On eve of the election, questions are bound to be asked about the performance of the UPA in as far as its economic record is concerned. Team Manmohan was expected to deliver a miracle. Now that we are at the end of the five years, how do we judge its record? Could it have done better? Did it do enough to secure the foundations of future growth?
Let us begin with the best. Three consecutive years of 9 percent plus GDP growth will be the best exhibit the UPA can display. Manmohan Singh began the new economic policy in 1991 and lifted India out of the old Mahalanobis nightmare. There were doubters at that time whether liberal economic reforms would work or whether India would be signing itself for a new slavery or get trapped in a debt-default saga. None of these happened, and India began a regime of growth rates which never went below 5 per cent when, in the previous 45 years, they had rarely been above. Even the Left-backed regimes of 1996-1998 did not spoil the party but then P Chidambarm was Finance Minister then as well.
The NDA lifted the game to higher growth rates and it looked like it had broken the Congress monopoly on economic wisdom. But voters were fickle. Perhaps the biggest mistake which UPA made when it came to power was to misinterpret the meaning of the election results of 2004. It saw these as a rejection of liberal economic reforms. No one championed high growth any longer. The war cry was inclusion. The Left support meant that, despite the Left?s own practice when it was in power at the Centre and indeed in West Bengal, economic reforms were a no-go area.
Yet the foundations laid 13 years previously and enhanced by the NDA bore fruit. Four years of high growth and moderate inflation meant India saw more enrichment in the 21st century than ever before. Nominal GDP grew at 14-15 per cent, thus doubling between 2003-04 and 2007-08. It looked effortless and, indeed, it was almost as if the UPA should do nothing positive about growth, lest it infuriates the Left partners.
It is since middle of last year that problems have emerged. First, there was inflation mainly due to global pressures on commodity prices. This was not clearly analysed. Indian policymakers are still in denial about the effect of the outside world on domestic economy. There is still a closed economy or perhaps an insulated economy mentality among policymakers. This is perhaps why inflation took a long time to get down. Then the global slowdown hit India in late 2008. Again denial was the rule. Silly stories about how China and India were disconnected from the global slowdown bit the dust as reality dawned about export growth and withdrawal of foreign flows.
The UPA never challenged the Left about the need to pursue structural reforms in labour and in land markets. Nor did it improve the delivery of health and education. Even after the trust vote victory, it frittered the months away paralysed by the prospects of the forthcoming elections. It stood by as Ratan Tata had to abandon Singur and did not lift a finger to assert the importance of the innovative Nano, which sent a message to the world that India was no longer serious about growth. One of the reasons is that, within the Congress itself, there are siren voices which echo the CPM line. Team Manmohan is not everyone?s pride and joy. It is suffered as long as it generates the revenue for pet projects which waste public money.
The reckoning has now come. The costs of restraining the best economic policy team India has ever seen is being paid in the low growth registered for the last quarter of 2008. The uncertainty due to the PM?s operation, the reluctance to find a permanent replacement for Chidambaran and the avoidance of hard decisions about land and labour legislation mean that the first two quarters of 2008 can be written off. If growth picks up, it will be by accident.
If, as I expect, the Congress will be back in office with a new set of coalition partners, then its first task would be to shed its fear about growth. The key person here is Sonia Gandhi, whose risk aversion is legendary. She has to be persuaded that during its second term if the Congress does not pursue the policies required to restructure the Indian economy, then it will be punished by the electorate. If she has any concern for reduction of poverty, she should give the economics team its head. A repetition of the last five years will no longer suffice. India can and should achieve double-digit growth rates.
?The author is a prominent economist and Labour peer