Indranil Banerjie | India's economic future at stake as nation votes

India’s parliamentary elections, which began on April 19, is billed as the largest electoral exercise in history, and promises to be one of the most challenging for the country’s 968 million eligible voters, beset as they are by a host of conflicting issues, electoral promises and manifestos.

By the time the last ballot is cast on June 1 this year, the fortunes of thousands of political aspirants would be made or destroyed. And one of the primary issues on which electoral battles will be won or lost will be the question of the country’s economic future.

On test will be the Narendra Modi government’s economic performance. While economists have and will continue to debate the finer points about the economic changes of the past ten years, it is the electorate that will have the ultimate say on whether the changes have been positive and whether they presage better or worse times ahead. It is voter perceptions that will ultimately decide the matter.

For economic observers, however, the perceptions are mixed. Some feel that the last ten years have been an unmitigated economic disaster marked by rising unemployment and record wealth inequalities, while others believe that the economy has bloomed and is on the verge of graduating to developed nation status. The past one year has seen acrimonious debates on the state of the Indian economy, most of which have tended to be determined as much by political inclinations as by hard economic facts.

What is incontrovertible, however, is that the economy has grown, and rather well at that, despite the clobbering it took during the Covid-19 pandemic period. Virtually every independent economic institution admits to this. The Washington-based World Bank observed: “India is one of the fastest growing economies of the world and is poised to continue on this path, with aspirations to reach high middle-income status by 2047, the centenary of Indian independence… After real GDP contracted in FY20-21 due to the Covid-19 pandemic, growth bounced back strongly in FY21-22, supported by accommodative monetary and fiscal policies and wide vaccine coverage. Consequently, in 2022, India emerged as one of the fastest growing economies in the world, despite significant challenges in the global environment --including renewed disruptions of supply lines following the rise in geopolitical tensions, the synchronised tightening of global monetary policies, and inflationary pressures.”

The World Bank and others predict that India’s GDP growth will moderate to 6.3 per cent in the 2023-24 financial year from a high of 6.9 per cent in the previous fiscal. But even this is high by global standards. Equally heartening has been the concomitant reduction in extreme poverty (below $2.15 per person per day in purchasing power parity terms). The World Bank estimates that between 2011 and 2019, “the country is estimated to have halved the share of the population living in extreme poverty”. While there are various estimates and controversies regarding the extent of poverty reduction in India during the past ten years, there is little denying that the decline has been dramatic even though it may have slowed in recent years.

High growth, even if skewed, coupled with fairly low levels of inflation, has meant better times for the average Indian. The digitisation push and related financial inclusion coupled with welfare schemes such as health insurance have helped the lower segments of society.

Perhaps the most encouraging development in recent years has been the growth of the Indian middle class (defined as families with annual incomes between Rs 5 lakhs and Rs 30 lakhs). This class is estimated to be growing at 5.2 per cent per annum and constitutes 31 per cent of the population. This is huge and cannot but be transformative for the country as a whole in the years and decades to come.

The other achievements for which this government will be remembered are the great strides in infrastructure development: roads, ports, airports and so on. For the first time, the country has a port capable of accommodating first line container ships and expressways comparable to the best in the world.

The Narendra Modi government’s success in stabilisation of the blighted banking sector and the creation of a nascent electronics sector are other achievements worthy of note. But all these might be eclipsed by the distressingly high levels of inequality in consumption, child malnutrition, rural distress, low levels of women’s participation in the labour force and related issues.

At the same time, the biggest issues are structural: a huge section of the population (46 per cent) continues to languish in the agriculture sector, which accounts for just about 14 per cent of GDP, the country’s savings rate despite a slight uptick in recent times continues to be low and compensatory foreign capital inflows inadequate, while manufacturing shows no sign of taking off.

The problem, as a number of economists have flagged, is the lack of bold structural reforms necessary to change the economic fundamentals. That hasn’t happened during the Modi years.

Sadly, the BJP’s 2024 poll manifesto too is silent on this. Mr Modi’s focus is on economic groups -- specifically the poor, youth, farmers and women, represented by the somewhat absurd slogan “GYAN” -- Gareeb, Yuva, Annadata and Naari Shakti -- which, all said and done, is more progressive than those of caste, religion and ethnicity. The question is whether this will prove credible and compelling for the electorate.

Indians, and especially the youth who constitute 29 per cent of the population, exist in a state of intense competition for resources and opportunities. Life for them is far from easy and the line dividing prosperity from destitution thin. Yet, survey after survey suggest that most Indians, particularly the youth, are amazingly optimistic about the future. Their world might be difficult, challenging, and fraught with risk but it is not gloomy or grey.

The 2024 elections are all about choosing the most credible leader for the country and its economic future. Pitched before the electorate is the Congress scion, Rahul Gandhi, who promises caste justice and the magical end of poverty, versus the BJP supremo, Narendra Modi, an autocrat who promises development and the elevation of India as a world power. In the end, despite the competing agendas which are confusing the analysts, the choice of who is best suited to lead the country for the next five years will be largely determined by seemingly amorphous but real economic factors.