The GDP numbers for the October-December quarter of the fiscal year 2024 have been quickly touted by many as a sign of the current government’s performance.
GDP during the three months ending in December grew at 8.4%. The FY24 growth forecast has been increased to 7.6% from 7.3%.
Many observers approach quarterly GDP reports like tiger parents look forward to their children’s report cards. “Did my child come first? Did he get top marks?”
Looking gleefully at the quarterly GDP report, these “tiger parents” of our country were quick to proudly proclaim, “My country came first. And leave it at that.”
Yet, if we peel the growth numbers a bit, it’s not all great news.
Firstly, it was helped by a downward revision of last year’s GDP. One adjustment of the past year base number, and that makes this year’s level look better, automatically.
Second, agriculture sector growth was dismal at just 0.8%. Food grain production is likely to decline 6.1% over the full year. With over 50% of the population dependent on agriculture, farm sector growth is critical and cannot be left behind.
A third cause for concern is that private consumption grew at only 2.7%. Consumer product companies like Hindustan Unilever also reported muted growth in the December quarter, perhaps reflecting this trend. It also suggests that the bulk of the population either don’t have the money to spend on consumption or are saving a much larger part of their incomes. Considering the pressure on the poor and middle-class, the former is more likely than the latter.
Contrast this with another report that came out in the financial papers on the same day – premium beauty products are seeing an enormous growth. Retailers are reporting sales growth of 18% to 50%. The auto industry, too, reported that premium cars were selling faster than low-priced ones. These again point to the top of the pyramid being able to buy more luxury goods, while the common man still finds it very difficult to make ends meet.
Fourth, private consumption forms the bulk of the overall economic demand, and if that doesn’t grow fast across the board, eventually high investment levels could end up in unproductive surplus capacity.
Overall gross capital formation in the quarter grew at 11%, led by government investment. However, private investment still continues to struggle. According to CMIE, new investment proposal levels from the private sector have remained lower in the last nine years compared to the preceding 10 years.
What does all this tell us about the better-than-expected GDP growth statistics and the real status of our economy?
Make no mistake, rapid growth is necessary in an emerging economy like ours for us to take the steps towards a developed country. It gives us the wherewithal to invest in health, education, infrastructure, research and development, quality-competitiveness, sustainability etc. However, our current growth numbers don’t seem sufficient for us to achieve these goals.
History suggests that the region now primarily known as “India” was among the wealthiest in the world in ancient times, surpassing many contemporary developed regions. However, despite this wealth, much of the population lived in poverty, particularly the lower castes and tribal communities who were marginalised from prosperity. Education was accessible to only a privileged few. Moreover, the region lagged behind in adopting technological advancements that could have enhanced productivity and quality of life for its people.
Meanwhile, the rulers, such as the rajas and nizams, enjoyed lives of opulence that were unparalleled in comparison to much of the world.
Fast-forward to today. We need to ask whether economic growth is benefitting all sections of the population equally. Or are we again seeing a growing distance between the corporates (maharajas) and the common man?
In the 20th century, economics focused on the GDP growth statistics were a key indicator of economic health, alongside inflation. Hence, these statistics were given great importance.
In the 21st century, economic reporting requires a broader perspective. For instance, more focus needs to be put on equality and income distribution. What’s the growth of prosperity amongst the bottom 5-10%?
Additionally, attention needs to be given to employment and the share of women in the workforce.
Sustainability has become a paramount concern, needing greater focus. Have AQI levels come down? Has afforestation gone up? Is water pollution being better controlled?
“What gets measured, gets managed” is a saying in business that is well-applicable in economy-management as well. How might we get quarterly measures and reports on these alongside GDP and inflation reports?
Prakash Nedungadi is a former president of Madura Garments and stood for the Karnataka assembly elections from Central Bengaluru on an AAP ticket.
