The Hollowness Of A $5-Trillion Economy

Context: In trying to achieve the goal of a $5-trillion economy, the government should ensure that the growth is inclusive.

Challenges in becoming a $5-trillion economy

• Target in itself is big: Not easy to reach $5 trillion by 2024-25 with present Real Gross Domestic Product (GDP) is only close to $2 trillion.
  • Growth of the Gross National Product (GNP) is not development: At best, the GNP per capita as a measure of the country’s output and well-being is growing in an extremely narrow sense.
  • In the convoluted world, a word like ‘Vikas, which is a loose translation in Hindi of ‘development, has come to mean more flyovers and expressways, some freebies, vanity projects and more contractor-driven projects.
  • For e.g., if the GNP per capita is growing at 6%, but the inflation is 7%, there cannot be any improvement in the economic well-being of the country.
• Threat of rising inequality: At present, 75 % of the wealth belongs to the top 10 % of the people; this will further worsen if a large part of the benefits of the growth goes to the top 10%.
  • The top 1% holds 45% of the country’s wealth!
  • Hurdles in income re-distribution by the State: Due to -
    • Powerful interests manipulating government policymaking.
    • Poor tax marksmanship: as India’s low tax-to-GDP ratio consistently demonstrates.
• Possibility of egregious consequences in trying to achieve the growth: If growth comes with an actual decline in employment, equality and the real income of the bottom 40 % of the population.
• Employment issues:
  • Impact of the pandemic: Nearly 31 million families have moved down from the middle class, and nearly 100 million people have lost jobs.
  • Lack of job creation: Industries that are most likely to create employment, i.e. the medium and small industries, are going down under and the large ones which do not create employment.
    • The 6 % productivity-linked incentive from the tax paid by the average taxpayers goes to large industries, further increasing inequality.
• Broken health and education system:
  • India stands at the 102^nd spot on the Global Hunger Index, 102^nd on the Human Development Index, 4^th from the bottom on the World Happiness Index, 141^st on the Gender Equality Index, 142^nd on the Poverty Index.
  • Thus a growth without improving health and education system will not improve the quality of life of the majority of the population.

Conclusion: Government should strategize growth and development where all essential objectives of development are met rather than trying to do distribution or waiting for trickle-down.

• Economist Jagdish Bhagwati has found that it is not growth per se but the type of growth that matters.
  • Whether the growth dividends go to a minority or are more distributed, whether they create employment and basic quality of life for the majority or get spent on what the elite want.
  • At least the following components will have to be there for equity and inclusiveness: distribution and access to food, shelter, health and protection; provision of more jobs; better education; and availability of economic and social choices.