UPA or NDA, whose economic performance was better? Growth rates don’t tell the whole story

With the general elections 2024, the tenure of ten years of the Modi government also ended and the NDA is trying to score a hat-trick of victories. In such a situation, there is obviously a need to assess the economic and political performance. It is too early to say anything about the results of the 2024 elections in terms of political performance. But we can at least compare the economic performance of the Narendra Modi-led BJP government with the performance of the previous Congress government during the high growth period from 2004 to 2013. Such comparison is useful to understand, evaluate and compare economic policies and their results. Historically, economies like India and China operated like isolated islands. But starting with the economic reforms of 1991, successive Indian governments have pursued a reform policy, albeit with some significant failures.

How should economic growth be compared?

The simple approach would be to compare headline growth rates for different time periods and evaluate which is higher. However, this approach assumes that the growth potential in both periods was the same. It ignores external conditions (such as global recession) that may have played a significant role in influencing economic growth in the global economy.

How is economic potential measured?

Calculating the potential growth rate of an economy is another frequently used comparison measure. It is useful for determining whether the economy is in a positive or negative business cycle. Furthermore, changes in the potential growth rate are important because they help to better understand the long-term impact of economic policies (such as reforms). But how does one measure economic potential and is it also connected to external turbulence? This discussion is important because it highlights the challenges of comparing economic growth in two different periods. An exercise that analysts have been trying to do for the past several months. Unfortunately, such simple comparisons are unfair. In particular they do not help to create a better understanding of the impact of policies in shaping economic outcomes.

‘Additional growth’ is a better metric

To address the issue of comparing economic growth over time we propose a simple metric based on two stages.

1. The first method is to estimate the average increase in population of all countries other than India. This gives us an estimate of global growth for that year. It reflects the external growth environment independent of India and hence provides us with a “reference” estimate of growth.

2. The next step is to subtract the global growth rate from India’s growth rate. Thus we arrive at India’s additional growth. This excess growth rate is a reasonable measure to estimate economic performance over different time periods. Naturally, the higher the additional growth, the better the economic performance.

India’s economic performance improved in 2014-2023

Two global recessions were experienced in both 2004–13 and 2014–23. First the global financial crisis and second the Covid-19 pandemic. Many have compared these two events, but such a comparison is problematic in two respects. First, the pandemic of 2020–21 delivered an economic shock of greater magnitude than the global financial crisis of 2007–2008. Second, economic outcomes during the pandemic around the world were determined by public health choices such as lockdowns. Therefore, for the purpose of evaluating economic performance over a period of time, there is a need to remove these two years. However, including these years does not change the main result: India’s performance has improved in 2014–23 compared to 2004–13.