The “White Paper on the Indian Economy”, tabled by Union Finance Minister Nirmala Sitharaman in the Lok Sabha on February 8, 2024, outlines the inheritance of loss and the economic misadventures faced by India due to the policies of the previous UPA government. According to the document, the UPA’s tenure from 2004 to 2014 was characterised by economic mismanagement, financial indiscipline, and widespread corruption, which significantly hindered India’s growth prospects. The paper claims that these issues relegated India to one of the “fragile five” economies globally, creating hurdles that impeded economic activity and growth.

At the ET Global Business Summit, Prime Minister Narendra Modi delivered a stark critique of the decade preceding 2014, characterising it as a period that gravely endangered India’s economic stability. He also alluded to the White Paper on India’s economic conditions, which has since ignited widespread discussions. PM’s remarks were not just reflections but a scathing indictment of the previous administration’s governance, which, according to him, was marked by egregious financial mismanagement, riddled with scams, and paralysed by indecisive policymaking. This eroded investor confidence but also brought the nation perilously close to a precipice of distrust and despair.

There are four areas in which the current administration has worked to deal with the fiscal misadventures between 2004-14. First one of this is the practice of “phone banking” was identified as a contributing factor to the Non-Performing Assets (NPA) crisis in India during the NPA era. This term refers to the alleged influence exerted by politicians over banking decisions, where it is claimed that phone calls from influential figures could sway lending decisions of public sector banks. This led to the approval of loans for certain businesses without proper due diligence, contributing to the accumulation of NPAs within the banking system.

Under the NDA government led by PM Atal Bihari Vajpayee, the Gross NPA ratio in public sector banks was reduced from 16.0% to 7.8%, but during the UPA era, it escalated to 12.3% by 2013, partly due to political meddling in bank lending decisions. The crisis deepened by 2014 with the banking sector grappling with a substantial increase in bad loans, much of which were not recognized in official accounts. A Credit Suisse report from March 2014 highlighted that top companies with poor interest coverage ratios contributed significantly to the unrecognised NPAs, suggesting a systemic underestimation of the banking sector’s distress during this period. This period saw a massive escalation in gross advances by public sector banks from Rs 6.6 lakh crore in 2004 to R 39.0 lakh crore by 2012, with a large portion of loans turning problematic, particularly those originated between 2006 and 2008, as noted by a former RBI Governor in a 2018 parliamentary panel response.

The Modi government addressed the NPA crisis through a strategic approach termed the ‘4R’ strategy, encompassing recognition, resolution, recapitalization, and reforms. This strategy led to a significant reduction in bad loans, with public sector banks (PSBs) witnessing a decline of Rs 89,189........

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