A couple of weeks ago, an issue that would have normally attracted the attention of only economists and statisticians became a hot topic of political debate. The Ministry of Statistics and Programme Implementation came out with the provisional data on the GDP back series — a panel for which was headed by economist Sudipto Mundle.
Now, the government routinely changes the base year for calculating the various economic data. The base year was recently changed from 2004-05 to 2011-12. This is done to improve the quality of data and give a better picture of how the economy is faring. Every time the base year is changed the government also comes up with something called a ‘back series’ which is essentially a review of past data using new standards. This, again, gives us a better picture of how the economy performed in the recent past and enables comparison with the present. This is to aid in better policy formulation.
‘Highest decadal growth’
But the recent ‘back series’ calculation got embroiled in a political slugfest between the Congress and the BJP. This was because the ‘back series’ suggested that growth rates topped 10 per cent twice under the UPA regime — once in 2007 and again in 2010-11. This suggests that UPA’s performance on the economic front was quite creditable.
The Congress was quick to pounce on this. Former Finance Minister P Chidambaram said, “The numbers speak for themselves. The main and undeniable conclusions are: UPA-1and UPA-2 delivered the highest decadal growth (8.13 per cent, at factor cost) since Independence”.
The back series seems to have put the BJP on the back foot, especially since it rode to power on the back of economic mismanagement and ‘policy paralysis’ of the UPA. Finance Minister Arun Jaitley defended the NDA government by saying that it had inherited an economy which was beset with high inflation, high current account deficit, a rupee under pressure, and an unsustainable fiscal deficit. He claimed that the NDA government had set right the “mess” created by the UPA government; he even cited an IMF report to buttress his argument.
External factors
Stepping away from this acrimonious debate on the economy can help us gain some perspective on this issue. After a rather difficult four years, the growth rate started looking up in the final year of the Vajpayee government. Which is why NDA-I’s defeat in the 2004 elections surprised many of us.
There is little doubt that UPA-I rode through a boom period as the global economy was going through an extraordinary phase of expansion and growth. Of course, all that came to a grinding halt with the 2008 global financial crisis triggered by the collapse of Lehmann Brothers.
With the global financial system brought down its knees by the reckless methods of Western banks, most of the major economies of the world went in for a massive stimulus programmes and India was no exception.
In 2009, India put in place a massive stimulus package — a combination of loose money and public spending — to shore up growth. Even at that time, the government knew the risks of such a policy: high inflation and a worsening fiscal deficit. But it had no option but to resort to this plan.
Sure enough, by 2011-12 inflation started rising and, thanks to rising global crude oil prices, the current account deficit also went for a toss.
In fact, when inflation started rearing its head, the RBI and the Finance Ministry were at loggerheads over policy rates. The RBI was in favour of a tight money policy while the Finance Ministry was willing to live with higher inflation as long as the growth rate was propped up and wanted the RBI to cut rates.
Precarious economy
So when the NDA took over in 2014 it did indeed inherit a precarious economy. But the fault cannot entirely be laid at the doorstep of the UPA as it had to deal with global issues over which it had no control.
But NDA had one major advantage as global crude oil prices were benign during 2014-17 which helped it put the external side in order.
Though the NDA has always berated the UPA for handing over a precarious economic situation, the question one must ask is: how would the NDA have handled the global financial crisis and the ensuing recession if it had been in power then? Would it have plumped for a stimulus package to shore up growth, or stuck to a conservative tight money policy to keep inflation and deficit on a leash?
Sanjeev Sanyal, Advisor to Finance Ministry, in a newspaper report admitted that the UPA had to resort to “anti-cyclical” policy to deal with financial crisis, though he was critical of the manner in which the UPA went about it.
The one major policy action that NDA took which seriously threatened to derail the economy was the disastrous demonetisation. It’s now widely-acknowledged that demonetisation failed to achieve most of its objectives. Though tax-filing and compliance have increased, the informal sector was thrown out of gear and this crucial sector’s woes — on which a sizeable section of the population depends — are not captured in official statistics.
Not-so different
It can safely be concluded that both the UPA and the NDA have had their hits and misses on the economic front. It’s also time to admit that since 1991, all the governments in power have followed a broadly reformist agenda with some welfare measures thrown in to burnish their pro-people image. For the UPA it was MGNREGA and for the NDA it was the JAM scheme.
In fact Chidambaram presented his “dream budget” when he was Finance Minister of the United Front government — a rag-tag coalition of non-Congress, non-BJP parties. So maybe there is a consensus among our politicians on the economic front. It’s just that our politicians would be loath to admit it.