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We must focus on human development, not GDP growth

Photo: HTPremium
Photo: HT

  • Official statistics may point to an economic recovery but people’s actual conditions have worsened
  • The fact that GDP data hardly captures the real extent of depressed economic activity in the informal sector makes it irrelevant to a large population dependent on these activities

Estimates of gross domestic product (GDP) for the first quarter of fiscal year 2021-22 were released on 31 August. These were much anticipated, given that the first quarter of last year had seen unprecedented decline in GDP at 24.4%. This year’s first-quarter estimate was below expectations at 20.1%. Much of the discussion that has followed focused on whether the recovery has compensated for the loss of GDP, but also on whether the outlook for coming quarters is likely to be sustained. On both counts, there have been worrying signs based on several high-frequency indicators.

However, the real issue is the relevance of GDP estimates as the sole or most important indicator of a recovery for an economy that was slowing down even before the pandemic and was then devastated by it. A decline in economic activity, as captured by GDP data, is only one part of the distress caused by the slowdown and covid. The fact that GDP estimates hardly capture the extent of depressed economic activity in the informal sector makes it irrelevant to the cause of understanding the changing fortunes of workers and others who are dependent on these activities. India’s informal sector is not only a significant part of the overall economy, but is crucial for generating broad demand, given the significantly large proportion of our population that depends on it.

On the other hand, diverse data from official, unofficial and private sources confirms a worsening of the economic situation for most households, leave alone any indication of a recovery, as suggested by our national accounts. While the Periodic Labour Force Survey (PLFS) released last month showed a worsening of the employment scenario, with a rise in distress employment, the more worrying aspect is a structural retrogression in the employment structure. Most worrisome is a reversal of the trend of non-farm diversification. After more than five decades, we have seen an actual increase in the proportion of workers employed in agriculture.

Wage data offers more direct evidence of distress. Data on casual wages in rural areas from the labour bureau, available until June 2021, shows that real wages in agricultural occupations declined by 4.6% in the past year and 0.8% in the past two years. The decline is much worse for non-agricultural occupations, with non-agricultural wages declining by 6.7% compared to last June and by 1.8% compared to June 2019. Clearly, 20%-plus GDP growth is irrelevant to most casual wage workers in rural India. But even for better paid and protected workers, the PLFS 2019-20 data shows average regular real wages declining by 1.8% in rural zones, but increasing marginally by 0.4% in urban areas, compared to 2017-18. PLFS data for 2020-21 is not available but the pre-pandemic regular-wage downtrend is a grim reminder of the extent of misery in the economy.

Farmers have fared badly. Already suffering from low output prices, the majority of farmers have seen incomes decline as input costs rose (such as on diesel and fertilizers). Even though our farm sector appears relatively unaffected by covid, the ground reality of farmer incomes is at complete variance with the aggregate statistics from the national accounts. The failure to capture livelihood and income losses in the informal sector is only one aspect of our GDP data inadequacy. While our real economy has been battered by policy-induced shocks as well as a health calamity, our stock markets continue to defy all economic fundamentals.

This failure to reflect the economic conditions of our population’s majority is partly a result of the way data on GDP is calculated, but also due to infirmities of the database itself. But its limitations at the conceptual level are far more serious. The pandemic and slowdown have not only impacted homes and individuals in terms of livelihood, but also on various aspects of human development that are crucial for sustaining our growth momentum. Since the 2020 lockdown, disruptions in education, with significant numbers of students dropping out or unable to get educated, is unlikely to be reflected in GDP statistics. So is the case with malnutrition and other health parameters. These are unlikely to see a recovery in the near future, but will cause irreparable long-term damage, unless they receive the same attention that the usual economic indicators get.

Part of the reason these are unlikely to receive policy attention is an obsession with GDP growth, which is seen as the sine qua non for all policy interventions. The euphoria of an economic recovery is unlikely to prove sustainable when most basic indicators of human development show a worsening of our situation.

Himanshu is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi

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