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The Anachronism of GDP growth rate

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While trying to understand the meaning of the word 'economy', one comes across the following in the Oxford Dictionary: "Economy (from Greek oikonomos = household manager) is defined as the management of concerns and resources of a state (or business or household)". Quite reasonably 'concerns' will include the needs of the people, which may be apart from 'material needs', spiritual needs like freedom, opportunity and fulfillment.

A brief search on the internet yielded the detail that the economic indicator GDP (Gross Domestic Product) had its origin in 1932 with its creator Simon Kuznets himself describing it as inadequate. It is being increasingly recognized internationally that using the GDP as the chief economic indicator is highly unsatisfactory. It gives an idea of only one aspect of a nation's life namely the material aspect. It does not take into account the spiritual aspects of human well-being.

Attempts have been made to devise alternative indices for replacing GDP. HDI (Human Development Index) is one such index but it suffers from shortcomings similar to GDP. The idea of Gross National Happiness or Gross National Wellness (GNH or GNW) has been mooted and has been studied in depth by Med Yones (of IIM, Las Vegas, USA). He speaks of seven areas of human wellness: Economic, Environmental, Physical, Mental, Workplace, Social and Political wellness. Med Yones himself describes the method to assess the above seven measures in his paper.

Adoption of GNH as the chief economic indicator would emphasize comprehensive development of all aspects of human life. Presently the urban areas that contribute to high GDP suffer from poor environmental, mental and social wellness. The rural areas (where the contribution to GDP is far less), ironically, are better off as far as these three wellness are concerned but suffer from poor economic, physical and workplace wellness. Use of GNH to decide policies would, by taking into account all the seven aspects of wellness, lead to more balanced and meaningful development in both urban and rural areas.Â


The switch over from GDP to GNH needs political backing that can arise only from a sense of wisdom and statesmanship on the part of the Government of the day. However we find that GDP is still being talked about by the intelligentsia and the policy makers as virtually the only available economic indicator. It is stated with a certain pride that in spite of global economic problems, India would be able to maintain its growth rate (of GDP) at 8 to 9%. Such a short-sighted optimism has serious social consequences.

A serious but not so obvious consequence of "only GDP growth rate' is on the agricultural growth rate, which remains at 2 to 3% for the past several decades. This is in spite of the various rural development programs implemented by successive Governments. The reason for this is simple. Since rural areas are far less productive materially and since the policy makers go by material growth rate, rural development inevitably is at the bottom of the list of priorities for action at the highest level.Â

The solution for this is for the Government to adopt a comprehensive indicator like the GNH (as Bhutan has successfully done) and keep talking about improving the GNH rather than the GDP. This requires intellectual honesty and political vision. The recurring emphasis on GDP by the Government is a policy of convenience and lacks meaningful basis. Supporters of GDP may cite the example of China, which, having maintained high GDP growth rates has apparently become a dominant force at the global level.

If one takes a total view of China's economy, it may be seen to be predominantly a case of economic wellness with neglect of other aspects of wellness especially political wellness. India will be going in the reverse direction if it is fixated with economic wellness of the Chinese type. It is a question of time before China realizes that it is lagging behind in crucial aspects of wellness needed for the kind of development that leads to human well-being and fulfillment.Â

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Vijayaraghavan Padmanabhan is former Professor of Medicine, Madras Medical College. Based in Chennai, India. His interests include Spirituality, Politics, Economics and Medicine.

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