#
This required Germany to disarm, to give up some territory and most importantly to pay reparations to some of the winners of the war for the damage it had caused.
#
The total cost of these reparations was later estimated to be 132 billion marks, which would come to 442 billion US dollars today.
#
Germany at the time simply didn't have that kind of money and in desperation resorted to just printing money.
#
Now printing money can lead to inflation which is basically a tax on the poor.
#
Germany printed so much of it that it led to hyperinflation which was equivalent to waging war on their own people.
#
The unrest that this caused led to the rise of Nazism, Adolf Hitler coming to power in the 1930s and eventually to World War II.
#
Talk of unintended consequences.
#
Now this was not something that was unforeseen at the time.
#
The economist John Maynard Keynes wrote a book called The Economic Consequences of the Peace which pointed out the reasons why Article 231 would not work.
#
Beyond saying that Germany could not afford these reparations it also pointed out the problem that policy makers of those times faced because they simply did not know the national income of the various countries.
#
Had a measure called the GDP existed at the time the other countries could have taken one look at Germany's GDP and known that the reparations they wanted it to pay were just not possible but they didn't.
#
The GDP as we know it was later born at the time of World War II and Keynes again played a part publishing a book in 1940 called How to Pay for the War.
#
The title of the book reveals the impetus behind GDP calculation but I have a larger question that intrigues me.
#
Had the GDP existed as a measure in 1919 could we have avoided World War II?
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Welcome to the Scene and the Unseen our weekly podcast on Economics, Politics and Behavioral Science. Please welcome your host Amit Bhatma.
#
Welcome to the Scene and the Unseen. The GDP has been the subject of controversy for the last few years in India and part of the reason for that has nothing to do with economics and everything to do with politics.
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How can we tell if a government is doing a good job? One measure is the economy. How can we tell how well the economy is doing? The most common metric is the GDP.
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So no wonder there has been so much fighting over it illustrating what a Greek economist said a few years ago.
#
So I decided to get someone on the show who knows this combat sport intimately and could demystify GDP for me. Both the broad concept of it as well as the contours of the ongoing controversies in India.
#
Rajeshwari Sengupta is an economist who works at the IGIDR and has written important papers and articles in GDP which will be linked from the show notes. Before we cut to my conversation with her though, let's take a quick commercial break.
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Check it out on Storytel.
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And remember you get a 30-day free trial only at Storytel.com slash IVM.
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Welcome to The Scene in the Unseen, Rajeshwari.
#
Thank you so much Amit. Very happy to be here.
#
Tell me a little bit about yourself. Like what's your background? How did you become an economist?
#
So that's a very loaded question. How did I become an economist? I feel I'm still becoming an economist.
#
So I studied in Calcutta and I went to Presidency College and I got into the economics program so I've been there.
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And till then I really didn't have very much of an idea of what economics is all about except that I sort of liked it, the whole supply demand and how price gets decided and all of that.
#
Now while in Presidency College, those three years I think had the biggest impression in my mind as far as my future career is concerned because the kind of professors that I had and the kind of books that we got exposed to
#
and the kind of friends and peers that I had and discussions that I had were absolutely phenomenal.
#
And that kind of convinced me that if there is one subject that I want to study and I always had sort of an academic bent of mind that I wanted to study, that's something that I just wanted to do.
#
I thought that it has to be economics. And then after that it was just a gradual progression from one step to the other.
#
The usual things that people do, you do a master's, then I did a PhD because I wanted to become an economist.
#
And then after doing a PhD, I still had the impression that I did it in the U.S.
#
And I thought I will become a professor in the U.S. like my thesis advisor and I'll have a career in the U.S. University and that will be it.
#
But luck obviously had a big role to play. This was after the global financial crisis.
#
This was 2010-11 and the job market there was really bad.
#
And I was not graduating from that one of the top 10 universities in the U.S., which meant that my job prospects in the U.S. were not that great.
#
All the offers that I was getting from not kind of places where I wanted to be in.
#
So then the obvious choice was to come back to India, which I did.
#
And frankly speaking, other than the three years that I spent in Presidency College,
#
whatever happened after that was a bit of a blur because I learned the techniques, the tools, the jargon of economics.
#
But I didn't really get the juice of the subject, so to speak.
#
That happened when I came back to India, which I had not expected at all.
#
I thought that my career was over. I am back in India. Who studies economics in India?
#
Especially my field was macroeconomics. How do you publish in journals?
#
You don't have access to data sets. So I was in a doom and gloom mode.
#
And then eventually after a couple of years in India, in Madras, I went to Bombay.
#
I came to Bombay and I joined IGIDR.
#
And there I met a really interesting bunch of people who are really passionate about working about Indian economics, Indian public policy.
#
And that's when I really started discovering my real joy and passion of economics.
#
So what I thought was going to happen in my graduation and post-graduation ended up happening many, many years later in a very unexpected way when I landed in IGIDR in Bombay.
#
And today I think I'm still learning economics, but the joy that I'm getting out of it by studying Indian economics is something that I had never expected.
#
So very long answer to your short question is how did I become an economist by coming back to India?
#
No, no, it's not long enough. In fact, so just to kind of ask a follow up question,
#
I have to point out that the honesty is refreshing because most people who took this trajectory would probably say something like,
#
Oh, I could have, you know, taught at Harvard there, but I wanted to save my country.
#
And that's not what you said. But what also intrigued me about what you just said was that while you learned the techniques and the jargon and all of that while doing PhD,
#
you learned the juice of economics when you came back. And that's a very intriguing phrase. What do you mean by the juice of economics?
#
Okay. So what I meant is when I was studying in Delhi school and later on in the US, I learned the models and the tools and the techniques in a very mechanical way.
#
So I was doing well because I was learning the models, but the application of it to solve a real problem was not something that I was thinking about.
#
I was not applying my mind to solve problems. I was applying my mind to solve other kind of problems that would get me through the exams and the qualifiers.
#
But in terms of a macro problem of a country, I definitely was not thinking about it also because in the US,
#
it's a very different scenario because the US is just so developed by now that the frontiers of research have gone to the next level.
#
And you're just thinking of improving the field of economics itself and coming up with new models.
#
But you're not really asking really interesting questions, fundamental questions,
#
which is what happened in India because of the stage of growth that India is in because it is an emerging economy.
#
And there are so many unanswered questions. And there are so few people who are working, especially in the field of macroeconomics,
#
that the scope and potential to do good work is immense.
#
And that's what I meant by the juice of economics that I finally started thinking about how to apply those models and tools to solve questions,
#
to answer questions that would benefit the country. Of course, when I say benefit the country, that's a very, very big statement that I'm making.
#
But what I mean is you read something in, let's say, a budget speech, you read something in a government document,
#
in a central bank document, in an announcement, and you start thinking the repercussions of it.
#
What are the effects of this on the economy? How this is going to trickle down to the rest of the sectors?
#
And that's when I started applying my mind and the training that I had received to try to answer some of these questions.
#
And that's when I thought I was getting into the juice of economics because I was becoming an applied economist.
#
And I was applying myself to come up with answers and to also think deeply into some of the problems that why this is happening, why that is not happening,
#
which was not the case earlier, because, as I said, in the US, I was reading papers and I was at the level of the literature of what the topics were,
#
but not so much about what the economy was facing.
#
And here I finally got the scope to marry the topics and the techniques with what the economy is going through.
#
So today, for example, when I read the news or when I myself write articles, I feel that I'm really in the throw of things,
#
that I understand what's going on. I'm trying to understand what's going on.
#
And in a teeny weeny way, I can contribute a little bit to change things, to make things better.
#
And that's what really drives me that, you know, for the next n number of years, if I just keep at it,
#
then I can see that something tangible can happen in this country, again, in a very small way.
#
So that really drives my whole passion to continue to be an economist, that I can keep extracting the juice more and more
#
and keep understanding more and more and asking more and more questions, which to me is just fascinating.
#
You know, and that really speaks to me because like I had a recent argument on Twitter with someone or the other about economics
#
and they were like, why are you criticizing so and so person's economic policy and whatever, it doesn't matter in the real world.
#
And I was like, no economics has deep humanitarian consequences, especially in a country like India,
#
where there are millions of people who are in poverty.
#
And that's really a moral issue that we must all deal with.
#
Bad economics has huge humanitarian consequences.
#
And I guess what you're saying is that fine, you did all the theory, you read all the books,
#
but then you come to India and you're face to face with the notion that these policies are not words on paper.
#
They actually impact your life.
#
Who are the sort of thinkers who influenced you?
#
You know, are there any books that you'd recommend to my listeners?
#
So, frankly speaking, when I was going through the, I call it the program,
#
because you do the undergrad and you do grad and do the PhD and you're in the job market.
#
I was reading a lot of books just because I love reading.
#
But I remember when I was in college, Fountainhead by Ayan Rand influenced me deeply,
#
just the whole notion of the book and the concept of it.
#
But it's very hard to remember a book during those years of my life that influenced me,
#
perhaps because there was no time to get influenced.
#
There was no freedom and luxury to get influenced.
#
But all of that also happened when I came back and I started reading a lot more
#
and thinking a lot more about the schools of economic thought.
#
So at first, and because I'm a macroeconomist, I only know about that part of the subject really well,
#
is I first used to think that I'm a Keynesian and I really liked telling people that I'm a Keynesian.
#
It meant something that I belong to the Keynesian school of thought
#
and what the government can do to uplift an economy and all of that.
#
So I read a lot of books by, for example, John Kenneth Galbraith about what Keynes used to think about,
#
how his entire thinking developed and all of that.
#
But then as I started thinking more and more and started applying that to the Indian context,
#
I realized that maybe that's not optimal today.
#
Maybe it was really a good idea back then when you're coming out of a Great Depression,
#
you're coming out of Second World War.
#
It was the time and place at that point of time, but maybe not in the 21st century
#
and that if you really push the government's role too much, there are many unintended consequences
#
and then you just don't know what to do with it.
#
That's when I started reading Milton Friedman because he sort of gives the opposite view of how things can be,
#
the entire free market, exactly the opposite of it.
#
So there's a book by him called Freedom to Choose, which I really liked.
#
And I would say that had a very, very deep influence on me.
#
And then I could connect to some extent that with the Ayn Rand fountainhead philosophy,
#
that whole notion of freedom and what individuals can do by themselves,
#
very different from the Keynesian period phase that I went through.
#
So I would say Milton Friedman, that Freedom to Choose had a very, very big influence.
#
And Hayek, again, it's basically in the same line of thought.
#
So that's what I started reading more into and getting more and more influenced by.
#
And basically that's it.
#
And in a sense, philosophically what the subject of our episode is about GDP,
#
philosophically what governments attempt to do with the GDP
#
is the opposite of what Hayek wrote in his famous essay about the use of knowledge in society,
#
where Hayek's whole point was that knowledge and it was an argument against central planning
#
and his whole point was that central planning fails because knowledge is dispersed all through a society
#
and it's individuals making their own decisions with the help of the price system that really helps an economy run.
#
And the GDP, on the other hand, comes from a centralizing instinct of,
#
wait a minute, we need to control the economy and the nation
#
and we need a metric that helps us understand that and therefore the GDP.
#
But the origin of the GDP goes well before even the 20th century.
#
It goes back into the Middle Ages. Tell me a little bit about that.
#
Yeah. So I'll come back to this point that you made about Hayek and GDP later, but to answer that question.
#
So GDP, the way we know it has its origin in the 20th century,
#
but the whole concept of measuring the income of a country or the national income
#
actually goes back to the 17th century, sometime around 1650s.
#
There's a man called William Petty. I think he was a physician in the British Army, if I'm not wrong.
#
He took on himself the task of surveying the national wealth of Ireland
#
and this was in the context of Oliver Cromwell promising his soldiers
#
that he's going to give everybody a piece of land.
#
So William Petty went about the task of valuing agricultural land, valuing labor,
#
and in general to build a system of accounts that would enable the king or the ruler to impose taxes, essentially.
#
So back then in those days, the whole concept of measuring national income
#
was so that the government or the ruler or the king could use that for imposing taxes on the subjects
#
and also to limit accumulation of wealth in very few individual hands
#
because he would not want few people to become really rich and really wealthy, more than him, for example.
#
So that was the origin of measuring national income.
#
Even in France around the same time, there were a group of people called the physiocrats, right?
#
They decided that you divide the economy into three kinds of people.
#
You have the bourgeois class, who's basically the landowners,
#
and then you have the productive people, who's using the land to come up with agricultural crops, etc.
#
And then you have what he called the unproductive set.
#
And he called it the sterile set, I think.
#
These are the artisans, the king himself, in fact, who doesn't really do anything to contribute to the national income.
#
And there again, the idea was that you measure the value of land that's owned by the bourgeois
#
and that is being used by the productive class so that it can be used for taxation purposes.
#
So the taxation purposes and also how to pay for war.
#
As you mentioned, it was in Cain's title, but way, way back then,
#
how do you cover the costs of war is when you get a sense of how much income the nation is producing.
#
One of the impetuses for William Petty, and he introduced double entry bookkeeping also,
#
was the Second Anglo-Dutch War, which was between 1664 and 1667, as you pointed out.
#
And that was one of the impetuses, because if you've promised land to your soldiers,
#
you actually need to know how much land you have and how much you can realistically promise.
#
And what struck me about William Petty's exercise was that I think he thought of the national income
#
as essentially a system of accounts that would benefit the king or the ruler.
#
And the ruler would be able to use this to appropriate taxes.
#
He did not think of it at all as anything inducing welfare.
#
He did not think of it as something that the subjects would benefit from.
#
It was entirely something in the interest of the British kingdom or whichever the nation was.
#
And that was the narrow purpose.
#
And it was, again, very important to keep in mind that when he's valuing agricultural land,
#
he's monetizing the value. So it's a monetary value of the income from land.
#
There's no social or psychological or ethical notion associated with that value.
#
It's just cutthroat and dry that you are just assigning a monetary value to land
#
so that your king can use that to impose taxes. That's it.
#
So that he can figure out, okay, what kind of tax should I charge?
#
And how much money do I have at my disposal if I want to conquer the next territory,
#
if I want to wage a war? So that was the origin of national income as we know it.
#
But GDP, the way we know it today, is actually a more recent concept
#
with the origins do go back to petty. But in the true form of it, it actually came up in the 20th century.
#
And I think there's a quote that warfare is the mother of invention.
#
And many people would say that the Second World War was the reason for the invention of GDP.
#
But that's not entirely correct because GDP actually came about before the Second World War
#
with the start of, as you were saying in the introduction, it actually started with the Great Depression
#
because other than Germany not knowing how much income they were producing,
#
when the Great Depression, the mother of all crisis, hit the US economy in the late 1920s,
#
there was no estimate of how much income the US economy is producing.
#
And therefore, when the government, whatever policies President Hoover was implementing at that point of time,
#
what is the recovery effect of those policies?
#
It was very hard to assess that because you did not have a consistent measure of the total output.
#
And if you don't have a measure of the total output, how do you know whether the economy is recovering or not?
#
So I think it was already known by then that you need to measure income slash output of the country
#
to know what the performance is, to assess the performance.
#
I think that was clear from petty's time onward.
#
But the measure of it and how to go about doing it was not known till the 1920s.
#
And that is why when Hoover came up with his policies,
#
he actually based his policies on really sketchy details like he had data on freight car loadings,
#
he had data on stock market indices, and that's pretty much it,
#
and some very sketchy indices of industrial production,
#
far from enough when the country is going through something like the Great Depression.
#
And you needed regular assessment of how the economy is recovering, if at all.
#
And I would say that a big reason why Hoover failed miserably was because there was no assessment.
#
There was no metric available to evaluate the situation.
#
And to come back to the point that you said about Keynes and GDP and all of that,
#
we have to keep in mind that by the time Great Depression hit the US,
#
that was the era of classical economics.
#
Of course, Keynes was not there till then, right?
#
So classical economics is all about, again, free market.
#
It's all about there's no role of the government whatsoever.
#
When Hoover was hit by the Great Depression, he was still thinking that the market is going to solve itself.
#
The government did not do anything.
#
And that also goes, is consistent with the idea that you did not need a measure of the economy
#
because the market doesn't need the measure of the economy and there's no role for the government.
#
So why do you need to measure GDP or national income?
#
All that changed with the Great Depression.
#
So while as much as I would say that Hayek or the free market economists, Friedman, et cetera,
#
would champion the cause of individuals, free markets,
#
back then it would have been very difficult to keep championing it
#
when the country is in the throes of a Great Depression
#
and the market was in no situation to solve itself or individuals for that matter.
#
And perhaps you needed the government to step in because there was just no alternative.
#
So the time and place was ripe for Keynesianism to develop
#
and that goes hand in hand with the development of GDP
#
because Keynesianism would not have come about without GDP
#
and GDP would not have survived without Keynesianism.
#
And that was perhaps just not the time for the free market ideology
#
because the country was in absolute shambles and you get two shocks.
#
You get the Great Depression.
#
You get the Second World War.
#
You can't just wait for the markets to solve things.
#
So I would think that that time and place in that context,
#
perhaps that was the right thing to do.
#
And once Roosevelt became the president,
#
there's this history that the 1920s was when there's this institution called
#
the National Bureau of Economic Research, the NBER in the US.
#
It was set up in the 1920s by Wesley Mitchell, a very famous economist.
#
And Wesley Mitchell's student was Simon Kuznets,
#
basically the founding father of modern GDP.
#
And that was the time the Great Depression was coming up, the 1929 and 1930s.
#
So there's NBR that has been set up and Kuznets had already started
#
a bit of a work on estimating national income
#
unbeknownst to him what was going to happen to it as a result of the Depression.
#
Now when the Depression hits and Hoover loses the election,
#
Roosevelt comes to power.
#
At that point of time, Roosevelt realizes that we need a measure of
#
both of the country to figure out what the heck to do
#
and how the recovery can happen.
#
And the Department of Commerce, the White House tells the Department of Commerce,
#
the Department of Commerce is told that we have to figure out a research program
#
by which technically the output of the country can be measured.
#
Then the Department of Commerce contacts NBR.
#
And because in NBR by that time under Wesley Mitchell,
#
Kuznets had already started that work, that task falls upon him,
#
that come up with a comprehensive measure of the total output of the country.
#
So that's basically the starting point of how GDP came about in very turbulent times.
#
So for those of my listeners who are not kind of familiar with Keynesianism
#
and so on just to kind of simplify that perhaps in simplistic terms,
#
would it be then fair to say is that what Keynesianism basically is
#
is that if the economy is in a very bad space,
#
if the government spends a lot of money,
#
then you're putting money in the hands of consumers
#
and they start spending it on goods and all and a virtuous cycle starts
#
and the economy revives.
#
But if you want to do this, you also have to be able to measure
#
whether the money you're pumping into the economy is actually working.
#
You need a metric for this and therefore the need for something like the GDP.
#
Absolutely, that's bang on.
#
So because Keynesianism gives so much importance to the role of the government
#
and the whole idea is when you are going through such turbulent times,
#
the government can save the economy by pumping in more money,
#
by spending more money and therefore the government is the most important player.
#
And when the government is the most important player,
#
it becomes essential to have a measure like GDP,
#
which will tell the government that what is the impact of your policies in the short run,
#
in the short run meaning let's say in one quarter, two quarter, three quarters.
#
Is it helping? Is the economy recovering?
#
Is the growth of the economy going up, going down, whatever it is?
#
So that's why the two concepts went hand in hand.
#
The Keynesian emphasis on government saving the economy
#
and pulling it out of a slowdown
#
and the government having access to national income numbers of the country
#
to say that are the policies really effective or not.
#
So that's why I think the confluence of events was such
#
that GDP had to develop the way it did
#
and it perpetuated the role of the government too
#
because you need GDP to do policies, government policies
#
and you need government policies to keep GDP alive.
#
Because if you make GDP the one sole metric, then suddenly you're focused on that
#
and then the role of the... and they kind of feed into each other.
#
What I also find very interesting about this phase in the mid-30s, late-30s,
#
is that there's also a philosophical debate happening.
#
And while Kuznets is, as you said, the father of the GDP
#
and one of the gigantic figures behind it,
#
he ends up on the wrong side, he ends up losing the debate basically.
#
Tell me a bit about that.
#
Yeah, so at that point of time when Kuznets was given the task
#
of developing the measure of total output of the country,
#
he was of the opinion that GDP is just going to be an aggregate measure
#
of total goods and services produced in the country.
#
But he was not too much in favor of including government expenditure
#
because he thought that the main government expenditure,
#
and this was, again, you're coming out of the Great Depression
#
and inching closer towards the Second World War.
#
So his first task was to give a sense of economic growth for 1929, 1930,
#
and 1931, the Great Depression years.
#
But then the World War comes and then government expenditure in the US
#
shoots up because the government starts spending so much
#
on producing arms and ammunition.
#
And at that point of time, GDP became an extremely useful tool
#
because you could assess the capacity of the country
#
or the economy to produce arms and ammunition.
#
How do you convert simple industries like an automobile industry
#
into a military aircraft manufacturing industry?
#
How do you increase the productive capacity in terms of arms and ammunition
#
without affecting individual consumption?
#
All of these concepts became very, very useful because you had GDP as a tool.
#
Now, Kuznets did not want to include government expenditure
#
in his calculations of GDP because his opinion was that
#
if the government is spending on warfare,
#
that is essentially a negative thing and which basically gives us
#
the notion that he did have that notion of welfare in mind.
#
He was not just thinking of a physical material output
#
the way, for example, Petty may have thought about.
#
He did have that welfare notion where the consumers are benefiting or not.
#
In fact, an interesting insight here when Wesley Mitchell in NBR
#
was given the first NBR report of 1929 of 21 was about GDP.
#
There the founding fathers of NBR had said is the three things,
#
is there enough income to provide a decent living to everybody?
#
Is the income growing at the same rate as the population?
#
And is the income getting distributed in a more or less unequal manner?
#
So there was that thinking of distribution welfare in the minds of the NBR guys.
#
So I think that's why Kuznets said that you can't include government expenditure
#
because why would you want to include war expenses
#
subtracting from the welfare?
#
I mean one of the standard criticisms is that GDP measures both biscuits and bombs.
#
And that at one level doesn't seem to make sense.
#
Because the more bombs you explode, the more the GDP figures look good.
#
In fact, if you just have an all out war, if India goes to war with Pakistan tomorrow,
#
our GDP will go up. That doesn't make sense.
#
And that's why US had that wartime expansion of the economy
#
because the major part of the government spending was on defense budget
#
and was on building on arms and ammunition factories.
#
But then the people, the other people, others who were in the debate
#
did not like what Kuznets was thinking
#
because they wanted to include government expenditure
#
because it was such a big component.
#
So Kuznets lost that debate.
#
And government expenditure became a very integral part of GDP
#
as a result of which of course US, the size of the economy went up manifold
#
because as I said, the defense budget was massive.
#
And doesn't it kind of become self-fulfilling?
#
Like if you include government spending in that,
#
then the government can just keep spending more and more
#
and say, look, the GDP is going up, it's working.
#
Now, therefore you come to Keynesianism.
#
So that kind of paves the way exactly for what Keynes said
#
that listen, if you want the economy to grow out of a slowdown,
#
all that you have to do is the government has to spend.
#
Because the moment you include government expenditure in GDP,
#
you get this magic wand in your hand
#
that all that the government has to do is spend,
#
which is what the governments end up doing.
#
So that's where I think Kuznets lost the battle
#
and the whole notion of welfare or distribution.
#
All of these things went out of the window
#
and the entire focus was on how do you increase the size of the economy.
#
And when you are stuck in a slowdown,
#
John Maynard Keynes has said,
#
all that you have to do is the government has to spend.
#
So the government kept spending.
#
So after the Second World War, when the war has ended,
#
Kuznets was also the opinion that,
#
okay, fine, we are building a wartime measure of GDP
#
because it's for the cause of national survival
#
and it's important and I'm doing it.
#
But once the war is over,
#
we must spend time thinking about a peacetime measure of national income.
#
But of course, that never happened
#
because once you get, I think, addicted to this notion
#
that growing at a fast rate is just so easy
#
because the government defense budget has to keep increasing,
#
people are consuming, consumers are happy,
#
you get a post-war expansion of the US economy.
#
Why would you rethink GDP at that point of time?
#
And that's the second battle that I think Kuznets lost.
#
And Keynes won because Keynesianism got sealed
#
after the Second World War.
#
And there is a quote by Keynes and I don't remember the exact words.
#
He basically said that a grand experiment has begun.
#
If what is true of the wartime can also be true of the peacetime,
#
then it will be a great thing,
#
meaning that during the war,
#
the US became such a big economy by the government spending on defense and military.
#
If the same thing can continue, basically government spending, then that's great.
#
And that's exactly what the US economy kept on doing through the 40s, 50s, 60s.
#
So basically, this is called the golden era of US economy
#
when the government spending just went through the roof,
#
everybody was consuming, it was a happy period, and GDP was growing.
#
And I guess part of the impetus for the GDP also came from other events of those times.
#
For example, there was a Marshall Plan where the US was rebuilding Europe
#
and they said, look, we need to know whether it's working or not.
#
There's a Cold War where you're in this hardcore male ego battle about who is bigger
#
and there again you need some metric and hey, we got the GDP.
#
And how do you make the GDP go up?
#
I'm just wondering, I'm just thinking aloud here.
#
Has anyone actually surveyed that if you did not include government spending,
#
this kind of destructive spending in the GDP,
#
would the economy still have done apparently so well?
#
So I don't know whether we have disaggregated data for the US economy dating that far back.
#
And I'm sure the data is there, NBER itself would have the data.
#
But I think it's a great question that if you have the data
#
and if you know the techniques of constructing GDP,
#
if you can just take out government expenditure from that
#
and recalculate US economy size to see what would have happened.
#
And my sense is it would show a smaller economy
#
and it would show a significantly lower growth rate
#
because once you take government expenditure out,
#
there was nothing much else that was happening.
#
Because remember what Keynes said and what you said also that
#
once the government starts spending,
#
it's like you're triggering a spiral through the economy
#
and what Keynes called it, technically the multiplier effect.
#
It just keeps feeding on itself and the economy starts growing and growing
#
because the government is putting money in the hands of people,
#
people are using that to consume,
#
therefore you're producing more goods
#
and more incomes are getting generated, so on and so forth.
#
Once you take government out of the GDP account,
#
you just don't have it.
#
I mean what would you calculate, right?
#
I mean in the sense that my sense is
#
you would probably end up getting a smaller size of the economy.
#
And this whole notion of how war helps the economy
#
commits what is called the broken window fallacy
#
after Bastia's parable of the broken window
#
from which this podcast takes its name,
#
the seen and the unseen, it emerges out of this.
#
Bastia's parable basically was that if somebody throws a stone
#
and breaks your window and you have to get the window repaired,
#
people will say, hey, it's good for the economy
#
because it's helping the guy who repairs the window,
#
it's good for everyone, which is the seen effect.
#
But the unseen effect, as Bastia pointed out,
#
is that if the money had remained with the person with the broken window,
#
if he didn't have to spend it on getting the window repaired,
#
he would have spent it on something else
#
which would have had a productive impact somewhere else in the economy.
#
So while it appears that all this destruction is good for the economy
#
we need to look at the unseen sort of effect of that.
#
I'd like to talk now about the sort of GDP measures output.
#
Fine, it ignores welfare, so Kuznets lost there.
#
But even in terms of output,
#
there are all these curiosities and quirks in terms of what it cannot measure.
#
For example, while researching this,
#
I read about this thing called the widower paradox,
#
which is if a widower marries his domestic help,
#
the GDP of the country goes down
#
because suddenly he's not paying her anymore,
#
which illustrates that a lot of productive work
#
that is happening in the economy is not being measured.
#
But before I come to that, Amit,
#
because I just like this story so much,
#
I'm just going to describe in very short
#
what happened during the Cold War period
#
since you brought up Cold War.
#
And that also highlights the obsession with GDP
#
that had already started since then,
#
because that's what we see today.
#
So what happened during the Cold War years
#
is because the US was just so obsessed
#
about showing to the rest of the world
#
that they were growing at a really high rate
#
and they were doing great economically.
#
And the USSR, the Soviet Union at that point of time,
#
had a very different measure, by the way.
#
They were measuring something called net material product,
#
which was just the physical goods
#
because they were so high on industrial production.
#
They were not measuring government expenditure.
#
They were not measuring services.
#
But even within that, they were showing
#
that they were also growing at a very high rate.
#
The economy size is big because industrial production was massive.
#
And the US did not believe it.
#
They obviously wanted those numbers to stay in people's minds.
#
So the CIA was actually appointed
#
and told to spy on the Russian GDP,
#
so-called whatever, national income numbers,
#
So the CIA actually spent decades
#
and enough resources and spies
#
to get all the information about
#
Russian national income generation
#
and started poking holes in it
#
to the extent that in 1982, I think,
#
this was the fag end of communism, so to speak,
#
the CIA held a big conference
#
to expose all the flaws
#
of the Russian national income generation,
#
which showed that the USSR GDP
#
was actually half of what the official number had been.
#
And that was victory for the US
#
because they had just shown to the world
#
this and they are just fudging the numbers.
#
They don't know how to calculate GDP.
#
And as luck would have it, by that time,
#
Mikhail Gorbachev was the leader,
#
and the fall of the Berlin War happened.
#
And at that point of time,
#
Gorbachev admitted that, yes,
#
there are problems with our national income statistics.
#
We need to re-estimate it.
#
and the Bureau of Economic Analysis of the US
#
to teach them how to use
#
the US GDP calculation method
#
to get the Russian GDP.
#
And I think with that, fall of the Berlin War,
#
of course, is important for many reasons,
#
but this was one, that GDP literally became
#
for measuring economic progress anywhere else
#
because you had basically won over
#
the communist side of the world as well.
#
And I just find that story so fascinating
#
that, you know, it's just,
#
it's a number and it just became so political.
#
I think I know why you find it fascinating.
#
In another day and age, a GDP expert like yourself
#
could have worked with the CIA.
#
I mean, seriously, come to think of it, right?
#
I mean, CIA spies getting information
#
and being called by Gorbachev
#
to talk about national income building
#
is just a very different kind of notion
#
that we have that GDP is only a statistician's
#
Also, what I find very interesting
#
about how the Soviets do their thing is,
#
of course, we know every metric can be gamed.
#
If you have a metric, you'll game it,
#
whether it's a GDP or the ease of business
#
ratings recently or whatever.
#
And even in the USSR, exactly that was happening
#
because their thing just measured
#
that industrial output or whatever.
#
Like quality or satisfaction or how many
#
voluntary transactions are taking place.
#
So, for example, there's this famous apocryphal
#
thing about how the factory
#
would be given a target. You make so many TVs
#
and they would just put bricks in the TV thing
#
and it absolutely wouldn't work.
#
Which is amusing, but it also
#
raises a deeper question that
#
remains to the day that how do you measure
#
qualitative output? For example,
#
less money on buying a laptop today
#
than I would 10 years back or I might
#
spend the same money, but the laptop
#
can do so much else and the value
#
like just with smartphones, for example,
#
a phone of 2019 can just do
#
things you couldn't dream of with a phone of
#
2004 and all of the value
#
in that, for me, there's no way of capturing that.
#
Absolutely, and that's very well said.
#
again, as we are seeing from this discussion
#
as well that when GDP was invented,
#
so to speak, it was just supposed to be a measure
#
of goods and services back in the day of
#
the depression and war, etc., etc.
#
But once you've come through
#
such a complexities of the modern
#
economy and so many things
#
have changed in the structure of the economies,
#
the main question is, is that
#
same measure of GDP well
#
equipped to capture all of these complications?
#
And the short answer is no, because
#
back then it was a very
#
physical economy. The service sector
#
was big, but still not as big.
#
You did not have all these technological
#
innovations. Of course, the big difference
#
is information, communication, and technology
#
age. You did not have any of that.
#
And these are mostly intangibles
#
And GDP is all about valuing the products
#
at the market price. If you can't value
#
all of these products, and as you said,
#
variety of commodities or
#
quality improvements of commodities and
#
services, how do you value them?
#
And one way to value them would be
#
that the prices of these commodities
#
are falling, as you said, like it's
#
computer today, significantly cheaper than
#
what it was earlier. And the price
#
index should capture it, and
#
that would get reflected in what we call the
#
real GDP, because the real is basically
#
you're just dividing the nominal number by the price.
#
So if the price falls, because
#
the quality has improved so much,
#
then the overall real number
#
should increase even more. But what happens
#
is the price indices themselves don't capture
#
these improvements over time.
#
So altogether, the measure of
#
the output of the economy has become
#
an imperfect measure at its best.
#
And actually, it's almost like an
#
artificial construct. It doesn't even
#
exist in reality, because you're just
#
sampling one part of the economy and
#
calculating what that output is.
#
There are so many other things that you're not
#
measuring, quality of services,
#
quality of goods, varieties, innovation,
#
all of these things you're not.
#
Just one illustration of that is
#
the richest man in the world was a guy called Nathan
#
Rothschild, and he died of an infection
#
because there were no antibiotics. And now he
#
might have spent more than people
#
spent today in the medicine of
#
that day. So how do you measure
#
antibiotics being available at will and what it does
#
to life expectancy and quality of life?
#
I mean, it's just infinite.
#
The very fact that you are here recording this podcast
#
for me for no compensation,
#
unfortunately, though I did buy you a cup of coffee.
#
How do you measure something like that?
#
And how do you measure the insight
#
that the listeners might get from listening to you,
#
which you could not have had for
#
a lover money 50 years ago? Absolutely.
#
So the way I see it, Amit, is, you know,
#
when we start talking about the
#
shortcomings or the weaknesses of the GDP
#
concept, there are two angles to it. One is
#
what are the omissions?
#
What the GDP concept does not
#
include, which is what we are discussing.
#
And the other part is the unintended consequences
#
of countries desperately
#
pursuing a high GDP growth at any
#
famous example that this Italian economist
#
Japan is just basically
#
surveying the number of air conditioners
#
that the houses have. And
#
over a period of time, because the air conditioners
#
the air inside, but you're also emitting
#
hot air outside. And because
#
outside scenarios become so
#
unlivable, more and more houses start
#
buying air conditioners. So the GDP
#
would go up because, you know, you're producing
#
more air conditioners. But is that really a good
#
quality of life to have? So I
#
think in that pursuit of growth,
#
you are ignoring a lot of unintended
#
consequences or what we call
#
negative externalities. For example,
#
polluting industries may
#
be rewarded because they are
#
adding to the output of the country.
#
But is that really what we want when
#
our water pollution, air pollution is
#
so bad? So I think we've
#
reached a really tricky territory
#
today that what Keynes or
#
Kuznets would not have envisioned back
#
then, that the economies are really
#
complex. And there is a rat
#
race of GDP growth that's going on.
#
I call it the status good. You know, I mean
#
countries are ranked today on GDP
#
tables. There is a hierarchy
#
in the world today of countries
#
with the US leading, and the entire hierarchy
#
is based upon GDP, about size of
#
the economy and the growth rate. Think
#
of club memberships, right? I mean G8,
#
G20, all of these club memberships
#
There was a time when entry into IMF
#
and World Bank as a member country
#
was contingent upon whether
#
you were following the international standards
#
of national government. Not just that, I believe
#
at a point in time, if not even today,
#
that how much foreign aid you receive
#
from the World Bank and IMF depended
#
on how low your GDP was. Absolutely.
#
portraying the kind of growth
#
that your economy is experiencing.
#
And either you want pursuing a really high
#
growth at what cost, there are environmental
#
concerns and many others, or
#
you're trying to show the economy is not doing well,
#
as you said, because you want to get aid.
#
So what has gotten lost in all of that
#
that GDP was supposed to do is measure
#
the output of the country. That's it.
#
Nothing more, nothing less. But if
#
you use one measure or one
#
indicator to measure too many
#
things, then you end up getting
#
what we called an indeterminate world
#
because you will not do anything well.
#
So I think we have lost the narrative
#
somewhere that we want this one
#
indicator to capture everything.
#
And we are not satisfied that it's not
#
doing it. But at the same time, countries
#
and politicians are using this
#
in a rat race in a global level to
#
say my country is the fastest growing country
#
or I'm the third largest, sixth largest country
#
in the world. So there is this
#
inconsistency between the two. There are people
#
who are saying GDP does not capture
#
A, B, C, D, E. It's causing negative
#
consequences. But there are these governments
#
of the countries who are saying this is
#
the biggest metric, the most
#
important number in the world today. And
#
I'm fighting a rat race which I need to win
#
at any cost. And this is
#
founding fathers had thought.
#
And it's just, it's become
#
an irresolvable situation
#
that questions are raised
#
should we continue with GDP? Do you
#
discontinue? Do you come up with other numbers?
#
is made of this. A mountain is made out of
#
a molehill. And what is kind of fascinating is
#
that how from just being an arcane
#
economic subject for economists
#
like you, which you discuss in your
#
economics cabals and conferences,
#
it's become a hot button political issue.
#
It's like, you know, like I say, GDP
#
is a new pseudo-secularism.
#
It's just part of the political discourse
#
and, you know, you have
#
so much debate going on.
#
Are these metrics correct? Are these
#
numbers correct? Yeah, in fact,
#
as you said, GDP is everywhere. It's
#
in media, it's in policy debates, it's the most
#
ubiquitous number quoted.
#
And, you know, I find fascinating that
#
most of economic concepts are
#
layperson to understand. But the way
#
GDP is thrown about in a casual
#
way would imply almost that
#
it's a very simple, uncomplicated,
#
that everybody understands.
#
But it's exactly not that. It is just
#
the opposite. It's a very complicated,
#
not at all a perfect measure
#
of the size of the economy. And there
#
are many, many problems with it, but
#
it's this usage in common
#
parlance has become so widespread
#
make the mistake thinking,
#
oh, it's a very simple measure, it's just a number
#
and you just track the number
#
every year and you figure out whether
#
you're doing good or whether you're doing bad.
#
And if you're doing bad, the government should do something
#
about it. And if you're doing
#
good, then, hey, let's try to do better.
#
So it's become a very simple narrative,
#
but the actual concept is
#
quite complicated. It is a
#
relatively narrow one in
#
importantly, we have to keep in mind that
#
capacity has to be really, really
#
well formed to measure a number
#
I mean, it's not just our country
#
developed countries, struggle to come
#
up with a good number, a good measure of GDP.
#
Because it's a very, very complicated
#
thing. Economies are getting more complex
#
and you're trying to measure everything with
#
that one number. So it's getting
#
more and more complicated. And
#
you understand, I mean, the statistical
#
agencies understand it, but you can't
#
prevent the politicians and the governments from making
#
a very big deal out of it. No, and in the popular
#
imagination, it's almost as if the GDP
#
is an objective fact, a single
#
number, like 2 plus 2 is equal to 4.
#
So, you know, if one party is saying
#
it's 5%, the other party is saying it's 7%,
#
they'll be, each will behave like the other
#
one is lying, but maybe they're both lying
#
and maybe they're both telling the truth and it's
#
such a nebulous thing. And there's a great illustration
#
of that, that I read about recently,
#
the way, they tweaked the way they measure
#
their GDP. And between November
#
5 and November 6, 2010,
#
And nothing changed in the economy.
#
They just changed one of the small metrics
#
to its GDP. But again, nothing changed
#
in the economy. It's just the way that you measure
#
it, which is subjective, complicated,
#
you know. Yeah, yeah. I mean,
#
in the same spirit, in the US,
#
as I said, it's not just the
#
emerging on the developing countries.
#
In the US, around 2006,
#
or maybe a little bit later, the idea was
#
you include software purchases
#
as investment, rather than as an input
#
cost. And because you started
#
counting this as investment in 2013,
#
I mean, nothing has changed in the world.
#
All the other countries haven't changed
#
anything, but suddenly US looks so much better
#
than the rest of the world, because you've just changed
#
this one small thing. And
#
that shows you how imperfect
#
the measure is, and it's constantly changing.
#
And I think even in the 90s,
#
there was something called hedonic pricing, which came
#
into vogue, which kind of took into
#
account not just the price of a product,
#
but the increase in quality, and therefore
#
priced it differently. And again, it suddenly
#
appeared to the rest of the world that, wow, US
#
is doing so well, and all they changed was
#
they introduced this new little trick.
#
Exactly. So then, therefore, it's far
#
from being a perfect or a comprehensive measure.
#
And you can do any small changes,
#
and the number will go up. And then
#
exactly as you said, politicians
#
start debating about, oh, it's
#
But it's such an imperfect thing.
#
It's complicated, it's imperfect.
#
Why do you want to give so much importance to it?
#
And the thing is, all of those debates should
#
really happen in good faith, and instead
#
they are so filled with all of this
#
political nonsense. It's so suffocating
#
that we need a break. We'll take a quick commercial
#
break, and we'll come back to talk about
#
how exactly you measure
#
GDP, what does it include, what does it not
#
include, how difficult it is, and oh my
#
God, we are going to hell.
#
On Cyrus's, Supreme Court lawyer
#
and founder of Swayam Pharma Foundation,
#
Harshit Kohli talks to Cyrus about how he got started
#
with Swayam, their objectives, and why people
#
in cities need to take more interest in farming.
#
Also in case you missed it, check out Cyrus's review
#
of the 2019 World Cup final with comedian
#
Mikhail Almeida on last week's cricket special
#
Lanzo. On the Rani Skrewala podcast,
#
Rani and I discuss the chapter 2nd innings, where
#
Rani updates us about his current ventures and talks
#
about how problem solving is different in a non-profit
#
organization. On the Filter Coffee
#
podcast, Karthik is joined by award-winning journalist
#
and fellow podcaster Amit Verma. They
#
discuss India's performance in the 2019 Cricket
#
World Cup, Sports Analytics, and Booker.
#
On the Empowering series, Zarina is joined
#
by two guests, theatre and TV actor Benaaf
#
Dada Chanjee, and Chinese chef and
#
serial entrepreneur Norman Ho. Together,
#
they talk about their 10-year relationship,
#
the importance of commitment and loyalty,
#
and how one should sustain, grow, and evolve
#
in a relationship. On our Karnada podcast,
#
Thale Harate, Pawan talks to researcher Lingaraj
#
Jayaprakash about Buchanan's journey,
#
offering a unique insight into the life and times
#
of the regions he traveled at the dawn of the 19th
#
century. On Geek Fruit, Chishnu is joined by
#
the IBM staffers Abbas and Alika to talk about
#
Stranger Things' latest season. And with
#
that, let's get you on with your show.
#
Welcome back to The Scene in the Unseen.
#
I'm chatting with the economist Rajeshwari
#
Sengupta on the GDP, and we spent
#
the show so far talking about what
#
the history of the GDP is, how it evolved,
#
the philosophical issues around it,
#
what it measures, and what it does not measure.
#
measure GDP, gross domestic product,
#
what is it, this is technical stuff, how do you measure it?
#
And B, after that, come
#
to what are all these controversies in
#
India all about? Okay, so
#
a quick trivia before I go into
#
the technical measure of GDP, so
#
since we talked about the history, when Kuznets and
#
others came up with a measure, it was called
#
gross national product, GNP.
#
The idea was that it's the
#
of all goods and services
#
produced by the people of
#
a country within a particular year.
#
And the people of the country, that notion
#
was important for gross national product. I mean the people
#
of the country could be in
#
US, could be in Japan, but it would be
#
included in the US GNP. And
#
that continued till about
#
this notion of gross domestic product.
#
And gross domestic product is
#
in a particular year. And sold in
#
the country. Yeah, produced and sold in the country.
#
Doesn't matter whether it is just
#
by the people of that country.
#
So, therefore basically it means that
#
if an Indian is sitting in Dubai
#
producing something, that will be counted
#
in India's gross national product.
#
But not a part of India's
#
gross domestic product. But if there is a
#
Japanese guy sitting in Tamil Nadu
#
in an automobile factory producing something,
#
that will be a part of India's gross
#
domestic product. And the reason this
#
became important in the 1990s is
#
once we had globalization,
#
lot of companies basically
#
got the license to set up
#
subsidiaries in emerging markets
#
and other countries. So, it got
#
delocalized. And once it got
#
delocalized, it became important
#
to measure the output produced
#
just within the geographical boundaries of the country.
#
And the interesting thing that it did
#
was, when you went from GNP to
#
emerging economies just went
#
up. Because emerging economies
#
but then, at that point of time, post-globalization
#
these subsidiary companies,
#
outsourced companies, etc.
#
So, their output actually went up
#
as we changed the definition from
#
GNP to GDP. And, of course,
#
the emerging economies have been growing at a phenomenal
#
I think a lot of that has to do
#
with the definition change. But, of course,
#
they themselves have been doing quite well.
#
Now, in terms of how it's measured, as I said,
#
the, you assign a market price,
#
total goods and services produced
#
in the country in a particular year.
#
And there are three different ways
#
of measuring it. So, think of a
#
good or a service going through
#
different stages. So, there is a production
#
stage, there is a distribution
#
stage, and there is a consumption
#
stage. So, exactly to mirror
#
that, Kuznets came up with three
#
different ways to measure. You have a
#
production approach, expenditure
#
approach, and an income approach.
#
So, in the production approach, what you are doing is
#
you are just estimating what is called
#
value added. It's just as simple as
#
total output minus total
#
cost, whatever the total revenue
#
of the companies, minus whatever the
#
value of the inputs used.
#
That's the production approach. Then you have the expenditure
#
approach, where you are
#
just summing up different
#
expenditure components, and
#
the total that you get is the GDP.
#
And in the different expenditure
#
components, you have consumption
#
expenditure, you have investment,
#
you have government expenditure, you have exports,
#
and you would subtract import,
#
because import is something that you're spending on
#
goods and services of other countries.
#
Now, this expenditure component is actually
#
again, closest to the Keynesian
#
idea, because Keynes was
#
all about boosting demand
#
by increasing expenditure
#
of the government, and that fits really well
#
with this Keynesian idea, the expenditure
#
approach. And the third approach
#
is the income approach, where
#
it's basically one is equivalent of the other,
#
because if the companies are producing
#
consumers, we are consuming, then we are
#
also getting some income, because we are the factors
#
of production. So the labor, land,
#
capital, these are the usual factors.
#
So the factored incomes that are
#
being paid in the process of the production
#
get calculated in the income
#
approach. And the idea is that all
#
of these three approaches will yield the
#
same number. There are some discrepancies
#
here and there, but that's the
#
overarching idea of measuring GDP.
#
And that's pretty much what is followed in
#
every country. So that's the
#
main measure of GDP, so to speak.
#
It's complicated because in India, especially
#
it's complicated because of so many
#
bad labor laws and industrial laws,
#
we have a very large informal economy.
#
And therefore, those statistics
#
are very hard to come by.
#
So, you know, how do we get around that?
#
That's actually a very good point, because
#
and 40s, after the World War, the
#
United Nations was developing what is
#
called the system of national accounts.
#
It's called the SNA. And the guy
#
who was instrumental in building
#
Richard Stone, who actually won the
#
Nobel Prize for that. The SNA was
#
the idea is that it's going to set international
#
national income accounting for all the
#
because it was primarily done for the developed
#
countries, there was not much of a problem in it.
#
But gradually, when GDP got
#
exported to the rest of the world
#
as the main metric of economic performance,
#
it was realized that emerging
#
countries or developing countries do
#
have a very big informal or unorganized
#
sector. And how would you value
#
the output of this sector?
#
There is no easy answer to
#
that. And in fact, the SNA is not
#
really very helpful outline
#
to understand what's to be done.
#
And in fact, the size of the informal economy
#
is massive. I mean, in some estimates,
#
it's about 40 to 50 percent
#
in emerging countries. Even in India,
#
it's a very, very big portion. And
#
we don't have a very good measure of the
#
informal sector, which means that
#
a big productive part of the economy
#
from the official measure of the
#
size of output. And that's just a
#
shortcoming that we live with, because
#
if you're following the international guidelines,
#
there. And we ourselves, we
#
have some crude measures of doing surveys
#
of figuring out what the informal
#
sector contribution is. But they are far
#
from perfect. So that's a big
#
calculation of emerging countries, that
#
we can't estimate what is the informal sector.
#
when demonetization happened in the country,
#
the negative effect of demonetization
#
because majority of the effect
#
was going to be on the informal sector, which is
#
the cash-based economy. But because
#
we did not have a good measure of the informal
#
sector output, we could not measure
#
of the informal sector. And therefore today we think
#
maybe demonetization did not have that much of an
#
effect because we just don't have a measure of it.
#
when you can't measure about 40-45%
#
then you have a measure of the organized
#
sector, so to speak, and you make such a big deal of
#
it. But that's just the
#
state of the things today. In fact, that even answers
#
the question of why is a metric like the GDP
#
important? It's important because then
#
you have a sense of where
#
the government is messing up and
#
what it's doing right, even
#
if you don't think of it as a tool of central
#
control. And I've had many episodes in the
#
demonetization, and all my guests make pretty much
#
the same point that it absolutely devastated
#
the informal sector, but it's not going to show in
#
statistics anywhere. And
#
that's kind of sad. So how
#
has thinking towards the GDP
#
evolved in India over the years?
#
who measures it? Is there like a government
#
agency whose responsibility it is
#
to measure it? How have they arrived at a
#
methodology? Is there a consensus
#
around the methodology? How reliable
#
is the kind of data which they get?
#
Tell me a bit about all of those problems.
#
So we have actually a very
#
rich history of national statistics
#
in India. And the reason
#
I mentioned SNA earlier is because I wanted
#
to talk about it, that when the system
#
of national accounts was developed by the UN
#
Indian economists and statisticians
#
actually played a very important role there.
#
V.K.R.V. Rao, who was actually the
#
founding father of Delhi School of Economics,
#
the system of national accounts building
#
intellectual inputs to the SNA model.
#
In fact, brief digression, our mutual friend
#
Niranjan Rajdakshya told me recently that
#
Dadabhai Navroji had to put
#
right to calculate the national income in 1870.
#
So I think Indians and of course then
#
later on we have a professor
#
of Mahalanobis, right? I mean, he's like the
#
father of statistics, so to speak, in India.
#
So we had a very, very rich history
#
statisticians and economists in India.
#
And in fact, V.K.R.V. Rao, again
#
an interesting tidbit, was offered a position
#
at the same time when Kuznets was
#
and he did not take it, he instead
#
came and built the Delhi School of Economics.
#
background is. So we had the
#
at the frontier of the GDP statistics, but
#
we have actually gone exactly the opposite way.
#
in the past we had, we were following
#
the system of national accounts off and on
#
bunch of statisticians. There's an organization
#
called Central Statistics
#
For the longest part till 1990s
#
a lot of the statistical work was done
#
out of ISI, Calcutta. And that's
#
where the National Sample Survey
#
Organization, NSSO, was also set up.
#
So the CSO, the Central
#
Statistics Office, is primarily responsible
#
in the country. The CSO collects
#
agencies, ministries, etc.
#
and collates everything together. There is a
#
model that they use, you put in all the numbers
#
and the sectoral disaggregations,
#
etc, etc. And that is what has
#
been happening for a very, very long time.
#
Now what happened recently
#
after almost every five or six years
#
the base year of the GDP is revised
#
because you need to calculate GDP
#
in the benchmark of one particular base year
#
because otherwise the prices are fluctuating
#
and you want to keep the prices constant for one
#
particular year. So the CSO releases
#
base year series where the base year is 2011-12.
#
The earlier base year was
#
Now when the series was released in 2015
#
the growth rate of the economy
#
for all the years where we
#
available for the old series
#
and the new series. Now why was
#
this surprising? Because when
#
you do a base year revision, base year division
#
is a very regular thing. All countries do it.
#
We have done it many times and you should.
#
So when you do a base year revision
#
of the economy may change because you're probably
#
doing a better capture, but the growth
#
rate never changes a lot.
#
The economy is just maybe getting
#
bigger in size. You're using better data
#
and better methods because you're capturing
#
better. You're getting a bigger size of the economy
#
but the growth rate doesn't change.
#
What happened in 2015 was we got
#
a phenomenal increase in growth rate
#
sector which was the manufacturing
#
sector. In fact in one year it
#
went from negative growth rate in the old
#
series to almost 6% and 7%
#
in the new series. So it's a huge
#
happened consistently for all the
#
three years for which we had data
#
of the old and the new we could compare. After
#
one point of course the old data got discontinued.
#
We couldn't compare it with anything else.
#
We just had the new data. But
#
the seeds of suspicion were planted
#
in the minds of whichever
#
economist and statistician was looking at this
#
series and wondering to themselves
#
what is going on? How can you have
#
such a high growth rate?
#
of the economy by looking at other things.
#
We were basically in a banking
#
crisis. Exports were not growing.
#
Investment had stagnated.
#
Now in a country where investment
#
has stagnated for a few years
#
the banking sector is in a non-performing
#
are not growing. How can you have
#
an economy growing at 7%,
#
These kind of disconnects,
#
these kind of questions started getting
#
in the academic circles of people who
#
knew about the GDP measurement.
#
constricted within a group of a few
#
economists and statisticians who knew about the process.
#
There was a lot of debate
#
back and forth in journals
#
That's when it started becoming more
#
there are some problems in the new series
#
and it's much more than what
#
needs the eye. And because
#
GDP is such a complicated construct
#
not many people understand it. In fact
#
Robert Solow back in the 70s
#
had a quote that every quarter you
#
have economists talking about the GDP but very
#
few of them really understand what they're talking about
#
which is true even today.
#
So it became clear that there's something
#
wrong in the GDP and some people
#
started writing about the technical details
#
of it, the methodology and etc.
#
But the debate just went out of hand
#
because the moment I think media
#
and whatever it is politicians
#
they started getting a sniff of
#
that oh things are not right.
#
It just went completely out of control.
#
It was no longer a debate restricted
#
within 10 people who understood the process.
#
It became a debate involving
#
many many people who did not understand
#
the process at all. They just knew
#
something was wrong. The GDP did not pass
#
what is called the smell test
#
and therefore we need to
#
attack, we need to criticize.
#
And from then on I think
#
it just completely took its own
#
cost of it was that very
#
little was written about
#
exactly what is wrong and what can
#
be done about it. It got so politicized
#
so fast that the central statistics
#
office got very defensive.
#
They started defending saying whatever we
#
have done is in keeping with the
#
system of SNA that I was talking about
#
SNA 2008. It's in keeping
#
with international guidelines.
#
Everything is perfect. So it almost became like
#
two camps. Like there's a camp of people
#
who's criticizing the series
#
and there's a camp of people who's defending
#
saying everything is right. And is this camp partly
#
driven by politics? I would think so
#
because it also unfortunately
#
or fortunately whatever it is coincided
#
with the time when BJP government came to power
#
in 2014 and right after that the new
#
series was released and
#
then the new series showed
#
this government in really good light because
#
it was growing at breakneck speed. So
#
automatically it got politicized with people
#
thinking that is there a political motive
#
on and the CSO increasingly
#
started withdrawing from the debate.
#
Other institutions which are more political
#
started talking about GDP
#
and it just got a really noisy
#
debate so to speak. And
#
I think what we forgot in the process is that
#
state capacity in India
#
are many many sectors of India where things
#
don't work. You take crime, you take
#
Now in a country where the state capacity
#
is inherently weak, why would we
#
expect a very complicated number
#
like GDP to be perfect?
#
I mean it's almost obvious that there
#
will be problems, there will be measurement
#
flaws and maybe people are trying to do the best
#
that they can. But there are issues.
#
But if you blow it out of proportions
#
saying oh no it's not 7.5
#
really becomes problematic.
#
Unless you really understand what you're talking about.
#
So I have a couple of questions here. One is
#
methodology and the data
#
are the methodology and the data
#
is used to calculate the GDP.
#
Are they open and available to all
#
to kind of look at? And the second problem
#
that strikes me thinking from a point
#
of view of incentives is that
#
if a lot of this data is coming
#
from government agencies and if
#
it is obviously an incentive
#
I mean the government is incentivized to make
#
itself look good, then how can
#
this data be reliable and are there
#
independent ways of either verifying
#
this data or using other proxies
#
to get a sense of I mean whether it passes
#
the smell test? Yeah, so
#
what happened in 2015 was
#
changes done to the GDP series other
#
than just a base year revision.
#
For example, for the manufacturing sector
#
which underwent the biggest
#
changes, the entire data set
#
that was used in the earlier series
#
was replaced with a new data set.
#
And since I need to mention
#
the name otherwise it will be difficult,
#
it's called MCA. It's the Ministry of
#
Corporate Affairs data set, MCA 21 data.
#
So earlier we were using annual
#
survey of industries, ASI,
#
and now we started using MCA 21
#
data. So it was a big change.
#
Then there were many other methodological
#
changes in the way GDP was estimated
#
in the new series. Now these data
#
are not coming from the government agencies.
#
For example, MCA 21 is a database
#
where companies voluntarily
#
file their financial returns.
#
And on the basis of the financial returns
#
you're computing the GDP of the manufacturing
#
sector or of the services sector basically.
#
data related changes were introduced
#
that some things went haywire
#
in that. But unfortunately
#
we can't test it because it's not publicly available.
#
So as a researcher today
#
I cannot access the MCA 21
#
database. So while I may suspect
#
that there are some problems with it
#
I can't conclusively prove
#
that yes there are problems because
#
I don't get access to the database.
#
Why don't you get access to the database?
#
I mean just using the same
#
should not all citizens have access to these
#
databases? Yeah, if you file an RTI
#
so see MCA 21 data, let's say
#
there are 11 lakh companies
#
that register with the Ministry of Company Affairs
#
in any given year. Out of
#
11 lakh companies, let's say 6 or 7 lakh
#
are filing returns. You basically need
#
the MCA does not provide it publicly.
#
You can pay a very small
#
fee and get the data for one
#
company for one year and it just
#
becomes a mammoth exercise if you want to
#
get the full data set. So unless
#
the MCA decides to make it publicly
#
available in a user friendly manner
#
it is very difficult for us to get that data.
#
And just getting the data itself is
#
not the end of the story because you also need
#
methodological changes that the
#
CSO had brought about. We don't even know
#
the CSO brought about all these
#
changes there is a document
#
which kind of gives an idea but it's very
#
vague and there's a lot of opacity
#
about it. That what were the exact
#
changes and other technical details.
#
Now if they had been transparent about
#
it, that listen these are the changes that
#
we did. This is the current method, all
#
the nitty gritty and details of it and here
#
is the database that we used. Now you
#
are free to do whatever tests you want
#
to do. They did not do that.
#
So there's a lot of guessing game that
#
researchers had to do to figure out what's
#
I think kind of got the CSO more
#
on the back foot. They got more defensive
#
and there was no release of information coming
#
from their side at all. So end
#
of the day there is this opacity.
#
There is a big suspicion that things have gone
#
absolutely no response from the CSO
#
admitting that maybe there are
#
some problems or you guys find it out for
#
yourselves. We are making the documents transparent.
#
this camp thing that you know
#
I mean some people are just convinced
#
that there are problems with the GDP data.
#
The CSO and now the government
#
basically says that no no everything is fine.
#
And you're almost at an impasse.
#
Because what do you do? And what
#
ended up happening, the negative
#
effect of that is that I think people
#
started losing the trust in GDP.
#
When I talked to many of my financial market
#
friends in Bombay, they tell
#
me that routinely when the GDP number
#
comes out, they always subtract 2%
#
from there from that number.
#
And they take that as the actual growth rate.
#
Because they feel they can't
#
trust the actual official number.
#
There's no reliability of it. I
#
often tell my own students that you know
#
you can work on macro research
#
but you can't use the GDP data. Imagine
#
what a handicap that is if you're studying
#
the macroeconomic situation of
#
the country but you can't use GDP data.
#
Also what happened with this revision,
#
we don't have a continuous
#
series going backward. So we
#
have a GDP data now from 2011-12
#
going back till the 1950s.
#
So when you don't have a continuous
#
series, how do you track the progress
#
of the economy over time? So even that
#
got affected. In fact there
#
was a typically what happens when you do
#
a base year revision. You're also supposed to
#
release a back series to
#
link it with the older one.
#
And the CSO did that except
#
the back series showed that
#
during the boom period, what you and I
#
know as the boom period of
#
than what it has been over the last five years.
#
perception of history. And there is a
#
smell test issue to that quite frankly
#
because you know just having lived through that
#
time and living through this time. Exactly.
#
And I think with that release they actually
#
lost all credibility because
#
when you just tell the country that oh it was
#
not the boom period that you thought it was
#
because we have changed things
#
and that also they were really
#
opaque about the back series method,
#
how they did it. I mean we tried to recreate
#
it and we could not because we just didn't have
#
access to information. So
#
all of these things it just
#
was no longer just a base year revision
#
or just a methodological improvement
#
in keeping with say SNA. They started
#
doing many many things which
#
really affected the credibility of the
#
statistical office itself.
#
And when that started happening
#
you know you just as I said you don't
#
trust the GDP number anymore.
#
And you know typically the first instinct would be that
#
okay they changed the methodology a little bit
#
and all maybe they did it in good faith and
#
let's not bring politics into it and so on.
#
But then when you say that they are not being
#
transparent about it and they are just asking
#
us to trust them blindly, then I
#
think the default mode has to be suspicion
#
and to say that there is something fishy here.
#
Exactly because when you see that there are so many
#
people criticizing it. Some of them
#
know what they are talking about, some of them may not know
#
but still all you have to do as
#
the statistical agency of the country is just
#
come out in the open and say listen guys
#
this is the details of what we have done
#
and yeah maybe there are some
#
problems here and there. Maybe you should add
#
some caveat, take it with a pinch of salt.
#
But this is in the interest
#
of the economy because we want to do better capture
#
blah blah blah. But we are going to give you all the
#
information. There is no reason for them to withhold
#
information from us. I mean they could literally crowd source
#
all the hard work. Absolutely, absolutely.
#
And you know the quest should be
#
estimation method and to involve
#
more and more stakeholders
#
and it's extremely important I think when it's a national
#
statistic number, you need
#
the stakeholders. Otherwise who are you really
#
creating this number for? I mean
#
are you just creating the number because you want
#
to participate in a global rat race of being
#
the fastest growing country when nobody in your country believes
#
in the data? So what is it that
#
the objective is? And especially
#
when you are in a country with such a rich
#
history and heritage of
#
would you do something like that? Why can't you
#
just be transparent and say this is all
#
that there is and you guys figure out if you
#
really have the expertise. And I
#
personally have not just been able to understand
#
what is the resistance and what's the reason
#
And if there is so much of a criticism
#
instead of being defensive and saying
#
no no it's an attack and blah
#
blah everything is well and doing more
#
stuff like releasing a back series which says
#
the boom period was not a boom period.
#
Why would you do something like that?
#
I mean unless you are really convinced
#
which I don't think they were because again
#
that method document was also big.
#
I just don't get the motive
#
that you are a statistical agency.
#
All you do like all statistical
#
agencies in all countries is you follow
#
a method, you try to improve, you come up
#
with a number, it's a statistical process.
#
obsession with defending a number
#
this is what it is, this is the method,
#
this is the data, figure it out for yourself.
#
So I'll ask a very, I mean forgive me if this is
#
too much of a newbie question. I get
#
why the state needs to know what the GDP
#
is because it's doing whatever economic
#
planning it is doing though there could be an argument
#
it should do much less of it and just do the basic
#
things that it's supposed to do like maintain the
#
rule of law. And I get why
#
political parties need to know the GDP
#
because they want to make it part of their
#
campaigns and the government needs it
#
for the optics of we are doing such a good job
#
the opposition needs it for the opposite reason.
#
But why do you and I, why do people in
#
participants in the actual regular economy
#
need to know what the GDP is, why is it
#
important? So the answer to that question is
#
we don't need to know. You know I mean
#
we won't be any worse off and nothing
#
will be taken away from our life if we don't know
#
how Indian GDP growth is doing.
#
I mean if I come to think of it before the internet
#
know about how India is doing and what's the growth
#
rate? No. I mean because I think because of the internet
#
age because communication has become such a
#
everybody starts taking interest in this one
#
number in this GDP growth without even
#
thinking why do we need to bother about it.
#
I mean it's another thing that newspapers
#
are or media or whatever
#
they discuss it because they want to
#
question the government which is perfectly fine in
#
good faith. But is it really necessary
#
to take the debate to this extent
#
and make such a big deal of it? I don't think
#
so. I think if there are economists
#
or statisticians who know what they're talking about
#
and they are questioning the statistical agency
#
it should just remain between them and
#
end of the day we should not give so much
#
importance to GDP. I think
#
what has happened over the last five years is
#
we have given excessive importance
#
to a number which is produced
#
capacity environment and
#
with international guidelines. But we have
#
just given it this holy grail
#
words we have basically made a cult out
#
of GDP and therefore the entire
#
debate policy discussion just rotates
#
around that number. It really doesn't have to
#
be that. Exactly as you said your life my
#
life doesn't change at all if you don't know how the
#
country is doing and it's perfectly fine.
#
But I think the debate should remain
#
within the people who know what they're talking about
#
and should not become this popular
#
really a very complicated concept and
#
I would much rather it stays so
#
because otherwise we end up assigning
#
too much importance to an obscure
#
and then you just lose the narrative
#
because then the focus is not on fixing
#
the problems. The focus is defending
#
saying no no no everything is fine.
#
The focus all throughout the last
#
four years should have been either acknowledging
#
that there are some issues fixing
#
the problems and all that the public gets
#
to know is yeah the number has changed and some
#
other number has come out so what big deal.
#
On the one hand as we discussed earlier
#
it's a very nebulous number like another
#
measure of that which I was hearing
#
about recently is that you know the states
#
all measure their own GDP as well
#
and when you put them all together it doesn't add
#
up to what the India GDP is
#
or if you measure the India GDP
#
through a different approach you said there are three
#
approaches production expenditure
#
so on even those don't add up
#
to each other so it's a very nebulous number and we
#
need to recognize that but also
#
the counter view to that which
#
strikes me is that in a
#
democracy especially a democracy
#
which you could argue is going through turbulent times
#
in a democracy you need to hold
#
you need to speak truth to power and you need to hold
#
it accountable and you need
#
a metric for that to judge how
#
it is performing. For example
#
common sense and we see it all around us
#
that demonetization was an absolute disaster
#
they are throwing a GDP number at us
#
which doesn't really indicate that
#
you need a way to fight that and argue
#
the counter view to this whole thing of you know
#
that GDP should not be a political issue
#
because it is the metric out there of how
#
a government is performing in an economic context
#
it has to be a political issue.
#
So the two ways to address what you are saying
#
and I completely agree with what you are saying too
#
see it's like think of an example
#
where if you tell students
#
in a school or university that
#
all that matters is your rank
#
in class and your grades
#
and nothing else then the students will
#
try by hook or by crook by cheating
#
by gaming whatever it is to get
#
the high rank and to get up the grades
#
which is exactly what countries are doing today.
#
I mean countries like ours or other countries that
#
all that matters is the number and the growth rate
#
and we will try to do whatever it takes
#
we will game the system and get the
#
growth rate up. There is a saying that if you can
#
measure something you can control it.
#
So that's exactly what governments and it's not just
#
our government or whatever not government
#
but our country. It has happened in Greece
#
in Argentina many many other countries.
#
But the thing is if you want to
#
hold the government or the system
#
accountable on the basis of one number
#
that majority of the people
#
don't even understand then I think
#
it's a very problematic scenario. I would
#
much rather say that and especially
#
when it doesn't affect your day to day life.
#
I mean look at it this way demonetization happened
#
did anything show in the GDP? No.
#
Is it just a function of flawed methodology
#
or is it the case that really nothing happened?
#
We don't know. So that metric
#
itself is not a perfect measure
#
of what you want to measure.
#
which is complicated and all of that
#
would you want to use that to hold
#
the government accountable as opposed to
#
let's say for example is jobs
#
a better metric because jobs
#
is something that does affect you and I.
#
Today you and I would care about the fact do we have
#
a job? Do we have an income? That's something that
#
immediately affects us. I would much rather
#
be in a situation where I can hold the government
#
accountable for the jobs or not just the government
#
even the markets whoever it is right.
#
That if the unemployment rate
#
or I call the non-employment rate
#
because non-employment also measures
#
people who are not even looking for jobs.
#
The situation has become so desperate
#
that you're not even out
#
there searching for a job. So
#
I would much rather that that kind of a measure
#
that kind of a metric for an emerging country
#
like India is perhaps much more important
#
and it's relatively harder
#
to fudge because people in
#
the day-to-day lives can observe whether they have
#
jobs or not and we do an
#
extremely poor measure of unemployment
#
rate. I think there should have been a lot
#
more discussion about improving unemployment
#
or non-employment measures
#
and as opposed to improving GDP
#
measures because it's a very very abstract
#
notion as opposed to jobs
#
but you'll see there's not much of a other
#
than the government withdrawing
#
up not basically withholding
#
that report. We don't see a lot of
#
discussion in general about jobs
#
and unemployment. It has become a recent fashion
#
because of this withdrawal of
#
the report and the Center for
#
Monitoring Indian Economy coming up with very
#
high unemployment numbers. I think that
#
needs a lot more focus and if
#
people really want to question something
#
and really want to hold the government accountable
#
for something maybe that's it.
#
Otherwise I think if you pay
#
too much emphasis on this one GDP number
#
it is very easy for the
#
statistical agency to say oh we have done everything
#
right and what can you do after that?
#
As I said we are at an impasse.
#
You know it's been four years since the series
#
came out. Have we achieved anything
#
by holding the government accountable? Nothing. In fact
#
they are just doing more egregious
#
things like as I said releasing a back
#
series and all of those things. Maybe
#
we'll have another base year revision coming up
#
which can increase the growth rate even more.
#
What can we really do? I mean despite
#
the noise that has been created
#
the statistical agencies say oh we are perfect.
#
We are following the international standards.
#
This is the rate at which the economy is growing.
#
As opposed to saying let's
#
get down to measuring unemployment or the job
#
situation because you look around and you see
#
your friends don't have jobs. The salaries
#
are not increasing commensurately with the
#
growth or whatever inflation it is.
#
not just jobs. Look at multiple
#
things. Again instead of holding
#
the government accountable for one thing you hold
#
the government accountable for a few other things
#
if you want to talk about welfare.
#
Should India just measure its performance
#
in terms of GDP growth? We may be the
#
fastest growing country in the world but we do
#
so poorly in all the other metrics
#
of development, environment, climate change
#
etc. One of the alternative metrics
#
which came up a couple of decades ago is the HDI
#
the Human Development Index where
#
again we don't do so well and many economists
#
have proposed that you don't look at the GDP. You have a
#
dashboard of metrics. Exactly.
#
You were speaking earlier of common sense metrics
#
and I remember Donald Reagan's 1984
#
where he basically asked the American
#
people to ask themselves one question.
#
Am I better off now than I was four years ago
#
because he was fighting for re-election?
#
And the thing is if you ask the Indian voter for that
#
that's a very nebulous question because
#
more at ease with a particular
#
sort of cultural narrative even
#
if he is not physically better off.
#
Secondly and this is an objection which
#
permeates through every single metric. What are
#
the counterfactuals? You know
#
if the labor laws were reformed would he be much
#
better off? That is just such a
#
question. I mean how on earth do you measure something like that?
#
You simply don't know the counterfactuals
#
and that could really apply to
#
any of all this and therefore when it comes
#
to something like the GDP which is such a complicated
#
number like you put it, essentially I
#
think what is going to happen is people are going to believe
#
what they want to believe. They are going to go with the narrative
#
they want to believe. It is essentially going to be
#
tribal where someone who supports the Prime
#
Minister Modi will say oh the GDP is
#
doing great and the other side will say it is not
#
and it is ultimately a tribal decision
#
and not a rational mathematical one.
#
So my question to you now turning away
#
from all of this, turning away from the
#
politicization of GDP and all of that
#
is that as an economist
#
and in your case as an economist who has written
#
you are sort of an expert
#
on it. How do you now look
#
Like if it is a completely useless
#
forward from here? Is there any way past
#
this or is it just basically
#
given that the methodology is now opaque
#
and given what the incentives are, is
#
it just a completely nonsense figure which you have
#
to ignore as an economist?
#
the question that I have been grappling with Amit
#
for the last several several months
#
if not a couple of years is that
#
as an economist and especially as a
#
macro economist where my
#
bread and butter or my passion so to speak
#
it depends a lot on using GDP
#
as a statistic because I am an applied economist
#
is what do I do? What research
#
do I do? Where do we go from here?
#
And I have come to the conclusion myself
#
the GDP number in our research
#
in public discussions because simply
#
from whatever research I have done shows there are
#
problems and it is very difficult
#
to trust that number unless the problems get
#
fixed or unless the statistical agency openly
#
comes out about the caveats and
#
qualifications. It is very hard
#
and where do we go from here? I would say
#
as you pointed out dashboard of indicators
#
that I think people are already looking
#
at a bunch of indicators to get a sense
#
of how the economy is doing. The thing is even those
#
can be gamed eventually. Those can be gamed but
#
essentially at that point you just have to say
#
that you know we are at a situation
#
where we cannot get a sense of how the economy
#
is doing. I mean the extreme pessimistic
#
scenario I would say if you ask
#
me how the Indian economy is doing my answer would be
#
as an economist I do not know because I have
#
no way of measuring and
#
assessing the performance if
#
I cannot trust the national number that is GDP
#
and if some of the indicators are also
#
extremely volatile because they fluctuate a lot
#
I have basically no way of measuring. And your point is
#
that because the data which goes into
#
all of this is so complicated it is
#
really not possible for independent
#
economists to sit down and come up with their own
#
number. I mean basically a lot
#
of attempts can be made using disaggregated
#
information. For example if you collect
#
household level data or if you collect
#
firm level data you can assess
#
sector wise performance
#
so you can get a sense of how the corporate
#
India is performing. You can get a sense
#
of how households are consuming
#
saving etc. You can get a disaggregated
#
picture and then maybe you can just
#
try to put things together in your mind and
#
say okay this is roughly what the economy
#
is doing. But it's very
#
very difficult to get a comprehensive view
#
saying oh is economy is in a
#
what we call technically recession or an
#
expansion meaning is it is it slowing
#
down or is it accelerating
#
it's just very hard to say at this point of time. So
#
I would say going forward it's
#
especially macroeconomists. You have to basically
#
non-performance related stuff
#
and you can't say anything about the performance of the country
#
you can't. That's horrendously
#
sad and depressing. Let's
#
before we end the episode let's kind of
#
take a step back out of India and go
#
back to the overall concept of the GDP
#
per se. And again it seems
#
to me that just as a measure of progress
#
is very inadequate. You know there's the example of
#
the world's richest guy dies because he doesn't have an
#
antibiotic. Just looking at my own
#
life you know like when I was growing
#
up in the 80s and early 90s
#
you know we had so little
#
access to music. I remember how
#
much I would feel enriched if I
#
managed to get together a mixtape from
#
somewhere of music that was otherwise not available
#
in India. And today we can go to Amazon
#
Prime or Google Play or Spotify and
#
press play and everything in the
#
world is available to us and we are hardly
#
paying anything for it. And the value
#
that has been added to my life by technology
#
in the last 20 years cannot
#
possibly be calculated and none of it is
#
because of the bloody status despite
#
can interrupt there. So one question
#
and again I don't know the right answer to this
#
but it's something that I am questioning myself
#
that how much do we really
#
need to measure these things. Exactly
#
I mean in the sense that there are many
#
intrinsic implicit improvements
#
happening in my life because of the day
#
and age because of access to better quality
#
products and better quality services
#
but do we really need to measure
#
all of these in an aggregative
#
I mean are we just are we just satisfied
#
with saying okay there is this part of the
#
economy that we can measure goods
#
and services physical whatever it is and
#
we just are satisfied with that number because
#
it gives some idea of where the
#
economy is going. You know there's a saying that
#
it is very hard to feed the soul when your
#
stomach is empty. So there is some
#
value in having that physical
#
notion as well if properly measured
#
to show how the economy is performing over time
#
and yeah there are shortcomings
#
environmental where all of these things that
#
we have discussed but maybe you come up with
#
other measures you know there is a
#
human development index where you can at least measure
#
some life expectancy or literacy
#
which cities are worth living in you know all
#
of these rankings that come up with multiple
#
multiple things with their own flaws etc.
#
But do you really need a comprehensive
#
measure of quality of life? Is it really
#
necessary? I'm not so sure at this point of
#
time it's just that it's so difficult to measure
#
and something which is difficult to measure
#
do you really want to put resources
#
already struggling with weak state capacity
#
do you really want to put the resources
#
to do something like that? I'm not so sure
#
that countries like the US, Australia, Canada
#
which have already achieved a very
#
high per capita level of income
#
they should stop worrying about GDP
#
growth because they've already achieved that level
#
and they have the luxury of now coming
#
up with all of these other
#
things and at some point
#
of time when we have crossed
#
all our major obstacles then
#
maybe we can figure out whether we can do that or not
#
again these are just questions I don't have the right
#
answers but it's worth also
#
asking ourselves how much
#
I'm all for economic measurement
#
but how much do you really want to measure?
#
Knowing that all the measurements
#
will be perfect. These are very
#
wise words so basically what you're saying
#
correct me if I'm wrong is that the GDP
#
is a very flawed measure and
#
while we can tweak it and do this and that
#
there's really no need to look for a
#
better measure than that because why measure
#
all of these things just go to Google
#
Play, press play, enjoy the music right?
#
That's absolutely the thing. I shouldn't have said that because
#
I don't even sponsor it and it's like a random
#
plug that I'm giving go to Amazon Prime
#
Yeah sometimes I think we should just you know
#
as I said relax a little bit
#
as I said I keep saying the same thing
#
you have weak state capacity do not attach so much
#
importance to a number that is coming out of the state
#
agencies. It is what it is
#
yeah there are debates that economists and
#
statisticians will do it but do the common
#
public really need to get so involved in it
#
when they don't even understand what it is and
#
it doesn't affect the daily life perhaps
#
not so I think if the debate
#
gets a little bit more confined
#
and the emphasis is put on fixing
#
things and improving things and moving
#
on it will probably be better
#
rather than sensationalizing it and as
#
far as alternative measures are concerned
#
I think this debate is going to be continuing
#
because it's coming up from the developed countries
#
and anything that starts in the developed countries
#
will continue for a very long time so
#
I think till they figure out
#
in their peace of mind what are the
#
alternative measures or what are the supplementary measures
#
it's too premature for us
#
to get into that debate because we haven't even fixed
#
Rajeshwari I understand GDP is so much better
#
now that I have spoken to you. Thanks so much for coming
#
Namaste, I am Saurabh Chandra
#
and I am Pranay Kutusthan.
#
When the show ends, outside the door
#
we start solving the world wide
#
then Puliya Bazi happens.
#
Now the people of the apartment of today
#
but you can understand the feeling.
#
So let's get involved in our
#
Puliya Bazi where Pranay and I
#
will go to the bottom of one to one interesting
#
topics. Artificial intelligence,
#
medical education, currency crisis
#
sometimes with both of us
#
and often with special expert guests
#
in our company. Listen to us on
#
IVM's website, app or your favorite
#
podcasting platform every
#
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