UPA Report Card: Economy

By Akrita Reyar | Last Updated: Sep 24, 2014, 18:28 PM IST

Akrita Reyar THUMBS UP Record Growth Rates The Indian economy’s growth has been one of the success stories of the UPA regime. It was for the first time, in post-independence history of country, that our economy registered a spectacular 9% growth rate for three consecutive years (FY 05-08). And even after the global recession set in, while the word braced with contracting markets, defunct companies and pink slips, India remained the second fastest growing economy of the world, with GDP growth rates still over 7%. This has helped bring down poverty levels by about 10%.

The service sector remained the main super star, growing at over 11% and contributing 50%+ of the GDP. Industry came second with about 10% growth rate figures, followed by the agriculture sector. IT, Real Estate and Communication sectors were the top performers. Besides, the UPA tenure more or less witnessed sustained investment and solid saving, growing from 29.8% to 37.7%. The government created history again when it came to per capita incomes. At rates of 7.4%, it has been the highest per-capita growth of any four-year period. Domestic investment rates as a proportion of the GDP increased from 27.6% in FY 04 to 39% in FY 08. The tax to GDP ratio also increased from 9.2% to 12.5%. Exports grew at an annual average growth rate of 26.4% in USD terms while foreign trade shot up from 23.7% to 35.5%. Infrastructure Infrastructure projects have been allotted USD 559 billion in the 11th five year plan. India has a fossil fuel disadvantage compared to China, and the government fought a long and contentious but finally a successful battle to push the Indo-US nuclear deal, thus paving the way for a safer energy future. FDI limits were relaxed in telecom, civil aviation and construction which brought in competition, spoilt customers for choice and also pushed down prices. Food Security and Debt Relief Food security was achieved and record productions of incremental 10 tons each year reaching 230 million tones of grain ensured bulging godowns.

The government also announced a massive Rs 60,000 crore debt relief package for farmers, which enclosed features such as complete waiver of all loans for marginal farmers and small farmers and one-time settlement scheme in respect of other farmers for all loans. This was later revised upwards to Rs 71,860 crore to include a larger number of farmers. About 3.6 crore small and marginal farmers and about a crore other farmers benefited from the scheme. Being Counted But above all, the stature of India grew globally owing mostly to its economic performance; and it is a matter of some pride for us that the country contributed more new members to the Forbes Global 2000 than any other in the world in the last four years. The 5-year UPA term has ended with several of Prime Minister Manmohan Singh’s suggestions incorporated in the G 20 summit in London to find ways to fight recession. India has also been included in two of standard-setting regulatory panels - the Financial Stability Forum and the Basle Committee on Banking.

THUMBS DOWN Rising Prices Despite the buoyant performance and record growth rates, the common man was not totally unburdened. Rising prices of food products and oil contributed mainly to his woes. While it merits mention that the sharp escalation in global crude in 2008 was the main culprit, the fact remains that inflation grew rapidly to touch 11% vis-à-vis the target of 4% set by the RBI. A number of measures unleashed by the government and easing global prices not just reined in the inflation rate, but in fact has pushed it towards deflatory trends, but without easing prices of fruits and vegetables. The shameful part was that while food stores overflowed, a large part of the poverty stricken population continued to go without food and suicide deaths of farmers in drought stricken areas remained a common phenomenon, as highlighted in Rahul Gandhi’s maiden speech in Parliament, which cited the example of Maharashtra’s Kalavati. The government did indeed come up with the agricultural debt relief package, but it came a tad too late. Moreover the scheme, which was also dubbed as populist, left a gaping fiscal hole.

Fiscal and Revenue Deficits The Revenue deficit figure had to be revised to be at Rs 2,41,273 crore i.e. 4.4% of the GDP as against the budgeted figure of Rs 55,184 crore i.e. 1% of GDP. Similarly the fiscal deficit had to be revised upwards to Rs 3,26,515 or 6% of the GDP compared to the target of 2.5% at Rs 1,33,287. According to a study, India’s public debt is now considered 58% of GDP, which is a major challenge. Stock Market The Indian stock market which was in a boom mode, for most of tenure of the government, fell by 40% in just 6 months after touching its peek in January 2008. The bearish trend that followed, partly due a flight of foreign investment, wiped out a lot of feel-good factor and investments. It is only now, in 2009, that the Sensex is beginning to edge upwards again. Liberalization and SEZs The government was also forced to go slow on financial liberalization, mainly due to objections of the Left Front, which was one of the main allies of the government for most of its tenure. The government could also only push through reforms related to the insurance, pension and banking sector after the government finally broke away from the Red brigade. The Left had also for most the UPA tenure blocked disinvestment in some public sector firms, which did that allow it the liquidity that it would have liked. One of the most peculiar dilemmas facing the government was related with the Special Economic Zones. Identified as areas, which are given tax breaks or sops to promote industry and export orientated groups, more than once did the government face rough weather mainly due to land acquisition problems or due to the hypocritical attitude of the Left.

While the Red parties opposed clearance of SEZ project at the Centre, it supported the SEZ projects of West Bengal where its own CPM-led front is in power. The most high profile case in media glare for months was the Nandigram SEZ, where Tata Motors sunk crores to build the people’s car Nano. But concerted opposition by the locals, who were egged on by the Trinamool, eventually led to Ratan Tata pulling out of West Bengal and shifting base to Gujarat. Besides the Tatas losing a whole lot of money, it gave the government bad publicity and scared away several potential investors.