Economic summary UPA (2004 - 14) vs NDA (2014 - 24)

 

When one starts reviewing twitter threads, one would get the impression that the UPA era under the economist Manmohan Singh was a high growth era where India outperformed global indices despite the Global Financial Crisis (GFC) shock. The same common narrative treats the NDA under the "tea-seller" Narendra Modi was underperforming despite significant advantages given the oft repeated high-growth era of UPA.

 

I thought it would be pertinent to review this using some standard metrices backed up with largely irrefutable data and data sources. 

 

But before we get into the details, it is essential to appreciate FRBM and its centrality in this analysis. FRBM stands for the Fiscal Responsibility and Budget Management Act, 2003 that was passed by the Atal Behari Vajpayee government (1999-2004). This is one of the most critical acts passed in independent (from the British) India and is a statutory fiscal discipline framework designed to impose rules-based control over how much the Government of India can borrow, spend, and run deficits. I have tried to summarize what FRBM is, why it exists, and why it matters in the context of UPA vs NDA debates.

 

It would be obvious to even a non-economist that prior to the NDA (1999-2004) government, India ran chronic fiscal deficits, government borrowing was discretionary (& completely opaque) which led to corruption at scale. This additionally increased debt and resultant interest rates burdens. Such debt was rarely used to create infrastructure at scale but primarily utilised for consumption - which meant the compounding effect of interest rate burdens resulted in high inflation, high costs of borrowing, increased return on static capital (bank interest, bonds etc.) created an era where large capital outlays were necessary for any private sector enterprises. The Vajpayee government thus inherited an economy where close to two-fifths of the revenue was used to repay interest expenses. The Vajpayee government enacted the FRBM in 2003 (Vajpayee-led NDA) to impose hard fiscal rules, reduce discretion in deficit financing and anchor long-term debt sustainability. The FRBM originally required the government to hold Fiscal deficit ≤ 3% of GDP and complete elimination of revenue deficit (borrow only for sustainable capital expenditure – road construction for example) This distinction is critical: for a non-economist, it means that the government can borrow to build assets but cannot borrow to fund consumption. At one stroke, this reins in inflation. The FRBM also eliminated “creative accounting” by mandating complete debt transparency - fiscal deficit, revenue deficit, and outstanding liabilities. Additionally, it mandated documenting medium-term fiscal policy statements giving clarity on where the government plans to invest in. Additionally, the Act proscribed limits on Reserve Bank of India (RBI)’s monetisation abilities by stopping the RBI’s ability to provide financing for the government deficits (routine in the Congress led governments) and prevented inflationary money printing. The FRBM was far thinking in its approach allowing the government leeway to loosen the austerity measures during times of war, severe economic shock, national calamities – essentially force majeure clauses to a lawyer.  But it also mandated that the government needs to revert to FRBM principles as soon as this black swan event is over and its influence wanes.

 

The FRBM was critical for the Indian economic outlook in the late nineties, it played a critical role in lowering interest rates, decreased debt servicing substantially, increased private investment and provided macroeconomic stability. The empirical data is very clear - India’s debt/GDP fell, inflation moderated, capital inflows improved and sustainable growth accelerated in early 2000s (especially driven by prudent investment in the golden quadrilateral project). In simple language, the FRBM is India’s fiscal lever, when the government respected it, there was clear sustainable growth, health banks and financial systems and critically debt remains manageable (as debt can only be created for developing sustainable infrastructure). When governments have ignored it, it has created unsustainable, temporary growth spikes where the issues surface after a few years and future governments / generations pay the price for profligacy . This is why FRBM sits at the heart of serious discussions on India’s economic mismanagement.

 

The Vajpayee government did a stellar job in reining in inflation, creating sustainable growth and decreasing compounding interest rate burdens. This meant the UPA inherited a growing economy, decreasing inflationary trends (despite the financial turbulence in the early 2000s) and sustainable growth momentum. As one can summarise, the Vajpayee bequeathed to UPA an economy with exceptionally strong fundamentals:

 

A. Macro Stability

• Fiscal consolidation under FRBM
• Debt-to-GDP on a declining path
• Inflation largely under control (thanks to infra led investments)
• External account stable (despite Pokhran led sanctions)

B. Structural Reforms

• Telecom liberalisation (foundation of India’s digital economy)
• Golden Quadrilateral (logistics productivity)
• Power, roads, ports reforms
• Slowly opening up key investment markets - insurance, telecom, capital markets

C. Banking System Health

• NPAs were low
• Credit growth was disciplined
• Public Sector Banks (PSB) were solvent and not recapitalisation-dependent

D. Investment Momentum

• Capex-led growth phase already underway
• Private sector confidence strong
• India entering global supply chains post-WTO.

 

And this is not BJP propaganda — it is borne out in RBI and Economic Survey data from the early 2000s.

 

And what happened in the decade under UPA led by the economist Manmohan Singh (& some would day remote controlled by Sonia Gandhi)? Let us analyse.

 

The first phase was between 2004-2008 (just when the GFC was unfolding). The UPA government demonstrated an illusion of growth benefitting from incredibly high levels of global liquidity leading to significant capital inflows into India. The commodity boom helped global macroeconomic indicators with the global economy growing significantly all around. The momentum from the prior reforms under Vajpayee and the thrust towards capital expenditure created a momentum that the UPA government could leverage for some headline numbers for the first couple of years. In summary, growth was high; but the overall quality deteriorated. The numbers are stark – there was no significant infrastructure programs announced or built which would have lead to sustainable growth opportunities. The economic activity shifted from a capex-infra led investment model to a consumption model which incidentally meant less spending discretion as opposed to the significant discipline demonstrated under Vajpayee. Additionally, the UPA government enacted no financial reforms which limited any scope for forward-looking momentum. I would call this phase as an “illusion of growth”. In summary I would say three key shifts happened:

 

1.      Capex → consumption

2.      Reform → redistribution

3.      Discipline → discretion

 

If the first four years represented a lost opportunity to build strongly on stable and organised frameworks, the next six years represent a fundamental negative disruption of what could have been one of the strongest economic periods for India. This is when the real damage happened, when the economy turned from faltering to outright disastrous. So what happened?

 

Firstly, fiscal indiscipline was rampant, ingrained in all facets. The post GFC stimulus was never unwound, subsidies delivered during GFC (which was essentially a liquidity crisis not a health crisis unlike covid and which should have been managed adroitly – not printing easy money) for food, fuel were never recovered and most critically, the litmus of FRBM was effectively abandoned.

 

Second, it was an era of crony capitalism, the effect of which was only visible almost a decade later. It was an era of infrastructure lending without risk discipline (remember the Commonwealth games infra spend?), sustained political pressure on PSBs to lend indiscriminately all of which resulted in what the Reserve Bank of India (RBI) called the twin balance sheet crisis. One only needs to peruse the economic survey published on 2015 and IMF working papers to understand the depth of the created disaster.

 

Third, perhaps the most contentious issue and the one with the most significant impact to the Indian economy was the amendment of the Income Tax Act retrospectively (back to 1962) to tax indirect transfers of Indian assets. This was triggered by the Supreme Court ruling in favour of Vodafone (2012), which held that Vodafone’s offshore transaction was not taxable in India under existing law. This was applied retroactively, overturning settled judicial outcomes, negatively affecting several foreign investors (Vodafone, Cairn Energy, Shell, Nokia) and created open-ended tax liabilities with penalties and interest. This was disastrous and severely damaged the Indian government’s credibility in a global flat world. India was seen as a “policy risk” jurisdiction. The NDA government had to repeal the law (in 2021, though why they took so long is a matter to be discussed later) and to refund taxes.

 

Fourth, a complete sense of regulatory paralysis. Additionally, when changes made, the decisions were often reverted. The FDI policy inconsistency is a case to point. It was announced end-2011, almost immediately put on hold, and then re-announced a few months later before leaving this to the states to decide on implementation. So essentially, no changes but complete confusion for a year. There was limited policy liberalisation in key sectors like insurance, defence and aviation leading to inconsistent FDIs at a time when global liquidity was amongst the highest on record. Taxation and regulatory uncertainty continued throughout the UPA rule - GAAR (General Anti-Avoidance Rules) were introduced aggressively but deferred multiple times. MAT - Minimum Alternate Tax on foreign investors was imposed but litigated against and then partially clarified. India’s infrastructure assets – coal, telecom were consistently mismanaged (2G scam, Coal-gate etc.) leading to highly elevated bank NPAs (much of which was opaque till the NDA came back to power in 2014). The fuel subsidy reforms were inconsistent, announced one day, paused the next and then reintroduced a few days later. And critically from an economic perspective, the FRBM targets repeatedly breached post-2008 without a credible medium-term framework.

 

So, in summary what did this do to the Indian economy?

 

First, it led to rampant inflation. It went from 3.77% in 2004 (with a consistently falling trend) to 6.37% in 2007 before hitting ~12% in 2010 (two years post the GFC). The inflation when the NDA government took over had fallen slightly to just under 11%.

 

Second capital dried up. Despite the global financial crisis, India attracted robust FDI inflows (~US$ 41 billion in 2008–09), indicating strong underlying investor interest, primarily a carryover from the progressive NDA era under Vajpayee. FDI declined significantly after 2008–09, with values dropping to US$ 35+ through 2010–11 – reflecting global risk aversion and domestic policy uncertainty. The issue is not the decline between 2008-2010. The issue is that there was no rebound in Indian FDI despite liquidity being the highest on record when the developed countries were printing money at an unheard-of scale. The FDI actually fell from ~USD 40B in 2011 to ~USD 35B in 2013. This at a time when the ASEAN countries and China increased their FDI inflows during the same time by several times. ASEAN is a great case to point – their FDI inflows went from ~USD 35B in 2008 to ~USD 120B in 2014.

 

Third, the banking system in India was impaired, some would claim destroyed from within. When I write “the banking system was impaired”, I mean this in a technical, balance-sheet and credit-transmission sense, not as a rhetorical or political phrase. Here is precisely what it means, and why it matters. A banking system is impaired when it cannot perform its core economic function, even if banks are still operating. The core functions for a (especially) commercial bank are allocating credit efficiently, price risk accurately, support investment and growth transmit monetary policy. In an impaired state, banks exist — but they are economically dysfunctional. By 2014, banks were alive, but too sick to lend. They were afraid of taking risk, short of capital, carrying dead assets and focused on survival, not growth. Impairment was caused by several factors – most of it due to poor governance and flawed economic policies. By the time NDA came to power in 2014 and the results of the economic mismanagement was clear, it was obvious that a significant share of bank assets were economically non-viable. These numbers are hidden very well unless one reviews and analyses the banking systems in the light of RBI, IMF and key PSB balance sheets. At the very minimum, 11% of all assets in any Indian bank was officially non-performing. 15-17% of all loans were under stress meaning cash flow was insufficient to pay monthly interests. The worst affected were the PSBs with between 18-22% of all loans were under stress.  And poor (or corrupt) governance meant these were not reported through evergreening (accounting manoeuvring or additional loans to pay existing loans), restructuring or regulatory forbearance (especially PSBs). That is why India’s investment engine stalled before 2014, and why recovery took so long even after growth returned.

 

Fourth, the rapidly growing investment cycle was completely broken, a symptom of an impaired banking system. The investments were concentrated in a few areas all under government regulation – mining, infrastructure, telecom etc – a large portion of which was impaired loan books. It is thus obvious cause when one notices the steep downward trend in Gross Fixed Capital Formation (% of GDP) which fell from mid-thirties through the 2010s - 34.3% (2011) to mid-twenties by the time the UPA demitted office (~28.7% - 2015) besides the more obvious FDI inflows mentioned earlier.

 

Indian economy went from being strong and sustainable under the Vajpayee led NDA era to a struggling economy – headlined by the ‘fragile’ tag given to it by Morgan Stanley, a steep fall from the 8.2% GDP growth at less than 3% inflation with no current account deficit; and the IMF tag of a “strong” economy in June 2004 when Vajpayee demitted office.

 

However, several so-called economists still defend the UPA policies and none of them seem to be accurate or indeed logical economic measures. The focus is purely on the headline GDP numbers (which grew primarily by easy money – note resultant inflation) ignoring debt accumulation (& the interest compounding thereof), asset quality (note NPAs), investment sustainability (note investment degradation) and institutional decay (capital allocation ratios). UPA policies looked good till the bill arrived.

 

In short, calling the UPA policies a structural economic failure is not disingenuous — it is accurate.

 

 Let’s summarise the relative performances of the Vajpayee led NDA and the Manmohan Singh led UPA

 

Dimension	Vajpayee NDA (1998–2004)	UPA (2004–2014)
Fiscal discipline	Strong, rules-based	Weak post-2008
Banking health	Preserved	Destroyed
Growth quality	Capex-led	Debt-led
Inflation	Controlled	High
Infrastructure	Foundation-building	Stalled later
Institutional legacy	Strengthened	Weakened

 

Now let us turn our attention to the Modi led NDA from 2014. But before we do that let us look at what this government inherited vis-à-vis what the previous UPA government inherited.

 

Dimension	UPA (2004) Inherited	NDA (2014) Inherited
Fiscal position	FRBM credibility, declining debt	Large deficits, FRBM diluted
Banking system	Low NPAs, solvent PSBs	Hidden NPAs, impaired PSBs
Investment cycle	Strong capex momentum	Capex collapse
Inflation	Moderate to Low	High & volatile
External balance	Stable	CAD stress memories
Institutional credibility	Improving	Damaged

 

The Key asymmetry was that the UPA inherited a strong economy. NDA inherited a balance-sheet recession.

 

The Modi government in the initial years (2014-16) focused on identifying the well-hidden delinquencies. The Asset Quality Review (AQR) initiated by the Reserve Bank of India in 2015 revealed a much larger stock of hidden bad loans, causing NPAs to be recognized formally. This initial recognition caused headline NPA ratios to rise sharply early in the NDA period — but this was largely recognition of previously unreported bad loans, not necessarily new deterioration alone. This ensured more transparent reporting which became apparent by 2017. Let’s review the key economic measures and policies from three key perspectives – transparency & reporting, recapitalisation (including write-offs and recoveries) and policy measures.

 

Transparency & reporting – the NDA introduced the concept of AQR in 2015 to rigorously examine the loan books and report transparently on NPAs, write-offs and capitalisation requirements to ensure the Indian banking system remained fair, transparent and safe. It needs to be noted that before the AQR was introduced, asset quality was assessed using a rules-based, bank-reported framework with significant discretion. This allowed the UPA government significant leeway to lend leading to evergreening, poor asset quality, and crony capitalism. As an example of crony capitalism, group-wide stress was not forced to be recognized, instead if one project failed but another loan was technically current, the underlying asset could remain ‘standard’ requiring no addition margins or capital allocation. The UPA government allowed NPA classifications by restructuring, interest moratoriums, extension of repayment schedules and conversion of interest to equity (thereby increasing tier 1 capital risk). Thus, while the reported NPAs was under 4%, the actual numbers were far higher which became apparent under the AQR regime. The AQR model did four things –

1.      Loan scrutiny – unlike in the past, AQR did not merely accept a bank’s (often qualitative) model for risk and asset quality, RBI appointed supervisors reviewed individual large exposures at each bank and stress tested against cash-flow (not merely repayment status) and ability to repay. There was increased focus on key infrastructure projects, power, mining which are usually large and significant loan books.

2.      Economic Default vs Technical Default – the measurement model was recalibrated to ensure that any loan was classified as stressed if the project could not service debt from operating cash flows and/or the promoter equity was impaired. Thie meant that the repayment could not depend on refinancing, restructuring or additional loans to pay interest and principal effectively removing the insidious practice of evergreening. The model recalibrated a loan as stressed even if the interest was being paid regularly as the focus was not just on past cash flows but measured on future / balance sheet-based cash flows.

3.      Loan classification was moved from individual loans to a group wide review of loans. Thus, if one firm in a group defaulted or had impaired assets, the overall group exposures were re-examined and often downgraded. This ensured intra-group juggling of assets to present a better-than-reality picture.

4.      Fourth and most importantly, the government mandated strict recognition timelines and deadlines to reclassify assets, provision against potential bad debts, raise necessary capital and prevented any discretionary roll-overs, thus making the whole process of reporting and allocation completely transparent.

 

It is essential to note that AQR did not create bad loans or bad banking models – it merely reclassified and provided transparency to the already-impaired loan books. In plain English, before AQR was introduced; banks reported what they hoped would be repaid, often with limited transparency of data or models. After AQR, banks had to report what could realistically be repaid with transparent access to data and analytical models – under the supervision of RBI. This required strong government backing as it forced the banks to report the existing large losses, required massive recapitalisation, negatively impacted short term growth and some say most importantly impacted politically connected corporate houses. Modi’s NDA absorbed the political fallout while allowing RBI complete independence to report accurately and transparently.

 

Recapitalisation & PSB systems overhaul – Bank recapitalisation was critical to inject capital into banks so that they can absorb losses from NPAs (provisions & write-offs), Meet Basel capital adequacy norms and resume lending. After the UPA regime this was primarily directed for the PSBs which held the bulk of stressed assets. Even prior to the transparency afforded by the AQR which only got institutionalised in 2016, the NDA government identified that banks were impaired and needed tier 1 capital infusion to keep them alive. The first phase of recapitalisation involved the government pumping in Rs 60,000 crores (~USD$ 1B at the then exchange rate) between 2014-16. Once the disaster with clear transparent data unfolded, the government pumped in more than double the initial tranche (~1.2 lack crores) to offset the AQR shock (2016-18). The disaster was especially concentrated in the PSBs with SBI, PNB, IDBI, UCO and many others effectively trading insolvent breaching Basel III norms unable PSBs would have breached Basel III norms. Most of the initial recapitalisation was done through direct budgetary infusions to ensure the banks remained ‘bankable’. Over the next couple of years, NDA introduced the innovative recapitalisation bonds scheme introduced in 2017. This was an innovative scheme whereby Government issues recap bonds to PSBs, then PSBs subscribe to these bonds and then then Government injects equivalent equity capital into PSBs. This ensured minimal net fiscal cash outflow (keeping inflation and spending under control) but provided significant balance sheet support to PSBs making India’s banking sector stronger. Most importantly it provided the government breathing time to enact a couple of key policy changes to ensure the Indian banking system remained transparent, robust and capable of supporting India’s targeted growth rates while ensuring a decreasing inflation trend. It needs to be noted that Private banks required almost no taxpayer capital indicating the banking rot was primarily with the PSBs which are more easily influenced by the government of the day. The actions provided immediate results - PSB CAR/CRAR improved from less than 8% in most cases to ~14–15% effectively providing necessary capital for NPAs and future lending. Bank credit growth recovered from less than 5% in 2015 to 12+% in 2022. The overall recapitalisation along with AQR led transparency to clean PSB balance sheets and prepare them for sustained growth. And unlike what many commentators imply, this was no crony capitalist bail out – the capital infusion restored banks, not capitalists. Promoters lost equity, control and some had to exit their companies’ leaving banks with loans that were transparent in their asset ratios.

Once the base was established, the Modi led government commenced optimizing the number of PSBs reducing them from 27 to 12 by a sequence of bank mergers consolidating scale, creating efficiencies, optimizing capital allocation, shoring up weaker banks and overall creating a more robust, structurally safe banking system. Along with recapitalisation and optimization, there we key banking model governance & incentive Reforms. The Banking governance model was fundamentally restructured with the Bank Boards Bureau (later FSIB) leading to professionalised board appointments, significantly reducing political micromanagement, performance-linked selection, separation of Chairman & MD roles, independent and strong risk committees and accountability (with autonomy) for credit decisions.

Banks were then brought under significant scrutiny for their credit discipline & monitoring process and the overall PCA (Prompt Corrective Action) framework was completely revamped. Automated restrictions were imposed on banks with lower CAR by placing limits on lending, dividends or expansion. Banks had to follow a new large exposures framework where any risk exposure was capped to group firms reducing concentration risk and addressed too big-to-fail corporate lending. Banks were additionally subject to stringent and structurally stronger credit markets. Loan evergreening was stopped which eliminated restructuring loopholes, NPA norms were strengthened for both recognition and reporting with clear timelines for mandatory provisioning and most critically an introduction of a risk-based supervision.  This meant banks were subjected to a continuous monitoring model instead of periodic inspection ensuring any lending or provisioning stress was immediately apparent. These were extremely politically painful decisions especially with the well-known crony capitalism the earlier UPA government was accused of, and NDA deserves kudos for taking some very strong steps.

 

Key economic policy framework reforms – the third key action the NDA government under Modi took was several key policy decisions and reforms. To put the process in perspective, it can be viewed as a five-step process:  1. Force recognition (use AQR model) → 2. absorb losses (transparency afforded by AQR) → 3. Recapitalise (as mentioned in the previous section) → 4.resolve (increase CAR) → 5. reform governance.  The most critical of the reforms was Insolvency and Bankruptcy Code (IBC), 2016 that replaced a fragmented, toothless system (BIFR, DRTs, NCAT etc) with a unified, transparent, reportable policy standard. The IBC perhaps is independent India’s most critical banking system change representing a structural reform and not merely a legislative change. There are a dozen key policy changes as part of this.

1. Time-Bound Insolvency Resolution - must be completed within 180 days, extendable by 90 days, with an outer limit including litigation of 330 days. This hard deadline prevents value erosion, a major failure under pre-IBC laws, when it would take years, sometimes decades to resolve an insolvency claim.
2. Global alignment with the Creditor-in-Control Model (Not Debtor-in-Control). When a case is admitted, the Board stands suspended and the management is vested with an insolvency resolution professional / firm. Any decisions or recommendations are subject to approval from the committee of creditors (next point). This mirrors best practices in the US (Chapter 11) and UK insolvency regimes.
3. Committee of creditors (COC) – have financial supremacy. The committee is composed of financial creditors (usually Indian banks) and key resolutions require a 66% voting share. Courts cannot intervene in commercial decisions of this committee. This was a landmark reform where courts could only adjugate on the process, not on the business result itself.
4. Moratorium on legal proceedings – a critical step that prevented any suits, enforcement actions, asset seizures etc on admission, essentially allowing the firm to operate as usual minimizing asset erosion.
5. Resolution Over Liquidation to decrease any value erosion. The primary aim should always be revival; liquidation is recommended only if no viable time-denominated resolution plan is not feasible and the CoC explicitly recommends liquidation.  There was thus a paradigm shift from the earlier recovery-focused enforcement approach to enterprise value preservation model.
6. Priority of claims - IBC defines an explicit distribution hierarchy in liquidation which prioritizes employee & secured creditors dues and government and equity shareholders are least prioritises. This ensure the most critically impacted resources are reimbursed first. This means government is no longer a priority claimant improving credit pricing and investor confidence.
7. Unified Institutional Framework - IBC created a single ecosystem, replacing multiple weak institutions replacing IBBI (Insolvency and Bankruptcy Board of India – the earlier regulator), NCLT / NCLAT (adjudicating authorities), Insolvency Professionals (IPs), Information Utilities (for verified debt records). This institutional depth and one single independent regulator is a key reason for India’s global credibility.
8. Trigger-Based Admission (Default, Not Sickness) – The IBC insolvency process is triggered purely on default at a default threshold of Rs 1 crore (USD ~1.2M) increasing from the earlier threshold of Rs 100,000. This ensures intervention for the right reasons and at an optimal level with no need to prove erosion of net worth. This encourages early intervention at the right financial level reducing eventual losses and focusing only on cases where intervention will yield results. 
9. Market-Based Resolution via Competitive Bidding – a key factor in the IBC is transparent resolution plans. Proposals are invited through an open, competitive bidding process which are evaluated by the CoC based on feasibility, value and the background of the proposer. This encourages transparency and promoted optimal price / value arbitrage.
10. Binding Nature of Approved Resolution Plans - This is in my opinion the most far-reaching component of the IBC. Any approved plan is binding on all stakeholders including the government and dissenting creditors. This eliminates post-resolution litigation risk and completely transformed India’s credit culture.
11. Coverage Beyond Corporates - IBC extends to corporates, individuals and partnerships, personal guarantors to corporate debtors. This closes long-standing loopholes.
12. Strong Deterrence Effect (Even Without Resolution). The threat of IBC meant that a significant share of dues is recovered even before admission or soon after notice. The threat of IBC (as an independent, time-bound process) often works better than the process itself.

 Besides the critical IBC, the NDA government improved market discipline & accountability by passing the Fugitive Economic Offenders Act in 2018. The Act was brought in following high-profile economic offenders (notably Vijay Mallya and Nirav Modi) fleeing India to evade prosecution. This empowered government authorities to confiscate properties (including benami and overseas-linked assets) of individuals who evade Indian jurisdiction after committing economic offences above ₹100 crore. The law deters wilful defaulters from absconding and significantly strengthens the credibility of India’s financial and legal enforcement framework signalling a zero-tolerance outlook for wilful default. This completely changed borrower behaviour.

Additionally, while not strictly market reforms, the government’s focus on financial infrastructure & inclusion by the Jan Dhan–Aadhaar–Mobile (JAM) Stack significantly expanded formal deposit base, Improved CASA ratios for banks, enabled DBT, reducing leakages (& obvious corruption) and strengthened retail banking stability. Along with the digital payments infrastructure, this brought over 80% of Indian population into the formal banking sector slashing (almost eliminating) cash handling costs, transaction traceability and enhanced core data for credit underwriting. The other key reforms were in GST introduction and tax reforms which are too impactful for this little summary. GST (deployed from July 2017) imposed short-term pain, formalised the economy, created a national market, expanded the tax base, and lowered long-term growth volatility — at the cost of temporarily depressing headline growth numbers under Modi.

Let us review some key data from these actions and how they have impacted Indian economy.

NPAs in the banking system are one of the key financial measures – their transparent, accurate calculation and reporting is fundamental to any banking system.

 

Year (FY end)	Gross NPA Ratio	Net NPA Ratio
2013–14	~3.8%	~2.1%
2014–15	~4.3%	~2.4%
2015–16	~7.5%	~4.4%
2016–17	~9.3%	~5.3%
2017–18	~11.2%	~6.0%
2018–19	~9.1%	~3.7%
2020–21	~7.3%	~2.4%
2024–25	~2.3% (~2.1% in late 2025)	~0.5%

 

Key takeaways: when the NDA took over from the UPA, gross NPA ratios were relatively low (3.8 %). Under the NDA government and after the RBI began the Asset Quality Review (AQR) from 2015, NPAs rose sharply, peaking at 11.2% in 2017–18 before improving again. Net NPAs also rose from ~2.1% in 2013–14 to ~6.0% in 2017–18 following the recognition of stressed assets. The sharp increase from 4.3% in 2014–15 to 7.5% in 2015–16 and onward reflects recognition of previously hidden stressed loans, not just new defaults alone. This can be interpreted as the impact of the AQR and stricter recognition standards introduced by RBI from 2015 onward. The peak of reported stress in the banking system occurred roughly between 2016 and 2018. These levels were among the highest recorded in recent decades, even though part of that rise was due to recognition of stress rather than purely new bad loans. Following enforcement of resolution frameworks (including IBC), recapitalisation, and recoveries/write-offs, gross NPAs had declined to ~9.1% (FY 19), ~8.2% (FY 20) and continued moderating. Despite covid and its financial impacts, NPAs had reduced to ~7.3% in FY 21. These declines reflect efforts at cleanup, provisioning, recoveries, and write-offs. According to the latest RBI reporting, gross NPA ratio for all banks was ~2.3% as of March 2025 and near 2.1% by September 2025, the lowest in decades. Net NPA ratio stood at around 0.5% by late 2025. This is a substantial improvement from the peak stress years and reflects sustained clean-up action.

In summary three phases are clear – the first phase was pre-AQR when gross NPAs were moderate but there was clear under-reporting or under-recognition of stressed assets. The second phase was post AQR when transparent and rigorous reporting meant the NPAs jumped to historically high levels. The third phase is when banking and economic sector reforms brought the NPAs back to multi-decade lows. The Modi government has done remarkably well in not just bringing the NPAs under control but more importantly ensuring consistent, continuous, accurate and transparent reporting with minimal interference.

 

The headline GDP numbers are something large portions of the Indian media use to beat up the NDA government.

Period	Approx. Real GDP Growth
Vajpayee NDA (1998–2004)	~5.5–6.5%
UPA (2004–2014)	~7.0%
Modi NDA (2014–present)	~6.0–7.0% (varies by sub-period/pandemic adjustments)

 

 

 While the GDP numbers do indicate years of significant growth under the UPA (a percentage point more than the preceding Vajpayee led NDA government and peaking at about 10% in 2007, raw GDP numbers mean little to an economy. GDP growth needs to be analysed for consistency (volatility indicates underlying concerns and stress, a notable feature under the UPA) and with other key data like inflation to present a more rounded story.

 

Year	Real GDP Growth (%)	CPI Inflation (%)
1999	~5.0	~4.0*
2000	~6.1	~4.5*
2001	~4.9	~3.8*
2002	~3.8	~4.0*
2003	~7.9	~3.9*
2004	~7.8	~3.8*
2005	~9.3	~4.4*
2006	~9.3	~6.7*
2007	~10.3	~6.2*
2008	~3.9	~9.1*
2009	~7.9	~12.3*
2010	~8.5	~10.5*
2011	~6.6	~9.5*
2012	~5.5	~10.0*
2013	~6.4	~9.8*
2014	~7.4	~6.7*
2015	~8.0	~4.9*
2016	~8.3	~4.9*
2017	~6.8	~3.3*
2018	~6.5	~3.9*
2019	~3.9	~3.7*
2020	−5.8	~6.6*
2021	~9.7	~5.1*
2022	~6.99	~6.7*
2023	~8.2–8.3	~5.5*
2024	~6.5	~5.0*
2025 (est.)	~6.1 (or 6.4–6.7 by forecasts)	~3.2 (projected)

 

 

This table can be statistically interpreted as:

• The late 1990s and early 2000s saw moderate growth and relatively contained inflation. Most importantly, stable inflation (within 10% of the 4.0 mark) with growing GDP (except in the aftermath of the dot com bust).
• The UPA period were high headline GDP and inflation growth years with large volatility. The UPA government took a positive trending GDP growth (7%+) and a stable but decreasing inflation trend (<4%) to a volatile GDP peaking at 10+% but consistently increasing inflationary trends peaking at 12%.
• Post-2014 (Modi/NDA) shows a mix of strong growth and generally falling inflation, particularly under inflation targeting and RBI monetary policy frameworks. Recent years (2023–2025) demonstrate continued growth momentum with inflation often within or near RBI’s target band.

 

A naïve comparison of headline averages (GDP growth, per-capita growth) will mechanically make the UPA look better—but that conclusion is analytically weak. The issue is not political bias; it is methodological error. Below is a rigorous way to review performance correctly, using tools that professional macroeconomists, rating agencies, and sovereign analysts would use and report against:

1. Peak-to-trough analysis
2. Growth volatility & quality
3. Inflation-adjusted growth
4. Banking system health
5. Sustainability of investment
6. Global cycle adjustment

 

Let’s review growth quality – let us ask – what kind of growth are we seeing?

Under the Singh led UPA, growth was credit-fuelled and unsustainable, growth was driven by indiscriminate capex printing money. Inflation is a key symptom of such growth. NDA under Modi delivered lower-volatility growth consistent with the balance-sheet numbers – NPAs and banking sector strength are key symptoms of this.

Economists who support the UPA point to high investment volume – sometimes 40% of GDP. However, one needs to measure investment efficiency, not investment volume. The 40% measure fails the basic sniff test – ROIC (return on invested capital) << Cost of capital, projects are stalled and rarely completed on budget or schedule, and the banking system absorbs these costs later in the invested cycle. This misallocation of capital led to banking impairment (discussed earlier) and needed capital infusion to stay relevant. High investment that later becomes NPAs is negative growth, not positive growth.

The most critical aspect for any national economy is Inflation-adjusted GDP/welfare, not headline GDP numbers. The persistently high, volatile inflation under UPA destroyed real household income, forced RBI to keep rates high (thereby increasing Cost of capital) and negatively impacted wage earners by consistently decreasing value of money. The Modi era made formal inflation targeting a key outcome, focusing on low volatility and ensured better income protection. This matters a lot more than mere headline GDP numbers.

Let’s do something interesting – a counterfactual test. What would UPA-style policy have produced in the world Modi faced? UPA faced the GFC but largely was in a world with the highest liquidity ever seen, buoyant global economy, a China construction boom the like of which the world had never seen and a largely stable geopolitical order.  Modi faced post-GFC stagnation, end of China super-cycle, tight global liquidity, Covid / pandemic shock and increasing geopolitical fragmentation/insurgency. Yet India remained the fastest-growing large economy with no sovereign stress, financial stability and a robust banking system. UPA-style delay + forbearance in 2016–2020 would likely have produced a banking crisis much more severe than 2012-14 making India more like socialist Venezuela.

Structural indicators across the UPA and NDA era beats headline GDP growth.

Metric	2013	2024
Gross NPAs	~11%	~2–2.5%
Inflation regime	Unanchored, volatile, increasing trend	Anchored, stable, decreasing trend
Insolvency framework	None	IBC
Formalisation	Low	High (GST, UPI)
Tax base	Narrow	Broad
External buffers	Thin	Strong

 

The timing of the key events matters in analysing economics. It will help us understand when the Indian economic story went from being strong and resilient in 2004 to struggling and fragile in 2013.  Numbers indicate investment peaked in 2010-11. The growth sharply declined in the 3 years leading to NDA’s victory in the general elections of 2014. The economic collapse happened under UPA, not NDA. Modi’s NDA inherited the downturn; UPA presided over the peak and the crash.

Dimension	UPA under Singh	NDA under Modi
Growth driver	Debt + capex boom	Productivity + formalisation
Bank health	Hidden NPAs	Cleaned balance sheets
Inflation	High & volatile	Lower & anchored
External vulnerability	Fragile	Resilient
Sustainability	Cyclical	Structural

 

A deeper analysis indicates what economists have often suspected

·       Singh’s UPA rode a global boom and left behind a mess

·       Modi’s NDA absorbed the pain, cleaned the system, and rebuilt foundations

While the NDA government has done far better than the previous UPA government as is obvious from this article, a lot more could have been done and hope the NDA government will take necessary steps rapidly.

While IBC cleaned NPAs and brought in structure, the focus still remains on the larger corporates. More could be done to bring the smaller corporates into its fold. While capital markets deepened with the IPO reforms and SEBI transparency, market instruments remain underutilized, regulatory bottlenecks still exist for risk capital deployment in smaller firms and several PSBs remain inefficient.

The agriculture sector is crying out for reforms and the farm laws rolled back after announcement are a tragedy for the Indian farmer. This could have potentially led to crop diversification & high-value crops, more seamless logistics, cold storage, private investment in irrigation and mechanisation etc.  The NDA government did commence eNAM but its implementation has been tawdry.

The tax / GST structure needs significant additional reforms and improvements. GST streamlined indirect taxes but compliance burden is high for small firms. Direct tax reforms (corporate rate rationalisation, personal income simplification) have been incremental. The NDA government needs to rationalise and simplify the whole direct tax structure. There is significant untapped potential for wider digitisation: linking GST, income tax, e-way bills, and customs could boost efficiency multi-folds and easily add 2-3% to the GDP growth while keeping inflationary trends consistent.

 

Key takeaways: missed opportunities:

Area	Reform Done	Gap / Could Have Done More	Potential Economic Impact
Labour	Consolidation into 4 codes	Faster state adoption, broader coverage, integrate with skills	Higher employment, faster factor allocation, higher investment
Land	Limited amendments, housing	Full liberalisation, urban & industrial land markets	Faster industrial growth, lower logistics costs
Agriculture	MSP, eNAM	Diversification, private investment, irrigation	Higher rural income, consumption growth, reduced inflation
Capital Markets	IBC, SEBI reforms	SME financing, PSU governance	Higher investment efficiency, lower cost of capital
Taxation	GST	Simplify compliance, integrate systems	Broader tax base, higher fiscal space
Investment Climate	FDI liberalisation	Environmental and state-level clearance bottlenecks	Faster capex, higher growth

 

 

In summary, while much still needs to be done, the strong fundamentals, key policy changes, transparency and accountability implemented by NDA under Modi are all reasons why the Trumpian tariffs and tantrums have had limited impact on India – no industry or citizen group is protesting at Shaheen Bagh demanding assistance or welfare status.