Why India must think beyond traditional determinants of growth : 20-08-2018

In analysing the health of the economy, economists often rely overwhelmingly on theoretical calculations and traditional determinants of growth. They tend to overlook the impact of social, political, cultural and environmental factors. Here are five unconventional, data-backed determinants of growth and GDP, both global and domestic.

Gender parity: A May 2018 McKinsey Global Institute (MGI) report, ‘The Power of Parity: Advancing Women’s Equality in Asia Pacific’ (goo.gl/5eU4 wV), estimates that India could add up to $770 billion to its GDP — more than 18% — by 2025, if it can simply advance gender parity in work and society. The report also states that by providing equal opportunities to women, $12 trillion can be added to global growth by 2025, while Asia Pacific stands to collectively add $4.5 trillion to its GDP by 2025, a 12% increase.

Climate for Change
Climate change: The 2018 World Bank report, ‘South Asia’s Hotspots: The Impact of Temperature and Precipitation Changes on Living Standards’ (goo.gl/LUZ4PE), finds that more than 800 million people across South Asia are living in potential ‘hotspots’ that are extremely vulnerable to the adverse impacts of climate change.

Rising temperatures and erratic rainfall patterns can put this population at risk of witnessing declining incomes and standards of living, increased morbidity, forced migration, low agricultural productivity and water scarcity.

For India, the repercussions are particularly grave. Climate change could shave off 2.8% of the country’s GDP by 2050, and nearly half of its population is at risk of declining living standards — 75% of the total vulnerable population across South Asia.

Inland, agriculture-heavy states such as Chhattisgarh and Madhya Pradesh would be worst affected, forecasts the report, with some areas witnessing a drop in living standards by as much as 9%, further exacerbating the deeply entrenched problems of poverty and inequality in India. Currently, the repercussions of climate change and extreme weather cost India $10 billion every year.

Secular democracy: Political instability usually impacts economic growth adversely. But intellectual opinion is divided on the relationship between democracy and growth. Many have historically hypothesised that secular democracy may have either a neutral or negative impact on economic growth.

However, a 2015 study, ‘Democracy Does Cause Growth’ (goo.gl/tCNXEL) by Daron Acemog lu and James Robinson, authors of Why Nations Fail, along with Suresh Naidu and Pascual Restrepo, finds a significant pro-growth effect of democracy on the economy.

This quantitative study presents evidence from a panel of countries between 1960 and 2010, estimating that a country that switches from non-democracy to democracy achieves about 20% higher GDP per capita over a period of 30 years. It concludes that over the last 50 years, the global rise in democracy has contributed to about 6% higher world GDP. The most significant facilitators for growth are civil liberties, and democracy is found to positively impact economic reform and private investment, while leading to a reduction in social conflict.

Technology: Another December 2014 MGI report, ‘India’s Technology Opportunity: Transforming Work, Empowering People’ (goo.gl/udwEL5), delineates 12 disruptive technologies that could empower millions, and collectively add $550 billion-$1 trillion to India’s GDP by 2025. It divides them into three areas — digitising life and work, smart physical systems, and energy — and demonstrates how the harnessing of these technologies can prove to be transformational. These interventions have a direct impact on several socioeconomic problems plaguing the country.

Sanitation is Money
Water and sanitation: A 2016 LIXIL Group Corporation, Water Aid, and Oxford Economics report, ‘The True Cost of Poor Sanitation’ (goo.gl/xpdc be), reveals that in 2015, global GDP took a hit of $222.9 billion because of poor sanitation, a $40 billion rise from 2010. In fact, India accounts for almost half of the global burden, suffering a loss of $106.7 billion in 2015, about 5.2% of its GDP.

The cost is calculated in relation to the four most significant dimensions: increased mortality, decline in productivity due to sanitation-related illness, increase in healthcare expenditure, and loss of productive time due to not having access to a toilet. These are the five definitive ways by which India can boost its GDP to the tune of trillions of dollars.

To its credit, GoI has seriously attempted to address some of these issues. For instance, the very fact that the Swachh Bharat Abhiyan is a flagship scheme of the Centre reflects the fact that GoI understands and appreciates the gravity of the situation. As per GoI statistics, about eight crore toilets have been built across India under the scheme since its launch in October 2014.

These parameters are not simply theory and numbers. They can be backed by observed reality. For instance, Silicon Valley’s success story is a product of a truly liberal society, of the civil liberties granted by secular democracies. Unlike India, the society that birthed Silicon Valley is one that celebrates diversity, destigmatises failure and incentivises risk and innovation. Some of the largest companies in the world were born in Silicon Valley, and continue to boost the US’ GDP by billions of dollars.

Having said that, this is not simply about GDP growth. India must spearhead progress in these five parameters primarily to create a more equal society, to grant its citizens freedom from unsanitary living and working conditions, to safeguard the constitutional and democratic rights owed to every citizen, and to guide its people and platforms into a digitally enlightened future in order to usher India into the 21st century.

Source : Economic Times

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