While India is set to become World's third largest economy, Time to shift the focus from Nominal GDP growth to Real GDP growth and PPP growth ?

India is set to become World’s Third-Largest Economy By 2030: S&P Global. But Is it important for India to implement adequate social welfare schemes for it's citizens to gain traction in global happiness index ?

India, the world’s fifth largest economy, is likely to overtake Japan to become the world’s third-largest economy with a gross domestic product (GDP) of $7.3 trillion by 2030, S&P Global Market Intelligence said in its latest issue of Purchasing Manager’s Index (PMI).

After two years of rapid economic growth in 2021 and 2022, the Indian economy has continued to show sustained strong growth during the 2023 calendar year.

India’s GDP is expected to grow 6.2-6.3 % in the fiscal year ending in March 2024, being the fastest-growing major economy this fiscal year. Asia’s third-largest economy grew by a stellar 8.2 % in the April-June quarter.

The near-term economic outlook is for continued rapid expansion during the remainder of 2023 and for 2024, underpinned by solid growth in domestic demand, S&P Global said.

Indian economy continues to grow steadily this year also.

According to S&P Global’s latest PMI released on Tuesday, after two years of rapid economic growth in 2021 and 2022, the Indian economy has also continued to show sustained growth this year. GDP is expected to grow at 6.2-6.3 % in the financial year 2023-24. In this way, the Indian economy will be the The fastest-growing major economy in this financial year.

The economic growth rate in the April-June quarter of the current financial year has been 8.2 %. By 2030, India’s GDP will be larger than Japan’s. As stated by S&P Global, continued rapid expansion is expected through 2024, supported by strong growth in domestic demand. At current prices, India’s GDP in US dollars is expected to rise from $3500 billion in 2022 to $7300 billion by 2030. As a result, India’s GDP will surpass Japan by 2030, elevating India to the second-largest economy in the Asia-Pacific region.

India’s GDP expected to beat Germany’s by 2027 itself !!

Through a GDP of $25.5 trillion, America currently has the world’s largest economy. Following that, China has the world’s second-largest economy with $18,000 billion, and Japan has the world’s third-largest economy with $4,200 billion.

It is estimated by 2022, India’s GDP will have surpassed that of the United Kingdom and France. By 2030, India’s GDP is expected to beat Germany’s. GDP is a metric used to assess a country’s economy.

Is it important for India to become the third largest economy?

Well, that's undebatable and a must to do job in hand. But there must be some aspects to be inclusive otherwise, Being even the largest economy don't mean anything unless its a true reflection of the on ground situation in the country and the levels of individual prosperity and happiness.

We are being told that we are the fifth largest economy in the world today. And that's true. Everybody around the world acknowledges the fact that India is the world's fastest growing economy… by NOMINAL GDP.

Now see that last bit is where the problem lies, sort of like the devil is in the details kinda thing. Let's get a bit of clarification about Nominal and Real GDP.

The important economic indicators about economic growth?! Real GDP is a better indicator for it, not Nominal GDP. Again !!

India's position in the world for real GDP has “data unavailable” and is unknown properly.

The relevance of India's GDP world ranking diminishes even further as one realises that back in 2015, the GoI changed the methodology of calculating GDP. The statistics department changed the way it calculates the headline GDP growth number to GDP at market prices from GDP at factor cost in 2015.

GDP at market price adds taxes to and deducts subsidies on products and services from GDP at factor cost.

Essentially, those who are feeling ecstatic about India's jump in world GDP rankings to fifth position are celebrating higher taxation and lower welfare spending in India. We are perhaps the only country in the world to do so.

India, today, is contemplating a very deep and important question: If our stature in the world is growing as is portrayed by the GDP figures, then why do we have so many unemployed, and why are more people not prosperous? Will becoming the third largest economy change this scenario?

To answer this, lets explore whether GDP is the right and accurate measure for gauging economic prosperity at all.

India and the delusions of growth.

Although GDP is a widely familiar term today as most people have heard of it, few are aware that it was invented in 1930 as a tool to counter the great depression, and then reworked as a means to prepare for the second world war. Before 1930, GDP didn't exist. It's not something natural but a man made thing. And a crudely made thing it is.

GDP likes things like pollution, crime, natural disasters and wars. You have pollution and spend money to fix it, GDP increases. More crime?! More police force, more expense, GDP increases. Floods?! Earthquakes?! Pandemics?! Spend money for reconstruction, GDP increases. Procure arms for a build up to wars and then spend money in reconstruction of post war infrastructure, GDP increases.

Growth is a concept of the manufacturing age and GDP was designed primarily to measure physical production. It falls short in proper measurement in the modern world which is increasingly based on services like insurance or music downloads or YouTube earnings. The developed world is increasingly becoming service oriented. Whereas GDP only measures things like bricks and cars and such.

The problem with growth is that it requires endless production, which is, of course, supplemented by endless consumption. For our economies to move forward, we must be insatiable. The basis of modern economics is that our desire for stuff is limitless. But we also say that greed is the root of all evil.

GDP’s preference for tangible goods means it is insufficient at capturing the value of technology. Where disruptive innovations have made life easier for consumers – allowing them to book their own flights rather than paying a travel agent, for instance – GDP only sees a shrinking economy. Lots of what tech is doing is destroying what wasn’t needed. The end result is you’re going to have less of an economy, but higher welfare.

In the developed world, countless free online services have moved outside the realm of economic activity measured by GDP, including Google, YouTube and Wikipedia. In the eyes of GDP, innovation – even if it means a better quality of service – is often a detractor of economic growth. Elsewhere, valuable areas of work have always existed outside of the GDP framework, including housework, caring for sick family members or friends, and volunteering. The impact of this work is unaccounted for simply because no money changes hands.

Could it be that India's position in the GDP size is increasing because we are simply not as tech oriented as other, more developed nations?! Seems plausible. As ease of living increases in the developed world using technology, India with its huge dependance on manual labour may tend to record a higher GDP than those countries. But that's not a scenario that we Indians should feel good about.

The world is in a state of flux today. Globalization is slowly being replaced by the concept of “Homeland Economies". And lines are being drawn for clearer identification of those who are “useless eaters".

The new measures of reality !!

New Economics Foundation (NEF) is a UK based agency that promotes sustainable economics. They have listed five indicators that GDP doesn’t take into account that could help measure national success more accurately: job quality, wellbeing, carbon emissions, inequality, and physical health. They say- " We know what a good economy that allows people to flourish should be. A good economy meets everyone's basic needs, it means people are healthy and happy, and it doesn't stoke potential long-term trouble, such as extreme inequality ".

Seems logical. And they're not the only ones saying it. Organizations such as the WEF, World Bank and the UN have created new matrices to properly define and measure the economic growth of nations. Experts are working to pin down a number of intangible qualities that contribute to the health of an economy, such as happiness and knowledge. Several indicators have been developed to provide a means for countries to monitor their progress in these areas. Sadly, Indians are most unaccepting of these new definitions and subject them to ridicule as is widely witnessed.

Miles to go for India and it's growing economy.

One such example is the UN’s Human Development Index (HDI), which evaluates a nation’s citizens in terms of their health, knowledge and standard of living. To do this, it tracks achievements in areas such as life expectancy at birth, years of schooling and gross national income per capita.

The World Bank has also created a more robust measure of economic growth: comprehensive wealth. Comprehensive wealth, it argues, takes into account both income and associated costs in a number of areas, providing a fuller picture of economic wellbeing and a more sustainable pathway for growth. “Used alone, GDP may provide misleading signals about the health of an economy,” the World Bank’s The Changing Wealth of Nations 2018 report read. “It does not reflect depreciation and depletion of assets, whether investment and accumulation of wealth are keeping pace with population growth, or whether the mix of assets is consistent with a country’s development goals.”

The UN admitted its HDI index only provides a window into human development and fails to account for aspects such as inequality, poverty, human security or empowerment. But since its development in 1990, the UN has also introduced other composite indices, including the Inequality-adjusted HDI, the Gender Inequality Index and the Gender Development Index.

Other surveys and indices, meanwhile, aim to measure the even more subjective quality of happiness: Lord Richard Layard, a professor at the London School of Economics, has been a pioneer in this area, and believes the government should prioritise policies that boost happiness over growth. His research has gone on to influence international efforts to track happiness, such as the UN’s World Happiness Report, which provides an annual snapshot of how happy people around the world perceive themselves to be.

The Final Word and there we have it.

Wouldn't you as a citizen feel better if your policymakers favoured happiness over growth?! I mean what do you want? The world's third largest (or the largest) economy where you find it hard to make ends meet or your country way down in world GDP rankings but where most of the people are employed, prosperous and stress free?!

Recently, someone tried to ridicule me by saying something like “Oh, as per your logic, India shouldn't have a space program because it doesn't generate revenue”. And I said to that person that that's right. I think it's foolish to have a prioritised space program for a nation that's got the world's highest child wasting percentage, where an overwhelming 60% of the population lives on about $1 a day and where youth unemployment is 80%. For such a country to prioritise space travel with no clear economic goal, over its basic existential issues, is the stupidity personified. I mean, Europe doesn't have a space program, so why do we need to?

It's kinda like the same thing for GDP.

What good is a higher GDP if the majority of the people of the country are unhappy, unemployed and not prospering?

Is our individual happiness something that our policymakers are paying attention to or do they have other priorities?

The world is fast moving on from considering only the GDP as a measure of growth. Other matrices have been introduced.

This is a very big reason, among others, why investors (FDI) do not prefer India as an alternate country to china where they should put majority of their money. However FPIs/FIIs are happily putting their money to reap the growth advantage without real investment footprints. Apart from higher return on investments it helps them to hedge the forex volatility and diversify the investments for better yield.

Despite of the present stupendous growth of Indian economy the per capita stands at $2850 which is roughly around INR. 20,000/- per month/household way below it's developing economy peers!

It's happening all over again just like it happeneIndia is set to become World’s Third-Largest Economy By 2030: S&P Global. But Is it important for India to implement adequate social welfare schemes for it's citizens to gain traction in global happiness index ?