Manmohan vs Modi: False debate on both sides

The Modi government needs to thank previous governments for midwifing the GST and highlighting its value, which helped overcome Modi's own reservations about the reform

The near-completion of ten years of the Modi government has naturally provoked a comparison with the previous ten years of the Manmohan Singh government. But in the economic realm, this is a false debate with selective argument and convenient amnesia on both sides of the political spectrum. Partisan political battles are natural, even healthy, in a democracy where each party has to distinguish itself from the other. But nation-building is a continuous process, with each government building on the work of its predecessor while learning from its mistakes. And that must be the spirit for assessing the past two decades of Indian economic successes and shortcomings.
 

First and foremost is the ghost not in the room — Pranab Mukherjee. The United Progressive Alliance (UPA) government, and Congress in particular, has thrown an invisibility cloak over his tenure as Finance Minister in its second term. Whatever one thinks of the UPA government’s ten years of successes and failures, and whatever one thinks of the late Mukherjee’s formidable political skills and contribution to both the Congress party and Indian democracy, it is undeniable that the Mukherjee reign was an unmitigated economic disaster, arguably amongst the worst in India’s history.
 

India witnessed retroactive taxation, irresponsible macro-economic and fiscal policy, and uncontrolled, free-for-all corruption with “phone-banking” entering the rich lexicon of bad governance. Growth plummeted, inflation soared, the banking system was undermined and the near-crisis of 2013 followed. The inability to rein in Pranab Mukherjee proved fatal for the UPA government and damaging for Manmohan Singh’s reputation for economic governance. And the silence of the UPA’s intellectual supporters and economists about that period (even today) undermines their credentials as credible public voices.

 

In a strange twist of irony, where the Congress wished anonymity for Pranab Mukherjee, the Modi government bestowed honour. It awarded him the Bharat Ratna implicitly placing him — with his poor economic record — the same veneration as for C Rajagopalachari, S Radhakrishnan, Mother Teresa, Nelson Mandela, CV Raman, Abdul Kalam etc. Whether the award was to recognise a fellow, if closet, ideological traveller or as gratitude for creating the economic chaos that contributed to the rise of the Modi phenomenon or due to a genuine bipartisan spirit, we will never know. But it does raise the question: if nearly half of the Manmohan Singh economic rule was so bad, why reward its chief architect?
 

Selectivity on both sides extends to India’s achievements on building physical and digital infrastructure. The Modi government tries to appropriate these achievements for itself without adequately crediting both the UPA government and the first National Democratic Alliance (NDA) government for creating the building blocks: the infrastructure revolution can be dated back to the Pradhan Mantri Gram Sadak Yojana (PMGSY) and the golden quadrilateral project under Atal Bihari Vajpayee.
 

In turn, the Congress insufficiently acknowledges the acceleration of the pace of physical infrastructure creation under the Modi government; and, in the case of the digital revolution, while it sowed the important seeds under the leadership of Nandan Nilekani, it did halt their germination. And it was the Modi government that rehabilitated what became the JAM (Jan Dhan-Aadhaar-Mobile) revolution with all the benefits for the delivery of essential services to all Indians, especially the poor.
 

On the welfare state, the UPA government made important strides in building a social safety net by emphasising food security via the public distribution system and employment guarantee under Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). Having begun its term ambivalent about the UPA’s main schemes, the Modi government relied on and benefitted from the vital role they played in cushioning India against the Covid crisis. It has implicitly flattered the UPA government through imitation and even expansion — from providing subsidised food to essentially free food — but more explicit acknowledgement, even gratitude, is warranted.
 

In contrast, Prime Minister Narendra Modi emphasised what I have called New Welfarism by providing essential goods and services such as toilets, bank accounts, housing, cooking gas, and cash. The underlying vision — for example, publicly raising the elimination of open defecation as an urgent national priority —, the obsessive commitment to implementation at the micro level, and above all, the talent to market, even hype, his achievements to extract the maximum political capital are all deserving of bipartisan praise. On these scores, the political opposition should perhaps flatter Modi through imaginative imitation rather than withhold the recognition that is due.  
 

Consider the Twin Balance Sheet (TBS) problem. It was created by the excesses that occurred under the UPA government, which, along with the RBI, must carry blame for not taking timely action and hence bequeathing the costs to the Modi government. To the Modi government’s credit, it enacted the Insolvency and Bankruptcy Code (IBC) that allowed for faster exit from the TBS. But that record is partially tarred by the delays and the limited recoveries that have occurred under the IBC. The cleaning up of the non-performing assets in the banking system owes a lot more to recapitalisation and write-offs than to resolution under the IBC. Spanning both governments, the TBS problem festered for nearly ten years and the costs of capital locked in for that period with the associated decline in asset values were substantial.
 

Take, then, the goods and services tax (GST). The intellectual, political and administrative groundwork for the GST was laid by several governments that preceded the current one. The UPA government wanted to implement it but failed because it could not muster the required political consensus. It should be more generous in giving the Modi government credit for implementing it instead of consistently attacking a major reform which it was so keen to implement. Equally, the Modi government needs to thank predecessor governments for midwifing the GST and highlighting its value, which helped overcome Modi’s own reservations about the reform.
 

Some of the point-scoring by the Modi government, especially on economic growth, rests on the data that it has produced. This is not the occasion to reprise that debate. But one point that gets overlooked is that the Modi government revised downwards the growth estimates for the period 2004-05 to 2011-12, which has allowed the Modi record to appear better than that of Manmohan Singh. Were those downward revisions plausible?
 

The answer was actually provided by the experts appointed by the National Statistical Commission during the Modi government’s tenure and headed by the respected economist, Sudipto Mundle. They estimated that annual average growth in that eight-year period (80 per cent of the tenure of the Manmohan government) was 8.6 per cent. The official data produced by the Modi government as part of the back-casting exercise estimated that average growth at 7.0 per cent, a difference of 1.6 percentage points annually. As a consequence, private consumption growth, which was estimated by the experts to average 8.5 per cent in that period, was revised down to 6.1 per cent, a difference of 2.4 percentage points annually. With such large data revisions, it becomes easier to make the Modi government’s record look better. And one can recognise this government’s economic successes, while also seeing that the measurement goalposts shifted.
 

One damaging consequence of the political polarisation illustrated by the Manmohan versus Modi debate has been the attendant intellectual polarisation, shrinking the space for disinterested debate: we are left with either breathless cheerleading for the Modi government or motivated criticism of it.
 

The other tragedy is to miss the fact that the considerable economic achievements of this millennium — infrastructure, the digital revolution, the welfare state, GST, IBC — were cumulative and national to which all parties have contributed and for which all deserve credit. That matter of genuine national pride, transcending political affiliations, risks being drowned in divisive discourse.
 

False and acrimonious debates such as Modi versus Manmohan might allow for victories that are political and partisan. But the real loser is the nation, India and Bharat.

The author is senior fellow, Peterson Institute for International Economics, and former chief economic advisor, Government of India