The Narendra Modi government produced a ‘White Paper on Indian Economy’ on February 8. A ‘White Paper’ is meant to be a concise and truthful report about a matter of public importance for better information of all concerned.
This ‘White Paper’ is a broadside of half-truths, and double-boasts.
Let’s look at the true economic track record of the Congress-led United Progressive Alliance (UPA) government, and of the Bharaitya Janata Party (BJP)-led National Democratic Alliance (NDA) government.
‘India Shining’ growth
The Atal Bihari Vajpayee-led NDA government produced one of the lowest GDP growth post-1991. Between 2000-2003, the GDP growth averaged a lowly 4.34 per cent; only in its last year (2004), it registered the ‘India Shining’ growth of 8.22 per cent.
Three big global transformations and two major policy decisions of the Vajpayee government led to ‘India Shining’:
The millennium bug launched India’s IT services revolution in 1999.
The Chinese investment and manufacturing growth engine provided wings to global demand from 2001.
Massive private capital flows flooded emerging markets with equity and debt capital and technology from 2002.
The Vajpayee government launched a big programme focused on building road infrastructure — the Golden Quadrilateral, and the PM Gram Sadak Yojana. It encouraged private investment by continuing with the 1991 economic reforms, opening up foreign investment and external commercial borrowings (ECBs), and undertaking an aggressive privatisation programme.
Lagged effects of reforms, favourable global conditions
The ‘White Paper’ claims that, “in the years between 2004 and 2008, the economy grew fast, thanks to the lagged effects of the reforms of the NDA government and favourable global conditions”.
This is a half-truth.
India recorded the highest-ever 5-year GDP growth of 8.01 per cent during 2004-2009. While the growth indeed had the tailwind of global factors, sensible policy choices of the UPA government contributed considerably.
Massive private sector capital investment resulted in the capital formation rate exceeding 35 per cent of the GDP. The booming private sector investment translated into a construction boom. Employment received a big boost. Wages grew handsomely. Inflation remained benign. The resultant high tax growth helped generate a revenue surplus in 2007-2008.
The UPA government decided to support rural demand. Minimum support prices (MSPs) were raised significantly. The MGNREGA was launched in 2006.
The UPA government romped home with a larger number of seats in 2009.
Economy into a funk
The UPA government’s luck ran out in its second term.
The Global Financial Crisis upended currencies and private capital flows. India faced massive draughts in 2009 and 2010. Global commodity prices rose to new highs.
The capital investment boom lost steam. The industrialists piled on public sector banks (PSBs). The PSBs liberally funded cost-inflated projects, which became stressed first, and non-performing later.
The UPA-II government made big mistakes as well — it expanded fiscal deficits for long to pump up demand. This resulted in high inflation.
The government did not know what to do with faltering industrial and infrastructure projects, thereby walking into the policy paralysis trap.
The CAG conjured up images of high corruption with notional losses of trillions in coal and telecom. The Supreme Court of India cancelled all telecom licences and coal allocations. Soon India’s economy plunged into complete disarray.
The ‘White Paper’ carries a litany of the UPA government’s scams and corruption. Barring some officials indicted in coal allocation cases, the Modi government could not secure a single conviction since it came to power in 2014.
Fragile five to top five
Private investment banker Morgan Stanley classified India as one of the five fragile economies in 2013. Fragile is not broken.
Charmed by the Modi government, Morgan Stanley produced the report: ‘India Equity Strategy and Economics: How India Has Transformed in Less Than a Decade in 2013’. The report reads more like a publicity paper. Let us objectively look at the economic record of the Modi government.
The GDP growth record by the UPA government was indeed better. The UPA-I recorded an annual growth of 8.01 per cent, while the UPA-II saw a lacklustre growth of 5.39 per cent. Under Modi-1, growth was 7.4 per cent, while the current term has seen an absolutely tepid growth of 4.3 per cent only.
The inflation record of Modi government is far better, particularly in the second term.
New FDI inflows were $2.23 billion in 2003-2004, $25.27 billion in 2013-2014, and $47.42 billion in 2022-2023. Fresh FDI inflows multiplied more than 10 times under the UPA government, whereas it has only doubled under the Modi government.
The Modi government has done much better in project execution — from road and rail projects, to the implementation of beneficiary-oriented programmes such as Housing for All, Ayushman Bharat, etc.
India getting into the top five economies during the Modi government’s term is more a fortuitous harvest of time than the result of high growth generated since 2014.
India rose from the ninth-largest economy in 2013 to the fifth-largest in 2022 more because the four economies perched just above India in 2013 in GDP experienced lower growth and currency depreciation. On the other hand, despite a better GDP growth record, India could only progress from being the tenth-largest economy in 2003 to the ninth in 2013.
It is clear that luck has favoured the Modi government more than performance.
Shades of grey matter more
Truth is grey and granular, and not monochromatic.
In certain respects, the UPA government’s record is a light grey and, in some other respects, the Modi government acquits itself better.
(Subhash Chandra Garg is former Finance & Economic Affairs Secretary, and author of ‘The Ten Trillion Dream’ and ‘We Also Make Policy’)
Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.
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