A previous article, ‘Why UPA II failed on inflation’ (businessline, February 22), had argued that UPA’s poor inflation performance was due to their excessively high estimate (9 per cent) of potential GDP growth. This error of judgment was due to their forming their estimate of potential GDP growth based on the Harrod Domar model, instead of tracking wage inflation based on the expectations augmented Phillips curve.

This article examines the much discussed economic performance of the BJP during their 10 year reign since then. To begin with, after China’s high growth has faltered for various reasons, the IMF has been praising India as the world’s fastest growing large economy. Accolades from the World Bank and The Economist have been forthcoming too.

However, one should not assess India’s economic performance based on its GDP alone. Far more vital for people’s economic welfare is employment.

The government has invoked the Periodic Labour Force Survey, started in 2017-18, to claim that the drop in the unemployment rate from 6 per cent down to 3.2 per cent in 2022-23, coupled with a rise in the worker-population ratio, shows substantial labour market improvement.

Much of the rise in this ratio is due to rural employment. Their critics have argued that this rise reflects the return to their roots of those migrant workers unable to find a job and eke out an existence in urban India. Urban male employment has hardly risen.

Job security

A very reliable indicator of the extent of hardship is registrations under MGNREGS, since these registration are based on actual counts. In early April itself newspapers reported that for 2023-24 registrations were 305.2 crore person days, up 10 crore from the preceding fiscal year 2022-23 (one person working a normal day is counted as one person day).

What is noteworthy is that ignoring the Covid induced job loss and then recovery, the count was 46 crore higher than the mostly pre-Covid year 2019-20, a 4.4 per cent annual growth rate. This is well above the population and labour force growth rates, against which it must be benchmarked.

An ILO report corroborates the hardship revealed by the MGNREGS data. The report covers the 10-year period ending in 2022, mostly corresponding with the BJP’s decadal period up to March 2014. Real (i.e., inflation adjusted) wages for regular workers fell from ₹12,100 to ₹11,155 in 2019-20, and further to ₹10,925, a 1 per cent decline per annum. Self-employed workers also underwent a similar decline. For casual workers, for the 10 years, real wages went up from ₹3,701 to ₹4,712, about a small 2 per cent annual rise.

Low real wage growth would be more tolerable if simultaneously job growth were high. Why has that not been the case despite such a big infrastructure push? In my opinion, road building and construction have become far more mechanised than earlier.

Mechanisation not only reduces the initial job boost from infrastructure projects, it also reduces the Keynesian demand multiplier effect from consumption out of the initial wages paid out in these projects. Such consumption subsequently creates private sector jobs.

The BJP White Paper of January 2024 lists the impressive numbers in various infrastructure categories, compared to UPA: total installed power capacity in conventional and renewable energy, electrification of the rail network, kilometres of highway construction, number of airports built, new trains launched, hospitals and universities started, etc.

But the job dividend so far from all this activity has been meagre. The gestation lags are long and uncertain.

This massive spending has led to a huge fiscal deterioration, as the Table indicates.

The fiscal scene

The fiscal situation, judged by the four main measures above, improved overall during the UPA’s decadal fiscal period ending March 2014. This improvement continued in the BJP’s first term. However, after Covid hit, needless to say, spending shot up. The combined debt ratio (consolidated Centre and State accounts) went up by almost 20 percentage points to 83 per cent during the nine-year period ending March 2023.

This fiscal worsening has occurred despite an ongoing rise in taxes — due to both the implementation of GST and better tax enforcement, fostered by digitisation of payments, during the BJP’s reign. The reason is straight forward. The Centre’s expenditure has risen enormously. The 26.9 per cent jump in its total expenditures in 2020-21, the first full year of Covid, was certainly warranted.

Unfortunately, there was no course correction, badly needed, after that. Total expenditures of the Centre continued to grow at their normal pace of close to 10 per cent from an elevated level. Within that, capital expenditures grew at massive rates of over 20 per cent for the last four years, and a whopping 37.4 per cent in the last fiscal year ending March 2024.

In roughly the BJP’s first term, capital expenditures grew by 11.1 per cent. In the last five fiscal years it has grown by 26.3 per cent.

Inflation trajectory

Finally turning to inflation, the performance of the BJP has been rather good. Both total and food inflation over the 10-year period have averaged very close to 5 per cent. Some of this was due to luck. Oil prices fell sharply early on in mid-2014, due to sanctions imposed on Russia. However, adept food pricing policies certainly contributed to keeping food inflation down.

Nevertheless, this overall good performance conceals a worsening in the second half. For 2019-2024, overall inflation rose from 4.2 per cent to 5.7 per cent while food inflation more than doubled from 3.3 per cent to 6.9 per cent, compared to the previous five years. Further, and very noteworthy, food inflation was a very low 0.3 per cent in the fiscal year ending March 2019, going into the elections.

By contrast food inflation was 8.5 per cent in the just past fiscal year, and has ticked up in April 2024 to 8.7 per cent. Free five kg of rice provided to 80 crore people would have alleviated some of this burden.

But the pattern is strangely similar to that under UPA when it ranged much higher: mild food inflation in Term I, followed by a doubling in Term II, and then a spike at the fag end.

The writer is Distinguished Professor, St Joseph’s Institute of Management, Bengaluru

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