Growth rate is defined as a measure of economic development in a certain fiscal year in percentage terms. This measure is not adjusted for inflation. It is expressed in nominal terms. In practice, it is a measure of the rate of change that a nation's gross domestic product goes through from one year to another.
The economic growth rate provides an insight into general direction and magnitude of growth of the overall economy. In the United States, for example, the long-term economic growth rate is around 2-5.0 per cent and this lower rate is seen in most of the highly industrialised countries. Fast-growing economies, on the other hand, see rates as high as 10.0 per cent although this rate of growth is unlikely to be sustainable over the long term.
Economic growth is the increase in market value of goods and services produced by an economy over time. It is conventionally measured as the percentage rate of increase in real gross domestic product, or real GDP. Of more importance is the growth of the ratio of GDP to population.
In economics, economic growth typically refers to growth of potential output, i.e., production at 'full employment'. Growth is usually calculated in real terms, i.e., inflation-adjusted terms - to eliminate the distorting effect of inflation on prices of goods produced. Measurement of economic growth uses national income accounting. Since economic growth is measured as the annual percentage change of gross domestic product (GDP), it has all the advantages and drawbacks of that measure.
The process of achieving a projected growth rate is to be interpreted in the light of the above. Whether the growth rate projected in this year's budget is achievable has been at the centre of a relentless debate throughout the year among economists, planners and media men. The Dhaka office of the World Bank released a report titled Bangladesh Development Update wherein it was predicted that Bangladesh may achieve a growth rate of 5.6 per cent during the current financial year which could have been 6.6 per cent had political stability and sustainable development prevailed in the country.
In fact, the growth rate has been stagnant around 6.0 per cent for the last few years. The economists suggest that the only way to wriggle out of this quagmire is massive investment. The prevailing rate of investment is 28.7 per cent of GDP which will have to be raised to at least 33-34.0 per cent in order to achieve higher growth. Furthermore, 1.3 million new jobs are to be created every year in Bangladesh in which, according to the World Bank, women's participation is negligible. As a result, women empowerment is also being impeded pulling back the growth rate to an extent.
In order to accelerate the growth rate, pace of development is to continue and revenue income, accountability and flexibility of exchange rate in the financial sector will have to be ensured. In addition, due attention will have to be given to accelerate implementation of economic zones, create genuine business environment, ease availability of land for investment in private sector and undertake infrastructural improvement including road, power and energy. Besides, participation of women in productive activities will have to be increased. It may be mentioned that under the existing system, women's performance in formal sectors is only included in GDP. If women's participation in non-formal sectors were included, GDP would have been higher.
The World Bank projection regarding GDP growth kicked off a lot of dust in the government sector and the Finance Minister himself termed it unrealistic. However, a debate between the government and World Bank over GDP growth is not unprecedented as similar undesired incident is encountered every year. At the end of the day, projections by the development partners are found to be closer to reality and growth target set by the government does not reach the expected level. Target for GDP growth for the coming year has been set at 7.0 per cent which cannot be achieved unless there is a large scale investment in the private sector, possibility of which appears remote.
According to the World Bank, total investment at present is 28.7 per cent of GDP. Investment will have to increase by at least 5.0 per cent annually to improve the growth rate, which is perhaps not possible under the present circumstances. Despite best of our efforts we have not been able to create a genuinely investment friendly environment to attract the potential investors. Again, we are not aware whether the 28.7 per cent investment pointed out by the World Bank is just registered investment or actual.
There is a wide gap between investment proposals registered with the Board of Investment and investment implemented or under implementation. Investment comes from both public and private sectors. Investment in public sector is generally made in utility or infrastructure sector. On the other hand, private investment is made in productive sectors. Unfortunately, private sector at the moment is unwilling to invest.
Investment in private sector can take place from local entrepreneurs and owners of surplus foreign capital can also come forward directly or invest under joint collaboration. Since investment is a long-term process, foreign entrepreneurs do not easily give in without evaluating the socio-political situation of the country. Local entrepreneurs also feel hesitant to make new investment unless security of their capital is ensured. That the local entrepreneurs are gradually losing interest to invest is apparent from the fact that in spite of banks floating on surplus money the potential investors are showing very little interest to borrow.
National development without private sector investment is inconceivable. But public investment is generally allocated to infrastructure development, while the private sector will harness national development by taking advantage of the infrastructural development caused by public sector investment.
State or its representatives can not make good entrepreneurs or manufacturers. There have been considerable investments in the public sector in recent years, but private sector or individuals are yet to enjoy the fruits of these investments. In addition, a large portion of public sector investment or development allocation is misused in many ways, while probability of wastage or misuse is much less in the private sector.
Lending target for the banking sector was fixed at 16.5 per cent for 2014-15 fiscal, which is unlikely to be achieved. During the last few years, credit flow in the private sector has been slowing down. The target was set at 16.0 per cent last year, but actual credit flow was little over 11.0 per cent, which is likely to reduce further during the current year. So the projections made by the World Bank appear to be closer to reality and there is a probability of growth rate declining even further. The reasons will have to be explored and analysed further.
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