In May, 2014, the Narendra Modi government came to power with a historic mandate and promising good days for the economy. Investors hoped for a business-friendly government while 125 crore Indians, one-third of whom is below the poverty line, aspired for more jobs and affordable life.
Three years have passed since then. Did Modi deliver on those promises? Statistics are sometimes misleading, nonetheless, it is indeed important to look at the numbers and see what they tell us. Here is Modi government's progress on key economic indicators in 10 graphics:
For the government, which is battling charges of increased violence against minorities, GDP number is definitely a big relief. On an average the last three years' growth has been over 7 percent. In fact, over the last few quarters, India has beat China to be the fastest growing. However, many have raised questions about the numbers as the situation on the ground is not reflecting the high growth.
In January 2015, the government changed the way GDP is being calculated, which helped increase the GDP numbers significantly. Now, India's GDP is measured by taking into account the gross value added (GVA). Many economists and political observers questioned the timing of the move. However, there is no stopping the government. According to brokerage firm Nomura, more upward revisions of earlier GVA are in store based on the new IIP series that was released last week.
Inflation is a big relief for the government. When Modi took over as prime minister, the retail inflation stood at 8.33 percent. In April 2017, it is just 2.99 percent. Vegetable inflation, meanwhile, declined from 10.72 percent to (-)8.59 percent. And food inflation decelerated to 0.61 percent from 8.89 percent. The question is who should get the credit? There are many who think the deep deceleration in inflation is because of the sharp fall in oil prices. They point out that the prime minister has been just lucky. There is a section who says the government too has taken steps like controlling hoarding in food items etc to rein in prices. The big test for Modi will come when the crude oil prices increase.
The government released a new series of the Index of Industrial Production (IIP) last week with the new base year 2011-12. The industrial activity under the Modi regime has been largely weak. Even consumer durables output, which reflects the consumer mood in the economy, has been largely weak. From a high of 11.1 percent consumer durables output in May 2014, the output in March 2017 stands at (-)0.8 percent.
It's a known fact that the stock markets love Modi. As exit poll results started coming in during 9, 12 and 13 of May 2014, the Sensex rose 1,500 points. Over the last three years, though there have been patches of disappointments (the index hit a low of 22951 on 11 February 2016), by and large it has been a dream run. Now, the market is again on record breaking spree. On Friday (19 May), the index hit a record high 30,712.35. As it moved from 24,121.74 (on 16 May 2014) to 30,712, rising 27.3 percent, investor wealth swelled 56 percent or by Rs 45 lakh crore. The BSE market capitalisation is now more than $2 trillion.
Is Sangh Parivar for foreign investment or against it? It is not possible to give a clear answer to this. While organisations like Swadeshi Jagran Manch has vehemently spoken against FDI, the BJP is considered a foreign investor darling. The flow of foreign direct investment (FDI) over the last 3 years is in itself a proof. During the period under Modi, the country saw nearly $149 billion (until December 2016) worth of investment from overseas companies. In comparison, under the erstwhile UPA, three years starting 2011-12 witnessed an aggregate flow of $117 billion.
The government is not entirely the responsible for the exports. What drives exports is mainly the global economic and market situation. But to an extant, the government policies - related to foreign and making the domestic industry export competitive - do impact. Under Modi, exports have only started to pick up. In three months ending April 2017, the average growth has been about 21 percent. Prior to that the figures are poor. In fact, from Dec 2014 to May 2016, the export performance of the country saw a crippling decline. Though now they are looking up, emerging protectionist stance of many countries, including the US, which is the biggest export market for India, have the potential to do not offer much hope. Also, along with exports, there is an increase in imports, resulting in a widening of trade deficit to 29-month high of $13.2 billion.
Gross fixed capital formation (GFCF) indicates investment in the economy. As seen from the figures, it has been tepid under the Modi regime. The government has not been able to revive private investment. As a percent of GDP, The GFCF has seen a decline from a high of 31.4 percent of GDP recorded in the first quarter of 2015-16 to 26.7 percent of GDP in the third quarter of 2016-17. The investment activity is closely linked to the job creation, the biggest sore point for Modi. It has to be remembered that jobs were one of his biggest poll promises. After three years, one can safely conclude that Modi has miserably failed in creating enough jobs in the economy. The developments in the IT sector is spreading more gloom. The question is will the government be able to create jobs and stem the rising unemployment?
This is one problem which is giving sleepless nights the government and the RBI, though they are yet to admit it as many words. From just Rs 2.34 lakh crore in June 2014, the bad loans of 26 public sector banks has ballooned to Rs 6.46 lakh crore as of December 2016. But is this all? No, is what former RBI deputy governor KC Chakrabarty says. "I’ll put the figure around Rs 20 lakh crore... One should include all troubled loans including reported bad loans, restructured assets, written off loans and bad loans that are not yet recognised," he told Firstpost's Dinesh Unnikrishnan in an exclusive interview. The Modi government has time and again alleged that NPAs were a legacy issue, putting it at the UPA's door. It is not yet clear whether the govenrment is seized of the enormity of the problem. The steps being taken by the govenrment - like the NPA ordinance - do not offer a long-term solution. Neither do they ensure that the money in the possession of big corporates will indeed return to the banks.
Pre-election, the rupee was a major talking point because of the widening current account deficit. The UPA government came under severe criticism from the BJP and Narendra Modi, then Gujarat chief minister. After Modi took over, the currency has not been in the pink of health through out. From 58.78 against the US dollar on 16 May, the rupee fell to the record low of 68.87 on 24 November 2016. Now the currency is strengthening but experts have warned that this is a short term trend. Going forward, they expect the rupee to depreciate.
Even if the rupee depreciates, there is no worry for the government. This is because forex reserves are at a record high. From $312.2 billion, the dollar reserves with the RBI has swelled to $370 billion as of March 2017. That is an increase of $57.7 billion or 18.5 percent. This is enough to cover import bills for more than 10 months.
Updated Date: May 23, 2017 16:45 PM