White Paper of Indian Economy: A Story of Two Decades

• The Indian government released the White Paper on the economy on Feb 8, 2024. 
• It highlights the state of the Indian economy from 2004 to 2023. 

On Feb 8, 2024, The Indian government released a White Paper on the economy, showcasing the current state and probable future of the Indian economy. Traditionally, the White Paper compares a decade-long economic performance under the previous Congress-led UPA Government between 2004-2014 to the BJP-led NDA Government between 2014-2023.  

With assembly elections just months away, this white paper can guide voters before pressing the button. It outlines the UPA’s ten years in office as “an inheritance of loss” and NDA’s ten years as if it “rescued the economy from a state of crisis, despair and paralysis.” The timing of the release of this 47-page document is crucial as it comes just two days before the Seventeenth Lok Sabha is adjourned for the last time. 

The White Paper has attributed the few years of high growth to reforms undertaken during the Atal Bihari Vajpayee-led NDA government. It also blames the Manmohan Singh regime for being fiscally corrupt and opting for quick fixes like farm loan waivers but failing to deliver on reforms such as Aadhar and GST while completely ignoring some aspects like the annual average GDP growth rate 8.1% and handling of the financial crisis of 2008.

What is a White Paper? 

The White Paper can be considered an economic document that compares ten years of financial performance of the current & previous governments. It would inform the public about the state of the economy inherited by the Narendra Modi-led NDA government in 2014 and how the implemented policies and measures have revived the economy since 2014. 

Some of the key arguments in the White Paper paint the Manmohan Singh-led UPA era as one of “governance, economic, and fiscal crisis.” This adds up to how the Narendra Modi-led NDA government inherited a troubled economy and how their decisions and measures to stabilise the economy enhanced the country’s fiscal scenario. 

The newly launched White Paper presents a specific narrative, extensively focuses on challenges from the UPA era, and highlights the NDA’s achievements. However, some experts argue that the paper glosses over specific UPA-era reforms and downplays the external factors that affected the Indian economy between 2004-2014. 

Objectives of the White Paper on Indian Economy

It starts with an overview of the economic scenario when the NDA came to power in 2014, further stating the economy is fragile. Public finances are in bad shape, pointing to widespread corruption. It then highlights how the NDA government took the economy to its recent state. 

Some of the objectives of the White Paper revolved around seeking praise from the Honourable Members of Parliament and Indian citizens on how they revived the economy—focusing on the policies and measures that the NDA government took to restore the country’s economic health. 

It highlights the measures taken by the NDA government to make the economy vigorous and capable of fulfilling the nation’s growth aspirations. While growing the economy, the white paper also hopes to generate a broader and more informed debate on national interest, fiscal responsibility and discussions in related governance matters over political expediency.  

Crucial Points Discussed in the White Paper

The recently released white paper discusses India’s macroeconomic situation during the  UPA government. It ranges from double-digit inflation, ailing banking sector following excessive lending during the boom phase and high policy uncertainty that marred the Indian business scenario. 

It does not fail to mark the state where the Vajpayee-led NDA government handed the economy to the Manmohan Singh-led UPA government—further discussing the mismanagement and shortsighted handling of public finance during 2004-2014. It points out numerous scams like the 2G scam, Coal Scam,and more, that significantly damaged the Indian economy. 

The White Paper tries to shed light on the economy’s condition in 2014 when it was handed over to the current government. Plus, it points out the measures taken to strengthen the economy, bringing it to its current state. It highlights the part where the UPA government took a healthy economy in 2004 and made it a stagnant one in 2014. 

The economic survey of 2003-2004 noted that: 

“The economy appears to be in a resilient mode in terms of growth, inflation and balance of payments, a combination that offers large scope for consolidation of the growth momentum with continued macroeconomic stability.” 

It highlights the tendency of the UPA government to take credit for the 1991 reforms but how badly they failed to use its potential after coming to power. Between 2004 and 2008, the Indian economy grew fast, but the credit here is given to the foundation laid by the BJP-led NDA government. The UPA government took the credit for this high growth but needed to do more to consolidate it. 

“The high growth and low inflation of the first five years were due mainly to the global economic boom of 2002-2007 and the wide-ranging, productivity-enhancing economic reforms carried out prior to 2004. The UPA government’s economic policies were mediocre to start with and worsened increasingly as the decade evolved.” 

How UPA Dealt with Inflation, NPAs & Currency Devaluation

Inflation is still a point of concern for any economy. Between 2009 and 2014, the inflation rates wreaked havoc on ordinary and poorer households. Over the five years between 2010 and 2014, the average annual inflation rates reached double digits. It should be noted that the current inflation rate is around 5.66%, but between 2004 and 2014, the average inflation rate was around 8.2%.

One of the main reasons behind the 2008 global recession was the banking crisis, followed by the Lehman Brothers crash. When the Vajpayee-led NDA government took office, the Gross Non-Performing Assets (GNPA) ratio within public sector banks was 16.0%; when the UPA government took office, the rate shrunk to 7.8%. In September 2013, this ratio restructured loans, and the GNPA jumped to 12.3%. The reasons for this rise were political interference by the UPA government in the commercial lending decisions of public sector banks. 

     Rise in Non-Performing Assets during the UPA years.

The banking crisis of 2014 is considered massive, and the absolute stake was also high. In March 2004, the gross advances by public sector banks were around ₹6.6 Lakh crore, but by March 2012, these gross advances climbed to ₹39.0 lakh crore. As per the Credit Suisse report published in March 2014, the 200 companies with interest coverage ratio less than one owed over ₹8.6 lakh crore to banks. Interestingly, 44% of these loans, amounting to nearly ₹ 3.8 lakh crore, were yet to be recognised as problem assets. 

During the Manmohan Singh-led UPA government’s tenure, external commercial borrowings (ECB) rose at a Compound Annual Growth Rate (CAGR) of 21.1% between 2004-2014. In comparison, between 2014 and 2023, the metric grew at a rate of 4.5%. It must be known that in 2013, the Indian economy was vulnerable due to the sharp rise of the U.S. dollar. 

    The Free Fall of the Indian Rupee Between 2011 and 2013 

When the nation’s foreign exchange reserves were depleted, the UPA government started the Foreign Currency Non-Resident (FCNY(B)) deposit window. It was a call for help as the foreign exchange reserve declined from $294 Billion in July 2011 to $256 Billion in August 2013. 

By the end of September 2013, the forex reserves were enough to cover over six months of import, significantly down from the 17-month window of March 2004. The forex reserve to external debt ratio dropped from 95.8% in the financial year 2011 to 68.8% in FY14. 

The Concerning Financial Scenario Between 2004-2014

The 2008 global financial crisis brought the whole world to its knees. For a developing country like India, the situation needed to have been better in terms of the capacity of the Union Government to finance and sustain the blow. During the Global Financial Crisis (GFC), the growth rate tanked to 3.1% in 2009 but recovered to 7.9% in 2010. A cross-country analysis by the International Monetary Fund on GDP growth during and after the GFC pointed out that the impact on the Indian economy was relatively limited compared to other developing economies. 

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Under the UPA government, between the consecutive years from FY09 to FY14, the ratio of India’s Gross Financial Deficit (GFD) to Gross Domestic Product (GDP) was at least 4.5%. The revenue deficit quadrupled from 1.07% of GDP in FY08 to 4.6% in FY09. 

Many more crucial points were highlighted in the White Paper released on Feb 8, 2024. However, it was released to educate the public about the country’s financial state during the tenure of both the Manmohan Singh-led UPA government and the Narendra Modi-led NDA government. The opposition claims to question the credibility of  the data and  considers it to be a publicity stunt right before the general election. 

While it remains uncertain whether this action constitutes a publicity stunt, the data presented in the White Paper, along with the points addressed, provide a comprehensive overview of the historical and current state of the Indian economy. Through a thorough examination of the White Paper and a comparative analysis of both governmental approaches, citizens can gain insight into the credibility of both parties during the year 2024.