Motilal Oswal
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Motilal Oswal
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March 15, 2019 02:49 PM | Economy

NDA or UPA: Which is better for India's economy?

As the countdown to the mega event of general elections begins, CNBC-TV18 takes a look at how the macros have fared during the Narendra Modi- led National Democratic Alliance government since 2014. Here is the full analysis:

First, the most obvious indicator is the gross domestic product (GDP). The BJP seems to have scored ahead of the Congress-led United Progressive Alliance (UPA), with an average of 7.5 percent. But several economists are uncomfortable with the backcasting of the GDP numbers from 2004-2005 to 2012-2013.

In the older series, the BJP looks only as good as UPA-2 and much slower than UPA-1 where the average was 8 percent. This is especially true if one looks at the last 3 years, when growth has clearly slowed.

What is even worse is that the current government has probably lost faith in the GDP numbers itself. The loss of faith is partly because other growth indicators show the economy did worse in the last five years.

First earnings growth - the last five years have seen the slowest earnings growth for corporate India in 2 decades.

Earnings growth is down to 4 percent for Nifty companies, compared to 10-15 percent earnings per share (EPS) growth during the two UPA terms. While corporate earnings are seen picking up this year, earnings growth is still not even in double digits.

Likewise, credit growth has been the weakest in 20 years: at under 10 percent during the last 5 years as against 15-28 percent during the two UPA terms.

Gross fixed capital formation has picked up in the last 5 years of BJP compared to UPA-2 but is half of what it was in UPA-1.

Let's look at the indicators other than growth. First inflation - the BJP has a fabulous record compared to UPA-2. But there is a caveat: Global inflation itself was very high during the UPA years especially UPA-2 when crude average over USD 100 per barrel for most of the UPA-2 period. Metals too ruled very high and they crashed after 2015. Also, severe food deflation may be a curse rather than an achievement in the current National Democratic Alliance (NDA) term.

Current account deficit (CAD) has been better controlled by the BJP than the UPA, for sure.

But the stability in the external front didn't help exports. Export growth, as you can see, fell very sharply to an average of 1 percent versus 12 percent and 23 percent annual growth during the UPA terms.

The fiscal deficit is a major achievement of the current BJP term. Falling from over 5 percent during the UPA-2 years to an average of 3.7 percent in the NDA years. However, one must be wary of the latest year where the overestimation of the tax revenues at 19.5 percent makes the fiscal deficit target totally unreliable. Also, loans taken by the Food Corporation and PFC show that a lot of the government's loans are lying in the balance sheets of public sector undertakings (PSUs).

The NDA government's worst record is in employment. One relies on the latest National Sample Survey Office (NSSO) survey, which the government refused to disclose. According to the numbers from Business Standard, unemployment in 2018 stood at a 45-year high of 6.1 percent following demonetisation. That is a bad record. What is worse is it was hushed up.
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