Edited by Shambhavi Singh, Senior Editor, The Indian Economist
In this article I will discuss the economic reforms brought about by the UPA Government during the last decade, their consequences, and the take of economists like Jagdish Bhagwati, Amartya Sen and Swaminathan Aiyar on such reforms.
UPA imposed government control on fuel pricing. During phase-1, UPA government squandered its resources on populist schemes like NREGA and NFSA. The economic growth during the years 2005-06 and 2007-08 was tremendous, more than 9%. And it is also the time when poverty fell drastically,, and there was a high rate of growth in manufacturing industries between 2004-05 and 2010-11. In 2012, the UPA government decided to disinvest in the public shares, if successful there would have been a receipt of 20,300 crores that would have provided some relief to the fiscal deficit. The aim of UPA was to bolster economic growth, and make India an attractive destination for foreign investment.
In January 2013 however, UPA introduced new economic reforms. Reforms included price hike in diesel, restriction of LPG cylinders FDI in retail, and increase in prices of fertilisers. The government introduced 51% FDI in multi brand retail. This was not taken kindly by other parties and there was a lot of opposition. Trinamool Congress did not support this policy of Congress and strongly spoke against it, and consequently withdrew its support from the party. The party argued that capping the supply of LPG cylinders and FDI in retail was not in the favour of the common man. They also gathered people at Jantar Mantar to speak against the policy and how it was detrimental to people, and did not work for the betterment as UPA claimed it did. Jagdambika Pal who was in favour of the policy, said, “If FDI in retail came to India, only then there will be investments of huge amount, and only if there is investment there is growth and only then employment can be generated”. The economy weakened several times during the last decade, though there was tremendous economic growth between 2005-06 and 2007-08, and around 9% growth in 2010-11, there has not been even a 5% growth in the last couple of years. The problem of fiscal deficit and inflation in the economy still persisted more than ever. P. Chidambaram claimed that there was some relief brought by the economic reforms to the fiscal deficit, and it was only a little more than 4%. This was argued by Yashwant Sinha, former finance minister of BJP. He said that the figure presented by Chidambaram was unrealistic, and looked upon Chidambaram’s claim with suspicion. They both debated over economic data, during the course of which Yashwant Sinha claimed to be the worst finance minister but he said that at least he doesn’t lie. He also reminded how in 1997-98 how the fiscal deficit got from bad to worse and Chidambaram’s target was not met.
Swaminathan Aiyar while discussing about FDI in India said that now Aam Bania was more powerful than the Aam Aadmi. This is due to the fact 50 million traders on strike outnumbered the organized workers in the economy (around 30 million). If foreign retailers are supported, it would be the same as the Aam aadmi going against the Aam bania. Amartya Sen regarding this policy said that it should be studied, every bit of it. There were a lot of sides to this policy, and that there was no such thing as to whether it should be allowed or protested, it cannot be thought of in those terms. However to sum up, following consequences took place as a result to the economic reforms introduced by UPA-:
1. There was weakness in the industrial sector, and continued slow down in the fixed capital formation. This is due to the fact that there was drastic fall in investment proposals, Rupee’s steady decline, and the fact that Posco pulled out.
2. Government’s policy paralysis led to delayed project implementation, shortage of fuel and high interest costs.
3. Though manufacturing industries saw growth in the years from 2004-05 to 2010-2011, the growth was followed by stagnation and decline in factory output.
4. Agriculture gives employment to more than 50% people in the economy, but it contributes only 18% to the GDP, and now things have been reduced to a state that agriculture is seen as risky. Over 1,46,000 farmers committed suicide between 2004 and 2012, implying a higher annual average of 16,264.
5. Also, there is a case of sluggish employment. Even though there was unprecedented and impressive growth of economy, the employment grew only 2.2% per year.
6. The stock market had become volatile over the last decade. The rise or fall of these indices have depended upon the purchase and sale decisions of foreign institutional investors.
In all, economy faced faltering growth, rising prices, weakening currency and burgeoning deficit. And the general impression was that that the country was in an economic mess. People had contradictory views about its bad performance, some saysit squandered its money on populist schemes like NREGA and NFSA, reversed liberalisation and starved growth enabling sectors like infrastructure. On the other hand some say that the Government succumbed to massive corporate influence, and became a promoter of destructive rent rather than inclusive growth.
Economy is expected to see better days under PM Narendra Modi. Sensex and NIFTY are betting on the Modi Government. Sensex soared 300 points and the broader NIFTY increased over 1%. This year is expected to be the best year for foreign investment, even better than 2012-13. Modi has a smaller but a stronger cabinet. S&P says that the Government will have to regain fiscal prudence in a sustainable way. It says India’s fiscal and economic reforms by the new government will determine its credit rating. Jagdish Bhagwati favours Modi as well, and says that he can generate wealth and turn the state of India’s economy around. Jagdish Bhagwati, who is likely to be the external advisor for PM Modi, would urge Modi to allow more foreign investment and curtail government spending.