The Political Account
After evaluating the balance sheets of two political alliances, our vote goes to. . . NDA
Deepak Tiwari
Research Analyst
deepakt@arthamoney.com
T: + 91 22 4600 0345
March 19, 2009
By the end of May 2009 we will have a new government. Whether the UPA returns to the
power or the NDA surprises us or we will see political uncertainties like we saw in the late
1990s, will be clear only after the results. In this backdrop, we evaluate the performances of
both the NDA and UPA governments and derive the conclusion among these two alliances
which one would be better for the country which is facing one of the difficult times. The next
government will have to carry out several reforms such as raising FDI limit in insurance
sector, amendments to the banking laws to providing voting power in proportion to
shareholding, labour laws reforms and large scale divestments in PSUs etc.
NDA’s performance (March 1999- May 2004)
True it is that any incoming govt. would often carry forward the initiatives taken by the
outgoing govt. But the NDA govt. initiated many steps that were either politically sensitive or
path breaking, setting new benchmark in governance. If the P.V. Narsimharao Government
liberalised the Indian economy, the NDA govt. led by Atal Bihari Vajpayee took it to another
level and set a scorching pace of reforms in the first two years of its rule. It paid
considerable attention to infrastructure in the first 2-3 years, especially the roads and the
telecom sector. It introduced unified licensing regime in telecom sector and earmarked Rs
58,000-crore for the ambitious National Highway Development Programme. Some of the
road projects like the Golden Quadrilateral, North-South and East-West corridor connecting
state capitals were the major initiatives. Golden Quadrilateral is still incomplete. There were
many politically sensitive issues where decisions were taken by the government including
open skies policy for civil aviation, airport privatisation, dismantling the administered price
mechanism in oil sector among others. The NDA government pushed through some path
breaking articles of legislation, including the Fiscal Responsibility and Budget Management
Bill (FRBM) and the Electricity Bill notwithstanding these bills were stuck for many years.
The NDA government also liberalised foreign investment norms and increased FDI limits on
various sectors including petroleum, broadcasting and media. Among other initiatives were
Privatization, PGSY, River Linking, Telecom & Insurance Reforms. The Indo- US nuclear
deal too was initiated by this government. Thus, the NDA govt. would be remembered for its
reform initiatives and good governance among others.
UPA’s performance (May 2004- May 2009)
It’s sad that an able person who is called the father of globalisation failed to carry out a
single reform and the nation was held to ransom by the left parties. Though the Congress
led UPA government came in power on “Aam Aadmi” plank and since it was inevitably
dependent on the support of left parties, it put the reform on the backburner. However it
carried out some of ambitious programs like NREGP, Bharat Nirman etc. One of the
achievements of this government was implementation of Kelkar committee’s
recommendations on tax reforms. It widened the income slabs drastically but at the same
time it levied new education cess of 2% which was further increased to 3%. It also
introduced job reservation to the OBCs but that was a plank by shrewd HRD minister who
was feeling political insecurity.
The UPA inherited a buoyant economy from the NDA. The 9% average growth rate in the
first four years of the UPA rule had many of its drivers outside the country. It could be
possible only because of FIIs inflows and great times the global economies had.
Unfortunately the UPA did not make use of this unprecedented opportunity to reduce
revenue and fiscal deficits. The major achievements of this government could be running
the government to its full term giving stability to the nation despite stiff opposition from allies
like left parties, Indo US Nuclear pact, encouraging pro common man and rural programs
including various rural employment generating programs, agricultural subsidies and quick
implementation of sixth pay commission.
For Private Circulation only
 An evaluation: Who is better between UPA and NDA?

If past is any guide to the future then NDA’s achievements were far better than the UPA’s.
Needless to say that either of Congress or BJP comes to power they will push through
reforms on large scale and observe fiscal restraints. But these governments may be crippled
by nefarious allies like left parties or regional parties such as Jayalalitha or Mayawati. The
BJP led NDA government introduced appraisal system of ministries and many incapable
ministers were shown the door due to underperformance. We did not witness this during the
UPA regime. For instance the Department of Telecommunications led by A. Raja messed
up with government treasuries by selling precious GSM spectrum at throw away prices and
could not carry out 3G auctions in three years of time. Indian telecom sector, one of the
fastest growing sectors, is plagued with uncertainties vis-à-vis policies which were often
tweaked every now and then by Mr Raja at the helm of the Department of
Telecommunications (DoT). To make things worse, ministers like Shivraj Patil and Arjun
Singh proved to be a great liability for the government and the nation alike. Unlike
Congress, BJP has an internal democracy where even leaders like Advani can be
questioned. There is no high command culture or you have to prove your loyalty to a family.
Thus, after evaluating the balance sheets of two political alliances, our vote goes to the
NDA.

Whose chance is brighter?

Unlike previous tenure, the NDA lacks charismatic and able leaders like Vajpayee this time.
Most of the BJP leaders are ageing and the party is not adequately represented by the
youth. It has become a victim of internal fight and there is no clear authority to curb it
effectively. Further, its former allies like TDP led by Chandrababu Naidu in Andhra Pradesh,
BJD led by Navin Patnaik in Orisa, DMK led by Karunanidhi in Tamil Nadu, Trinamul
Congress led by Mamata Banerjee in West Bengal have parted away with. But even
Congress is not in the advantageous position. It failed to reach on any seat sharing
agreement with Samajwadi Party in UP, RJD and LJD in Bihar whereas NCP has compelled
it to go solo in Maharashtra. To make things worse for both these national parties, regional
parties are forging a third front to give an alternative government. Though it would not be so
easy for the third front but in politics nothing is impossible. As they say in politics there is no
permanent friend or foe. So, we should not be surprised by any unexpected political
formation.

This time it is almost impossible to predict who is going to form the government: incumbent
UPA, erstwhile NDA or a third front. And there are two reasons for this uncertainty. Firstly,
499 out of 543 Lok Sabha seats have been newly delimited. Secondly, all political parties
under the respective alliances have failed on seat sharing agreement. Thus, they will be
fighting elections with each other in several constituencies. If Congress or BJP win more
than 300 seats together there is no hope for the third front. If the regional parties emerge
stronger then there is a chance for the third front and we suspect it will fail to give a stable
government. In this case, it would be a disaster for the capital markets.

Challenges for the incoming government

No matter who forms the next government in Delhi, it shall face some serious challenges.
One of them would be dealing with deflationary situation, curbing fiscal upheaval, pushing
through reforms, arriving at the consensus on GST and its implementation, carrying out
disinvestment programs and managing its debts. It would be a herculean task for the next
government to shore up consumer and business confidence and bring the economy back on
the growth trajectory. Needless to say that this is beyond the pale of its capacity as Indian
economy and markets move in tandem with the world economy. So, unless the world
economy rebounds India cannot continue the momentum. The only things the government
should zero in on is efficient management of finances and full fledge support to reforms and
infrastructure development. Any populist measures taken or inaction will only dampen the
prospects of growth and push economy into deep slump.

March 19, 2009 For Private Circulation only

Performance Appraisal of UPA and NDA
SL Major achievements of Major achievements of the
No. the UPA Comments NDA Comments
Overhauled the tax systems on
Kelkar committee's
recommendations. Did away with
many exemptions and deductions
including Standard deduction. It implemented the administrative
Simplified tax slabs and tax laws. reforms only. Reduced rebate u/s
Introduced VAT, Fringe Benefit 88 from 20% to 15%. Reduced
Taxes and Securities Transaction peak customs duty to 20%.
1 Tax Reforms Taxes. Tax Reforms Rationalized cenvat at 16%
Reforms in sectors like
infrastructure, telecom, roads,
airports, ports, railways and
2 Major reforms Not a single reform took place . Major reforms power

The Congress was caught when

its shrewd HRD played this
3 Reservation for OBCs political gimmick. Pokharan Nuclear Test It put India on international map.
4 --- FRBM Bill and Electricity Bill
The NDA govt. could mobilize
barely about Rs 8,440 crore
against its ambitious targets
5 --- Divestment in PSUs which never accomplished.
6 Flagship plans: Flagship plans:

100 days employment to the

National Rural Employment breadwinner in each family at To enable enrolment of all
Guarantee Program minimum wages. Sarva Shiksha Abhiyaan children

Government focused on rural

growth targeting irrigation,
habitations, drinking water, and For providing food security at free
Bharat Nirman electrification. Annapurna scheme of cost thru Gram Panchayats

Growth Story: Score Card

Particulars UPA (2004-2009) NDA (1999-2004)
GDP 8.40% 5.80%
Combined Deficit/GDP 7.40% 9.38%
Center's Deficit/GDP 5.30% 6.40%
Export Growth 23.5%* 14.30%
FDI Inflow ($ billions) 69.403 15.34
Forex Reserves ($ billions) 202.4 61
Petrol Prices increased 25.5% 20.7%
Diesel Prices increased 91.1% 69.2%
LPG Prices increased 23.4% 62.1%
Inflation 6.38 4.58
Education Cess 3% ---
Sources: CSO, DIPP, Dept. Of Commerce, Ministry of Finance

March 19, 2009 For Private Circulation only

 GDP Growth Agriculture growth
12.0% 12.0%

10.0%
10.0%
8.0%

8.0% 6.0%

4.0%

6.0%
2.0%

0.0%
4.0%

-2.0%

2.0%
-4.0%

-6.0%
0.0%
NDA UPA
-8.0%

NDA UPA

Inflation Forex Reserves

8 350

7
300

6
250

5
200

150
3

100
2

50
1

NDA UPA NDA UPA

0 0

March 19, 2009 For Private Circulation only

 FDI in $ billion Export Growth
30 35.0%

30.0%
25

25.0%

20
20.0%

15 15.0%

10.0%
10

5.0%

5
0.0%

NDA UPA NDA UPA

0 -5.0%

* 2008-09 figures are estimated. # FDI figures are taken up to Nov ‘08

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