UPA's economic debacles - perception or reality?

A London School of Economics professor laments that UPA's economic report card has been written entirely by its detractors.

The UPA has virtually been written off in these elections for taking the nation to the brink of economic ruin. While the government along with the RBI has been credited for bringing some semblance of sanity back to the markets in the last year, if one reads the headline numbers it isn’t difficult to recognize why there is still so much gloom all around  – industrial production (IIP) as per latest data has plunged to a 9 month low contracting 1.9%, consumer price inflation has remained at 10% plus levels for the past two years, GDP growth has plummeted to sub 5% ranks, the fisc remains stressed, Indian companies particularly in the infrastructure space are battling chronic problems of excess leverage and its PSU banks are sitting on mounting non-performing assets.

 

 

It hasn’t helped the UPA’s cause that a reinvigorated opposition has been firing fresh salvos on a daily basis emphasizing its many failures. And books like the latest one by Sanjaya Baru about the Prime Minister’s inefficacy have only further exacerbated the perception crisis plaguing this government, timed as it is in the thick of campaigning.

 

Amid this all rounded battering, a new study in the Economic & Political Weekly by Maitreesh Ghatak - a London School of Economics Professor seeking to fill the gap between the “perception and reality” of UPA’s 10 years in office, will come as a welcome breather for the Manmohan Singh government. While censuring the government for its “inability to tackle the consequences of accelerated economic growth”, Ghatak blatantly bats for the UPA and argues that compared to the National Democratic Alliance regime, “the UPA period has been characterised by faster growth, higher savings and investment, growing foreign trade and capital in?ows, and increased infrastructure spending in partnership with private capital.” He also seems to agree with the common refrain of Congressmen like Jairam Ramesh that the Congress lost the battle of perception, that its top leadership was uncommunicative and slow to react to criticism that was often unwarranted.  

 

“Incredibly, it (the dynasty) couldn’t even dispel the notion that in economic terms, its rule is a “wasted decade” for the country (Singh 2014) – a conclusion that can only emerge from a complete unfamiliarity with the data” Ghatak notes.

 

So what did the UPA do right?

 

Ghatak cites planning commission and RBI data to show that on key economic indicators like the rate of real GDP, stock market returns, the fiscal deficit and annual FDI flows, the UPA has scored over the NDA on performance. He also seeks to debunk the reading that the UPA focused excessively on redistribution by stating that while the volume of subsidies went up under UPA there were offsets in areas like defence. And while UPA II has struggled to contain the deficit in its 2nd term, a considerable reduction was achieved only during its first term as the figure “hovered between 5% and 6% of GDP since the mid-1990s and through the NDA years.” Much in line with the government’s defence that global forces played a significant part in aggravating India’s recent economic decline, Ghatak also notes that a “big part of the suddenly worsening fiscal situation can be found in global events rather than new welfare schemes like NREGA.”

 

Further dispelling the belief that public finances deteriorated sharply under the UPA, Ghatak states that outstanding public debt under the NDA grew from 50% of GDP to 61% and actually came down to 48% under UPA rule. He also corroborates through official data that that contrary to popular perception that NDA was more focused on building infrastructure, “even as a fraction of GDP (let alone absolute value)” spending on infra “has been substantially higher during the UPA regime, hovering in the range of 7-8% in recent years as opposed to the 5% or so that was invested annually by NDA.”

Annual FDI flows too saw a near tenfold increase under UPA as compared to NDA while exports grew from below 15% of GDP in the NDA years to nearly 25% in 2012-13. Imports on the other hand more than doubled relative to GDP – starting from 17% in the last year of NDA rule, to 35% presently according to the study.  Ghatak also concludes that poverty decline was faster under UPA than under NDA while on the whole, there was “little to choose between the NDA and UPA administrations” when it came to human development.

 

Why then, despite being the better performer among the two has the UPA regime come to be characterized as a big debacle, while as Ghatak notes, “an opposition party, traditionally more concerned with rebuilding temples and reshaping culture...been appointed as the hard-nosed champion of “market reforms”?

 

There are two chief reasons according to the author, apart from chronic inflation which has been a persistent problem under the UPA regime.

A) This government was unable to “tackle the consequences of accelerated economic growth – increased conflict over land, rent seeking and corruption in the booming infrastructure and natural resource sectors, inability of public education to keep up with increased demand and rising aspirations, and poor delivery of welfare schemes made possible by growing revenues”

and

B) an “obvious leadership gap” in India’s GOP which Narendra Modi seems to have filled.

 

“Narendra Modi, notably, does not talk down to his voters. He poses as the enabler of their dreams, one who will help them realise their strength rather than take pity on their weakness. His rise from humble origins reinforces this message, while Rahul Gandhi’s background accentuates the impression of noblesse oblige that his rhetoric often conveys. Under the UPA, the economy evolved but it failed to evolve with it” Ghatak observes, insisting though that the party’s economic report card has been written entirely by its detractors.

For Ghatak’s article in the Economic & Political Weekly click here - Growth in the time of UPA