If you Marry Your Maid You Will Reduce National Income!

Seem outrageous. But as things stand, it is true. As long as she is your maid, her salary will be a component of GDP. But the moment you marry her, she becomes a housewife and hence her income is not a part of GDP! Strange but true. I am following a debate in the UK, where George Osborne, Chancellor of Exchequer, has asked Sir Charles Bean, former Deputy Governor of Bank of England to review how official statistics are compiled.

The framework within which we analyze our economy was developed in the 1930s by Simon Kuznets. Post World War II, when governments needed data to drive reconstruction, economists developed the current frameworks.  This has been the template used by governments to collect information on GDP, GNP and the rest. But can this output put out by the NIA framework help governments to identify how they can raise the productivity of the nation? Sadly no.

At any given time, collecting accurate data on national income is a daunting task – we need to collect information about widely dispersed transactions, most of them in cash. It calls for educated guesses and judgment. The primary measure of NIA is the output – how much is being produced or consumed, believing that what is produced will be consumed.

But the postmodern economy is all about services and the resultant productivity gain. Most of the efficiency enhancers are free to the consumer. We can book a hotel, make travel arrangements, shop for products, read news, watch movies – all free on-line. And here starts the problem – how do we capture the value of these services? Along with this, technology has brought in higher efficiencies – we can accomplish much more in shorter time frames, using fewer resources. And as business evolve, the older classifications too may need revision.

The UK Office for National Statistics (ONS) is undertaking an exercise to address both the method as well as the efficiency of its output – trying to look at its output more from the point of view of the consumer of the numbers. Sir Bean believes that the needs of the users should drive the output numbers.

Closer home, the former RBI Governor, Dr. Subba Rao was candid about the unreliability of numbers available from various organizations. Looks like we too should be looking at such a review!