A Comparative Review of Actual Economic Achievement
By: Alakh Niranjan Singh & Rajendra Dichpally
It has been now more than six years since the Modi Government has been in power. His economic policies are in sharp contrast to his predecessor Dr. Manmohan Singh. In this article, we are comparing the actual economic results of the two economic strategies. The sources of our data have been the Economic Survey of India and real-time Stock market indices. We are being completely impartial in our approach and are willing to answer any question from any source. We have not been paid even a dime from anybody for writing this paper.
We start with India’s real GDP at growth rate achieved during the first six years of the Dr. Manmohan Singh government so that it can be objectively compared with the first six years of the Modi government. We have taken the values of GDP at factor cost which excludes indirect taxes and subsidies hidden in GDP at market prices. Using the 2011-12 series of Modi Government, we found that from 2004 to 2010, India achieved a compounded GDP growth rate of 7.99% per annum against which the Modi Government has achieved 6.92%. Thus, overall Manmohanomics did significantly better i.e by 15.5% [(7.99/6.92)-1] than Modinomics even though the former had faced the Global Recession of 2008-09. During his entire 10-year period, Dr. Manmohan Singh achieved a real GDP growth rate of 7.48%. Now we go to compare how the different sectors of the economy did under the two regimes.
Agriculture, forestry & fishing, mining, and quarrying sector called the primary sector achieved a growth rate of 2.93% during the first six years of Dr. Manmohan Singh and a growth rate of 3.62% for the entire 10 years of his regime. Against this Modi government has achieved a growth rate of 3.37%. We can say not a significant difference in results for this sector.
Manufacturing, construction, electricity, gas and water supply, called the secondary sector, recorded a growth rate of 9.60% during the first six years of the Manmohanomics era and 8.12% for the entire decade. Against this, during the Modinomics era, this sector recorded a significantly lower growth rate of 6.62% (i.e lower by 9.60/6.62 = 45%).
Trade, hotels, transport & communication, called the tertiary sector, recorded a growth rate of 10.31% during the first six years of Manmohanomics, while it recorded only 7.96% (lower by 30%) during the Modinomics era.
Financing, insurance, real estate, and business services sector achieved a growth rate of 11.30% during the first six years of Manmohan Singh government while it achieved only 8.39% (lower by 35%) growth rate during Modi government.
Community social & personal services recorded a growth rate of 7.92% during the first six years of the Manmohan Singh government. Against this, the Modi government did better by 12% achieving a growth rate of 8.87%.
On inflation front Modi government did significantly better by limiting it to just 3.57% against Manmohan Singh government which had seen an inflation rate of 4.08% during his first 6 years. For comparing inflation rate, we used the most comprehensive measure of inflation, the GDP deflator approach.
The above discussion has been done using Economic Survey data. We have often heard that Modi government data is not credible. The Finance Ministers have often been charged with exaggerating the performance of the economy most notably by the former Chief Economic Adviser to the Government of India Dr. Arvind Subramanian. Hence, we are taking the other source of data over which the Indian government has no control, and this data is real-time data monitored by the smartest people in the field of finance. This data is stock market data which is the barometer of the economic state of an economy and encompasses even the future growth potential of a country. It has been studied and found that long-term growth of corporate profitability, reflected in the stock market, is close to the long-term economic growth and also stock market valuations return to their mean valuation in the long run.
During the first six years of Manmohanomics, the BSE Sensex recorded a growth rate of 22.11% per annum even with the world depression of 2008-09. On 21st May 2004 by when it was decided that Dr. Manmohan Singh would be the future Prime Minister of India, the BSE Sensex price was at 4961 which increased in six years to 16445 on 21 May 2010. Since the stock index includes inflation, it confirms that the first six years of 7.99% real GDP growth with 4.08% of inflation claimed under Dr. Manmohan Singh government was actually true. We have no reason not to believe that achievement. The same BSE Sensex opened at 24271 on 16th May 2014 when the election results were announced, and PM Narendra Modi was declared the winner. Hence, we took that as the starting point of Modinomics era. This value reached to 30609 on May 25, 2020, giving an annual growth rate of just 3.94% during the six-year period. Since PM Modi claimed an inflation rate of 3.57%, we see that the real wealth of the stock market increased by just 0.37% per annum. The more comprehensive measure BSE All Cap Index also showed almost the same trend by increasing from 2571 to 3336 showing a growth rate of just 4.44% during the same period. Against this, a claim of real GDP growth by 6.92%, industrial growth of 6.62%, and tertiary sector growth of 7.96% and financial sector growth of 8.39% given in Economic Survey data by the current government is clearly unbelievable. If the economy grows by 6.92% with an inflation rate of 3.57%, the stock market must corroborate that by growing faster than the combined values. This phenomenon of stock market growing faster than GDP or manufacturing, tertiary and financial sectors has been observed during the Manmohan Singh era and in other countries like the USA, Europe, Singapore, and Japan also.
To sum up, the authors and the smartest professionals of the stock market reflected in stock index performance do not believe the growth rates given by the Modi government in the Economic Survey. The allegation of Dr. Arvind Subramanian that the government has been exaggerating performance data seems correct. The inflation rate of 3.57% plus any real GDP growth should be below the broadest Indian stock market index performance of 4.44% in normal time. From the stock market data, which cannot be falsified by the government, we conclude that Modi government has not achieved even 1% real annual growth during the six years of their rule.
Author Bio: Alakh Niranjan Singh, CFA has been a former official of the Civil Services of India,1989 batch, and the Indian Economic Service, 1992 batch. Both authors are currently working for the Corporate World of the USA.
Economic Survey of India
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