How to read GDP growth ... ...and not get misled What is GDP? the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period It functions as a comprehensive scorecard of a given country’s economic health c opy pasted from https:// www.investopedia.com /terms/g/ gdp.asp GDP Growth • often used as an indicator of the general health of the economy. • an increase in real GDP is interpreted as a sign that the economy is doing well. When real GDP is growing strongly, employment is likely to be increasing as companies hire more workers for their factories and people have more money in their pockets. • When GDP is shrinking, as it did in many countries during the recent global economic crisis, employment often declines. c opy pasted from https:// www.imf.org /external/pubs/ft/ fandd /basics/ gdp.htm Per Capita GDP • GDP per capita provides a basic measure of the value of output per person, which is an indirect indicator of per capita income • Or, how much money an average person earns • Or, how much money an average person has... to spend on needs and luxuries • Or, how prosperous is an average person GDP Growth – Latest Forecast USA 1.6% China 3.2% India 6.8% GDP Growth – Latest Forecast USA 1.6% China 3.2 % India 6.8% Rank? 3 2 1 GDP Growth – Latest Forecast USA 1.6% China 3.2% India 6.8% Rank? 3 2 1 i s it fair to say we are the rank 1 in growth GDP Growth – Latest Forecast USA 1.6% China 3.2% India 6.8% Rank 3 2 1 i s it fair to say we are the rank 1 in growth yes GDP Growth – Latest Forecast USA 1.6% China 3.2% India 6.8% Rank 3 2 1 i s it fair to say we are the rank 1 in growth yes g ood enough to celebrate? the devil is in details GDP (Trillion $) GDP (Rs Lakh Crore) USA 24.9 2,051 China 19.1 1,574 India 3.5 286 2,051 1,574 286 0 500 1,000 1,500 2,000 2,500 USA China India GDP - Nominal t he absolute size of the GDP is different by a very large scale. these numbers are so large that they are hard to visualiz e 1x 5. 5 x 7.2x l et’s try to simplify by looking at per capita GDP (Rs Annual) GDP (Rs Monthly) USA 60.5 lakhs 5.0 lakhs China 11.0 lakhs 92 thousand India 2.0 lakhs 17 thousand t he population difference significantly increases the difference b ut then isn’t everything cheaper in our country 5,04,447 92,004 16,779 0 1,00,000 2,00,000 3,00,000 4,00,000 5,00,000 6,00,000 USA China India GDP - Nominal per capita 1x 5. 5 x 30.1x let’s adjust for purchasing power parity ( ppp ) p er capita g dp used as as a proxy for per capita income GDP (Rs Monthly) USA 1.51 lakhs China 43 thousand India 17 thousand an average person in the US has 9 times higher consumption capability 1,50,950 43,081 16,779 0 20,000 40,000 60,000 80,000 1,00,000 1,20,000 1,40,000 1,60,000 USA China India GDP - Nominal per capita 1x 2.6x 9. 0 x i n india , the top 10% earns more than 20 times more than the bottom 50% i f you are reading this, everyone you know probably earns well over 17k. t here is a magnitude of people who earn below. how many do you know personally? Coming back to gdp growth i mf forecasts GDP (Rs Lakh Crore) Est Growth GDP Next Year USA 2,051 1.6% 2,083 China 1,574 3.2% 1,625 India 286 6.8% 305 a nd per capita GDP adjusted for ppp e stimated population growths: usa : 0.38%, china : 0.0%; india : 0.68% GDP (Rs Monthly) Est Growth GDP Next Year USA 1.51 lakhs 1.2% 1.53 lakhs China 43 thousand 3.2% 44 thousand India 17 thousand 6.1% 18 thousand 6.8% comes down to 6.1% b ut that’s still #1. it’s 5.0x of USA and 1.9x of China where’s the problem? observe the difference in the actual value a ssumed that average income increase will be in line with average gdp growth GDP (Rs Monthly) GDP Next Year Increase by USA 1.51 lakhs 1.53 lakhs Rs 1,835 China 43 thousand 44 thousand Rs 1,379 India 17 thousand 18 thousand Rs 1,020 with the highest growth, the average i ndian will earn R s 1,000 more than this year. with the lowest growth, an average a merican will earn Rs 1800 more than this year a ll assuming similar purchasing power t hese are averages a nd this is the base effect i f your income is going to go up by more than Rs 1,000 next year, there are magnitudes who will not earn more or perhaps earn less i t’s a very unequal world out there • s hould we be rejoicing at our GDP growths? • c elebrating the size of our economy? • o r • talk about per capita income and per capita gdp ? • start discussing inequality? • a cknowledge our privilege? • b e aware and sensitive to the structural inequities • a sk for policies that bring inclusion