Ojaank IAS Academy




GDP and its behavioral interrelationship

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GDP growth matters to the average Indian only if it can generate good quality jobs and income for them. Gross Domestic Product-GDP is a measure of economic activity in a country. It is the total value of a country’s annual output of goods and services. As a comprehensive measure of overall domestic output it serves as a comprehensive scorecard of a given ‘country’s economic health’.

Now let’s talk about the relationship between GDP growth and formal employment. This would require an insight into a report—according to data on ‘Employment in the public and organized private sector’ published by the Reserve Bank of India (RBI): Between 1980 and 1990, one percentage point each of GDP growth (nominal) formally created about two lakh new jobs. In comparison, from 1990 to 2000, every one percentage point of GDP growth created nearly a million new formal sector jobs, half the number of the previous decade. Similarly, between 2000 and 2010, only one percentage point of GDP growth created 52,000 new jobs.

Thus, we can safely say that India’s employment elasticity has been decreasing since the 1980s. Employment flexibility is a measure of the percentage change in employment associated with a 1 percentage point change in economic growth.

If India is compared with different countries of the world, then we find-

If I talk about Sri Lanka, Sri Lanka produced two lakh jobs for every percent of GDP growth in the 1990s; This reduced to 90,000 by 2020. The United States, the world’s most successful economy, today creates fewer new jobs for each percentage point of GDP growth than in the 1990s. China, one of the fastest growing economies of the twenty-first century, produces one-third of the new jobs today for every percent of its GDP growth compared to the 1990s. Thus, higher GDP growth no longer means more jobs and income for the people. Therefore, GDP growth does not affect the common man today as much as it probably did four decades ago.

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