The debate over India’s economic performance tends to veer towards one of two extremes. On the one hand, there are those who emphasize the robust rates of GDP growth over the past decade to the exclusion of all else. For the most extreme of these “9%-wallahs”, the fact that India’s economy has been growing at one of the fastest rates in the world means that concerns about poverty can be brushed under the carpet – or, at least, treated as something that will resolve themselves in due course. For their opponents – the “poverty-wallahs” – the continued existence of large numbers of the indigent and the dispossessed in post-liberalisation India is a clear indictment of the country’s economic structure and policies.
Of course, as most thoughtful readers will have realized long ago, the truth lies somewhere in the middle. It is this middle ground – one of analysis and nuance, rather than full-throated denunciations – that I am hoping to explore in these bi-weekly columns for Mint. Poverty existed before liberalization – the question is whether we measure it in a useful way, whether it has got better or worse, and whether we are happy with the rate at which poverty is falling (if there has indeed been a reduction). On the other hand, those familiar with the way GDP is defined and aware of the shortcomings inherent in any single measure of overall welfare know that paying attention to GDP growth is necessary, but fixating on it to the exclusion of all else is probably unwise.
Migrant workers in New Delhi. (File photo) ]
This column will dig a bit deeper into the debates of the day about this and other issues that crop up when talking about India’s economy and its place in the world, now and over the next few years and decades. From time to time, I may write about issues that are roiling the world economy, seen primarily (but not exclusively) through the prism of what they mean for India. And quite often, I am likely to drill deep into the microeconomic questions that speak to some of the “big issues” people care about, bringing in insights from a range of fascinating research at the boundaries of economics, development studies, psychology and political science.
One guiding principle of what I want to write about is that facts and figures are useful as long as one knows about how they are defined and measured, and is able to put them in the appropriate context. Take, for instance, something quite basic: India’s GDP growth rate, which has averaged somewhere in the neighbourhood of 8% per year over the past few years. Yet, it is not always clear that the discussion recognizes the nuances of how this number is calculated, and what it means. Some, for instance, tend to downplay this number by pointing to inflation – but these are real rates, that is, those calculated to strip out the effects of increases in the price level. (Nominal growth rates are, of course, much higher. In the most recent estimates released by the Central Statistical Organisation, for example, real GDP growth in the financial year 2010-11 is pegged at 8.5% - while GDP at current prices rose by 19.1%). This is a very basic point, but it needs emphasizing.
But context is also important. It is not, for instance, particularly helpful to compare India’s GDP growth rate to that of advanced countries and gloat over the fact that India is growing at around 8% while many parts of the rich world are crawling along at less than 2%. For one thing, India is a much poorer country, and so should be expected to grow much faster, all things considered, than much richer countries, which have already exhausted the scope for easy gains which economies like India are still exploiting. (The extent to which this business of poorer countries growing faster is actually borne out by the data is something I plan to return to soon).
But it also seems to me that the true implications of 8% growth, sustained over a significant number of years (as it may or may not be) are not sufficiently appreciated. Given 1.2% population growth, this average growth rate means that the average Indian will see his or her capacity to buy goods and services double in a little over ten years. That means that a child born today will – assuming that these trends are sustained – be able to expect a real income about 4 times that of an adult Indian today. This is remarkable – and unprecedented in India’s economic history. But it is important also to remember that (even at PPP conversion rates, which favour poor countries like India) this means that even assuming no big setbacks, crises, etc. the average Indian in 2030 will be about as well off as the average Turk or Bulgarian is today, and poorer than the average Mexican or Latvian is now. Whether the glass is half-empty or half-full is, therefore, all a question of where you look at it from. The aim of this column is to approach some of these issues from a relatively fresh angle.
Saugato Datta is a development economist and journalist. He has been a researcher at the World Bank, an economics writer at the Economist, and is now Vice-President for international development at ideas42, a behavioral-economics research and design lab based in Boston.