'Vajpayee govt's reforms helped in strong GDP growth in UPA regime'

The Atal Bihari Vajpayee-led NDA government's economic reforms were among the factors that led to strong GDP growth during UPA I and II, Principal Economic Adviser to the Finance Ministry Sanjeev Sanyal on Tuesday said, even as the BJP and the Congress engaged in a war of words over the back series data on GDP.

He said the mid-2000 also witnessed an exceptionally good external environment and almost all emerging markets clocked high growth rates.

"There is no denying that GDP growth was strong in the mid-2000s (UPA I and II); even the earlier series show this. The question is what caused this performance. One factor was the large number of reforms under Prime Minister Vajpayee's government," Sanyal said in an email interview to PTI.

Sanyal stated this when asked to comment on former finance minister P Chidambaram's claim that the UPA government had delivered highest decadal growth since the country's independence.

He also said it was quite amusing to see those sceptical of national accounts using 2011-12 base suddenly become its biggest supporters when the back series increased the growth of a certain period.

Pointing to the "exceptionally good" external environment which prevailed then, he said: "One cannot blame subsequent external developments, while taking credit for good times."

Finally, the credit boom, which later caused the spike in NPAs, was already underway in 2006, either before the global crisis, Sanyal said.

However, the growth performance of 2009-14 was choppier because of the external developments having an impact on it, he said.

"Despite this, growth was kept going by severely compromising on macro-stability," he added.

He also said credit was expanded recklessly, which eventually led to a gridlocked banking system, which is now being slowly nursed to health.

"India's current account balance was a surplus of 0.5 per cent of GDP during 1999-2004, a deficit of 1.2 per cent during 2004-09, a deficit of 3.3 per cent during 2009-14 and finally an improvement to minus 1.2 per cent in 2014-18," he added.

Similarly, consumer price inflation averaged from 4.1 per cent in 1999-2004 to 5.8 per cent in 2004-09, then to a dangerously high 10.4 per cent in 2009-14, the economic advisor said.

"It has subsequently been brought down to 4.7 per cent in 2014-18 (latest reading is 4.2 per cent)," he added.

A similar point can be made of the government's fiscal deficit that spiked over 6 per cent in late 2000s, Sanyal said.

"Now, I understand that the authorities needed to carry out anti-cyclical policies during the global crisis. So, some fiscal and credit expansion was acceptable, but what happened was arguably beyond what was necessary," he added.

Sanyal said it was not entirely honest to take credit for growth without accounting for the price paid in terms of macro-stability.

The growth momentum was unsustainable and indeed the economy had slowed sharply by 2012-14, before the current government came to power, he further said.

Prime Minister Narendra Modi's government deserves praise for returning to 7 per cent plus GDP growth rates, while lowering inflation by some 600 bps and simultaneously doing major reforms like GST, IBC and banking clean-up, Sanyal said.

"In most other countries, this would have caused a recession. The economy is now much more stable and can build on the growth momentum rather than stall as in the previous round," he added.

While Chidambaram citing back series data on GDP asserted that Congress-led UPA-1 and UPA-2 regimes delivered the highest decadal growth since independence, the BJP has hit back saying the previous government was trying to create a 'mirage' of growth.

The BJP has also said India has transformed from "fragile five" economies to "fabulous few" investment destinations under the Narendra Modi-led dispensation.

The back series data on GDP was prepared by the Committee on Real Sector Statistics constituted by the National Statistical Commission.