General awareness on current topics is essential as not only you will be getting questions on GK in various MBA entrance exams but it will be useful for Essay writing test and WAT also.
Today, you will read General Awareness Topic: “How GDP impacts common man?”
Growth Domestic Product (GDP) is still considered as one of the most important landmark for the health of an economy. GDP is the monetary value of sum of all the final goods and services produced in a country in an accounting year. Thus, an increase in GDP illustrates the overall progress made by the country people. In the third quarter of 2012 (July-September) GDP expanded by 5.30 percent over the same quarter of the previous year. However, the question arises whether an ordinary Indian has gained by this growth of GDP? In the similar fashion, does an ordinary Indian is impacted by the slow growth rate?
During the initial years of planning, government adopted the trickle down approach where it thought that development of poor and vulnerable is possible by higher economic growth rate. In the following years, neither the country was able to tread on faster economic growth nor was it able to effectively elevate the standard of living of its people. Gradually planners tried to tackle the issue of poverty directly and a direct attack on poverty was made with launch of several poverty alleviation programmes.
In the 11 and 12th Five year plan, ‘faster and more inclusive growth’ was the objective of the plan. Thus, once again India made higher growth rate and ensuring its fruits percolate to the every element of the population as its objective. Again, the country is not very successful on both the fronts but it also cannot be called as a failure.
The primary sector, which provides employment to half of the population, is the most laggard sector and so is the case with workforce engaged in it. Poor terms of trade of agriculture with the other sectors have caused the consistent migration of workforce from agriculture to industrial sector and from rural to urban India. Low agriculture growth resulted in low capital formation, low investment and thereby low income. Public as well as private investment, both are on a decline. No doubt, inequalities exist in agriculture sector where states like Punjab and Haryana are excelling with water agriculture growth; states like Bihar, Orissa are one of the poorest states of the country due to bad state of agriculture. Thus, in primary sector, a relationship can be established between a common agriculturist and over all agriculture growth rates.
Similarly, in industrial and service sector also, an impact of growth rate can be seen on their respective work force. For instance, in service sector, if there is drop in demand for software exports, retrenchment in seen in many companies impacting an ordinary employee.
Whenever there is a slowdown in particularly industry, fall in the income of companies force them to engage in cost cutting which again affects the employment of that sector. On the contrary, when there is a boom in particular sector, companies in that sector try to gain leverage by pouring in more capital in infrastructure and human resources to capture the market. While on one hand it creates employment opportunities, it also crates demands for other sectors through its backward and forward linkages.
Thus, there is no element of doubt that a growth in particular sector effects the common as well as uncommon elements of that sector, however, the level of impact may differ. For instance, during a boom, perquisites may increase more exponentially for the higher management than the regular workforce but it does have an impact on almost every individual. In case of slowdown, retrenchment may be more often in regular workforce but less in higher level. In agriculture sector, where the growth usually is not dependent on demand but other constraints like failure of monsoon also affects every farmer though in varying degree. In case of drought, all farmers will face either crop failure or increase cost in the form of diesel to pump the water to their fields.
Apart from these industry specific fall outs, fall in growth rate results in fall in public revenue also which further causes fall in the public investment adversely affecting the important public services. In order to bridge the gap of revenue and expenditure, government may resort to fiscal deficit which may push the interests up, negatively affecting the investment. Moreover, higher fiscal deficit is also inflationary in nature.
Thus, the higher growth rate of GDP is important not for the economic health of the economy but also for the economic health of the common man either directly or indirectly. If despite 6 percent growth rate we are not able to make the fruits of growth available to every section of the population, it doesn’t mean that we don’t need growth but we need more quantum of growth. Other factors of development like equality, health, welfare are also not less important but these factors will not meet the desired objective if there is no growth.