India’s ruling BJP is not talking enough about the economy

Ritesh Kumar Singh

On April 14, Indian Prime Minister Narendra Modi’s Bharatiya Janata Party at last unveiled its election manifesto, just five days before the country’s 970 million voters began casting their ballots in the world’s largest and longest election.

The document says surprisingly little about what kind of economic policies the BJP will pursue if, as widely expected, it wins another term in office, beyond promising to make India, which has an annual gross domestic product of $3.7 trillion, the world’s third-largest economy.

This will require overtaking Japan, with GDP of $4.2 trillion, and Germany, which is at $4.5 trillion. This may not be much of a stretch given that India has surpassed the U.K., France, Italy and Brazil in recent years. But the manifesto offers no detail on how Modi would make that happen nor on how he will make sure the country achieves the related goal of making India a developed nation by 2047.

Under his leadership, India’s economy expanded 8.4% in the October to December quarter, putting the country on track to post growth of 7.6% for the full fiscal year that ended in March. This would be an impressive growth rate by any standard and indeed the fastest of the world’s major economies.

Highlighting the Modi government’s achievement in steering India from the brink of economic fragility to global prominence, the BJP manifesto states that the next cabinet will stick to the path of fiscal consolidation, which should be reassuring for investors.

Yet while the document paints a rosy picture of the Modi government’s past economic successes, it conveniently sidesteps details on how the next cabinet would navigate the treacherous macroeconomic challenges that the economy faces. These include worsening youth unemployment, sticky inflation, widening income and wealth inequality and a squeeze on informal businesses, which employ more than four-fifths of the country’s workforce.

Despite declining fertility rates and one of the world’s lowest workforce participation rates, youth unemployment continues to rise steadily. Even among youth with at least a secondary education, nearly a fifth are jobless. At the same time, educated youth represent two-thirds of all unemployed youth, according to research by the International Labour Organization and India’s Institute of Human Development.

Expanded manufacturing will not be enough to address this problem. The sector has accounted for 12% to 14% of employment over the last 10 years of Modi’s rule, with little upward momentum despite increased import barriers and payment of generous subsidies to selected large companies expanding local production.

Household consumption is estimated to have grown around 3% this last fiscal year, which, if proved true, would mark the smallest expansion, outside of the COVID pandemic, since 2002.

The BJP manifesto says nothing about how the party would address sluggish demand. But without faster demand growth, there will be no rebound in private capital investment, which in turn will limit GDP growth, especially given that the government’s ability to further pump up spending will be limited by the need to meet tight fiscal deficit targets.

Some domestic media had expected the BJP might unveil plans for major reform of archaic land and labor regulations. But in terms of economic policy, the platform is more about continuity than change, retaining a focus on infrastructure and manufacturing, including a promise of more bullet train lines.

As far as noneconomic issues, the manifesto lays out a more active agenda. This includes measures such as aligning the timing of national and state legislative elections and implementing a uniform civil code, which would mean overriding special laws now governing marriage, divorce and other areas for Muslims.

The BJP thus appears keener to act on politically sensitive, polarizing issues to motivate its support base than to face up to India’s long-term economic challenges.

Indian students at the Malik Defence Academy in Rohtak: The educated represent two-thirds of all unemployed youth.    © AP

The Indian National Congress, the largest opposition party, tried hard in its election manifesto to project itself as pro-poor by promising to give 100,000 rupees ($1,200) a year to the country’s poorest households, and to expand crop price guarantees for farmers.

Congress is also proposing to carry out surveys to prepare for wealth redistribution measures. One positive thing about the manifesto, though, is that it promises that freedom of the press will be restored should the party regain power.

The top 1% of Indians receive nearly 23% of the country’s annual national income and hold a staggering 40% of the country’s wealth, according to the World Inequality Lab. Government critics, such as former Reserve Bank of India Gov. Duvvuri Subbarao, say that even if India becomes the world’s third-largest economy, it will remain a poor country.

In per capita income terms, India ranks a dismal 143rd in the world. This underscores the stark reality of growing inequality and shows how aspirations to merely raise GDP further will not be sufficient to ensure the nation’s economic health.

Similarly, higher spending on repairing and upgrading basic infrastructure will mean lower spending on improving and expanding health care and public education. The lack of adequate public services is pushing all Indian households toward expensive private-sector options.

As a result, for many, there is little money left to spend on discretionary goods and services. Only a small segment of the population is able to afford shopping. Little wonder then that Indian businesses are focused on their profit margins rather than investing for revenue growth.

Yet the ruling party maintains its popularity among voters, and there seems little doubt it will win support for a third term for Modi. Still, the lack of a coherent economic strategy to tackle the country’s key macroeconomic challenges is worrying.

Ritesh Kumar Singh is founder and chief executive of policy research and advisory company Indonomics Consulting in New Delhi.

source : asia.nikkei