Don’t Fall for the ‘GDP Growth’ Jumla Ahead of 2019 Elections

Video Editor: Mohd Ibrahim

Prime Minister Narendra Modi’s government treats Gross Domestic Product, or GDP, as the God of all economic success. Whenever challenged on the efficacy of its policies, it trots out a welter of statistics:

In 2018, we are projected to grow at 7.4 percent, the highest for an economy of our size in the world. Despite rising oil prices, inflation is within the mandated range. The government is firmly committed to the path of fiscal consolidation.

PM Narendra Modi at AIIB’s third Annual General Meeting

“The external sector remains robust. Our foreign exchange reserves of more than $400 billion provide us enough of a cushion. Total FDI flows have increased steadily – more than $222 billion have been received in the last four years,” the PM also said at the AIIB’s third AGM in Mumbai on 26 June 2018.

As is his wont, Modi cherry picked all the good stuff at AIIB’s AGM, but plenty of troublesome facts were left unsaid:

• Bad loans of Rs 10.3 lakh crore (11.6 percent) are projected to touch a crippling 12.2 percent by March 2019. While 701 cases have been submitted for bankruptcy resolution, only 176 have been resolved.
• Credit to large corporates grew at a mere 1 percent, year on year; so industrial growth recession continues, despite the 7.4 percent GDP growth

• Interest rates are reaching for the stratosphere, with the 10-year treasury breaching 8 percent, and AAA-rated borrowers picking up loans at north of 8.5 percent. These are not propitious for a pick-up in private investment, which is a condition precedent for sustained economic growth.
• The Current Account Deficit (CAD), which had moved to a surplus, is again blinking red at 2.5 percent. The rupee is at a historical low, shooting past Rs 69 to the US dollar. Foreigners have pulled out a record $7 billion dollars just in the current calendar year from the debt/equity markets.

Non-oil, non-gold trade deficit was just $1 billion in 2013-14. You know how much it has ballooned to now? $53 billion plus! Also FDI growth is at its lowest in the four years of the Modi government.

• The government has done a “phantom disinvestment” by forcing ONGC to pay Rs 35,000 crore for buying HPCL, both dominant public sector companies. So the cash has moved from one government pocket to another, without any genuine inflow.
• A similarly specious plan is being hatched for re-capitalising IDBI Bank’s battered balance sheet, with LIC picking up the tab. Air India’s sale proved an embarrassing cropper, without a single bidder. This is voodoo, band-aid policy-making!

In any case, GDP is a fuzzy and imprecise measure of economic health. It is always fixated on “more”, not “better”.

For example, if one person in each of India’s 26 crore households falls seriously ill, and spends Rs 5 lakh on hospitalisation under Modicare, the new universal health insurance scheme, India’s GDP would go up by 75 percent in one year! But if everybody is healthy and never visits a doctor, GDP falls!!

A polluting car that burns more fuel increases GDP, while a fuel-efficient car reduces it. These are fictional, exaggerated examples, but they do show you how perverse GDP calculations can often be.

Now Here’s the Most Crushing Fact

Guess which was that five-year period during which America’s GDP leapt by 75 percent, the UK’s by 27 percent and Germany’s by over 21 percent?

It was 1938-43, when the most brutal phase of World War II raged across the planet. Millions were killed, cities got bombed to rubble, ships were sunk, aircraft were crashed… but hey, enjoy, because the GDP of the warring nations swelled (with a bloody pride!)

Before I Go, My Postscript:

Don’t get me wrong. I am not panning GDP growth; the bulk of it does show up in a genuine improvement in living standards.

In fact, I am a great votary of rapid GDP accretion. But it is as much a Gross Economic Jumla (clever/specious promise) as the Gospel of Prosperity that Prime Minister Modi is making his 2019 re-election pitch.