People's Democracy(Weekly Organ of the Communist Party of India (Marxist)
March 28, 2004
economic performance of the NDA government since it came to power is an issue
fraught with controversy. The spin-doctors of the BJP, the major party on the
currently ruling coalition, have decided that high economic growth is a major
achievement of the NDA, and this has been emphasised in the electoral campaign
even the growth performance claimed by the current government has been contested
by critics, who claim that the most recent claims made, of more than 8 per cent
growth in the current year, are because of the low economic activity in the
previous year due to the drought and its effects on agricultural production. In
this context, it is worth examining the growth patterns of the previous years in
seems premature and possibly irresponsible to base economic arguments on any
estimates for the current year, which after all is still continuing, and for
which any projections are likely to be subject to very major revisions.
Therefore, we conduct an exercise based on data up to 2002-03, for which
reasonably reliable official series exist.
DECELERATION IN GROWTH RATES
order to assess the performance of the NDA government in terms of various
economic growth indicators, I will look at two periods: the six-year period
preceding 1 April 1998, and the six-year period after 1 April 1998. For
convenience, I will refer to these as Period 1 and Period 2. This allows us to
assess the performance of the NDA government (Period 2) compared to its
immediate predecessors in the form of the United Front and Congress-led
governments (Period 1).
1 indicates the trend and compound rates of growth of GDP (at both factor cost
and market prices) over the two periods. It is obvious that by both measures,
growth of national income decelerated quite substantially in Period 2, that is,
under the NDA government. In
fact, the period from April 1998 until March 2003 appears to have experienced a
deceleration of growth compared to the earlier fifteen year period as well.
course, it could be argued that the aggregate growth estimates are affected by
the poor performance of the economy in 2002-03 because of the bad monsoon which
adversely affected agricultural production. Growth of agricultural production
was actually negative during this period, mainly because of the drought-induced
collapse in production in the last year. Indeed, the apparently fabulous
recovery of the current year, which has been cited so much in government and
ruling party handouts, is essentially nothing more than the reflection of the
recovery of agriculture consequent upon a very good monsoon.
brings home the unfortunate reality that the Indian economy is still heavily
dependent upon the monsoon, which can still create major changes not only in
agricultural output but also in aggregate economic activity. This is despite the
much increased external openness of the economy, which has now been exposed to
international trade and capital flows more than ever before.
It also undoes some of the claims made by the votaries of such policies, that
economic liberalisation had unleashed such animal spirits in the economy that
agriculture was no longer of macroeconomic significance and that the growth
impetus of the economy is no longer affected by it.
in industrial production, the slowdown of the second period is very marked.
Table 1 indicates a sharp deceleration of the index of industrial production, by
both trend and compound rates of growth. This cannot be blamed on the last year
alone; the entire six-year period indicated sluggish expansion of industrial
has this happened? Some clues can be gleaned from the pattern of aggregate
investment, or the rates of growth of real gross domestic capital formation.
Such investment increased at a reasonable rate in the earlier period, above 9
per cent per annum in real terms. However, in the second period (the tenure of
the NDA regime) the increase in investment had slumped to only around 5 per cent
this low rate of increase was mainly because of increases in domestic
construction activity, because both public and private corporate investment
slumped. Such investment declined because public investment has stagnated or
declined under the NDA regime. Despite the recent promises of national highway
expansion and other such indicators of material prosperity, the
NDA government has spent less (in real per capita terms) on productive
investment for infrastructure and economic growth, than any government in
is well known that in India, as in almost all other developing countries, there
are strong positive linkages between public and private investment. Typically,
high rates of public investment call forth and enable more private investment
the policy makers of the NDA appeared to believe that they could further reduce
the amount of productive public expenditure and expect private entrepreneurs to
take up the slack and increase aggregate investment. Obviously, this was not
likely to happen in the absence of any other major positive stimulus. So it is
not surprising that the NDA’s tenure has been associated with lower rates of
growth of industrial production and economic activity generally, than the
is not to deny the rapid growth that has definitely occurred in certain sectors
in this period, such as telecom and IT-enabled services. However, these sectors
are still extremely small, and their admittedly extraordinary growth (reflecting
the effects of rapid worldwide technological change as well) has occurred over
very low bases. Further, such growth as has occurred has not been enough to
counteract the effects of deceleration, stagnation or even decline in the
larger, more important industries and in agriculture and many other services.
the bulk of economic activity over this period did not show much acceleration,
certainly when compared to the earlier period. This is in conformity with other
indicators such as employment generation, especially in the organised sectors,
which also indicate stagnation or insufficient expansion.
basic arguments are not changed even if the most current year’s data are
included. For example, consider the effects of incorporating the projected GDP
growth of 8.4 per cent in 2003-04 (which is what the CSO’s advance estimates
suggest). Even this gives a compound rate of growth of real GDP at market prices
of 5.8 per cent per annum in the period from April 1998, compared to 6.3 per
cent in the earlier period. The
trend rate of growth is also lower than in the previous period even if the
current year’s high estimate is included.
However, it is worth reiterating that using the current year’s estimates is
extremely problematic, since such advance estimates are typically revised quite
drastically and therefore can be quite misleading.
So the official figures suggest that, whatever else may be the NDA’s strengths, successful macroeconomic management is not among them. This is evident in the slack that remains in the economy in the form of high unemployment and underemployment, wasteful build-up of reserves through allowing unnecessary capital inflows that are not being productively used, and of course through the appalling waste of public food stocks that were exported away at below BPL prices when hundreds of millions within the country remained hungry. But it is even apparent in the aggregate growth performance, which unfortunately has not been anywhere near as impressive as the current government’s propaganda would have us believe.
|Period 1||Period 2|
|Trends rates of growth of GDP|
|Real GDP (factor cost)||6.86||5.32|
|Real GDP (market prices)||6.69||5.33|
|Compound rates of growth of GDP|
|Real GDP (factor cost)||6.29|
|Real GDP (market prices)||6.02||4.97|
|Trend rates of growth of all crops and foodgrains|
|Compound rates of growth of all crops and foodgrains|
|Trend and compound rates of growth of industrial production|
Rates of growth of investment (Gross domestic capital formation)