- Written by Nikhil Inamdar
- BBC Business Correspondent, Mumbai
image source, Getty Images
In January, thousands of people braved the freezing cold to hear Prime Minister Narendra Modi speak at Delhi’s Red Fort.
His message was ‘Vikshit Bharat 2047’, a promise to make India a developed country by 2047.
This is the latest catchphrase from the man known for his penchant for catchy catchphrases.
A “developed India” is an imprecise promise, but in the decade since Mr. Modi first came to power, he has been trying to lay the foundations for a period of economic boom.
The Prime Minister and his government inherited an economy teetering on the brink. Growth slowed and investor confidence was low. More than a dozen Indian billionaires were bankrupt and the country’s banks were saddled with huge outstanding loans that crippled their ability to lend.
A decade later, India’s growth has outpaced other major economies, its banks are strong and its government finances are stable despite a painful pandemic. India overtook the UK last year to become the fifth-largest economy, and Morgan Stanley analysts say it is on track to overtake Japan and Germany to become the third-largest economy by 2027.
There is definitely an air of optimism in this country. The G20 was successfully held, and a rocket was launched for the first time near the moon’s south pole, giving birth to dozens of unicorns. The soaring stock market is also having a trickle-down effect on the wealth of the middle class.
At first glance, the ruling Bharatiya Janata Party (BJP)’s economic vision for India, “Modinomics,” appears to be working. However, if you dig deeper, the situation becomes more complex. For this country’s vast population of 1.4 billion people, who are living on the margins, these are not good times yet.
So who are the winners and losers of Modinomics?
digital revolution
Mr. Modi’s push for digital governance is starting to change the lives of the country’s poorest people.
Indians living in the most remote parts of the country can now buy many everyday items without cash by paying as little as 20p for a pack of bread using a QR code on their mobile phone.
Underpinning this digital revolution are universal ID cards, payment infrastructure that enables money transfers with the click of a button, and data pillars that enable access to important personal documents such as tax returns. Layered governance system.
Linking hundreds of millions of bank accounts to this “digital stack” has reduced red tape and corruption.
Estimates suggest that by March 2021, the equivalent of around 1.1% of GDP will be saved thanks to digital governance, allowing governments to provide large amounts of social grants and cash transfers without running large deficits. The government was also able to spend money on infrastructure development.
Cranes, cranes everywhere!
Everywhere you go in India, cranes and JCB machines are at work, transforming creaky public infrastructure into something sparkling new.
Check out this sleek, first-ever underwater subway in the eastern Indian city of Kolkata.
There is no doubt that this country is undergoing reform.
Building new roads, airports, ports and subways are central to Mr. Modi’s economic policies. Over the past three years, we have spent more than $100 billion annually on infrastructure spending (capital spending).
From 2014 to 2024, approximately 54,000 km (33,554 miles) of national highways were constructed. This is twice as long as he had in the previous 10 years.
The government has also significantly eased the bureaucracy that has been a major bane of India’s economy for decades.
But Mr. Modi’s policies have not worked for everyone.
The brutal lockdowns imposed during the pandemic, the lingering hangover of the 2016 cash ban, and the introduction of the new Goods and Services Tax, a long-overdue reform aimed at streamlining the country’s ever-increasing amount of indirect taxes. The mistake had far-reaching consequences. Structural impacts on the Indian economy.
image source, Getty Images
The country’s vast unorganized sector, the small and medium-sized enterprises that form the backbone of the country, is still reeling from the effects of some of these decisions.
And the private sector is not making large-scale investments. Private investment as a share of GDP has fallen from a peak of 27.5% in 2007-2008 to barely 19.6% in 2020-21.
jobs blues
In January, thousands of people gathered outside a government recruitment center in the northern city of Lucknow to head to Israel for jobs in the construction industry. My colleague Archana Shukla was there.
The despair of these workers showed that India’s employment crisis is real. And it’s crushing aspirations everywhere.
“I’m the first in my family to get a master’s degree,” says Rukaya Bepari, a 23-year-old graduate from Miraj, a town in western India.
“But there’s no industry where I live, so now I get tuition. It doesn’t cost me much.”
Neither Lucaya nor her brother had held full-time jobs in the past two years. they are not alone.
The share of educated youth in the total unemployed population increased from 54.2% in 2000 to 65.7% in 2022, according to the latest statistics from the Indian Labor Organization.
India has also not seen any significant growth in real wages since 2014, according to figures calculated by renowned development economist Jean Dreze.
A World Bank regional economist recently said in an interview with the Financial Times that India “risks squandering the demographic dividend, the economic growth potential of a large working-age population.”
Job creation is an issue that Mr. Modi has not been able to solve.
Immediately after his 2014 victory, the prime minister launched an ambitious Make in India campaign to transform India into the world’s factory. In 2020, the Indian government provided $25 billion in incentives to companies in sectors ranging from semiconductors to mobile electronics to strengthen India’s manufacturing capacity.
But success was hard to come by.
Yes, companies like Foxconn, which makes iPhones for Apple, are moving their supply chains to India as part of a global “China plus one” diversification strategy. Other major global companies such as Micron and Samsung are also keen to invest. But the number is still not significant.
Despite these efforts, manufacturing’s share of GDP has remained stagnant over the past decade.
Export growth was also faster under Mr. Modi’s predecessor.
“Even if India’s manufacturing industry grows at 8% per year until 2050 and China stagnates at 2022 levels, the size of India’s manufacturing industry in 2050 will still not reach the size of China’s manufacturing industry in 2022. ” said Vidya Mahambale, a professor at Great Lakes Management University.
The absence of large-scale industry means that half of India’s population still depends on agriculture for their livelihood, and agriculture is becoming increasingly unprofitable.
2 speed recovery
Is this a direct effect? Household finances are under pressure.
Overall personal consumption spending (the money people spend on things) grew at 3%, the slowest in 20 years.
And new research shows household debt has reached an all-time high even as financial savings have fallen to their lowest levels.
Many economists argue that the nature of India’s economic growth post-pandemic has been uneven, or “K-shaped”, with the rich thriving while the poor continue to struggle. India may be the world’s fifth largest economy on an overall level, but on a per capita basis it still languishes at 140th place.
And, according to research from the World Inequality Database, inequality has increased to its highest level in 100 years. It’s no surprise, then, that recent election campaign discussions have been rife with talk of wealth redistribution and inheritance tax.
Luxury brands that make cars, watches and alcoholic beverages are growing faster than India’s mass-market companies, said Arnab Mitra, who researches Indian consumer brands at Goldman Sachs.
Viral Acharya, a professor at New York University’s Stern College, said a handful of the biggest conglomerates have grown “at the expense of the smallest companies.”
He said the ultra-wealthy have benefited from deep tax cuts and conscious policies that create “national champions” who give priority to a small number of companies to build and operate valuable public assets such as ports and airports. .
The latest court revelations show that many of them were also India’s biggest political donors to the ruling Bharatiya Janata Party.
image source, Reliance Industries
India’s decade?
Taken all together, this points to an inconsistent picture of the Indian economy. But despite all its problems, the country is on the runway for takeoff, experts say.
“India’s next decade could resemble China’s (hypergrowth) trajectory from 2007 to 2012,” Morgan Stanley analysts said in a widely discussed paper.
They added that the country has many advantages, including a young demographic, geopolitics of global risk avoidance from China, and a clean sweep of sectors such as real estate. Experts say other megatrends such as digitization, the transition to clean energy and the growth of global offshoring will drive future growth.
Promoting infrastructure also has long-term benefits. By improving roads, power supply and port travel times, India is finally “creating an environment where manufacturing can thrive,” said DK Joshi, India economist at CRISIL.
But as well as focusing on “physical capital,” Mr. Modi must also pay attention to creating “human capital,” says Dr. Raghuram Rajan, former central bank governor of India.
Children in India are not learning enough to face the world of artificial intelligence. A quarter of 14- to 18-year-olds are unable to read simple texts fluently, according to a report released by the nonprofit organization Pratham Foundation.
The coronavirus pandemic has hit students hard, and they have been unable to attend school for nearly two years. However, the government continues to underfund education and health care.
For its first decade, Modinomics seems to have delivered results for a select few. But for many, the bottle still looks half empty.
Unless growth is faster and more equitable, Dr. Rajan says, “we will grow old before we get rich.”
