Modi haters should first question Manmohan Singh for the mess he left behind
The entire opposition is targeting the Narendra Modi-led NDA government, especially after former finance minister and veteran BJP leader Yashwant Sinha accused finance minister Arun Jaitley for the economic slowdown. Vested interest groups are trying to create an atmosphere as if we are nearing doomsday.
There is no doubt that demonetisation and GST has worked as economic disruption with impact on the GDP numbers of the previous financial year as well as near-term forecast.
However, before we declare the economic policies of the NDA government as failed and blame Jaitley for this, it’s necessary to take a look at the economic performances of both the NDA and previous the UPA governments.
If we compare the last year figures of the UPA government vis-à-vis performance of the NDA government so far, undoubtedly Modi has fared better than his predecessor.
Key performance matrices of UPA versus NDA
In order to have a holistic view on the economic performance of Manmohan Singh and Modi governments, one must set 2004 as the starting point of discussion when the UPA came to power. There are a few major concerns raised to declare that his [UPA] government failed on the economic front. Here are they:
Industrial slowdown
PM Modi launched his ambitious "Make in India" project in September 2014 and the aim was to develop India as a manufacturing hub along with job creation for masses. We have a natural advantage over others in terms of manpower, and the "Skill India" project was launched to equip our human resource.
There is a saying that Rome was not built in a day and same applies here also. We can’t build manufacturing capabilities in a day or two and it takes years to build the perception, infrastructure and favourable regulations to attract investors.
The manufacturing growth is linked with industrial production, and the UPA inherited an industrial growth of 5.4 per cent which came down to 4.2 per cent when they left office. Even today despite all the hue and cry about slowdown, the NDA figures are better than the UPA regime.
The GDP growth in 2004 was 8.2 per cent which was driven by strong performance of manufacturing and agricultural sector. When the NDA led by Modi came to power in 2014 the growth was 6.9 per cent.
The most important part is the qualitative aspect of this growth which can be understood from the fact that year-over-year GDP growth was increasing when Manmohan Singh assumed office, but it was falling when Modi took the helm of affairs.
In other words, the UPA’s job was easy because they got a flourishing economy in legacy while what Modi inherited from Manmohan Singh was a sluggish economy along with policy paralysis and tainted image of the country due to syndicated loot during the UPA regime.
If we keep the GDP and GVA mathematics aside and discuss increase in per capita income, which is another key parameter, we will find that it has registered a compound annual growth rate (CAGR) of 8.69 per cent. It doesn’t represent the increase in the income of Ambanis, Adanis or Tatas alone, but it also shows that annual income of the middle class and the poor has also increased.
Bad loans and twin balance sheet issue
There is a decline in credit growth and private investment has come down. Investment is an important aspect in the entire capital formation cycle which is effected by the non-performing asset (NPA) mess. However, we must appreciate the fact that all the loans, which have become bad, were given during the UPA rule and it was the job of the then government to review the profile and assess the credit worthiness of the borrowers.
If loans were given to the politically powerful Jindal Group or the lesser-known Winsome Group without having proper assessment of credit worthiness, or without checking the utilisation, then how could the Modi government be held responsible for misdeeds of the Manmohan Singh regime.
This government has acted proactively by making suitable amendments to the Banking Regulation Act, 1949, SARFAESI Act, 2002, and bringing the Insolvency and Bankruptcy Code, 2016. Given the tainted background of the UPA regime, we can’t rule out the possibility of kickbacks in giving the loans. Otherwise it wouldn’t have happened that the gross NPA is reaching double digit as percentage of overall advances.
Job creation
So far, the Modi government’s track record on direct job creation is not something which it can cheer upon. This is on account of various factors ranging from global economic scenario to disruption caused by demonetisation. The government has promoted schemes like Skill India, Mudra etc, and their impact is yet to be seen.
To put it in perspective, it may be noted that agriculture provides employment to almost half of the workforce and this sector is now performing better than the UPA regime (based on data released by the Ministry of Statistics and Programme Implementation).
Expenditure on social schemes
The aim of the various social schemes is to cater to the needs of the marginalised section of the society and provide basic facilities to them. The track record of the NDA government is again far better than that of the UPA on this front.
Despite implementing the recommendations of the 14th Finance Commission, which required the central government to increase the share of state governments in the annual Budget, expenditure on social schemes is increasing on all major areas such as education, health and employment guarantee schemes like the MNREGA.
Evaluation of social schemes
What the UPA left as legacy was rising inflation, declining growth, a situation of policy paralysis, tainted image due to mass loot and a tight fiscal situation.
While figuring out the fiscal deficit, former finance minister P Chidambaram predicted a buoyancy in revenue collection which was never achieved and it left Jaitley in such a situation where there was little room left for him to increase the public expenditure.
Growth has slowed down in the previous quarter, but consumption hasn’t gone down and demand is still there in the market.
There is one qualitative aspect which the industry has to think - whether this demand is going to be fulfilled by import or indigenous goods?
At times observers and analysts lose their objectivity due to personal reasons.
Modi bashers should understand that with every baseless arguments and accusations, they are just helping him strengthen his position.
Also read: If Modi is right on GDP growth, then is the Reserve Bank wrong?