Q1- Is GDP a good measure to calculate the welfare of a country?

If not, then what is

the best measure to calculate the welfare of a country.
Answer- Gross domestic product is a monetary measure of the market value of all the final
goods and services produced in a specific time period by countries.
GDP has always been a measure of output, not of welfare. Using current prices, it measures
the value of goods and services produced for final consumption, private and public, present
and future. (Future consumption is covered since GDP includes output of investment goods.)
Converting to constant prices makes it possible to calculate the growth of GDP over time or
the differences between countries across space.
But although GDP is not a measure of human welfare, it can be considered a component of
welfare. The volume of goods and services available to the average person clearly contributes
to welfare in the wider sense, though of course it is far from being the only component. So it
is possible to imagine a social welfare function that has GDP as one of its components
alongside health, equality, human rights, etc.
GDP is also an indicator of human welfare. In cross-country data, GDP per capita is highly
correlated with other factors that are important for welfare. In particular, it is positively
correlated with life expectancy and negatively correlated with infant mortality and inequality.
Since parents naturally feel grief for children they have lost, infant mortality might be
thought of as an indicator of happiness.
‘Most people don’t benefit from GDP growth’

Many people assert that the typical US household’s living standards have stagnated since the
1970s, despite the relatively rapid growth of labour productivity and GDP per capita. But
while it is uncontroversial that US income inequality has been rising for decades, does this
mean that the typical household has received no benefit from growth? The results of a
comprehensive recent examination of these issues reveal quite a different picture (Wolff et al,
2012).

The measure of household welfare that this study uses is what is known as the Levy Institute
Measure of Economic Wellbeing (LIMEW). Table 1 shows the growth rates of median and
mean LIMEW (and GDP per capita) over the period 1959-2007 and sub-periods within that
near half-century. The difference between the growth rates of mean and median LIMEW is
an indicator of changes in inequality: if the mean rises faster than the median, then inequality
is increasing.

One of GDP’s biggest flaws is that it counts tragedies as economic bonuses. If a hurricane or
tornado hits and a country spends millions of dollars rebuilding, those expenses boost GDP,
even though people lost their homes, jobs, and lives.

And that’s not all. GDP ignores many crucial ways to measure the wealth of a country: clean
air, health, life span, gender equality, opportunity, education, and more. This is
understandable – GDP wasn’t developed to rank countries’ welfare, but simply to measure
money as the world recovered from the Great Depression.

But once you realise how many flaws GDP has as a measure, it’s a wonder it’s become the
ultimate yardstick of a country’s wealth – especially when there are so many alternatives.
And those alternatives paint a radically different portrait of global wellbeing.
GDP alternatives: Human Development Index
What is it?
A United Nations Development Programme, the Human Development Index (HDI) was made
with a focus on opportunity and capability, rather than just economic growth or
environmental sustainability. Interestingly, the U.N. encourages nations to use it alongside
their gross national income data. They say that it can help governments assess national policy
by “asking how two countries with the same level of GNI per capita can end up with different
human development outcomes.”
Pros-
Looking at both education and income per capita is a powerful combination, to see if money
and opportunities are actually being funnelled to the people. HDI also has the influence of the
U.N. on its side, which helps more countries access the data and decide to incorporate it into
their decisions.
They also compare the expected years of schooling and the actual mean years of schooling,
so that nations can see where communities fall short of expectations – and brainstorm what
can be done about it. Combined with life expectancy, these factors give HDI the potential to
showcase what opportunity (or lack thereof) looks like in each country.
Cons-
While HDI factors in some fundamental metrics, it’s missing a few key ones like
environmental damage, inequality, safety, and empowerment, to name a few – essential
aspects of human wellbeing.

Q2- Discuss the impact of Ukrainian war on Indian economy. And also suggest ways
through which these impacts can be reduced.

Answer- The ongoing conflict between Russia and Ukraine may impact certain high-
frequency indicators like financial markets, exchange rate and crude prices in the short-term,
a report by State Bank of India (SBI) economists showed.
However, it noted that this moment will not have any lasting impact on the Indian economy.
A few days ago, finance minister Nirmala Sitharaman had flagged concerns over the after
effects of Russia's invasion of Ukraine and said that never has global peace faced challenges
of this significance since World War-II. "India's development is going to be challenged by the
newer challenges emanating in the world. Peace is being threatened and after the Second
World War, (a) war of this significance, this impact, on the globe probably is not felt,"
Sitharaman had said. The finance minister had assured that the government is closely
monitoring the situation in Ukraine. In a recent development, India's top lender SBI will not
process any transactions involving Russian entities subject to international sanctions imposed
on Russia. Besides, Indian Oil Corp (IOC) said it would no longer accept cargoes of Russian
crude and Kazakh CPC Blend cargoes on a free on board (FOB) basis due to insurance risk.
Amidst all of these, crude oil prices soared past $100 per barrel, tracking uncertainty in
global supply disruptions. India could be one of the majorly impacted countries since it
imports 80 per cent of its crude oil from other countries.

Well known economist Mr Kirit Parekh told NDTV that already crude oil prices have
touched $100 per barrel even before Russia's invasion of Ukraine. Now, after the Russian
invasion, crude oil prices are under more pressure and they are likely to remain at high levels
for a long time to come.

This, Mr Parekh said, will have an impact on the country's import bill.

If this happens, then in the long run the country's economic growth is also likely to slow
down, he noted. At the same time, he said that prices of other commodities which India
imports, too will rise in the international market.

“Due to this pressure on global economy, demand may be impacted which could affect our
exports too,” Mr Parekh observed.

Research director and principal economist at India Ratings, Mr Sunil Sinha said that due to
Russian offensive on Ukraine, uncertainty has risen in global trade and this will also impact
oil and other commodities.

He further said that all this will have a direct bearing on Indian economy, as India imports oil
from Russia and sunflower oil from Ukraine.

“As prices are on the rise in global commodity markets, this will impact our import bill and
lead to inflation,” added Mr Sinha.

In its second advance estimates of national accounts, the National Statistical Office (NSO)
has projected 8.9 per cent economic growth in 2021-22, which is lower than its first advance
estimates released in January. At that time, NSO had projected 9.2 per cent growth for 2021-
22 as against a contraction of 6.6 per cent in 2020-21.

In the third quarter of the current fiscal, GDP growth stood at 5.4 per cent, lesser than 8.4 per
cent growth seen in the second quarter.

Rating agency ICRA has also said that the short-term impact of Russia's invasion of Ukraine
on India will be through inflationary pressures, since the country is dependent on imported
oil. Some sectors like oil and gas and both ferrous and non-ferrous metals can gain through
this trend, while the ones which depend on oil as a key input, like chemicals, fertilisers, gas
utilities, refining and marketing, will have a negative impact, ICRA said in a report.