Decoding India’s economic realities: comparing the state of the economy under the NDA and UPA governments

Comparing economic data under UPA and NDA regimes

With the BJP-led government exuding over-confidence on the state of the economy, the interim Budget presented earlier this month has shifted focus to fiscal consolidation. Finance Minister Nirmala Sitharaman has projected that the fiscal deficit; which was expanded to 9.2% of GDP in 2020-21 to deal with the pandemic-induced recession; would be brought down to 5.8% by the end of the current financial year and 5.1% by next year to reach the targeted 4.5% of GDP by 2025-26.

The interim Budget signals significant cutbacks in public expenditures, slashing effective capital expenditure by ₹1 lakh crore and reducing welfare and subsidy allocations. Despite a nominal GDP growth of 9%, down from the previous year’s 10.5%, the government faces challenges with a slowdown in economic activity. Real GDP growth stands at 7.3%, above last year’s 7.2%, while the IMF questions the accuracy of official growth estimates, recommending statistical upgrades. The fiscal situation is complicated by rising debt liabilities, marking a formal withdrawal of post-pandemic stimulus in the interim Budget.

Added to this is the prospect of a slowdown in economic activity, regarding which the government seems to be in denial. Despite the nominal GDP growth rate falling to 9% in the current year from 16% last year, real GDP growth (at constant prices) has been estimated at 7.3% (advanced estimates), slightly above the 7.2% registered last year, implying that the value of the GDP deflator — which should correspond with the retail inflation rate — has fallen below 2% in 2023-24. Official data, on the other hand, shows the monthly average of consumer price inflation (Consumer price index-CPI-combined) at 5.5% for 2023-24.

This anomaly has once again revived the debate over the accuracy of official growth estimates. The International Monetary Fund (IMF), in its latest staff report on India (November 2023) has pointed out several defects and deficiencies in real sector data, particularly that of national accounts, employment, and prices, recommending an upgradation and expansion of official statistics. It is noteworthy that in its January 2024 Update of World Economic Outlook, the IMF has projected India’s real GDP growth as 6.7% for 2023-24 and 6.5% for 2024-25, reflecting a deceleration of economic activity.

The Finance Minister has sought to divert attention from this debate over the present direction of change in economic activity, by presenting a “White Paper” in Parliament on the past twenty years. The white paper alleges that the United Progressive Alliance (UPA) had left behind a “deeply damaged economy” marred by “governance, economic and fiscal crises” in 2014, which is claimed to have “turned around” and “rebuilt” from its foundations in the past 10 years by the National Democratic Alliance (NDA) regime. The evidence presented in support of this macroeconomic narrative, however, is a concoction of cherry-picked data, half-truths, evasions, and counter-factual assertions. The 55-page document mentions the word “inflation” 17 times, while the word “jobs” is mentioned twice, “employment” only once and “unemployment” never at all; which exposes the skewness of its analysis.

Over the past 20 years, fiscal trends show no clear pattern between UPA and NDA regimes (See Table 1). NDA-I reduced expenditures as a percentage of GDP, while NDA-II increased spending significantly post-pandemic. NDA-II’s expenditure record is mixed compared to UPA, with improvements in certain areas but declines in others. The NDA-I government had reduced expenditures relative to GDP on most major heads compared to the UPA regime, including capex, subsidies, defence, education and rural development. NDA-II increased the outlays on those heads significantly vis-a-vis NDA-I. However, the expenditure record of the NDA-II government vis-a-vis the UPA era remains mixed; outlays on capex, food subsidy, agriculture, and urban and rural development improved, while outlays on education, defence and subsidies on fuel and fertilizer fell, as per cent of GDP. Health expenditure as a share of GDP saw no change at all between the UPA and NDA rule, despite the pandemic.

On the revenue front, gross tax revenues in GDP showed minor improvement during the NDA rule compared to UPA’s, but non-tax revenues deteriorated. Overall there was a decline in the Centre’s revenue receipts as a share of GDP, partly due to the increase in the State’s share in Central taxes following the implementation of the 14th Finance Commission recommendations.