The Modi Government and India’s Economy

By Jayati Ghosh, Professor of Economics and Chairperson at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi. Cross posted from Triple Crisis

Most of the news in India today is not really about the economy. Instead, the dominant narrative is about social discord: The ongoing turmoil in universities in different parts of the country resulting from high-handed central government behaviour that has even resulted in the death of a Dalit student in Hyderabad. The unprecedented (and unwarranted) attack on students of Jawaharlal Nehru University in Delhi based on unsubstantiated charges of “sedition” for shouting supposedly “anti-national” slogans, an accusation based on doctored videos aired by compliant media and followed by physical attacks on students and teachers by lumpen elements that have gone unpunished. The spectacle of members of the Jat caste in Haryana on the rampage, destroying property and allegedly gang raping women while demanding reservation for their caste in government employment. Other threats of personal and sexual violence from those closely or loosely affiliated with the ruling coalition, freely directed at anyone who disagrees with the imposition of “Hindutva” ideology or speaks up for the rights of marginalised victims of discrimination.

There are those who believe that much of this is tolerated and indeed encouraged by the Modi government so as to distract attention from other failures, most spectacularly the failures on the economic front.

That may sound surprising. With so much bad news, the economy actually seems to be the one bright spot. India is now officially the world’s fastest growing economy, with GDP growth of 7.6 per cent in the past year. This is why it has been lauded as the new Asian tiger, or even elephant on steroids, in a global economy that otherwise is full of gloom and showing signs of impending crisis. The fact that India is a huge beneficiary of the low global oil prices is another reason for seeing it in a “sweet spot” that brings a lot of potential for growth.

But it is surprisingly hard to see much evidence of this rapid economic growth on the ground in India, or even find it reflected in indicators that most people would appreciate. The way national income is calculated has been changed, and it has found skeptics even among the government’s own economic advisors. So while GDP growth is apparently still rapid, employment continues to stagnate, especially formal employment that provides any kind of social or legal protection. Real wages (that rose throughout the previous decade) have been falling for a year now, more sharply in rural India. The agrarian economy is close to crisis, as farmers reel from the effects of two consecutive poor monsoons and reduced public spending that could affect agriculture. Public delivery in nutrition, health and education is in a mess after massive fiscal cutbacks in previous years.

Investment rates in the economy are actually falling (down to less than 30 per cent of GDP last year compared to around 34 per cent in previous years) and industrial production is limping along, growing at only around 3.5 per cent. Both exports and imports are falling. Banks, particularly public sector banks, are facing financial stress, burdened with large unpaid debt from infrastructure investments many of which have stalled. So many people ask: where is all this so-called growth actually occurring?

Obviously, we need measures to increase domestic demand by improving wage incomes and possibilities of employment. More real spending on agriculture, on social sectors and on employment schemes can do this directly and indirectly through very large multiplier effects.

Sadly, the Budget just unveiled by India’s Finance Minister has missed this chance. It makes a big noise about the agrarian crisis, but proposes only rehashed old programmes, and pretends to increase spending on this sector by shifting budget heads from other Ministries. It declares an increase in the allocation for the rural employment programme, but neglects to note that this is a demand-driven scheme by law, and the Central government already owes more than 14 states lots of money that they have already spent in the current year. It promises a health insurance plan for poor people, but does not put aside enough money for it. It barely increases health and education spending as share of GDP, keeping them at abysmally low levels that do not provide even minimally adequate services for the bottom half of the population who need them most. It actually cuts the allocation for the food programme that is required to expand and strengthen the national Food Security Act.

All this because it wants to keep its fiscal deficit targets, which makes little sense in the current economic environment, when wholesale prices are actually falling and there is no positive stimulus from the global economy. The only big allocations are for road and railway investment, which would be fine if they are not directed (as proposed) to trophy projects like a high-speed railway in the Prime Minister’s state.

Really solving the current problems of the Indian economy – and ensuring jobs for its young – is going to require a lot more.

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    1. Oak

      India is looking to the US and ‘progressive liberalisation’ to help a lot with its economy, pressing for a WTO “Trade Facilitation Agreement” on services which will allow the bottleneck over the restrictive H1B visas to be ended by giving Indian and other partner nation firms rights to be treated as domestic firms in trading partners which means an unlimited number of L1 visas or their equivalents elsewhere when contracts are won by utilizing their competitive advantage of low wages.

      Google “Disciplines on domestic regulation”.

      India, the most populous nation in the world is also heavily involved in providing remote digital services to companies, and the liberalisation of cross border data flows will allow India to leverage its IT infrastructure to staff firms in other countries back offices both physically, in person, and digitally over the Internet.

      That way, top level executives can do what they do best, and wealthy citizens of developed countries can enjoy the fruits of their labor over the last 25 years which have made them wealthy. High drug prices, financial deregulation, privatization of the public sector, winding down of proscribed healthcare programs, and the ending of India’s right to education ( ) are big WTO (and American) “successes”.

      (Please check out the above link!)

      Now Americans are about to endorse the wife of the architect of the GLOBAL progressive liberalisation programme and the Washington Consensus, as their first female Presidential Candidate.

      Legitimizing the global jobs for markets “future proofing” the future – scheme in the eyes of the world.

  1. Hamid

    Modi govt is the true face of of the majority of extremist ideology carrying by Hindus and the anti pakistan sentiment being exploited to its fullest by the BJP.India has an infinite potential to overcome its social issues and the Modi govt
    must not lose this opportunity of rule to help the downtrodden sections of the society and should focus on economy by boosting economic relations with its neighbours and quit its policy of hatred and and anti pakistan bias and play the role of a big brother in south asia as the the people want development socio economic uplift enhanced participation and opportunities to improve their standard of living

    1. BM

      Yeah. We need to support the glorious Pakistani state and its various terrorist activities and Islamic extremism.

      I think Pakistan needs to get its own house in order before it starts lecturing India. (Hindutva is bad. Madrassas and acid thrown in women’s faces is worse).

    2. Stochos

      Pakistan’s major exports are 1) Terror 2) narcotics
      The Hindu population of Pakistan has declined every year since independence; by forced conversions and harassment; while the Muslim population in India has actually grown.

      Pakistan is a theocracy based on a religion that has inflicted poverty wherever it is practised.

  2. MJ

    Anyone who had spent even a small amount of time in Gujarat (and not blinded by headline economic figures) is fully aware there is no real “Gujarat” model and that Modi had done no better in Ahmedabad than others had done in Delhi, Mumbai, Bengaluru, Chennai, etc. And Gandhinagar in Gujarat is a nightmare of hyper rationalist planning backed by limited public investment.

    Jayati Ghosh calls for higher domestic public spending but does not mention that administration within the intergovernmental finance system is abysmal. My sense is until India figures out its urban problem, particularly urban finance and urban service delivery, very little of the national economic growth will translate into improved livelihoods on the ground. India’s cities will be home to over 500 million citizens by 2030 (and econometric evidence suggests that urban demand fuels growth in the rural sector). India’s public finance system is mired in a low-level equilibrium and while there are pockets of activism from below trying to persuade elected officials and bureaucrats that cleaning up the system would be broadly beneficial for everyone, the public purse still is just too easy to loot.

    Also, it does not help when Barack Obama (working through the WTO) screws your solar panel industry.

  3. kj1313

    India is in another realm with all the challenges that face it. Crushing poverty with an insane amount of people stuffed into the urban areas. Additionally there is water and infrastructure inadequacies that really need to be addressed.

    1. Bubby

      True that! I think someone needs to do a study on whether its even healthy for the human mind to be living with so many others in such an urban environment.Its as if not people then either their houses or cars or scooters or shops or their adverts are constantly trying to hoard space. One can easily see how people are always on the edge because of the crazy environment they live in. Add to that crazy vehicular air and noise pollution and elites that live in a completely different world who do nothing about improving the quality of life for the general populace and its a very stressed out environment.

  4. financial matters

    Thomas Crowley has a recent Jacobin article where he discusses Jawaharlal Nehru University (JNU) student activism.

    Modi’s Student Crackdown

    “”In their persecution of JNU students, the BJP has had the support of a wildly irresponsible media, who have whipped up a jingoistic frenzy against the students, playing the doctored videos over and over.

    “”These are not the only solidarities being forged at the moment. As the JNU saga unfolded, workers at a Honda factory just south of Delhi went on strike, the latest instance of labor militancy in this restive industrial belt. Several of the striking workers came to the JNU campus and spoke of their movement, their support of the JNU students, and the need to build stronger connections between workers and students.

    “”In recent days, in yet another attempt to crack down on dissent, the police have also been questioning journalists who have taken a critical stance on the JNU issue.

    “”One can only hope that such “reforms” do not “progress” any further. But the real hope is that progressive networks of solidarity can grow and can contest not just Modi’s economic agenda, but his reactionary religious nationalism.

    These are frightening times in India, yet they also contain glimmers of hope. Students, socialists, workers, Muslims, and Dalits are all under attack. But they are recognizing their commonalities and forging resistance movements together. India’s fate may hinge on the strength of these movements.””

  5. alex morfesis

    India is to pakistan as turkey is to geeece…and kashmir is their cyprus…same dance different beat…when someone on the ground notices the economy is helping those who are more equal than others…the militaries call each other to warn them of the coming air force crossing a magical line in the sky…

    But sadly for the clowns in charge in india…they have now a market cap in global top ten…so poverty as a whole is hard to claim…and the chickens are noticing…

    Twenty languages and five religions and no running water…but no kissing in public or in bollywood…

    Now that the chinese red army has modernized itself out of the toy manufacturing business…india could fill in the gap…although Bangladesh is way ahead on the clothing front…

    1. Moneta

      Paper wealth only works for the 1%, not the masses… India is going to need incredible amounts of resources and energy to prop them up and keep that sustainable… will the Western world let them consume the resources it could keep for itself to maintain its own larger than life consumerism?

  6. participant-observer-observed

    Since BJP lost Bihar elections and university reservations (affirmative action) protests reflect poorly on BJP’s notorious saffron brigade (Shiv Sena) past, Rahul Gandhi has been getting himself in the papers pressing flesh with the public more and more……typical patterns of Indian politics.

    But the economic growth projections are reasonable. Telecom infrastructure is still way below demand for services for data and wireless, to take just one sector.

    Main danger from either party is too much Americanization Monsanto/Gates/Clinton/Goldman style.

    1. Bubby

      I’d agree about the americanization. But I think its already here, when you consider the obsession with the fiscal deficit in this budget by cutting direly needed government spending instead of increasing taxes. And no mention of spending on climate change. I live here and its amazing how disconnected the elite are from the ground reality.

      1. RBHoughton

        Modi is fighting to retain national control of his own central bank whilst international capital requires it become “independent” i.e. under the control of the moneymen.

        Its a difficult time for countries that hope to retain their own government.

  7. Ivan

    The BJP in economics can hardly steer away from the model that was in force during the Congress era. It represents the balance of interests of various myriad competing sectors. There is not a whole lot anybody can do about the random-walk nature of the Indian economy for all their pretense, since Indians simply don’t buy the nonsense that there is a common good, that transcends their own interest. The average Indian thinks about his own family first and last. Which makes for a free existence since hardly anyone acts as if the government should be about anything else.

    Where the BJP excels in is trying out various fascist methods to rally the Hindu right, usually by demonising the Musiims and on rarer occasions the Christians. They are a one-trick pony, this being their only difference with the Congress. Generally when Indians have had their fill of these clowns they throw them out.

  8. Phil

    India’s two biggest challenges are legacy challenges.

    1) The continuing “unofficial” level of all resources and opportunities distribution (jobs, education, material wealth, etc. etc.) based on Caste (which was outlawed many years ago, but is very much alive throughout India).

    2) Massive, out-in-the-open, endemic corruption that permeates every level of society.

    I have seen both of these problems, close up; they will eventually be solved, but we’re talking *at least* several decades before a serious dent is made.

  9. Joel

    India has been in upheaval since the dawn of time so how is this even news? Despite neverending short term political & economic noise the changes since 90s liberalization have been amazing and momentum is positive. Many people speak well & feel good about the Modi government. Audi sales are booming, middle class is doing fine, the poor remain desperate but maybe someday things will get a bit better for them.

    Nothing to see here, please move along.

  10. Opencircle

    While the author is busy analyzing media narratives of social discord and university politics – I had to pitch in with a different perspective.

    The Modi government has embarked on major policy initiatives since coming to power including empowering ministries to act independently and holding bureaucrats accountable to removing the roadblocks to grow the economy. I can make a big list but let me highlight a few which the author has missed:

    1. Established open and transparent platform to allot contracts in Telecom, Coal , Oil & Gas, Solar Power, Nuclear Power, Infrastructure.
    This policy was vindicated by corruption free allotment of coal mines and telecom spectrum and subsequent record coal mining within the country which reduced coal imports from Australia by 98%. India today has surplus power with many moth-balled power plants breathing a new lease of life. Power cuts are a thing of the past and Rural India is now benefiting with ongoing execution of master plan to power every village in India with electricity line which never happened post-independence.

    2. Crackdown on Middlemen and zero tolerance of lobbyists including non-profit NGO lobby. Media was also restricted access after few journalists were caught aiding corporates in getting access to draft policy documents.

    3. Biggest Infrastructure rollout since independence with last year – National Highway Authority announcing that close to 10,000 KMS of highway was built. This is a far cry from 5kms per day speed of previous UPA govt and roadblocks are being cleared to get 85% projects to financial closure and immediate execution.

    4. Launch of ground breaking Energy Policy for the country with India committing itself to a 20 to 25 per cent reduction in emissions intensity by the year 2020 on 2005 levels. By 2020, India will install 50 GW of renewable energy and National Solar Mission targeting 100GW of solar power by 2022. In recent solar park auction of 420 MW solar park at Rajasthan in January 2016, the contract was awarded at a price of 4.34 rupees (or 6 cents) a kilowatt-hour. This price is lower than the cost of producing power by coal (About Rs 5/kwh)

    5. Make-In-India policy got off to a flying start with Defense industry committing to award contracts only to those manufacturers who build atleast 40% in India. This is a big win as it saves foreign exchange and also boosts domestic manufacturing. With every Modi foreign visit, deals have been signed to manufacture Airbus planes, Russian helicopters, American artillery and French Planes. The eco-system being created is going to lay platform for 10%+ GDP growth and work is already in progress.

    6. Major banking and insurance reforms with 15 million new bank accounts opened.

    7. Massive Reform in Subsidy allotment by avoiding middle man by depositing money directly in accounts of needy and

    I can go on and on — but big picture – platform has been laid for being energy independent and power surplus, infrastructure improvements with highways connecting every nook and corner of the country and boost to manufacturing.

    I am sharing this because I see lots of news articles that conveniently have become political tools and taking up minor issues to create an impression of social-discord and intolerance. The economic numbers will speak for themselves and if you keep track of the key notes outlined above – you will see the brighter side.

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