The Hollowness Of A $5-Trillion Economy

The Tribune     5th April 2021     Save    

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 102nd spot on the Global Hunger Index, 102nd on the Human Development Index, 4th from the bottom on the World Happiness Index, 141st on the Gender Equality Index, 142nd 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.