Why the Core of ex-CEA's Argument on India's GDP 'Overestimation' Stands -Prabhat Patnaik
-Newsclick.in
After economic liberalisation, barring a brief hiatus, the growth rate has scarcely moved up compared with earlier, with manufacturing -- the sector that counts most -- often logging lower growth than before.
The “gross domestic product” (GDP) is a concept rooted in an epistemic position which is intrinsically incapable of recognising the existence of a “surplus” in society. A simple example will make this clear. Suppose we have an agrarian economy in which 100 peasants produce 100 units of food; and suppose 50 of these are taken by an overlord through taxes, for consumption by his family and hangers-on. These 50 units will be readily recognised as constituting a “surplus” out of the total output of 100. But the concept of GDP would not recognise this. Instead it would claim that the GDP of the country is 150, consisting of 100 units of food and 50 units of “services” rendered by the overlord and his retainers. In fact if there is an increase in the degree of exploitation of the peasants by the overlord, through a rise in the magnitude of taxes to 60 from the original 50, then this increased exploitation will appear as an increase in GDP to 160 from the original 150. Increased exploitation of producers will appear as a 6 2/3 per cent rate of economic growth, from 150 to 160!
This is why Marxists have never taken GDP estimates, and the growth rate measure based upon them, seriously. But the recent claim by the former chief economic adviser (CEA) to the government of India, Arvind Subramanian, that there is a gross over-estimation of India’s recent growth rate, deserves serious attention, because his claim relates not just to the “services” sector, which is where the trouble usually lies, but to a large extent to the material commodity producing sector of the economy, notably, manufacturing.
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After economic liberalisation, barring a brief hiatus, the growth rate has scarcely moved up compared with earlier, with manufacturing -- the sector that counts most -- often logging lower growth than before.
The “gross domestic product” (GDP) is a concept rooted in an epistemic position which is intrinsically incapable of recognising the existence of a “surplus” in society. A simple example will make this clear. Suppose we have an agrarian economy in which 100 peasants produce 100 units of food; and suppose 50 of these are taken by an overlord through taxes, for consumption by his family and hangers-on. These 50 units will be readily recognised as constituting a “surplus” out of the total output of 100. But the concept of GDP would not recognise this. Instead it would claim that the GDP of the country is 150, consisting of 100 units of food and 50 units of “services” rendered by the overlord and his retainers. In fact if there is an increase in the degree of exploitation of the peasants by the overlord, through a rise in the magnitude of taxes to 60 from the original 50, then this increased exploitation will appear as an increase in GDP to 160 from the original 150. Increased exploitation of producers will appear as a 6 2/3 per cent rate of economic growth, from 150 to 160!
This is why Marxists have never taken GDP estimates, and the growth rate measure based upon them, seriously. But the recent claim by the former chief economic adviser (CEA) to the government of India, Arvind Subramanian, that there is a gross over-estimation of India’s recent growth rate, deserves serious attention, because his claim relates not just to the “services” sector, which is where the trouble usually lies, but to a large extent to the material commodity producing sector of the economy, notably, manufacturing.
Please click here to read more.