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HindustanTimes Fri,31 Oct 2014
The costliest of the UPA-II's policy errors
Prasenjit Bose
February 17, 2014
First Published: 13:26 IST(17/2/2014)
Last Updated: 13:31 IST(17/2/2014)

The recent period has been particularly bad for the Indian economy, with annual GDP growth sliding below 5% for two consecutive years, even as inflation has remained around 7.5%.

Consumer price inflation has been higher – over 10%, with food inflation consistently in double-digits. Industrial growth has also collapsed. High inflation accompanying a slowdown in economic activities has contributed significantly to the anti-government mood in the country on the eve of the general elections, besides the spate of corruption scandals and misgovernance.

In this backdrop, the Prime Minister made the observation that history will be kinder to him than his contemporary critics. Will that be the case?

Taking a longer term view, the six years of NDA government (1998-2004) had witnessed average GDP growth rate of 6% per year with annual inflation averaging around 4.5%. Average GDP growth under UPA-I government (2004-2009) increased to 8.4% but average inflation also rose to over 6.6% per year. The tenure of the UPA-II government (2009-2014) ends with an average annual GDP growth of 6.7% and inflation at over 8% per year.

While the UPA-I government's tenure had seen an acceleration in economic growth compared to the NDA rule, alongside rising inflation, it is clear that the UPA-II government's tenure witnessed a marked deterioration in the economic situation compared to UPA-I, both in terms of a growth downturn and accelerating inflation.

The government has often blamed global factors behind the worsening economic scene. It is a fact that the outbreak of the global economic crisis since 2008 has considerably muddied the external environment. The 'emerging' economies have all witnessed a slowdown, including China. However, no other developing country has witnessed the kind of sustained high inflation that India has witnessed over the past five years, which clearly points towards economic mismanagement.

The government's diagnosis of persistent inflation has itself been wrong. While the inflation has been of a cost-push nature, the government has tried to choke off demand through steps like interest rate hikes and fiscal compression. Not only has inflation remained unchecked but growth has also been hurt in the process. This has been the costliest of the UPA-II's policy errors.

In terms of redistributive policies, which were supposed to be the cornerstone of the 'inclusive growth' strategy, the UPA government's record is quite modest. Gross tax revenues stood at 8.9% of GDP in 2003-04, at the end of NDA rule. This rose to almost 12% of GDP in 2008-09 under the UPA-I government, only to fall to 9.5% in 2009-10 after the across-the-board tax cuts in the wake of the global crisis, and has since averaged around 10% under UPA-II rule.

Capital outlay, through which capital assets are build, have risen moderately from an average of around 1% of GDP per year under the NDA rule to around 1.6% of GDP per year under UPA rule. Subsidies, which accounted for around 1.4% of GDP on average under the NDA rule has risen to over 2% of GDP under the UPA.

Public expenditure (centre and state combined) on education and health stood at 2.6% and 1% of GDP respectively in 2004-05. In 2012-13, total public expenditure on education and health stood at 3.3% and 1.3% of GDP respectively. This is far away from the promise of spending 6% of GDP on education and 3% of GDP on health, which was made in the common minimum programme of the UPA-I government.

UPA's rule has been somewhat more benign to the poor and underprivileged compared to the NDA's. But it has done too little to make a substantive dent on poverty and the lack of access to basic needs and opportunities, which continue to afflict a large majority of the Indian people.


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