Even before a National Statistical Commission-sponsored committee provided us a back-series of GDP using the new 2011-12 base, it was clear that the economy had grown faster in the UPA decade. The back-series has increased the average GDP during the UPA’s decade to 8% from 7.5% earlier; as compared to this, the four years of the Modi government have yielded a 7.3% growth. The headline numbers, though, mask many of the blemishes. Also, the global economy was in far better shape during UPA-1; the rising tide, until the financial meltdown, lifted all boats, including India’s.
Very importantly, exports were doing well during UPA-1, while they are struggling today; India’s uncompetitive wages, the small size of firms and poor infrastructure are responsible for this, but this didn’t seem to matter much when global trade was booming. Indeed, the UPA government was willing to give the fiscal deficit a long leash; deficits in 2008-09 and 2009-10 shot up to precarious levels of 6.2% and 6.7% of GDP, respectively, as the finance minister generously provided fiscal stimuli to industry by way of excise duty cuts after the global financial crisis.
Only in two of the ten years was the deficit contained at 3.5% or below. In contrast, the NDA has been more fiscally prudent though, of late, it has started exploring funding options outside of the fisc. The high deficits of the UPA regime, not surprisingly, stoked inflation; in five of the ten years to 2013-2014, CPI rose by more than 9%, hitting 12.3% in 2008-09. Not only has inflation eased significantly during the NDA’s four years, this happened despite two weak monsoons in 2014 and 2015. To be sure, the sharp fall in crude oil prices have helped contain retail inflation, but to the NDA’s credit, the hikes in MSPs till the last round had been relatively modest.
More critically, even as the UPA claims bragging rights for the economy’s performance, it would do well to remember that much of this came from excessive and reckless bank lending. The excesses of those years resulted in massive loan losses by PSU banks and, with NPAs rising, brought lending almost to a standstill; the crisis in bank balance sheets is a big reason for the slowing in investment in the country since banks were no longer in a position to fund borrowings.
While the reckless lending has resulted in a situation where costly assets are being sold for a song today, banks are still starved for capital and aren’t able to lower lending rates; moreover, they have become so risk-averse, they lack the confidence to fund even sound projects. To be sure, Modi’s policies of demonetisation and GST have slowed the economy—the latter is a good move, though, over even the medium-term—but a large part of the blame for today’s slower growth rests entirely with the UPA.