It has been nearly two years since Mr Modi became Prime Minister of India. When his Finance Minister Mr Arun Jaitley rose to present his second full Budget on February 29, 2016, expectations that the government would do any meaningful reforms were remote. For most of the period since the last Budget (February 2015), the Modi government has been under considerable political strain. It lost the Delhi elections, and got whipped in the Bihar elections.
In addition to these losses, the BJP has stumbled from one political “crisis” to another. Student suicides and student protests have taken over from love jihad, ghar wapsi, church bombings and the lynching of innocent people on the premise that they were eating beef. “We are (Hindu) India—we don’t eat beef here”, nor do we allow anybody else to do so. The BJP has encroached on many a liberty, and this encroachment has been fanned by their unruly Tea Party-type supporters. With this background, there was little expectation that this gang, that couldn’t shoot straight on any political-cultural issue, would be able to deliver sensible economic policy.
The fact that expectations had fallen so low for the Modi administration is a feat in itself, and has been part of a larger Congress strategy for survival, post the party’s spectacular defeat in May 2014 led by Ms Sonia Gandhi. At that time, several analysts (including self) concluded that this was the beginning of the end for the oldest political party in India.
To counter this, the Congress attempted to hammer in the view—and make it a Goebbelsian “fact”—that Modi-led India has been the most intolerant, most non-secular, most anti-Muslim, most anti-Dalit, and most anti-anything but the upper-caste regime that India has ever witnessed. Congress strategists (which most likely include large segments of the English intelligentsia and larger elements of the English media) knew full well that, if provoked, Tea Party elements of BJP would respond to accusations and further fan the flames—and how they have helped to do so! (Beef bans, Akhlaq lynching, Vemula suicide and now a permanent student politician Kanhaiya!)
On the economic front, the Congress strategy has been the simplest, and so beguilingly simple, that it may have succeeded with impressionable minds (or those whose minds were already made up). The carefully orchestrated strategy—via op-eds, TV interviews with friendly economists— was to popularize the slogan: NDA2 is really UPA3. BJP is following the same pro-poor policies, adopting what Congress had long proposed (eg. food subsidies, Aadhaar), and they have even retained NREGA, and hence “What is the difference?”
The “equivalence” between NDA2 and UPA, if true, would be a damning indictment of Modi and the BJP. Indeed, if true, then the Congress can truly expect more than a dead cat bounce in 2019. Should it? Let us look at some important criteria.
As is universally acknowledged, inflation under BJP has sharply declined from double-digit levels to now less than 5 per cent (average for 11 months of this fiscal year). But the refrain from the “NDA2 is UPA3” wallahs remains the same: “Arrey Bhai, you cannot be so stupid as to not factor in the considerable oil price decline that the BJP has been blessed with; oil prices decline, inflation declines, so what else did you expect—for inflation to go up? Don’t be foolish yaar—you are just being anti-Congress and/or pro-Modi.”
But the Congress strategists forget that their bluff can easily be called. Economists and policy analysts love what is called a natural experiment. So here are several pieces of data for the natural experiment—in fiscal year 2009/10, the international price of oil declined by 18 per cent; in 2014/15, there was a near identical decline (19 per cent). Thus, we can easily compare what the Congress did with an oil price decline and contrast it with what the Modi government has done. If the inflation decline was just a matter of oil, then there should have been a large inflation decline in 2009/10 as well.
And there was—in practically every country in the world, except in UPA-ruled India! The median CPI rate in developed economies declined from 3.5 per cent to only 0.4 per cent. But the Congress apologist would say that we should not and cannot compare ourselves with inflation rates in the developed world. True.
But how do you explain the fact that median inflation rate in developing economies declined from 9.2 per cent in 2008/9 (period of very high oil prices) to only 3.7 per cent in 2009/10? And what happened in India? Inflation accelerated by 3.5 percentage points, from an already high 9.7 per cent level in 2008/9 to an even higher 13.2 per cent level in 2009/10. Indeed, India had the sixth highest inflation acceleration in the world in 2009/10—just behind Zaire (acceleration of 28.2 per cent), Eritrea (acceleration 13.1 per cent), Pakistan (acceleration 6.1 per cent), Nepal (acceleration 5.9 per cent) and Egypt (acceleration 4.5 per cent).
Now contrast this with the inflation performance of India in 2014/15 (and 2015/16). In both these years, the Modi government chose to not fully pass through the decline in the international price of oil. In other words, this policy had an inflationary effect, ceteris paribus, in exchange for which the government gained in fiscal consolidation. CPI inflation in 2015/16 declined by a full percentage point, from 5.9 to 4.9 per cent. This decline was large, relative to only a 0.3 per cent decline in median inflation in emerging economies.
These oil and inflation data help prove that there is absolutely no comparison in the economic policies of the UPA and the economic policies of NDA2.
Budget 2016 contained enough departures from UPA2 to suggest that the difference in their economic policies is greater than the difference between chalk and cheese. Consider what has happened to the fiscal deficit in the year of the oil price decline. The fiscal deficit at the Centre in 2008/9 hit a highwater mark of 6.1 per cent of GDP; but, if adjustments are made for off-balance sheet items (which the UPA was particularly fond of) as done by the Prime Minister’s Economic Council, headed by former RBI Governor C. Rangarajan, then the fiscal deficit in 2008/9 was a huge 8.2 per cent of GDP!
The next year, the one with the oil price decline, the fiscal deficit was still a very high 6.6 per cent of GDP. In the year just ended, despite a slowdown of 3 percentage points in nominal GDP growth (as compared to the targeted value), the Modi government still managed to show a 0.2 percentage point decline in the fiscal deficit —the second lowest fiscal deficit, and only 0.8 percentage point higher than the bumper growth year of 2007/8. Nominal GDP growth in 2009/10 and 2015/16: 16.2 per cent versus 8.6 per cent!
There are several other non-similarities in the economic policies of NDA2 and UPA. For example, the wholesale adoption of Aadhaar for delivery of public services. The UPA just talked about it, Modi/BJP has actually done it. Reduction in corporate tax rates—UPA would not even dream about it, and NDA2 is well on its way to reduce domestic corporate tax rates to East Asian levels. The Congress party pursued the most classic of “in the name of the poor” policies ie. policies that are meant to benefit the poor but in reality, help oil the palms of middlemen, political party coffers, etc. In sharp contrast, Modi’s BJP government has attempted to genuinely help the poor, and the farmers, in rural areas.
The non-comparison list is long, and endless. It is tragic to see the Congress, and its supporters, reduced to polemical lies in support of a party that destroyed the macro-economy of India during 2004-14—and which is going to, at best and if at all, receive a dead cat bounce in the 2019 elections.
Surjit S. Bhalla is the Chairman and MD of Oxus Investments.. He holds a PhD in Economics from Princeton University, a Master in Public and International Affairs from Woodrow Wilson School, Princeton University, and a BSEE degree from Purdue University. He is a member of the Swarajya Editorial Advisory Board
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