Modi’s economic push: Numbers, reforms do tell a good story

Avatar Written by October 24, 2017 15:27

The relationship between inflation and economic growth (GDP) is quite significant as far as defining the progress of a country and its people is concerned. Whenever country’s economy is debated and discussed, the two parameters GDP and inflation play important role in determining the economy of the country.

What is believed is that any country is considered to be in growth path, if year on year GDP % growth is greater than inflation % otherwise inflation is bound to eat up into the growth. In what bodes well for the economy of India, data suggest that presently the GDP rate is higher than the inflation. It can be attributed to efforts of the Modi government, that the inflation is lower than the GDP a scenario which was missing in the latter of the UPA regime, ie., from 2008 to 2013.

 

An increase in inflation means that the prices have risen. With an increase in inflation, there is a decline in the purchasing power of money, which reduces consumption and therefore GDP decreases. So it appears that GDP is negatively related to inflation. But experts are of the opinion that the inflation should not exceed the GDP rate as had happened during UPA regime.

According to a study, GDP growth must be higher than inflation by at least 1.5%. This gap has been maintained in the present regime led by Prime Minister Narendra Modi. The GDP being higher than inflation was the feature of economy at the time of NDA led by Atal Bihari Vajpayee.

In 2004 when the Vajpayee government was there, Inflation was 3.78% while the GDP was 6.2%, which was considered to be a good economic indicator. The GDP was higher by more than 2 per cent at that time.

Barring years from 2005 to 2007, the GDP was either less than 1.5 per cent higher than Inflation or lower than Inflation in the UPA regime, which spelled a gloom and turmoil as far as economy of India was concerned. The data bear testimony to this fact. Economy witnessed slump and downward trends from 2008 to 2013–the crucial years of UPA government. Let’s have a look at the economic indicators (GDP and Inflation) to understand where the economy went during the UPA regime.

In 2008, Inflation was 9.70% while the GDP was 7.4%. Then came 2009 when Inflation was 14.97% GDP went down at 7.4%, which was a bad situation when GDP got far lower than Inflation. The situation was not any better in 2010 when Inflation was 9.47% and GDP was 10.4%. In 2011, the Inflation went a bit lower at 6.49% and GDP rose a bit at 7.2%, but the difference was less than 1 per cent, which was also not viewed as a good sign for the economy.

As far as the year 2012 is concerned, the Inflation was 11.17% and GDP was 6.5% which was a very negative scenario for the economy. Then in 2013 the Inflation was 9.13% and GDP dipped to 3.2%.

Economists attribute such a downfall in economy in these years of UPA government to  monumental scams where assets (stocks, gold, real estate) got inflated due to relentless printing of high denomination notes & black money brought from abroad through PNs, over-invoicing of exports etc. This bloated up the real GDP growth and spiked up the prices leading to massive trouble for the common man.

Situation showed the sign of improvement at the beginning of Modi regime. In 2014, the Inflation went down to 5.6% and GDP rose to 7.2%. The 2015 also witnessed a good economic improvement with Inflation  registering 6.32% and GDP registering 8%. In 2016, Inflation was 2.23% while the GDP was 7.1%, which was a positive upward movement of the economy. In the year 2017, the Inflation is 3.36% while the GDP in the second quarter is 5.7%, which means GDP is still more than 1.5 per cent higher than the inflation. This, according to economists, augurs well for the economy of India.