October 06, 2017

Why Modi govt's track record is better than UPA's

View: Why Modi govt's track record is better than UPA's

By ET CONTRIBUTORS | Updated: Oct 06, 2017, 06.10 AM IST

By Shshank Saurav

Prime Minister Narendra Modi's stirring defence on Wednesday comes at a time when a narrative is emerging about his government's economic policies leading to India's economy taking a turn for the worse.

The entire opposition has been targeting the government after former finance minister Yashwant Sinha accused Arun Jaitley for the economic slowdown. Vested interest groups are trying to create a Doomsday atmosphere.

There is no doubt that demonetisationand the GST rollout have caused major disruption, effecting GDP numbers. However, before we declare GoI's economic policies as a failure, let's look at the economic performances of the NDAand UPA governments.

To have a holistic view about the economic performance of Manmohan Singh and Narendra Modi regimes, one must set 2004, the year the UPA came to power, as the starting point of discussion and then address the criticisms.

Modi launched the 'Make in India' project in September 2014, its aim being to develop India as a manufacturing hub and creating jobs for the masses in the process.

Manufacturing growth is linked with industrial production and the UPA inherited an industrial growth of 5.4%, which came down to 4.2% when it left office in 2014. GDP growth in 2004 was 8.2%. This was driven by strong performance in the manufacturing and agricultural sectors.

It was 6.9% when Modi became PM in 2014. Year-on-year GDP growth was increasing when Manmohan Singh assumed office in 2004, but was falling when Modi took to the helm. Modi inherited a sluggish economy stricken by policy paralysis and corruption.

If gross domestic product (GDP) and gross value added (GVA) arithmetic is kept aside and the increase in per-capita income is kept in mind, the compounded annual growth rate (CAGR) of 8.69% is registered. This does only represent the increase in income of the very rich but also that of the middle class and not well-off.

Then there is the criticism of a decline in credit growth and private investment. Investment is the important aspect in the capital formation cycle affected by the non-performing assets (NPA) mess. However, all the loans that have become bad were given in the UPA regime. And it was the then-government's decision to review the profile, and assess the creditworthiness, of the borrowers.

If the loans were given to politically powerful corporates without properly assessing their creditworthiness, it is a bit rich to hold the NDA government responsible for the consequences of the actions — and inactions — made by the previous administration.

This government has acted proactively by making suitable amendments to the Banking Regulation Act, 1949, and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, 2002, and the introduction of the Insolvency and Bankruptcy Code.

As far as the Modi government's track record on direct job creation goes, this does present a bleak picture. This is on account of various factors ranging from the global economic scenario to the disruption caused by demonetisation.

The government has promoted schemes like Skill India and Micro Units Development and Refinance Agency (MUDRA). Their impact is yet to be seen. Expenditure on social schemes is seen to be another problem point of this government. The aim of the social schemes is to cater to the needs of marginalised sections of society and provide basic facilities to them.

The track record of the NDA government has been better than its predecessor on this front. Despite implementing the recommendations of the 14th Finance Commission that required the Centre to increase the share of the state government in the annual budget, expenditure on social schemes has been increasing in most areas.

What the UPA left as legacy was rising inflation, declining growth, a situation of policy paralysis, a tainted image and a tight fiscal situation. While figuring out the fiscal deficit, former finance minister P Chidambaram predicted a buoyancy in revenue collection that was never achieved.

This left his successor, Arun Jaitley, in such a situation where there was little room left for him to increase public expenditure. Growth has slowed down in the previous quarter, but consumption hasn't gone down, while demand is still there in the market. There is one qualitative aspect that industry has to think about: is this demand going to be fulfilled by import or indigenous goods?

Blind critics of the government in general and the prime minister in particular should understand that with every baseless argument and accusation, they are just helping to strengthen Modi's position. Which was quite in evidence when the PM ably defended his government this week.

The writer is an anti-money-laundering specialist


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