BJP’s claims of superior economy virtue: Sound and fury

Apart from distorting the Congress manifesto as a combination of impractical populism and pandering to Muslims, BJP campaigners have little to offer by way of constructive solutions to the economy’s problems of declining real wages in rural areas, massive unemployment among educated Indians and corporate India’s reluctance to invest, leaving the government to shoulder the burden of building infrastructure and other capital formation to generate growth.

Speaking to the Economic Times, Home Minister Amit Shah sought to brush aside criticism of the Modi government’s economic performance by citing two statistics: India’s ranking among the economies of the world before and after Modi (AM and PM, if we use the Latin prefixes Ante and Post to indicate before Modi and after Modi, respectively), and the stock market index AM and PM.

India was the 11th largest economy in the world AM, but has risen to the fifth largest, PM, and is slated to rise, further, to the third largest, by 2027. The BSE Sensex stood at 22,340 AM, at 75,000 PM.

How indicative are these figures of the robustness of the economy’s performance AM and PM?

Growth during the UPA era

In the year preceding the one in which the economist prime minister, as Amit Shah referred to Dr Manmohan Singh, took office, India’s GDP in constant rupees was Rs 50,78,049 cr. In 2013-14, the fiscal year completed before the PM era began, GDP stood at Rs 98,01,370 cr. In other words, the economy nearly doubled, that is, grew at a compound annual rate of 6.8% over the United Progressive Alliance’s 10 years.

Under PM Modi’s leadership, the size of the economy grew, in real, that is, constant rupee terms, to Rs 1,72,90,281 in 2022-23. From 2013-14, the economy grew by three quarters, or at a compound annual average rate of 5.8%, one percentage point lower than during the UPA’s 10 years. These are the cold, hard numbers from the government’s own official data sources: the Economic Survey and the National Statistics Office.

Ill-conceived DeMo 

If India’s growth slowed under Modi, how would India have gone up in the global rankings during this time? India still grew at 5.8%, but the rich world was experiencing what economists have dubbed the Great Stagnation, until COVID struck and sent economies tanking. True, Modi’s record also suffered on account of  the pandemic. The Manmohan Singh years saw the debilitating blow of the Global Financial Crisis. But there was self-wrought economic damage, too, during the Modi years. Demonetisation destroyed income to the tune of 1% of GDP – we are just taking the average of the 0.5% to 1.5% of GDP loss estimated by the government’s own Economic Survey. DeMo was a thoroughly ill-conceived move in terms of its avowed economic goal of destroying black money but brilliant in its actual political goal of using the class anger of the poor against the filthy rich to widen the BJP’s political base.

Taking stock of Sensex

But stock market performance vindicates the Modi effect, does it not? The Sensex’s climb from 22,340 to 74,000, give or take a few hundred points, is truly impressive. That is an increase of 231% over 10 years. But to equal the proportionate increase in the Sensex wrought by the economist prime minister Manmohan Singh, the Sensex has to cross 116,000 – over the UPA’s 19 years, the Sensex went up from 4,300 to 22,340, an increase of 420%.

Haven’t exports reached an all-time high under Narendra Modi’s stewardship of the economy? But that is like saying a 16-year-old has attained a previously unmatched height, completely outclassing the height achieved at age 5. The share of exports in GDP was 15% when Manmohan Singh took office, it stood at 25% in 2023-14, before he left office. The Modi sarkar has actually brought it down to less than 22% of GDP.

Decline of rural wages

Over 2008-14, rural wages adjusted for inflation went up, year after year. Over the last five years, real rural wages have actually declined, inflicting misery on the people. Of course, the government has arranged to give them free food and increased outlays on the National Rural Employment Guarantee scheme. This is despite the strenuous efforts of some government-oriented economists to make poverty disappear through statistical exertions.

Amit Shah claimed that the government has invested unprecedented amounts in infrastructure. The sad reality is that Gross Fixed Capital Formation under the UPA ruled around 35% of the GDP most years, and never slipped below 30%. In the last 10 years, this ratio has gone past 30% of GDP in just one year.

The Home Minister is entirely right when he talks about the huge investments in infrastructure made out of the Budget. What it means, in combination with the falling GFCF/GDP ratio, is that the private sector has been chary of investing, never mind the song and dance about ease of doing business and the claimed pro-market philosophy of the government.

The Home Minister also announced a five-point strategy for future growth: “First, strengthen all economic parameters. Second, lay the foundation for long-term infrastructure development. Third, undertake some holistic system reforms, where I feel we have succeeded. Fourth, focus on demand and supply. And finally, integrate 60 crore population of this country to the digital economy.”

Strengthening all economic parameters, holistic reforms, and focusing on demand and supply are sweeping platitudes, not policy. Claiming that someone who makes a digital payment is integrated into the digital economy is like claiming that a kid who has learned to make sense of a = b+c has already mastered Calculus.

But Amit Shah is bang on, when he talks about laying the foundation for long-term infrastructure development. The speed of customs clearance, ship turnaround and road freight has improved dramatically, under steady policy attention over the last 10 years. This does lay the ground for readying India to house largescale manufacturing for export.

Need low, uniform tariffs

To be a successful manufacturer of diverse exports, the economy needs low, uniform tariffs. Contrary to the consistent advice of the government’s own economists, for example, Arvind Panagariya, the government has pushed up selective import tariffs and lowered some others, boosting some manufactures and hurting others, including the components of the favoured sectors.

What about the rise in forex reserves? India does not have a current account surplus, unlike China, whose forex reserves top $3 trillion. So every dollar of dollar reserve that India possesses is a dollar of financial investment that someone abroad has made into the Indian economy, but remains unabsorbed in the real economy, that is, not used to cover the current account deficit.

A build-up of forex reserves beyond what is needed to cover a few months of imports is an admission of inability to absorb foreign investment, whatever the announcements of foreign investment in the Indian economy.

Claims of superiority of the BJP government's economic performance and vision for the Indian economy are a lot of fluff, unsupported by facts.

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