Opinion Gandhi’s experiments with populism

Prior to the May 2004 election,I had written that an economic determinism model would lead the NDA to victory; that their tenure had been characterised by stable growth,low inflation,and economic reforms,especially on the fiscal (lower subsidies) and monetary (considerably lower real interest rates) sides. But to everyone’s surprise,except perhaps the prescient Congress,the NDA lost.

There are three competing hypotheses for why the NDA lost the election it was widely expected to win. First,that in addition to economic performance,election results are determined by one’s electoral marriages,and the Congress just chose better. Second,that the Congress was absolutely right in its allegation about India Shining and the lack of inclusive aam aadmi growth in the BJP-led NDA administration. Third,the post-Godhra riots in Gujarat affected the election,something believed by both the NDA leader Atal Bihari Vajpayee and his chief electoral strategist,the late Pramod Mahajan. Of course,all three explanations may have some truth.

While there have been many thumps on the table and chest beating by the Congress about its touching concern for the poor aam aadmi,the facts suggest that the NDA achieved a lot more in terms of inclusive growth than UPA 1. This is the limited point I want to make in this and a subsequent article. Given the importance of this conclusion,it is critical that all the facts be presented,in all their complexity,and that the facts and interpretation be properly vetted.

Inclusive growth has several attributes,the most important being growth per se. And there is no question that GDP growth was faster,much faster,during 2004-09,than during the NDA’s tenure,1999-2004. (The NDA came to power in 1998,but the “first” year of analysis is chosen as 1999 because of the availability of a primary source of analysis,the largescale NSS household consumption and employment surveys,for the years 1999-2000,2004-05 and 2009-10). GDP growth under the NDA was 5.6 per cent per annum (ppa); under UPA 1,an acceleration to 8.3 ppa. Because of the decline in population growth from 1.7 to 1.4 per cent,the acceleration under UPA 1 is even more impressive — an increase from 3.9 per cent to a UPA level of 6.9 per cent per annum.

The comparison is of both growth and inclusion. However,a slam-dunk victory for the UPA on behalf of the inclusive growth equation would be false,quite false. To date,there has yet to be a claim by any government official,or economist,or commentator,that the acceleration in economic growth in India since 2003-04 had anything to do with the policies that the Congress initiated since it came to power. On the contrary,there are grounds to believe that there were anti-growth policies that the Congress embarked on during 2004-09 (for example,sky-high procurement prices,expansion of food,oil and fertiliser subsidies),for which the economy and the citizenry are paying dearly now. Sonia Gandhi’s experiments with populism have extracted a heavy price,details of which have been discussed before in these columns and will of course be discussed later as well.

Welfare considerations suggest (at least according to me) that higher absolute growth for the poor,with greater inequality,is much preferable to substantially lower growth for the poor,and considerably less inequality. However,note that this trade-off is not present in the NSS data on consumption growth — it increased from just 0.8 to 1.1 ppa. With this background,let us examine the performance according to several growth and inclusion indicators. The table presents data according to both consumption growth and poverty reduction.

The fact that there was higher growth in the UPA period is clearly revealed by the data. That growth and poverty reduction are highly correlated is a fact that needs to be emphasised only in a country like India. Despite a relatively small increase in the average growth rate,poverty decline accelerated from a 1.2 per cent rate in the NDA period to double that rate in the UPA period,2.4 per cent.

Inclusion has to do with the sharing of growth. As explained above,the acceleration in GDP and consumption growth were not associated with any UPA policies,so credit for overall extra growth and faster poverty reduction cannot be attributed to “inclusion”. What can constitute inclusion is if the poorer groups (for example,SC,ST,Muslim,OBC) had a faster pace of consumption growth (and/ or poverty reduction) than the other non-(SC,ST,Muslim,OBC) group.

For each indicator,the levels in the three years — 1999-2000,2004-05,and 2009-10 — are presented along with growth (change) and relative growth. The latter is the difference in the pace of (percentage) growth for the group relative to the pace of growth of the other group. For example,per capita consumption of SCs grew at a 0.7 per cent rate in 1999-2004 and a 1.1 per cent rate in 2004-09. The other group’s consumption increased from a pace of 0.9 to 1.7 ppa. So relative to this group,the SCs had a 0.2 ppa lower pace during the NDA and a 0.6 ppa lower pace during the UPA. Among the four poor groups,only the STs did better during the UPA period. From a 0.3 ppa lower growth,the STs’ relative growth increased to 0.3 ppa higher growth.

Parallel computations for the percentage change in the poverty ratio shows that each group performed relatively worse than the other group. So out of eight,for only one indicator (consumption growth of STs) was growth more inclusive in the UPA regime. The UPA 1 period was also when the communist parties were part of the government. The presence of naam ke vaste inclusion communist parties should have increased the relative growth of the poor groups and not decreased it.

Yet another reason to believe that inclusion should have increased during UPA 1 was the extra amount of expenditures devoted to ostensibly improving the lot of the poor. The share in GDP of the aggregate subsidy expenditure for fuel,food,fertiliser and employment programmes (NREGA) increased by almost a full percentage point from the NDA to UPA 1 — from 1.6 per cent of GDP to 2.5 per cent of GDP. Yet these direct welfare expenditures had relatively little (indeed negative!) impact on inclusion.

The next article will discuss what happened to inclusion in the realm of socio-economic indicators like inequality,reduction in infant mortality,youth education,employment,etc. The inclusion story remains the same: the Gandhi-led UPA delivered much less inclusion than the Vajpayee-led NDA.

The writer is chairman of Oxus Investments,an emerging market advisory firm