Economic performance: Did Modi do better than UPA?

Elections are not won or lost on the basis of economic performance alone. Nonetheless, a government’s economic record plays an important part, specially achievements on employment and inflation — two areas of major concern for ordinary voters. How does the economic performance of the Modi government compare with that of its predecessor, the UPA government?

Average GDP growth under Modi (2014-18) falls within a range of 6.8% to 7.7%, depending on which data series one uses. Going by World Bank data, the average works out to be slightly above 7%. This is higher than the average under UPA-2, but lower than under UPA-I. True, India is currently the fastest growing big economy in the world, but that is because China’s growth has slowed down, not because India’s growth has risen significantly.

A bigger concern has been job creation. The unemployment rate in 2017-18 is at its highest in 45 years, according to both CMIE and NSSO data, the latter of which the government has tried to suppress.

Government spokespersons have downplayed the finding by variously arguing that a 7% growth in GDP is not possible without jobs being created, or that the latest NSSO survey uses a different methodology, which makes the unemployment figures not comparable to those in earlier years.

Irrespective of the methodological issues, it does not present a pretty picture. However, this could very well be the result of longer term forces, like the poor quality of education/skills which makes people unsuitable for good jobs as well as a shortage of decent paying jobs due to lack of labour-intensive modern industries. However, that means Modi’s initiatives like Make in India and ‘Skill India’ have not been able to change the ground reality.

The inflation performance of the Modi government is clearly superior to that of the UPA government. Average CPI under the Modi regime has been 5% as against 8.1% under UPA. Then, again, the Modi regime has been lucky in that oil prices, which reached their peak in the UPA-II years, remained low for most of the period under Modi.

The investment/GDP ratio matters for capacity creation and the longer-term growth trend of the economy. Here, the record of the Modi government (average 31.8%) lags behind the UPA government (average 38.9%). This could be largely because under UPA, there was exuberant over-investment in many sectors, financed by over-enthusiastic banks, which eventually led to excess capacity, high NPAs and the drying of bank finance in the Modi years.

The Modi government has been more successful in keeping fiscal deficit closer to the target than the UPA government. This, again, is partly because of low oil prices, which allowed it to raise additional petro levies. Though it is too early to say, the introduction of GST on a broader base of transactions in goods and services should yield higher tax revenue over time.

In managing balance of payments, the performance of the Modi government has been worse. Average annual export growth stood at 1.68% under Modi while it recorded 3.92% under UPA. Consequently, the value of the rupee has been falling, despite declining oil price over most of the Modi years. Over the same period, countries like Bangladesh and Vietnam have performed much better by exporting labour-intensive manufactures.

DeMo fiasco

It is now generally accepted that Modi’s demonetisation exercise has imposed huge hardships and loss of income, without achieving any of the stated objectives. Perhaps the only positive has been that the government now has access to a large amount of data on big cash deposits in banks and on many shell companies. But it is anybody’s guess whether the government will use this information selectively against political opponents and business people not willing to contribute sufficiently to the BJP’s coffers.

The GST and the Insolvency and Bankruptcy Code (IBC) are recognised to be two major achievements of the Modi regime which, after the initial adjustment phase, should do a lot of good in the longer run. Also, there has been improved performance in building roads, rural houses, toilets (though sometimes non-functional due to lack of water connections), electricity and gas connections to poor households and financial inclusion and direct transfer of benefits to bank accounts. It is too early to predict the impact of the recently announced universal health insurance scheme, Ayushman Bharat.

Significant improvements have occurred in India’s ranking in the World Bank’s Ease of Doing Business. The court-mandated compulsory auctioning of natural resources has eliminated one major source of corruption, though outright frauds like Nirav Modi have continued to happen.

Even if the causes are mostly structural, farm distress and farmers’ agitations have become major headaches for the Modi government. Apart from announcing a 50% over cost (how to estimate the cost has again created a debate) MSP for farmers, the central government as well as a number of state governments have announced farm loan waivers (though it benefits only the bigger farmers able to get loans from banks) and cash subsidies to farmers. Despite the impossible electoral promise of doubling farmers’ income in eight years, there cannot be any permanent solution to farmers’ plight unless farm productivity, storage and marketing systems improve significantly and surplus agricultural workers are transferred to better paying occupations.

Finally, remember that sometimes ordinary people are affected more by ‘minor’ developments than by the overall macroeconomic situation. For example, restrictions on cow slaughter and transportation, together with cow vigilantes running amok in the Modi era, have left large numbers of unproductive cows roaming in the rural areas. In addition to the extra costs of feeding them and the loss from stray cows eating standing crops in the fields, rural households are being deprived of incomes from sale of cows and trade and production activities in related products like beef, leather and hides, accentuating rural distress.

(The author is a former Professor of Economics, IIM-Calcutta)