Whenever a monthly, quarterly or annual economic data is released by Central Statistical Organization (CSO), the utmost importance is given to the jump in Gross Domestic Product (GDP) achieved by the economy. The GDP growth of an economy details the overall picture of the performance of an economy at that point of time.

 

 As the recently, Indian Finance Minister hoped that Indian economy may expand at 5.7 percent in the year 2014-15, up from 4.7 percent in the year 2013-14, it means current financial year may see the average rise in the income of people of India by 5.7 percent.

 

When the income of average Indian is rising at a faster rate, it means that average Indian will now spend more thus triggering the rise in demand. As the demand increases, producers will try to increase supply in order to match that demand. The increase in supply will be met by employing additional investment and resources, thus improving the overall investment and employment scenario in the economy. It is because of this reason, corporate India always cheers any rise in the national income of the country.

 

However, on the negative side, increased income, purchasing power, spending and the demand also strengthens the inflationary forces making the inflation control a tough job for the government and Reserve Bank of India (RBI). In such a scenario, it is also seen that RBI also faces a dilemma whether to control the inflation by increasing the interest rates of help in the revival of economy by reducing them thereby assisting the increase in interest rates.

 

Another criticism of measuring the performance of economy by GDP approach is that it cannot provide the actual growth achieved the people as it is silent about the income inequalities. If the income of a CEO increases by 10 percent while a farmer’s income in the country’s hinterland increases by 2 percent, the GDP growth rate approach will say that economy expanded by 6 percent but it will remain silent about the rising income inequalities in the economy. Increasing social unrest in a society is directly related to the increasing income inequalities.

 

GDP approach is also silent about the impact of growth on environment or the level of human development. It is because of these reasons that the concepts of Green GDP and Human Development Index (HDI) were evolved. While the Green GDP is an index of economic growth with the environmental consequences of that growth factored into, HDI measures the overall human development level in the country which includes the improvement in health and education levels apart from income. The ultimate impact of GDP growth must be the improvement in level of human development.

 

During the first five year plan, Indian planners also aspired to achieve high GDP growth rate in India by the development of heavy and basic industries. It was believed that once the economy reaches a self-sustaining high trajectory, fruits of high growth will percolate to everyone including poor thus bringing overall human development at all levels. By 1970s, planners realized that high GDP growth cannot trickle down to the poor and ameliorate poverty in India and it was then government launched direct attack on poverty and came out with the slogan of ‘Garibi Hatao’.

 

By the mid of first decade of 21st century, Indian economy achieved very high growth rates where it clocked more than 9 percent GDP growth rate for three consecutive years. The high growth phenomenon actually started after 1991 when government started LPG (liberalization, privatization and globalization).

 

It was seen that impact of GDP growth on poverty was much better during the years of higher growth rate than the period when government launched several poverty alleviation schemed and gave the slogan of Garibi Hatao. Thus contrary to the earlier belief, empirical evidence revealed that GDP growth has an impact on the poverty levels as well. If in the initial years, it failed to make any impact on poverty, it was not because there is a flaw in GDP growth but because GDP growth was much less than the required level.    

 

The projected growth rate of 5.7 percent in the current fiscal is not enough to bring the positives to fore and manifest in the overall economic development. But it did bring positive vibes as it indicated the revival of growth cycle.