Recently, there has been a debate between Professor Arvind Panagariya, former vice Chairman NITI Aayog and Congress leader and former Finance Minister P Chidambaram on the performance of the last four Indian prime ministers namely - Narendra Modi, Manmohan Singh, Atal Bihari Bajpayee and PV Narasimha Rao - regarding their growth performance and their role in reforming the Indian economy. One of the points of difference was whether Narendra Modi can be placed in the same league or not. Now let us reconsider the matter in a different way. Let us first consider PV Narasimha Rao.
July 1991 was a remarkable month in the economic history of India because India entered a new economic regime. PV Narasimha Rao is said to have initiated it. But if one digs deep into history, the situation of economic liberalisation was in the offing before Rao finally opened the gates. No government led by any political ideology could avoid implementing that economic policy at that juncture. In about one and a half years, three consecutive governments, the VP Singh led government, the Chandrasekhar led government and later a care-taker government led by Rao all lacked financial stability. They all tried to take some unconventional means. The most striking point is that though being in a comparatively weaker political position, Rao took revolutionary bold steps in reforming the Indian economy.
Growth rates of the successive regimes
The average growth rate was 5.1% in Rao’s five-year tenure. But in the beginning years of reform, growth rates were not remarkably higher compared to that of the tenure of Rajiv Gandhi. In the Vajpayee regime (October 1999 to May 2004) the average rate of growth was 5.9% in about six years. Some of the projects that Vajpayee implemented resulted in high GDP growth. His road project was growth enhancing. But the growth rate of GDP reached the highest level - double digit figures - in Manmohan Singh’s tenure of ten years. But it slowed down in his last two years.
Modi not in the same group
The first two years of Modi’s first tenure was good with robust growth performance. But after demonetisation, the economy entered into recession. Recession occurs when the growth rate of GDP in any quarter of an economy comes below its long-term average rate of growth. For the last nine to ten quarters, the GDP growth has been falling. In the pandemic period, the economy has slipped into a very deep recession where the GDP growth rate is in negative territory. According to Panagariya, there have been five important reforms undertaken by Modi. The first one is the Insolvency and Bankruptcy Code - a good policy but has not been working properly and the lenders are not very hopeful yet. Secondly, he has focused on the farm laws as important reforms but no one is sure about the impact. Thirdly, the labour law reforms. Though it is an important reform, it cannot help the economy separately. Fourth is medical education and it may be effective. Fifth is liberalising FDI. But it is a continuous process and has been done in the past - by the previous governments. But when demonetisation, a flawed GST implementation or crisis of the rural economy and the government’s role in tackling the pandemic is considered, it is difficult for anyone to place Modi in the same league of the other three Indian prime ministers.
Some basic features of economic reform
The basic feature of economic reform lies in removing the obstructions created either by restricted rules and regulations or by the presence of governmental intervention. The purpose of reform is to allow the units of an economy to work smoothly and to enhance the efficiency of all economic stake-holders. The labourers will join wherever or whenever they like to get jobs and capital and other inputs will get scope to be allocated where there is scope for highest returns and investors will face no obstacle in investing. But in India, it is seen that any policy in the name of reform only addresses the supply side. There is little scope of the consumers or common people to be benefitted or participate in a big way. This is why demand depreciation has been a chronic problem in India. Many economists and observers have been criticising the policy related to Atmanirbhar Bharat that helps mostly the supply side and ignores creation of demand.