GDP: A Misnomer? And Misinterpretations in the Context of India’s Economy

11 Pages Posted: 6 Oct 2022 Last revised: 21 Oct 2022

See all articles by Senthil Kumar Muthusamy

Senthil Kumar Muthusamy

Slippery Rock University - Department of Management and Marketing

Date Written: October 20, 2022

Abstract

Everyone talks about GDP. Economists of all sorts care about GDP. From a layman to the lover of economics, from a Globetrotter to a Geopolitical Strategist, GDP is a "go-to metric” to compare and examine the size and strength of nation-states. Despite its popularity, GDP is a misnomer and it does not effectively measure gross domestic product, rather it captures gross domestic money movement; because, most glaringly, the prices often do not reflect the intrinsic worth of products, services, and labor.

The gist of the paper is: For the GDP and GDP Per Capita metrics to make sense, one has to consider the following more judiciously. 1) Both quantity (volume of transactions across sectors) and quality of products in the economy matter a lot (because prices and their effect on the total national income will not capture these dimensions).

2) Nature of income distribution across the layers of a society matter and should be considered in the analysis; otherwise, mere GDP and GDP per capita will be misleading the analyst. For instance, a large populous nation will never match with GDP per capita of a less populous nation which is making most of the income through a few sectors of the economy. We will be missing the information of market potential of a large percentage of population/segments with high income of a large national economy – which can be easily comparable to any high income nation.

3) How the majority of the income is made in an economy matters. Whether the economy largely function in a sustainable production and consumption basis. Or whether a lot of unsustainable and unproductive production and consumption dominates the income figures.(for instance, shadow economy, illicit drugs, debts, credit card loans, and unsustainable imports, and highly speculative financial and real estate markets may not add real value through contributing for more employment, production, and consumption that can improve the standard of living, quality of life, and strength of a national economy). Even inefficient stock markets and volatile financial markets may have such a degenerative impact on the economy. Highly inflated real estate prices or stock indices on the one hand and low employment generation on the other will result in GDP figures disconnected from the real economy.

Keywords: GDP, Prices, Quantity, Quality, Volume of Transactions, Economic Growth, Economic Development

JEL Classification: A11, B21, B22, E14, E31, F11, F43, O11, O51, P11, P21

Suggested Citation

Muthusamy, Senthil Kumar, GDP: A Misnomer? And Misinterpretations in the Context of India’s Economy (October 20, 2022). Available at SSRN: https://ssrn.com/abstract=4224936 or http://dx.doi.org/10.2139/ssrn.4224936

Senthil Kumar Muthusamy (Contact Author)

Slippery Rock University - Department of Management and Marketing ( email )

Eisenberg Building 105 A
Slippery Rock, PA 16057
United States

HOME PAGE: http://www.schooloffishstrategy@gmail.com

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