What Lies Beneath the Growth Figures?

Newsreel Asia Insight #62
Dec. 3, 2023

Predictions for India’s economic growth in 2023-24 are optimistic. The Reserve Bank of India and the International Monetary Fund project growth rates of 6.5% and 6.3%, respectively. On paper, these numbers paint a picture of a nation swiftly rebounding from the pandemic’s blows. But is this the whole story?

A recent study by L.T. Abhinav Surya from the Centre for Development Studies urges us to look beyond these rosy projections, as reported by The News Minute, via IANS. The study reveals that while India’s share in the global economy has increased, the growth rate isn’t as impressive as it was before the pandemic.

This is akin to a student celebrating an improvement in grades without acknowledging that they were higher in the previous years.

The real issue, however, lies not in these growth figures but in what’s happening beneath them, according to the study. The primary sector, which includes agriculture, has seen a decline in its contribution to the economy. In contrast, the finance and real estate sectors have grown. The manufacturing sector hasn’t seen significant growth either.

Typically, sectors like manufacturing and technology are labelled as “productive,” as they create new value. For instance, in manufacturing, raw materials are transformed into products – a car, a smartphone, a piece of furniture. This process adds value; something that didn’t exist before is now a usable, sellable item. Similarly, in technology, new software or digital services are developed, offering new solutions and capabilities.

Now, let’s consider the finance and real estate sectors. These sectors primarily involve transactions – buying, selling, lending and investing in existing assets. For example, in real estate, buying and selling properties doesn’t create a new building. It’s a transfer of ownership of an existing asset. In finance, money is moved around through loans, investments and other financial instruments. While these activities are crucial for the economy, they don’t necessarily create new physical goods or services.

The concern with an economy overly reliant on non-productive sectors is that it may not be creating new wealth or advancing in terms of innovation and efficiency. Economies thrive when they produce more, innovate and improve efficiency. Overemphasis on sectors like finance and real estate can lead to situations where wealth is concentrated, and growth is driven by asset inflation (like property prices going up) rather than by the creation of new goods and services.

In a country like India, focusing on manufacturing and technology can have several benefits. It can lead to job creation, especially in areas where skilled labour is required. It can boost exports, improve trade balances and lead to greater economic diversification. On the other hand, an over-reliance on finance and real estate might lead to economic bubbles and increased inequality, as these sectors often benefit a smaller, wealthier segment of the population.

Another aspect to ponder is investment. The government has been investing more, particularly in infrastructure. While this is beneficial, it’s primarily aimed at reducing costs for businesses. It’s like fixing the roads and improving traffic signals – great for those who drive, but what about those who can’t afford a car?

The study suggests that the current growth might not be as robust as it appears. It’s like celebrating a good harvest without noticing the depleting fertility of the soil. For a country where millions still struggle with basic needs, this skewed growth raises questions about the kind of progress we’re aiming for.

We need to look at the economy not just as a collection of numbers that go up and down, but as a reflection of our collective well-being. When the economy grows because of sectors that don’t necessarily improve the common person’s life, it’s a sign that we need to rethink our strategy.

The government’s role here is crucial. Acknowledging the reality of our economic situation is the first step towards making policies that truly address the needs of the people. It’s not enough to boast about growth rates and global standings. What’s needed is a deep dive into the quality of this growth. Are we creating jobs that will sustain families in the long run? Are we supporting industries that will continue to thrive and innovate? Are we ensuring that the fruits of this growth are distributed fairly?