The whirlpool of India’s GDP

by | Sep 15, 2019

Everybody is crying out about an impending slowdown. Headlines like those of the GDP growth plummeting, the stock market nose-diving, nobody buying cars any more, and so many thousands losing their jobs, are appearing everywhere. When an economy registers negative GDP growth for two or more consecutive quarters, it could be termed as a recession. The three sectors crying out the loudest – finance, real estate and automobile – their growth can’t continue forever. The sky can’t be clear all 365 days! 

Whose growth does the GDP indicate? If it is only certain sectors of the economy, crying wolf is no good. The wolf has already been here. It was silently feasting upon smallholder farmers and daily wage earners, when people were buying high-rise flats and cars, using EMIs. The loan default at Infrastructure Leasing & Financial Services Limited (IL&FS) last year was the trailer of the liquidity crunch film that is now hitting screens. 

Most of the GDP rise has come from consumer goods. Consumption growth has been aided and abetted by the rise in personal lending. How much you earn is no more the question people ask. How much you spend is what they are interested in. Money has lost much of its meaning as a means to buy services and products with credit flowing in the veins of the economy. Money itself has become a commodity in the era of financialism. 

Unlike in capitalism where money is used as capital to produce goods and services; in financialism, money is used to grow more money. Credit has penetrated every aspect of human life – from childbirth, schooling, and housing to holidaying, wining-dinning, and getting beauty treatments using credit cards. Living beyond one’s means has become the culture. So what happens when your salary that pays for the EMIs and credit card dues gets hit, or is lost altogether? Reality bites, it is biting now.  

Young people mistakenly thought that their higher pay packages, coming out of a larger GDP and the rising Sensex, were correlated with a higher quality of life and more happiness. High packages brought with them their own lifestyle trappings. A large number of the young people are now finding that this was true only up to a certain income level, after that the large income is indeed a trap of lifetime slavery to the creditors. Beyond a certain income level, additional increases in income do not bring higher quality of life.

Young French President Nicolas Sarkozy (b. 1955) in 2009 commissioned a panel led by Nobel laureate economist Joseph Stiglitz (b. 1943) to examine the issue of recession as he found “a dangerous gulf of incomprehension between experts sure of their knowledge and citizens whose experience of life is completely out of sync with the story told by the data.” India is very different. Our leaders are know-all types and our experts can derive multiple conclusions on the same set of data. 

The inventor of GDP, Nobel laureate economist Simon Kuznets (1901-1985) was uneasy about a measure that treated all production equally. He wanted to subtract, rather than add, things he considered detrimental to human well-being, such as arms, financial speculation and advertising. But GDP as it is now calculated makes no distinction between the tariff of a hotel room or a hospital bed, the price of a bottle of whiskey or milk, and charity or gambling. The more the business, of whatever type, is seen as good.   

Robert Kennedy (1925–1968) famously took pity on GDP politics, saying, “It counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman’s rifle and Speck’s knife, and the television programs which glorify violence in order to sell toys to our children. Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials.”

The New India should not get trapped in the GDP game played by a few for the benefit of a few. For long, tax payers’ money was used to create wealth for a few – let some of them be sobered down. Many people abandoned their small towns and parents there to metro cities and opted for unsustainable lifestyles – let those be moderated. If the stock market falls, the nation will not fall with it. Three-fourth of the Indian people are living at a level from where only rise is possible. The crash of some peaks, and the bursting of some bubbles, as GDP declines will not cause an earthquake.

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37 Comments

  1. Thoughts very well penned down showcasing on ground realty of the game called GDP. Country should focus more on products which fulfils daily needs with better pricing. With this GDP growth might be minimal or stagnant but lives of people will be much better. And other side data indicates that the tax payers are increasing day by day which will have a positive impact on the GDP y-o-y.

  2. Awesome and nice assessment Sir. But still some people who love to tell without judgement, they are thinking that negative. But hope, all will understand and accept this well. Nicely explained!

  3. It seems like all the major economies are addicted to debt. Currency wars appear on the horizon. The future offers tremendous growth opportunities with the emergence of AI, blockchain, and robotics. India has a unique opportunity to replace China in the global supply chain. Hope the leaders see the potential!

  4. Deep thinking Arunji on the real aspects of GDP in human life rather than the pure Economics perspective. We loose track of what is more important. Like western world we have also become habitual to instant gratification and “enjoy now pay latter”, without thinking of the consequences and the sustainability of our decisions. We must have what our neighbour has got or what my friends have got…. As they say today’s middle class men have all what Akbar Badhshah did not have (He did not have TV, Fridge, Car Internet, Computer, cell phone etc etc.) and still we are not happy. Simpler life gives real Happiness. The world is going thru a transformational change which no single country has a control and the initial reaction is going to be that of a shock !! Hope the New world will bring more opportunities and happier life.

  5. Very rightly said! The fancy jobs and job titles have lured the youth into a trap. We get inspired by the glam and glitz as we associate it with the way of living. Spending more has become directly proportional to being more affluent because everyone wants to create their own brand. Then, be it at the cost of a credit card! The earlier system where owing anything meant earning it is not valid anymore. You can own a yacht as well, thanks to the EMI culture. From house to car to bike to even clothes, everything appears to be affordable to our generation. We only own a house but we never question ourselves whether we have also earned it. Out parents or the previous generations valued every penny, for they bought the necessity or luxuries on the basis of how much they earned and saved; but we… we earn, spend and repeat!

  6. Very valid observations. The majority of Indians are clueless about GDP. For them Survival is a struggle and they are everyday struggling to survive. And with Financialism making money another commodity, we see even people with high salaries getting added to the list.

    Credit is spending money which you still haven’t earned. When people get into the EMI trap, they are actually entering a cycle where they earning only to pay off debt. This is one of the prime reasons for people facing burnout.

    Bhagwaan Swaminarayan says in the Vachnamrut, one who spends more than what he earns is seriously courting trouble, and we see innumerable examples everyday.

    For people who are living within their means, GDP still spells Growth.

  7. Prof Tiwari thank you so much for your candid reflection on the famed GDP and what it does to people’s ego and what it does not do to people’s real life from day to day. A measure that reflects the truth on what people have and are able to spend in sustaining their livelihood is an urgent need, like you correctly said ‘the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials’ what addresses these factors will make us all smile or mourn, after all the Universal Health Coverage position advocated by the World Health Organization is built on the foundation of ‘leaving no one behind’.

  8. The GDP as an indicator of the financial health of the country, has been used as football, by the successive Govts to buttress their credibility. It do not reflect the ground realty though, as the major part of the Economy is still in the unorganised sector, and parallel economy is rampart. Similarly the figures of the Unemployment are also unreliable. On the ground you will have difficulty in finding the hardworking and deserving candidates for the various jobs.

  9. The elite nature of your thought process and the richness of your expression are very evident in your blog. The first read on the “ The whirlwind of India’s GDP” gave us a fresh and new insights. Very appealing to read on. Rightly brought out that recently the GDP has been a prank on the Indian public to benefit a few. The well being of the citizens in terms of standard of living, welfare, education, healthcare etc should also manifest the change as in the growth of GDP, else it remains a misnomer. Debt trappings due to beyond means of credit lifestyle are again some avoidable compulsions. There is an urgent need to uplift the Major section of Indian public and thrust on reforms is a necessary mandate bringing ‘achhe din’ for the Indian Economy & amp; Indians.

  10. GDP, the classic hallmark of success is just an approximate estimate of welfare and not an adequate gauge of a country’s development and I totally agree with the views expressed. Whatever be the reason behind the slowing urban consumption, the one point that I would like to insist is that GDP per capita should be correlated with other factors that contribute to wholesome welfare of citizens. Urgent structural reforms by the government are a necessity, we all understand. Welfare measures and policies shouldn’t contradict one another is my idea of a robust economy. For instance, analysing the effects of ride-sharing on Auto Industry and possible solutions should not upset the environmental concerns. The volume of car sales is a determinant of financial success only for manufacturers, dealers and financiers. The environment impact assessment scenario of India tells us a different story. GDP being a measure of economic prosperity, it must rise proportionately with other welfare indices and holistically with natural capital.

  11. I really appreciate view of futuristic economy of India given by Arunji. Narendra Modi government follows Shri Dindayal Upadhyay Ekatma Manav Darshan based economic policy. Under that we will definitely see the result that India is gaining its economic equality among all sectors and people. India will follow the growth based on sustainability. More than 60% population will be under middle class and actual force of economy. Minimum government maximum governance which will definitely encouragement MSME industries. Government rule to establish business and make a profit government should have to design policy and take care with efficient implementation and give level play ground for local players. Within next five years India will definitely realise this all on ground which is now we just observe under the new policy.

  12. Very well written Arun Ji. You have pulled so many points together which are causative agents for fascination with GDP.

    I have read story about demon who could eat anything and finally left nothing to eat so had to eat himself and this fascination has taken many countries in that path. Capitalism has good side that is creating value for community and make profit by enhancing quality of of life. But today except profit – everything is lost. In stock market era- nothing else matters and if you loose profits then even when you are important entity , you have no future. It seems world is loosing common sense.

    People or entities become outdated in over period and then they struggle for their existence and at one point entities try to do everything in their power to stay alive. Manipulation of consumer is one of the easier tool to keep existing or flourishing and keep exploiting instead of creating any value..

  13. Sensex and GDP have become an obsession with Indians, particularly working in hi-tech sector, and I am one among them, in recent years; GDP growth is a sexy metric that starts and ends every conversation about the economy, supposedly a panacea for all ills plaguing our country. Now I see our politicians enamoured by this.

    When I sit in any ‘joint’ in ‘hi-tech’ city, famous for buy 1-get one free beer deals during what is called ‘happy hours’ this is what normally discussed. The truth is the rise in productivity has lately been rather muted, especially in Western economies, and those who are working for them, sitting here in India.

    Many companies who made huge profits derived increasingly from economic rents rather than through greater efficiency, gaming of political rules and regulations plays are facing heat, and melting. The Ding-Dong swing of GDP affects most, what London School of Economics Professor David Graeber called ‘the bullshit jobs’.

  14. Without the injection of extra money, people are always forced to choose between items. Growing GDP by distributing loans to buy houses and cars creating demand that otherwise would not exist, is very dangerous game. Let India focus on improved products and lower prices, because as the volume and quality of production increases the total money value of them must remain the same. Even if GDP growth is nil, life will be much better for everyone.

  15. Excellently penned Sri Arun Tiwariji. All this while, I was not convinced & unable to digest this whole hue and cry about GDP & economic slowdown. Now your blog has added amazing clarity and acted as positive arm in shot fir me on my perspective of things.

    “The crash of some peaks, and the bursting of some bubbles, as GDP declines will not cause an earthquake.” – This sums up everything for me.

    With your scholarly pointers, wish that this blog provokes some right perspectives and positive understanding in the minds of self-proclaimed economic experts, come-what-may critics of present government & ever-loosing-credibility media actors.

    The numbers (be it GDP or Stock market indices or anything else) cannot grow forever all the time. However, as long as the policies are made considering larger good of maximum people from long term perspectives rather than just luring masses with some cheap throwaways, all the numbers will fall in right place at the right time..

  16. What is happening now is – lets play ‘GDP-GDP’. Experts and politicians are having fun. In the process, they, unfortunately, are causing demoralizing influence on the ignorant masses. I had read somewhere – ‘torture the numbers and they will admit any anything’ (this has reference to your mention – ‘….. our experts can derive multiple conclusions on the same set of data.). There is a post comparing industry and agriculture being circulated in WhatApps, which goes like this – ‘ If cars valued at Rs 10 lakh do not sell for Rs. 10 lakh, sell them for lower value say Rs 4 lakh. Don’t farmers sell their onions valued at Rs 20 per kg for Rs. 2 per kg, when there is slump in the market. The same happens with other agricultural commodities. Farmers don’t stop doing agriculture. Then, why close factories/companies’? Is it not the game of demand and supply!). You rightly said the sky can’t be clear all 365 days. Ups and downs are part of any enterprise.

    Skill upgrade (in the light of new and changing technologies), resolving NPAs of the bank and recovery of loans from absconders, and identifying and dislodging benami properties etc. are some of the steps that will create positive sentiments among the public giving stimulus to the economy. National economy and climate are interlinked at the global level. What happens in country A affects all other countries in the world. We cannot insulate ourselves from the influence of these changes. Looking at the present global economic scenario, a GDP of 5% is not bad. I agree we could do better.

  17. A very succinct explanation of our Indian economy, which reflects that it is affected by the global crisis which the world is experiencing. We pray and hope that Governments will become more proactive to address this crisis. Somehow the rich are becoming richer and the poor becoming poorer. We need governments that are Pro-poor and be free of corruption. Comparatively India is still doing better than most economies. Thank you for your deep insights into the economic systems, it is indeed thought provoking. Continue the good work Prof Tiwari.

  18. As a nation, we have been (even today) using multiple models of development and growth which didn’t worked anywhere /most of the places in the world. For example Socialist model of economics till 199o,which made us more and more vulnerable to the extent that we were about to be (declared) bankrupt.
    Same goes with the GDP calculation methodology…. Thanks Arun sir for such invigorating and wonderful piece on this issue.

  19. Beautifully explained the fact of GDP and our lifestyle, Sir …
    We must accept another fact that such variations occur after every 4/5 years or so. One or two sectors can’t the basis of such hue and cry … also we must understand that in all major sectors new players are joining regularly…. existing giants have to give them sone share.

  20. People care more about relative than absolute wealth. People in villages are happier than people of the cities. In cities as a minority have become richer, the majority have grown more miserable. Pedestrians trying to walk on road curse traffic jams and with that cars and people sitting in them.

    When a professor of European politics at King’s College London, mentioned the standard economists’ view that a vote for Brexit would damage Britain’s gross domestic product. A woman in the audience heckled back, “That’s your bloody GDP. Not ours.”

  21. I think certain sectors like Real estate and automobile etc have grown too fast last few years. When growth is steady, it sustains. But when the curve rises fast, there will be a saturation .I think, that is the period we are passing through. So nothing to worry . GDP of 5% doesn’t reflect the actual situation on the ground.

  22. Sir, Today’s gold price is the best indicator of Indian economy. If people with money think the economy is doing poorly, then they will buy more gold. If they think the economy is doing well, they will buy shares. Also when the economy expands, gold is sold, when it shrinks it is bought. The recent rise in price of gold – 31,500 at the start of the year to the current levels of around 38,000 per 10 gram – is the no-confidence vote of people for what our leaders and experts are telling.

  23. Well thought ideas about Indian Economic Environment. Unsustainable lifestyles is the one of the key problems as you rightly mentioned sir. I think declining of GDP is a temporary phenomena. Hope things will improve slowly unless remedial actions are taken positively by government. Your ideas are great sir and in depth. Narrations are amazing. Keep sharing your ideas sir to transform your knowledge and experiences to the people.

  24. You have explained a complex situation lucidly by giving real life examples. A common Indian citizen only bother about availability of their basic necessities at nominal price.

  25. Thanks a lot Sir for writing an article which includes basics of GDP and then you have very beautifully explained reality of confusion created by some sections and how much slow down in economy can affect common people.

  26. Sir, your blog reminds me the broken window fallacy made famous by 19th-century French economist Frederic Bastiat. In Bastiat’s tale, a boy breaks a window. The townspeople looking on decide that the boy has actually done the community a service because his father will have to pay the town’s glazier to replace the broken pane. The glazier will then spend the extra money on something else, jump-starting the local economy. The onlookers come to believe that breaking windows stimulates the economy.

    GDP can increase after a car accident or a major flood. GDP can grow rapidly during a war or after a terrorist attack. All that is business just might boost GDP and make certain rich people richer but may not be good for the ordinary people. As your very rightly pointed out from the situation where three fourth Indians are, they will only rise, whether GDP rises or not.

  27. Wow- what a positive and forward looking approach on current GDP declining, the stock market going down, people not buying cars or taking loans, etc. You have described very neatly that some crash of few peaks and bursting of some bubbles will not cause an earthquake, especially when we have 3/4th of Indian people living at a level from where only rise is possible.

    I am also wondering, though not directly related to this article, why we dont see any news in media or concerns from intellectuals when farmers have to sell their produce at 1/10th price – at that time they are told/ I have heard that this is demand & supply that determines the price.. in that case, can car companies start to sell their cars at lower price, and builders can sell their flats at lower price? As mentioned by Dr Arun Tiwari in the article, we get more concerned with crashing of few peaks and dont pay attention to larger proportion.

    Another point – should we not talk about GNH- Gross National Happiness, the term was first coined by the 4th King of Bhutan, King Jigme Singye Wangchuck, in 1972. He declared, “Gross National Happiness is more important than Gross Domestic Product.” The concept implies that sustainable development should take a holistic approach towards notions of progress and give equal importance to non-economic aspects of wellbeing. If we start to measure and work towards higher GNH in India, we will be a much more happy and self content society- we will not be running after higher pay packages, and will not be worried with Sensex going down!

    Let me congratulate you, Dr Tiwari sir for very comprehensive article and thank you for sharing your thoughts with us.

  28. I think there should be more emphasis on responsible consumption among citizens along with greener and equitable patterns of economic development. Sustainable life style should be promoted. This will require a change in our social ideals, thought processes and behaviours.

  29. The problem with gross domestic product is the gross part of it; every thing is added up. A train crash which generates 100 crore worth of track repairs, medical bills and funeral costs is deemed by this measure as beneficial as an uninterrupted service which generates 100 crore in ticket sales. GDP is the game of rich people to get richer by whatever means.

    I like these lines most: “If the stock market falls, the nation will not fall with it. Three-fourth of the Indian people are living at a level from where only rise is possible. The crash of some peaks, and the bursting of some bubbles, as GDP declines will not cause an earthquake.” Our cities have too many vehicles on road; let fewer of them added for a while!

  30. Arunji this is an excellent review on GDP and cry for falacy for declining GDP. It is very truly said that thick pay packages has made few a slave of life style and others try to follow the life style beyond means. When 70,% of India is in rural how a fall in GDP that is based on car sale or drop in real esstate will affect?. What is needed is to fix the upper limit of pay scale to minimize the unequinomity among the people with same competence and try to develop economy like NORDIC countries.

  31. Sir, As you rightly said we should not fall into this GDP trap as it will not greatly effect the life styles of the middle class, salaried class and crores of people living in villages. When formers are committing suicides, we will not react the media will not make a big news item. But when there is a slowdown in automobile sector big write ups, stories are carried out in all the major publications and TV channels. This slow down in fact will reduce the ever increasing traffic jams, pollution and most importantly foreign reserves will be saved because of reducing imports in crude oil. But no one talks about slowdown in real estate which effects employment and growth of 45 other ancillary sectors depending on real estate. While most of the governments unable to reduce the shortage in housing, it is the real estate sector that is working since independence for meeting the housing demand.

  32. I feel we grew as a nation modernising ourself following the path of western countries but left behind the values our forefathers gave us. This included spending what is left after savings and not saving what is left after we spent. The last time a global recession came every country in world got hit except India. We gave world a solution that savings can give you power to fight extremities of slowdown. Right now we are empty pocketed inspite of earning more, courtesy banks providing credit cards and loans. So even a small jerk will be like a huge tsunami or volcanic eruption causing catastrophic damages. Sir your perception are very true to reality and such a vision can be achieved only through experience and knowledge.

  33. You have very nicely narrated voice of common Bharateey people Sir. A large section of class one employee of India even doesn’t know GDP and stock markets nor they bother about. Honest are struggling to meet their daily neccessary needs. Evolutionarily, we possess thrifty attitude and biologically thrifty phenotyes. New millennials who acquired wolf stinct are certainly bothered about this current down falls. Because they have to compromise. Rest Bharat Vashee are unpurturbed. Some times they should learn to enjoy fasting. It is good for health medical science says

  34. I agree to your blog. We have adopted an unsustainable lifestyle.
    India’s economy has moved out from an agricultural one (and a sustabinable one) to a manufacturing one. It is high time we move back. Short term ‘joys’ are indeed short lived. With its large natural resources, let us make that sector robust so that we prosper in our own terms ( when the British conquered India, we had the best of the world’s wealth) rather than ape what the other countries do or have done.

  35. Very well described Sir, I believe more than 70% of Indian population is living a middle class lifestyle and have nothing to do with car purchase or big big stuff. For most of them what matters is cost of daily commodity, if it is affordable and the corruption is under control they are happy.
    The good thing I observed these days is that the prices of most of things are under control and the tax payers are increasing day by day which will have a positive impact on the GDP sooner or lesser.

  36. Very Nice sir. This is called reality check of Indian GDP. Since so called intellectual of our country is comparing the Indian GDP with those who are already developed and most importantly many companies(whose turnover is more than GDP of many countries) whose intentions are very clear to suck the cream out of Indian market. Our government put some check through reforms so it’s time for us to bear side effects for long term gains.

    Since the calculation method of GDP is itself debatable point because it is mostly dependent upon three or four core sectors. So we need to be very conscious before coming to any conclusion. Thank you sir for giving such an insight regarding current scenario of Indian economy.

  37. Unfortunately only some will agree with this viewpoint as I believe many are still not out of this trap.
    Beautifully described though!!

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