Economy | Boom, bust and drift
UPA's economy swung from high-growth global confidence to inflation, policy paralysis and capital flight, stabilising late under crisis management, but ending in exhaustion, lost credibility and an electorate unconvinced by belated recovery signs
The economic story of the UPA years is best understood not as a straight line of rise and fall, but as a pendulum, swinging from exuberant confidence to creeping anxiety, from global swagger to domestic self-doubt. Between 2005 and 2014, India experienced one of its most dramatic economic arcs since liberalisation: a mid-decade boom followed by a prolonged slowdown marked by inflation, capital flight, regulatory overreach and institutional paralysis.
The economic story of the UPA years is best understood not as a straight line of rise and fall, but as a pendulum, swinging from exuberant confidence to creeping anxiety, from global swagger to domestic self-doubt. Between 2005 and 2014, India experienced one of its most dramatic economic arcs since liberalisation: a mid-decade boom followed by a prolonged slowdown marked by inflation, capital flight, regulatory overreach and institutional paralysis.
By the middle of the first UPA term, the Indian economy appeared to have hit a sweet spot. Growth averaged close to 9 per cent, corporate profits surged, tax collections soared and consumer confidence was buoyant. The Sensex crossing 20,000 in December 2007 was not merely a market milestone. It was a psychological marker that India had arrived as a serious economic power. Tata Steel’s acquisition of the Anglo-Dutch steelmaker Corus Group and Aditya Birla Group flagship Hindalco’s takeover of US aluminium major Novelis in 2007 marked a defining moment, announcing that Indian entrepreneurs were no longer content to be junior partners in global capitalism. Tata Motors’ purchase of Jaguar Land Rover in 2008 signalled a broader shift. Indian firms were using the balance sheets created by high domestic growth to buy global scale and prestige.
This outward push was underpinned by strong domestic fundamentals. Credit was cheap, investment rates were high and the private sector, particularly telecom, infrastructure and manufacturing, was expanding rapidly. The UPA’s political compact with the Left constrained reforms, but high global liquidity and robust domestic demand compensated for policy inertia. Yet even at the peak of the boom, fault lines were visible. Food inflation was persistent, inequality was widening, and the benefits of growth were unevenly distributed.
The global financial crisis of 2008 brought the boom to a sudden halt. India was not at the epicentre of the crisis, but it was not insulated either. Capital fled emerging markets, exports slowed, industrial output contracted and the Sensex lost over half its value from its peak. Growth slipped to around 7 per cent in 2008-09, marking a decisive break from the high-growth narrative.
The UPA government responded aggressively. Fiscal stimulus packages were rolled out, interest rates were cut, and a massive farm loan waiver, politically timed ahead of the 2009 general election, was deployed to shore up rural demand. These measures succeeded in preventing a recession, and India emerged from the crisis faster than many advanced economies. But they came at a cost. Fiscal deficits ballooned, inflationary pressures intensified and the reform momentum never quite materialised.
The 2009 electoral mandate gave the UPA a rare opportunity: freed from Left support and armed with political legitimacy, it could have pursued second-generation reforms. Instead, the period that followed saw growing friction between government and business. What emerged was a paradox. While sectors at arm’s length from the State—IT, pharmaceuticals, FMCG—continued to perform, industries dependent on government clearances struggled. Policy paralysis gave way to what business leaders increasingly saw as policy overreach: retrospective taxation, arbitrary regulation and prolonged delays in approvals.
Fresh investment commitments collapsed by nearly 70 per cent between 2010 and 2011. For the first time in decades, capital outflows exceeded inflows. The irony was sharp: PM Manmohan Singh, who had dismantled the licence raj in 1991, was now presiding over an economy accused of resurrecting its instincts. By 2012-13, the economy was caught in a vicious cycle. High inflation constrained monetary policy, slowing growth reduced revenues, and political uncertainty paralysed reform. The crisis reached its most visible moment in mid-2013, when the rupee plunged to nearly Rs 68 to the dollar amid global risk aversion and domestic weakness. The fall symbolised a broader loss of confidence in macroeconomic management.
The appointment of Raghuram Rajan as RBI governor in September 2013 marked a turning point. He moved swiftly, raising interest rates, opening special forex swap windows and curbing gold imports, to stabilise the currency and anchor expectations. By early 2014, there were signs of stabilisation. Inflation was easing, the current account deficit (CAD) had narrowed, and financial markets had calmed. At the same time, a new economic narrative was emerging. India’s startup ecosystem was beginning to take shape. Flipkart’s billion-dollar fundraise and acquisition of Myntra, alongside investments in Snapdeal, Ola and Amazon’s aggressive expansion, hinted at a consumption- and technology-driven future.
Yet these green shoots came too late to rescue the political credibility of the UPA government that had overseen the cycle. Growth had slowed, confidence had drained away, and the electorate delivered its verdict in 2014.