Data suggest that the UPA government's performance on most economic parameters was ahead of the NDA's, argues a paper.
Contrary to the consensus that the Manmohan Singh government was "an economic disaster that needs to go", an article that is set to appear in the Economic and Political Weekly claims that the UPA's political troubles arise not from policies that hurt growth but from an inability to tackle the consequences of accelerated economic growth.
In a 23-page document , Maitreesh Ghatak of the London School of Economics, Parikshit Ghosh of the Delhi School of Economics and Ashok Kotwal of the University of British Columbia also argue there is a notable gap between the "perception and reality" over the UPA's performance.
"By many economic indicators, UPA's record in the last ten years (not just the last two) is good and compares rather favourably against the outcomes under NDA. It is a period during which growth accelerated, Indians started saving and investing more, the economy opened up, foreign investment came rushing in, poverty declined sharply and building of infrastructure gathered pace," it says.
Here are the arguments of the professors.
What went wrong?
"The UPA has been a victim of its own success in more ways than one," the paper says, adding that the high growth of the first eight years of the Manmohan Singh government raised expectations in light of which a fall in growth to a level considered "par for the course in 2004" is now seen as dismal.
According to the professors, the UPA faced two problems – an economic and a political, the latter being that its language of patronage did not resonate with the new generation compared to the language of empowerment of the BJP's.
The economic problem was that the government failed to come up with effective institutional mechanisms in face of high growth. "Growth tends to create corruption by generating new wealth, the claims on which are not properly established."
The paper cites the example of infrastructure -- which the UPA is often accusing of going slow on -- pointing out that infrastructure spending as a percentage of GDP actually increased from 5 percent to 7-8 percent in 10 years.
"Where UPA failed was not the quest for productivity but the need to put in place a sound mechanism for keeping mischief at bay. The mega scandals that now plague the party, especially ones having to do with coal and spectrum allocations, derive from the expansion of infrastructure, not its stagnation."
Economic performance of UPA vs NDA
Barring inflation, the UPA fares better than the NDA on most economic parameters. Average real GDP growth over UPA 1 and 2 were 8 percent and 7 percent respectively (average 7.6 percent) while for NDA, it stood at 5.9 percent.
The average fiscal deficit for UPA 1 and 2 stood at 3.9 percent and 5.5 percent (average 4.6 percent) while under the NDA, deficit stood at 5.5 percent.
The average yearly FDI inflow under UPA stood at USD 20.22 (USD 15.44 for UPA 1 and USD 26.19 for UPA 2) while for NDA, the figure was at USD 2.85 billion.
"The ups and downs of national economies are driven by global trends as much as their own governments' policies," the paper says, but adds that even if the country's economic growth was adjusted for global growth, "India's growth lead over the world was 2.5 percentage points under the NDA, which increased to about 3.5 percentage points under the UPA."
Finally, it cites the superior performance of the Sensex (15 percent annualized under UPA 1 and 13.9 percent under UPA 2 versus 5.9 percent under the NDA) to drive home the point that "so the UPA's reputation as an anti-market regime and the BJP's as business-friendly must be rethought."
Public finance
"It is remarkable that UPA has so meekly surrendered to the charge of fiscal indiscipline when the record is so completely in its favour," the paper says of the charge that this was a most profligate government.
The country's fiscal deficit hovered between 5 percent and 6 percent of the GDP since the mid-90s, including during the NDA years.
"A considerable reduction in the deficit (2.5 percent) was achieved only during UPA's first term. It struggled in its second term to beat that expectation," the paper says while outlining that the worsening fiscal deficit during UPA 2 could also be attributed more to global events than to the government's much-derided welfare programs such as NREGA.
Outstanding public debt during the NDA too shot up from 50 percent of GDP to 61 percent and has come down to 48 percent since.
While subsidies went up from 1.6 percent of GDP in the NDA's last year to 2.6 percent in the UPA's, there were offsets, partly in the defence budget.
A critical macroeconomic parameter on which UPA's record is genuinely vulnerable is inflation, the paper admits, adding that it could partly have been because of the political temptation of boosting agricultural incomes.
"Inflation is also one of the least understood macroeconomic phenomena especially in a developing economy where the effects of monetary and fiscal policy are considerably muddled by rapid structural changes and financial evolution," it says. "Nevertheless, when it comes to the inflation question, the incumbent government will find it difficult to get off the hook."
Infrastructure
Contrary to popular opinion, there is no evidence in the claim that "momentum infrastructure progress slowed down under the UPA compared to the NDA".
"Infrastructural investment even as a fraction of GDP (let alone absolute value) has been substantially higher during the UPA régime, hovering in the range of 7-8 percent in recent years as opposed to the 5 percent or so that was invested annually by NDA," it says.
"In seeking private capital to expand infrastructure, UPA opened up a traditionally state dominated sector to big private corporations and arguably put more faith in markets than its predecessor. Some of the biggest corruption scandals that are now haunting the ruling party and which has put its re-election in peril, arise from this association."
External sector
Did the UPA turn the clock back on globalisation and pull us back from integrating with international markets? "Based on the evidence, the answer has to be a clear no."
The average import duty on goods and services steadily went down since the liberalization of 1992, only mildly spiking during the early NDA years.
"Exports have grown from below 15% of GDP in the NDA years to nearly 25% in 2012-13. Imports have more than doubled relative to GDP – starting from 17% in the last year of NDA rule, it now touches 35%," the paper says. "Under UPA, India has embraced globalization rather than shying away from it."
Even the much-lambasted mismanagement of the rupee comes under question in the paper. "From the time UPA took over, the rupee has lost nearly 30% of its value in nominal terms. However, it currently stands 11% below its value in 2004-05 in real terms."
Poverty decline
"Poverty declined at 0.74 percent per annum before UPA and accelerated three-folds to 2.18 percent per annum in the 11 years under UPA for which we have data," the paper says, adding that while a direct comparison between the two regimes is not possible due to problems with the 1999-2000 methodology, "indirect calculations suggest it was lower than the rate under UPA, perhaps significantly so."
While on human development fronts such as life expectancy, sanitation, infant mortality and school enrolment, there's little to separate the two regimes.
The paper ends by concluding that "a period witnessing remarkable gains for the privileged and some for even the not-so-privileged has been confidently declared a disaster zone."
"The obvious leadership gap has played a role here, but nonetheless, this manufactured reality will no doubt marvel future historians when they look at the actual records."
