CHANGING THE GROWTH PARADIGM

THE CONTEXT: Indian economy has not provided decent jobs despite impressive growth of GDP. More GDP does not improve the well-being of citizens if it does not put more income in their pockets.

ISSUES WITH GDP AS AN INDICATOR OF DEVELOPMENT

• Discrepancies in GDP Calculation: An analysis of the GDP expenditure components reveals a concerning trend where most elements have decreased as a percentage of There is an unexplained gap in the GDP calculation, which raises questions about the accuracy of the reported economic data.
• Fails to Capture Inequality: GDP cannot differentiate between an equal and an unequal society. As rising inequality is resulting in a rise in societal discontentment, policymakers will need to account for these issues when assessing development.
• Does Not Account for environmental degradation: Environmental degradation is a significant measure that the GDP does not account. The production of more goods adds to an economy’s GDP irrespective of the environmental damage suffered because of it.
• Does not cover standard of living: GDP is a rough indicator of a society’s standard of living, because it does not directly account for leisure, environmental quality, levels of health and education, or the positive or negative value that society may place on certain types of output.

ISSUES:

• Flawed model of economic progress: The health of a nation’s economy, cannot be determined by its size. GDP growth has become the dominant measure of the health of all economies. It has replaced “socialist” models which were concerned with conditions at the bottom. India is becoming one of the most unequal countries in the world with this flawed model of economic progress. There is no difference in GDP growth and structural conditions that cause inequitable growth since liberalisation era.
• Inclusive and sustainable development: All economies in the world develop through similar stages, according to economists. According to this theory of progress, India has not developed sufficiently because both industrialisation and urbanisation have been too slow.
• Fossil fuels and the modern economy: Fossil fuels are used in the production and the distribution of four foundational materials for modern civilization: steel, concrete, plastics, and food. It will take many decades to replace these basic materials, and fossil energy, in their production processes. Purely organic farming would require most of us to abandon cities and resettle villages which is a daunting task.

THE WAY FORWARD:

• Addressing global climate crisis: India must address the global climate crisis while growing its own economy to catch-up with developed countries. India must find a new paradigm of progress, for itself and for the world, for more inclusive and environmentally sustainable growth.
• Adopt Local solutions: The local systems solutions, cooperatively developed by communities in their own villages and towns, are the way to solve global systemic problems of climate change and inequitable economic growth. This was the “Gandhian” solution for India’s economic and social progress, which was set aside to adopt modern, western solutions for development since the 1950s.
• Refrain from western dominated theories of economics: India’s policymakers must free themselves from western-dominated theories of economics. Rather than trying to catch up with rich countries on their historical development paths, India should take advantage of its present realities. Rural Bharat can be a university for the world, producing innovations in institutions and policies for inclusive and sustainable growth.
• Need for Comprehensive Analysis: There is a need for comprehensive analysis by considering various growth indicators, such as Purchasing Managers’ Indices, Bank Credit Growth, and consumption patterns, to form a well-rounded view of the economic activity.
• Alternative Ways to Measure Development: There should be an alternative way to measure development. For example, Bhutan’s Gross National Happiness, which considers factors like equitable socio-economic development and good governance. UNDP’s Human Development Index (HDI), which encapsulates health and knowledge apart from economic prosperity.

THE CONCLUSION:

Economic growth should act as one instrument in an economy that prioritizes well-being and other welfare determinants rather than just calculating data. Thus, we need alternative metrics to complement GDP in order to get a more comprehensive view of development and ensure informed policy making that doesn’t exclusively prioritize economic growth.

UPSC PREVIOUS YEAR QUESTIONS

Q.1 Define potential GDP and explain its determinants. What are the factors that have been inhibiting India from realizing its potential GDP?(2020)

Q.2 Do you agree with the view that steady GDP growth and low inflation have left the Indian economy in good shape? Give reasons in support of your arguments.(2019)

MAINS PRACTICE QUESTIONS

Q.1 India’s policymakers must free themselves from western-dominated theories of economics and adapt to local solutions in order to achieve just and equitable society. Comment.

Source: https://www.thehindu.com/opinion/lead/changing-the-growth-paradigm/article67879540.ece