A 4.9 per cent estimated GDP growth for this fiscal, on top of 4.5 per cent in 2012-13, makes for a disappointing end to the United Progressive Alliance’s (UPA) 10 years at the Centre. The last time the Indian economy did so badly was during the three years from 2000-01 to 2002-03, which registered an average 4.5 per cent growth. But that period — when the National Democratic Alliance (NDA) was in power — was attended by lower inflation, mitigating the aam aadmi ’s misery. The UPA’s two terms have recorded an average annual growth of 7.6 per cent as against six per cent during the preceding six-year reign of the NDA. But average inflation has also been higher: 6.9 per cent based on the GDP deflator compared to 4.25 per cent under NDA.
The other major difference is the timing of the growth slowdown. In the case of the UPA, this has happened in its last two years alongside high inflation. Together, they have contributed to anti-incumbency against the Congress. The last year of NDA rule, by contrast, recorded 8 per cent growth, but it probably came too late to be of use in the 2004 Lok Sabha elections. The UPA has itself largely to blame for the sharp growth decline after 2011-12, the foundations of which were laid in the policy paralysis and indecision characterising the early part of its second innings. By the time corrective measures — be it fuel price rationalisation or constituting the Cabinet Committee on Investment — were applied, investor confidence had been severely dented.
The current state of the economy is captured best not by GDP growth falling to sub-five per cent levels, but by gross fixed capital formation. This measure of investment activity has witnessed a dismal 0.8 per cent increase in 2012-13 and 0.2 per cent in 2013-14, after growing by an average 12 per cent-plus in the first eight years of the UPA dispensation. The collapse of investments — the key to generation of new jobs and incomes as well as future production growth — is the real story of the last two years. Reviving sentiment among corporates inducing them to take up greenfield projects is going to be the biggest challenge before the next government, irrespective of which combination of parties leads it. One lesson it could learn is not to repeat the mistakes that UPA-II made, which stemmed from taking investment and growth for granted. The first year is a honeymoon period for any government and can be used to push through major policy reforms — be it moving to a nationwide goods and services tax regime or replacing all subsidies with targeted direct cash transfers. Indecisiveness will prove costly, both economically and politically.