What is GDP all about? Why is it so very important, and why do economists spend so much time in tracking it? As we discussed in an earlier post, the GDP growth rate is one way of understanding how much more we produced in a given period compared to the last one.
So more is always good, right?
Well… not quite.
It’s a question I struggle to answer in the context of GDP growth, because yes, growth is good, but with qualifiers. It’s a little bit like saying that speed is good where a car is concerned, but too much of it can be quite disastrous.
And in a book that I have started reading recently, I came across a way of thinking about GDP growth in India that I quite liked:
In this book, I define the objective of India’s economic development as rapid, inclusive, stable and sustainable growth of national income, within a political framework of liberal democracy
(emphasis in original)
The book in question is “India’s Long Road” by Vijay Joshi, with the subtitle being “The Search for Prosperity”. Vijay Joshi has done all kinds of awesome sauce things over a long and distinguished career, and a 500 word limit will not begin to do justice to his many accomplishments. Suffice it to say that reading this book is well worth your time if you are interested in India’s growth story.
But to go back to the quote above: the author is saying, as is everybody else, that growth is important, indeed crucial, from an Indian context. That’s the rapid part. However, we also need to make sure that the growth is inclusive. Which means it’s not just important to bake a larger cake, but it is also important to make sure that every gets a slice (and preferably, as equal a slice as possible). There are many ways to accomplish this, and we don’t always do a perfect job in this regard but here’s the most important bit: we have to bake a larger cake first! Distributing a very small cake equally isn’t the point.
Stable implies growth that happens in steady fashion, not haphazardly, not in fits and starts. Put another way, steady growth over a decade is better than rapid growth for the first five years and no growth for the other five. Listen closely, and you can hear the sound of every RBI governor alive nodding his head ever so vigorously.
Sustainable would mean environmentally friendly. That’s a separate book in and of itself, but what we want is a rapidly growing country that has breathable air, drinkable water and arable land 100 years from now. Some might say that’s a contradiction in terms, but we won’t wake that particular beast just yet.
And the last bit? …within the framework of liberal democracy is treated as being almost axiomatic by Vijay Joshi, and in my opinion, rightly so. Sure, we grow slower as a consequence of our choice of a liberal democracy, but if that’s the price for political freedom, it is certainly worth it.
But I’d much rather that we work towards achieving rapid, stable, sustainable and inclusive economic growth within the framework of a liberal democracy, than achieving rapid GDP growth.
It’s a longer definition, but a better target.