GDP Impacts the Common Man

A country’s growth is often measured using its Gross Domestic Product (GDP). A growing GDP indicates that the economy is in good shape, and the country’s standard of living is high.

However, if a country’s GDP is falling, it indicates problems in the economy, directly affecting the common man. Hence, we can safely conclude that GDP is important to the common man. This article gives you more information about GDP, why it is essential, and how it can affect the economy of a country.

What Is GDP?

Gross Domestic Product (GDP) is the value of the total goods and services produced by a country in a given period. If a country’s GDP is high, the economy fares well, and such countries are called developed nations. Meanwhile, if a country has low GDP and the economy is poor or weak, it is categorised as a developing country. Since India’s GDP is below 5%, it is on the list of developing countries.

How Does GDP Impact the Common Man?

Everyone must learn how GDP affects the common man. If a country’s GDP increases, it positively impacts people’s lives. GDP helps the government decide how much to spend on public services and if taxes need to increase.

If a country’s GDP grows steadily, people earn more and spend more. Hence, they can be expected to pay more taxes. So, the government gets more tax money from people and uses this money to improve public services. 

If a country’s GDP falls, a cycle of processes happens that directly affects the common man.  

Let’s take a look at how the cycle works.

If a country’s GDP doesn’t grow, there will be low consumer demand, and thus it affects the average business income.

The reduction in average business income will lower the new job opportunities. This is because it will pay its employees only when a business is performing well. Otherwise, businesses will start to lay off their workers and reduce the workers’ average income. 

This cycle ends in affecting the per capita income of the country. This is why it is stressed that higher per capita income can help a common man lead a better quality of life. 

In addition, if the GDP growth rate goes below the labour force growth rate, then no new jobs will be created. Thus the unemployment rate will increase. 

In such an unfortunate situation, the poor are affected more than others because inequality will increase. 

Though many statistics and research show that growth doesn’t directly reduce inequality, we can expect inclusive growth to benefit every individual.

However, only if the growth process allows the poor to participate can the inequality be handled. 

So, sustained growth is essential to minimize poverty. On average, if there is a 1% increase in per capita income, poverty will reduce by 1.7%. And the overall living standard of a common man will improve. 

How does the government’s action affect a common man when the GDP drops?

A fall in per capita income also reduces the government’s tax revenues.

So the government will start to debt from the private sector. Here the private sector will demand high-interest rates. So with the government’s debt interest increase, the amount available to invest in public infrastructure decreases. This, in turn, will stop the government from investing in infrastructure. 

Also, to handle the decline in GDP, the government will raise the petrol and diesel price. 

Other ways by which GDP can impact a common man.

When there is strong GDP growth, for instance, if there is a 10% increase in GDP, 

1. The infant mortality decreases between 5% to 7%.
2. Fewer diseases and an increase in life expectancy
3. Reduction in gender and ethnic oppression.

Another important benefit is, HIV/AIDS prevalence in the least developed countries is 3.2%, whereas, in high-income countries, it is 0.3%

Growth directly helps in human development which in turn promotes growth. 

So if the GDP improves, it can positively impact people’s well-being. 

Ways to Improve India’s GDP

1.     Regulate FDI (Foreign Direct Investments)

India has already invited international entities and companies to increase the country’s FDI. However, it must be permitted only in sectors that help increase India’s net export earnings, create employment, and generate income.

2.    Urbanise the rural population of India

Urbanising India’s rural population can positively impact economic development. This is because people in the rural areas are mostly deprived of basic needs like health and hygiene.

With urbanisation, people from rural areas not only get basic facilities but also receive opportunities for education, employment, etc. 

3.   Not privatising the profit-making public sector

India has a mixed economy, meaning it is a combination of public, private, and cooperative sectors. Currently, the government is privatising various public sectors that run for profit.

Though privatisation improves resource use and allocation, this process is unwelcome in profit-making sectors. However, selling a small part of the public sector services to private players does not mean privatisation.

4.    Increasing exports and reducing imports

Currently, the import rate is larger than the export rate. India must concentrate on manufacturing and improve its manufacturing performance, especially in textiles, chemicals, electronics, pharmaceuticals, and auto goods.

If it succeeds, the exports will increase, and imports will decrease. Thus, India can achieve an economic value of $1 trillion.

Conclusion

GDP is a common abbreviation used by economists. It is crucial while expressing the state of a country’s economy. If the GDP increases, inflation does not affect people, and the standard of living and the payments of taxes becomes easy. However, if the GDP is low, it affects a country’s economy. In most cases, the common man is adversely affected, and the poor are the worst hit.