"Pandemic has hit the economic growth," "pandemic induced economic slowdown,""steps for economic recovery". We often come across such statements in academic texts and nowadays, most frequently on news channels. This necessitates addressing some fundamental questions with regard to economic development and growth; Can the economy be measured? Can its expansion and contraction be quantified? Can the measurements be standardized to facilitate comparison?
In an economy, various goods and services are produced by different productive units during a period of one year. Broadly speaking, any change in the overall output of an economy can be treated as an indicator of its economic performance. However, given the heterogeneous nature of the underlying goods and services, they cannot be simply added up to calculate the overall production. (we cannot add 5,000 tonnes of wheat+ 1000 computers + 500 labour hours etc). Hence, we measure production in terms of money. There are many aggregates to measure the value of goods and services of a nation for this purpose. Each aggregate, has a specific meaning, method of measurement, and use.
The most often used statistical measure for this purpose is the Gross Domestic Product (GDP) which is the total value of all the final goods and services produced within the domestic territory of a country in a particular period (usually a year). There are other aggregates depending on whether they capture activity by the normal residents, and whether they include or exclude indirect taxes or subsidies and depreciation.
These parameters serve as a useful metric to measure the level of economic activity at a given point in time as well as facilitate comparison over a period of time or across regions. However, there are some inherent limitations of these statistical tools. Everything bought and sold is not equivalent to economic activity. For instance, cooking is considered an economic activity when food is sold but does not get included when it is prepared at home. Thus presence or absence of market transaction determines whether that activity is included in the aforesaid aggregates. As such, activities undertaken by women in households are not reflected in these systems.
Another major shortcoming is its inability to capture well-being vis-a-vis economic growth accurately. Certain economic activities may entail rapid and irreversible depletion of critical natural resources, cause pollution and have other undesirable consequences for the environment. Such externalities, despite heavily influencing the overall well-being of the economy and country, are not taken into consideration while calculating GDP.
Alternate measures, which go beyond aggregating the economic activity and account for other social aspects, such as the Genuine Progress Indicator (GPI), which includes adjustments for income distribution, crime, pollution, and the happy planet index (HPI), an index for human well- being and environmental impact, are steps being taken to bridge the gaps between economic growth and well-being.
Nevertheless, given the careful and highly technical way in which it is calculated, GDP continues to remain the most accurate and precise tool for measuring economic growth among its counterparts and is hence irreplaceable as of now. Indeed, as we strive for sustainable inclusive development, it is important to supplement traditional measures like GDP with other actions which are more holistic in their approach.
Gaurika Bhanot
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