India’s economy is not healthy, the Governor of the Reserve Bank of India has said in an open letter to the Union Finance Minister, Nirmala Sitharaman. More GDP does not improve the well-being of citizens if it does not put more income in their pockets, he says. They need decent jobs, which the Indian economy has not provided despite impressive growth of GDP.
The health of any complex system, whether the human body or a nation’s economy, cannot be determined by its size. What matters is the shape it is in. GDP growth has become the dominant measure of the health of all economies. The dominant paradigm is, first, increase the size of the pie before its redistribution. It has replaced “socialist” models which were concerned with conditions at the bottom. Economists do not agree on how the well-being of citizens should be measured; and what the best measures of poverty, employment, and adequate income are. In their models, such hard-to-quantify conditions are taken care of by some invisible hand when GDP grows. India is becoming one of the most unequal countries in the world with this flawed model of economic progress.
Ms. Sitharaman is not responsible for the poor shape of the Indian economy. All Indian governments, since the liberalisation of the economy in 1991, have focused on GDP. GDP grew at 7.2% per year in the 10 years of United Progressive Alliance rule (excluding 2008-09, when the global financial crisis hit); and also at 7.2% in the National Democratic Alliance’s 10 years (excluding the 2020-21 global COVID-19 pandemic shock). There was no difference in growth. But, structural conditions that cause inequitable growth have also not changed. In fact, they have worsened.
