As elections draw closer, comparisons of the economic records of political parties become natural. After independence, India adopted a planned economy with significant state control; as a result, despite strong growth potential, India lagged behind most of its Asian peers and thus disappointed many.

It took a crisis, namely the Balance of Payments of the early 90s for India to change course. The government led by P V Narasimha Rao with Manmohan Singh as the Finance Minister started the process of economic liberalization. In 1997 in the “dream budget”, Finance Minister P. Chidambaram introduced capital account convertibility.

However, despite these efforts, growth didn’t improve significantly. Indeed, when the A B Vajpayee led NDA took charge, the Indian economy faced challenges on account of high NPAs, rising fiscal deficit, and the Asian financial crisis. But the government didn’t waste the crisis and carried out significant reforms by enacting the SARFESI Act, FRBM Act and opened up many sectors to the private players.

By the time NDA left office, growth had increased to 7.9% on account of the cumulative impact of reforms since 1991.  On top of this, China’s entry in the WTO and benign global liquidity conditions led to a pickup in global growth.

During the first five years of the Manmohan Singh government, India grew at 8.34% per year. Strong global growth helped as well, according to World Bank data, the global economy grew by 3.7% between 2004 and 2008, whereas during the Vajpayee era, the global economy had grown at 2.86% per year. Unfortunately, the UPA government was unable to take advantage of the good times and the momentum of economic reforms halted.

The populist tendencies of Manmohan Singh led UPA 1 government soon caught up and fiscal deficit rose to 5.99% in 2008-09 from an average of 3.61% during 2003-2008. While some of the increase was on account of the stimulus to counter the impact of the global financial crisis, some of this spending was on unproductive populist schemes.

When UPA 2 was formed, expectations for reforms were high, as the left oriented parties were not a part of the coalition, but soon disappointment set in. Due to continuing high fiscal deficit, Consumer Price Inflation was high, averaging 10.4% during UPA 2. Not only this, the investment climate deteriorated as well and the introduction of retrospective taxation was not received well. Also due to the policy paralysis, investments declined, leading to accumulation of stressed assets in the banking system. During 2012 and 2013, rating agencies warned of a possible downgrade to India’s credit rating. The crisis of the time can be summed up by the fact that India was regarded as part of the “fragile five” during the taper tantrum of 2013.

Since the last crisis during the time of the taper tantrum, the Indian economy has made significant progress in achieving macro stability. In November 2013, Consumer Price Inflation was 11.5% vs. 2.57% now. Similarly, current account deficit was 5.1% of GDP in Oct-Dec 2012 vs. 2.33% of GDP in the last quarter. Fiscal deficit which was 4.6% of GDP in FY2013-14 has been reduced to 3.4% of GDP in FY 2018-19.

The government has carried out a number of structural reforms including the Insolvency and Bankruptcy code (IBC), implementation of the Goods and Services Tax (GST), Real Estate (Regulation and Development) Act leading to establishment of Real Estate Regulatory Authority (RERA) in states. Lastly, the problem of stressed assets has been tackled and with recapitalization, the banking sector is now in a position to support growth. GDP growth has been good at 7.2% in the four years of the NDA regime.

These reforms have held back growth in the short term but will be beneficial in the long term no matter who assumes power in May 2019. Encouragingly, the outlook for investment spending has picked up; growth in fixed capital formation remains strong at 10.6% for Q3FY2018-19. The driver of growth is now shifting to capex spending. Change in driver of growth is welcome as capacity addition, especially in areas of infrastructure is crucial for creating employment opportunities in the future and realize India’s demographic dividend.

The author is CEO, Karvy Stock Broking