Relative Economic Performance of UPA and NDA Governments | Ajit Kumar Singh

Introduction

The NDA government has now completed ten years in office. Before that the UPA government was in power for ten years. In this paper we have analysed the relative economic performance of the two governments based on key economic indicators using data from official sources. We first analyse the economic growth under the two regimes. We then examine the sectoral shifts in DGP. This is followed by a discussion of the fiscal performance of the two governments covering trends in tax-GDP ratio, Fiscal and Revenue Deficit. The issues of indebtedness and Foreign Direct Investment have also been discussed. The final section summarises the main findings of the paper.

Economic Growth

Table 1 shows the growth rate in key economic indicators during the UPA and NDA governments. The compound annual growth rate of GDP was 5.42% under NDA government as compared to the growth rate of 6.67% under UPA government (see Table 1 and Figure 1). The growth rate of per capita income was also lower under NDA government (4.28%) as compared to the growth rate during UPA government (4.64%) (see Figure 2). The main components of GDP are consumption expenditure, investment and exports. In all the three components the growth rate was lower under NDA government as compared to UPA government (Table 1).

Table 1: Annual Compound Growth Rate of Key Economic Aggregates (%)
Source: Calculated from Economic Survey Reports.

A major factor in the decline in growth rate was a sharp decline in the growth rate of gross fixed capital expenditure (GFCE) which came down to 6.94% from 9.56% during the UPA government. GFCE as percent of GDP at current prices declined from 31.3 in 2013-14 to 26.6 in 2020-21 (Table 2). However, it shows recovery after that and is projected at 31.3 in 2023-24. While the proportion of public sector GFCE was nearly static at 7.0%, private sector GFCE has come down sharply from 24.2% in 2013-14 to 19.6% in 2020-21 (Table 2). Thus, the private sector is still hesitant to invest more due to the uncertain economic environment.

Another key factor in stimulating growth of the economy is exports of goods and services. There was a sharp decline in the growth rate of exports from 9.56% during UPA government to only 4.73% during NDA government (Table 1). Growth rate of imports also declined sharply during the NDA government.

Table 2: Trends in Gross Fixed Capital Formation As % of GDP

Source: Economic Survey 2022-23 and Press Note Dated 29th February 2024, The National Statistical Office (NSO), Ministry of Statistics and Programme Implementation, GOI.

Trends in GDP

Table 3 shows the trends in total and per capita GDP during 2004-05 and 2023-24. GDP growth was fairly high during UPA regime ranging from 5% to 8.5%, except in 2008-09 when it came down to 3.09% due to international financial crisis. Growth rate was about 8% in the first two years of NDA government. But after 2016-17 there was a sharp and continuous decline in GDP growth due to demonetization and hastily implemented GST, both of which adversely affected the unorganized sector. During 2020-21 GDP slumped by 6.6% due to the lockdown imposed during Covid pandemic. The growth rate picked up after that due to the low base effect. In fact, GDP in 2023-24 is only 19% higher than that in 2019-20, giving a growth rate of less than 4.5% per year. The growth rate of Per Capita GDP was also lower during the UPA regime as shown in Table 3.

Table 3: Trends in Total And Per Capita GDP

Source: Calculated from data given in Economic Survey 2023.

Figure 1. Trends in GDP at Constant Prices - 2004-05 to 2023-24 (Rs. Crore)

Figure 2. Annual Growth Rate of GDP (In %)

Figure 3. Trends in Per Capita Income at Constant Prices - 2004-05 to 2023-24 (Rs.)

Figure 4. Annual Growth of Per Capita Income at Constant Prices-2004-05 to 2023-24 (%)

Sectoral Growth Rates

Decline in the growth rate is discernable in all major sectors in the NDA period over the UPA period except in the case of the primary sector which performed slightly better (see Table 4 and Figure 5). Growth rate of GVA by agriculture and allied sector was roughly the same in the two periods-3.8% and 3.5% respectively. Growth rate of GVA from manufacturing shows a sharp deceleration from 7.8% during the UPA government to 6% during the NDA government, inspite of the emphasis on Make in India and programmes for the MSMEs. So is the case of GVA from trade, hotels and transport sector and financial and professional services. Public administration and defence also show lower growth under the NDA government. Only the mining sector shows a better performance under NDA government.

Table 4: CAGR of Gross Value Added at Constant Prices by Main Sectors (%)

Source: Calculated from National Accounts Statistics: Back-Series 2004-05 To 2011-12 and Economic Survey Reports.

Figure 5. CAGR of Gross Value Added by Main Sectors (%)

Structural Shift

The pace of structural shift in the composition of GDP has been rather modest in India during the last two decades (see Table 5 and Figure 6). Thus, between 2004-05 and 2014-15 the share of primary sector in GDP declined by about 1.8 percentage points, while that of agriculture declined by 1.3 percentage point. The share of the secondary sector declined by about 1.6 per centage points during this period. The tertiary sector, however shows a positive gain of 3. 4 percentage points. Similar trends are noticed during the 2014-24 period, with primary and secondary sector showing a marginal decline in their share and the tertiary sector showing a gain. The manufacturing sector also shows a decline throughout the period. Thus, services sector has emerged as the leading sector in the Indian economy.

Table 5. Sectoral Shares in GDP at Current Prices %

Source: CSO, National Account Statistics.

Figure 6. Sectoral Shares in GDP at Current Prices %

Fiscal Performance

Tax Effort

Looking at the trends in the tax revenues of the Central government as a per cent of GDP, the relative performance of the two governments does not show much difference. The tax-GDP ratio has hovered around 10 per cent throughout the last two decades with some annual fluctuations (Table 6). UPA government seems to have performed better in collection of direct tax revenues. The ratio of direct taxes to GDP improved by about 1.5 per cent points during the UPA regime, but shows a decline in NDA regime particularly in the last five years. On the other hand, receipts from indirect taxes have lagged behind the growth of GDP during both the periods. The introduction of GST has not helped in raising the ratio of indirect taxes to GDP. The share of direct tax receipts in total tax receipts improved by about 10 percent points between 2004-05 and 2013-14, however, it has come down by 4 percent points since then. Thus, the BJP government has taxed the rich lightly and raised revenue by relying on the indirect taxes which affects the pockets of the poor and the middle classes.

Table 6: Trends in Central Taxes-GDP Ratio (%)

Source: Economic Survey Reports.

Figure 4. Trends in Central Taxes-GDP Ratio (%)

Series 1 = Direct Taxes Series 2 = Indirect Taxes Series 3=Total Taxes

Fiscal Deficit

Fiscal performance can be judged by the trends in the revenue and fiscal deficits of the central government shown in Table 7. Neither of the two governments has been able to contain fiscal deficit to 3% of GDP as envisaged in the FRBM Act except in the year 2007-08. Fiscal deficit was 6 % in 2008-09 and 6.5 in 2009-10 when government adopted programme for meeting the international financial crisis. Similarly, under NDA government fiscal deficit reached the level of 9.2% during 2020-21 during the covid year and is still above 6 per cent. Revenue deficit as proportion of GDP has shown year to year fluctuations, but has remained fairly high during the entire period. A significant part of fiscal deficit is diverted to meet the revenue deficit.

Table 7: Revenue and Fiscal Deficit of Central Government As Per cent of GDP

Figure 5. Trends in Revenue and Fiscal Deficits as Percent of GDP

Indebtedness

Table 8 and Figure 6 show the internal and external liabilities of the central government from 2004-05 to 2022-23. The table reveals that the Manmohan Singh government was more successful in controlling its debt liabilities as compared to the Modi government. Thus, internal liabilities of the central government came down from 61.4% in 2004-05 to 48.7% in 2013-14. On the other hand, internal liabilities have gone up by nearly 10 percentage points during the NDA government. Similar trends were also observed in case of external debt outstanding. The increase in indebtedness was sharper after 2018-19 when government had to borrow heavily to face the burden of the covid pandemic.

Table 8: Trends in Liabilities of the Central Government as Percent of GDP

Source: Indian Public Finance Statistics and Economic Survey.

Figure 6. Trends in Internal and External Liabilities of the Central Government As % of GDP

Foreign Direct Investment

Both the governments have taken steps to boost direct foreign investment (FDI) in India. Table 9 and Figure 7 show the trends in FDI in India. FDI were relatively small in 2004-05 at Rs. 26,947 crore, but rose sharply to Rs. 1,90,645 crore in 2008-09. However, FDI inflows declined in the next five years. FDI nearly doubled during NDA regime-from Rs. 2,15,893 crore in 2014-15 to Rs. 4,18,763 crore in 2021-22. However, FDI as a per cent of GDP have stagnated and have remained below 2 per cent except in 2015-16 and 2020-21. As a proportion of gross capital formation FDI have fluctuated between 4.4% and 7.5%. Thus, the overall contribution of FDI to India’s economic growth does not appear to be significant.

The flow of FDI to states has been very uneven contributing to increasing inter-state disparities. The richer states like Delhi, Gujarat, Maharashtra, Tamil Nadu, Karnataka and Andhra Pradesh have cornered most of the FDI flowing into India, while the share of the poor states like Bihar, Madhya Pradesh, Rajasthan, Jharkhand and Uttar Pradesh has remained low (Saha and Bhowmick 2020). Thus, FDI has contributed to the growing inequalities between the states.

Figure 7. Trends in Direct Foreign Investment in India

Table 9: Trends in Direct Foreign Investment in India

Source: Calculated from data given in Economic Survey 2022-23.

Conclusion

In this paper we have analysed the relative economic performance of the two governments based on key economic indicators using data from official sources. In nearly all macro economic parameters the UPA government shows a better performance than the NDA government. The compound annual growth rate of GDP was 5.42% under NDA government as compared to the growth rate of 6.67% under UPA government. The growth rate of per capita income was also lower under NDA government (4.28%) as compared to the growth rate during UPA government (4.64%) A major factor in the decline in growth rate was a sharp decline in the growth rate of gross fixed capital expenditure (GFCE) which came down to 6.94% from 9.56% during the UPA government. Another key factor in stimulating growth of the economy is exports of goods and services. There was a sharp decline in the growth rate of exports from 9.56% during UPA government to only 4.73% during NDA government.

Decline in the growth rate during the NDA regime is discernable in all major sectors in the NDA period over the UPA period except in the case of the primary sector which performed slightly better. Growth rate of manufacturing shows a sharp deceleration from 7.8% during the UPA government to 6% during the NDA government. Similar was the case of the tertiary sector.

The pace of structural shift in the composition of GDP has been rather modest in India during the last two decades with primary and secondary sectors showing a marginal decline in their share and the tertiary sector showing a gain. Similar trends were noticed during both the periods under study.

The fiscal performance of the NDA government has also not been at par with the previous regime. The tax-GDP ratio has hovered around 10 per cent throughout the last two decades with some annual fluctuations. UPA government performed better in collection of direct taxes. The share of direct tax receipts in total tax receipts improved by about 10 percent points between 2004-05 and 2013-14, however, it has come down by 4 percent points since then. Thus, the BJP of the poor and the middle classes government has taxed the rich lightly and raised revenue by relying on the indirect taxes which affects the pockets.

None of the two governments has been able to contain fiscal deficit to 3% of GDP as envisaged in the FRBM Act except in the year 2007-08. In fact, GFD ratio jumped to 9.2 per cent of GDP in 2021-22. Though it has come down since then, it remains still above 5 per cent.

The Manmohan Singh government was also more successful in controlling its debt liabilities as compared to the Modi government. Thus, internal liabilities of the central government came down from 61.4% in 2004-05 to 48.7% in 2013-14. On the other hand, internal liabilities have gone up by nearly 10 percentage points during the NDA government.

Both the governments have taken steps to boost direct foreign investment (FDI) in India. FDI nearly doubled during NDA regime. However, FDI as a per cent of GDP have stagnated and have remained below 2 per cent except in 2015-16 and 2020-21. As a proportion of gross capital formation FDI have fluctuated between 4.4% and 7.5%. Thus, the overall contribution of FDI to India’s economic growth does not appear to be significant.

To conclude, our discussion shows that the relative performance of the UPA government was distinctly better than that of the NDA government on most macro economic indicators.

(Author: A.K.Singh, Former Director, Giri Institute of Development Studies, Lucknow)