It’s been exactly 5 years of Modi government in power. The last phase of world’s largest electoral exercise has begun and within a few days, we will see the 17th Lok Sabha being constituted. Given that it is exactly 5 years since the Modi government came to power, we try to analyse how Indian Economy has fared on the external front. We discuss some of the parameters on which India’s external performance can be analysed.
Forex reserves, among other indicators, are an indicatorof how well a country is prepared, if there is an economic crisis in the country, such as the one India had in 1990s, when we had to take loan from the IMF. For an economy, sound forex reserves means that the economy is doing well on the global front.
Post-2014, India’s forex reserves have exponentially increased. If we examine the 5 years of UPA between May-2009 and May-2014, India’s Forex reserves have increased by 22.8 percent. If we study the exact 5 years of Modi government between May-2014 and May-2019, India’s forex reserves have increased by 33.9 percent. Also, its just not the percentage increase in forex reserves, but also India’s forex reserves have touched a life-time high under Modi government.
If we look at the graph below, forex reserves under Modi government have seen an exponential rise. Post-2014, there has been a consistent rise in the forex reserves. Under the UPA era from 2009 to 2014, India had dwindling forex reserves, not registering a significant high.
Current Account Deficit (CAD)
Current account deficit is a measure of a country’s external trade. The deficit in current account occurs when a country’s import of goods and services exceeds its export. If a country has a positive CAD, it implies that the country has more exports than imports.The CAD had worsened under UPA and it touched as high as 45 billion dollars in the last year of UPA, that is, 2013-14. Under Modi government, CAD has been brought down. The latest quarterly figures stand at around 16.9 billion dollars.
Foreign direct investment (FDI) statistics
Under Modi government, India saw rapid strides in FDI inflows. FDI means foreign direct investment i.e. more business, more jobs and rapid development for the country. According to various media reports, for the first time India outpaced China in terms of FDI inflows in a single year in 20 years, in 2018. Also, for the first time, India saw the highest FDI inflows in 2016-17 under Modi government, when it attracted 60 billion dollars as FDI. As per the UNCTAD’s world Investment report, India improved its ranking from 14th place in 2013 to 8th place in 2017, entering the top ten inbound FDI destinations.
If we see the graph below, post-2014, under Modi government, India attracted massive inflows in FDI. Between 2009-2010, during UPA, FDI remained almost constant; only year 2011 shows a spike.
As can be seen, in last 5 years under the Modi government, Indian economy has performed quite well on external front. During UPA, Indian economy had high CAD, low FDI inflows and dwindling forex reserves. But under Modi government, India’s performance has been nothing short of historic if we consider in terms of high forex reserves, reduced CAD and significant FDI inflows.