Enhanced GDP and declined prices- A real development indicative?

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‘GDP’ and ‘Inflation’ are the two words that have crossed the borders of books of economics and economists’ dialogues. Today, the common man cheers at the elevating GDP and is upset to hear the upward trend in the rate of inflation. News channels debate over these concerns and the political leaders use them as a weapon during polls. But, tell me, would every hike in your fuel charges be disadvantageous? What about when you switch over your job and are paid 30 percent more, while the commuting expense to new office hikes by 8 percent? Indeed, not every upsurge in commodity prices is detrimental, nor is every downfall a sign of economic recovery.

To start with, let me make you aware of not a quite renowned concept of GPI (Genuine Progress Indicator). Introduced with a view to replacing GDP (Gross Domestic Product), this metric takes into account social and environmental factors, which do not find any place in the calculation of GDP. For instance, when the crime rate in an economy hikes, GDP boosts owing to the hike in legal fee, medical bills, and such other expenses. On the contrary, GPI views the upsurge in crime rate as a negative symbol. Similar is the case when GDP views high industrial growth as positive, overlooking the pollution aspect; however GPI takes into account the negative too.

Another key aspect is the linkage of boom in the stock market with economic prosperity. What would you say about the scenario when unnecessary speculative funds are chasing just a few lots or when trading is backed by margin trades? Same is the case when economists or some political leaders claim high public debt as unfavorable for the economy. To create valuable and socially significant assets that can pay off in the long run, the government largely depends on public debt. Unless the borrowed amount is outlaid on just non-productive streams such as pensions and salaries, not every rise in the public debt can be regarded as detrimental.

Now, let us also view some underlying facts prior to regarding every hike in the GDP as an economic boom. Would the rise in GDP backed by false demand serve any purpose than to result in sub-optimal resource utilization and uneconomical value consumption? Remember, until the hike in GDP is an outcome of resourceful exploitation of resources and natural increase in demand, the real purpose is never met. As far as analyzing the rising prices is concerned not every inflation can be termed as bad, unless caused by surplus money supply at the demand side or by cost momentum at the supply side. Better wages and work are the pluses of inflation.

In the same context, we can study the real impacts of upswing in employment rates and capital accumulation. Employment, as far as, just enhancing the marketing and economic overheads, can prove unfavorable in the long run. Capital accumulation, if not accompanied with prudent investment, can rarely serve any purpose. While the new government at the center is focusing much on bringing the key economic factors on the correct track, underlying facts and driving forces must not remain overlooked. India aspires for stable economic viability, and under no circumstances doors can be opened for bubbles that blast with time leaving nil assets.

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