Crony Capitalism and Stagnation for the Poorest: The Limits of Narendra Modi’s Indian Economic Model Are Coming to Light.
Hundreds of millions of Indians are not benefiting from the country's economic growth.
The horizon is already darkening for Narendra Modi's India. While the Asian giant was just beginning to recover from the COVID-19 pandemic, its growth will be lower than expected. This slowdown in the economy threatens progress in a country where the fruits of growth were already very unevenly distributed between rich and poor.
Due to the war in Ukraine and the global economic situation, the central bank of India lowered its growth forecast for the current fiscal year to 7% in late September 2022. The IMF was more pessimistic, lowering its forecast to 6.8%. The World Bank is forecasting a 6.5% growth in Indian GDP. And some economists believe that Indian growth will not even reach this level.
The recession will not help Prime Minister Narendra Modi to create the 250 million jobs he promised during his first election in 2014. Every year, 12 million Indians enter the workforce. Many struggles with the shortage of jobs. According to the Center for Monitoring Indian Economy, the unemployment rate reached 8.3% in August 2022, up from 7.12% in May 2022.
Unemployment is particularly high among young people in India. In August 2022, 25% of them were unemployed.
“You won't find comparable rates outside of some of the Central Asian countries with disastrous economies. And none of the countries that India likes to compare itself to have youth unemployment rates of more than 15%,” Kaushik Basu, the former chief economist of the World Bank, told an Indian newspaper.
Even graduation no longer seems to protect against unemployment in India. In April 2022, 17.8% of young graduates were unemployed, compared to 11% in 2017. The job shortage is real. In January 2022, the Indian Railways launched a recruitment campaign in the state of Bihar and Uttar Pradesh. The company received 12 million applications for only 35,000 available jobs. Riots also broke out.
In a recent report, McKinsey said that India needs to create at least 90 million jobs by 2030 to provide work for new entrants, for agricultural workers who are gradually leaving the sector, and also for women, whose integration into the labor market will increase. To achieve this goal, India needs to ensure an annual growth rate of between 8 and 8.5% until 2030, according to the firm. It is unlikely that India will reach these growth levels in the short term.
Inequality on the rise
Along with the stagnation of the labor market, the pandemic has increased already glaring inequalities. A survey conducted by the People Research on India's Consumer Economy in Mumbai showed that the annual income of the poorest 20% collapsed by 53% in 2020-2021 compared to their 2015-2016 level. In contrast, the income of the richest 20% has increased by 39% over the same period.
Even India's middle class, which largely voted for Modi in the 2019 elections, has not seen significant improvement since he took power in 2014. Car and home sales have stagnated for nearly a decade. Two-wheeler sales, one of the strong markers of lower-middle-class access, have also been stagnant for five years.
“Clearly, we are going backward," warned Aakar Patel last year, author of “Price of the Modi Years,” a highly critical essay on the Hindu nationalist leader.
In addition to this, there is ongoing inflation, which is eating away at the purchasing power of the poorest Indians. In September 2022, the consumer price index showed an increase of 7.41%. A rate at its highest for five months, which the Indian Central Bank is unable to curb despite the tightening of its monetary policy. In the same month, food prices rose by 8.6%.
In a country where 14.5% of the population is undernourished, such an increase in food prices is catastrophic.
Crony capitalism
In the business world, the pandemic has left its mark. Many economists speak of a K-shaped recovery: part of the economy rebounded quickly, and the rest of the activity plunged. The big companies, helped by credit facilities and tax incentives, emerged stronger from the pandemic. Small and medium-sized companies, however, did not fare as well. Most Indians depend on them for their income.
The strengthening of industrial production, the great promise of Narendra Modi's “Make in India” program, is also suffering from a growth breakdown. As of August 2022, the industrial production index was down 0.8%, according to official statistics.
The big conglomerates, on the other hand, are in good financial health. Businessman Gautam Adani, head of a powerful conglomerate dominating the port trade, fossil fuels, and tech, saw his fortune soar between 2019 and 2021. During the COVID-19 crisis, the stock of some of his companies took more than 200%, and for some, 1,000%. His fortune, valued at $144 billion by Bloomberg, makes him the second richest man in the world after Elon Musk.
Gautam Adani's good fortune and his proximity to Narendra Modi show the limits of the Indian economic model, that of capitalism where the success of the great captains of industry close to power depends very strongly on access to resources controlled by the state. There is a term for this phenomenon: crony capitalism, which allows the very rich to capture a large part of the fruits of growth.
It remains to be seen whether the worsening economic outlook and rising inequality will have an impact on Narendra Modi's popularity, which remains high. According to a poll conducted by India Today in August 2022, 53 percent of Indians want to see the current Prime Minister re-elected after the 2024 general election.
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