10% growth – What growth rate is good enough to escape poverty for India ?

10% growth – What growth rate is good enough to escape poverty for India?

Every economy in the world seems to be so concerned about its growth rate (GDP growth rate). Every economy is aiming for a 10+ per cent growth rate. But the question is, is that what we really need right now? Is growth sufficient for development?

Before we move further, we should first understand the difference between growth and development. We hear the words growth and development being used together so often that one can assume that they go hand in hand and happen simultaneously. But what is the difference?

Growth is a quantitative aspect and is shown as a quantitative improvement. When we talk about growth, we talk about something that increases in count. In an economy, growth can be witnessed in terms of Gross Domestic Product (GDP), fiscal deficit, gini coefficient, sectoral productivity, etc. These are the only things that are touted as a measure of success or as a measure of health of an economy.

Growth by itself, however, cannot measure development.

Development on the other hand is a qualitative aspect and is shown as a qualitative improvement of circumstances. This essentially means that as something develops the quality of the whole develops. Economic development leads to better overall living standard and opportunities to improve. An economy’s economic development is usually indicated by an increase in quality of life which is often measured using the Human Development Index (HDI).

Though growth and development may affect each other, they are not dependent on dependent on each other. Growth may take place despite little (or no) development. Development may take place but there may actually be little growth. Some may argue that for development, growth is necessary in certain area, like income, so that one has a base, one has enough money to start and think about improving overall situation.

Agreed (or agreed to disagree)! Growth is a necessary condition but not a sufficient condition for development.

Now that we know the distinction between growth and development, and we apparently value quality of life more than mere income, economies are still focusing on a 10+ percent GDP growth rate. Is growth all that we should be focusing on?

The model that all the economies follow fails to depict the grass-root level issues. GDP just reflects the total monetary value of goods and services produced by that country over a specific period of time. But what we (as an economy) need is to redefine this model of growth and development. The economic model should include essential factors like infant mortality rate, literacy rate, and life expectancy. It should include environmental aspect as well. This can be measured using carbon footprint of respective countries. Such model should include socio-political aspect of an economy as well, like appropriate reservation to the socially and economically backward class, sending girl child to school, protection of human rights, etc. This may be difficult to measure as one cannot really assign a quantitative value to it.

Some economists have been trying to come up with a model that could capture the development of an economy in true sense. One of the indicators that closely capture it is Human Development Index (HDI). It includes intrinsic personal factors that are not considered in economic growth, such as literacy rates, life expectancy and poverty rates, etc. It includes three dimensions of live which are – a healthy life, education and a decent standard of living. HDI captures these three dimensions through various indicators – healthy life is captured by life expectancy and birth; knowledge is captured by expected years of schooling and mean years of schooling; and, decent standard of living is captured by GDP per capita. After these statistics are combined for respective economies, they are used to rank them into four tiers of human development. According to the Human Development Reports by UNDP (2014 estimates for 2013), India is ranked at 135^th position out of 187 countries.

Although HDI has, to a great extend, been able to capture the development of an economy, it has failed to some of the important aspects that come under development, like inequality (within an economy), and environment.

We require a new model that could capture development in true sense. Growth (GDP) is just not enough to capture real development. So the trajectory followed by economies to achieve 10+ percent growth rate means incomplete development.

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