A new tool to plan growth models

Sometimes a few common economic terms we use in daily life like National Gross Domestic Product (GDP), Gross State Domestic Product (GSDP) seem to be unnerving when we do not pay required attention to detail. Now the Central Government brings into use another term in measuring the economic performance of the country going down to the city level coining a new term ‘City level GDP’.

The question arises is- what is this city level GDP, are we revolutionising a new concept or is it a way to complicate the economic calculations or is it a way to bring out the differences and compare economic progress within a state, or are we creating enmity, confusion, misunderstanding, and competition among the federal states. If so does it really measure real growth among states and among countries? The term requires deeper understanding and a clear appreciation.

Recent newspaper reports suggest that City level GDP is on trial run which will measure the sectoral incomes at the very bottom in the cities in India which will help us to know how each sector contributes to national GDP. The Economic Intelligence Unit (EIU) was commissioned by Ministry of Housing and Urban affairs (MoHUA) to evaluate methodologies for calculating city level GDP and look at the possible applicability to Indian scenario.

Globally, this is not a new concept. There have been many measures exist which are being examined by EIU in order to fit them in Indian scenario. Government statistical agencies in countries like UK, US, and other OECD counties use top down approaches. Top down approaches are more prominent and the backbone of developmental strategy, but when it comes to India, it’s the bottom up approach is what the central government focusing on. Data availability and logistic complications are not new in Indian scenario. There is a long way for EIU to go in order to identify the correct approach and maximise the advantage by plugging the loopholes in the approaches and converting the negative factors into positive.

In pure economics terminology Gross Domestic Product is a monetary measure of all final goods and services produced within a country in a particular year. It gives an idea of the size of an economy in monetary terms. The various classifications of the economies based on growth and per capita income is worked through the GDP calculations. GDP gives a bird’s eye view of the economy which helps the economists to compare it with other countries also helps the planners to quantify the required growth in the country.

Looking at the statistics, India is sixth largest economy in the world with 2.60 trillion GDP and it is projected to increase to 2.90 trillion GDP in the coming years. India’s economy is slowly passing Chinese economy in order to become the fastest growing economy in the world. While we feel that we have an acquaintance with national level GDP, although it is not as simple as we feel we know, calculating city-level GDP is a more complex exercise than calculating national-level GDP. Partly, this is due to the complexity of calculating GDP, which is a resource-intensive exercise at the national level but becomes increasingly data-intensive at the city level. Precisely, this complexity of calculations is threatening the city level planners, basically on three counts, one lack of expertise at local level, two lack of data collection tools and information gaps, three more seriously, fear of coming out with an alarming result that might not be in conformity with growth declared through national level GDP estimates.

Nevertheless, we are more interested to know how each state contributes to it nation’s GDP. As India is a huge country and each state has the potential to generate income and have foreign transactions, it is important to know the income generated and contributed to nation at state level. Hence the birth of Gross State Domestic Product (GSDP). Different states contribute different amount to the national GDP. Some Southern states of India, like Tamil Nadu and Karnataka contribute more as compared to states from North-East. From the available data, Maharashtra and Tamil Nadu are two states which have the highest-level GDP as compared to other states. Therefore, GSDP gives an overall picture of how a state is performing which would help in business activity prospects for entrepreneurs and the government.

In order to breakdown the GDP even more, there are certain cities which perform better in a state which leads to a magnanimous GDP number. Say for instance in Rajasthan, Jaipur city contributes more to the GDP rather than Jaisalmer city due to tourism, infrastructure, etc. that are well developed in Jaipur. These enormous differences among states thus lead us to examine what are the reasons behind it. Some say it is availability of resources, others say it’s the effective utility of the available resources which has led to immense productivity and hence growth. In order to understand these differences, city level GDP tries to map out the reasons and help economists to identify the advantaged sectors within a state.

It is ambiguous to say whether the entire State is efficient in using its resources or some cities which are contributing to push up the GDP levels. Hence the city level GDP traces out the cities which have the potential and contributing more to GDP. This will give a clear picture of the city, its growth factors, available and untapped resources that could add up generation of more income and help in channelizing the central and state resources for developmental work in the required or non-performing states and cities.

The central government can then allocate resources efficiently leading to sustainable development. Hence this new concept is actually adding advantage from a macroeconomic perspective. Positive aspects of city level GDP that bring us to understand the economic status of the city and state can therefore be highlighted.

Having high level of GDP indicates that, there is economic growth in that particular state or region of the country. By economic growth we mean good infrastructure facilities, affordable financial services, accessibility to markets, and demand for goods produced, technology and availability of physical & human capital. Given these favourable scenarios, this would attract both foreign and domestic investment in local companies which would further contribute to production of goods & services enhancing the GDP. To put it in all, higher GDP of the city attracts higher investment, which indeed leads to economic growth and even higher GDP.

Comparing the growth and development of one state to another state in sometimes positive and the ‘Competitive Federalism’ is gaining momentum in India. Here, the states are competing with each other in order to develop a totally different growth model based on global best practices and attract foreign direct investment in to their industries which leads to growth of the state economically. However, the states have to work on their resources and available human capital to come up with structural reforms in order to attract more investments. For this to be implemented city level GDP gives an overall picture of the strengths and weaknesses on which the state could work and widen it opportunities.

The recent Government of India programme of making 100 smart cities under Smart City Mission would be more appropriate the development plans of these cities is based on more strictly calculated city level GDP other relevant economic indicators in these cities. The main components of Smart cities are: improved quality of life, a robust economy leading to creation of jobs and sustainability built into every aspect. Hence city level GDP will indicate the incomes at the bottom levels which will help in creating appropriate economic opportunities and development indicators in line with Smart cities Mission. City level GDP will act as a measure on which economic welfare and betterment of the state could be built upon.

With urban India bringing in larger share of the national GDP, the centre now tries to bring in city level GDP data. This will help both investors and municipal bodies in the state to channelize their resources and attract investments which would help in fund raising for creation of new physical assets. Therefore, city level GDP is most welcomed. India could seek potential and work towards more sustainable growth given the economic measures which build up on strong economic indicators.

Appreciating the term in its real perspective thus eases our tension of confused understanding of ‘someone looting our wealth coming down to city level’. Despite the complexity of calculation, city level GDP focuses more on available resources and contribution of economic activities to the development, and the size of local economic growth that is sometimes a breather for policy makers to organise their activities linking to more appropriate income generation rather than planning for ‘base’ less global activities.

Particularly the cities in Telangana, like Hyderabad, Warangal, Khammam etc need to focus on calculating the available local resources, and how to distribute them and use them for overall economic growth. City level GDP calculations will be going to be necessary tools for all the cities in the country that really want to have health competition among the cities and states to plan for the needy.

(P. Gargi Rao - The author is an alumna of London School of Economics, UK)