There is a better way to capture the Growth picture

There is a better way to capture the Growth picture

Context:
• GDP estimates based on an outdated base would not adequately capture new activities being undertaken in the economy.
• Currently, India’s GDP base year is 2011-12, which may not capture recent economic activities and investments.

What is GDP?
• Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period.
• India’s GDP is calculated by the Central Statistics Office (CSO), which is part of the Ministry of Statistics and Program Implementation (MoSPI).

How does India calculate its GDP?
India calculates its Gross Domestic Product (GDP) using two different methods:
• Economic Activity (at factor cost): This method assesses the performance of eight different industries.
• Expenditure (at market prices): This method indicates how different areas of the economy are performing, such as trade, investments, and personal consumption
• The formula for calculating GDP using the expenditure method is:
• GDP=Consumption+Investment+Government Spending+(Exports - Imports)

What needs to be done to improve GDP measurement?
• Update the base year to capture new economic activities.
• Utilize GST and digital payment data for accuracy.
• Start the base year revision promptly.
• Create expert committees to guide the process.
• It is important to publish information pertaining to relevant surveys like consumer expenditure.

What are limitations of GDP method for measuring growth?
• Not a Welfare Measure: GDP doesn’t measure overall well-being or happiness. Rising GDP of a country does not necessarily mean the rise in the welfare of citizens. Simon Kuznets, who developed the concept of GDP, warned it was not a suitable measure of a country’s economic development.
• Weak Relationship Between Growth and Employment: Growth in GDP doesn’t assure proportional job creation. State of Working India (SWI 2023) report indicates that the connection between GDP growth and employment in India is weak.
• No Adjustment for Leisure Time: GDP ignores differences in work hours and leisure time.
• Misses Home Production: Doesn’t account for informal or home-based economic activity.
• Income Distribution: Doesn’t reflect income distribution within a country.
• Ignores Pollution Costs: Fails to factor in environmental or social costs.
• Non-monetary exchanges: Many activities in an economy are not evaluated in monetary terms.
• Externalities: Externalities refer to the benefits (or harms) a firm or an individual causes to another for which they are not paid (or penalized).
• Underground Economy: The underground economy (or black market) refers to cash and bartertransactions that are not formally recorded.
• Does not value intangibles: GDP does not take into account the economic value of the environment. It also does not value intangibles like leisure, quality of life etc.
• Gender disparities: Gender disparities are not reflected through GDP measure.

How to link GDP growth with better job creation in India?
• Focus on labour-intensive manufacturing, even for domestic consumption, to boost job creation.
• Develop diversified growth strategies that emphasize not just GDP growth but also the creation of highquality jobs and addressing employment elasticity.
• Explore opportunities in green manufacturing to reshape India’s industrial development in a sustainable manner.
• Implement National employment policy