By Ashok Gulati & Shyma Jose
In the New Year, there is optimism on the macroeconomic front. The first advance estimate of FY24 GDP growth is pegged at 7.3% by the NSO, versus the Reserve Bank of India’s 7%. The mid-term review of the economy by ministry of finance also says it will be comfortably higher than 6.5%. Sensex is booming, having crossed the 72,000 mark first time in history.
Forex reserves crossed $620 billion on December 22, 2023. Inflation is contained within the RBI’s desirable band of 4+/-2%. All this points to India being the best performer among G-20 countries in 2023. And as per the IMF’s projections, India is likely to out-perform most of G-20 countries even in 2024.
All of this can’t be achieved without a critical role of policy. In this context, the RBI Governor and his team, along with the finance ministry, deserve credit for having worked to spur growth, contain inflation, and provide financial stability. No wonder RBI Governor Shaktikanta Das has been honoured with “Governor of the Year” award by Central Banking, a London-based economic research journal.
However, this does not mean that all is well on all fronts. Das has flagged increasing risks in unsecured loans in the banking industry. Many bankers keep cribbing about stifling regulation. Opposition parties point to high unemployment, high inflation, loss of democratic values, and so on. Yet, the juggernaut of the Modi government keeps moving forward with renewed confidence to win the 2024 general elections.
We look at the performance of the Modi government over its 10 years so far, and compare it with the 10 years of the UPA government. This may give us an indication of where India is headed economically over the next decade or so.
Looking at the overall GDP growth, we find that the average annual growth during the UPA period (2004-05 to 2013-14) was a notch higher at 6.8% than in the Modi government period so far (2014-15 to 2023-24), at 5.8%. This is as per the latest revised series data with 2011-12 base. However, it is worth noting that the GDP growth stood at 7.7% during the UPA period as per the older series (with 2004-05 base at factor cost). This was revised downwards to 6.8% in 2018, when the older series was replaced with the new one with 2011-12 base, at market prices.
The agri-GDP growth was 3.5% during the 10 years of UPA period, and at 3.7% during the 10 years of Modi government. Agricultural performance is critical for the well being of masses as it still engages about 45% of the work force, and provides basic food security to India.
However, UPA’s inflation record was not good. The average annual inflation (measured by consumer price index, or CPI) was 8.1% during the UPA period compared to 5.1% during the Modi period. In terms of food inflation, the UPA record was even worse—at 9.2%, compared with 4.9% during the Modi period.
But GDP growth and inflation are only two major macro-variables to gauge the economic performance of a country. For us, the litmus test is how the two governments have done in terms of reducing poverty in the country, which should be the first and foremost task of any government. The data on income poverty from the World Bank is available from 1977—unfortunately, not on an uniterrupted yearly basis. Measured in terms of the World Bank’s definition of extreme poverty of $2.15/day/per capita (in 2017 constant purchasing power parity, PPP), India’s headcount poverty level declined from 63.11% to 39.91% between 1977 and 2004. But despite this, the absolute population living in extreme poverty increased from 411 million to 453 million due to rapid population growth (2.1%).
As population growth was contained, absolute poverty numbers also came down in subsequent years. Interpolating the discrete poverty data as shown in the infographics, it would be safe to say that during the UPA-I period, 2004-05 to 2008-09 (interpolated), extreme poverty declined by 1.12% per annum (from 39.9% to about 34.3%). But during UPA-II, 2009-10 to 2013-14 (interpolated), poverty declined faster at 2.46% per annum (32.9% to 20.6%). During the Modi-I period, poverty fell, but at a declining rate, from about 19.7% in 2014-15 (interpolated) to 11.1% in 2018-19, i.e., 1.72% decline per year.
Surprisingly, during Modi-II period, 2019-20 to 2023-24, poverty declined at a mere 0.3% per annum. Covid-19 seems to have given a big shock and, even in 2023, India had the highest number of people (160 million) in extreme poverty, up from 152 million in 2018. The stunted decline in poverty during Modi-II period is not only puzzling but also concerning. It is also corroborated by the decline in the rate of growth of real farm wages for men. During the two terms of the UPA, the real farm wages grew by 4.1% compared to just 1.3% during the 10 years of the Modi government.
However, the UNDP’s Multidimensional Poverty Index (MPI), computed using 10 indicators under three dimensions—health, education and standard of living—halved from 55.1% to 27.7% between 2005-06 to 2015-16. That means about 271 million people moved out of poverty.
Similarly, NITI Aayog’s national MPI (similar to UNDP MPI with 12 indicators) dropped from 24.85% to 14.96% between 2015-16 and 2019-21, indicating that about 135 million people were lifted out of multi-dimensional poverty. It was largely a result of improved access to sanitation, schooling, cooking fuel, etc. While this is very welcome, it is crucial to address income poverty, which is still very high and has remained defiant over the last five years. For that, policy needs to focus on spurring employment-intensive growth. Skill formation in rural areas to enable people move out of agriculture to jobs in urban areas, coupled with direct income transfers to the most vulnerable (antyodaya), can help.
(The authors are, distinguished professor, and research fellow, Icrier respectively) Views are personal.