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What Modi and Chidambaram refuse to tell you

The numbers seem to say the UPA has stewarded the Indian economy far better than the NDA. But that's deceptive, if not in the way the BJP claims

Mihir S Sharma  |  New Delhi 

It should generally be considered a sign of maturity when political leaders fight over governments’ performance and actually use data to back it up. Sadly, it appears that also depends upon the individual maturity that the leaders in question display. On Monday, BJP leaders Narendra Modi and Yashwant Sinha and the Congress’ finance minister P Chidambaram did not exactly set shining examples.


Modi began the discussion, by declaring to an audience of adulatory NRIs that the BJP-led National Democratic Alliance had left power having taken growth to 8.4 per cent; the Congress’ United Progressive Alliance governments had sunk it to below 5 per cent. His claim was misleading or based on outdated data at best; at worst it was plain wrong and deceptive.

The NDA’s last year in office, 2003-04, was its best year, and it registered growth of only 8 per cent in it. Chidambaram, therefore, went on the attack, nastily saying Modi is “trying to stage a false encounter with facts”. The FM argued that: “The average for the six-year period (of NDA rule from 1998-99 till 2003-04) was 6.0 per cent … By contrast, the average for UPA-I was 8.4 per cent (and) for the first four years of UPA-II, the average has been 7.3 per cent.” He at least did his arithmetic right – Modi’s terrible run with mathematics continues.

Yashwant Sinha, however, said that Chidambaram, while being scrupulously accurate, wasn’t telling the whole story. The NDA had taken growth up to a high level, he argued, which UPA-I took advantage of; and UPA-2 had managed to effectively destroy it. “We had given them a very healthy economy, which they have turned into a sick child; and from 8.6 per cent, they have brought the growth rate back to 4.8 per cent. That is a fact that the whole world knows, and Chidambaram cannot deny that fact.”
Where, precisely, does the truth lie?



Arguing with the numbers

There are some areas of the economy where it is unquestioned that the UPA has done far better than the NDA. The pace at which people have been lifted out of poverty is one such; the prime minister is fond of pointing out that the rate of poverty alleviation is 2.5 times faster under the UPA than the NDA, which is a very major difference indeed.

On inflation, clearly, the UPA has done markedly worse than the NDA. The NDA period saw wholesale price inflation of less than 5 per cent; in the UPA’s term in office, it has averaged 6.7 per cent. Then there’s the current account; on average, it was 0.5 per cent of GDP in surplus in the NDA years, but 2.2 per cent of GDP in deficit since then. And of course, it’s in very dangerous territory today.

There are other areas where the NDA is generally supposed to have done much better than the UPA. Disinvestment is one. The numbers don’t tell as clear-cut a story, though. The NDA’s six years saw disinvestment receipts of Rs 33,655 crore. The UPA’s nine saw receipts of Rs 92,063 crore. Of course the rupee’s value is continually eroded by inflation. So let’s look at those total receipts as a fraction of overall GDP (at each year’s prices) for their entire term in office. The NDA privatised 0.0026%; the UPA privatised 0.0018%. I’ll leave it to you to judge whether that’s as much of a difference as we’ve been told.

Definitely, there’s very little solace in most of the numbers for those seeking to play up the NDA’s superior performance. Industry grew at 5.8 per cent a year under the NDA; 7.6 per cent a year under the UPA. Even given the freeze of the last few quarters, the average for just UPA-II is 6.3 per cent industrial growth a year, which is better than what the NDA delivered. Services growth for the UPA’s term approached double digits; even for UPA-II, services grew by 8.8 per cent, more than a percentage point higher than under the NDA.

Most intriguingly, the NDA was nowhere near as responsible a spender as its proponents make out. The fiscal deficit from 1998-2004 averaged 5.5 per cent of GDP, and has averaged only 4.7 per cent of GDP since then. Both the UPA and the NDA hit 6 per cent of GDP once, and crossed that mark once – though the NDA had considerably fewer years in which to set those records.

The story the BJP would like to tell is of an increasing stagnation since 2004, particularly in UPA-II – but that comes up against basic infrastructure numbers such as for installed power capacity, which has shot up in the past two years, or the number of double-laned highways.

Where the UPA’s numbers really dominate the NDA’s are in agricultural growth, however, which impacts the largest number of Indians. The NDA grew agriculture at 2.2 per cent a year; the UPA at 3.3 per cent a year. And, under UPA-II, the rate again accelerated – averaging 3.6 per cent a year – two-thirds faster than the NDA managed.

The impact of higher agricultural growth and, presumably, other state measures also tell in major economic indicators of individual well-being. Private consumption grew 40 per cent faster a year under the UPA than under the NDA. Here’s another, broader, way of looking at the same fact. Private disposable income – the amount of money left with individuals after they’ve paid taxes and so on, to do with as they please – grew, in nominal terms, 8.3 per cent a year under the NDA. Under the UPA, it grew – wait for it – 20 per cent a year in nominal terms. Of course, that needs inflation to be taken into account, right? Even then, if inflation was 5 per cent under the NDA, and 7 per cent under the UPA, that still means the NDA delivered real disposable income growth of 3 per cent a year, and the UPA of 13 per cent a year. A ten percentage-point difference. Nor has this trend slowed.

Arguing against the numbers

So the BJP can’t use numbers to make its point. Which is why it has to make a more subtle argument: that the NDA laid the groundwork for what Chidambaram called “a golden period of growth” under UPA-I; and that advantage was then squandered, which is why we are in difficulties today.

This is an argument that is not too difficult to make – although Modi nevertheless failed to make it well – if you look at some of the numbers. For example, although the BJP’s fiscal deficits were higher on average than the UPA’s, it did bring them down in its last year to 4.3 per cent of GDP from 5.7 per cent the previous year. That was, presumably, the effect of its famous fiscal responsibility Act.

The problem with this argument is two-fold: first, it merely means the UPA had the opportunity to show a willingness to follow the fiscal responsibility Act for longer than had its predecessor, abandoning the constraints finally when the financial crisis hit. The fact that the NDA abandoned fuel price deregulation when they began to worry it would bite electorally provides a hint that they wouldn’t have behaved too differently from the UPA.

The second problem is the NDA’s final year 2003-04 saw a suspiciously sudden jump in the savings-investment gap, in capital formation and the capital account – signs that the global economy was entering its liquidity-flush period.

Indeed, if either the BJP or the Congress wished to be honest, they would tell voters that a great deal of their respective macro-economic performances depended on world markets and policymakers far, far away in Washington, DC. The “golden growth” of 2003-08 was not a product of Manmohan Singh’s leadership or the foundation laid by Atal Bihari Vajpayee so much as of Alan Greenspan’s famous “put” and George W Bush’s fiscal expansion. Oh, and oil was cheap, too. And the collapse in recent quarters was not a product of policy mismanagement and corruption so much as the delayed draining out of that liquidity, and the consequent crunch in demand. Oh, and oil was pricey, too.

So Chidambaram, instead of trumpeting UPA-I’s golden growth, would do better to explain why it won’t happen again, and definitely not without the reform of labour and land markets his government has so signally failed to put in place.

And as for the BJP – well, it should use numbers right if it has to use them. And, since it doesn’t believe in reform to labour law, FDI or the GST, and it feels the Food Security Bill isn’t expansive enough, it should at least tell us what it would have done differently in dealing with the financial crisis. Here’s the BJP’s prime ministerial candidate telling us his policy responses to the crisis. See if you can work out what on earth he’s saying. He seems to be warning against an inflow of “dirty money” from the Mafia, and also saying that racism can be converted into a low-cost manufacturing opportunity. Perhaps I’m misinterpreting him. I certainly hope so – because if I’m not, I fail to see how an NDA-III would have been any better than UPA-II.

mihir.sharma@bsmail.in

NOTE:

The data used in this article are from the Planning Commission

(http://planningcommission.nic.in/data/datatable/index.php?data=datatab)

and the Reserve Bank of India

(http://www.rbi.org.in/scripts/AnnualPublications.aspx?head=Handbook%20of%20Statistics%20on%20Indian%20Economy)

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First Published: Tue, September 24 2013. 09:20 IST
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