When one talks about progress, they
usually refer to economic growth. Therefore it would be interesting to decode
the dynamics of economic growth. It is quite usual to find in the media reports
on how India or for that matter any other country is growing at a certain rate.
There is usually talk of how a certain country is experiencing high growth
rates. There are reports of how certain countries are experiencing sluggish
growth rates. There are reports on how some countries are actually experiencing
a negative growth. The latter is of course being pretty common news as the
world grapples with the impact of the Chinese virus. In this context, it would
be prudent to begin the discussion with the concept of growth.
Economic growth refers usually to
the growth in the Gross Domestic Product (GDP) of a country on a year over year
basis. In simple terms, the GDP of a country can be defined as the aggregate market
value of all final goods and services produced in an economy in a given period
of time. This would suggest an economic frontier for consideration of the GDP. All
that is produced within an economy is something that constitutes the GDP. For countries
like the US, most of its firms would produce output outside the country. It was
true perhaps for Britain as significant amount of its economic clout came
through the output being produced in the overseas colonies like India. In that
context, there was a term Gross National Product (GNP) that came into being and
was a proxy for economic growth in the US for a fairly long time. However, at
this moment, the proxy for economic growth across the world is the GDP.
Economic growth refers to the change
in GDP year over year or for that matter any period over the previous period. An
economy is said it have experienced growth if the country has reported higher real
GDP figures relative to the previous period. It is pertinent to note to take
into account the real GDP factors to eliminate the possible price impact in the
GDP growth rates. At this stage, it would make sense if one were to dig a
little deeper to decode what would constitute growth over a mid to longer run. For
instance if one has to suggest India has experienced growth in the last seventy
five years since independence, there would have to be some meaningful
discussion or measures beyond the GDP which indicates the macro figures. Towards,
this one shall take an approach that would disaggregate and perhaps explain in
a layman’s language what the growth would mean.
In simple words, an economy would
have grown if it produces more goods and services compared to the previous
quarter. One can decompose the discussion a little further. One can take the
quantum of electricity production in India in 1947. If one were to compare the
production figures for the current year, it can be found whether there is an
increase or otherwise. Similarly, one could look at the data from agriculture. One
could find total production of cereals like rice or wheat to find the trends in
production. If the trends demonstrate an increasing figure one could argue
there is an increase in agricultural production thus a contribution to economic
growth in the country. During periods of drought or even floods, there would be
negative impact thus having detrimental impact on the growth. It is not just
the electricity of agricultural sector. The growth can be decomposed into the
primary, secondary and tertiary sectors. The primary sector is essentially
agriculture besides mining. The secondary sector is the manufacturing sector. The
services sector is a part of the tertiary sector. The story of India’s health
care or hospitality or retail or transport all are critical elements in the
services sector and thus would be part of tertiary sector growth. If Indian
healthcare infrastructure has increased, one can argue there has been a growth.
It is a different matter about the quantum of growth which is subject matter of
another discussion. It must also be remembered that economic growth is more
about quantity though in the long run, it is the quality of output too matters.
Therefore economic growth is not just increase in quantity but also increase in
quality of goods and services produced in the economy.
While economic growth at a broader
sense matters, it is also important to decompose the growth and examine at length
sector wise. For instance, if a country is experiencing higher economic growth,
there must be an examination of its sustainability. It must be pondered over
whether any specific sector is driving the growth and further the sustainability
of the sector. It is possible that the sector might be experiencing an
aberration in terms of growth or alternatively, there would be vast domain of
different industries and sectors that would be pulling down the economic
growth. Of course it is equally possible that certain sectors are pulling down
the growth while others are experiencing significant growth. Therefore, to
understand the vast drivers of the growth, one must decompose and examine
sector wise growth. In India for instance, agriculture might be pulling down
other sectors or in converse, the agriculture might be saving further blushes
as in the case of the lockdowns induced by the pandemic.
Economic growth is not merely about
industries or agriculture but even about the government sector. The government
services including security, justice, order, public infrastructure, all do come
under the paradigm of growth. These too are goods and services which are
consumed by the people and thus subject to vagaries of economic performance. The
social sector output like goods and services offered by the non-governmental
organizations too constitute the part of the economic growth. Their services
might not be monetized in a similar manner but nevertheless do add to the range
of offerings of the economy under consideration. In fact house work like done
by homemakers too is a part of the output in the economy though normally not
captured in view of the measurement issues. Thus as we see above, economic
growth is vast and subject to numerous factors and is pertinent both in the short and long run.
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