Estimates panel wants GDP norms changed

The Hindu, October 12, 2018

The report of the committee headed by BJP leader Murli Manohar Joshi could not be adopted on Thursday after protests from fellow BJP MPs.

The current manner in which GDP is measured needs an overhaul as it provides an incomplete estimation of economic activity, a report by the Estimates Committee of Parliament pointed out in a draft report reviewed by The Hindu.

The report of the committee headed by BJP leader Murli Manohar Joshi could not be adopted on Thursday after protests from fellow BJP MPs. The current GDP and Gross Value Added measures have also been questioned by Opposition leaders and economists alike. The Opposition even accused the Narendra Modi government of fudging the figures.

The committee noted that the GDP calculation doesn’t measure the depletion of natural resources, a point several economists including former Chief Economic Adviser Arvind Subramanian have pointed out.

The report said the current measure of GDP did not incorporate the economic contributions of women in running households and maintaining accounts, nor did it have any measure of whether an increase in GDP resulted in an increase in happiness.

“The Chief Economic Advisor [Arvind Subramanian], in this context, has candidly expressed before the Committee that GDP, the most frequently used indicator for measuring growth of the economy, has many deficiencies and it has been elevated and given sanctity that, may be, it does not deserve,” it said.

“The detailed examination [by the Committee] reveal that there are several inadequacies in the extant GDP measuring mechanism, most noticeable being depletion of natural resources not being taken into consideration while deriving GDP,” it added.

“Whereas any rise in GDP growth requires utilisation of natural resources, their utilisation and depletion is not taken into account while measuring GDP.”

The committee noted that while NITI Aayog had acknowledged that efforts must be made to ensure that GDP growth is combined with sustainability, it had so far not suggested any ways to achieve this.

“The Committee, therefore, strongly recommends to evolve indicators/parameters to gauge the environmental resource decay and replenishment efforts made to compensate the loss and also to capture these aspects in measuring GDP and other economic parameters,” the report said.

It highlighted that the current GDP measure, while accounting for increases in production, did not take into account other factors of economic activity such as the change in quality of the output due to improvements in technology, or how advances like artificial intelligence will impact employment.

“Another factor which is not taken into account while arriving at GDP…is the tremendous work done by women in India as housewives which include keeping the household accounts, saving money, attending to the smallest of the kids to the oldest of the house, managing all day-to-day household chores like cooking, fetching water and fuel, etc,” the report said.

It noted that there was no mechanism to measure whether increase in GDP added to happiness, specifically, whether leisure helped in increasing GDP or vice versa.

“The Committee strongly recommends the government to have mechanisms by coming up with new measures of GDP estimation and statistical measurement of other socio-economic factors,” the report said.

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