I have always been intrigued by the effect that politics has on the economies of nations, and decided that I should study the effect of this on India, in a little depth. I was really surprised as to how much I was able to learn from this simple exercise and how much fun one could have while doing it! The cause-and-effect of a political party’s economic leanings and the decisions they make is seen to be quite significant, hence establishing very clearly that the middleclass apathy towards voting is actually undermining the economic performance of the nation, and hurting them in more ways than one. While I am not an expert on either the Economy or Politics, the readings of the simple exercise should be very clear and evident to all.
What I did was to research the Percentage change in the GDP of India since the days of the first Economic Reforms initiated by Prime Minister Narasimha Rao, right up until today, i.e. the performance of UPA II, and found the data presented by the Ministry of Statistics and Program Implementation in the form of a line graph (source www.tradingeconomics.com). On this graph, which was plotted chronologically, I overlaid colored bands to indicate the various political regimes that were in power at the time, and the effect their economic decisions had on the economy suddenly became very evident. Please see the picture reproduced above.
Some basics about reading such graphs.
The Terminology used of course, is mine and will not be found in any text books, perhaps!
Ascendant Line. A graph line that is very sharply ascendant indicates very robust economic growth. The inference is that the Government of the day had taken apt decisions to encourage such a growth or initiated appropriate actions including the making of public announcements that improve investor confidence. Of course, it is an oversimplification as both these will have some lead or lag time to effect the economy, and no action or statement will have an immediate influence, on the GDP. The Stock Market however, is a different story altogether!
Descendant Line. Further, a graph line that is very sharply descendent indicates on the other hand, influences that have depressed the rate of growth. This may be due to both external impetus as well as policy decisions taken internally. Growth which is following a negative trend will have to be corrected by taking quick and appropriate decisions that improve the economic environment and counter the falling trend. As this fall is mapped against time, a sharply falling growth rate that is arrested and turned around into a growing one is an indication of quick and incisive action. On the other hand, a drop that is occurring over several months without getting reversed indicates a slow response in the monitoring of the economic indicators.
Regime Trend Line. Another indicator is the Regime Trend Line. This is a study of the GDP Rate at the time a new regime took over and the GDP Rate at the time it handed over charge to the successor regime. If this is an ascending line, it means that the regime in question left the GDP in a better condition than it received it in. On the other hand, if the trend is falling, this means that the regime in question has failed to keep the momentum going and has adversely affected the growth rate, either due to its inability or its unwillingness to take the required decisions. Please note that this trend line is not to be confused with the Average GDP Growth Rate for a period. This only shows what kind of an economy a particular Government took over and in what condition they let it when handing over power. Thus, a regime that has taken a growing economy and caused it to drop or a regime that has taken a falling economy and turned it around will be evident by looking at the trend line.
Upward Squiggle. A squiggle line moving generally upwards but with a lot of minor falls indicates that while the GDP is growing perhaps due to external factors, it is constantly being tripped up and made to fall. This can happen both due to poor Government policy as well as changing external conditions. When we see the issue in an over-simplified manner, it indicates a growing economy ‘in spite’ of the Government. I wonder perhaps, do the pushes and pulls of coalition politics cause such dribbles? Constant minor problems caused by internal and external factors that have been solved in a constant but adhoc manner, and whose effects last only a few weeks, before allowing the GDP to drop again. However, if the Trend Line is still a growing one, one can assume that the politics was good for the economy or a case when economics overcame the politics – an eternal struggle in the Indian context.
Downward Squiggle. Obviously, a squiggle line that is moving downwards indicates that the GDP is constantly dropping, and all the intervention that the Government has been making to reverse this trend has not resulted in any substantial change, except for a temporary growth for a few weeks before dropping off again. If the drop is occurring due to adverse international conditions, it indicates that the Government is taking ineffectual steps to counter this, perhaps being unable to take bold decisions due to coalition pressures. If the drop is occurring due to internal issues caused by the politics itself and the Government being unable or unwilling to take corrective action, it shows that the Government is in a state of policy paralysis, and its ability to manage the economy is questionable.
Interpretations: I must mention again here, that I am no Economics Expert, and what follows is generally a layman’s perspective on the issue. While I have done some research on the causative effects, these are my interpretations alone, and presented to entertain rather than educate, nor to enter into a serious debate on economic theory. If however, any of my readers who are more knowledgeable about this subject, would like to write in with their perspective or correct any of my conclusions, I welcome that. Please leave your comments at the end of the article. Let me now; attempt to make some fun interpretations.
The regime of Narasimha Rao, 1991 to 1996 – This period is the star performer when it comes to the economy. The regime inherited a very precarious situation, and I understand that the country was on the verge of getting into a Balance of Payments crises and the Government had to pledge their gold stocks with international banks to raise the required foreign exchange bail-out from the IMF. I also understand that the IMF mandated some economic reforms in our country, which was then, one of the most closed and pre-historic economies in the world. It is beautiful to see how boldly the line skyrockets upwards in 1992 and continues to climb at a more sensible rate each year, until it reaches to about 7% in 1996, when the regime was voted out of power. While one must admit that the Narasimha Rao Government achieved a formidable growth in percentage terms, it was on a very low base, and hence needs to be viewed in perspective. However, since this was the regime that shook off the chains that bound us to crushing poverty for about 50 years, it was a Pioneer reaching out boldly into uncharted territory and hence gets my vote as the Star Regime. Narasimha Rao also deserves a greater place in our history books instead of a passing mention as it is now. Unfortunately, he did not possess the correct surname, apparently.
NDA # 1 led by Atal Behari Vajpayee, 1996 – which lasted for just 13 days has been ignored for this study, as the politics would not have had enough time to begin having an impact on the growth rate. However, to the credit of the previous regime, it can be seen that the growth trend continues unchanged well into the Deve Gowda regime. This is perhaps due to the momentum the GDP indicators had gathered by then, and was unaffected by the actions of the new regime, which has a certain lag time to make an impact.
The ‘United Front’ regimes of H. D. Deve Gowda and I. K. Gugral, 1996 to 1998 – have been clubbed together as they were regimes that were formed from within the same political alliance (more or less). It must be said that perhaps this was the worst period for the economy of India, as the Government of the day virtually insisted that they would cater only to the needs of ‘the poor and the underprivileged’, and hence willy-nilly ignored the reforms process, nixing them in the bud. As mentioned earlier, some growth is seen in the first six months of the Deve Gowda regime, but perhaps, this was in spite of Mr. Gowda and not because of him! The free-fall commenced soon after and reached down to about 4% from a high of 8%, all in one year. Since these regimes were more worried about staying in power, they may have taken politically good decisions but perhaps, those that were disastrous for the economy, the business climate or even the general sentiment. However, to their credit, it seems like better sense had prevailed in the last 4 months or so of the regimes’ dispensation, where some measures seem to have been put in place to reverse the free-fall and move the GDP growth up a bit. Either that, or my banding accuracy is a little bit off, and the growth phase started only with the NDA Government. However giving the United Front the benefit of the doubt, if it were not for this face-saver, the Trend Line would have been a sharp downward line falling into the darkness with an extrapolation beyond. I’m not sure of the politics of the Third Front, whether they were good for the Country in posterity or not, but this regime was a disaster for the economy and I pray that our country will not experiment with such political alignments ever again, if one considers economic health to be important to the nation!
NDA # 2 led by Atal Behari Vajpayee 1998 to 1999 – which lasted for 13 months in 1998 was the first non-Congress non-Janata regime, and they faced a lot of problems in the Parliament due to their very slim majority. Thus, before they lost the Trust Vote in 1999 by one vote, what little effect they could have on the economy should well have been negative, but to their credit, they took on an economy that was in low ebb, just after it had turned around, post a historic fall by the previous regime, and converted it into a growing economy. They managed to grow the GDP from about 4.5% to 6.5% before they were voted out. If one were to consider the fact that they were managing the fall-out of international sanctions imposed due to the nuclear tests at the same time, this growth is creditable.
NDA # 3 again led by Atal Behari Vajpayee 1999 to 2004 – rode back to power in the aftermath of the Kargil War with Pakistan and the surge of National pride this incident had generated. This time, the NDA held 303 seats – a comfortable majority that permitted them to take some very bold steps in bolstering the economy. Some of the measures that I personally feel were turning points in the India Growth Story include the Golden Quadrilateral & North-South / East-West Corridors, investment in Infrastructure like the Gram Sadak Yojana and Disinvestment initiatives. This coupled with some other bold economic reforms saw the country growing at a rapid pace and the GDP hitting upwards of 7%. We do see a few downward trends in the GDP growth where the figures had hit sub-5%, but suitable corrective measures seem to have been initiated and the growth trajectory corrected upwards. The last year of the NDA # 3 regime seems to have been their best year, where the growth is seen to have occurred from sub-5% to a dizzying high of +8%. However, even when the ‘India Shining’ campaign was hammering this into our consciousness day in and day out, NDA was unexpectedly voted out of power. The Regime Trend Line has been taken across NDA # 2 and NDA # 3, and indicates that the regime took on a weak GDP rate and left it healthier than before.
The UPA # 1 regime, headed by Manmohan Singh, 2004 to 2009, who was the Finance Minister in the earlier Star-Rated Narasimha Rao regime, was expected to deliver this country into the realm of the developed world. He had inherited an economy that was skyrocketing during the last year of the previous regime, but it can be seen that as soon as he took over, perhaps due to sentiment, we see that the growth rate drop right from day one, where it peters off from the dizzying rate to a more sedentary growth rate. As I have written before, this is perhaps still on account of the honeymoon phase, where the policies of the previous regime leave some momentum to push the GDP along the same trajectory, except for a reduction due to sentiment as mentioned. Soon after, for the first few months after the honeymoon phase, we see that the GDP goes into a minor free-fall, before it is corrected and is seen to grow again. Post this growth phase, kindly note the ‘Upward Squiggle’ that I was talking about earlier, where the Government seems to take a lot of small measures, and tentative corrective steps without any bold initiatives to oversee the GDP growth to almost 10%. While this is creditable, I believe that bold and path breaking initiatives could have pushed the growth rate to double digits, an opportunity the Government seems to have missed. It must also be noted that a sharply ascendant GDP Growth seems to have some lag momentum, while the Squiggle perhaps has none. The last year of this government was quite a disaster. They were punished by The BSP for investigating its supremo, Mayawati in the Taj Corridor corruption case, and later by the Left Front for signing the Indo-US Nuclear Deal, which had the potential to erase the Power Deficit of the nation. Thus, self-interest and hollow ideology tripped up the Government which seemingly went into a state of shock, leading the GDP growth rate to drop to about 6%, after tantalizingly going near the double digit mark. The Regime Trend Line is a depressing descending line – an indication that a lot of opportunities were missed, and the Government had forsaken its place in Economic History from a would-be ‘Star’ to an ‘Honorable Mention’.
The UPA # 2 regime, again headed by Manmohan Singh, 2009 to date, which has been studied separately from UPA # 1, on account of the Left Parties being in opposition this time and the BSP being a fence-sitter. Despite another couple more of ‘Withdrawals of Support’ from its constituents, the Government does well with the economy and the GDP is seen to dramatically rise close to 9% in 2010, but after the exit of the Trinamool Congress, Jharkand Vikas Morcha and Dravida Munnetra Kazhagam in quick succession starting from end 2012, the GDP rate is seen to be in constant decline. The gentle slope downwards indicates that perhaps this is largely on account of internal conflict and not external factors, which usually bring about sharper drops. The fact that this gentle ‘death-slide’ continues to this day (mid 2013) is an indication that no substantive corrective measures have been put in place, and the GDP has once again reached the rates prevalent at the time that the Narasimha Rao regime took over, effectively wiping out all the gains made over the past 20 years. In the remaining year of this regime, I do hope that bold and decisive decisions are taken to bring the economy back on track.
Concluding remarks. The news these days however, on the contrary is quite depressing, with all indications pointing towards more difficult days ahead. The Rupee has hit its lowest ever exchange rate against the US Dollar, the Inflation rate is still in sub-5% range, but every purchase has somehow become more expensive, the Interest Rates are manageable at 7.5%, but lending is low and when they do, consumers get loans at much higher rates, the private sector is apparently sitting on cash, but are unwilling to invest in expansion leading to stagnation in the job market, and finally my pet topic, Big Ticket reforms like FDI in Retail has been opened out, but has brought in virtually no investment – all indications of a faltering economy, charioted by an ineffective and weak dispensation.