The Problem with GDP
and why India becoming the 5th largest economy doesn't change things
India recently surpassed UK to become the world’s 5th largest economy in terms of absolute GDP.
India’s GDP stood at $3.5 trillion vs UK’s $3.2 trillion
And naturally, people got a little emotional. They took to social media & there was no holding them back.
Random Tweet 1: Proud moment for India, celebrating 75 years of Independence.
Random Tweet 2: The former colony overtakes the colonizer. Karma is a b*tch indeed.
Although we didn’t get the Kohinoor back [yet], we’ve come a long way since 1947 & still have a LOOOOONG way to go.
Was it really a big milestone?
Not really. It makes for a good headline & makes people happy, but the truth is that India had surpassed UK to become the 5th largest economy way back in December 2021. We already knew that we were on the brink of overtaking UK again.
Plus, looking at absolute GDP doesn’t really answer much. It just tells you how much a country produced for a period.
What about the living standards - are they improving? Is the average Indian becoming more productive? Are they earning more money? Are we reducing inequality of income? Are we beating inflation?
To answer these questions you need to divide the absolute GDP with a country’s population, known as GDP per capita - which is the magical number to look out for.
Where does India stand when it comes to GDP per capita?
If you look at GDP per capita, India is at $2300-2500 and is ranked 142nd while UK is at $47000-49000 and is ranked 24th. This means, that an average Indian is producing only $2500 worth of goods/services compared to $49000 produced by an average Brit.
If we’re to overtake the UK, our population needs to stop growing. Productivity per person has to increase. Disguised unemployment in sectors like agriculture has to reduce. Infrastructure investments need to be made [and completed]. Output per hour has to ramp up.
Don’t let mainstream media give you that giddy feeling & make you complacent. We’re far away from overtaking our former colonizer.
And while I acknowledge that it is a BIG achievement and India is poised to become the 3rd largest economy by 2029 in terms of GDP, unless we move up in terms of GDP per capita things will not change drastically for the ‘Aam Aadmi’.
I hope that we rank 5th in terms of GDP per capita someday. And when that day comes, it will indeed be a proud moment for Indians across the planet.