GDP and Income Inequality

India’s economy is often categorized as an emerging one. Our government, in 1991, took drastic steps to liberalize its economy and encourage the role of private players. This helped in loosening the state’s grip on major lucrative plans, which was earlier a common feature of the Indian Economy. Our country’s Gross Domestic Product or GDP growth has been steady ever since the fluid economic policies of 1991. The 21st century has witnessed an annual average GDP growth of 6%7%. India has also been able to surpass China as the World’s fastest growing economy.

Gross Domestic Product (GDP)

Gross domestic product or GDP is a number that represents the monetary value of all the finished goods and services produced within a country’s territory in a fixed time period. GDP specifies the health of a nation’s economy. It is considered as the “world’s most powerful statistical indicator of national development and progress”. In addition to this, total GDP is the sum of the contribution of each industry or sector of the economy. 

Economists use Per capita Gross Domestic Product to examine the prosperity of a country based on its economic growth. It is calculated by dividing the GDP of a country by its population. It is a metric that breaks down a country’s economic output per person, as well as indicates the amount of economic production value that can be attributed to each individual citizen. Small and wealthy countries tend to have high per capita GDP.

Measurement of GDP

GDP can be measured in two ways:

▶ Nominal GDP– It is an evaluation of economic production of a country. It includes the market prices of goods and services in its calculation. Since nominal GDP does not ignore the rapidity of rising prices while contrasting one period to another, it usually inflates the growth figure. All goods and services, counted in nominal GDP, are valued at their actual prices during a particular year.

▶ Purchasing Power Parity (PPP)– It is used by economists to contrast currencies of different countries by using a “basket of goods” approach (https://www.investopedia.com/terms/b/basket_of_goods.asp). According to this concept, two currencies are in equilibrium when a ‘basket of goods’ has the same rate in both the countries, once the exchange rates are taken into account. PPP enables analysts to compare economic productivity and standards of living between different nations. Some countries adjust their gross domestic product (GDP) figures to deflect their PPP.

India is the world’s fifth largest economy in terms of Nominal GDP and the third largest by Purchasing Power Parity(PPP). As per the estimates of the International Monetary Fund (IMF), the apex institution of global monetary affairs, our country has ranked 139th (Nominal) and 118th (PPP) in 2018, on the basis of per capita income.

Economic Ambience in South Asia

Over the years, South Asia has witnessed a sturdy growth. Poverty has gradually declined and developments in Health and Education sectors have massively improved. As per the World Bank’s reports, the growth rates of South Asian countries have risen significantly with a steady increase from 6.2% to 7.5%. Fluid policies have resulted in declining inflation which has shifted the focus of governments on infrastructure development and economic reforms.

The reason behind a low risk profile of South Asian Nations is ‘Domestic Demand’. Risk remains to be dependent on domestic strands and can be attenuated at an individual level.

Country-wise Allocation

Afghanistan– The growth rate of Afghanistan is less than 3%, making it one of the least developed countries in South Asia. The reason behind this low growth is political unrest and higher security threats as compared to other countries. However, the growth of Afghanistan’s agricultural sector continues to show positive results.

▶Bangladesh– A substantial jute production has helped Bangladesh to emerge as a leading manufacturer of textile products in South Asia. Bangladesh’s growth rate was last recorded at 8%.

▶Bhutan– Rise in foreign investments has helped Bhutan to invest in hydroelectric projects. Bhutan has implemented its Twelfth Five-Year Plan and is taking drastic steps to build its tourism sector. The country’s revenue was estimated at $87.7 million in 2019.

▶Nepal– Nepal has witnessed a higher growth rate, in recent years, with its increasing agricultural production. The World Bank has reported that two projects, worth $100 million, are boosting Nepal’s power sector. Investments by private sector have been highly encouraged by the government.

▶Pakistan– Pakistan has witnessed lowest growth rates in recent years. The country solely survives on the remittances by West and continuous investments from China. The China-Pakistan Economic Corridor (CPEC) (https://www.britannica.com/topic/China-Pakistan-Economic-Corridor), a 3,000-kilometer network of roads, railways, as well as oil and gas pipelines from Pakistan to China, is expected to brace Pakistan’s economy.

▶Sri Lanka– Sri Lanka has had a stable growth rate of 3.7% over the past couple of years. The Central Bank of Sri Lanka implemented policy reforms to encourage its private sector after a period of low growth. Over the years, China has also shown increased interest in Sri Lanka’s port and logistics construction.

▶Maldives– Tourism has been the spine of Maldivian economy. Despite a few public infrastructure projects and low gross foreign reserves, Maldives is continuing to augur strong growth.

India and Income Inequality

India is ostensibly called the South Asian hegemon but the country’s GDP has flinched by 23.9 per cent in the first quarter of the 2020-21 fiscal year. The GDP growth rate was reported to be 3.1 per cent in the previous fiscal year. Despite its reduced GDP growth, India has ensured high foreign investments and has liberalized Foreign Direct Investment (FDI) in some crucial sectors.

“GDP has shrunk from Rs 35.35 lakh crore in Q1 of 2019-20 to Rs 26.90 lakh crore in the first quarter of Q1 of 2020-21, showing a contraction of 23.9 per cent as compared to 5.2 per cent growth in Q1 2019-20,” an official statement by the National Statistical Office (NSO).

The only sector which has registered a significant growth in the Indian Economy is ‘Agriculture’ which has tallied a growth rate of 3.4%. Whereas, other sectors including construction, hotel industry and manufacturing sector have witnessed a drastic reduction in their growth rates. Their growth rates have contracted by 50%, 47% and 39.3% respectively. The economic slump is assumed to have been the consequence of the nationwide lockdown. The GDP for the current year is reported to be the worst after 1996.

According to United Nations Development Programme (UNDP) and Oxford Poverty and Human Development Initiative, a bulk of the Indian population face destitution in sanitation, health and schooling. There are many angles of poverty and disparity in India. Poverty has a multidimensional appraisal and includes some indicators namely, nutrition, child mortality, years of schooling, school attendance, sanitation, cooking fuel , drinking water, electricity, housing and assets.

As per the World Inequality Report 2018, India stands at the second position in terms of unequal wealth distribution in the world. It was estimated in 2017 that 73 per cent of wealth generated in the country landed in the hands of the richest 1 per cent.

The growing inequality between different masses results in inaccessibility to health, education and basic services. Unavailability of proper healthcare is a curse for those who are just above the poverty line as these individuals trickle back to their earlier financial condition if a serious health problem hits any member of the family. Similarly, inequality in opportunities due to lack of proper education and training has a dire effect on our nation’s economy and progress.

India has been ranked 132 out of 152 countries in OXFAM’s ‘Commitment to Reducing Inequality Index’, indicating its low social spending on health and education. High inequality is likely to promote corruption and threaten democracy.

K. Shiva Sai
K. Shiva Sai
Been a National Level footballer and a quizzer.

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