Finance Minister Nirmala Sitharaman’s shortest budget speech (56 minutes) was largely about reiterating the Modi government’s achievements over the past decade. It is another matter that many of the key achievements cited did not have the backing of data or facts. But facts have never come in the way of Prime Minister Modi’s penchant for weaving self-congratulatory narratives.
The most astounding claim the finance minister made was that average real incomes have gone up by 50% during Modi’s tenure. This flies in the face of the government’s own data sets formally released some time ago stating that regular average monthly wages in India have stagnated at around Rs 20,000 for five years. It was Rs 19,450 in 2017-18 and Rs 20,039 in 2022-23, as per the recently released Periodic Labour Force Survey (PLFS). Real wages have actually declined by over 25% in five years. Given this data released by the Modi government, it is astonishing that the finance minister should make a claim of 50% growth in real incomes.
There is near consensus among economists, including among those well disposed towards the Modi regime, that real rural wages have stagnated for years. This income stagnation has reflected in the stagnation in private consumption over the past several years. Private consumption, the main driver of GDP growth in India, has grown at about 3% on average annually in the past five years. This data, too, is corroborated by the Ministry of Statistics and Programme Implementation.
So broadly, there is evidence of stagnation in income and consumption. There is also consensus within the industry that private investment has stagnated through Modi’s 10-year tenure. The finance minister herself has been exhorting domestic industry to start investing in fresh capacity.
So incomes, consumption and private investment have broadly stagnated. There has also been a sharp fall in household savings in recent years as real incomes have declined. These facts cannot be controverted even by whatever limited data is coming out of the department of statistics. It is possible that in future even these data sets may cease to exist! The average GDP growth under the Modi government’s tenure so far is 5.8% and many economists, including Arvind Subramanian, the Chief Economic Advisor in NDA I, have suggested the number could be up to 2 percentage points less.
Recently, Dr Pronab Sen, chairperson of the Standing Committee on Statistics, told me that the K-shaped growth recovery after COVID-19 has possibly resulted in a big statistical anomaly. In normal times, organised sector growth has a positive correlation with the vast unorganised/informal sector. Both grow together. But for the first time after COVID-19, the organised sector has shown a rebound but the unorganised sector continued to suffer. The positive correlation broke down. This leads Sen to conclude that the GDP growth number could be overestimated because in the Indian system, the organised sector data available with the corporate affairs ministry is used to extrapolate for growth in the vast unorganised segment.
So, the GDP number has also been suspect for a long time. Most budget numbers are predicated on the nominal GDP stock. If the GDP number is flawed, many other related figures and ratios will also be faulty.
Of course, all this does not come in the way of finance minister Sitharaman making hyperbolic claims of India being the biggest growth story in the world with rising incomes, consumption, investment and employment. The PLFS survey also shows a huge growth in the number of self-employed – from 52% of the total employed in 2017-18 to 58% in 2022-23.
Labour economist Santosh Mehrotra reckons the growing army of self-employed constitutes very low quality employment and among them the number of unpaid workers has increased from 40 million in 2017-18 to 95 million in 2022-23. Unpaid workers are not treated as formally employed by the International Labour Organisation. No wonder the finance minister’s speech hardly devoted even a paragraph on employment strategy.
This is the nature of the political economy that Prime Minister Modi has created before seeking his third term as a “development messiah”. Privately, he probably recognises the distress among the bottom 60% of the population and has, therefore, chosen to provide free food to them for the next five years.
When Modi took power in 2014, his slogan was to move India’s poor from dole and entitlement to a framework of empowerment and partnership in growth. That objective clearly lies in tatters, notwithstanding a booming stock market in which a few hundred companies’ shares are watched with bated breath by less than 7% of the population.
