The 7 Myths of UPA's "Economic Disaster"

Economics faculty, Maitreesh Ghatak, Parikshit Ghosh, and Ashok Kotwal, respectively from London School of Economics, Delhi School of Economics and University of British Columbia, have published a paper titled, "Growth in the time of UPA: Myths and Reality". I would those who visit this post to go over the complete paper and get a better grasp of the various (coherent) arguments.

I have tried to glean #7 insights from this academic paper in order to explode some myths on UPA I and II's economic mismanagement and on the new magic mis-mantra of mis-"governance". The caveat here is that there was widespread corruption and lack of transparency, especially in the UPA II regime, which is inexcusable. (There was also slow progress on Human Development perspective but, we will not concentrate on that here.) But, this passage should put things in some perspective.

"Corruption will surely slow down growth, but growth also tends to create corruption by generating new wealth, the claims on which are not properly established. It is, therefore, both a worry and a positive symptom, but the latter aspect gets lost in the excessively moralistic framework within which the problem is often discussed. There are very few thieves in Antarctica, but primarily because there is nothing to steal."

Some shortcomings and actual "disasters" will be documented too as 'Failing Scores' (my pov) but, right wing commentators and blind Modi groupies should tone the rhetoric a bit with a dose of good old data, as we will see below.

Myth #1: India grew faster during NDA regime

*Real GDP grew at nearly 6% per year under NDA, which has increased to 7.6% during UPA’s rule. Growth jumped above 8% in UPA’s first term and has come down to an average of 7% in the second, but is still comfortably above the NDA benchmark.



*In the NDA period, India’s growth lead over the world was 2.5 percentage points, which increased to about 3.5 percentage points under UPA. Even relative to the rest of the world, growth has clearly accelerated.




Myth #2: UPA has put India's Public Finances & Investments in the toilet

*It is true that the volume of subsidies has gone up under UPA, from 1.6% of GDP in the last year of NDA to 2.6% in 2012-13. Under NDA, the debt grew from 50% of GDP to 61%. Since UPA took over, it has come down to 48%.



*It is quite evident from the data that a structural shift happened in the Indian economy around 2004-05 towards greater savings, investment and growth, in both the public and private sector. Whether this shift has anything to do with government policies is certainly a debatable issue but it is difficult to argue in the face of these facts that the UPA government actively suppressed productivity and income growth.

*It is remarkable that UPA has so meekly surrendered to the charge of fiscal indiscipline when the record is so completely in its favour.

Failing Score:

The UPA period is characterized by consistently higher and rising inflation rates compared to the previous régime. When it comes to the inflation question, the incumbent government will find it difficult to get off the hook.


Myth #3: UPA has destroyed the economy with its Welfare Schemes

*There is direct evidence that UPA’s signature welfare schemes have not seriously damaged productive capacity in the economy, at least relative to earlier levels or trends. Government consumption as a fraction of GDP has remained nearly flat through the NDA and UPA years.




Myth #4: UPA did not invest/encourage Infrastructure Development

*Panagariya claims “progress in infrastructure, which had acquired great momentum under NDA slowed down (under UPA).” There is no evidence to support this claim. Indeed, data shows the opposite is true.

*Infrastructural investment even as a fraction of GDP (let alone absolute value) has been substantially higher during the UPA régime, hovering in the range of 7-8% in recent years as opposed to the 5% or so that was invested annually by NDA.



*From US $2.8 billion per year on average during the NDA years, annual FDI inflow ballooned to an average of $ 26.2 billion during UPA’s second term, nearly a tenfold increase. The positive effects of infrastructure funding, achieved to a great extent by mobilising private and foreign capital, are visible in many areas.



Failing Score:

Since 2003, rents earned from extraction activities as a percentage of GDP have nearly doubled. The overwhelming impression in India is that unclear pricing and allocation rules, as well as lax property rights, have created a scramble for these lucrative rents using political connections as leverage. The Economist (March 15, 2014) quotes a recent poll where 92% of respondents thought corruption has gone up in the last five years. In the magazine’s own estimate, $80 billion has been earned through rent seeking in the last decade.


Myth #5: Exports have stagnated under UPA

*Exports have grown from below 15% of GDP in the NDA years to nearly 25% in 2012-13. Imports have more than doubled relative to GDP – starting from 17% in the last year of NDA rule, it now touches 35%.



*Average import duty on goods and services have steadily gone down since the onset of liberalisation and is now in the single digits. The only mild upswing in this declining trend is seen in the early years of the NDA government.

Failing Score:

In just four months, between May 2013 and August, 2013, the rupee fell 20% to the US dollar. From the time UPA took over, the rupee has lost nearly 30% of its value in nominal terms. However, it currently stands 11% below its value in 2004-05 in real terms.


Myth #6: UPA spent a lot of money on Human Development

*Public spending on health has been flat at around 1% of GDP under both governments. Perhaps surprisingly, there was a significant increase in public spending on education in the initial years of NDA, from under 3% to well above 4%, around the time when the Vajpayee government launched the Sarva Shiksha Aviyan [sic].

Failing Score:

On the whole, there is little to choose between the NDA and UPA administrations. Neither government made public health or education a top priority.


Myth #7: UPA report card is a disaster

A period witnessing remarkable gains for the privileged and some for even the not-so-privileged has been confidently declared a disaster zone. The obvious leadership gap has played a role here, but nonetheless, this manufactured reality will no doubt marvel future historians when they look at the actual records.

The Halo Effect: A Tripartite Analysis in Current Indian Politics

Daniel Kahneman, Nobel Prize winner in Economics has written wonderful (and readable) book on psychology - Thinking, Fast and Slow that represents his "current understanding of judgment and decision making."

-1-

From the Chapter titled: A Machine for Jumping to Conclusions, the following passage:

Exaggerated Emotional Coherence (Halo Effect)
If you like the president's politics, you probably like his voice and his appearance as well. The tendency to like (or dislike) everything about a person - including the things that you have not observed - is known as the halo effect. The term has been in use in psychology for a century, but it has not come into use in everyday language. This is a pity, because the halo effect is a good name for a common bias that plays a large role in shaping our view of people and situations. It is one of the ways the representation of the world that System 1 [operates automatically and quickly, with little or no effort and no sense of voluntary control] generates is simpler and more coherent than the real thing.

This is a good enough introduction for now, which got me thinking on arguably the three biggest personalities in the current run up to 2014's general elections: Narendra Modi, Rahul Gandhi, and Arvind Kejriwal. (While writing this I unwittingly put Modi's name down first even though I like him and his politics the least - maybe, it is the halo effect or, months of priming).

I am attempting to do an 'armchair analysis' of how swayed is an average supporter of each of these politicians by the above halo effect. Views and (confirmation) biases are of course, strictly my own.

Modi: In this case, the halo effect is the clearest. From citizens in India who have never been to Gujarat to NRIs who have never been to India, there is a wide spectrum of supporters. Development figures that have been mostly made up for the state of Gujarat are flaunted with impunity as the absolute truth while inconvenient numbers like, those on the human development ones fall by the wayside. Those who decry corruption and crony capitalism turn a blind eye to suspect dealings. Even if one ignores the appalling state of affairs with reference to 2002 riots and the subsequent actions including, encounter killings that have ensnared both Modi's ministers and top cops, there is very little data to support the great governance that Modi and his supporters tout.

So the big question is: do supporters like Modi's brand of politics (communalist, Hindutva/Sangh Parivar based) and consequently use that as an excuse to blindly believe the other lies and half truths or, do they like his style of governance, whatever that equates to, and are willing to turn a blind eye?

If you reference the above book passage it is clearly the former: an average supporter likes Modi for what he has done in 2002 and subsequently covers that narrative with stories of governance and development, irrespective of how weak or, untrue they are. 

Disclaimer: a lot of folks would claim and probably hold the other end of the argument i.e. governance (eg. good roads) trumps human rights, and they might be correct in their arguments and psychology but, here we are analyzing an average supporter.

Edit 3/13: This article points to the moral fallacy of the above disclaimer: growth trumping humanity.

That is why widely exaggerated claims of Gujarat's development and number of Modi's Social Media supporters are taken at face value because it follows a convenient narrative chain. That is why the cognitive dissonance of governance does not surface for such a supporter - how a 'strong leader' who is super-awesome in governance could not control riots in his own state and perpetrated by his own minister(s) that killed and displaced thousands? Either that person is bad in governance or, the word has selective meaning where human life of a certain kind (sic) is not valued.

Some commentators have already made more well-formed arguments on why people love Modi - the above is just a minor attempt to understand the possible psychology behind it.

-2-

Exaggerated Emotional Coherence (Halo Effect)
...
You meet a woman named Joan at a party and find her personable and easy to talk to. Now her name comes up as someone who could be asked to contribute to a charity. What do you know about Joan's generosity? The correct answer is that you know virtually nothing, because there is little reason to believe that people who are agreeable in social situations are also generous contributors to charities. But you like Joan and you will retrieve the feeling of liking her when you think of her. You also like generosity and generous people. By association, you are now predisposed to believe that Joan is generous. And now that you believe she is generous, you probably like Joan even better that you did earlier, because you have added generosity to her pleasant attributes.

Real evidence of generosity is missing in the story of Joan, and the gap is filled by a guess that fits one's emotional response to her. In other situations, evidence accumulates gradually and the interpretation is shaped by the emotion attached to the first impression.

Gandhi: Chances are that your first reaction on reading this surname was to think of either Rahul or, Sonia. Chances are lesser that you thought of Indira - unless of course, you lived through the Emergency years under her and/or consider her as the last mass leader. I will go out on a limb here and say you thought the least of 'the' Gandhi i.e. Father of our Nation.

In Rahul Gandhi's case the above example of Joan, cuts both ways. 

Those nominally and violently (social media types) against the 'Gandhi Family' will find associative data points on Rahul Gandhi's lack of interviewing skills, actions related to the ordinance for convicted politicians, equating Dalit empowerment with escape velocity, or even 'doing things' as this tumblr post suggests. Just like the fictional Joan above, all these negative associations lead opponents to the conclusion that Rahul Gandhi is unfit for public office, let alone for the highest one. As this post points out, some of this bashing is unfair in sharp contrast to what the 'haloed-one' i.e. Modi, spouts, which some commentators and majority of supporters consider as gold.

It should however be pointed out that Rahul Gandhi has not held a public office for us to sit on judgment on his performance or, as claimed vociferously to the point of hoarseness, non-performance. He has of course, been in charge of elections in UP and elsewhere with disastrous consequences that he has owned up but, surprisingly this lack of political achievement is not part of the popular failure narrative of Rahul Gandhi.

So, as Rahul Gandhi and Congress Party keeps committing errors and faux pas, these negative 'evidence' accumulates gradually in the minds of naysayers so that the final conclusion becomes that he and hence, the party itself is not fit for governance post 2014 elections.

But, if things are so black & white then why doesn't the Congress Party take corrective action? This is the halo effect that is blinding many of the party insiders and their increasingly outlandish bet is: so will the majority of voters in the country.

It is no secret that for a party that has governed India for most of its independent history, the current state has very few leaders of note and instead has its fair share of psychophants whose rise and power can solely be attributed to their closeness and loyalty to the family. As the noted historian, Ramchandra Guha notes here, "It was Mrs. Indira Gandhi who converted the Indian National Congress into a family business. She first brought in her son Sanjay and, after his death, his brother Rajiv." Therefore, from a party of tall, independent-minded leaders the Congress Party of today has mostly turned into one of 'yes-men' and power brokers.

Hence, in the eyes of these party and government functionaries the Gandhi name is paramount to their own survival and in fact, of the party itself. Hence, this 'halo effect' coupled with personal gratification keeps them in public awe of the 'leadership of Rahul ji'. Similarly, the effect that Indira Gandhi, and to a limited extent, Rajiv Gandhi had on the masses - the die hard, rural supporters link the Gandhi name to the Congress Party (naming a bunch of schemes on the famous surname have helped) and vice versa. Therefore, a party without a Gandhi patriarch/matriarch is a runt of the original. 

So whatever little chance Congress Party has of saving face in the general elections they feel they have to hitch their star with Rahul Gandhi or, if a miracle happens, with his sister- with the same famous halo in the surname and with much lesser negative association (except ironically, with a now infamous married surname).

-3-

Exaggerated Emotional Coherence (Halo Effect)
...
Real evidence of generosity is missing in the story of Joan, and the gap is filled by a guess that fits one's emotional response to her. In other situations, evidence accumulates gradually and the interpretation is shaped by the emotion attached to the first impression. In an enduring classic of psychology, Solomon Asch presented description of two people and asked for comments on their personality. What do you think of Alan and Ben*:

Alan: honest-intelligent-administrator-impulsive-stubborn-anarchist
Ben: anarchist-stubborn-impulsive-administrator-intelligent-honest

If you are like most of us, you viewed Alan much more favorably than Ben. The initial traits in the list change the very meaning of the traits that appear later. The stubbornness of intelligent person is seen as likely to be justified and may actually evoke respect, but intelligence in an anarchist and stubborn person makes him more dangerous. The halo effect is also an example of suppressed ambiguity: like the word bank, the adjective stubborn is ambiguous and will be interpreted in way that makes it coherent with the context.
...

The sequence in which we observe characteristics of a person is often determined by chance. Seequence matters, however, because the halo effect increases the weight of first impressions, sometimes to the point that subsequent information is mostly wasted.

*I changed the adjectives to better fit the following subject

Kejriwal: Consider this situation. An eloquent and educated man in his early 40s is demonstrating to days on end at a public space demanding elected representatives to cede to his demand for public toilets because he thinks that is the right approach to the problem of urination in public places. Even on repeated assurances this person is being stubborn in insisting on his design of public toilets to be the only right one. When confronted, the person exhorts his few supporters of public toilets to civil disobedience. This is against the legitimate right of the people of the country who have elected their own representatives to choose the right design of public toilets on their behalf.

What if I then told you that this person is actually an intelligent person with an IIT degree and an ex-senior IAS officer? Having been fed up with the above shenanigans, will the weight of this person's past achievements give him public leeway to move forward with borderline anarchist activities? I would guess 'no'.

When Arvind Kejriwal captured the popular mindspace or, rather media space, with his India Against Corruption movement in 2011, few characteristics of his persona were known to the public.

However, what was known that he was an engineer [adjective: smart], an IITian [adjective: very smart] no less, an IAS officer [adjective: super smart, hard working], social worker [adjective: dedicated], Magsaysay award winner [adjective: good social work], one of the key campaigners for the 'Right to Information Act' [adjective: honest, public servant], and associated with a noted social worker, Anna Hazare [adjective: credible].

All the above adjectives, to a majority of casual observers, pointed to an honest, intelligent man who is dedicated to public service and rooting out corruption.

The stars were perfectly aligned to the rise of Arvind Kejriwal: a public fed up with instances of misgovernance by the ruling alliance, which synthesized into a single point agenda of corruption, finding a champion in an "honest, intelligent man who is dedicated to public service and rooting out corruption."

To an ardent supporter of the subsequent party of Arvind Kejriwal's, Aam Aadmi Party (AAP), the first impressions are all that matters in their version of the halo effect. In fact, one can argue that the subsequent 49-day Delhi state government of Arvind Kejriwal's has still yielded fewer data points for most to form an informed judgment on the person and the party. This rhetoric-based approach suits AAP just fine as the lasting memories they want people to hold in their respective 'Systems 1' is - of an upright man and movement that is being thwarted by the current political system, which only they can change.

Now, Arvind Kejriwal can safely claim he is an anarchist because the first impressions, leading to his popular haloed persona in certain circles (BJP supporters excepted) are firmly in place.