The Myth of GDP: Reality of Economic Freedom

India is often described as the 5th-largest economy, and its stock markets are booming, creating an image of rapid national prosperity.

Defining Real Economic Freedom

• The Concept of Choice: According to Nobel laureate Amartya Sen, real development is not about income but about freedom. 
  • This includes the freedom to make choices, such as sending children to good schools or accessing quality healthcare.
• Economic Freedom as a Fundamental Right: Similar to political freedom (right to vote, free expression, etc.) and social freedom (removal of untouchability, gender equality, etc.)
  • Economic freedom involves the freedom to buy and sell property, enjoy the fruits of one’s labour through fair wages, and run a business without excessive government interference.
  • Example: A farmer grows potatoes but is forced by the government to sell them only at a local mandi at a fixed price; in this scenario, he lacks economic freedom despite his productivity.

The Myth of Gross Domestic Product (GDP)

• Market Transactions vs. Happiness: GDP measures only market transactions—the value of all goods and services produced in a given period. It does not correlate with happiness.
• Positive GDP from Negative Events: Example: Traffic jams can raise GDP through higher fuel use and transactions while reducing quality of life, and increased illness can boost hospital spending and GDP even as overall health declines.
• What GDP Ignores: GDP fails to account for income inequality, environmental damage, educational quality, or overall national health levels. 
  • It focuses strictly on material goods rather than human freedom

India’s Global Standing

• Heritage Foundation Data: In the 2025 Index of Economic Freedom, India is ranked 128th out of 176 countries.
• Category: India received a score of 59 out of 100, categorising the nation as “mostly unfree”.
  • India has been stuck in this category since 2002, having previously been in the “repressed” category.

The “Two Indias” and Inequality

• India 1 (The Top 10%): This group is the “engine” of the consumer economy, accounting for 66% of all discretionary spending—money spent on luxuries like movies or vacations rather than basic needs like food and shelter.
• India 2 (The Bottom 90%): This vast majority has no discretionary spending power and struggles daily just to afford basic necessities.
  • Islands of Wealth: The rise of “Gated Societies” or “Islands of Wealth” where the rich pay for luxury and security primarily to stay separated from the poor.
  • K-Shaped Recovery: A recovery in which the rich get richer and the poor get poorer. This increases inequality as the upper tier of the ‘K’ rises while the lower tier falls.

Market and Policy Failures

• Housing and Automobiles: Builders are now ignoring affordable housing to focus on luxury homes priced between ₹90 lakh and ₹1.5 crore. 
  • Similarly, car manufacturers are innovating in expensive SUVs while neglecting budget cars like the Alto or Nano.
• Stagnant Wages: Entry-level IT salaries have remained unchanged for over a decade (2012–2026), while the cost of living has skyrocketed.
• The “Poor Person’s Market” is Vanishing: Businesses are focusing their energy and resources on the top 10% because that is where the profit is, effectively forgetting the needs of the bottom 90%.
  • Monopolistic Inclination”: Market starts tilting toward limited sellers and premium segments instead of competitive mass markets. The choice from the poor is removed.

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Way Forward

• Focus on Quality of Life: Policy should shift from chasing GDP figures to job creation and ensuring high-quality employment.
• Wage Reform: There is a need to implement inflation-linked wages so that people’s earnings keep pace with rising costs.
• Breaking Monopolies: There is a need to break the monopoly of large corporate groups to allow small businesses to thrive and serve the poor.
• Social Security: Policy focus must shift toward social security, better labour conditions, and the empowerment of the poor to reduce inequality.

Conclusion

Economic freedom depends on inclusive income growth and institutional fairness, not headline GDP alone.

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