16 January 2019 07:43 PM



Beyond GDP, the Vast Constructive Work Mooted by Gandhi Beckons

When taken apart GDP growth is a composite monster

Recently, we were witness to the sorry spectacle of the country’s GDP figures being revised manipulatively by the current NDA government to show it had performed better on the economic front than the two previous UPA governments.

This was done in a clumsy, two-step exercise. First, it released a new series in 2015 with a revised base year of 2011/12, which gave the GDP a 2% bump over the old series. But now finding that even with that extra cushion its GDP rates were falling below the UPA period figures, the government produced a set of new back series numbers that rather ham-handedly lowered the GDP growth accomplishments of the UPA regime. It was a fairly blatant exercise in cooking statistics to aid a politically driven economic narrative.

Will this work, though?

All over the world people are realizing that GDP growth figures do not reflect the reality of their lives. While the GDP of a country may be growing, the lives of many of its people might be worsening economically. The notion that GDP numbers are a good way to measure the economic health of a country thus needs to be debated. Especially as GDP calculations are a somewhat clumsy toting up of economic activity, which involves using a variety of data sources and making a lot of estimations and assumptions.

To understand why GDP growth tells a shallow story about the health of the economy, it helps to understand the basic formula for calculating it. GDP is the sum of all private consumption (C), total gross investments (I), government spending (G), exports (X) less imports (M), i.e. GDP = C + I + G + (X-M).

Keeping this formula in mind helps contextualize the make-up of India’s 7-8% GDP growth. What has been happening, especially since demonetisation, the poorly executed GST rollout, and the inept pushing of a surveillance-like Aadhar regime, is a significant slow-down in investments (I). Especially private investments. The gap in exports and imports (X-M), though greatly cushioned by a prolonged period of low oil prices, has maintained a fairly steady level, and consumption (C) has risen largely because of population growth. In other words, per capita consumption has not improved much at all. So, what is really driving GDP growth is government expenditure (G). Almost 3% of the GDP growth figure is explained by raises in government salaries and other current expenditures at the central and state levels. Also, it is worth mentioning that India might be becoming a less productive economy since the important ‘I’ – investments – are declining in the private sector, where they tend to be more efficiently deployed than government and public-sector investments.

Moreover, this focus on GDP growth rates as the measure of India’s economic health hides three key economic realities.

One, whatever the growth rate of the economy, it is lop-sided. The income and consumption levels of the bottom two-thirds of the population have seen little if any growth. Most of the growth is among the better off one-third. All indices of inequality in India are worsening sharply. According to the World Inequality Report 2018 published by the Inequality Lab at the Paris School of Economics, income inequality has reached historically high levels with the share of national income accruing to India’s top 1% earners touching 22%, with the share of the top 10% at around 56%. The top 0.1% earners have captured more growth than all of those in the bottom 50% combined, and the middle 40% have seen relatively little growth in their incomes.

Two, whatever India’s GDP growth might be, it is just not leading to employment growth. This is a huge vikas problem. There have been all kinds of rows about job-creation figures to hide the fact that very few good jobs are actually being created. The State of Working India 2018 report by the Centre for Sustainable Employment (CSE) at Azim Premji University shows that the GDP growth rate of 7% is leading to less than a 1% improvement in employment. Moreover, this skew is unlikely to improve as the manufacturing and services sectors will continue to become more automated. According to this report, of India’s 467 million workforce in 2015, almost half (47%) were self-employed, 33% were casual workers, and only a meagre 17% were regular salaried workers. The study reported 16% unemployment for educated young people, which I suspect might be an understatement. Moreover, underemployment continues to be a problem across the country, especially amongst the self-employed.

Three, wage levels have remained low and have only grown slowly over the last three decades when compared to the rates of GDP growth that everyone is touting. We may be one of the fastest growing GDP economies, but when deconstructed, vikas appears to be chimeric for most Indians.

These are some key issues before the country as we turn the corner towards the 2019 general elections. Vikas was believed to have been the key driver for Modi’s 2014 political fortunes. Now what? There is every chance that the debate and deception around numbers and statistics about GDP growth, job creation and employment will only increase in the days to come. The spinners and weavers of narratives will be in great demand. We will see political parties pass the blame among themselves for the absence of vikas.

But, here’s the thing. The truth of the matter is that we really do need some honest and meaningful rethinking about what vikas actually means. People want and need jobs and income growth. It should be vikas that creates incomes and opportunities for many, not just a few. Vikas that is truly swachch (clean) and environmentally sensible. Vikas that works for farmers and people who live in villages as much as it does for people who live in towns and cities.

What should the Indian vikas model be?

Clearly, the economic models of both the UPA and NDA governments, which are inherently no different, are not doing the vikas job terribly well. In fact, given the relentless and often inchoate Nehru-bashing by the Modi-Shah leadership, we might as well hit the pause button, at least intellectually, on the vikas model that he started, which favoured centralized planning and heavy industry, and neglected farming, Gandhi’s village industries model and the work of All-India Village Industries Association (AIVIA) that Gandhi started with the brilliant US-trained economist, J.C. Kumarappa.

In a fine piece in the Indian Express (December 7, 2018) A Larger Freedom, Venu Madhav Govindu, professor of electrical engineering at IIS, Bengaluru, reminds us of Gandhi’s (MK not Rahul) ‘Constructive Program’ and his efforts to separate development from politics. It seems eerily relevant to be reminded today that Gandhi’s vikas model was a comprehensive one that encompassed a range of socio-economic interventions and included communal harmony, the removal of untouchability, the promotion of sanitation, khadi, village industries and basic education (nai talim).

If India had adopted this basic framework for its vikas, it may have avoided the crisis of its seventy-one-year experiment with development that assumed that the solution to rural poverty was industrial employment. It pushed a centralized model for development based in Yojna Bhavan in Delhi rather than a decentralized one with small producers in an AMUL-type co-operative marketing for scale effectiveness.

Two recent books on Gandhi remind us of his ideas. Ramchandra Guha’s outrageously heavy but very well-constructed book, GANDHI: The years that changed the world (1914 - 1948), and Pascal Alan Nazareth’s Gandhi: The Soul Force Warrior. Guha’s takes one to the time Gandhi lived in better than any other book I have ever read, and Nazareth’s book is a heart-felt and inspiring attempt to position Gandhi in a wider context.

Surely, Gandhi’s simple yet comprehensive ‘constructive program’ is a model for vikas, and might still be more sensible and relevant in India than an overly GDP-driven model of development. It is also instructive that Gandhi insisted on a complete separation of his political party (Congress) from the organisation that would drive the ‘constructive program’. He had the foresight that vikas should not become a political game among politicians.

The heightened wrangling about vikas and GDP and the construction of insincere narratives about them is clear evidence that for India to develop, we need a lot less politics about vikas and a lot more meaningful, constructive work. That we need a new, more robust framework, and a rethink about what vikas or development really means for India. I would argue that this must include communal harmony, the removal of caste-based stigma, sanitation, productive work for the 70% population that lives in villages (especially the 300 million or so of whom are landless agricultural workers and are mainly Dalits), a much better quality of basic education and health services.

What might a framework for development for India look like if, to borrow Gandhi’s phrase, it was called a ‘Constructive Program’, and if its end goal was not just economic vikas but wholesome vikas for all people, especially those who lived in villages and those who were poor and socially marginalised?

‘Constructive’ is the key word here – constructive politics and constructive integrated development, instead of the destruction of communal harmony and of our national institutions. Yes, we need to reform many of our institutions for greater efficiency and effectiveness, but we don’t need to repaint them a regressive and aggressive saffron.

Shakti Maira is a noted contemporary artist and author. His education and work experience encompass development economics, business management, art and aesthetics.