Mainstream

Home > Archives (2006 on) > 2011 > An Engineer’s Observations on Economics

Mainstream, Vol XLIX No 17, April 16, 2011

An Engineer’s Observations on Economics

To Read Between The Lines

Thursday 21 April 2011, by Kunal Ghosh

The constant talk of GDP growth and how India is one of the growth engines of the world, trumpeted day in and day out by our Ministers, media and Western experts, intrigue me. I wanted to read between the lines of growth statistics. I obtained the growth figures of the Indian economy from 1990-91 onward up to 2010-11. Up to 2005-06 the figures are from Wikipedia quoting authentic Government of India source, and the rest from the pages of a recent issue of Mainstream. (Anshuman Gupta 2011) The important thing to pay attention to is that the base line is always the previous year. In other words, if in a given year the GDP growth is five per cent, it means that the size of the economy is 1.05 times that of the previous year. To any man of engineering and science, and of course to many others, it would be apparent that the GDP growth follows a GP series, more or less. This really carries a hidden meaning which is not apparent to a common man. Without going into the technicalities of a GP series, I shall take a simpler but laborious path to illustrate the point. I got the following string of numbers for GDP growth since 1990-91:

5.6, 1.3, 5.1, 5.9, 7.3, 7.3, 7.8, 4.8, 6.5, 6.1, 4.4, 5.8, 3.8, 8.5, 7.5, 9.0, 9.7, 9.2, 6.7, 8.0 and 8.8.

To calculate how many times the economy has grown since 1990-91, the water shed year when the Indian economy was opened up and liberalised, I multiplied the following string of numbers 1.056 × 1.013 × 1.051 × - - - - - × 1.088 (the reader can easily fill in the blanks from the GDP growth string given above. The multiplication yields a figure of 3.895. In other words the economy has grown very nearly 3.9 times.

Thereafter I looked at the population figures. The 1991 census gives 875 millions. At the end of year 2010 the figure stood at 1191 millions. In other words, the population has grown only 1.36 times since 1991 compared to the 3.9 times of the economy. Now 3.9 divided by 1.36 is very nearly 2.9.

Has every Indian grown 2.9 times richer? The answer is a resounding NO. I see a very large number of people all around me who are steeped in the same dire poverty as before. I also see a few who have become much richer, much more than 2.9 times. Wealth and consumption are concen-trating at the top end. Disparity is increasing.

With 3.9 times more wealth to spread around, every one should have been lifted above the Poverty Line. What is the worth of the present economic model?

FOR the sake of growth of the mining industry, some forests must disappear. For the sake of growth of the nuclear power industry, a portion of forest on the Western Ghat Mountains must vanish. For the sake of growth of the steel industry led by the Korean giant Posco, the coastal ecology of Orissa must be tampered with. In the last 20 years the economy has grown 3.9 times (which is nearly four times) and we can safely assume that this growth trajectory will persist for the next 60 years. Assuming that every 20 years the economy grows four times in size, at the end of 60 years from now, that is, by 2070, the economy would have grown 256 times over the 1990 size. What will happen to our forests and coastal ecology? In fact what will happen to the entire biosphere?

Now the government is planning to transfer cash directly to the poor by a magical electronic pathway. This may or may not succeed. It may emulate the path of the MGNREGS (Mahatma Gandhi National Rural Employment Guarantee Scheme) programme. This direct cash transfer is the equivalent of the dole of the Western world. It robs the recipients of all self-respect. People need jobs to retain self-respect.

As an engineer I can confidently say that most Research and Development work in private industry is aimed at improving competitiveness and that necessarily includes replacing labour by machines/robots. This leads to what is called Jobless Growth. What is the point in this mindless growth?

Mahatma Gandhi recommended a ban on the factory production of textiles. We need to be pragmatic and allow the factory production of the yarn and let all the fabric production, weaving and tailoring be done manually. With a little investment in R & D in this sector quality can be maintained. Look at Handloom Sarees. Now the readymade garment industry is wiping out the tribe of weavers and tailors.

John Maynard Keynes, the famous economist, was aware of the problems inherent in his economic model. He recommended a whopping Death Tax to prevent inheritance of enormous wealth by a few. This would prevent concen-tration at the top. But no country administered his medicine. It is time to rethink.

REFERENCES

Anshuman Gupta (2011), “Union Budget 2011-12: The Road Ahead”, Mainstream, New Delhi, March 12, pp. 7-13.

Dr Kunal Ghosh is a Professor, Aerospace Engineering, Indian Institute of Technology, Kanpur.

Notice: The print edition of Mainstream Weekly is now discontinued & only an online edition is appearing. No subscriptions are being accepted