Discussing the ‘White Paper on the Indian Economy’ in Lok Sabha on 9 February, 2024 under Rule 342, Union Finance Minister Nirmala Sitharaman accused the UPA-led government of ruining India’s reputation globally by fiscal mismanagement at the Centre.
The ‘White Paper’ compares the economic performance of 10 years of the Congress-led UPA government with a decade of NDA rule under Prime Minister Narendra Modi. Discussing it in the lower house, she also said that the Congress regime lacked ‘neeyat and niyam’, i.e., intention and adherence to the law during their 10-year tenure.
The banking crisis is pointed out as one of the most important and infamous legacies of the UPA government, citing political interference in commercial lending decisions of public sector banks and a rise in Gross Non-Performing Assets (GNPA) ratio.
It was pointed out that when the Atal Bihari Vajpayee-led NDA government took office, the gross non-performing asset (GNPA) ratio in public sector banks (PSBs) was 16%, and when they left office, it was 7.8%
However, his ratio, including restructured loans, had climbed to 12.3 per cent in September 2013, largely because of political interference by the UPA government in the commercial lending decisions of PSBs.
The paper further highlighted that the gross advances by PSBs were only Rs 6.6 lakh crore in March 2004, while in March 2012, it was Rs 39.0 lakh crore. “Further, not all problem loans were recognised. There was much under the hood,” said FM while recalling the massive banking crisis of 2014.
According to a Credit Suisse report published in March 2014, the top 200 companies with an interest coverage ratio of less than one owed about Rs 8.6 lakh crore to banks. Nearly 44 per cent of those loans (Rs 3.8 lakh crore) were yet to be recognised as problem assets.
That alone would have added another 6.7 per cent to the GNPA ratio. In 2018, in a written response to a Parliamentary Panel, a former Governor of the Reserve Bank of India, stated, “A larger number of the bad loans were originated in the period 2006-2008.”
What did the NDA government do for the Indian banking system and economy?
As per the while paper, the current government, in the past 10 years, has revitalised the stagnant financial sector and overhauled the credit ecosystem within the economy, bringing about major improvements.
It elaborated that the implementation of the Insolvency and Bankruptcy Code (IBC) and steps taken to strengthen the balance sheets of the banks include- asset quality review, prompt corrective action framework, improved asset quality, and capital infusion.
GNPAs of state-owned lenders stood at 4.4 per cent, and net NPAs at 1 per cent at the end of September 2023, according to the Financial Stability Report in December 2023. The ratio of GNPAs as a proportion of gross advances declined to a multi-year low of 3.2 per cent in September 2023.
The Indian economy also showed elevated external vulnerability, the paper highlighted. it said that India’s external vulnerability shot up because of over-dependence on external commercial borrowings (ECBs) that to in an era where capital flows dominate.
During the UPA government’s tenure, ECB rose at a compound annual growth rate of 21.1 per cent (during 2003-04 through 2013-14), whereas in the nine years from 2013-14 through 2022-23, they have grown at an annual rate of 4.5 per cent.
Moreover, the paper accused the UPA government of compromising external and macroeconomic stability, which led to the plunge of Rupee in 2013. From its high to low, against the dollar between 2011 and 2013, the rupee plunged 36 per cent, it added.
Contrastingly, now, under the NDA regime, India’s external sector is much safer, with foreign exchange reserves increasing from $303 billion (equivalent to 7.8 months of imports) in March 2014 to $617 billion (10.6 months of imports) in January 2024, the paper showed.