Dear PM Modi, GDP Is Gross Economic Jumla For Campaign 2019

I Was In A Surreal Economic Dream…

Prime Minister Narendra Modi had launched the “world's largest and most ambitious healthcare insurance scheme”, pompously branded Modicare. Each of India's 26 crore households/families would be reimbursed up to Rs 5 lakh in annual medical expenses. Suddenly, even as the congratulatory din resounded in parliament, an epidemic broke out. As if in a sci-fi film, 26 crore Indians fell ill, one in each household. Modi put on his Superman Cape, and flew around the country ensuring that Rs 5 lakh were dispensed to each patient. Unfortunately, all 26 crore died, but Indian hospitals booked Rs 130 lakh crore ($2 trillion) of income. The country's Gross Domestic Product, which had clocked Rs 170 lakh crore ($2.61 trillion) last year, swelled to an astonishing Rs 300 lakh cr ($4.61 trillion)!

I Now Segued Into The Second Dream Sequence…

Prime Minister Modi was in a somewhat familiar stadium, part-Madison Square Garden, and part-Royal Albert Hall. He was giving a bewitching speech:

Merey sawa sau crore Hindustaniyon nay toh kamaal kar diya. Universe kay Big Bang kay baad, jabse yeh dharti bani hai, tabsey aaj tak, kisi bhi desh nay ek saal main GDP main pijhattar pratishat ka izaafa nahin kiya hai. Lekin merey desh vasiyon nay, ek saath bimaar hokar, ek saath apni jaan ki kurbani dekar, yeh universal record bana diya hai. Un sabko shat shat pranam.

(My 1.25 billion Indians have performed a miracle. Ever since the Big Bang in the Universe followed by the creation of our Earth, no country has achieved an annual GDP growth of 75 percent. But my wonderful countrymen fell collectively ill, died, and created this universal record. I bow my head in gratitude).

Dreams Can Be Unnaturally Malleable...

You can go from one impossible point to another without batting an eyelid. So I went careening back in time, to Senator Bobby Kennedy's iconic speech at the University of Kansas on March 18 , 1968:

Two thunderous applauses, for Modi/Kennedy, got mixed and amped up in my dream. And as happens so often, the noise in my sleepy head slowly dissolved into the real clapping sound coming from the TV screen as I woke up to the real world…

Modi's Cherry-Picked, Shining GDP

There he was, Prime Minister Modi in flesh and blood, giving another of his dramatic addresses at the annual general meeting of the Asian Infrastructure Investment Bank at Mumbai on Tuesday, June 26:

“In 2018, we are projected to grow at 7.4 percent, the highest for an economy of our size in the world. Despite rising oil prices, inflation is within the mandated range. The government is firmly committed to the path of fiscal consolidation. The external sector remains robust. Our foreign exchange reserves of more than $400 billion provide us enough of a cushion. Total FDI flows have increased steadily – more than $222 billion have been received in the last four years.”

As is his wont, Modi cherry picked all the good stuff, but plenty of troublesome facts were left unsaid:

• Bad loans of Rs 10.3 lakh cr (11.6 percent) are projected to touch a crippling 12.2 percent by March 2019. While 701 cases have been submitted for bankruptcy resolution, only 176 have been resolved.
• Credit to large corporates grew at a mere 1 percent, year on year; so industrial growth recession continues, despite the 7.4 percent GDP growth.
• Interest rates are reaching for the stratosphere, with the 10-year treasury breaching 8 percent, and AAA-rated borrowers picking up loans at north of 8.5 percent. These are not propitious for a pick-up in private investment, which is a condition precedent for sustained economic growth.
• The current account deficit, which had nearly moved to a surplus, is again blinking red at 2.5 percent. The rupee is at a historical low, shooting past Rs 69 to the U.S. dollar. Foreigners have pulled out a record $ 7 billion dollars just in the current calendar year from the debt/equity markets.
• The government has done a ‘phantom disinvestment' by forcing ONGC to pay Rs 35,000 crore for buying HPCL, both dominant public sector companies. So the cash has moved from one government pocket to another, without any genuine inflow. A similarly specious plan is being hatched for re-capitalising IDBI Bank's battered balance sheet, with LIC picking up the tab. Air India's sale proved an embarrassing cropper, without a single bidder.

Once you factor in this counter-narrative, Modi's purple prose on the GDP begins to turn an angry crimson red.

Cities Bombed And Razed, GDP Goes Up

As is obvious from the arguments above, GDP is a fuzzy and imprecise measure of economic health. It is always fixated on ‘more', not ‘better'. If more patients die in hospital, the GDP improves; but if everybody is healthy and never visits the doctor, GDP falls. If a car burns excess fuel and pollutes, GDP increases; but if its engine is efficient, GDP shrinks. It's perverse!

Let me end with the most crushing fact. Guess which was that five-year period during which America's GDP lept by 75 percent, the United Kingdom's by 27 percent and Germany's by over 21 percent? It was 1938-43, when the most brutal phase of World War II raged across the planet. Millions were killed, cities got bombed to rubble, ships were sunk, aircraft got crashed… but hey, enjoy, because the GDP of the warring nations swelled (with a bloody pride).

Postscript: Don't get me wrong. I am not panning GDP growth; the bulk of it does show up in a genuine improvement in living standards. In fact, I am a great votary of rapid GDP accretion. But it is as much a Gross Economic Jumla (clever/specious promise) as the Gospel of Prosperity that Prime Minister Modi is making his 2019 re-election pitch.

Raghav Bahl is the co-founder and chairman of Quintillion Media, including BloombergQuint. He is the author of two books, viz ‘Superpower?: The Amazing Race Between China's Hare and India's Tortoise', and ‘Super Economies: America, India, China & The Future Of The World'.