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Wealth to Welfare

By Tweesha Gosar

The GDP of a country is a measure of the total goods and services produced in a country per unit period; however recently it has become synonymous with a measure of the welfare status of a country. It is essential to recognize that it is merely an economic growth measure and not an indicator of the country’s development or social progress. Countries make proud announcements about their increase in GDP, but what does that really mean? India is one example where wealth in the country is increasing, but not necessarily resulting in the upliftment of all sections of society in the country.

This dilemma is clearly primal in making policy considerations, as clearly brought out in the Sen-Bhagwati debate. The former is a supporter of social infrastructure developmental schemes like health and education, to enhance productivity of the human capital and in turn cause growth. The latter wants to ensure maximum growth in the near future, so that the weaker sections of society can gain benefits from this in the long term through income redistribution schemes. This rift in ideology is a clear indicator of the divergence and convergence of growth and development, such that often it can be a trade off of one for the other in the short term.

On the 1st of February 2018, India proudly announced with the Union Budget that its GDP is expected to grow at a rate between 7.2% and 7.5% this year.

According to the Global Wealth Migration Review, wealth in India has increased by 25% from 2016 to 2017. This is the highest growth percentage amongst a list of developed nations like US, UK, China, etc. Over the past ten years growth is considered to be around 160% and is expected to be 200% over the next ten years. These figures paint a rosy picture of growth and progress in India. However a magnified glance will clarify that this image is a representation of only a portion of the Indian population.

The first question that comes up is: whose wealth is increasing? The Oxfam survey this year stated that only 1% of the country’s population holds 73% of the countries wealth. Further, the poorest half of the population comprising of 67 crore Indians saw their wealth grow by only 1%, while the wealth of the wealthy grew by 20.9 lakh crores. India ranks first amongst countries with the highest percentage of population living below the national poverty line. A major drawback of this measure is that the definition of the national poverty line is not the most comprehensive and thus excludes certain sections of society that are actually poor. In spite of the raise of the poverty line by the RBI, and inclusion of other factors like housing, clothing, etc, it is still extremely low compared to countries around the world; this results in a lower percentage of the population considered as poor, while in reality, looking at expenses to income proportion, a larger part of the population should be considered poor.  Further, as identified in a paper titled “Is India’s Economic Growth Leaving the Poor Behind?” there was a greater income gap in urban areas than rural parts of the country; and this gap had been increasing during the 1990’s, however it can be safe to say that this trend continues to hold true. Urban India observes greater investment due to the nature of activities happening, which has resulted in different poverty lines for urban and rural India. This clearly indicates that inherently there is a difference in living standards in both areas resulting in this difference in poverty line values. Greater growth resulting from higher GDP, will not necessarily affect rural India’s poverty situation. Therefore, achieving higher aggregate economic growth is not the only element of an effective strategy for poverty reduction in India. Many other factors should be considered to ensure better living standards for the mass. The only light at the end of the tunnel is that this poverty percentage has been declining continuously over the last few decades.

One question that repeatedly comes up is that what is the cause of this continually increasing gap? Are only private players driving this rift to its ends or does the government have a role in this too? The Union Budget of 2018 showed great support and impetus to the rural sector of the economy.  Fiscal spending is at the forefront of this budget, which is aimed at supporting the “Aam Aadmi”.

Provision of 5 lakh rupees per family under the National Health Protection Scheme, as medical insurance has been allocated. The catch here is whether this money allotted will reach the 50 crore citizens it aims to benefit, or will it be pocketed by the health insurance companies claiming several medical issues that lie beyond the scope of the insurance’s ambit.

Taxing long-term capital gains is a calculated step to redistribute wealth and to fund some of the government’s projects like the medical insurance. The market is predicted to be insensitive to this change as it is a policy prevalent in most development intensive countries in the world. Further the cut in corporate tax is aimed at increasing employment opportunities resulting from business expansions; however this policy may not succeed, as corporates unable to grow will line the pockets of top management personnel with this excess profit.

The increase in MSP by 1.5 times, for notified kharif crops, seems like a huge jump on the surface of the policy, for the agriculture dependent sector of India. However the inherent problem for the farmers’ underpayment does not lie in the minimum support price, but the implementation of this policy. Annually, approximately 20 million tonnes of wheat is lost only due to lack of storage and distribution facilities. The increase in MSP may result in farmers selling their produce to government authorized shops instead of throwing it to keep the prices high, but the lack of infrastructure will have the same result of wastage of large quantities of the crop.

It is time we appreciate the measure of GDP in its true sense of a pure economic measure, and look at other indicators to help us realize what the developmental situation of our country is. In spite of wealth for the wealthy growing exponentially, India ranks second in the number of High-Net-Worth Individuals (HNWI), just after China, migrating to developed countries. This is a clear indicator of the perceived standard of living being sub-par. Factors like women’s safety, healthcare services, educational and professional opportunities impact people’s perception of standard of living in that country. The breakdown of the current budget shows glimpses of efforts in these social welfare avenues. Provision of free gas under the Ujjwala Scheme will benefit rural women. Likewise, investment initiated in the educational sector like the two new Planning and Architecture schools in IITs and the investment in government medical colleges and national healthcare schemes, are steps in the larger interest.

Since it is established that GDP isn’t the best measure of how well a country’s population is doing, then what other measure can be used? The Human Development Index created by Amartya Sen would not only include GDP, but also longevity, knowledge and decent living standards in its calculation. The Genuine Progress Indicator is another method that can be used which assigns value to the life-sustaining functions of households, communities and the natural environment so that the destruction of these, and their replacement with commoditized substitutes, no longer appears as growth and gain. According to it, as GDP increased, GPI went down in the US. The Gross National Happiness Index, as adopted by Bhutan, is another example of how to measure the standard of living of a country in non-monetary terms. As suggested by Richard Easterlin in the Happiness Income Paradox, an increase in GDP only causes an increase in happiness in the short term, but this is not held true always in the long run.



New World Wealth, Global Wealth Migration Review, 2018

Aldi Hagenaars and Klaas de Vos, The Journal of Human Resources, Vol. 23, No. 2 (Spring, 1988), pp. 211-221

Gaurav Dutt, Martin Ravallion, Is India’s Economic Growth Leaving the Poor Behind?, Journal of Economic Perspectives, Volume 16, Number 3, Summer 2002, Pages 89 –108

Gaurav Datt, Martin Ravallion, Rinku Murgai, Poverty reduction in India: Revisiting past debates with 60 years of data, 26 March 2016

Government of India Planning Commission, Report Of The Expert Group To Review The Methodology For Measurement Of Poverty, June 2014

Shenggen Fan, Connie Chan-Kang, and Anit Mukherjee, Rural and Urban Dynamics and Poverty: Evidence from China and India, International Food Policy Research Institute, August 2005

Costanza, R., Hart, M., Posner, S., Talberth, J., Beyond GDP: 8e Need for New Measures of Progress, Pardee Paper No. 4, Boston: Pardee Center for the Study of the Longer-Range Future, 2009

Richard A. Easterlin, Laura Angelescu McVey, Malgorzata Switek, Onnicha Sawangfa and Jacqueline Smith Zweig, The Happiness–income Paradox Revisited, National Academy of Sciences, October 26 2010

Tweesha Gosar , the author, is a second year law student at Jindal Global Law School.

Featured Image SourceProgblog

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