Holistic gauge

Development indicators need to be reshuffled to go beyond mere growth goals and incorporate wider parameters

Ever since I was a student of economics at Delhi University, the growth versus equity debate has been at the centre stage of any discussion around development economics. Recently, I read an outstanding book titled “The Growth Delusion” by David Pilling which is a critique of overemphasis on the growth of GDP as an economic welfare measure across the world. India is no exception. The current budget boldly talks about economic growth as the goal to be achieved — based on the philosophy that only if the size of the cake is large, it can be distributed amongst maximum people. We hear the talk that India has already become the fifth largest economy and is soon likely to become the third-largest. The Government of India has set up an ambitious goal to achieve a USD five trillion economy by 2025. The UP government has also set a goal of a USD one trillion economy by that period. GDP is an indicator of the size of the economy but not of the wellbeing or quality of life of the people. Pilling has been severe in his comment when he says that all countries are obsessed with the rate of growth of GDP and put all their energy in chasing this chimera.

Despite growth in GDP, economies are witnessing rising inequalities. This has been highlighted in a famous book written by Thomas Piketty. We have also read the opposing viewpoints of eminent economists like Jagdish Bhagwati and Amartya Sen; the former emphasising growth and the latter talking about state intervention in public services like health and education to bring about genuine economic welfare. In India, over the years, we have witnessed jobless growth leading to an increasing rate of unemployment. Further, despite being one of the largest economies in the world, the per capita income of citizens is abysmally low, leaving us as a developing economy, far behind the developed world. There is still a lot of poverty and the second wave of the pandemic has exposed the poor quality of public health infrastructure in the country. Education and nutrition levels are far behind the developed countries and our rank in the Human Development Index is beyond 100. This clearly shows that growth by itself is not going to solve the problems of our country and we need inclusive growth. The latter requires specific state intervention in favour of the poor and the marginalised. This clearly indicates a need to have a broader index of development that goes beyond GDP and allows us to aspire for an improved quality of life for the people.

Pilling discussed various alternatives to GDP in his book. We could have goals for increasing per capita income or net domestic product. Then, we could have the Human Development Index as an indicator or evolve a Sustainability Index which would factor in the crucial environmental needs. He developed a matrix of economic, environmental and social indicators that can best bring out the status of quality of life in a country. Recently, India lost the World Test Championship to the tiny island nation New Zealand. I read an interesting article which tried to analyse the rise of New Zealand as a cricketing power by bringing out the differences in per capita income and various other social and economic indicators between New Zealand and India. The comparison held India in a very unfavourable light.

Most countries have added parameters other than GDP in their evaluation of development. The most significant has been the concept of Gross National Happiness developed by Bhutan. The utilitarian approach of the greatest happiness of the greatest number is not the solution as it ignores the problems of the minority and tends to perpetuate inequalities. Happiness economics has evolved as a discipline in itself, and 20th March has been declared as the International Happiness Day. India has unfortunately ranked 140 out of 156 countries on happiness indicator, with Denmark, Sweden, Norway and Switzerland being amongst the top nations. Happiness index accounts for GDP per capita, social support systems and healthy life expectancy, freedom to make life choices, generosity, trust and corruption levels. One can think of including more aspects of happiness in this indicator like the government of Bhutan which calculates gross national happiness on the basis of four pillars — promotion of sustainable development, preservation of cultural values, conservation of natural environment and establishment of good governance.

Currently, a new concept known as subjective well-being (SWB) is being used at the global level to measure the quality of life and the extent of happiness. SWB links happiness with life satisfaction which is a function of in-born temperament, fulfilment of basic needs and quality of social relationships. We all know that happiness has both internal and external causes. Internal happiness, of course, is a spiritual concept where happiness depends on inner contentment and the response of an individual to life situations. This is something that is influenced by the culture of the family of an individual and the spiritual practices that he follows. However, external happiness is determined, to a large extent, by the policies of the government. It is this external happiness that can be measured through an index and governments can influence this in a big way. Happiness can be defined as a state of being where there is a high level of satisfaction, positive feelings and infrequent negative feelings. External happiness depends upon a person having sufficient material resources like money, sufficient social resources like family and friends and a desirable society that is free of hunger, injustice, corruption and war; and is full of spirit of trust and cooperation. If the citizens of a country feel that they are leading a purposeful and meaningful life, and are optimistic about their current position and outlook for the future, then they can be considered to be high on the happiness index. The difference between the SWB approach and GDP is the focus on multiple dimensions of the human lives in the former. It is also true that if there are a large number of inequalities in society, particularly in the form of opportunities, then happiness decreases.

It is thus important that we are not caught in the GDP trap and focus on the larger issues of life which lead to a better quality of life for citizens and makes for a happy society. None other than the famous economist Simon Kuznets said, “The welfare of a nation can scarcely be inferred from a measurement of national income.” Robert Kennedy of the United States famously said, “GDP measures neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country; it measures everything but that which makes life worthwhile.” Human beings have to be at the centre of development policies. We have to evolve an index where we measure the quality of life that we are giving to the people. I would like to end this article by quoting David Pilling where he says towards the end of his book, “Growth was a great invention. Now get over it”.

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Measures for revival

Even as the economy starts limping back to normal, increased poverty and unemployment would require effective policy intervention

Mercifully, the disastrous Covid second wave, largely fueled by the delta variant, has begun to recede. It is time now to take stock of the impact that Covid has had on the lives and livelihood of the people. The numbers of cases, as well as the fatalities, were much higher during the second wave in comparison to the first. Almost all my friends have told me that someone near and dear to them has passed away due to Covid. The fear of Covid has entered every home. There was a period from mid-April to the first week of May when people were clamouring for oxygen, ICU beds, medicines and treatment. Even though I have retired from the civil service I recollect getting at least a dozen calls each day requesting help for getting someone admitted to a hospital. That was indeed a very traumatic period. One state government followed the other in imposing various degrees of lockdown to break the infection chain. Things are much better now with normalcy approaching, the lockdowns lifted in most states and economic activity limping back to normal. Of course, there is always the apprehension that the virus is not likely to disappear soon and may even come back for a third wave. The government is certainly not taking any chances this time and is likely to be better prepared. The people also would be more careful now.

The future would be determined by the pace, extent and efficacy of the vaccination campaign. The goal is to achieve the vaccination target by end of December as, only if the majority is vaccinated, will we be able to escape the scourge of the pandemic. Various policy options are being considered, debated and implemented. Normal life would return after the battle is won but the scars of the Covid will take years to disappear. The economy has been badly damaged. The year 2020-21 showed a negative GDP rate of -7.3 per cent and now the growth rate projected for 2021-22 has been scaled down even by the RBI to 9.5 per cent. This has impacted the level of unemployment in the economy. The finance ministry has come out clearly putting growth as its main objective in the current budget. However, the anticipated growth momentum has encountered a roadblock in the second wave. Economists and governments are banking on private consumption demand to pick up significantly after the lifting of lockdowns. We have to wait and see with what pace the economy will bounce back. The finance ministry has clearly stated that everything will depend on the pace of the vaccination process and talked about completing maximum vaccination by September end to push forward the growth of the economy. The government is planning to front-load its capital expenditure and also the private sector is planning major capex infusion. All this would certainly help but it remains to be seen to what extent this would raise the spirits of the economy and in how much time.

The CMIE report on unemployment in the Indian economy shows that as of June 17, 2021, the unemployment rate has been as high as 11.2 per cent with urban unemployment being at a staggering 13.9 per cent and rural unemployment at 10 per cent. The unemployment issue which was already troubling the youth before the onset of the pandemic has now assumed dangerous proportions with its consequential impact on the level of poverty. The poor and the marginalised, especially those in the informal economy, have been the worst hit. The State of Working India Report, 2021 prepared by Azim Premji University before the second wave had indicated issues of serious concern. The report proposes policy imperatives for the government to respond to the impact of Covid on the poor. Firstly, it is clear that the Central and state governments will have to focus on healthcare and education. The pandemic exposed the poor quality of health infrastructure in the rural areas which requires massive investment. The sector will assume greater importance in the coming decade and will be a major job provider.

Additionally, the government has to focus on increased poverty resulting from Covid. The Azim Premji report shows that despite the V-Shaped recovery after the first wave about fifteen million workers remained out of work and the per capita income remained below the pre-Covid level. The huge employment and income losses led to the labour share of GDP falling by over five percentage points to 27 per cent in the second quarter of 2021. Most of the decline in income was due to a reduction in earnings. It also came out that the poorer states suffered more in terms of job losses. The women and the young workers were disproportionately affected and many could not return to work even by the end of 2020. The report says that 33 per cent of workers in the 15-24 age group could not recover their employment by the end of the year.

The most significant finding of the above study was that monthly earnings for all workers fell and that of the poorer households declined more than the others. More than 230 million people were pushed into poverty with a 15 per cent increase in rural poverty and 20 per cent in urban poverty. This is indeed an alarming picture and negates all the poverty eradication efforts made since 1991. The challenge now is to provide gainful employment to these displaced people so that they can come out of the poverty trap. It becomes all the more significant as India is aiming to achieve the dream of a five-trillion-dollar economy by 2025. Agriculture has performed in a stable manner and has been the saving grace yet we have to see how this sector can generate more employment. Increased allocation for MGNREGA and more jobs to people on MGNREGA-related projects would certainly help. In addition, the agriculture sector has to be reformed and modernised with the aim to increase the income of the farmer. The Government of India has promised to double the income of the farmers by 2022. However, we are far away from this goal at the moment. A concentrated effort is required to bring out major reforms in the sector to increase the income of the farmer. The recently proposed structural reforms have run into heavy weather but are in the right direction and, with some modifications to protect the interest of the farmers, they can make a difference. Dairy and other animal husbandry projects can contribute to increasing the income of the farmer. Massive investment in storage and cold chain is required. To shift workers from farm to non-farm activities and discourage migration, there is an immediate need for setting up rural growth centers — each of those being a hub of rural industrialisation, particularly for the agro-processing sector.

A lot more needs to be done to support the worst-hit MSME sector. Merely giving loans will not suffice; a fiscal package of direct support is required because this sector has immense potential for employment. In particular, the services sectors like hospitality and tourism have been badly hit and need a special relief package for revival. The time for such a fiscal stimulus is now and should be done without any further delay. A major scheme for employment in the urban areas has to be implemented to cater to the issue of urban unemployment. Measures like increasing the old-age and widow pension and direct cash transfer to the poor can also bring about faster recovery. The impact of Covid on lives cannot be done away with but we can certainly take urgent steps to see that the livelihood of people is not threatened. The impact of Covid on poverty and unemployment needs to be seriously addressed.

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