Monday, August 17, 2009

GDP and Beyond...

By Parag Gacche

At the end of every quarter, there is a great amount of speculation among policymakers, financial institutions, private companies etc about what the GDP numbers will be. This number is eagerly awaited by the governments as well. Why? Because it’s considered as the Nation’s report card on economic progress. So if it is seen that this particular number has increased, then obviously it is assumed that we are on the right path i.e. path towards progress. So if it is such an ‘important’ figure, then let us look at what exactly it is and more importantly what it is not.

Well, it is merely gross tally of products and services manufactured or provided in given financial term. Here is the gambit. There is clearly no distinction between whether they really add value to well being of the planet and whether they actually diminish it. There is inherent flawed assumption in calculating GDP that any monetary transaction leads to human well being.

“Marry your cleaning person, and you will make GDP fall”, this hilarious remark by one of the French Economist aptly sums up the inherent shortcoming of using GDP as a tool in gauging economic development of the Nation. It simply points to the fact that any activity which is outside the purview of monetary transactions will not be considered in this measure. If tomorrow my bike doesn’t work and if I take it to the nearby mechanic, then this will be termed as economic transaction but if I take my bike to one of my friends then such activity will not be considered as adding significantly to Nation’s GDP.

Thus even voluntary work does not get recognized in this method.

GDP treats depletion of natural resources as income. If something is destroyed and built then GDP will only take into account the process of rebuilding and not of destruction. It does not take any account of income distribution. So if the income level of top 5% of people in the country increases, GDP will eventually be termed as significant economic progress to all.

Well, I am not against calculating GDP, for that matter. What I am against is the importance given to it in the policy making decisions. It is made as a pivot around which entire decisions are made. But well beings of individuals depend upon plenty of other factors such as leisure time, environment conditions, health and distributive issues etc.

At last, any economic system should be judged based on whether it provides life enabling things to its participants e.g. food, clothes, shelter, adequate health facilities etc. or not and without any doubt that should be the benchmark.

Type rest of the post here
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