Author Name: Neha Dhamija

The ‘most recognized’ indicators used for assessing a nation’s economic growth are ‘GDP’ (Gross Domestic Product), ‘GNP’ (Gross National Product) and Balance of Payments. GDP equals the market value of all the products and services that are produced by the people and property of a given nation, in one year period. Though GNP also comprises the total produce of a nation, but it excludes the earnings of foreigners on its land and includes the amount earned by its people in nations other than the own. In other words, GDP is more towards ‘where the production occurred’ and is less concerned with ‘who produced it’; whereas the reverse works in case of GNP. For instance, a manufacturing unit owned by a Korean company but located in Canada will be a part of Canada’s GDP but Korean GNP.

Though both the indicators are efficient but GDP is favored over GNP as an economic growth indicator because cross-country employment is stepping up gradually; thereby making the former a better estimator than its latter counterpart. A rise in these measures is a reflection of healthy and robust economic growth. Consequently, countries follow various methods to set the target values for these and strive to achieve them. ‘Balance of Payments’ is another variable used to assess a nation’s economic growth. This statement serves as the summary of the economic transactions that occur between the residents of a given nation with the other countries, for a specific period, usually in year. The transactions that are taken care of include the ones related to goods and services. Another measure that can help in gauging economic growth is ‘unemployment rate’. This gives the percentage of labor force that is capable of working but is presently un-hired because of lack of opportunities. Moving on the same lines, it can be calculated by dividing the number of people searching for work by the total strength of work force. The indicator shows the ‘untapped talent pool’ of a nation. There can be various types (such as Structural, Functional, Seasonal and Frictional) and causes (like less demand of goods and services, structural difficulties, regulations that may keep employers from building their work-force or even voluntary reasons) of unemployment. An increase in this index is definitely not a good sign for economic growth, as production of goods and services is affected when employable people sit idle.

Yet another candidate that can be roped in to have a country’s economic growth is CPI i.e. Consumer Price Index. The immediate use of this ratio is in adjusting the amounts of salaries, wages, pension in the light of inflation. This index has always been one of the most important national statistics but has suddenly gained significance like never before because of the prevailing turbulent situation in economic growth. Some countries use an older variant of CPI, i.e. WPI (Wholesale Price Index). Despite the inefficiency of this parameter in indicating inflation, it is continually employed by some nations, India being one of them. The problem uncovered is that WPI, being at the wholesale level fails in showing the actual effect that an end-user experiences due to inflation. ‘Stock Market Index’ of countries has also been thought as an economic growth indicator. However, the credibility of crests and troughs in the values of this parameter in showing the direction economy is progressing has always been in shadows. Many a times, the strong upward pointing arrows at bourses have proved to be eye-wash and failed in guiding the governments to figure out the beneficial path. So, the utility of these indicators remain doubtful. Lastly, some other ‘hinters’ that can be used for evaluating economic growth are ‘industrial production’, ‘penetration of internet broadband’, ‘retail sales’.