Mains Paper 3: Economy | Inclusive growth & issues arising from it.
From UPSC perspective, the following things are important:
Prelims level: Inclusive Wealth Report 2018
Mains level: Inclusive growth and GDP as measure of growth
- The Inclusive Wealth Report 2018 shows that while overall global wealth is rising, the increase for many countries comes at the expense of environmental assets, such as water, clean air, forests and biodiversity.
Inclusive Wealth Report 2018
- A country’s inclusive wealth is the social value (not dollar price) of all its capital assets, including natural capital, human capital and produced capital.
- The IWR 2018 builds on previous versions of the report (IWR2012 and IWR 2014) and advances methods of measuring the base of economy- capital of all types.
- It covers the period from 1990 to 2014, which is 25 years, which provides us with a picture of the changes in capital assets over almost a generation.
- It is biennially released by UNEP, that seeks to evaluate and report on a country’s wealth and wellbeing.
- IWI is a tool assessing a nation’s ability to look after its wealth in a way that is sustainable and safeguards its future generations.
Highlights of the report
- The Inclusive wealth (IW) in 135 countries was higher in 2014 compared to the level in 1990 and the global growth rate of IW was 44% over the indicated period.
- This implies an average growth rate of 1.8% per year.
- However, during the same period the global GDP growth per year was 3.4%, which is close to twofold of the annual growth rate of growth in IW.
- The global level growth of each of the three capitals over the study period indicate that produced capital was growing at an average rate of 3.8% per year and health and education induced human capital was growing at 2.1%.
- Contrary, natural capital was decreasing at a rate of 0.7% per annum.
- The structure of capital at the global scale as of 2014 has composed of produced capital (21%), human capital (59% of which 26% education induced human capital and 33% is health induced human capital), and natural capital (20%).
Inclusive wealth over GDP
- By this measure, 44 of the 140 countries – more than a third – ranked in the report’s Inclusive Wealth Index have declined in inclusive wealth per head since 1998, even though GDP has increased in many of them.
- The report explores alternatives to using Gross Domestic Product (GDP) as a measure of a country’s wealth.
- It says that GDP measures the size of a country’s economy but not its underlying asset base.
- Instead, it uses inclusive wealth, which focuses on stocks of manufactured, human and natural capital.
- The health of an economy must be drawn from the health of the environment.
- To make the right choices that will keep us on a sustainable path, we have to be able to properly measure our progress.
- This report will equip policy-makers with the right numbers, so that they can make the right decisions to deliver results for generations to come.
With inputs from: UN Environment