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Who Fared Better On Economy? Modi Or Manmohan

By A K Bhattacharya
February 15, 2024 13:32 IST
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Whether it was the MGNREGS or the NFSA or the Aadhaar-based DBT scheme for cash transfer, the Modi government has built on the basic architecture created by the Singh government.

Policy makers in the Modi government, instead of discarding them as products of the previous political regime, worked on them, expanded their scope and reach, and used new tools to improve their performance, explains A K Bhattacharya.

IMAGE: Prime Minister Narendra Modi meets former PM Dr Manmohan Singh at the inauguration of the Kartarpur Sahib Corridor at Dera Baba Nanak in Gurdaspur, November 9, 2019. Photograph: ANI Photo

While listing the many achievements of the Narendra Modi government over the past 10 years, Finance Minister Nirmala Sitharaman claimed well-deserved credit for the way income-tax rates have been reduced and rationalised during this period.

'Under the new tax scheme, there is no tax liability for taxpayers with income up to Rs 7 lakh, up from Rs 2.2 lakh in the financial year 2013-2014,' she said in her Interim Budget speech on February 1.

The old tax scheme, which has not yet been discontinued, restricts the benefit of zero liability to those with annual income up to Rs 5 lakh.

There is no denying that the relief to income-tax payers during the Modi regime has been huge.

The income level enjoying zero-tax liability more than trebled during this period, when inflation was much less, translating into real gain for taxpayers.

Guess what was the extent of such relief during the 10 years of the Manmohan Singh government?

In 2003-2004, the income-tax liability was zero for annual income up to Rs 50,000, rising to Rs 2.2 lakh in 2013-14 -- an increase of more than four times.

And yet, Palaniappan Chidambaram, presenting the Interim Budget for 2014-2015, as the finance minister, made no mention of what turns out to be a bigger relief to taxpayers.

This is perhaps one of the many differences between the way economic policies were managed and communicated by the Modi government and by the Manmohan Singh government.

The Modi government has been acutely conscious of the need to publicise and take credit for how its economic policies have benefited the people.

The Manmohan Singh government also used economic policies to improve people's lives, but there was no conscious or cohesive attempt at projecting their success or effectiveness.

So, Sitharaman talked about that income-tax relief, while Chidambaram ignored it even though he could have claimed a bigger credit.

Effective communication of how economic policies benefit people yields handsome electoral dividends.

Not surprisingly, the Modi regime has used this as a critical tool before the elections.

In contrast, the importance of this electoral tool was not adequately recognised by the Manmohan Singh government.

Riding on Manmohan

IMAGE: MGNREGS labourers work at a site. Photograph: ANI Photo

Manmohan Singh's 10-year regime was marked by many marquee schemes that were also people-friendly.

His government launched the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) in 2006, two years after its formation, to address rural distress.

Aimed at providing a legal guarantee of 100 days of wage employment in a financial year to every rural household whose adult members volunteered to do unskilled manual work, the MGNREGS got an initial allocation of about Rs 11,300 crore in 2006-2007, which rose three times by 2013-2014, benefiting thousands of rural workers distressed by adverse economic developments, even though there were questions within the government on whether this scheme was truly beneficial.

Significantly, the Modi government, coming to power in 2014, did not abandon the MGNREGS.

There were initial doubts if this scheme would be encouraged by the new regime.

But its allocation has risen every year and it was used effectively during the Covid years.

In 2023-2024, the Modi government increased the allocation for MGNREGS by more than two times to Rs 86,000 crore (Rs 860 billion).

The regime recognised what schemes work more for the people and can help it cement its political base as well.

On July 5, 2013, about a year before the 10-year period of the Manmohan Singh government would come to an end, the National Food Security Act (NFSA) became operational, marking a paradigm shift in the approach to food security from providing just welfare to people to ensuring availability of food as a matter of right.

The Singh government ensured that NFSA legally entitled up to 75 per cent of the rural population and 50 per cent of the urban population to receive highly subsidised food grain under the targeted public distribution system, covering almost two-thirds of India's population.

Consequently, the last year of the Manmohan Singh government saw its food subsidy Bill rise to Rs 92,000 crore (Rs 920 billion), but the NFSA's full impact was evident in the first year of the Modi government in 2014-2015, when it ballooned to Rs 1.18 trillion -- a rise of 28 per cent in one year.

In the subsequent 10 years, the Modi government once again saw merit in continuing with the NFSA, used it effectively in the Covid years, and made it even more attractive.

From January 2024, the entire food grain to be supplied to 810 million beneficiaries was made completely free for another five years.

The Modi government's food subsidy Bill thus jumped by 131 per cent to Rs 2.12 trillion in 2023-2024, over what the Manmohan Singh government had incurred in its last year.

The third important scheme the Manmohan Singh government launched was the biometrics-based identity scheme: Aadhaar.

By the end of 2013-2014, a little over 530 million unique Aadhaar identity numbers had been allotted, which also helped in opening of bank accounts, facilitating financial inclusion.

Unlike a couple of other welfare schemes, Aadhaar was widely endorsed within the Singh government.

Indeed, in the Interim Budget speech for 2014-2015, Chidambaram had said: 'Who needs Aadhaar? It is those who are at the bottom of the pyramid, the poor, the migrant workers, the homeless, and the oppressed who need Aadhaar and we will ensure that they get Aadhaar. I have no doubt that in course of time even critics of Aadhaar will realise that Aadhaar is a tool of empowerment.'

IMAGE: A customer pays cash to buy vegetables next to a QR code of Paytm on display at a roadside market in Ahmedabad. Photograph: Amit Dave/Reuters

Chidambaram's words were prophetic. The Modi government has doubled down on the Aadhaar project and used it to great effect for delivery of a wide range of welfare schemes and cash transfers.

Its financial inclusion programme (the Prime Minister Jan Dhan account scheme that saw the opening of more than 516 million bank accounts with a total deposit of Rs 2.17 trillion by the end of January 2024) rode on the Aadhaar scheme, after making steady progress from 2015, when the number of bank accounts was just about 125 million with a deposit base of Rs 0.1 trillion.

What's more, the Modi government's digital payments initiative was greatly helped by the roll-out of the Aadhaar project.

The spread and use of the Unified Payments Interface relied once again on the Aadhaar-based identity system.

Along with that came the expansion of the direct benefit transfer (DBT) scheme.

The DBT scheme was launched in 2013 by the Manmohan Singh government and, by the end of March 2014, direct benefit transfers had begun to be made under 27 identified schemes, including the National Social Assistance Programme.

An estimated 5.4 million transactions had been put through by the end of January 2014, transferring Rs 628 crore, and another Rs 3,370 crore of subsidy was transferred to 21 million users of cooking gas.

On the first of this month, when Sitharaman rose to present the Interim Budget in the Lok Sabha, she said: 'Direct Benefit Transfer of Rs 34 trillion from the government using PM Jan Dhan accounts has led to savings of Rs 2.7 trillion for the government.

'This has been realised through avoidance of leakages prevalent earlier. The savings have helped in providing more funds for Garib Kalyan.'

Even the PM-Kisan Samman Yojana, launched by the Modi government in 2019, providing Rs 6,000 each to 118 million farmers, or the PM Fasal Bima Yojana, providing crop insurance to 40 million farmers, have used the Aadhaar-based DBT scheme.

In many ways, the 10 years of the Modi government have seen the most effective and efficient use of the basic delivery infrastructure mooted and started by the Manmohan Singh government.

Whether it was the MGNREGS or the NFSA or the Aadhaar-based DBT scheme for cash transfer, the Modi government has built on the basic architecture created by the Singh government.

Policy makers in the Modi government, instead of discarding them as products of the previous political regime, worked on them, expanded their scope and reach, and used new tools to improve their performance.

It is often said that the economic policies of the Manmohan Singh government laid stress on creating a sense of entitlement among people, and those of the Narendra Modi government believed in the idea of empowering the people.

But the basic tools largely used by both the governments were not very different.

Excelling on welfarism

It is not that the Manmohan Singh government fell short on ideas to launch welfare schemes.

It may have been slow to react to this popular need and a little tardy while promoting or publicising them.

But there were quite a few schemes that left nobody in doubt about the welfarist intent of the Singh government.

Apart from the MGNREGS, there were others like the scheme for rural road construction (Pradhan Mantri Gram Sadak Yojana, whose allocation rose to Rs 21,700 crore in the final full Budget for 2013-2014), the rural housing scheme for below-the-poverty-line (BPL) house-holds (an estimated Rs 15,000 crore/Rs 150 billion), the drinking water supply scheme for rural households to supplement states' efforts, the Sarva Shiksha Abhiyan, and the national programme for mid-day meals in schools to promote primary and secondary education, integrated child development schemes, and Ajeevika, aimed at reducing poverty by enabling poor households access self-employment and skilled wage employment.

But the Modi government excelled in increasing the number of welfare schemes, expanding their reach with the use of technology and even by repackaging the ones that were already in existence.

Many of the schemes introduced by the Manmohan Singh government were retained or repackaged or renamed, but several more were added in these last 10 years.

The focus was to empower the underprivileged with such assistance including schemes for street vendors, vulnerable tribal groups, artisans and craftspeople, national electronic agriculture markets, the national skills mission, the Mudra Yojana for loans to address entrepreneurial aspirations of the youth, rural housing, self-help groups, the blue economy, and various segments of infrastructure.

It was a package that not only touched different segments of society but was also communicated effectively.

Public finances

In managing government finances (see table), the performance of the two governments has not been very dissimilar.

The Manmohan Singh government had to withstand the adverse impact of a global meltdown from 2007 onwards, as it took several initiatives to legally entitle the people to demand government information, food, and work.

Its efforts to introduce the goods and services tax (GST) failed while it was accused of corruption and policy paralysis.

The challenges for the Narendra Modi government were far more formidable.

It had to deal with the Covid-19 pandemic. Economic growth nosedived with a contraction of about 6 per cent in its gross domestic product (GDP) in 2020-2021.

But, before Covid, it rolled out bold reforms to usher in real estate regulation, and insolvency resolution through a bankruptcy code.

But soon the Modi government had to deal with the self-inflicted wounds of demonetisation and the impact of a flawed GST roll-out, a major indirect taxes reform that stabilised later.

This meant that though the Manmohan Singh government kept the fiscal deficit below 5 per cent, the Modi government had to settle for a higher level of fiscal deficit, at about 6 per cent, by the end of its 10th year.

Debt management, however, was a cause for concern for both the regimes.

IMAGE: Needy people showing their Aadhar Card for the free ration in New Delhi. Photograph: ANI Photo

Where the Modi government performed better is in the area of tax revenue collections, with its gross collections staying well above 11 per cent of GDP for many years.

In contrast, the Singh government's efforts in this area were not encouraging.

The Modi government began well with its disinvestment efforts and even privatised Air India, but such efforts lost steam after Covid.

Asset sales by the Singh government lacked any special drive.

On the expenditure side, the Modi government excelled, with the share of capital expenditure steadily rising, while the Singh government's capex share in GDP fell after showing an initial burst.

In managing subsidies, too, the Modi government has done better by bringing them down at a sharper pace.

The Manmohan Singh government had allowed subsidies to rise, especially in the latter half of its tenure.

In the final analysis, who has done better? The Manmohan Singh government or the Narendra Modi government? Let the White Paper, promised by the government, have the final word.

Feature Presentation: Aslam Hunani/

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A K Bhattacharya
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