How will Covid-19 impact the NDA govt’s economic record in 2024?

India’s second wave of Covid-19 infections seems to have peaked. Its economic costs might not have. Most parts of the country are still under varying degrees of lockdown. The lingering costs of the lockdown will remain even after the restrictions are removed. This is exactly why various forecasters are doing a downward revision of their GDP forecasts for 2021-22. While differences on the exact magnitude remain, and even the 2020-21 GDP figures might change, there seems to be a wide consensus that the second wave has derailed the incipient economic recovery.

We are still in May 2021. The Lok Sabha elections are three years away. But it is worth asking what will be the pandemic’s impact on the economic performance of the current National Democratic Alliance (NDA) government.

An HT analysis shows that in all probability, compound annual growth rate (CAGR) of GDP under the current government will be the worst compared to what its predecessors have achieved since 1980s. This will be a sharp contrast to Prime Minister Narendra Modi’s first term, which saw the second highest CAGR of GDP for a government.

Growth record of past governments

The current Lok Sabha is the seventeenth in India. Comparing the CAGR of GDP by the term of each Lok Sabha – some have had more than prime minister – is a good way to look at the economic performance of each government.

GDP growth went down for the first three post-independence governments. It was 4.47% for the Jawaharlal Nehru government from 1952-57 and came down to 2.67% under the Nehru-Lal Bahadur Shahstri-Indira Gandhi government from 1962-67. Nehru and Shastri died while in office. There was a brief revival during the 1966-71 Indira Gandhi government, but growth fell again in the 1970s. It was in 1980s the CAGR of GDP under a full-term government crossed the 5% barrier for the first time, a level which has never been missed since then.

The first United Progressive Alliance (UPA) government under Manmohan Singh achieved the highest ever CAGR of 8% GDP growth under its full-term. Narendra Modi’s first term in office had a GDP CAGR of 7.4%, the second highest for a full-term government in India. The CAGR for second UPA government and the first Modi government are based on 2011-12 GDP series numbers. For all other periods 2004-05 GDP numbers have been taken.

What will be the CAGR of GDP for the current NDA government?

The short answer is we do not know, as number will depend on GDP numbers for 2022-23 and 2023-24. But it is useful of think of a relay race model while answering this question.

CAGR of GDP for a five-year government is contingent on GDP growth in each of the five years. This is pretty much like a relay race, where victory, loss or overall time taken is dependent on the performance of every individual runner in the team.

In its second term, the government had a bad start to the relay race even before the pandemic. GDP growth in 2019-20 was just 4%, the lowest since 2008-09. With the pandemic and the 68-day long national lockdown disrupting economic activity, 2020-21 actually saw a GDP contraction of 8%.

For the GDP CAGR of this government to come closer to that of its predecessors, GDP growth in the next three years will have to be very high. This is the same as relay race runners having to make up for lost time by their predecessors. As is the case with relay race runners, there are limits to GDP growth as well.

It will be very difficult for the government to match its predecessors’ economic performance

Assuming different rates of GDP growth in 2021-22, one can calculate the required GDP CAGR from 2021-22 to 2023-24 which will be needed to achieve a given GDP CAGR during the full-term of the second Modi government (2018-19 to 2023-24).

In order for the government to meet its first term GDP CAGR of 7.4%, GDP growth will have to exceed 15% in 2022-23 and 2023-24 even if 2021-22 GDP growth is 11%. Many private forecasters have come out with lower numbers for the current year, though . For example, S&P Global Ratings put this number at 9.8% last week. If the 2021-22 GDP growth is 9%, and GDP growth between 2021-22 and 2023-24 is 8%, overall CAGR of GDP under the second Modi government would be just 4%, the worst since the 1980s.

The following table gives a matrix of CAGR of GDP under the government for different levels of 2021-22 GDP growth and CAGR of GDP from 2021-22 to 2023-24.