• M.V. Rajeev Gowda, Aakash Satyawali

The upcoming budget session is an appropriate time to assess how the Narendra Modi government has managed the economy in the decade since 2014. Historically, governments refrain from making big announcements in such interim budgets. Finance minister Nirmala Sitharaman has also asserted that the budget will not have any “spectacular announcements”. Yet, interim budgets do have considerable signalling value on the eve of elections. In 2019, the Modi government used the opportunity to make a major announcement about cash transfer to farmers (PM Kisan Yojana).

Hence, the public and markets will keenly watch whether the lure of elections will induce the government to make grand announcements or even depart from its entrenched policies.

A key concern before the government is managing the fiscal deficit. During the UPA government, commentators argued that it ran an unsustainably high fiscal deficit. However, between 2004 and 2014, the fiscal deficit averaged 4.63% whereas it has averaged 5.13% under the NDA. For both UPA and NDA, the rise in fiscal deficit was necessitated by crises the global financial crisis of 2008 and COVID-19 respectively. However, when one examines the fiscal deficit together with debt data, it makes for a somber read.

There has been a sharp uptick in the gross debt to GDP ratio, crossing the 80% mark and inviting concern from the International Monetary Fund that the ratio could cross 100% by 2027. The Union government is expected to respond to the debt concerns and bring down the fiscal deficit to 4.5% by 2026 (it was 5.9% in 2023-24). Fiscal deficits can be reduced by raising tax revenue and reducing subsidies. The tax to GDP ratio has increased by 1%, propelled largely by an increase in indirect taxes. A consistent feature of the NDA government has been sharp reduction in subsidies. In 2013-14, Union government subsidies accounted for 2.27% of the GDP. These now stand at 1.34% in 2023-24.

In the same period, capital expenditure has doubled from 1.67% to 3.32%. Post the COVID-19 pandemic, the government allocated increasing sums towards capital expenditure. The stated logic being that this investment will create jobs and in turn raise demand.

Even the ardent supporters of trickle-down economics privately admit that this reliance on capital expenditure is not bearing fruits. The same sentiment is expressed regarding the Production Linked Incentive (PLI) scheme. Despite multiple revisions and handsome incentives, the manufacturing sector has not taken off. The manufacturing growth rate has averaged 5.9% since 2013-14, the share of manufacturing has remained stagnant and was at 16.4% in 2022-23, and manufacturing jobs halved between 2016 and 2021. The decade of ‘Make in India’ saw the share of manufacturing in the workforce decline from 12.6% in 2011-12 to 11.6% in 2021-22. ‘Make in India’ and now PLI have failed to enthuse MSMEs.

Another spectacular failure on the part of the government is disinvestment. While it did sell Air India to Tatas, it has had a dismal track record overall. To make matters worse, public assets have been handed over to select groups inviting concerns from competitors and public sector employees. The proposed national monetisation pipeline has also failed to yield results.

The job market remains depressing, especially for the youth. The Centre for Monitoring Indian Economy notes that the unemployment rate in the age group 20-24 years was 44.5% in the October-December 2023 quarter. For the age-group 25-29 years, it was at a 14 month high of 14.33%.

The adversity of the job market is matched by the distress in rural India where the demand for MGNREGA has reached record highs. Stagnant farmer income and falling rural wages at a time when stock markets are soaring, and billionaire wealth balloons, is an indictment of this government’s priorities.

India still needs large scale public investments in education and healthcare. Such investments in our human capital have great potential to create significant jobs and will also have a direct impact on the standard of living of our citizens. A key landmark of this government was the adoption of a new National Education Policy (NEP). NEP 2020 recommends that investment in education should be 6% of the GDP. There is bipartisan consensus that we must strive to meet the 6% goal. However, expenditure on education has been less than 3% of the GDP over the last decade.

On the health front, the pandemic forced the government to raise healthcare expenditure. Yet there has been a rise in hunger and malnutrition, a reflection of the larger economic downturn being experienced by a substantial portion of our population. India is ranked 111th of 125 countries on the Global Hunger Index. Instead of addressing the issue, the government’s response has been to reject any such adverse findings.

A key legacy of this government has been fudging data and on other occasions suppressing statistics. This started with the refusal to publish the GDP back series as it showed that the UPA performed exceedingly well. Instead, a new series was commissioned that, confoundingly, revised the UPA growth rates downwards. Similar tactics were employed when the COVID fiscal package was announced. Contrary to the claims of government, the fiscal component of the package was around 1% of the GDP. For the first time since 1872, the census has been indefinitely delayed.

Since the time Prime Minister Modi took office, the government has been blessed with benign crude oil prices. The government could have passed on some of that benefit to consumers and boosted consumption, and thereby the GDP. Instead, the government has consistently kept petrol and diesel prices at a steady higher price and mopped up windfall profits which it has used to keep the fiscal deficit manageable.

The government likes to proclaim that India is the fastest growing economy. However, if they had boosted consumption by passing on the benefits of lower oil prices, how much higher would economic growth have been? That is the sobering lesson of the last decade underachievement and lost potential.

Professor M.V. Rajeev Gowda is the Vice Chairman of the Karnataka Policy and Planning Commission and heads the Congress party’s Research Department. Akash Satyawali is a public policy professional and National Coordinator, Congress Research Department.

Courtesy: The Wire