Narendra Modi vs Congress: Why the growth debate must move beyond GDP numbers

The term ‘GDP’ (gross domestic product) would have, perhaps, never got such attention among the ‘aam aadmi’ as is the case today. This is particularly so in the ongoing political battle field of Uttar Pradesh, where the fight in political rallies is essentially between PM Modi and the rest (Congress, SP and BSP). Even a layman on the street now will have a better understanding about what does the GDP figure mean and what is its political and economic significance.

This newfound stardom of GDP, otherwise a mundane economic data release which normally evokes interest only from economists and journalists, rose further post the 8 November demonetisation announcement by Prime Minister Narendra Modi. The government had packaged the note ban and replacement exercise as a war on black money and a measure to broaden the tax base that would ultimately boost the GDP.

Manmohan Singh, former Prime Minister then used his own GDP estimates (1-2 percent down) as the warhead of his attack in Parliament speech to denounce demonetisation terming the currency ban as a ‘mammoth tragedy’, ‘monumental mistake’ by Modi and "organised loot and legalised plunder”.

Prime Minister Narendra Modi. AP

Prime Minister Narendra Modi. AP

Finally, when the third quarter GDP numbers came at a surprising 7 percent much higher than what most economists predicted, Modi retaliated, flashing the GDP number as evidence to write off demonetisation critics.

Remember his jibe ‘hard work matters not Harvard’, targeting his political rivals such as P Chidambaram and hardcore demonetisation-critics such as Nobel laureate Amartya Sen. GDP, thus continued to dominate the stage largely for political reason. The demonetisation critics and Modi’s political rivals yet again launched a counter attack questioning the GDP figures.

Forget the political mudslinging, it is good to see political debates centered around economic issues in a democracy because that essentially brings more public attention and policy focus on critical economic issues.

But, the problem is this. Excessive focus on GDP numbers alone wouldn’t serve any purpose and if debating economic progress is the purpose, the political debates should have more room to accommodate the core problems on the ground that, sometimes, aren’t adequately getting reflected or represented in the GDP numbers due to inadequacy of the existing data infrastructure.

Demonetisation impact table - March 6, 2017

These figures aren’t really presentable because all political parties are equally responsible for the problems indicated by these numbers, mainly unemployment, poverty and lack of rural development. For the Modi government, which is nearing three years of its term, speaking on the specific solutions of these issues are even more critical since its mantra itself is ‘sabka sath, sabka vikas’.

Instead of blaming the Congress-led UPA governments for inaction and dwelling on the past mistakes of the political opponent, it should look at areas that need attention. Even the Congress party is no different. It too seems to be oblivious of the real economic issues on the ground. The economic subjects in the political speeches of Congress Vice President, Rahul Gandhi seems to be confined to promises of farm loan waivers, freebies and anti-demonetisation rant. Asking the right questions is important. In this context there are far more critical questions.

The most important is the big disconnect between the developments in the informal sector and the GDP data. This is an area that isn’t really captured in the GDP figures. Post-demonetisation, the maximum impact in the form of job losses and hit on small businesses, services have been in the informal economy, which constitutes 40-45 percent of the GDP and about 80 percent of the total employment in the country.

By CSO’s own admission, trends in the informal sector are inadequately captured in the GDP figures. The informal sector is vast consisting of a good chunk of the farm sector, construction and small businesses. Majority of the informal economy operated in cash and hence it isn’t difficult to understand that the impact of demonetisation induced cash crunch is maximum here. The GDP data is a disappointment to represent the informal economy. This is why the political debates aren’t addressing the question of the demonetisation impact in this segment and continue debating only the GDP numbers, which are largely a product of organised sector data -- an irony.

Then comes the question of job losses. In an economy that is doing well, as claimed by the CSO numbers and the Modi government, is the job growth happening in a corresponding manner? Going by a report by SBI (read a report here) during August, 2016 and February, 2017, India's unemployment rate nearly halved to 4.8 percent from 9.5 percent. Among the states, Uttar Pradesh saw the sharpest fall in unemployment from 17.1 percent to 2.9 percent, while Bihar saw decline from 13 percent decline in unemployment rate to 3.7 percent, followed by Madhya Pradesh and Odisha.

This is ideally good news, but there is problem with the report. The primary reason the report suggests for the sharp decline in the unemployment is on account of the implementation of the MGNREGA in the rural areas, which is also a signal that more people are moving away from factory jobs to daily wage labour in the informal economy. Work under MGNREGA increased from 83 lakh households in October 2016 to 167 lakh households in Februrary 2017, the report said.

Is this good news for an aspiring economy? Interestingly, this is a scheme PM Modi had once described as the ‘living monument of UPA’s failure’, referring to the inability of previous UPA governments to eradicate poverty and thus necessitating the continuation of the employment guarantee scheme. But, the counter question here is if even after three years he scheme continues to be the major driver for unemployment decline, what is the signal it gives on job creation in the organised sector?

Are enough opportunities being created for the young workforce?

Thirdly, a host of high frequency macroeconomic indicators have been giving a puzzling picture. For instance, what is the signal the banking sector gives to the economy? Bank credit for industries have been giving contradictory signals on the economy that is in contrast with what the GDP numbers show. Similarly, the data on two-wheeler sales, bad loan figures, factory output numbers and private investment figures show isn’t really encouraging so far.

But again, this set of data does not normally find mention in the political debates since it lacks the stardom commanded by the GDP number. The CSO has admitted that it might have to relook at the GDP figures as it gets more information on a wider set of numbers. The message here, both for demonetisation critics and supporters, is that do not commit the mistake of taking GDP figures as the final word on demonetisation impact. It isn’t.

The bottom line is this: GDP has become a political tool, perhaps more than ever in the past. A political debate on economic issues are indeed good but, it is time politicians went beyond merely the GDP numbers and looked at the core issues on the ground that aren’t adequately reflected in the GDP data, but often show us the true picture.

(Data support from Kishor Kadam)


Published Date: Mar 06, 2017 02:33 pm | Updated Date: Mar 06, 2017 03:16 pm