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
But 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 more detail.
It 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.
In order to assess the performance of the NDA government
in terms of various economic growth indicators, we
look at two periods: the six-year period preceding
1 April 1998, and the six-year period after 1 April
1998. For convenience, we 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).
Chart 1 indicates the trend rate of growth of GDP
(at both factor cost and market prices) over the two
However, since some analysts may find the trend rate
problematic given that the periods under consideration
are each only of six years duration, Chart 2 provides
the compound rates of growth for the same periods,
based on the initial and end years.
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.
Of 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.
This is certainly very evident in Charts 3 and 4,
which show the trend and compound rates of growth
of production of all crops and of foodgrains in particular.
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.
This 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.
Even in industrial production, the slowdown of the
second period is very marked. Chart 5 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
Why has this happened? Some clues can be gleaned from
the pattern of aggregate investment, described in
Chart 6 in terms of 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
Even this low rate of increase is of dubious significance,
since both public and private corporate investment
stagnated or even declined over this latter period.
Indeed, such increase as did occur in capital formation
after 1998 came about mainly because of household
sector capital formation. This is determined in the
national accounts as a residual, and essentially reflects
increases in domestic construction activity.
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 independent
It 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 activity.
However, 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
This 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.
Indeed, 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.
These 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.