arlier this week, this newspaper made an interesting comparison of GDP growth under various prime ministers of India. This came after the National Statistics Commission revised the methodology for calculating GDP, which in turn led to upward revisions of GDP growth rates under past UPA rule.
And then something surprising happened. Perhaps for the first time in modern India, where cows can lead headlines, GDP growth also became an intense political issue. This is indeed refreshing for those few who care for the economy above anything else.
A slugfest ensued on social media. Congress and BJP fans sparred, this time not discussing issues like cows, but the GDP! To me, that alone is huge progress for the nation.
GDP arguments ranged from ‘mine is better than yours’ to ‘your data is suspect’ to ‘you just got lucky’ to ‘we set up the growth you enjoyed’ and finally to ‘who cares about GDP anyway?’ Well, let’s just address the last one, once and for all. Does GDP, or GDP growth matter? The answer is a big capital YES!
Although calculating GDP is a highly technical subject, it is a measure of all the goods and services being produced in the country. It is a measure of economic activity, and the total income of the country.
It is not a perfect measure. It doesn’t measure inequality for instance. However, GDP is used to calculate per capita income, a strong indicator of standard of living in a society. The day our per capita GDP reaches those of European countries or the US, we will be considered a developed nation.
Hence, despite its limitations and haters, GDP and GDP growth are extremely important measures. It is almost as important as cows (OK, that was a joke).
Anyway, so what did the PM-wise GDP growth report card say? Sadly, the pre-liberalisation PMs, Jawaharlal Nehru and Indira Gandhi only oversaw a 4.1% average growth. Even Narasimha Rao, under whose regime the 1991 liberalisation finally began, could only manage a 5.1% growth. AB Vajpayee, seen by many as a great administrator, also averaged only 5.7%.
Only two PMs stand out in terms of high growth. One was Manmohan Singh, the quiet student who tops the class with a stellar 8.0% average growth over a decade – no mean feat. The second is current PM Narendra Modi, who has averaged around 7.3% growth. It is a reasonable number, although still less than MMS, and expectations raised in 2014.
Experts have explained the reasons. The focus of the Modi government was not growth – it seemed to be tax reform. Both demonetisation and GST, while intended to make people follow rules, came at the expense of growth.
It is something like a street full of illegal food hawkers. They may do brisk business. If you suddenly apply rules and ask them to get proper licences, the overall business may slow down a bit for a while, isn’t it? On that basis, the growth that’s lower by 0.7% (7.3% vs 8%) is not that bad.
Finance minister Arun Jaitley has gone on to say that UPA’s growth was also higher due to indiscriminate lending by PSU banks. These banks threw money at bad projects, which delivered growth as the money was spent, but didn’t really yield any returns. This may have some truth in it, although it isn’t clear if such indiscriminate lending has stopped.
The current regime’s growth may not be bad compared to the UPA – the difference of 0.7% is modest, and the methodology has been questioned anyway. However, where the current government has underperformed is with regard to expectations of a surge in growth – far beyond the UPA.
These expectations came due to a unique set of circumstances – a massive mandate, an entrepreneurial ‘Gujarati’ mindset of the PM, the platform of reduced corruption and ‘vikas’ on which BJP came to power. Compared to these expectations, growth has certainly fallen short.
Does it matter politically? Well, to a certain extent yes. This is for two main reasons.
One, GDP growth does translate to real life issues on the ground. Higher growth leads to more jobs and higher salaries. Those who didn’t see that in the current regime may feel a bit disappointed.
The second, and equally important reason for BJP to deliver higher growth is to get support from a section of the intellectual and higher-end media that it traditionally never gets. In terms of social justice, BJP is often shunned by traditional English language socialist-liberal media. Hence, the only pocket of support BJP can get in this tiny but influential set of smart, aspirational people is if they deliver better on the economy.
Hence, though the 7.3% growth is not bad, a clear 9% that would be higher than UPA’s 8% would have added a solid feather in BJP’s cap.
It can still be done. BJP could shift gears from monitoring the kids to letting things go a bit more. Truly liberalising – the giving up of control and making business rules simpler, consistent and interference free can easily bump up our growth.
This will help citizens improve their standard of living, make people believe BJP provides better governance and finally help BJP gain more support in the English media.
Meanwhile, while MMS should celebrate being the PM with the most so far, we should celebrate something else as well – that GDP has begun to matter. Almost as much as cows. Moo!