Understanding Growth and GDP

There is something terribly wrong with ‘growth’ economics… If we plant a tree, there is no growth. If you cut down a tree there is “growth” – when you pay to cut and sell the tree, the GDP goes up. As citizens of a society, do we want the tree to remain or the GDP to go up by cutting it.

During the last few months of 2009, three major International Summits took place. There was a Food Summit in Rome, attended by about 60 Heads of State, the World Trade Organization’s UNCTAD (United Nations Conference on Trade and Development) and the Copenhagen Summit, which the whole world has been talking about it as it deals with climate change. They were meant to deal with the Food Crisis, Trade Crisis and the Climate Change Crisis. There are links which are quite obvious between these three meets, which were however never focused upon.

Trade and Climate Change are two contradictory forces. Trade does not happen on bullock carts. It will need more burning of fossil fuels and thereby more greenhouse gas emissions. I don’t see any economic justification in importing Washington apples from America while the U.S. imports Chinese apples, and in importing oranges from Chile, while the Indian oranges go rotting.

The ships and aircrafts we need for world trade will lead to global warming. For sustainability you need a shift. But the Copenhagen Summit from 7th to 18th December did not talk about trade. And the trade conference delegates did not talk about global warming. Similarly, the growth in trade that the WTO is promoting has not created the promised prosperity. In fact, food security has become worse after WTO – but this connection between food and trade was not discussed in the Food Summit or the WTO summit. Again the Food Crisis and the Climate Crisis are definitely linked, but how much are we really looking at these connections?

There is something terribly wrong with growth economics. Eighteen years after India ushered in economic liberalisation, the promise of high growth to reduce poverty and hunger has not worked. In fact, it has gone the other way around: the more the economic growth, the higher is the level of poverty.

We read in newspapers that India’s Gross Domestic Product is 7.9%. But, how can India’s growth percentage be 7.9% when every sector is down, business is down? What is it that drives this growth? No one thinks Burma has grown. But its GDP is 8.6%. After Iraq was bombed, what was the GDP of Iraq? 25%! Yet we live with the idea that GDP indicates the level of our growth; that the more the economy grows, the more will be our development.

But what is GDP? In common man’s language, the GDP is calculated as a total of the amount of money that changes hands – the total of money transactions in the country. If we plant a tree there is no growth. If you cut down a tree there is “growth”- when you pay to cut and sell the tree, the GDP goes up. Do we want the tree to remain or the GDP to go up by cutting it?

When you buy a car, the GDP goes up three times, not once. No wonder this country has 17 million cars on the road. When you take out your car, you buy petrol and there is wear and tear and the GDP goes up. When you drive your car, there is the exhaust; if you inhale the exhaust, fall sick and go to the doctor- the GDP goes up.

If the Yamuna flows clean, it does not add to the GDP at all. But, if it is dirty, then it adds to the GDP 3 times. This is because the GDP goes up as industries come up along the sides of the river Yamuna. Again, the business that industries do adds to the GDP. We then spend hundreds of crores of rupees to add on to the GDP while we clean this river.

It is quite well known that colas are nothing but water, chemicals and sugar and certainly not good for health. But the more colas you drink, the higher the GDP. So the government has a vested interest in promoting the drink as it adds to the country’s GDP. So we have to decide whether we want to make the sacrifice of our health for the country’s GDP or not.

We buy food from malls, making the GDP go up and on an average malls stock thousands of kinds of processed foods – foods with little or no nutrition. Much of the food we get in malls and supermarkets is said to lead to illness. And the more you fall sick, the more your hospital bills increase, the more the GDP goes up.

Let us not be carried away by predictions telling us that India’s GDP can go to 14%. One-fourth of the GDP of the country, i.e. 2 % out of the 7.9 % GDP is dependent on just 30 families in India. If these 30 families were to translocate to another country, our GDP would come down to 5.9 %. And if you were to discount the economic growth resulting from the 6th pay commission, which is 1.9 % of the GDP, India’s actual economic growth will slump to 4 %.

The constant reference in the media to GDP makes us think it is a sign of development, whereas it leaves behind a trail of destruction to the environment and livelihoods. As students and citizens, we must stand up and ask, what is GDP really? What does it constitute? We need to understand that GDP is certainly not a true indicator of growth and that globalised trade is not a touchstone of development.

Devinder Sharma


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