December 17, 2023

Glossing Over Dismal Performances through Futuristic Claims

Sanjay Roy

THE euphoria on India becoming the third largest economy by 2030 or a 5 trillion-dollar economy soon backed by estimates by rating agencies assuming 7 per cent growth rate in 2026-27 and further, has been showcased as one of the great achievements of the current regime that seem to have exalted India’s position in the global scenario. To begin with some initial facts, India’s GDP in current prices is 3.39 trillion US dollars and in constant 2015 US dollar prices it is 2.95 trillion US dollars. In 2014 in terms of current prices India was ranking fifth after USA, China, Japan and Germany and in 2022 also India ranks fifth after the same set of countries.

It is easily understandable that India being a large country and with the largest population in the world, India’s economy is likely to be larger than smaller countries. More importantly when the advanced economies of the world have reached a matured phase of development and used to grow slowly, developing countries particularly India and China are the two fast growing economies of the world. Being a large economy to start with it, if India grows at a faster rate it is not a great surprise that at least in terms of GDP figures she would be able to catch up with the GDP figures of many advanced capitalist countries. And if the same growth rate continues after seven or eight years India may surpass Germany and Japan and become the third largest economy of the world. This is of course based on certain assumptions and forecasts that have to be realised in coming years which are not beyond doubts since private investment growth in India has not picked up as expected and due to high inequality, private consumption expenditure is also showing slow growth.  But what is really significant about this discourse is to appeal the people at large to evaluate the current government’s performance on the basis of futuristic claims. Firstly, it reduces economic performances to the single metrics of GDP, the measure of which particularly as a measure of development has been debated and disputed on several counts. Secondly, the ranking on the basis of nominal GDP tries to cover up our dismal performances on account of other important parameters.

It may be possible given the trend of growth rate and the forecasts made by rating agencies for the coming three-four years that India becomes third largest economy by 2030. But most of these predictions talk about nominal GDP which is a combined effect of the real value addition and the rate of inflation during the reference year. If the output remains same while the prices rise, nominal GDP will increase but since inflation rates vary across countries, comparisons on the basis of nominal values of GDP don’t make sense. In fact, in constant 2015 dollar values, India’s GDP was ranking seventh in the world in 2014 and in 2022 in constant prices it ranks sixth but in nominal terms in both the years India was ranking fifth in the world.

GDP comparisons between countries are also done in purchasing power parity terms and in 2022, India’s GDP stood at 10.1 trillion dollars in constant 2017 international dollars in PPP terms and 11.9 trillion dollars in current international dollars in PPP terms. Most importantly while comparing big and small countries a gross measure is used by normalising GDP by population which is per capita income. Per capita income in a year shows the average income of a country. Undoubtedly like all averages this is a gross measure which does not capture inequality. If the population remains same, poor people’s income remaining same, if the rich earns more, the average would increase glossing over the fact that the income of the poor has not risen. But still if we assume that inequality remaining same across countries, a higher per capita income in country A than B is a better measure than comparing total incomes of these two countries given the fact that countries A and B may vary widely in terms of population.

Considering per capita income, currently USA’s per capita income is 30 times that of India’s and France and Germany’s and Japan’s per capita incomes are 19, 21 and more than 17 times that of India’s respectively. Considering developing economies, for instance, China’s per capita income was much less than that of India’s in 1970 but currently China’s per capita income is 5.5 times that of India’s. A small country such as Singapore has a per capita income more than 32 times that of India’s. Similarly, Brazil, Malaysia, South Africa and Vietnam have per capita incomes much higher than that of India. These facts at least suggest that in terms of average income at least these countries are better off than India, no denying the fact that the poor of all these countries might be actually earning much less than the respective averages.

It is also important to compare the two big countries of Asia, namely, China and India more closely in terms of how they evolved in terms of their productive capacities over the years. If we consider industrial productivity China’s average productivity currently is 4.7 times that of India’s and in services, the productivity in China is 2.7 times that of services productivity in India. More important point is China increased its industrial productivity by more than 11 times since 1991, while India could increase its labour productivity only by 2.2 times during the same period.

Comparisons on the basis of GDP numbers, even if we ignore the debates on the methodology of arriving at those numbers that erupted on several occasions, are nothing but posturing successes that hardly make any difference to the real lives of large section of the population. How do the two facts go together that even if India becomes the third largest economy of the world, it is also one of the most unequal country with one per cent of the rich accounting for 22 per cent of the income of our country while bottom 50 per cent share only 13 per cent of the national income. The inequality level is similar to that which existed during the pre-independence period. How does this assumed third largest rank affect the lives of the youth who are facing one of the highest levels of unemployment rates during the recent period?

It is also important to see that the growing economy experiences the sharpest decline in the share of working people in the national income in the past three decades. Unfortunately, chest thumping on the basis of absolute GDP figures comes from a country, where from belongs a Nobel Laureate Prof. Amartya Sen who argued that growing income is not a sufficient condition to ensure people’s well-being, instead Sen’s capability approach focuses on the direct achievements of individuals in terms of entitlements, capabilities and freedom in place of the standard parameters related to growth. The tall talk of becoming five-trillion-dollar-economy soon or becoming the third largest economy in the world by 2030 becomes grossly incongruous with the disconcerting fact that India ranked 111 among 125 countries in the world in terms of hunger index. Only Afghanistan, Haiti and 12 Sub-Saharan countries rank below India in terms of prevalence of hunger. Hence neither in terms of per capita income nor in terms of our productive capabilities nor on counts of human development parameters India had shown remarkable achievements in the past decades.