The NDA Government Released the Revised Growth Rates For the Previous Regimes: Comparing the Economic Performance Under Both.

  10-Sep-2018 13:53:25

NDAUPA<governmenteconomy

A recently released study on ‘real sector statistics’ – constituted by the National Statistical Commission, which comes under the Ministry of Statistics and Programme Implementation – provides this back-series data, which is essentially calculating what India’s GDP would have been in the earlier years (before it changed the way it calculated the GDP) using the new methodology, going all the way back to 1994-95. This, consequently, allowed for a comparison of growth trends between the two different methodologies (2004-2005 and 2011-2012).

• As per the back series data compiled by the committee on real sector statistics, the average GDP growth rate from 2004-05 to 2007-08 works out at 9.42% compared to 7.15% during 2014-15 to 2017-18. Moreover, it was also on Manmohan Singh’s watch that the Indian economy scored a double-digit economic growth in 2007-08 (10.23%) for what is likely the first time ever. The UPA government repeated this double-digit performance in 2010-11.

• What is even more surprising is that the average GDP growth during the last four years of the UPA-II government, which is known for policy paralysis, is also higher at 7.39%.

• It also shows that the economic performance of the Manmohan Singh-led UPA-I government was better during its first four years compared to the current Narendra Modi-led NDA government.

Significantly, the UPA-II government fared better than the NDA despite the headwind of high oil prices that it faced.

While it is interesting to compare aggregate GDP growth, it is equally important to look at what caused it and whether it was supported by sustainable fiscal/monetary policies.

• Economic decisions like demonetisation and implementation of goods and services tax (GST) taken by the Modi government have proved disruptive and slowed down the economic growth rate. Another major reform unveiled by the Modi government, the Insolvency and Bankruptcy Code, has not yielded desired results as the National Company Law Tribunal (NCLT) is facing legal hurdles to complete the proceedings in a time-bound manner.

It is true that India has become the world’s sixth largest economy, supplanting France. Meanwhile, the World Bank has forecast that India will remain the world’s fastest-growing economy over the next three years too. The World Bank, in its June Global Growth Prospect report, has projected a growth rate of 7.3% for India in 2018-19 this year and 7.5% each for the next two years on the back of robust private consumption and strengthening investment.

In its bi-annual World Economic Outlook released in April, the International Monetary Fund (IMF) kept its growth projections for India unchanged at 7.4% for 2018-19 and 7.8% for 2019-20. It cited fading effects of demonetisation and GST implementation to justify its bullish projections.

Now let us compare the economic conditions under both the governments that have made all the difference until today.

• Sectoral classification: This shows that average agriculture growth was lower at 2.4 percent under the Modi government, owing to droughts in two consecutive years. The farm sector logged a near four percent average growth rate in the first four years of UPA II and UPA I.

• Industrial growth: It was at 7.1 percent under Modi, marginally higher than the 6.4 percent logged during UPA II and much lower than the 10.3 percent under UPA I.

• The services sector logged an average growth of 8.8 percent during the four years of the Modi government, as against 8.3 percent and 9.9 percent under UPA II and UPA I respectively.

• WPI inflation

Thanks to lower international crude oil prices in the initial years of the Modi regime, the WPI inflation averaged out at 0.59 percent in the four year period, whereas under UPA II, the average WPI inflation for the first four years stood at 7.4 percent. Here too it must be noted that the base year for calculating WPI inflation changed to 2011-2012 under the Modi government, from 2004-05.

• CPI inflation

The primary price indicator that the Indian central bank tracks for monetary policy formulation too eased in line with WPI. Under the NDA, the average CPI inflation stood at 3.58 percent in FY18, from a high of 5.97 percent in FY15. The base year for calculation of CPI inflation also changed to 2012, from 2010, during the current NDA regime. Meanwhile, the average CPI inflation was at 9.49 percent and 10.21 percent during FY14 and FY13 respectively.

• Sensex and Nifty return

It's evident that stock market investors made more money under the two UPA regimes. The BSE Sensex gave an average yearly return of 10.9 percent and NSE Nifty 11.6 percent in the four years of the Modi government while it was 22.3 percent by Sensex and 20.7 percent by Nifty during UPA II and 31.4 percent by Sensex and 29.6 percent by Nifty during UPA I.

Under the current NDA regime, the Sensex logged a return of 24.9 percent and the Nifty 26.7 percent in FY15. The Sensex had a higher 80.5 percent return (Nifty 73.8 percent) under UPA II and a 73.7 percent rise (Nifty 67.1 percent) in FY06, under UPA I.

• Petrol and diesel prices

The average price of petrol during the four years of the NDA regime till March 2018 stood at Rs 73.20 per litre in Mumbai, as against Rs 65.14 per litre during the first four years of the UPA II regime and Rs 47.83 per litre during UPA I.

Similarly, average diesel prices stood at Rs 61.40 per litre in Mumbai under the Modi government, while it was Rs 45.44 per litre under UPA II and Rs 35.36 per litre during UPA I regime.

• FDI inflows

Foreign direct investment (FDI) poured into the country under the NDA regime. During the four years of the Modi government, the country received a record average $52.2 billion in FDI annually, as compared to $38.4 billion under UPA II and $18.2 billion under UPA I. The various reforms initiated by the Modi government have been rewarded by record FDI inflows.

• Tax revenue

Tax collection is the important revenue stream for any government. With robust tax revenues, a government can implement welfare programmes and infrastructure projects that benefit people. During the four years of the NDA government, the average gross tax revenue stood at Rs 15.91 lakh crore per year, as against Rs 8.36 lakh crore during UPA II and Rs 4.35 lakh crore during the first four years of UPA I.

Now, what will Prime Minister Modi do in the fifth year?

Will the Modi magic work over the next year in the economic field? Will he return to power in 2019? Those are the questions staring Indians, and the global investor community, in the face.

-by Nikita Moolchandani.