Montek Singh Ahluwalia's Backstage traces the trajectory of India's public policies, economic growth
Performance in the first two years of the NDA was greatly helped by the collapse in world oil prices in October 2014, which created a very favourable external environment compared to the situation facing the UPA when oil prices were very high.
The new government was also careful to avoid seeming ‘anti-poor’. Programmes such as MGNREGA, which were earlier criticized as wasteful, were continued and even expanded.
Some existing programmes were rebranded and given a higher political profile. For example, the Total Sanitation Programme, which provided toilets to reduce open defecation in rural areas, was rebranded as ‘Swachh Bharat’.
Montek Singh Ahluwalia, who served as the Deputy Chairman of the Planning Commission of India when the UPA government was in power, traces in his latest work the story of the Indian economy and its shift from a state-run to a market based enterprise. His book serves as an insider's analysis of the highs and lows of the country's economy as well as the changes brought about by the NDA government in development initiatives and public policy.
The following text is an excerpt from Ahluwalia's Backstage: The Story Behind India’s High Growth Years and has been reproduced here with permission.
The NDA Years: An Overview
The economic performance of the first six years of the NDA government can be described as ‘beginning with a bang and ending with a whimper’. The electorate wanted a quick return to high growth, and Finance Minister Arun Jaitley, while presenting the Budget for 2015–16, played to this expectation by declaring ‘Aiming for double-digit growth seems feasible very soon.’
The policies that would be adopted to achieve this objective were not specified, but there were some signals. The slogan ‘Minimum Government Maximum Governance’ suggested continuity in liberalizing the economy. The new government also signalled a commitment to fiscal prudence when Finance Minister Jaitley, presenting his first Budget in July 2014, said he was retaining the fiscal deficit target of 4.1 percent of GDP set by his predecessor in the interim Budget, and promised to reduce it to 3 per cent by 2016–17. Policy signals on FDI were also broadly positive. PM Modi presented his ‘Make in India’ initiative as an invitation to foreign investors to set up production facilities. This was a politically important signal because parts of the Sangh Parivar were known to be anti-FDI.
The new government was also careful to avoid seeming ‘anti-poor’. Programmes such as MGNREGA, which were earlier criticized as wasteful, were continued and even expanded. Some existing programmes were rebranded and given a higher political profile. For example, the Total Sanitation Programme, which provided toilets to reduce open defecation in rural areas, was rebranded as ‘Swachh Bharat’ and PM Modi, in his first Independence Day address, announced a target of making India ‘open defecation free’ by 2 October 2019, the 150th birth anniversary of Mahatma Gandhi. Similarly, the UPA programme of opening ‘no-frills bank accounts’ for the poor, combined with direct transfer of certain benefits into these accounts, all assisted by the Aadhaar (the Unique Identity Scheme of the UPA) and mobile connectivity, was repackaged and given the catchy title of ‘the JAM trinity.' The National e-Governance Plan was repackaged as ‘Digital India’. The Rashtriya Krishi Vikas Yojana was repackaged as ‘Paramparagat Krishi Vikas Yojana’.
Economic performance under the NDA improved initially but the improvement was short-lived. A new national accounts series was introduced in 2015. According to this series, growth peaked at 8 per cent in 2015–16, using the GVA measure which corresponds to GDP at factor cost used earlier, and then decelerated steadily, falling to 4.5 percent in the second quarter of 2019–20.
The Advance Estimates, released by the National Statistical Office in January 2020, projected growth for the year as a whole at 4.9 percent. This implies that the NDA government in its first six years, would have delivered an average growth rate of only 6.9 percent, compared to an average of 7.8 percent for the 10 years of the UPA.
Part of the revival of growth in the first three years was simply a continuation of the upturn that had begun in the last year of the UPA, when growth moved up to 6.1 per cent in 2013–14.
Performance in the first two years of the NDA was greatly helped by the collapse in world oil prices in October 2014, which created a very favourable external environment compared to the situation facing the UPA when oil prices were very high. However, questions began to be raised about whether the new national accounts series was overestimating growth. Data on sales of trucks, cars, scooters, consumer electronics, etc., as well as the growth of bank credit, suggested that economic growth was much slower than indicated by the new series. Businessmen began to say in private that ‘it did not feel like the economy was growing at 7 percent’.
The issue of whether the new series was overestimating growth was examined by Arvind Subramanian, who was the chief economic advisor in the Ministry of Finance in the first three years of the NDA government, and then moved to Harvard in 2017. He found that the growth rate using the new series for the period from 2011–12 to 2015–16 was much less correlated with growth in many economic variables with which growth in the earlier series was more closely correlated. Probing deeper, he concluded that the new series may be overestimating the annual GDP growth
rate over this period by 2.5 percentage points.
Data on employment from the Periodic Labour Force Survey (PLFS) for 2017–18 also cast doubt on the growth narrative. Employment had been a weak spot even in the UPA years, but there was no increase in the rate of unemployment in that period. The problem was that the quality of jobs generated was poor, with new employment being largely of the non-formal type. The PLFS for 2017–18 showed a much worse situation with total employment falling from 474.2 million in 2011–12 to 465.1 million in 2017–18, and the rate of unemployment rising from 2.2 per cent in 2011–12 to 6.1 per cent in 2017–18.
The report on the PLFS was cleared by the National Statistical Commission (NSC) in November 2018 but its release was delayed until after the general election in May 2019. The chairman and one of the members of the NSC resigned over the interference with the release of the report. Government spokesmen dismissed the results of the PLFS, citing other partial data to suggest that employment had increased. However, independent surveys by the Centre for Monitoring Indian Economy (CMIE) confirmed that unemployment rates had increased and continued to do so even after 2017–18. The CMIE estimate for unemployment for the month of October 2019 was 8.5 percent.
Montek Singh Ahluwalia's Backstage: The Story Behind India’s High Growth Years has been published by Rupa Publications
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Criticising the Prime Minister for describing the MGNREGA as one of the "living monuments of the failures" of the Congress-led UPA, Rahul Gandhi said the PM had not understood the depth of the mass employment scheme