Nepal’s GDP And Low-income People
With ‘cost of living index’ of 40.2 relative to 100 for the US, Nepal is a pretty inexpensive country to live in. One could still have a decent meal for $2. So, $1,460 should suffice for annual package of two meals a day. But nominal GDP of Nepal for 2018 was $28.81 billion and subsequently, GDP per capita was paltry $1,003.
The math is outright scary. Can we not even afford to feed ourselves? Since widespread hunger has rarely been reported there is a clear disconnect between the figure and reality.
Before pondering too much into the conundrum let’s see what actually is Gross domestic product (GDP). According to Wikipedia ‘The Organisation for Economic Co-operation and Development’ (OECD) defines GDP as, “An aggregate measure of production equal to the sum of the gross values added of all resident and institutional units engaged in production (plus any taxes, and minus any subsidies, on products not included in the value of their outputs).” An IMF publication states that “GDP measures the monetary value of final goods and services—that are bought by the final user—produced in a country in a given period of time (say a quarter or a year).”
“The ratio of GDP to the total population of the region is the per capita GDP and the same is called Mean Standard of Living. GDP is considered the world’s most powerful statistical indicator of national development and progress. GDP (nominal) per capita does not, however, reflect differences in the cost of living and the inflation rates of the countries. Therefore, using a basis of GDP per capita at purchasing power parity (PPP) is arguably more useful when comparing differences in living standards between nations.”
To elaborate, labor does not command same value throughout the world. A day -- likely 8 hours -- of unskilled labor is worth $7.25 (Rs. 800) in Nepal while as federal minimum hourly wage is $7.25 in the US. So, a laborer in Nepal has to work eight times as much to earn what his/her American counterpart makes in an hour. But, since local produces are cheaper over here, he/she can buy more for each dollar earned.
So, $1,003 in the US and another $1,003 in Nepal, though nominally equal, are beyond compare. In steps purchasing power parity (PPP) to level the discrepancy and make some sense of the incomes. In layman term, it compares the cost in the US for the goods and services that could be bought for a dollar in Nepal and equilibrate USD and Nepali Rupee (Rs.) accordingly. It is a kind of alternative exchange rate.
GDP (PPP) of Nepal for 2018 was $84.37 billion with per capita of $2,842. Now, after feeding ourselves two meals a day for $1,460 we are left with $1,382 for clothes, shelter, education and entertainment.
On surface $2,842 does not look bad. But developed countries have their GDP (PPP) per capita regularly running over $30,000 and even some African countries have it over $10,000. Definitely, developed economies produce airplanes, a single unit of which fetches $200 million. And Nepal has agricultural produce to export which goes for few hundred dollars a ton. But, I can vouch Nepalis just do not loiter for the whole day.
GDP favours a society which has specialised in production and diversified in consumption. This specialisation and diversification is powered by money as value exchange mechanism.
I wash your clothes; you wash mine and we both pay each other. It is included in the GDP. I wash my cloth; you wash yours; it is not a part of GDP. In the above two cases, though, works done were exactly equal GDP figures would be different. Similarly homemade meals count for nothing while ‘industrial junk’ churned out by likes of KFC and McDonald’s get to happily inflate the nation’s GDP as well as the nationals’ waistline.
But it is how Nepalis have grown up. While father goes to plough his plot of land mother stays home and prepare meals. Both are busy throughout the day and at the end of it are tired as heck. Similarly, elder siblings help younger ones with homework eliminating need for extra tuition class. There is a religious activity at a home and people from all over the village come over to help. There is no dearth of activities, but, unfortunately, they are not monetised and are thus, ruled out of GDP. The social fabric is such it obviates need for paid part time jobs. While it keeps social bond strong, it is making them GDP poor.
The pristine system then got a hit when goods manufactured in developed world made inroads. They had to be paid for in money and the society failed miserably at generating quantifiable surplus value. The obvious limitation with the system is that it imagines a closed society where favours are remembered and are cancelled with reciprocation. Everyone is expected to be honourable and have a good memory. Of course, a growing society could be accommodated but that would raise combinations of possible transactions and put strain on every member. You simply cannot take the whole of the world to be a single society where everyone knows everyone else.
This is where a moneyless society crashes. The model of reciprocating favors is simply unscalable. Blockchain could help but that’s long way off. There is no way you can pay for an import by favor.
A benchmark set for money based economy would poorly analyse alternative ones. GDP sets out to determine how wealthy a society is by calculating how often money changes hand instead of how much people work even if money do not change hand. The proxy would only work if all societies had equal affinity with money.
But however dubious the calculation of GDP might be, it gives us an approximation of value of goods and services produced within an economy, especially with PPP. Though Nepalis are hardworking and are able to feed themselves, not surprisingly, the indicators say they create fewer things really valued by the capitalistic world. And given our export of $400 million and import of $6.58 billion for the first six months of fiscal year 2018/19 it is not far from the truth.
(Parajuli works with Himalayan Bank Limite)