Difference between NDA and UPA: good work and bad luck Vs bad work and good luck

A lot has been written about whether the NDA performed better in its six years (1998-2004), or the UPA in its 10 years (2004-14). A straight number analysis will tell you that growth was faster during the UPA, both terms, and so was poverty reduction. However, inflation was worse and job creation poor during both UPA-1 and UPA-2 compared to the NDA.

The fiscal deficit was as bad during both periods, but better under UPA-1. The current account deficit was worse during UPA-2.

So was the UPA one-up on the NDA? The answer will depend on whether you are a UPA partisan or an NDA one. Based on our biases we can give different weightages to different outcomes to show one is better than the other. Or vice-versa.

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If you are a UPA lover, you could read this article by Maitreesh Ghatak and Co and feel happy about its performance. If you are not, you could be happier reading articles by Surjit Bhalla and Vivek Dehejia, which are not so complimentary to the UPA. If you are against Narendra Modi, you could read this, if you are for him, you could warm the cockles by reading this and this.

However, the point I would like to make is this: when there is no way to separate results from real effort or luck, is it worth giving higher marks to the UPA on growth than the NDA? UPA’s high growth years were the result of very good luck, as one is hard put to find what it actually did to deserve it.

The truth is we credit UPA with higher performance because we are vulnerable to the outcome fallacy. A good outcome is used to presume good management. Because growth soared, and we had an economist as PM, we assumed it must have resulted in great economic management. This may not be the case at all.

Even though the UPA thinks it has been badly done by in the post-Lehman global crisis, when growth faltered, it is worth recalling that 2003-08 was the greatest period for world growth in several decades. Even sub-Saharan Africa outperformed, not just India.

On the other hand, the NDA faced as many headwinds as the UPA, but achieved more in qualitative terms.

Consider what the NDA faced. First came the Asian economic crisis, then the post-Pokharan sanctions, then the Kargil war, then the dotcom bust, then the 9/11 and Parliament attacks which imposed huge defence costs due to the border mobilisation.

What needs to be evaluated is what the NDA managed to do in the context of its political and economic constraints.

In its difficult circumstances, the NDA government privatised many government companies, reformed the Electricity Act (to make it possible for users to take power from any source), cleaned up the mess in the power sector by reducing the debts of SEBs, legislated the Fiscal Responsibility and Budget Management Act, partially deregulated petroleum pricing, opened up the gas exploration sector, etc.

By the time it left office, inflation was down and falling, growth was reviving, the current account was in surplus, thanks partly to the global upturn that was just beginning.

Now contrast this with what the UPA inherited and what it did with its inheritance.

It saw an enormous surge in tax revenues - which had nothing to do with its policies - and used the money partly to invest in rural infrastructure, but mostly to hand out subsidies to all and sundry.

The state electricity boards were allowed to sink back into debts and losses, and today they have accumulated losses of over Rs 2 lakh crore.

The oil sector deregulation was completely rolled back and, over 10 years, the UPA doled out oil subsidies to the tune of Rs 8,00,000 crore. This is simply criminal and the prime cause of the UPA’s self-created problems.

Along with fuel, fertiliser and food subsidies have shot through the roof - and new legislation will make things worse under the Food Security Act.

Despite the huge lift from global economic forces, UPA frittered away the advantages in subsides and bad policies. Net result, the telecom sector is struggling, infrastructure investment has got bogged down, the aviation sector is a stretcher case, power discoms are on life-support, the fiscal deficit has been contained by accounting jugglery, the current account deficit has been temporarily curbed by killing off domestic growth, banks have piles of bad loans and badly need recapitalisation, and the public sector has been debauched.

We are now into a stagflationary situation.

On the positive side, airports have been modernised, but at such high costs that they are still unviable. Low-cost airlines need low-cost airports, but we have killed off all chances of that.

Rural wages are up, but at the cost of huge inflation resulting from a wage-price spiral.

Markets have been distorted in several crucial areas - energy, fertiliser, food, land, everything. The hand of government is distorting the markets and slowing growth.

In the ultimate analysis, one should judge a government’s performance not by the raw numbers of growth, but by what it inherited, and how it fared given the global economic conditions.

The NDA struggled with its inheritance and opted for serious reforms that helped the UPA. The UPA rode favourable winds and simply squandered its legacy by spending, spending, spending.

UPA was re-elected due to one more luck factor: in 2008-09, the crash in global commodity prices brought inflation down to below zero just around election-time, before making a V-shaped recovery to double-digit price rises.

If spending taxpayer wealth is performance, the UPA has certainly performed. In fact, all of the UPA’s achievements (poverty reduction, higher rural wages) relate to its ability to spend: in UPA-1, high tax revenues allowed this spend to happen without too much trouble; in UPA-2, when spending had to be curtailed, it simply went on spending and invited stagflation in the economy.

In my book, the UPA is leaving behind a poor legacy thanks to its reckless spending over 10 years. All its actions of the last few months have amounted to a scorched earth policy. Little wonder Crisil does not expect growth to top 6.5 percent even with a stable government.

The difference between NDA and UPA is thus simple: the NDA had bad luck most of the time but did good work; the UPA was lucky most of the time, but failed to do good work till almost the last 18 months of its tenure.