GDP (aasan bhasa mai)! Or Unconventional viewpoint on GDP!

 

What comes to your mind when you think of GDP??? Can you explain it to a 5-year-old???

If your answer is NO! then today I’ll explain GDP to you in the most simplified manner.

Let’s take an example. You are a current day tea seller and you sell tea to 4 major customers. These are:

A society, a private firm, a government office and to your neighbouring stall whose owner sells coffee. You have a contract with the neighbouring stall owner that if he gets an order for tea, then he’ll direct the customer to you and similarly if you get a customer for coffee then you will direct the customer to him.

Now problem is that due to Covid there was a lockdown and the people were not coming out to have tea from your tea stall. So, your sales to society and private firm has not happened from past 3 months and these two sectors have not contributed to your revenue at all. On the other hand, the government offices were transformed into testing centres. This led to increased number of people in these offices, so with a greater number of people you started getting more orders from government offices.

Here, the tea stall is our country and tea is the sum total of goods and services produced in a year. Your 4 clients are actually a country’s engines of growth. Private consumers (c), Investment from companies (I), Government (G) and net exports (NX).

Thus, GDP= C+I+G+NX

Now, we say current GDP has shrank 23.9%. What does this number mean to you?

It states that in April, May and June the goods and services produced in our country are 23.9% less than the goods and services produced last year during same duration.

Reason is clear. During this time there was a nationwide lockdown due to coronavirus and most of us were sitting at home. Thus, negative impact was already expected but no one suspected that it’ll this bad.

But we need to accept the fact that situation was not very good even before Covid as our economy was under slowdown at that point.

The number “23.9” do not include the impact on the unorganized sector of the society. Like the people who sell fruits on roads or the maid that clean your house. If we calculate all that impact too then this number will be ever worse!

This is something we should actually worry about!!! As the people who were earlier self sufficient and could earn money for themselves are now being pushed towards poverty.

So, what can we as citizen do?

RBI ex-governor Raghuram Rajan has given some solutions to safeguard our tea stall:

1)      During this difficult time there are very few customers. So, if the tea stall will get closed then there won’t be any tea later. The government has to step in and help the tea seller. As, if the tea seller will not get the money then he won’t but raw material and he’ll cut down on the staff too. This chain will keep going on and the economy will keep suffering for many years. But if he gets some fund transfer from government to keep running his business, then he’ll get relief and some time to contribute business. Ultimately, the tea seller can recover.

This is the economic stimulus that we need from the government to make sure that when Covid is under control, our economy gets back on track as soon as possible.

 

2)      This time can be used to develop our infrastructure. This will give two benefits! Firstly, this will create job opportunities for people and Secondly, the infra boost will help business in the future. Ultimately, helping in faster recovery.

 

3)      This whole process require money! And we get money either by taking loans or by increasing revenues. So, what can we do to increase country’s revenue?

We need to increase our exports and take help of private sector to save small businesses. The private sector that have performed well in this duration should be urged to reduce receivables and pay small suppliers on time.

 

4)      As an individual you can go for “Pay in forward” policy. You can pay your maid in advance to reduce her current financial problems. You can give a micro loan of Rs. 50 on Milaap. You can order from small businesses on Instagram and give them a chance to survive for one day more.

 

The situation is bad for sure. But things will change slowly and the first step towards a change is by accepting. Accepting that things will change and contributing our best in that change.