In a caustic comment on an economist, Dr Jagdish Bhagwati once said, “if he is an economist, I’m a Bharatanatyam dancer!”.
Dr Arvind Panagariya is an honourable man. He has a job to do, but has a useless tool — the NITI Aayog — in his hands. The NITI Aayog is neither an all-powerful arbiter of policy differences and fund allocation, nor is it a fountainhead of new ideas and systemic changes. The NITI Aayog is in no man’s land and is all but forgotten.
The disappointment of Dr Panagariya can be seen in his recent article in a newspaper. However, he has carefully qualified his views by noting that “Views are personal and may not be attributed to either the Government of India or NITI Aayog”!
In venting his frustration, Dr Panagariya has made some astonishing statements. Here are a few excerpts:
> In May 2004, (the NDA) handed to the UPA an economy that had grown 8.1 per cent during the preceding full year;
> Under UPA I… growth averaged 8.4 per cent. There is no satisfactory answer to the question what UPA I did to make it happen… you will find references to few reforms to which this performance can be attributed;
> The economic reform process that PM Rao had launched and PM Vajpayee had accelerated experienced a sudden stop under UPA;
> The result was that an economy which had seemed unstoppable and had grown at the average rate of 8.1 per cent during the first three years of UPA II rule, descended into what appeared to be a crisis.
After making these damaging — and egregiously wrong — statements, Dr Panagariya is forced to conclude that “Much change in policy has taken place since May 2014 and the miracle-level annual growth of 8.3 per cent that India saw from 2003-04 to 2011-12 is poised to return”!
The NDA and UPA records
When the UPA assumed office in May 2004, the economy was not growing at the rate of 8.1 per cent. No one in his right mind will pick one year to describe the trend growth rate. The growth rates of the NDA years were:
– 1999-00: 7.6 per cent
– 2000-01: 4.3 per cent
– 2001-02: 5.5 per cent
– 2002-03: 4.0 per cent
– 2003-04: 8.1 per cent
The compounded average for the five years was 5.9 per cent. The ‘bounce’ in 2003-04 was because of the low base of the previous year and after three years of sub-par performance.
Every commentator has acknowledged that the best years of the Indian economy (“boom years” according to the current Chief Economic Adviser!) were 2004-2009, that is the period of UPA I. The economy was riding a high wave (over 9 per cent) when, in September 2008, the world economy was struck by a major financial crisis. Despite the crisis that devoured many economies, India registered a growth rate of 6.7 per cent in 2008-09, and the compounded average for the five years was an unprecedented 8.4 per cent. I wonder if Dr Panagariya recalls that crisis, because he makes no mention of it in his article.
Dr Panagariya says that he could find few reforms to which the performance of UPA I could be attributed. In a column titled ‘What is economic reform, what is not’ (The Indian Express, November 29, 2015), I had listed 11 true reform measures that had transformed the nature of India’s economy. One of them was initiated when Mr Vajpayee was Prime Minister and three under the UPA. Add to the list other changes and measures that have wider socio-economic benefits such as MGNREGA, RTI and the National (New) Pension System. Also add the reservation of 27 of cent for the OBCs and the substantial increases, year after year, in the allocations for health and education. The UPA’s record is substantial.
In every respect, the best year was 2007-08. Post the 2008 crisis, India was faced with a hard choice. Should we stick to the path of fiscal consolidation and allow sound fundamentals to propel growth? Or should we follow the textbook and stimulate the flagging economy to maintain high growth? The government decided to implement three stimulus packages in succession. The result was that high growth was ensured for three years, but the fiscal deficit, current account deficit and CPI inflation went completely out of line.
The last two years of UPA II (2012-13 and 2013-14) were devoted to putting the economy back on track. We succeeded in large measure: the fiscal deficit was brought down from 5.73 per cent in 2011-12 to 4.43 per cent in 2013-14 and the current account deficit from USD 78 billion to USD 32 billion in the same period. Inflation began to decline from November 2013. However, growth was tepid at 4.47 per cent and 4.74 per cent (under the old series).
The rates have since been revised by the NDA government to 5.1 per cent and 6.9 per cent.
Growth under a shadow
Does Dr Panagariya not believe the revised growth rate of 6.9 per cent? If he has no faith in his government’s numbers, how does he claim that growth has steadily climbed to 7.2 per cent in 2014-15 and 7.6 per cent in 2015-16?
Finally, what is the “much change in policy” that Dr Panagariya has alluded to? He does not name one major reform by the current government that will accelerate the rate of growth. The economy is growing under a shadow of uncertainty: without creating jobs; with a collapse of the export sector; with poor credit growth; with low household savings; and with a private sector that is shy of making new investments.
I apologise to Dr Panagariya, but I must say that a Bharatanatyam dancer would have brought greater clarity to the subject of the state of the economy.