Should we worry about GDP growth under coalition regimes?

Narendra Modi and Manmohan Singh

India is set to return to the era of coalition governments after a decade as the Bharatiya Janata Party (BJP) fell short of a majority, because of which it is dependent on key allies to form a government.

That begs the question many are raising: Could this lead to a slowdown in growth?

As it turns out, coalition governments and GDP growth are not necessarily interlinked. After the initial decades of independence, India has seen several instance where the economy did well  without single-party majorities at the helm of affairs. And, of course, apart from the governing regime, a country’s economic performance depends on a whole host of factors including the state of the global economy.

India is currently the fastest growing major economy in the world, with a GDP growth rate of 8.2 percent in FY24 and projected expansion of 7.2 percent in the ongoing financial year.

Commentary from global agency Fitch Ratings on June 6 warned about challenges in passing legislation on the more ambitious parts of the government reform agenda, given a return to coalition politics in India.

However, Fitch sees India’s medium-term growth performance at around its trend estimate of 6.2 percent through FY28, despite the BJP-led National Democratic Alliance winning by a slimmer majority this time. On Friday, the Reserve Bank of India’s Monetary Policy Committee raised India's FY25 real GDP forecast to 7.2 percent from 7 percent earlier, thanks to prospects of improving demand conditions due to positive monsoon forecasts.

A look at the GDP growth rates over India’s last few coalition governments shows that growth is unlikely to suffer even in a regime that does not have one political party enjoying a simple majority and is instead a cobbled-together alliance.

Under the United Progressive Alliance (UPA) regime led by the Congress—first voted to power in the 2004 general election and at the helm for two terms until 2014—India’s GDP growth on average was 6.8 percent. In these 10 years, the Congress did not have a majority on its own and relied on allies for support.

This economic growth figure is slightly higher than under the BJP-led single-party majority regime that came into power next, at 6.0 percent for 2014-15 to 2023-24, according to data from India’s statistics ministry.

To be sure, this includes 2020-21, the first year of the pandemic, which saw a hard lockdown resulting in a fall in GDP.

In FY21, India’s GDP growth contracted 5.8 percent. In comparison, the UK and US saw a fall of 10.4 percent and 2.8 percent, respectively.

Disregarding the pandemic-induced lockdown year, GDP growth during the Modi-led regime stands at 7.3 percent over a nine-year period.

Looking back

India’s maiden experience with coalition-style governance was when Morarji Desai became prime minister after the Janata Party’s victory in 1977. His government lasted two years, 1977 to 1979.

Growth rates during this period, FY78 and FY79, averaged 6.5 percent.

Going back 40 to 50 years invariably involves issues of data compatibility. Back in June 2022, the Ministry of Statistics and Programme Implementation (MoSPI) released annual GDP growth data that stretches back to 1951-52. Until then, comparable growth rates for the current GDP series with 2011-12 as the base year was available only till 2005-06.

1989-2004

India’s next phase of coalition politics lasted longer, stretching between 1989 and 2004. In these 15 years, the GDP growth rate averaged 5.6 percent.

It was in this period that the BJP-led NDA made its entry into the halls of power in 1998 with Atal Bihari Vajpayee helming a coalition as the prime minister. Between 1998 and 2004, the Vajpayee years, the average GDP growth rate was 5.8 percent.

In 2004, Vajpayee and his coalition was defeated in the parliamentary election by the Congress-led UPA.

1964-79

Single-party majority governments, headed by the Congress during the 15 years between FY64 and FY79, presided over underwhelming economic performance, with GDP growth rates averaging lower at around 3.8 percent, showed data from statistics ministry.

Of course, the GDP growth rate does not always tell the whole story. A country’s economic performance depends on a whole host of factors, including external factors like crude oil prices.

But concerns around whether a coalition government could directly or alone impact a country’s pace of growth seem misplaced, at least as per India’s history.