Indian Prime Minister Narendra Modi and his Bharatiya Janata Party (BJP) campaigned on India’s considerable economic expansion ahead of the country’s recent national elections.
Since Modi came to power in 2014, GDP per capita has increased from around $5,000 to more than $7,500.
India’s GDP growth reached 8.4 percent in the financial year ending March, making it by far the fastest growing major economy.
At the same time, the economy is producing much less impressive data, including a high unemployment rate, which rose to 8.1% in April from 7.4% in March.
It is this statistic, along with high inflation, that has been cited as one of the main reasons for the weaker than expected performance of the BJP, which won 240 seats, well below its previous tally of 303 and fewer than the 273 necessary to form a government on their own.
Although Modi formed a government with the help of his National Democratic Alliance partners, his reliance on smaller parties changes the equation for a leader who commanded absolute majorities during his previous two terms as prime minister.
“This will be really unusual for Prime Minister Modi,” Vina Nadjibulla, vice-president of research and strategy at the Asia-Pacific Foundation of Canada, told Al Jazeera.
“That’s partly why the markets reacted the way they did,” Nadjibulla added, referring to the sharp drop in Indian stocks following the election results.
Nadjibula said investors are worried that Modi will not be able to implement the reforms needed to address issues such as high unemployment.
Despite strong economic growth, almost half of India’s population is still employed in the relatively unproductive agricultural sector – a percentage that has increased during Modi’s second term, from 42.5% in 2018-19 to 45.8% in 2022-23. , according to a study by Oxford Economics. report.
Young people in particular suffer from a lack of jobs – in 2022-23, the youth unemployment rate was around 10 times the rate for adults, according to the report.
It is “ironic” that India’s robust growth under the Modi government “has come at the expense of economic stability for the lower classes,” Michael Kugelman, director of the South Asia Institute at the Wilson Center, told Al Jazeera.
In its third term, the Modi government will have to find a way to help the poorest Indians in a way that goes beyond building infrastructure, Kugelman said.
“Overall, it will be a very ambitious economic agenda,” he said.
Manufacturing versus service work
Much has been made of India’s effort to boost production, create jobs and attract global brands looking to establish alternative supply chains in the face of trade tensions between the United States and China.
India’s “Make in India” initiative, however, has done little to create jobs for the large segment of the population that is still employed in agriculture.
One reason for this is that the government’s focus has largely been on promoting higher value-added but less labor-intensive sectors such as electronics, Alexandra Hermann, chief economist at Oxford Economics, told Al Jazeera, adding that this was unlikely to change.
Another often touted reason is the lack of “big bang” reforms to land and labor rules, experts say, which are needed to bring in the kind of major investment needed to truly expand the industry.
While the Modi government has failed to make major progress in this area – despite large majorities in parliament – experts say its coalition partners can now help it pave the way for some of these measures, as jobs will benefit everyone. the voters.
Coalition partners could also help the Modi government make some progress on its so far failed land and labor reform efforts, which have been highlighted as a necessary step to attract more investment in manufacturing.
“There will have to be some coordination with the state governments… and the coalition partners are regional parties that will have a lot of influence in some parts of the country and that is where a coalition government will be very useful for Modi and the BJP,” Kugelman said.
For now, rather than relying on manufacturing, India’s growth story has largely been driven by services, which experts say will only be able to continue over the long term and create sustainable and inclusive growth if levels of human capital increase.
“Broadly increasing levels of human capital will be crucial to creating inclusive and sustainable growth in the medium and long term,” said Hermann.
“While India is home to some top technology and management universities that nurture global business leaders, it is the quality of primary and secondary education that still leaves the Indian population, on average, relatively under-skilled. [But in its manifesto] the BJP failed to commit to the higher spending target,” Kugelman said.
Kugelman agreed.
“Some of the fastest growing sectors are in services, but the workforce is not equipped for these jobs and there is a complete mismatch,” he said.
‘Conditions for private investment’
Ultimately, though, GDP growth and job creation are driven primarily by private investment, said Ajay Shah, an economist in Mumbai.
Private investment has not performed well in India since 2009 or 2011, depending on the measure used, so “the organizing principle of economic policy must be to create conditions for private investment,” Shah told Al Jazeera.
Part of the reason for the lack of success in this area has been excessive central planning in economic policy, Shah said.
“This,” he said, “creates political risk. Government weapons behave in unpredictable and personalized ways. This creates risks for private persons.”
Shah expressed hope that the next coalition will be better positioned to resolve such problems.
“There are more checks and balances,” he said.
This story originally appeared on Aljazeera.com read the full story
