“Economic growth in the recent past has been led by increase in labour productivity.” Describe this assertion. Provide a growth trajectory that will increase employment without lowering labor productivity. (250 words) [UPSC 2022]
Model Answer Introduction Gross Domestic Product (GDP) measures the economic value of a country's activities, representing the market value of all goods and services produced in a specific period. In 2015, India overhauled its GDP calculation methodology to align with international standards, enhancRead more
Model Answer
Introduction
Gross Domestic Product (GDP) measures the economic value of a country’s activities, representing the market value of all goods and services produced in a specific period. In 2015, India overhauled its GDP calculation methodology to align with international standards, enhancing the accuracy and comprehensiveness of economic assessments.
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Key Differences in Methodology
- Change in Base Year
- Before 2015: The base year for GDP calculation was 2004-05.
- After 2015: The base year was updated to 2011-12. This change aligns with global practices to more accurately reflect economic conditions.
- Broadening of Database
- Before 2015: The manufacturing sector’s performance relied on the Index of Industrial Production (IIP) and the Annual Survey of Industries (ASI), covering around 200,000 companies.
- After 2015: The methodology expanded to include annual accounts filed with the Ministry of Corporate Affairs (MCA 21), encompassing about 500,000 companies, providing a more comprehensive view of the economy.
- GDP Calculation Method
- Before 2015: GDP was calculated at factor cost.
- After 2015: The calculation shifted to GDP at market price, incorporating product subsidies and taxes. For sector-wise estimation, Gross Value Added (GVA) at basic price is now used, reflecting international practices.
- Calculation of Labour Income
- Before 2015: Labour income was uniformly calculated without differentiation.
- After 2015: The concept of “effective labour input” was introduced, assigning different weights based on the type of labour, such as owners, hired professionals, or helpers.
- Coverage of Agriculture and Financial Sector
- Before 2015: Only farm produce was considered for agricultural income.
- After 2015: The methodology includes value addition from livestock and broader financial sector activities, such as those involving stock brokers and mutual funds, enhancing accuracy in these critical sectors.
Conclusion
The shift in India’s GDP calculation methodology demonstrates a dynamic approach to economic measurement. The updated method is statistically more robust, incorporating a wider array of indicators and factors that respond effectively to contemporary economic changes.
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Economic Growth and Labour Productivity **1. Role of Labour Productivity in Economic Growth: Labour productivity refers to the output per unit of labour input. Recent economic growth has been significantly driven by improvements in labour productivity. For instance, India's IT sector has seen tremenRead more
Economic Growth and Labour Productivity
**1. Role of Labour Productivity in Economic Growth:
**2. Recent Examples:
Growth Pattern for Job Creation and Labour Productivity
**1. Skill Development and Education:
**2. Support for Emerging Sectors:
**3. Entrepreneurship and Small Enterprises:
**4. Infrastructure Development:
By focusing on skill development, supporting emerging sectors, fostering entrepreneurship, and investing in infrastructure, India can create more jobs while maintaining high labour productivity. This balanced approach ensures sustainable economic growth and equitable job distribution.
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