Knowing More on GDP and Inequalities

GDP is a metric for capturing economic activities. It is a measure of the total market value of all goods and services produced by a country during a particular period of time. If it falls short of accurately representing people’s material well-being, other metrics may be more appropriate to use. Nominal GDP (also known as GDP in value or GDP at current prices) is available in two forms:. Since changes are brought about not just by real growth but also by price changes and PPPs, this indicator becomes less capable of extended comparisons.

GDP and Inequality

While India is one of the world’s fastest-growing economies, it also has one of the most unequal societies. For the past three decades, inequality has been steadily increasing. The wealth created by crony capitalism and inheritance is concentrated among the wealthiest. They are becoming wealthier at a much faster rate, while the poor continue to struggle to earn a living and have access to education and healthcare facilities, which are still underfunded.  Women and children are the ones most affected by the increasing gaps and rising inequities.

According to a study, global imbalances are nearly as extreme today as they were during the early twentieth century, during the peak of Western imperialism. Research says, half of the global population is poor and “hardly owns any wealth,” with only 2% of the total, while the richest 10% of the global population holds 76% of all wealth. 

Inequalities inside countries are now greater than those observed across countries. At the same time, the difference in average income between the top 10% and the lowest 50% of a country’s population has roughly doubled. “Despite economic catch-up and rapid progress in emerging countries,” the report states, “the world remains very unequal today.

Inequality and Economic Growth in India

Economic growth will be boosted if income disparity is reduced. According to research, countries with lower income inequality grow quicker than those with higher income inequality.

The expanding gap between the lower middle class and poor households and the rest of society has the single greatest influence on growth. The key is education: the poor’s lack of investment in education is the primary cause of growing inequality. “This persuasive data demonstrates that addressing high and growing inequality is crucial for promoting robust and sustainable growth and that it should be at the forefront of policy discussions. Countries that foster equality of opportunity for everybody from a young age will thrive and prosper.

According to a recent finding from Credit Suisse: India’s richest 1% hold 53% of the country’s wealth; the richest 5% hold 68.6% of the stock; while the top 10% possess 76.3%. The lower half of the population competes for only 4.1% of national income at the opposite end of the pyramid.

Furthermore, things are improving for the wealthy. According to resources, the richest 1% of India’s population controlled only 36.8% of the country’s wealth in 2000, while the top 10% owned 65.9%. They’ve steadily grown their portion of the pie since then. The wealthiest one percent’s share has now surpassed 50% of the country’s wealth.

GDP and Income Inequality

Gross domestic product (GDP) is a measure that sums all consumption, investment, government spending, and net exports to indicate an economy’s overall output. As a result, GDP is thought to be a good approximation of income for the whole economy over a certain period of time.

Per capita GDP is calculated by dividing total GDP by a country’s population and is often used to assess living conditions. Economists have devised a number of GDP modifications and a number of alternative measures for judging living standards, to increase the statistic’s explanatory power. 

GDP measures the economy’s overall output, including activity, stability and product and service growth. As a result, it is often used as a proxy for the economy.  Per capita GDP, which is derived by dividing GDP by the country’s population, is used to calculate the standard of living.

GDP can be used to estimate a country’s standard of living on a large scale.

Economists, however, routinely make alterations to GDP, such as using real GDP or assessing the standard of living using other methodologies. In general, rising global income is associated with a higher quality of life, while dropping global income is associated with a lower standard of living.

Measures to be Taken to Reduce Inequality

In India and around the world, economic imbalances are unavoidable. It is the outcome of policy decisions. Governments may begin to reduce inequality by rejecting market fundamentalism, fighting powerful elite special interests, and reforming the norms and processes that have led to this point. They must initiate policies that redistribute wealth and power while also ensuring that the playing field is levelled.

Taxation and social spending are the two key areas where policy reforms could improve economic equality. Depending on the government’s policy choices, taxes can either be progressive or be regressive. 

Progressive taxation, in which companies and the wealthiest individuals pay a higher share of their income to the government, should be implemented. This is critical to allocating resources more evenly across the society. Social spending, such as on education, health and social protection, is also significant. Over 30 years of evidence from more than 150 nations – rich and poor – indicates that investing in public services and social safety can reduce inequality. 

Conclusion

To account for regional price differences, personal income is computed by dividing GDP by population, then adjusting for inflation with real GDP and buying power parity. Real per capita GDP adjusted for purchasing power parity is a highly refined statistic used to estimate true income, which is a key component of well-being.

Standard of living is a complex concept with no universally acceptable objective measurement. However, the rise in global income level has been accompanied by global poverty reduction, increased life expectancy, increased investment in technology development and a high material standard of living in general since the Industrial Revolution.