Column: Present tense, past perfect

Written by Surjit S Bhalla | Updated: Nov 16 2013, 10:34am hrs
The Indian economy is in a very bad shape; we know that. Also, state elections are here and national elections are due in a few months. A heady mixture. Somewhat surprisingly, but interestingly, the Congress party and its ministers have decided that they will fight economic fact with economic fact and show that Congresss economic record over the last 10 years has not only not been bad, but the best that the Indian economy has enjoyed, ever. As documentation, facts have been floated comparing the NDA record 1999-2004 (hereafter NDA) versus the Congresss record 2004-2013 (hereafter UPA). For example, it is documented that the average GDP growth rate of 5.9 % during 5 years of NDA rule was considerably lower than the average growth of 8.3% observed in 10 years of UPA rule.

In my view, it augurs well for India that the electoral fight is on economic grounds rather than on the basis of caste, religion, incumbency, etc. The extensive documentation provided by UPA of superior economic performance would suggest that despite all odds, and the extremely weak performance of the economy in the last few years, it would be UPA-3, come May 2014.

However, that would be a hasty conclusion. An application of the economic performance model involves a separate analysis of the 2009 election and the forthcoming 2014 election. UPA-1s record would be looked at to predict the 2009 election, and UPA-2s record 2009-2013 would be analysed to predict the 2014 election. Nowhere have I found, certainly not in the Congress/UPA distributed literature or TV shouting matches, a Congress representative ever provide separate figures for the two UPA incarnations. The accompanying table maybe the first!

The Congress strategy of presenting the average 10-year record is akin to double jeopardy for a common criminal. Just like you cannot be tried for the same crime twice, a political party is not rewarded, or punished, by the electorate for the same performance twice. The Indian voter felt extremely happy with UPA-1s performance and therefore rewarded Manmohan Singh as PM, and Sonia Gandhi as chairperson, Congress, with re-election by a respectable margin; Congresss seats increased from 145 in 2004 to 206 in 2009, and the lead over BJP votes increased from 4.5 percentage points to 9.8 percentage points (28.6 % for Congress alone and 18.8% for BJP alone in 2009). Today, the voter will now look at what Congress has done for her/him since 2009, and is unlikely to remember, or give credit to the Congress for the now-forgotten happy days of 2004-2009.

The table illustrates the large swing that has been observed in economic data. Data for the two most representative parameters are presentedgrowth and inflation. Several results stare at you. First, per capita growth in the last three years of UPA rule will be lower than the five years of NDA rule3.6% per year versus 4.0%. Second, regardless of the indicator, inflation in all the ten years of UPA-2 rule is significantly higher, and often more than twice the rate of the inflation observed during NDA rule. Recall that despite soaring onion inflation in 1999, aggregate CPI for that year registered less than 3%! The third is the disastrous UPA performance with respect to the fiscal deficitit will average 9.5% for the last five years, near identical to the 9.9% deficit observed during NDA. However, that deficit was accompanied by the lowest five-year inflation that India has ever experienced.

Some inferences can also be derived from the absolute performance of UPA-1. Inflation had begun to accelerate almost from the very moment that UPA assumed power. In FY05, the GDP deflator was 5.8%, a marked acceleration from the 3.4% average recorded during the previous five years. And except for a small dip to 4.1% in FY06, UPA inflation never looked back. It continued to accelerate, reaching 8.3% in FY09.

If one looks at the CPI data, the UPA performance is worse, much worse. A five-year average of CPI inflation is the third-highest in Indian history, tied at 10.4% with 1977 and 1994 and only exceeded by the 12% and 12.2% average observed for 1974 and 1975 respectively. There were exceptional circumstances in the mid-seventiesremember the quadrupling in the price of OPEC oil in October 1973 That caused the world, and India, to enter into a stagflation spiral. The five years ending in 1994 include the Indian crisis year of 1991, and the major economic reforms which followed. What is the excuse of UPA in inducing, encouraging, tolerating, and guiding consumer price inflation to unprecedented levels over the last six years The average CPI inflation during these years is 10.1%!

This inflation generation is a lasting crime. The most recent data contain ominous signs for inflation for the rest of the year. GDP deflator inflation for the first seven months (April through June) of this fiscal year is at a SAAR above-7%!

I am a firm believer of economic determinism in elections, and an economic model was able to successfully predict the 1999 election (see Voting With the Economy, August 31, 1999; elections were held in September/October 1999; available at www.oxusinvestments.com). Congress was predicted to obtain 116 seats, it obtained 114 seats, the lowest on record. So, what will the voter remember when she/he pulls the trigger in May next year Will she/he remember that 2004-09 saw Indias best growth rate ever, and continue to reward the UPA for that performance, or will she/he remember that the average double-digit inflation of the last six years of UPA rule has beaten all Indian records for excess And a per-capita growth rate of less than 3% for the last two years, and less than 4% for the last three She/he has the worst of both economic worlds todayexcessively high inflation and excessively low growth. What will she/he do Watch this space for some forecasts of the economic determinism model.

The author is chairman, Oxus Investments, an emerging market advisory firm, and a senior advisor to Zyfin, a leading financial information

company. Twitter: @surjitbhalla