10 years of UPA: Revisiting Dr Singh's economic legacy

Dr Manmohan Singh will become the first Indian prime minister since Indira Gandhi to complete two five-year terms when the United Progressive Alliance completes its second term in May 2014.

While much was expected from the premiership of Dr Singh -- a widely-regarded economist who was largely responsible for the country's overarching reforms in the early 90s that put the country into a higher-growth orbit -- it would be safe to conclude his stint was a mixed bag for the economy.

The first term of the UPA was characterized by largely strong economic growth and superior stock market performances, the second stint was pockmarked by low growth, high interest rates, staggering deficits and a weak currency.

The government's first stint also coincided with a global economic boom -- fuelled by a massive liquidity wave -- that ended in a spectacular global crash just as it was entering its last year.

Two-phased stock performance

In May 2004, the stock market did not give a warm reception to the announcement of the UPA victory amid concerns over the presence of left parties in the coalition. The Sensex fell over 10 percent and trading had to be suspended twice.

But investors since have done relatively well with the Sensex rising from about 5,000 points then to its current record high levels of 21,000 levels currently -- an annualized return of roughly 16.3 percent -- though the index peaked out in early 2008 itself.

The Sensex has significantly outpaced the famous measure for emerging markets, the MSCI Emerging Markets Index, which has clocked about 8.5 percent returns over the same time.

The stock market performance can be neatly divided into two distinct phases: a euphoric bull rally between 2004 and late 2007, in which most global markets rallied, followed by a consolidation phase since the global crash of 2008 that has witnessed retail investors nearly fleeing the market.

Mixed economic performance

Even as Dr Singh's government ends its tenure on a note of abject gloom, with economic growth slowing down to levels seen just before his government took over in 2004, economic growth through the 10 years was, on average, steady.

In financial year 2004, growth jumped to 8.5 percent, nearly double the 4.3 percent it had witnessed in the previous year. It then went on to log 9 percent plus growth for three consecutive years between 2006 and 2008.

Growth then fell off to 6.7 percent during the global crash before bouncing back sharply to 8.6 percent and 9.3 percent in 2010 and 2011, respectively, before falling to 6.2 percent in 2012 and 5 percent in 2013.

While the first term of the UPA was symbolic of investments and optimism in the Indian economy, the second was marked by a slew of multi-billion corruption scandals, runaway social sector spending, high inflation and huge deficits at both the budgetary and trade levels.

Consumer inflation stood in the double digits for most part of the past five years, except for a short-lived sharp fall after the 2008 crisis while the government's fiscal and current account deficits recently reached record levels.

Economists often blamed much of the inflation and deficits of the past years to the government's decisions to spend on rural-welfare schemes such as the one promising employment guarantee or a loan waiver for farmers.

With inflation remaining uncomfortably high, the Reserve Bank of India had no option but to keep interest rates elevated, to the point it stifled economic growth. In fact, the erstwhile governor, Duvvuri Subbarao, set a record of sorts when he raised key policy rates a staggering 13 times between 2010 and 2012.

But part of the inflation was also global in nature as central banks around the world opened the liquidity tap in an unprecedented manner to deal with sluggish growth in the developed world, which led to capital flowing into emerging economies, not to mention lifted prices of commodities such as gold and crude oil, both of which India was a heavy importer.

Finally, for a government that had policymakers reputed for their reform-oriented streak, Dr Singh's rule was nothing to write home about in that regard.

Even as the government attempted many reforms, including opening up several sectors for foreign investment, many of these were viewed either as half-hearted, too little or too late.

A key reform push by the UPA in the tax area with the introduction of the direct taxes code, billed as the biggest tax overhaul in decades, along with the goods and services tax, is yet to see the light of the day.

The Aadhar, an ambitious identification program that aims to create a sophisticated national database for the country's citizens, has made steady progress since its launch.