Investment University

The Occasional that talks sense... most of the time

Volume 102 (September 02, 2021)

By: Le Grand Fromage

Email: [email protected]

GDP is a tad like the Body Mass Index…

What it reveals is arousing, but what it conceals is  dampening

India’s gross domestic product (GDP) growth for the period April to June this year came in at a record breaking 20.1% , the highest since 1996, when the country first started publishing quarterly GDP growth data. GDP is a measure of the economic size of a country. When calculated right, that is.

This one figure was enough to get India’s most successful industry ever - the edtech-meets-messagingtech sector -  cutting edge firms and individuals in the business of manufacturing WhatsApp forwards -  firing on all cylinders.

WhatsApp University Economics Majors, proclaiming an economic victory, are going around quicker than Ghani's escape from Kabul.

Those in the business of giving a technical spin to these forwards (read many economists) are calling it a V shaped recovery. Still others have justified it by saying: why else is the stock market going up.

The trouble is that the GDP growth figure viewed in isolation is like looking at just the Body Mass Index (BMI); what it reveals is significant but what it hides is very important. Allow me to explain.

As Kit Yates writes in The Maths of Life and Death – Why Maths is (Almost) Everything: “Theoretically, individuals who are overweight have a higher mass than their height would suggest and hence a higher BMI. Underweight people would have a correspondingly lower BMI.”

For most people looking at BMI as a means of figuring out how fit (or unfit) they are, this is where it probably ends. The trouble is BMI cannot distinguish between muscle and fat. As Yates writes: “This is important because excess body fat is a good predictor of cardiometabolic risk. BMI is not. If the definition of obesity were instead based on high percentage body fat, between 15 and 35% of men with non-obese BMIs would be reclassified as obese.”

The point being that if you are looking just at BMI in figuring out how fit you are, you are wrong. Plain and simple.

The same stands true for GDP growth. If you are looking at just GDP growth to figure out the real state of the economy, then you are either in the edtech business of manufacturing WhatsApp forwards or you are a wide eyed innocent, with zero clue about the way WhatsApp University works.

Let’s dig deeper than WhatsApp Edtech.

GDP growth during April to June 2021 was at 20.1% because the GDP contracted by 24.4% during April to June 2020. The so-called base effect was at work.

Also, the GDP during April to June this year was Rs 32.38 lakh crore. This was lower than the GDP during April to June 2019, which was at Rs 35.67 lakh crore. It was also lower than the GDP during April to June 2018, which was at Rs 33.84 lakh crore.

In fact, private consumption or the stuff you and I buy, and which forms a bulk of the GDP, varying anywhere between 55-60%, stood at Rs 17.84 lakh crore. This was very close to where it was during April to June 2017, when it was at Rs 17.63 lakh crore. The point being that the amount of money that Indians spent on buying things in the first three months of this financial year was almost the same as they did four years back. At the Indian WhatsApp University, that qualifies as a positive.

Hand on your heart ( this isn't the Sahara Pranaam, nor is it intended to be the Sangh Parivaar oath taking pose. We are strictly apolitical), would you call this an economic recovery, V-shaped, K-shaped, U-shaped or even O-shaped for that matter?

Does this call for opening the champagne ?

Naah...

It’s time to open that new jaljeera packet you had splurged on, the last time you went visiting your parents and were holding on to it for a special occasion.

This is that occasion.

Like much of modern macroeconomics, the formula to calculate the GDP emerged after

the Great Depression of 1929. And like it did when it was first invented, it still measures only monetary transactions.

For example, the GDP figure doesn’t measure the unpaid household work, everything from cooking to childcare to cleaning to washing utensils and clothes and so on. And to that extent, the GDP calculation is a sexist one.

As Diane Coyle writes in GDP—A Brief But Affectionate History: “The main reason for not counting unpaid housework as part of “the economy,” while paid housework is counted, is the difficulty of measuring it. Well, difficulty is not the right word. It can be measured by surveys, like many other economic statistics, but generally official statistical agencies have never bothered—perhaps because it has been carried out mainly by women [emphasis added].”

And at the end of the day, economics, like much of finance, remains a field dominated by the male of the species.

In fact, this is a problem that is impacting India in a big way right now but very rarely gets talked about anywhere. As per the Centre for Monitoring Indian Economy, the labour participation rate among Indian women as of August 2021 stood at just 9.6%.

What does it mean? The labour participation rate is the ratio of the labour force to the population greater than 15 years of age. And what is the labour force? As per CMIE, labour force consists of persons who are of 15 years of age or more, and are employed, or are unemployed and are actively looking for a job.

Basically, for every 1,000 women who are aged 15 or more, only 96 are employed or looking for employment. In absolute terms, of the 50.19 crore women aged 15 or above, as of August only 4.82 crore were employed or actively looking for a job. The situation is much worse in urban areas than in rural areas.

Five years back in September 2016, the labour participation rate among women had stood at 16.6%. In absolute terms, of the 44.88 crore women aged 15 or above, 7.44 crore were employed or looking for a job.

This basically means that in the last five years nearly 2.62 crore (7.44 crore minus 4.82 crore) women have dropped out of the labour force. Also, many women who have crossed the age of 15, haven’t bothered looking for a job. Some of this can be attributed to girls studying more. But beyond that no reasonable explanation of this very disturbing trend has been found.

So, more and more women are doing free unpaid work at home, which the GDP number revealed every three months doesn’t really capture. As a nation we are letting our young girls down and we have no idea of why things are playing out the way they are.

As the old jungle saying goes (No, this isn't manufactured by the Profs at WhatsApp University):  Only when you don’t know where you are going, the journey is the reward.

And  there is a glass of jaljeera waiting for you at the end of it.

Maybe.

(Le Grand Fromage can be contacted on email: [email protected]

Le Grand Fromage is not on WhatsApp.)

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From the desk of 

Le Grand Fromage,

Unemployed at

First Global

Trusted Financial Advisors to some of the world's largest Funds, Institutions & Family Offices, for 30 years

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