J&K’s GDP puzzle: picking the right threads
By: Arjimand Hussain
Consumption is a critical variable in the measurement of Gross Domestic Product (GDP) or GSDP. In J&K’s case consumption automatically does not mean production, given our high reliance on imports. The relation between our imports and consumption has some finer details which need attention.
It is for sure that our overall consumption is growing, which will naturally show in our GDP. However, a lot of our consumption, both imported and locally produced, is not registered. This consumption flows from all the three segments of our economy - agriculture, industry and services. This component of GDP is massive, and simply out of the statistical systems.
Then is the government expenditure, which during the PDP-Congress rule, was largely fuelled by the PM’s Reconstruction Package and the Kashmir Railway Project. It was sort of a public expenditure bubble, which is not sustainable. Sooner or later, the end of this bubble will reflect on our State’s GDP.
Another problem with our GDP measurement is that it does not take into account the black market, where the money spent is not registered. Most of J&K’s unorganised, and even some organised, economic activities are never registered. Take, for instance, our labour market. It is out of the radar.
Then there is the non-monetary economy, or the barter system, where no money comes into play at all. We don’t have any system of their measurement as well.
Another intrinsic problem with our GSDP accounting is that its growth does not over time take into account the purchasing power of money, which like in every context, varies in different proportion for different goods in J&K as well.
Although the Purchasing Power Parity (PPP) system is often used in comparisons between nation-states, it would require some degee of consideration in J&K’s context as well. There is clearly a degree of difference in purchasing parity – even in the minimum wage – between J&K and rest of India. PPP would take into account the cost of living factor and make suitable adjustments.
Mr. Rather in his Assembly speech said that J&K’s per capita income rose by 3.95 per cent from 2001-02 to 2007-08 (During PDP-Congress rule) against 16.25 per cent per annum between 1996-97 to 2001-02 (during the NC rule).
Any objective analysis would say that this is highly improbable. Between 1996 and 2001 there were hardly any economic activities to warrant such a growth in per capita income. On the contrary, incidentally, there was a major public expenditure boom during 2001-2008.
However, the Finance Minister made an important point when he spoke of J&K’s Balance from Current Revenues (BCR), meaning the difference between revenue receipts and the sum total of all plan grants and non-plan revenue expenditure. That is what shows J&K’s dependence on central grants in very explicit terms.
According to official figures, our BCR in 2001-02 was minus Rs 586 crore, which has gone up to minus Rs 4476 crore in 2007-08. This is preposterous.
Let us don’t forget Simon Kuznets, the inventor of the GDP, who in his very first report to the US Congress in 1934 had cautioned, ‘the welfare of a nation can scarcely be inferred from a measure of national income [or GDP]’.
To be concluded
Saturday, January 23, 2010
Demystifying Kashmir's Economic Growth - III
Higher growth needs a new vision; our times have changed
When a lot remains desired on the accuracy of the GDP, an automatic distortion in economic growth figures is a natural outcome.
The 2008-09 Economic Survey of J&K, presented in the Assembly, reveals that our income has grown around six per cent during 2008-09.
A six per cent growth in today’s low-growth times is a rarity – a virtue seen with boom countries like China and India. Looking at other indicators of our economy, like our per capita income, it again looks improbably accurate.
In theory, a growth rate of 8 per cent per annum should lead to a doubling of GDP within 9 years. J&K’s governments have been claiming 6-8 per cent growth figures for many years now. So should we foresee a doubling of our GDP in ten years or so?
One indicator which probably seems to convey one message clearly, even though still being imperfect, is our declining per capita income. In all probability, if we minus the distortion in our statistical system, our economic growth rate is not able to keep pace with our population growth. Official estimates put our current per capita income at Rs. 20,604, which is surely lower than our past incomes per person. What is alarming is that we now rank 22nd among all states in the Indian union.
The Economic Survey 2008-09 has portrayed J&K’s decline in contribution to India’s national income to 0.7 per cent from 0.85 per cent in 1999-2000 as another grey area of the PDP-Congress rule. J&K’s contribution to India’s overall income is hardly an indicator of our financial health. There are a multitude of factors that impact this percentage, mainly the relative performance of other states.
J&K’s future economic vision needs to factor in three important issues for its economic growth. There are surely many ways of interpreting this situation, but we need to contextualise things to suit our context.
Firstly, the slow growth of 1.79 per cent in agriculture will mean this activity would increasingly become a subsistence activity. There is evidence to suggest that for a vast segment of our peasantry, agriculture is now an unviable enterprise: the low land holding and low output in comparison to input costs are important factors. This situation would mean a larger number of educated populations from rural areas would mount even greater pressure on already-scarce job market.
Secondly, our current economic growth, whatever that be, puts a tremendous pressure on our natural resources, like forests, land, water, depleting them fast.
It is very much probable that ours is what some critics call this kind of growth "uneconomic growth.’’ The 2007 United Nations GEO-4 report estimates that humanity’s environmental demand is purported to be 21.9 hectares per person while the Earth’s biological capacity is purported to be 15.7 ha/person. In J&K’s case it is surely worse looking at our population stress on our scarce productive land.
Canadian scientist David Suzuki opines that ecologies can only sustain typically about 1.5-3 per cent new growth per year. This may well be logical in J&K’s case given our high reliance on natural resources and low productivity levels from our human capital and technology-based industry.
Thirdly, if we are to avert an even worse unemployment crisis, our economic planning must focus on innovation now. There is a problem with assuming that services sectors, like tourism, could use our human capital in more productive ways. That is true for only low-end jobs.
Our highly educated and skilled manpower would continue to remain in a vacuum. Investment in human capital and a strategy for its higher productivity would automatically enhance our economic output. That, in other words, would mean knowledge-driven entrepreneurship. Not necessarily the production-based entrepreneurship we are used to.
With a stagnated, or even negative, agricultural growth inputs of capital and labour will not be able to achieve a sustainably high growth for us in this fast changing world. Entrepreneurship with innovation holds the key.
Concluded
When a lot remains desired on the accuracy of the GDP, an automatic distortion in economic growth figures is a natural outcome.
The 2008-09 Economic Survey of J&K, presented in the Assembly, reveals that our income has grown around six per cent during 2008-09.
A six per cent growth in today’s low-growth times is a rarity – a virtue seen with boom countries like China and India. Looking at other indicators of our economy, like our per capita income, it again looks improbably accurate.
In theory, a growth rate of 8 per cent per annum should lead to a doubling of GDP within 9 years. J&K’s governments have been claiming 6-8 per cent growth figures for many years now. So should we foresee a doubling of our GDP in ten years or so?
One indicator which probably seems to convey one message clearly, even though still being imperfect, is our declining per capita income. In all probability, if we minus the distortion in our statistical system, our economic growth rate is not able to keep pace with our population growth. Official estimates put our current per capita income at Rs. 20,604, which is surely lower than our past incomes per person. What is alarming is that we now rank 22nd among all states in the Indian union.
The Economic Survey 2008-09 has portrayed J&K’s decline in contribution to India’s national income to 0.7 per cent from 0.85 per cent in 1999-2000 as another grey area of the PDP-Congress rule. J&K’s contribution to India’s overall income is hardly an indicator of our financial health. There are a multitude of factors that impact this percentage, mainly the relative performance of other states.
J&K’s future economic vision needs to factor in three important issues for its economic growth. There are surely many ways of interpreting this situation, but we need to contextualise things to suit our context.
Firstly, the slow growth of 1.79 per cent in agriculture will mean this activity would increasingly become a subsistence activity. There is evidence to suggest that for a vast segment of our peasantry, agriculture is now an unviable enterprise: the low land holding and low output in comparison to input costs are important factors. This situation would mean a larger number of educated populations from rural areas would mount even greater pressure on already-scarce job market.
Secondly, our current economic growth, whatever that be, puts a tremendous pressure on our natural resources, like forests, land, water, depleting them fast.
It is very much probable that ours is what some critics call this kind of growth "uneconomic growth.’’ The 2007 United Nations GEO-4 report estimates that humanity’s environmental demand is purported to be 21.9 hectares per person while the Earth’s biological capacity is purported to be 15.7 ha/person. In J&K’s case it is surely worse looking at our population stress on our scarce productive land.
Canadian scientist David Suzuki opines that ecologies can only sustain typically about 1.5-3 per cent new growth per year. This may well be logical in J&K’s case given our high reliance on natural resources and low productivity levels from our human capital and technology-based industry.
Thirdly, if we are to avert an even worse unemployment crisis, our economic planning must focus on innovation now. There is a problem with assuming that services sectors, like tourism, could use our human capital in more productive ways. That is true for only low-end jobs.
Our highly educated and skilled manpower would continue to remain in a vacuum. Investment in human capital and a strategy for its higher productivity would automatically enhance our economic output. That, in other words, would mean knowledge-driven entrepreneurship. Not necessarily the production-based entrepreneurship we are used to.
With a stagnated, or even negative, agricultural growth inputs of capital and labour will not be able to achieve a sustainably high growth for us in this fast changing world. Entrepreneurship with innovation holds the key.
Concluded
Subscribe to:
Posts (Atom)