The irrelevance of Indian GDP estimates to most of our citizens

Synopsis: Economic recovery is unlikely to prove sustainable when most basic indicators of human development show a worsening of our situation.


Estimates of gross domestic product (GDP) for the first quarter of fiscal year 2021-22 were released on 31 August. This year’s first-quarter estimate shows a 20%-plus GDP growth.

However, the real issue is the relevance of GDP estimates as the sole or most important indicator of a recovery for an economy.

Why GDP growth cannot be a used as a sole indicator of an economic recovery?

It doesn’t capture informal sector data: India’s informal sector is not only a significant part of the overall economy, but is crucial for generating broad demand, given the significantly large proportion of our population that depends on it. However, GDP estimates hardly capture livelihood and income losses in the informal sector.

Stock market does not capture ground situation: Our real economy has been hampered by policy-induced shocks as well as a health calamity, our stock markets do not reflect a true picture of the economic ground reality.

Data from other sources confirms worsening of economic situation: Diverse data from official, unofficial and private sources confirms a worsening of the economic situation for most households.

Disruption in many sectors is not accounted in GDP: The pandemic and slowdown have not only impacted homes and individuals in terms of livelihood, but also on various aspects of human development.

Since the 2020 lockdown, disruptions in education, with significant numbers of students dropping out or unable to get educated, is unlikely to be reflected in GDP statistics.

So is the case with malnutrition and other health parameters. These are unlikely to see a recovery in the near future, but will cause irreparable long-term damage, unless they receive attention.

This failure to reflect the economic conditions of our population’s majority is partly a result of the way data on GDP is calculated, but also due to infirmities of the database itself.

What do the other sources of data indicate about India’s current economic situation?

Various official, unofficial and private sources of data confirm a worsening of the economic situation for most households. For instance:

Rise in distress employment: Periodic Labour Force Survey (PLFS), released in July 2021 showed a worsening of the employment scenario, with a rise in distress employment. After more than five decades, there has been an actual increase in the proportion of workers employed in agriculture.

Decline Wage rates:

In Agricultural occupations: Data on casual wages in rural areas from the labour bureau (available until June 2021) shows that real wages in agricultural occupations declined 0.8% in the past two years.

In Non-Agricultural occupations: The decline is much worse for non-agricultural occupations, with non-agricultural wages declining by 6.7% compared to last June. Clearly, 20%-plus GDP growth is irrelevant to most casual wageworkers in rural India.

Among better paid and protected workers: The PLFS 2019-20 data shows average regular real wages declining by 1.8% in rural zones, but increasing marginally by 0.4% in urban areas, compared to 2017-18.

Declining farmers income: Already suffering from low output prices, the majority of farmers have seen incomes decline as input costs rose (such as on diesel and fertilizers).

Must Read: Where’s the V-shaped recovery?

Source: This post is based on the article “The irrelevance of Indian GDP estimates to most of our citizens” published in Livemint on 10th September 2021.

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