As Prime Minister Narendra Modi completed eight years in office on May 26, there have been debates on the government’s economic record as well as comparisons with the Manmohan Singh-led Congress governments from 2004-’14.

Though some – like this author – argue that pursuing a politics of narrative control has improved the Modi government’s electoral prospects over the last eight years, India’s macroeconomic performance has continued to worsen.

Can the economic performance of the Singh and Modi years be compared? In a television debate on May 27, economists Kaushik Basu and Arvind Panagriya took up this question.

Basu argued that post 2016, economic growth has continued to slide as have indicators such as investment-to-gross domestic product ratio, which has hurt small and medium enterprises and contributed to poor job creation and high youth unemployment.

At the same time, India’s social fabric is unravelling, making the economic future even more uncertain.

Panagriya countered, saying the government’s success over the past eight years is evident in ensuring sustained growth while passing bold reforms such as the Insolvency Bankruptcy Code and Goods Services Tax.

Against this backdrop it is important to see what the data on growth and other macroeconomic aggregates reflect about the economy between the two periods: 2004-’14 under Singh vs 2014-’22 under Modi.

A few caveats here. The performance of the first United Progressive Alliance government between 2004-’09 was better than in its second term from 2009-’14. The second period witnessed a poorer growth outcome combined with ills of double digit inflation and a prolonged period of policy paralysis, making significant reforms difficult.

Further, a comparison of macroeconomic data for the 2004-’22 period must be kept separate from favouring any political party. Cherry-picking statistics makes it easy to model preferences, depending on how one frames the design of comparison. The point here is to simply look at the numbers and understand trends.

Economic growth

India’s Annual Growth Rate for 2004-’21, from the World Bank database, is shared below. The period between 2004-’14, barring 2007-’08 when the global Great Recession took place, clocked an average growth rate of roughly 7.5%-8% per annum under Singh. Again, the government fared better in its first term than the second. This trend of over 6% annual growth continued until 2016, after which growth began declining.

Figure 1: Annual growth rate from 2004-'21. Credit: World Bank Database, CC-BY 4.0.

Two years after Narendra Modi took charge, the shock effect of demonetisation, when Rs 500 and Rs 1,000 notes were banned overnight in November 2016, hurt the growth cycle. It failed to recover to pre-2016 levels. Following the Covid-19 lockdown in 2020, India’s growth rate contracted by 7.3% in 2020-’21.

Despite the arithmetical positive gain in growth of around 8.9% observed in 2021, it will still take years for the economy to grow at the optimum annual rate of 8% for distributive gains to be realised.

Panagriya had mentioned the significance of a high growth rate of more than 8% per annum in creating a “pull-up effect” that allows the incomes of lower classes to rise along with the realisation of upward mobility. That pull-up effect appears to be a distant goal, for now.

Gross fixed capital formation

Gross fixed capital formation, also called investment, is defined as the acquisition of produced assets, including the production of such assets by producers for their own use, minus disposals.

Credit: World Bank Database.

In the 2004-’12 period, gross fixed capital formation by the private sector, though volatile, still remained above 24% of the gross domestic product on average.

From 2012, the drop in gross fixed capital formation was consistent until 2015 – from 26.5% to 21%. Then it flattened, only rising slightly to 22% in 2018. A sustained increase in investment is crucial for financing growth, irrespective of an economy’s stage of development.

A lowered gross fixed capital formation percentage-to-GDP for the private sector reflects lower investment level, which hampers any goal to enhance production for private firms. It also reflects a low level of trust by the domestic private sector in a nation’s current or future growth prospects.

Previously, it has been argued that low aggregate demand and poor consumption levels have caused the economy to enter a Keynesian trap where aggregate domestic private investment-production scales have tilted towards a lower trend line, also causing a period of jobless growth.

This continues to be a major concern for the Modi government to tackle now and going forward. So far, in eight years, the government has failed to ensure a course correction in investment-to-GDP ratios.

Employment figures

There are two critical indicators to understand the employment landscape in India from 2004-’22. One, is the unemployment rate, measured as percentage of the total population, The other is the employment-to-population ratio in percentage.

Both indicators need to be looked at because considering only the unemployment rate can be misleading to gauge overall employment, especially in a fractured labour market like India’s.

Unemployment Rate (%). Credit: World Bank Database.

The Periodic Labour Force Survey data for January-March 2021, released in November last year, showed that unemployment rates for that quarter were close to pre-Covid-19 levels of 2020.

Women, as this author noted in 2020, bore the economic brunt of the pandemic. For men, the unemployment rate was 8.6% for the January-March 2021 quarter and the corresponding quarter the previous year.

In the case of women, it was 11.8% for the January-March 2021 period as against 10.6% in the same quarter the previous year. Solely looking at the unemployment rate has its limitations.

The unemployment rate was 7.9% in December 2021. This does not mean that the remaining 92.1% were employed, nor does it mean that 92.1% of all working-age residents were employed.

The unemployment rate merely indicates the proportion of the working-age population that wants to be employed to earn wages or profits through work, but are unable to find employment. The unemployment rate does not take into account those who do not want to be employed and those who do not try to find work.

The employment-population ratio is a more useful indicator at a macro-level, measuring the ratio of the employed to the total working-age population.

Employment-to-population ratio % (above 15 years of age). Credit: World Bank Database.

India’s pre-pandemic employment-population ratio of 43% was lower than the global rate of 55% in 2020 according to World Bank data. The employment rate in Bangladesh is 53%, and in China, it is around 63%.

According to the estimates of the Centre for Monitoring Indian Economy, the employment-population rate is below 38%. What this reflects is a chronic crisis of good quality jobs for the working-age population entering the labour force every year, the rate of which has continued to be high even during the pandemic.

At the same time, in rural India, the demand for work under the rural employment guarantee scheme – the Mahatma Gandhi National Rural Employment Guarantee Act, which offers rural households 100 days of work a year – remains high despite the resurgence of economic activity in the second half of 2021. Work under the employment guarantee scheme is often seen as a fallback or safety net.

Inadequate budgets for the employment guarantee scheme, however, have made it difficult for states to provide adequate work to those in rural areas with fewer or no alternative opportunities

Under Singh, the government during both terms spent extensively on the rural guarantee scheme to ensure a job-based social security net for workers.

Compared to the United Progressive Alliance government, the Modi government’s overall allocations for the rural guarantee scheme in subsequent budgets have lowered over time while disbursements to states have been delayed.

This has come at a time when unemployment has affected rural populations in the worst possible way, due to the lack of alternative employment opportunities as seen during the pandemic. Worse, the government has failed to acknowledge that it has an (un)employment crisis before it even attempts to deal with it through policy measures.


In terms of reining in consumer price inflation, the Modi government’s first few years presented a better track record than the second term under Singh when the inflation rate remained in double digits, especially between 2009-’13.

One key reason for the consumer price rise then was due to external factors as well, or an imported inflation due to a rise in oil prices. Oil prices during most of the Modi government’s first as well as second term were reasonably low.

Now, as oil prices have surged, triggered by the uncertainty following the Russian invasion of Ukraine, its effects are clearly visible on both, the wholesale price index and consumer price index.

Credit: World Bank Database.
Current account deficit-to-GDP. Credit: World Bank Database.

India’s current account-to-GDP level was negative for most of 2004-’12. It began improving after 2012 and did so till 2016 before dropping again. On trade, the Modi government has ensured higher exports and imports for some years now, including during the pandemic.

However, the push for Atmanirbharta, or self-reliance, has led to trade protectionist measures with higher duties and tariffs, including ad hoc moves such as the May 13 wheat export ban. Such measures adversely affect the country’s vision and credibility to become competitive in the global trade market.

Government debt

The level of government borrowing was broadly kept below 72%-73%-to-GDP during the first term of the Congress-led government. It became much lower during the second term under the Congress but gradually started rising from 2016 – again, post demonetisation – almost in continuum with the increase in fiscal deficit.

The inability of the government to collect its own projected tax and non-tax outlays, including disinvestment targets, led it to eventually increase domestic borrowing levels, largely financed through the Reserve Bank of India, which raised the debt levels.

In the 2022-’23 Union Budget, the Centre pegged the fiscal deficit at 6.9% of GDP in 2021-’22 and 6.4% in 2022-’23 as the government aims to boost spending on transport, infrastructure and construction projects. It proposes to trim it to 4.5% by 2025-’26.

Expenditure on the social sector has reduced considerably due to a ballooning debt-deficit level. The government’s total expenditure is projected at Rs 39.45 trillion in 2022-’23, with Rs 480 billion estimated for affordable housing, Rs 195 billion for solar projects and Rs 200 billion for highways expansion.

What do we learn?

India’s best macroeconomic growth performance was observed between the 2002-’11 period. This includes the last two years of the Atal Bihari Vajpayee-led government and the first seven years of the Congress-led dispensation.

From 2012, economic policy management saw a period of systematic disruptions combined with high inflation and a period of policy paralysis under the second term of the Congress when introducing gradualist reforms became difficult.

Modi’s rise to power was largely on the development plank, as someone who could deliver on high growth and pass tough reforms. Much of the Indian elite, pro-business class, including upper-class liberals and middle-income groups supported Modi in the hope that the government would recover the economy from the paralysis under the second term of the Congress.

However, what happened was quite the contrary.

Demonetisation wrecked the fundamentals of the economy, like a gunshot to the tyres of a racing car. The relationship between the Centre and states soured and is at its worst now. The period after 2016 saw a worsening of trends across all critical macroeconomic variables.

The ruling party’s politics of polarisation and fomenting communal hatred against minorities has ruptured social trust, an important factor that created long-term faith in sustaining better economic performance.

In addition to ensuring a path of higher growth and bringing the community together, the Modi government also faces three significant medium-to-long term challenges: income inequalities, ruptured labour markets and unemployment.

These are all connected to India’s crisis of joblessness, poor work contracts, and high unemployment amongst the educated youth, all indicators where the country performs the worst in comparison to other rising powers.

Deepanshu Mohan is an Associate Professor of Economics and Director at the Centre for New Economics Studies, Jindal School of Liberal Arts and Humanities, OP Jindal Global University.