Tuesday, September 10, 2013

Economic Growth

Economic Growth is measured terms of increase in volume of production of goods and services in an economy. The commonly used indicator of economic growth is rise in Gross Domestic Product (GDP).

Debates around considering GDP as the sole criteria for measuring improvement in well-being of the people have been intense. Two schools of thought have emerged around this. One schoos firmly believes in the 'trickle-down' effect, that is, let economic growth take place, the benefits will eventually trickle down to the vulnerable and marginalized sections of the society as well and thereby, lead to their well-being.

The other school of thought thinks that GDP is not a sufficient condition for the overall well-being. They give empirical evidence in the form of growing inequalities in the Indian economy, slow reduction of poverty, rise in unemployment, faster exploitation of natural resources etc. in the post-reforms period when Indian economy witnessed rapid economic growth.

Is the idea of GDP really flawed?
The answer to this question would be a 'No'. GDP growth is important because greater GDP growth will mean greater production which would mean greater income and employment, thereby leading to inclusiveness and reduction in poverty. Besides, it would lead to a greater revenue for the government in the form of more taxes, which can be used to finance social sector schemes of the government more effectively.

In the Indian context, rapid growth has not been accompanied by an equivalent rise in standard of living of masses despite the economy developing rapidly.
This is due to the following reasons -
a) The fruits of the growth have not been equitably distributed. It seems that a major chunk of benefits have been cornered by a small section of society. This can be easily seen in the rise in inequalities in the post-reforms period.
b) The 'trickle-down' effect in the Indian context is working very slowly, if at all its working.
c) Poor Governance can also be cited as a major factor in this. Poor Governance leads to corruption which destroys the economic prospects of improving well-being for the masses. Despite myriad social welfare programmes of the Indian state, the condition of the poor has not improved. This suggests that the implementation of such schemes have been poor.

A small mention needs to be made in the context of growing environment degradation owing to rapid exploitation of natural resources due to rapid economic growth. Market forces of supply and demand have led to a scramble for resources, made them priceless and led to their increased exploitation.

Thus, the idea of GDP needs to be refined to reflect the ground realities as well. Economic Well-being is not totally separated from social and environmental well-being. A GDP growth that is more equitable and environment friendly is the need of the hour. The government will have a major role to play in this through proper redistribution of resources.

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