What GDP Means For India?

These days, they discuss so much the growth rate. The developped countries have a decreasing growth rate while the growth rate of emerging markets is chugging along audaciously in the face of looming financial and economic woes in the rest of the world. How to define exactly the growth rate of a country and how is that relevant?

 

To answer this question we must first understand what the growth rate is. The growth rate of a county is primarily a function of the change in a countries GDP or Gross Domestic Product. It refers to the total quantity of goods and services produced in a country during a specified period of time, which is usually a year. The GDP is usually believed to be the best indicator of the financial and economic health of a nation and is often seen as a figure that can reflect the relative standard of living in a country. The mathematical formula for GDP takes into account four main variables: the spending by consumers, the investment by businesses, the spending by government and the net difference between the exports and imports in a country in a year. As long as this is positive, a nation will have a positive growth rate. Indian finance minister Pranab mukherjee had the pleasure of announcing a positive growth rate for India in fiscal year 2009-2010 at 7.4%. This has been achieved in spite of the turmoil that is dominant in most of the other major world economies. Primarily it is the manufacturing sector that has contributed to this phenomenal growth rate. While it is all well and good to get excited about these numbers, at the end of the day, the growth rate of a country is not simply based on number. There is, and if not, there should be in my opinion, a humane angle to this calculation.

 

As previously mentioned, there has long been a correlation drawn between the GDP of a country and its standard of living. While intuitively that makes some sense, I for one disagree. Take the example of India itself. Today India boasts one of the fastest growing growth numbers in the world. Its economy has been relatively isolated from the global crisis (relatively!) and it is being pegged as a soon to be superpower in the global arena. At the same time there India also has to contend with the fact that as of today approximately 28% of its population is below the poverty line. If you have ever had the opportunity to visit Mumbai, at almost every corner you will see glaring examples of this divide between the rich and the poor. Wealthy individuals live in high rise apartments surrounded by slums that start just where the apartment complex ends.

 

The main point that I’m trying to make is that even though India has a lot to be proud of in its economic growth story, it would be criminal to leave out the rest of the story. Numbers can only take you so far. It is the people that make up a nation and there is only so far the head can go without the support of the tail. India’s growth is pegged to be phenomenal in the coming years but it will not achieve this without pulling its masses out of the crutches of extreme poverty.

 

Sunny Talreja, part of Indian Stock picking community, http://www.moneyvidya.com

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