It is always tempting to analyse which government has done better on the economic front when elections are on.
The truth is that governments provide a framework for economic agents to operate and the reforms that are implemented help facilitate growth.
There are always time gaps between policies and the effects; and spillovers are imminent. Also, careless practices can have negative impact after a lag. Therefore, it is hard to separate the two.
The government directly affects economic activity in the area of the Budget. But even here it has a limited role as the direct action is found in State budgets which are one-and-a-half times bigger than that of the Centre.
Therefore, the linkage with economic growth and development while being positive in a subjective way cannot be quantified objectively.
Yet governments tend to take credit for everything that goes right while passing on the blame for anything amiss to another regime. Logically this should not be the case but it is part of gamesmanship and is accepted.
Here it is assumed that the BJP-led government takes credit and the blame for everything that happened during 2014-15 to 2018-19 while the Congress-led government does so for the preceding years. This is in sync with the media’s treatment about the relative performance of the two governments. Fourteen indicators are used to compare the two regimes in an objective manner where the average numbers are used to a large extent (summing of numbers or changes at end points have been done for some variables).
Table 1 gives the areas where the BJP government has been associated with better economic numbers.
Official data has been sourced and the revised past series on GDP has been used notwithstanding the controversy surrounding it.
Also CPI for industrial workers has been used to maintain comparability while the IIP numbers have been used with a spliced series in the absence of a past series. In general with all the qualifications standing, the performance has been more or else evenly balanced.
Table 1 shows that the BJP-led government has scored better than the UPA on seven leading indicators which may be considered to be the primary variables which reflect the state of the economy. Growth has been higher during this period and inflation lower than in the previous regime.
Favourable factors
While it can be argued that a lot of this was due to good luck as international prices of crude had come down and the monsoons were satisfactory, the government can definitely take credit for keeping inflation under control.
There was a strong monetary policy framework which kept tabs on inflation even as fuel prices were marked to market in this situation. The BJP has done better on the fiscal deficit front too making it easier to achieve the FRBM targets.
This also coincided with a lower CAD and with support from favourable global commodity prices, the economy did better on both the deficits.
Gross FDI inflows were higher by around 50 per cent on a cumulative basis and the policies that were invoked on doing business as well as opening up of certain sectors did work well for the government. The strength of the external account was reflected in the increase in forex reserves which rose by around $108 billion in the five-year period while it was around $40 billion in the preceding period.
Hence while all of these achievements may not be directly linked with the government and its policies, the party can definitely take credit for such a performance.
But the Opposition too had its share of laurels as can be seen in Table 2.
The UPA seems to have done better in some of the secondary variables where again it could have been more on account of serendipity. The Sensex boomed mainly due to the after effects of the Lehman crisis when the indices had gone down sharply and the base effect worked well.
FII investment too was much higher during their 5-year tenure, though an average of $24 billion per annum was not really very high. The lower inflows subsequently had more to do with the Fed reversing the QE and increasing rates which affected markets all across the world including India.
The NPA legacy
The NPA (non-performing asset) levels too have increased prodigiously in the NDA regime though it can be argued that it was recognised during this phase while they were essentially created in the past when there was relatively more easy lending norms pursued by the banks.
The Congress-led government did convincingly better in three areas. First was farming where despite the drought years growth was better.
Second was capital formation which averaged 4 per cent higher than in the NDA regime (higher NPAs could have affected only the last two years). Third was growth in exports which has been much lower during the NDA regime.
Hence, if a variable-to-variable comparison is made between the two governments, they seem to be almost even in terms of number of successes.
But as has been pointed out earlier, taking credit for some of the numerical achievements may actually not be ‘causal’ in nature and could be more a case of chance where such targets have been achieved.
But the game of realpolitik will carry on.
The writer is Chief Economist, CARE Ratings. Views are personal