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The Running Elephant: India’s GDP Growth Under Manmohan Singh And Modi

The National Statistical Commission (NSC) Committee on Real Sector Statistics released its draft report a week ago. This report became significant in the political spectrum as it opened up a debate on under whose regime India exhibited a better economic growth – Dr Manmohan Singh or Narendra Modi?

In January 2015, Narendra Modi government revised the base year of national income estimates from 2004-05 to 2011-12. It was not merely a change in the base year, but also a complete revamp in the methodology of calculating India’s Gross Domestic Product (GDP). The new series with the base year 2011-12 repealed GDP at factor price and replaced it with internationally-accepted Gross Value Added (GVA) at basic prices for the estimation of the national income. Apart from that, the MCA 21 database, an e-governance initiative of the Union Ministry of Corporate Affairs which allows approximately seven lakh firms to file their annual balance sheet electronically, is now used for the calculation. The government has also expanded the coverage of agricultural and financial sectors, local bodies and other autonomous institutions in the new series, which makes it more complicated.

It is necessary to link the old and new series of national income accounts for tracing the economic growth over the years without any discontinuity in figures as these figures are the basis for policy formulation and implementation. However, the process of creating back series for the present GDP estimates was a mammoth task due to the complexity of data. For instance, the MCA 21 data was available from 2007-08 but not on a comparable basis – the database only stabilised from 2010-11 onwards.

The NSC’s Committee took the initiative to generate back series for the present GDP estimates in their draft report. Using production shift approach, they calculated the GDP growth rates between the years 1994-95 and 2013-14 with the new base year. According to the committee’s GDP estimates, the nation achieved double-digit growth rate twice during the time of Dr Singh’s government – i.e. in 2007-08 (10.23%) and 2010-11 (10.78%). This triggered a ‘war of numbers’ between the ruling-BJP and the main opposition Congress party. The Congress leadership took immense pride in their achievement and soon targeted Modi government all over social media with the #DrSinghGDPKing hashtag. The BJP leaders, led by Finance Minister Arun Jaitley, countered Congress’ claim by stating that Atal Bihari Vajpayee government handed over a highly growing economy to the Congress in 2004 and that was the reason for high GDP growth during Dr Singh’s tenure as the Prime Minister. They further stated that the BJP government under Prime Minister Modi inherited a fragile economy in 2014 due to the ten years of Congress’ economic mismanagement.

However, it is futile to debate on NSC committee’s draft report when the report itself states that their estimates/figures are not final and not to be quoted anywhere. Also, though the report shows that the new series is directly in line with the old series, the committee needs to provide more clarity on their GDP estimates. For instance, why did the share of service sector drastically decline from 24.7% (old series) to 17.4% (new series) in 2011-12? And how did the growth rates since 1994-95, where the old series was consistently higher than the new series, altered its trend from 2003-04 onwards? One can only deal with these questions when the Committee on Real Sector Statistics releases their final report.

India’s GDP Growth: Singh vs. Modi

But the question that will remain crucial till the upcoming Lok Sabha polls is who was able to deliver a better GDP growth rate – Dr Singh or Modi? In 2004, when the Congress-led United Progressive Alliance (UPA-I) under the prime ministership of Dr Manmohan Singh came into power, the nation’s GDP growth rate was at 7.8% (As per IMF data). During the initial years of Dr Singh’s government, there was a rapid rise in India’s GDP growth rate – 9.3%, 9.8% and 9.8% in 2005, 2006 and 2007 respectively. There was a setback in 2008 as country’s GDP dropped by 5.9% to 3.9%. This decline in the GDP growth rate is mostly because of the global economic crisis of 2008. However, the economy geared up immediately and the GDP rose to 8.5% in 2009 and touched a double-digit in 2010, i.e. 10.3%. This growth acceleration increased people’s confidence in the UPA government which led to their continuance in power in 2009 elections.

Things did not go in UPA’s favour from 2011 onwards. The global crude oil prices skyrocketed, and it hovered around $100-110 per barrel by mid-2014. Since India is an oil-importing nation, this created the havoc in UPA government’s growth expectations. Then, in 2012, the Greece-Spain sovereign debt crisis made a spill-over effect on the Indian economy as the government budget conditions worsened. The value of the Indian rupee depreciated to a record low of ₹68 to the US dollars in 2013. The government was also not able to control the high rate of inflation caused by the rapid rise in oil prices. The inflation rate remained between 9% and 11% in the years 2009-13. As the consumers cut down on their spending due to the soaring prices, the production and investment also declined in the economy. This, in turn, affected the nation’s GDP – India only recorded a growth rate of 6.6%, 5.5% and 6.3% in 2011, 2012 and 2013 respectively. The internal economic mismanagement and series of scandals in the final years of UPA-II government was the last nail on their coffin. In 2014 elections, the Congress party faced a historic defeat by shrinking into merely 44 seats.

When the BJP-led National Democratic Alliance (NDA) came into power in 2014, the GDP growth rate was at 7.4%. In 2015, the GDP growth rate was at the rate of 8.2% – the highest rate in five years’ time. However, there was a dip in the GDP growth rate in 2016 and 2017, i.e. 7.1% and 6.7% respectively, as a result of demonetization shock and the hasty introduction of Goods and Service Tax (GST) in the economy. The GDP growth rate would have gone stooping low if the external environment was unfavourable like during the UPA-II regime. They had the good fortune of lower crude oil prices most of its tenure – in the early-2016, the global crude oil prices touched a record low of $30 per barrel. As a result, the inflation rate reached 3.6% in 2017 – but the farmers are distressed due to low income resulting in a sharp increase in agrarian protests and riots in the country. The increased Foreign Direct Investment (FDI) and the favourable environment for doing business since 2014 has also come into Modi government’s advantage for maintaining a consistent GDP growth rate.

Now the distress caused by the demonetisation and GST has faded away. However, there is a cause for concern. Since the beginning of 2018, there is a number of factors such as the rapid rise of global crude oil prices and inflation, widening trade deficits, US President Donald Trump’s ‘trade war’, and Turkey’s ongoing financial turmoil, that is hampering India’s growth prospects – similar to the situation of 2013. The value of the Indian rupee depreciated to a record low of ₹70 to the US dollars in August. This will have an obvious impact on India’s GDP growth rate. In July 2018, the International Monetary Fund (IMF) updated the World Economic Outlook (WEO) report (dated April 2018), in which India’s forecasted GDP growth rate was revised from 7.4% and 7.8% to 7.3% and 7.5% for the years 2018 and 2019 respectively.

Sufficient Growth Rate?

India is often compared to neighbouring China while measuring the GDP growth rate. Some leaders in the treasury bench are happy and satisfied as India has superseded China’s GDP growth rate, making it one of the fastest growing economies in the world. But the fact is that China has a $12.014 trillion economy, while the Indian economy’s size is just $2.611 trillion (2017). The Chinese economy has also grown at a double-digit rate several times since the establishment of the communist state (especially after Deng Xiaoping’s liberal economic reforms), while that is not the case with India. India has attained a double-digit growth only once, i.e. in 2010 (10.3%).

Yes, considerably, there has been a good GDP growth rate during the tenures of both Dr Singh and Modi with certain loopholes. But, as an emerging economy that aspires to be a global power, is India’s present growth rate sufficient? The elephant is running, but needs to run faster!

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