By now, the term “new” India is ubiquitous. It appears on the websites of the Bharatiya Janata Party (BJP) and Prime Minister Narendra Modi, and in national and international media. Major changes in rights, freedoms, and religious tolerance over the last decade have been well documented. There is also a lot of discussion about this “new” India’s growing global stature. One would expect that this rising stature would be grounded in economic development relative to other countries, and not just the growing size of the economy, which has been on the cards since the 1980s. Let us examine the widely used Human Development Index (HDI) of United Nations, which combines measures of income, health, and education/knowledge. The latest Human Development Report (HDR) ranks India 134 (of 193 countries) on HDI, far below China (75) and behind several South Asian neighbours (Sri Lanka – 78, Bhutan – 125, and Bangladesh – 129). India’s relative performance has actually deteriorated slightly under the BJP-led National Democratic Alliance (NDA) – according to 2015 HDR, India had a ranking of 130. It is therefore puzzling that the claim of rising global stature is being made amidst deteriorating relative economic development. How do we make sense of this?
Addressing this puzzle is made difficult by the lack of data on key variables (e.g., no Census after 2011) and persistent doubts about data quality and interference in the work of statistical agencies. Nevertheless, we use available data to present the best possible account (in our opinion) of the Indian economy in the last decade.
First, we examine growth and composition of national output (Gross Domestic Product, GDP). From official estimates, when the BJP-led NDA assumed office, India’s GDP growth rate was on a rising trend. It went on a declining path thereafter, rising again only after 2020-21 (reflecting recovery from Covid). Growth under the NDA is being spurred by government investment in infrastructure, and there has been an improvement in roads and railways. However, infrastructural improvements have occurred at considerable environmental cost and newer infrastructure (e.g., metros in cities like Mumbai) is not in tune with the needs of the masses.
Under the NDA, output composition (i.e., shares of various sectors) has not changed significantly. For instance, our computations from official data indicate that the share of manufacturing has remained stagnant around 18% (at constant 2011-12 prices). Employment composition has not changed substantially either e.g., according to Periodic Labour Force Survey (PLFS), between 2017-18 and 2022-23, about 43% of workers have been involved in agriculture and allied activities (using the Current Weekly Status (CWS) approach).
India’s inability to spur its manufacturing sector is particularly worrying because growth in this sector could create jobs. The growth rate of the manufacturing sector has shown a decline under the NDA. In 2015-16, manufacturing growth was about 13% per annum but declined steadily thereafter to about -3% in 2019-20. Although the growth rate increased after 2019-20, this is essentially a recovery from Covid, and the downward spiral has continued after recovery. Unlike the historical experience of developed or East Asian countries, India is witnessing a decline in manufacturing. India’s disappointing manufacturing performance reflects a failure of the NDA, and its flagship program, “Make in India”.
Another notable change that has occurred in the industrial sector is an increase in concentration. Broadly speaking, an industry becomes more concentrated when fewer firms dominate, the extreme case being a monopoly. Economists are concerned about rising concentration because it negatively affects consumer welfare and leads to inefficiency. Rising concentration could also reflect aspects of government-business relations e.g., government capture by certain business interests. Research by Viral Acharya (a former Deputy Governor of Reserve Bank of India) shows that while concentration was falling after the 1990s, it has risen sharply in recent years. Five business groups viz., Reliance (Mukesh Ambani), Tata, Aditya Birla, Adani, and Bharti Telecom are driving this phenomenon, with their share of total sales and total assets in the non-finance sector, rising substantially since 2014.
Rather than reflecting their superior competitive ability, the dominance of these groups is due to a conscious government policy to promote a few select corporates. The symbiotic relationship between the Adani group and Modi is well-known. Government-business relations have changed under the NDA, and cronyism and crony capitalism are terms that are commonly used to describe them. While these terms capture the preferential treatment being received by a few business groups, they are inadequate in describing newer forms of corruption and state-control. For instance, data on electoral bonds, through which the BJP has been by far the biggest beneficiary, suggests that these were used for quid pro quo deals or as means of extortion.
Second, let us examine inequality, which has worsened in recent years. According to the widely used Hurun list, during 2012-22, the number of super-wealthy individuals/households (above Rs. 1000 crores) increased more than ten-fold (from 100 to 1103) and the number of dollar billionaires rose almost four-fold (59 to 221). As per the latest (2024) edition of this list, just in one year, India has added 94 billionaires, compared to 55 for China. As expected, Mukesh Ambani and Gautam Adani have gained the most wealth ($33 billion each). Today, Mumbai has the largest number of billionaires (92) in any Asian city, surpassing Beijing (91), and has been described as the “Billionaire capital of Asia”. Thomas Piketty (author of Capital in the Twenty First Century) and his collaborators have traced Indian inequality from colonial times to the present. They find that after independence, inequality was falling till the early 1980s, but rose thereafter. The rise in inequality since early 2000s has been very sharp. As a result, at present, the top (1%) income and wealth shares stand at 22.6% and 40.1%, respectively. These are not only at historically unprecedented levels, but the income share of the top 1% is higher than the same for most other countries (including Brazil, South Africa, China, and the US.
Third, let us examine employment. The unemployment rate in 2022-23 (5.1% from PLFS) is higher than what it was before the NDA came to power (3.7% in 2011-12 from the last National Sample Survey on Employment and Unemployment, Current Weekly Status). Importantly, unemployment rates among the youth and the educated are quite high (Usual Status). In 2022-23, the unemployment rates among men and women with secondary or higher education were 6.4% and 10.3%, respectively. In the same year, the unemployment rates among young men and women (15-29 years) were: 9.7% and 10.6%, respectively. The Indian workforce suffered enormously during Covid, although there has been some recovery (as growth figures indicate). It is well known that a substantial proportion of Indians work in the informal sector. Mishandling of Covid severely hurt this sector, and this was dramatically captured by images of migrant workers walking hundreds of kilometers. In its report, the Centre for Sustainable Employment showed that Covid increased informality and reduced earnings, with women and youth sharing the brunt of this.
Resolving the puzzle posed at the outset will also help us understand the economy of “new” India under Narendra Modi. India’s rising global stature is primarily about the perceptions of Indian elites (business classes and professionals) on how they fare vis-à-vis elites of other nations, while it is also facilitated by their further consolidation within India. This has occurred over the last decade as we showed above, while the overall economic growth has slowed down under NDA, and long-standing problems such as a weak manufacturing sector, jobless growth, and high unemployment among educated youth, have persisted and deepened. Inequality in terms of income and wealth has also skyrocketed. We have a globally connected economy that delivers powerfully for the top echelons, while the vast majority has fallen behind. This explains the disappointing performance on HDI, even as elites have consolidated, and feel that their global stature has grown. While the election of the NDA in 2014 may be seen as an elite backlash against the welfare-orientation of the United Progressive Alliance (UPA), in the post-2019 period, business classes and professionals have further strengthened, and stood firmly behind Modi/BJP (for instance, as described in The Economist).
Why then does a significant section of the populace (to be clear, not the majority) support this regime? Is it because of India’s economy, its welfare orientation, its rising global stature, its “new” nationalism, or its present leadership? We believe that the answer to this question does not reside in the economy as we showed in this article, since the economy has not worked well for a significant majority. If we consider the economic domain alone, the NDA regime would certainly crumble despite its claims of better welfare provision. The UPA regime (2004-14) was relatively much better in its welfare orientation without being anywhere close to perfect – the NDA regime has marketed/rebranded welfare policies to enhance the publicity of PM Modi and fetishized their efficient delivery without really deepening or expanding these policies.
Among the non-economic factors, the argument of rising global stature does not seem convincing either. An indication of this is that despite high publicity, a majority of Indians are unaware of the G-20 summit, while they are acutely conscious of unemployment and inflation. The support for the NDA has a lot to do with its brand of exclusionary nationalism, in addition to its present leadership. Efforts to create a unified opposition have only partially succeeded due to repression, and due to differences among opposition parties. How long can a significant section of people (to reiterate, not the majority) consume nationalism and charisma and extend their support to the current regime, even as their own economic/material position is distressful, and they seem to be conscious of it?
Sripad Motiram is Associate Professor of Economics, University of Massachusetts Boston. Vamsi Vakulabharanam is Associate Professor of Economics, University of Massachusetts Amherst.
