The NDA government won 2014 elections by highlighting low growth of the Indian economy due to policy paralysis and corruption during UPA regime and by promising the people “Achche Din.” Four years hence, the trust of the people in the NDA government has started dwindling for many reasons including whimsical economic policies, stopping publishing data on unemployment and news of 50 per cent increase in Swiss Bank deposit of Indians, apart from unabated cronyism and flight of money from the financial system further aggravating the NPA problem in the banking sector. The hounding of political opponents, vigilantism and incidents of demeaning intellectuals is too visible to ignore. Under the façade of building the economy or development policies, the thrust of government is on dismantling the old institutions instead of reforming them, take the case of the planning commission, UGC or JNU etc., the underlining objective of seeding one party’s ideology in the system is vulgarly apparent. And now the lies and slanders about the UPA government on the count of economic growth and emptiness of bravado of the claim of ‘4 years of NDA versus 70 years of Congress’ have once again been resoundingly revealed by back series data on the Indian economy, carried out first time after the new GDP measurement methodology was used since 2015.
The back series data released by the Sudipto Mundle-led committee show that GDP growth under the UPA government crossed 10 percent in 2007-08, which was only the second time in history. The back series data is essentially what the GDP growth rate and other macroeconomic indicators would have been, if computed with the present base year as the benchmark.
In addition to changing the base year, the new series adopted the system of measuring the gross value added (GVA) at basic prices in lieu of calculating the GDP at factor cost. The Indian Economic Service reckons that basic prices are less representative of the true cost as they do not take into account, the subsidies and taxes associated with the production process. The resultant numbers, arguably inflated, have often been brandished by the ruling dispensation to demonstrate the economic turnaround initiated under its watch.
What was new in the new method of GDP Measurement?
The base year was changed to 2010-11 instead of 2004-05. The base year is important in GDP calculation as factors such as purchasing power and inflation are taken as the benchmark for subsequent years. The prevalence of anomalous factors in the base year can distort calculations going forward.
Instead of Reserve Bank of India (RBI) data on company finances, the new series incorporates information from the Ministry of Corporate Affairs’ MCA21 database. This implies that corporate data is more accurately depicted in GDP figures. The review of the services sector, which accounts for almost 60 percent of India’s GDP, is also more comprehensive than earlier.
The committee has adjusted the data going as far back as 1994. It found that under the prevailing methodology, the GDP growth rate for each of the years between 1994 and 2014 is higher by at least 0.3 percent to 0.5 percent.
The new estimates released by a government constituted committee suggest that GDP growth in the period 2004-05 to 2011-12 may have been higher than reckoned earlier. According to the report, the growth of the Indian economy is 0.3 to 0.5 percentage points higher for each year. The revised figure for 2006-07 pegs growth in that year at 10.1% against the original 9.6%. The last time the economy grew at over 10% in any fiscal year was in 1988-89, when it registered a 10.2% expansion. Ironically, the perception of a tanking economy was among the causes for the demise of the UPA in 2014.
It proves that the economy under both UPA terms (10-year average: 8.1 percent) outperformed the Modi government (average 7.3 percent). Congress said on its official Twitter handle. According to the new data, the economy grew at an average of 9.42 percentage in the first four years of UPA-I, touching double digits in 2007-08. The impact of the global recession was felt in 2008-09, as GDP plummeted to 4.15 percent. Under the old series, the figure for 2008-09 stood at 6.7 percent, 2.55 percentage points higher than the revised number. However, it is testament to the resilience of the Indian economy that the GDP rebounded to 8.84 in 2009-10, even breaching the 10 percent mark in 2010-11. Recovery took much longer in other emerging markets. Under the old series, GDP grew at 8.4 in each of the years between 2008 and 2010.
The unification of the base year for data since 1994 lends to comparisons between the performances of successive governments. The UPA-I government clocked 8.36 percent growth over a five-year period beset with high crude oil prices and the blowback from the global financial crisis of 2008. If the first four years of UPA-I are considered in isolation, the average GDP growth rate stands at 9.42 percent. In contrast, economic growth during the first four years of the Narendra Modi-led NDA government has been relatively anemic at 7.15 percent.
India overtook China to become the fastest-growing large economy in the world, a fact frequently advertised by the NDA government to highlight its achievements in micromanaging the economy. However, the GDP back series data throws up a slightly different picture.
According to the report, India’s GDP growth rate for 2010-11 was 10.78 percent, 0.17 percentage points more than the 10.61 percent achieved by China in the same year. China’s growth rate has slipped since then. This means that India outdid its neighbour in a year when the latter’s economy was at its highest point in the past eight years. More importantly, this came at a time when global oil prices were high, as was the government’s subsidy bill.
India recently overtook France to become the sixth largest economy in the world, but problems persist. Disruptive measures like the implementation of the goods and services tax (GST) and the demonetisation of high-value currency notes have taken the wind out of the economy’s sails. Recovery has been subdued.
The banking sector, which is saddled with bad debt, is adding to the pressure on the economy. Credit has been drying up. The Insolvency and Bankruptcy Code has just started delivering on resolution of bad loans but lenders will have to take a substantial haircut on large loans even if new promoters are found, or asset reconstruction companies manage to turn around sick ventures.
However, the outlook is not entirely bleak. The International Monetary Fund (IMF) reckons that the adverse effects of demonetisation and the implementation of GST are fading. In its bi-annual World Economic Outlook, IMF said India is projected to grow at 7.4 percent in 2018-19, and 7.8 percent in 2019-20.