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Musings
   Prasoon S Majumdar
Prasoon S Majumdar
Editor, Economic Affairs - The Sunday Indian
Dean Academics (All India), The Indian Institute of Planning and Management
[17/10/2010]

Economics is funny!

India should focus on GPI for a real picture

Economics is funny! I remember my professor used to say that instead of conducting classes in air-conditioned rooms with lights on devoid any ventilation, it is much better to conduct the same in open areas. By doing that, the later adds to our health while the former adds to our GDP. The more we burn power and thereby health, the more the economy grows! Funny, isnít it? Well, the fact is that almost all critical social indicators viz. poverty, unemployment, health, environment and many other are comfortably swept under the carpet, in the veil of burgeoning GDP rates. With so much hype around economic boom, GDP has apparently come out as the only convenient panacea for all social imbalances. Whereas the fact remains that the GDP figure fails to depict a true picture of any economy. Thus, it is imperative that we need to institute a more holistic index which portrays the real economic picture. A Genuine Progressive Index (GPI) not only breaks the myth of economic growth that is fuelled by lopsided growth but also takes into account numerous other variables that play a major role in socio-economic well being, but had been largely sidelined on account of prevailing GDP calculations.

Letís go step by step and understand that what this mad race of attaining higher growth has given us. It is no secret that despite Indian Inc. increasingly entering the billion dollar club and finding its place in the fortune 500 list, the gap between the executives and workforce has been consistently widening. In simple words wealth creation does not equate to wealth distribution, yet it adds to the GDP. Another case in point is the incidence of crime, which is quite rampant in India. GDP treats such expenses (money spent on court cases, lawyers, divorce cases) as additions to well-being while the GPI subtracts the costs arising from crime and related activities. In the same lines GDP ignores the contribution by household and volunteer work while the GPI includes such variables as the approximate cost incurred if the same work is done through professional contracts. Even the fluctuation in income distribution finds its place in the GPI. The GPI rises when the poor receive a larger percentage of national income and vice versa. This gain is significant. As per the UNDP HDI Report 2007-08, the poorest 10 per cent had 3 per cent share of the national income, the richest 10 per cent enjoys 31 per cent share on national income. Depletion in resources due to economic activity is seen as current income in GDP while, the GPI counts depletion as current cost. Same goes for pollution. GDP counts pollution as a double gain but the GPI subtracts the costs of pollution as measured by actual damage to the ecology. Just land degradation and deforestation itself lead to a loss of 5 per cent in GDP of India! GPI also considers the loss due to climate change and the management of nuclear wastes which have no place in GDP calculations. Another significant aspect is productivity and man-hours.†A one day productivity loss cost the nation Rs 13,000 crore, which again dents the economy to a large extent but does not feature in GDP but is a chief decider in GPI. Latest official reports reveal that 2.5 million man-days were lost in 2008.

So, in order to gauge a true growth rate and steer the agenda of inclusive growth in right direction, it is important to focus on GPI that considers humanitarian and environmental costs along with the cost of inequities and environmental damages, unlike GDP. All in all, there is no doubt that economics is funny, but to embark on the path of something as lopsided as GDP calculations, is funnier!




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