Per capita GDP: Not a correct data point during Pandemic

By SK Nag

Before getting into the country’s GDP, a detour may be taken to understand how enterprises’ health is valued? Corporate accounting estimates the health of the companies using various accounting statements. Pitch books are, therefore, designed to showcase a company that necessarily includes two must-have reports considered to be an organization health indicator. These are the Balance Sheet & Profit & Loss statement. However, listed companies have another dimension to compare, which is undoubtedly the stock market price. The companies’ financial health score is critically analyzed by thoroughly digging deeper into the balance sheet and P&L statement. Instead, rating based on the percentage of profit alone, a 360-degree analysis is essentially carried out with accurate financial due diligence before making the rating more meaningful. Enterprise value (EV) and Economic value added (EVA) are thoroughly examined from these statements, and the final health report card is published.
So conclusively, we may say, percentage of profit or the volume of profit, though maybe the critical parameters, nevertheless come out to be paradoxical if not corroborated with other by-lines and many other qualifying statements before being judgmental on rating.

A recent fuss in the country, citing Bangladesh’s per capita GDP is more than India referring to IMF assessment, has given opposition parties a chance to spread critically false political narrative. Without getting into the judgment of who is on the side of truth, we must look into the implication of per capita GDP for the country with 1.3 billion population, like estimating corporate financial health, studying some more data points.
It may be concluded that any entity’s financial health assessment based on one data point may yield highly inaccurate results. It should have many layers of information to be analyzed and cross-verified before publishing a conclusive remark in a public forum. The cornerstones of success in a developing economy are well defined in which some parameters are comparable easily, and some are not. Therefore per capita GDP is a short-term measurement technique used to raise a flag to caution the country. That is what the IMF tries to draw the attention of the concerned authorities.
GDP, like a business entity, the countries’ financial health cannot be conclusively remarked on one single parameter.
Per Capita, GDP is a ratio where both numerator and denominator have an essential role to play. Countries GDP, if falling considering the population is constant, may show a sharp decline indicating discouraging per capita GDP value. The numerator and denominator both impact on per capita GDP is well understood by all intuitively. Still, this ratio does not consider the effect of increased demand resulting from positive sentiment influencing the broader population. A country with a large population size has this added advantage of business traction resulting from group dynamics of positive sentiment. Therefore this comparison is nothing but a metaphoric expression rather than a real measurement of growth. It does not make sense to make knee jerk political reactions absorbing such a ratio as our financial scorecard.
A country of smaller size has fewer complications than a bigger one. Therefore the speed of growth and fall is not the same and becomes truly comparable in such a situation of economic comparison. Consequently, the ratio does not explain the success or failure impeccably.
Again taking a corporate example, a Start-up company can achieve a higher growth rate at the initial stage but gradually lose the growth rate and settle at a lower rate in the growth trajectory at a later date. Sustaining a high percentage of growth is a utopian thought. As the size will grow the rate of growth will reduce. Using the same premise, the size of the Indian GDP has a significant role in our economy, which we cannot ignore.
GDP growth is a function of demand, and demand, in turn, is a function of economic sentiment and disposable income. If the economic sentiment post covid is back on track, then the country’s domestic demand will boost our economy at an unprecedented rate.
The Indian economy is an ABCD economy(Agriculture, Bollywood, Cricket & Discount). Pull in the economy resulting from traction generated by group dynamics, discussed above, is forgotten by the opposition party before making such political statements in the public domain.
It is worth mentioning, the aspiration to grow is a significant strength that is taking this country forward historically. And surely India will grow and reach the target where all Indians have been aspiring for a long time.

(SK Nag is Chartered Engineer, Energy Expert and industry mentor. The views expressed are personal opinion of the author. He can be reached at saibal.iim@gmail.com )