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UPA Vs. NDA: From Bad Economics To Good Economics

Fiscal Discipline

Most of the economic discussions in India are generally limited to GDP growth rate, especially among the common people. One important aspect of the economy that does not attract much attention is the fiscal discipline of the incumbent government. The growth of the economy needs to be seen in light of the prudent management of the economy by the government. In this article, we compare the BJP-led NDA and Congress-led UPA Government on how well they managed the Indian economy.

Below graph shows the Gross Fiscal Deficit under the NDA and the UPA Government since 1999 to the present year. Fiscal deficit can be roughly explained as the difference between the earnings and expenditure of a government. It should ideally be around 3% of GDP.

Source: RBI

NDA – I Government (1999-2003)
  • NDA – I – Atal Bihari Vajpayee inherited the legacy of high Fiscal Deficit when he took over the government in 1998 from mindless populism of the previous governments. His full time tenure began in 1999.
  • NDA Government adopted various saving measures and brought down the Gross Fiscal Deficit. Deficit tapered within one year, as it came down from 6.29% in 1998 to 5.18 % in 1999.
  • Vajpayee Government took many concrete and systematic steps to overcome the populist tendencies of the previous government on excessive expenditures. It passed the Fiscal Responsibility and Budget Management Act (FRBM Act) in the year 2003.
  • When the Vajpayee Government left in 2004-05, it handed over a healthy economy to Manmohan Singh led UPA Government with a Fiscal Deficit of as low as 3.88% and revenue deficit as 2.42%.
  • Interestingly, GDP Growth Rate of India which was once thought to have never crossed the ‘Hindu line of growth’ touched 8% under the leadership of Atal Bihari Vajpayee.
  • Here in lies the significance of ‘Fiscal Prudence’ of the Vajpayee Government that handed over a healthy economy to the UPA Government with high GDP Growth Rate and low Fiscal Deficit.
UPA – I & II Government (2004-2013)
  • Benefits of five years of continued austerity by the NDA Government was realised till 2007-08. However, the populist tendencies of Manmohan Singh led UPA I Government soon caught up and Fiscal Deficit rose to 5.99% in 2008-09 from an average of 3.61% during 2003-2008.
  • The sheer wastage of public money can also be seen in the high Revenue Deficit of the UPA Government, as shown in the graph below. Revenue Deficit is that excessive expenditure of government which does not result in the capital asset formation, due to which it is not productive and should be kept in check as much as possible.
  • Modi Government which inherited a broken economy from UPA II has been very successful in saving money and keeping it low, averaging around 2.47% during 2014-2018.

Source: RBI

  • One significant reason behind the rise in the Revenue Deficit during the reign of the UPA Government was the high subsidies that were basically given to win elections. Farm Waiver Loan that it gave just before the 2009 elections was criticised by many economists. On the contrary, there has not been a single year during the NDA Government when subsidies (as a percentage of GDP) crossed 2% except in the year 2014 as the Modi Government inherited the government mid-year. However, subsidies which are considered as a nightmare by economists, have been the core principle of UPA Government I & II (2008-2013), as shown in the graph below.

Source: RBI

NDA – II Government (2014-2018)
  • When Narendra Modi led NDA II Government took over, it had many challenges on the economic front as it inherited an economy with some serious concerns from the UPA II Government.
  • Fiscal Deficit was around 4.48% in the year 2013 and Revenue Deficit was 3.18%. The country was in the middle of many corruption scams and a huge NPA crisis which happened due to reckless corporate borrowing in the absence of the checks by the UPA II Government.
  • In the light of the above factors, Modi Government has made significant progress on the economy front.

Let us take a look at the below comparison between UPA and NDA under Prime Minister Narendra Modi.

Government (Years) UPA (2004-2013) NDA (2014-2018)
Average GDP Growth Rate 6.7% 7.35%
Fiscal Deficit 4.63% 3.67%
  • Above table shows how the NDA II Government again brought the economy to the path of Fiscal Prudence, as the average GDP Growth Rate is higher than that of UPA, and Fiscal Deficit is far lower than the UPA. This is clearly shown in the first graph of this article.
Conclusion

Above discussion clearly shows that the NDA Government has focussed on fiscal discipline, and has relied less and less on subsidies than the UPA Government. On top of it, GDP Growth Rate has also been much higher even when the NDA Government has adopted various fiscal consolidation measures for improving the economy. This leads us to the conclusion that the NDA Government has managed the Indian economy in a much better way than the UPA Government.

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  • Manish mehta

    Very well explained…unf unfortunat ppl of this country don’t appreciate such things…they want freebies