Opinion: Analysis of the White Paper: What the government disclosed and omitted regarding 5 crucial economic indicators

In the days following the interim Budget presentation and preceding the Lok Sabha elections, Finance Minister Nirmala Sitharaman introduced the government’s white paper on the Indian economy on February 8. The paper outlines what it refers to as the “unmanageable hurdles” inherited from the Congress-led United Progressive Alliance government.

White papers are relatively uncommon in Indian politics. Essentially, these documents elucidate complex subjects, and opposition parties frequently call upon the ruling government to present a white paper, aiming to expose governance shortcomings and policy inefficiencies.

Nevertheless, the Narendra Modi-led government’s choice to present a white paper on the Indian economy on February 8 stems from a position of authority and without prompting from political adversaries.

Quite clearly, a white paper has been on the government’s mind for a while now.

The white paper stated, “Upon forming the government in 2014, we encountered an economy in a delicate condition… Our administration opted not to release a white paper detailing the dire circumstances at that time. Such an action would have fostered a negative portrayal and undermined confidence among all stakeholders, including investors.”

“The government prioritized national interests over political gains. Having now stabilized the economy and initiated its trajectory towards recovery and growth, it is imperative to publicly address the significant challenges inherited from the UPA government,” it elaborated.

As the Lok Sabha elections draw near, the opportunity to gain political advantage has arrived. However, while narratives can be deconstructed and reconstructed, numbers are less flexible. Therefore, what insights does the white paper provide, and what does it omit, regarding five crucial macroeconomic indicators?

There is an evident victor in price management. Under consecutive administrations led by Narendra Modi, headline retail inflation has significantly decreased from 9.9 percent in 2013 to 5.7 percent in 2023. However, even this 5.7 percent figure falls short, given that the policy repo rate is at its highest point in nearly eight years, despite the Reserve Bank of India (RBI) projecting inflation to drop to 4 percent in the coming months.

The white paper noted that if it weren’t for geopolitical events that markedly drove up global commodity prices, the average inflation over the past decade would have been even lower. Nonetheless, the government effectively managed inflation by diversifying supply sources and enhancing reserves of essential food items.

A few words to provide some context are needed here: before 2014, the RBI did not target retail inflation.

External stability

The transition of power from Manmohan Singh to Narendra Modi occurred amidst significant external instability, prompting the RBI to swiftly utilize its foreign exchange reserves to stabilize the rupee’s decline. Presently, these reserves stand at approximately $625 billion, compared to nearly $250 billion in August 2013.

The paper highlighted, “Thanks to our government’s restoration of the economy’s robust fundamentals, the Rupee exhibited resilience during global upheavals such as the Russia-Ukraine conflict and the taper tantrum of 2021-22 initiated by major central banks.”

However, it’s important to note that while India’s ability to withstand external shocks has undoubtedly strengthened, the taper tantrum of mid-2013 triggered by the US Federal Reserve differed from that of 2021-22.

Deficit debate

The white paper highlights another criticism against the 10 years of the UPA government, focusing on their high fiscal deficits, with the six years starting from 2008-09 all recording figures exceeding 4.5 percent of GDP.

The paper remarked, “If what we observed was concerning, what we couldn’t see was even more troublesome,” chastising the issuance of special bonds to oil marketing and fertilizer companies, as well as the Food Corporation of India (FCI), in exchange for cash subsidies. This strategy helped keep the headline fiscal deficit figure in check.

However, the current government has followed a similar approach, compelling the FCI to borrow from the National Small Savings Fund instead of receiving food subsidies starting from 2016-17. This practice persisted for almost five years until the Centre cleared all of FCI’s dues in one go in 2020-21, leading to a substantial increase in the food subsidy bill to Rs 5.41 lakh crore and the fiscal deficit to a staggering 9.2 percent of GDP. Consequently, the peak pandemic fiscal deficit could have been significantly lower, along with higher figures in preceding years.

The fiscal deficit, along with the Centre’s market borrowing to address it, remains elevated, despite the interim Budget’s surprise target of a 5.1 percent deficit for 2024-25, which is lower than the anticipated 5.3 percent.

No quandary on capital expenditure

One area where the Modi government’s dedication cannot be questioned is capital expenditure. In recent years, numerous records have been set as the government aimed to boost growth through investments, with the hope of attracting private sector participation and stimulating long-term high growth.

Regarding the period before 2014, the white paper indicates that the UPA government “deprioritized” capital expenditure.

“…capital expenditure as a percentage of total expenditure (excluding interest payments) declined from 31 percent in 2003-04 to 16 percent in 2013-14. The economy remained supply-constrained during the UPA government’s tenure,” it stated.

GDP growth

The white paper mentions how India’s per capita GDP in purchasing power parity terms has increased under the current government. However, notably, it refrains from making a direct comparison between GDP growth rates before and after 2014, despite the Indian economy currently being the world’s fastest-growing large economy.

This omission is likely due to the fact that India experienced faster growth rates before 2014 than it has since. According to data from the statistics ministry, the average GDP growth from 2014-15 to 2023-24 has been 5.9 percent. Meanwhile, based on the government’s official GDP back-series, the Indian economy grew at an average rate of 6.7 percent from 2005-06 to 2013-14. There is no comparable growth number available for 2004-05.

While GDP growth rate doesn’t always provide the complete picture, its complete absence from the white paper is quite noticeable.