Data Stories

Three Phases of Indian Economy Since 1998: Development – Disaster – Development

Indian Economy Growth

Moving away from the gradual economic reform approach (1st Generation) of 1991, Former Prime Minister Atal Bihari Vajpayee unleashed a series of economic reforms (2nd Generation) which had rapidly put India on the high growth trajectory of around 8%. The above period of ‘Economic Boom’ was followed by the tenure of UPA government. This tenure largely remained a subsidies driven phase and had many instances of policy paralysis along with a plethora of corruption cases and consequently saw the regime of lower GDP growth rate and fiscal indiscipline.

However, with the change in government in 2014, India again saw a series of structural reforms (3rd Generation) which further restored the Indian economy to higher GDP growth rate and fiscal prudence.

Below is the comparison of the above three phases on various parameters, such as:

  1. Fiscal Deficit (FD)
  2. Current Account Deficit (CAD)
  3. GDP Growth Rate
  4. Retail Inflation
  5. Food Inflation
  6. Industrial Production
  7. Manufacturing Growth
  8. Petrol Price Rise
  9. Currency Depreciation
1. Fiscal Deficit
  • National Democratic Alliance (NDA) is known for its ‘Fiscal Consolidation’ stance. India, under both Former Prime Minister Vajpayee and Prime Minister Narendra Modi, has seen the lower fiscal deficit as shown in the infographic below.
  • Under UPA, Fiscal Deficit crossed even 6% of GDP in the year 2009-10, the only year when it reached such a peak since 1999-00. Even when UPA was voted out of power, Fiscal Deficit remained high and it was brought down by the alleged creative accounting of the then Finance Minister of India.

2. Current Account Deficit (CAD)
  • The Current Account Deficit is a measurement of a country’s trade where the value of imports exceeds the value exports.
  • In general, positive CAD implies that the country has more exports than imports. India under Vajpayee had its CAD in positive territory.
  • However, UPA’s mismanagement of foreign trade took CAD into negative territory (meaning more imports than exports) and it was as high as $ 45 Bn.
  • Modi government has successfully brought it down to $ 15.8 Bn as reflected by the data for quarter one of 2018-19. Thus, India is on the path of recovery as far as CAD is concerned.

3. GDP Growth Rate
  • India under Atal Bihari Vajpayee achieved a higher GDP growth rate of 8.2% in 2003-04. This growth was impressive as it was achieved despite a resource-draining full-fledged war with Pakistan (Kargil War).
  • However, this growth momentum could not be maintained by the UPA Government, as when it left the government in May 2014, the GDP growth rate was around 6.4% only. You can read about the disastrous UPA policies that resulted in low GDP growth rate in detail in one of our earlier articles.
  • Resurging since 2014, Indian economy is again on the high growth trajectory of around 8% as the data for quarter one of 2018-19 reflects.

4. Retail Inflation
  • Under both NDA governments of Atal Bihari Vajpayee and Narendra Modi, retail inflation has remained low ranging between 2-3% as shown in the infographic below.
  • Ideally, an economy is considered to be doing good if it maintains inflation around 3% with a GDP growth rate of about 7-8%. NDA governments have been able to bring Indian economy into that ‘sweet spot’.
  • However, UPA governments have not been able to control the inflation during their terms. Higher inflation with lower GDP growth rate as explained above signifies the bad economics.

5. Food Inflation
  • In a country like India where monsoon affects crop production in different ways, controlling food inflation becomes a challenging job for the government.
  • However, food inflation in 2003-04 during Vajpayee government was in check. But this went out of control and reached an alarming level of 9.5% in 2013-14 during the UPA government.
  • This has been rapidly brought down by Modi Government through various policies like checking hoarding, Price Stabilisation Fund for pulses among others. On the back of those policies, food inflation in India has even turned negative.

6. Industrial Production
  • Increasing industrial production in an economy reflects the business-friendly policies of the government and confidence of investors in the government of the day. This is all the more important for developing economies like India.
  • During UPA government, especially UPA II, country’s industrial production growth almost came to a halt.
  • The current government has revived India’s industrial production growth as shown in the graph below. There has been notable growth in the industrial production during NDA governments.

7. Manufacturing Growth
  • The story of manufacturing growth under UPA government is much worse than overall industrial production as manufacturing growth not only reached zero but entered into negative zone in 2013-14.
  • On the contrary, NDA governments have registered high manufacturing growth rates during their respective tenures.

8. Petrol Price Rise
  • The issue of rising prices of petroleum products is a burning topic in an energy-guzzling country like India. Recently, the present government was attacked for the rise in prices of petroleum products by Congress Party. However, facts tell a different story.
  • As shown in the graph below, if one compares the retail prices of petrol in Delhi at different time periods, then the highest growth in petrol prices happened during UPA governments. Petrol prices rose by 114% between 2003 and 2014.
  • Under the Modi government, Petrol Prices have in fact declined by 3% as shown in the graph below.

9. Currency Depreciation
  • Depreciation in the value of Rupee against the US Dollar was another offensive launched against the Modi government.
  • But data and facts don’t corroborate such attacks. Ironically, it is under the Congress-led UPA governments that Rupee depreciated the most as can be seen from the graph.

Conclusion

On the basis of the above parameters, Indian economy can be seen to have gone through three phases of development-disaster-development. The growth momentum that was generated by the Atal Bihari Vajpayee government could not be sustained over the next 10 years under UPA governments. In fact, the tenure of UPA has been ridden with policy paralysis and corruption cases. The country was run on higher subsidies. There was a higher fiscal deficit with lower GDP growth rate. This ruined the economy. However, with the change in government in 2014, India is resurging on its path to development and this time with the more positive outlook. Most of the economic indicators in current times are reflecting the healthy status of the economy as seen above. This growth momentum needs to be sustained even in the future and this time India can not afford to lose another 10 years.

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