixed... and this is
something we have flagged in the
past.” Another economist pointed out
that there was a contradiction between
different figures – growth is up, but so
is unemployment (at a 45-year high).
This cannot happen unless
productivity levels have shot up, for
which there is no evidence.
In the case of India, like other
nations with huge informal sector and
cash economy, there is a major flaw in
GDP’s calculations. In a chapter on
demonetisation, the Economic Survey
(2017) categorically stated, “It is clear
that recorded GDP growth... will
understate the overall impact (of
demonetisation) because the most
affected parts of the economy –
informal and cash-based – are either
not captured in the national incomeaccounts or to the extent they are,
their measurement is based on formal
sector indicators.”
For economists and laymen, this
statement is explosive. The official
statistics either do not capture, or only
roughly do so in some segments, the
output in the unorganised sector. This
is mindboggling because it employs,
according to ILO, close to 81 per cent
of the employed people in the country.
Speculating on such data, based as it
is on what happens in the organised
sector, is naïve. The reason: while in
normal times, the growth in both
these sectors may approximate or be
similar, in times when one is hit more
than the other, the overall figures will
be grossly over or under inflated.
Obviously, there is no consistency
in, and sanctity of, such calculations.
Thus, India’s annual GDP, and itsgrowth rate, are mere numbers that
can be quoted often by economists,
media, policy makers, and other
experts. In effect, they can be
completely delinked from reality.
If the GDP cannot even capture the
economic truth of a country, how can
it be looked upon as an indicator for a
nation’s wellbeing, prosperity, and
development? Hence, the McKinsey
observation: “There is almost
universal agreement that GDP alone
is an imperfect metric for growth and
prosper it y.”
Even if there is a mechanism to
track the output in the informal
sector, the GDP figures will still be
inadequate. This is because they will
always exclude a number of non-
market activities. Consider the