Economy Debate: Modi's NDA versus Manmohan's UPA

Parle Biscuits, part of the Parle Products group, reported  15.2% cent year-on-year (YoY) growth in net profit for the financial year 2018-19, with company’s FY19 net profit at Rs 410 crore against Rs 355 crore reported in the previous year. Total revenue too grew by a healthy 6.4% YoY to Rs 9,030 crore. 

Parle's good results would have ideally not caught much attention, had it not been for the raging controversy in August 2019 when the leftist eco-system indulged in viciously slanderous lies about how Parle Biscuits was on the verge of bankruptcy and was laying off staff as people in India could no longer afford to buy a packet of biscuits worth Rs 5. 

Of course, it later came to light that vested interests that wanted a cut in the prevalent 18% GST rate on biscuits were a part of the rumour mongering exercise to discredit the BJP-led NDA government. The Parle example is a befitting case of how prophets of gloom and doom have been working overtime to create a narrative that the Indian economy is falling off the cliff.

True, the economy is facing cyclical headwinds, after five excellent years of superior growth, witnessed during Narendra Modi's first term as Prime Minister. For the economy to reach the ambitious $5 trillion-mark by 2024-25, it will take the types of reform that were long-promised but never delivered by successive Congress-led UPA regimes. However,if there is any leader today who has both the vision and the will to execute that vision to put India into the global super league of nations, it is Modi whose first six months in office in his second term have shown that he means business.

Massive reductions in unwanted regulations, streamlining of labour laws, privatization of state entities, removing swathes of bureaucracy, investments in infrastructure and of course, the courage to say no to a lop-sided trade deal like the Regional Comprehensive Economic Partnership (RCEP) are key highlights of Modi's economic agenda.

Under the inept UPA establishment, Free Trade Agreements (FTAs) that compromised India's economic interests had been the order of the day.

Between 2009-10 and 2013-14, the period during which Manmohan Singh was India's Prime Minister the Indian economy grew at 6.7% and emerging market economies by 6.43%. Between 2014-15 and 2018-19, the Indian economy under Prime Minister Modi grew at a superior yearly run rate of 7.4% despite the emerging market space growing by 4.52%. The recent 4.5% GDP print for September 2019 quarter for India has, however, reignited the Modinomics versus Manmohanomics debate.

Where the Modi government has done significantly better than the Manmohan Singh regime is infrastructure. In March 2014, length of national highways stood at 91,287 kms and it had increased by March 2019 to a solid 135,676 kms, growing at  8.25% per year in Modi's first term versus a modest run rate of 5.29% under his predecessor. Also, while the number of airline passengers grew by 9.2% in the Manmohan years, the growth under Modi's first term was a record-breaking 15.28%.

More importantly, Modinomics has managed the growth-inflation conundrum very effectively. In April 2014, retail inflation, defined by the consumer price index (CPI), stood at 7.72% with food inflation at 9.21%. CPI, however, averaged at just 4.3% in Modi's first term, with food inflation at barely 1.59% between October 2016 and October 2019. Importantly, food inflation was reined in, despite an average 24% hike in MSP for Kharif crops in 2018. True, in October 2019, CPI touched 4.62%, but the cumulative retail inflation in the April-October 2019 period is still benign, at just 3.47%.

Coming back to the recent 'slowdown' in India, it is cyclical and not structural in nature, because the fundamentals of the economy are in fine fettle and long term growth is intact despite some short term concerns, as recently summed up by international rating giant S&P while maintaining BBB minus with a stable outlook, for India. Out on bail and an accused in the INX media scam, former Finance Minister  Chidambaram was recently heard giving bytes to the press that the current decline is structural in an obvious attempt to discredit hard facts. Mr Chidambaram is the last person, if any, who should be lecturing on the economy, given his abysmally poor track record in the past, in 2012, when S&P had downgraded India's rating to BBB minus with a negative outlook, just a notch above junk status.

While one is not denying that there are short term challenges, prophets of gloom and doom are working overtime to undermine India's policymaking and policymakers. For instance, the IHS Markit India Manufacturing PMI, rose to 51.2 in November 2019, from 50.6 in October 2019, but this positive news failed to grab headlines in the 'pink' dailies.

While comparisons are often odious, India continues to decisively outperform peers. The recent sluggish pace comes against the global  backdrop of 17 months of protracted US-China trade war, 6 months of massive protests in Hong Kong, leading to a 24.3% decline in retail sales in October 2019, a technical recession in Singapore with GDP growth rate of barely 0.1% in the September 2019 quarter, Venezuelan bankruptcy, double-dip recession in the world's 8th largest economy, Brazil, in May 2019, continued turbulence in the UK around Brexit, recession in Italy, steep slowdown in Japan amidst a trade war with South Korea and of course more importantly, industrial recession in Germany that is battling negative bond yields and its slowest growth rate since the 2011 Euro crisis. The September 2019 PMI number for Germany, the 4th largest economy globally, accounting for 28% of Euro area's GDP, dropped to 49, the first time since April 2013 that Germany's PMI fell below 50. 

Speaking of India, reduction in corporate tax from 30% to 22% and for new companies to merely 15%, hike in dearness allowance to 17% from 12%, hike in export credit limit under priority sector lending norms for small exporters, from Rs 25 crore per borrower to Rs 40 crore, corpus of Rs 25,000 crore for stalled housing projects, yearly payout of Rs 6000 to 14.5 crore farmers irrespective of landholding size,100% FDI in coal mining,sale of coal and contract manufacturing, 26% FDI in digital news media, Rs 70,000 crore recapitalisation package for public sector banks and allowing additional 15% depreciation for vehicles bought till 31st March 2020, are measures that will address the demand side of the economy, which has been tepid.

It needs to be mentioned here that passenger vehicle sales in India crossed the three-million milestone for the first time in 2016-17. Maruti Suzuki took 37 years to sell 20 million vehicles in India, with the first 10 million vehicles taking 29 long years to sell. Interestingly, the last 5 million units were sold in barely three years, between 2016-17 and 2019 and it is certainly no coincidence that this happened, with Narendra Modi at the helm! The recent sluggish pace in the auto sector this year which affected UK, Germany, China and Japan in equal measure, has been primarily been on account of stringent BS-VI emission norms. India, relatively speaking, fared much better, despite the disadvantage of a high base effect, thanks to the scorching pace of growth in the previous 5 years under Modi.

Repeated chatter that the current decline in GDP is the result of demonetisation is a myth. The number of income taxpayers jumped in 2018-19 to 8.45 crore from just 3.68 crore in 2013-14. Thanks to demonetisation, the total number of unified payment interface (UPI) transactions in October 2019 hit a record 1.15 billion. Under Manmohan Singh's tenure, the total number of digital transactions stood at a measly 93.2 crore in 2012-13; under Narendra Modi's leadership, digital transactions were a whopping 921.7 crore in volume terms in 2017-18.

Fear-mongering about the efficacy of goods and services tax (GST) is also incorrect as GST has strengthened tax compliance with the indirect tax to gross domestic product (GDP) ratio going up to 5.4% post-GST, from 4.4% in 2014-15.

Externally too, things under Narendra Modi look far healthier than they ever were under Manmohan Singh, with the share of short-term debt in total debt, at only 20% in March 2019 versus a figure of 24.8% in March 2013. Also, the ratio of short-term debt (original maturity) to foreign exchange reserves rose stood at a disturbing 33.1% in March 2013, compared to 26.3% in March 2019.

That the Modi government which successfully completed its first term and 6 months of the second term, with no BoP crisis till date, speaks volumes about the external debt management of the economy, despite challenging global geopolitics.

Foreign exchange reserves were, at a record $448.60 billion as on November 22nd 2019. Under Manmohan Singh's tenure, current account deficit (CAD), was consistently above 3.5%, reaching a dangerous level of 6.7% in the December 2013 quarter, whereas the average CAD figure in Modi's first term, was well below 2%. Talking of foreign direct investment, while India averaged $18.2 billion in FDI annually under UPA I and, $38.4 billion under UPA II, in the Modi government's 5.5 years of tenure till date, the annual FDI figure averaged handsomely at almost $60 billion.

In terms of fiscal prudence too, the Narendra Modi regime wins hands down, with an average fiscal deficit figure of only 3.7% for the 2014-15 to 2018-19 period which is much better than the unreasonably high 5.4%, during the preceding five years, led by Manmohan Singh. That Modinomics has delivered high growth, without compromising macroeconomic stability, amidst the most globally volatile conditions, is therefore well established.

It would be apt to sum up India's future growth trajectory in Prime Minister Narendra Modi's own words from one of his recent public speeches where he so rightfully said--"Good governance with good intentions is the hallmark of our government. Implementation with integrity is our core passion".

Ms Sanju Verma is an Economist, Chief Spokesperson of BJP Mumbai and Author of Best Selling Book, "Truth&Dare--The Modi Dynamic".