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The ‘Real’ Real GDP

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by Shobhika Puri  |  June 4th, 2010  |  Zee Business - Exclusive

The latest economic data showed that the GDP growth is on right track and is fast returning to the pre-crisis levels. But what about the growth and development on the ground? Does the common man stand to gain?

The government as well as the economists are rejoicing over India’s impressive economic numbers. We have achieved a 7.4 percent GDP growth for financial year 2009-10. Even more encouraging is the 8.6 percent increase in the January-March 2010 quarter. What makes it even more laudable is the fact that such strong numbers have come at a time when most of the other countries are going through tough times. The UPA-II government could not ask for anything better on its first anniversary in office.

India has achieved 7.4 percent growth in economic terms but what about the growth on the ground? Has there been a 7.4 percent increase in the quality of life that we are leading? Here is a look at the basics. Has the electricity or water supply gone up by 7.4 percent? Has there been an equivalent increase in the number of quality education institutes? Has there been a rise in the number of employment opportunities? Has there been an increase in our health benefits or health services? Has there been an improvement in our physical security? We are still as much prone to terrorist attacks as we were a year back. On the contrary, the threat from Maoists is actually increasing by the day at an alarming rate. Here, we can say that this rate could be 7.4 percent or, even more.

The economists are happy over the fact that they have been able to bring down the food price inflation from 20 percent in December 2009 to 16 percent now. But, for the common man, the food price inflation has been 100 percent or, even more. Prices of items of daily needs like pulses, fruits and vegetables have almost doubled. This is the real measure of inflation. Even if the government is able to bring down the economic food price inflation to single digits as is being promised, what would it translate into on the ground?

According to economic data, the impressive GDP numbers have been fuelled mainly by an increase in government and consumer spending. Surprising? For the common man, the reverse is true. Many households have actually cut down on expenses to keep their budgets balanced. And, an increase in government spending? The common man would wonder what the government is spending on? There seems to be no improvement in services like civic amenities, hospitals, infrastructure development, loans, schemes for the poor etc. Then, where has the government spent the increased sums of money?

The national per capita income at factor cost has increased by 10.5 percent but, once adjusted for inflation, it comes down to 5.6 percent. Is this the ground reality? For the common man, his expenses have increased on an average by 20 percent and income by 5 percent, which translates into a net loss of 15 percent! This is the real change in the per capita income and not what the economic numbers say.

In economic terms, Real GDP is the market value of all final goods and services produced in the country adjusted for changes in price and inflation. But, for the common man, ‘Real’ growth shall come once he sees growth on the ground. It is good to have macroeconomic measures, but nothing compares to the micro-level ground reality. The common man would not remember or even understand these economic terms but, what he understands is what he lives through every day. At times, it helps to simplify things. Big jargons and big numbers may sound impressive but they would be more attractive if they translate into ground reality. The government, irrespective of the ruling party, needs to understand this simple fact and work towards improving on the ground real growth numbers. Let those be a benchmark of success for real success to come.

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