It’s election season and like old times, the growth debate is back on comment pages and studio sofas. The latest shot was fired after the National Statistical Commission showed average GDP growth was above
8 per cent during the 10-year UPA regime, higher than the NDA’s 7 per cent. The Congress, which blamed the Modi government for fudging GDP data back in 2015, shot itself in the foot, rushing to take credit for the 10.8 per cent growth in FY11. The NDA, embarrassingly, pronounced the latest data ‘unofficial’, evoking sharp criticism.
It’s true that the fiscal and monetary stimulus following the 2009 global financial crisis delivered stupendous growth, but it also left deep scars (read economic imbalances) with high twin deficits and where inflation soared to double digits. It’s also important to distinguish between steady and unsustainable growth. For instance, from 10.8 per cent in FY11, growth fell with a giant thud the following years, even hitting a historic low of 4.5 per cent. Annual growth largely depends on reforms implemented in previous years and whether growth is based on a balanced mix of consumption and investment, which clearly wasn’t the case after the financial crisis.
While the technical and policy critique of the latest GDP data continues, economists believe growth in isolation isn’t the best way to judge performance. The debate should be whether economic activity is spurred by excessive investment (government spending) or household consumption and if higher economic activity is improving human welfare. Globally, GDP is an increasingly flawed measure, particularly for economies dominated by services sector.
We are a nation of consumers, not producers, and as against a debt-fuelled growth model, governments should maximise the highly skilled manufacturing and services pie to raise the general competence of society. The whole thrust of public policy, which currently aims at mechanistically increasing GDP, should instead focus on improving purchasing power, livelihoods and internal revenue generation.