Vijay Kumar Gaba

 Historic performance of a banker

In the summer of 2007, at the peak of sub-prime bubble, a top executive at a global bank presented to the Board that the bank has expanded its footprints to 11 new frontier markets and materially augmented the operations in the 13 emerging markets by enhancing the workforce by 19% in the past one year, a record in the 90year history of the bank. The board applauded the presentation and approved the 100% hike in the annual bonus for the top executive.

In the spring of 2009, the same manager made another enthusiastic presentation to the management. He said, “the management has been able to cut the cost by a whopping 28% to meet the challenges of global financial crisis. We have optimized our operations by exiting the non-profitable operations in 17 frontier market and 2 merging markets, and materially curtailing the operations in 9 emerging markets, to achieve 20% cut in the total workforce in the past one year; a record in the 92years history of the bank. The board applauded the gigantic effort of the management and approved a modest 35% increase in the bonus of the top executive.

Super Heroes and the Super power

The President of the United States, Joseph Robinette Biden Jr., defended the decision to withdraw forces from Afghanistan after 20 years of conflict. He described the decision as “the best and the right decision for America which ended an era of major military deployments to rebuild other countries.” In his address to the nation on Tuesday, Biden said, “there was no reason to continue in a war that was no longer in the service of the vital national interest of the American people.” He further assured is people by saying, “I give you my word: With all of my heart, I believe this is the right decision, a wise decision, and the best decision for America, he said.”

When the US decided to send the troops on ground in Afghanistan in the wake of the attack on World trade Center in New York (9 September 2011), the then president George Bush has commented, "The attack took place on American soil, but it was an attack on the heart and soul of the civilized world. And the world has come together to fight a new and different war, the first, and we hope the only one, of the 21st century. A war against all those who seek to export terror, and a war against those governments that support or shelter them."

After 20years, the US government has ended the war by handing over the power to the same people who it was supposedly fighting for 20years.

However, both the decision to invade and quit have been described as historic and in the best interest of the people of United States.

Art of managing the denominators

“This is massive! India records a GDP growth of 21.1% in Q1 o FY21-22”, exclaimed a leader of the ruling party.

One of the key economic advisors of the government emphasized that “the GDP data for the first quarter reaffirms the government's prediction of an imminent V-shaped recovery made last year.”

“It's a big economic comeback. Q1 GDP of 2021-22 grows by a phenomenal 20.1% as per provisional estimates”, a senior union cabinet minister exuded ebullience.

Similar sentiments were expressed by most office bearers and prominent supporters of the ruling party, advisors to the government and members of the union cabinet.

On the other hand, the members of opposition parties, their supporters and some outside experts were not too impressed with the apparently high growth number.

A prominent left party leader rejected the claims of the government by highlighting that “Compared to 2 years ago, India’s GDP shrinks -9.2%.”

A Congress spokesman clarified that “India's GDP for April to June 2021-22 (Rs32.38trn) is lower than India's GDP for April to June 2019-20 (Rs35.85trn) and very close to India's GDP for April to June 2017-18.”

A former senior economic advisor to the government who is presently a senior official with IMF, rejected the GDP as a shocking bad news. He commented, “It needs just a little arithmetic to see that India's Apr-Jun 2021 growth of 20.1% is shocking bad news. The 20.1% is in comparison to Apr-Jun 2020 when India's GDP had fallen by 24.4%. This means compared to GDP in Apr-Jun 2019 (i.e. 2 years ago) India has had a negative growth of -9.2%.”

The politicians these days have mastered the art of managing the denominator. They set a weak denominator to exaggerate your status and performance. Most governments have, for example, moved the denominator to “pre Covid” levels to make exaggerated claims of their status and performances. Not many people are bothering to note that “pre Covid” conditions were pretty bad in itself and reaching there by making a V shaped recovery may not be a great feat in itself. Though it certainly provides comfort that we did not deteriorate much due to covid.

Insofar as the common people are concerned, they would be better off ignoring these manipulated narratives and focusing on the per capita real growth in GDP and change in the Gini coefficient that measures the scale of economic inequality in the country.

The real GDP growth in percentage terms will have little meaning if the base or the denominator is very low (which is the case at present) or it is not adjusted for the population growth or the real household inflation. A 5% real GDP growth with 2% population growth would mean just 2.9% growth in per capita income. This is not likely to cause any material improvement in their lifestyle; especially when it is deflated by the headline inflation which may be very different that their actual household inflation. Also if the income inequality rises more with rise in GDP, it would mean that their income may not rise in tandem with the rise in average per capita income of the country.