Parsa Venkateshwar Rao Jr | Is economy in a feel-good psychedelic state in India?

After the Ayodhya high with the Ram Madir consecration ceremony, and the Narendra Modi government’s estimated growth for 2023-24 pegged at 7.3 per cent, which is higher than the 7.2 per cent of 2022-23, the declared aim of the Prime Minister that India will become the world’s third largest economy after the United States and China, and finance minister Nirmala Sitharaman’s confident declaration that India will become a $5 trillion economy by 2027, cannot easily be brushed aside as mere fancies. The seven per cent-plus growth is true, the $5 trillion target is within reach, and so is the 2030 target of getting into the top three economies of the world bracket. There cannot be anything m0re fantastic for a government going into a general election. To complain that India’s economy is not on solid ground sounds a churlish complaint. The steady and unspectacular economic growth -- seven per cent plus is indeed the new normal -- does not really reflect well because a majority of people are still burdened by the inflation rate, which is hovering around five per cent, plus-minus, and they are struggling to make ends meet. There is not much of a spurt in growth in jobs, and manufacturing is bobbing up and down in shallow waters. Agriculture is on firmer ground but it is not due to an upswing in the markets but due to subsidies that the government provides through cash transfers, minimum support prices and fertiliser subsidies. It is the ancient regime as far as the farm sector goes. This seems to have spurred rural consumption, which is getting closer to the urban rate of consumption. So, the two things that are sustaining the economy are public investments and private consumption. As these two keep the economy in the positive space, no one is daring to complain.

Government expenditure, either in infrastructure or through revenue-welfare bills -- is not a good sign in the long term. And greater private consumption means that there are no savings. The Indian economy is turning out to be like the American one in many ways, especially in consumption trends, putting the middle class in debt. The bank credit is not going into fresh business and industrial projects but into personal expenditure. Tax collections, especially the Goods and Service Tax, has been showing a growth trend because of the step-up in private consumption. In a few years’ time, this could prove to be a high inflation risk factor. If this had been the state of the economy under a Congress government, the righteous right-wing economists would have blared the danger signals. Finance minister Sitharaman would have no other option but to lay a generous measure of welfare-oriented public expenditure.

The ardent supporters of “Modinomics” are sure to point to the new Atal Setu Sea-Link in Mumbai and point to the infrastructural benefits that could accrue to the economy sooner than later. The improved national highways have not shown any impact in boosting internal trade or the movement of goods, which benefited those engaged in the supply chain or those at the source or for the end-users. There is a reason that Prime Minister Modi has been emphasising the tourism sector centred around the pilgrimage centres of Ujjain, Varanasi and Ayodhya, because all the efforts to make India the pharmaceutical hub, or the manufacturing hub, of the world had just fizzled out in the past 10 years. There was even an aborted attempt to make India the hub of toy manufacturing in the world. The start-up frenzy has died a natural death.

One of the surprising things about the Narendra Modi decade has been the cautious silence and inactivity of the private sector in the country. The goal of economic reforms was to make India a thriving market economy in terms of making and selling. What seems to be happening is that there is strengthened consumption as a result of the indirect doles, but not in the sense of building the strengths of the economy for the future. Most international analysts and rating agencies see India as a huge market of consumers, and it is restricted to the modest segment of 100 million who will earn more than $10,000 a month, which shows that India will be huge consumer market, and another 100 million spending a little less.

The big cities will thrive, and small towns like Ayodhya are to be made bigger in terms of low-skilled service providers earning handsome salaries and wages. It should be recalled the Mr Modi had promised in his Independence Day speech in August 2014, his first as Prime Minister, that India can produce teachers, nurses, electricians and plumbers for the world. It is this social matrix of an under-educated and low-wage workforce where the much-promised demographic dividend dies a natural death.

The missions to the moon and Mars, the research of the sun being done by the space observatory, all appear to be showcasing India’s scientific achievements, but these are being run by a quite small technological and scientific talent pool. Indian universities, which still churn out millions of graduates and post-graduates, do not show the spark of opening up new frontiers. India remains in the also-ran bracket. The best of this small pool is in foreign universities, and those who remain in India are better known abroad than within the country.

Prime Minister Modi’s government ran the economy in the past decade in a bid for headlines, and for teeny-weeny improvements in the nation’s economic and technological strength. Through many fluctuations, it did show an upside in conspicuous consumption by the so-called “leisure class” across the middle and lower-income income strata. The reduction in the multi-dimensional poverty rate does not show any qualitative improvement in the standard of living. Yes, the poor have more money to spend. They own mobile phones and they consume data more than many across the world, including in advanced economies. It looks dangerously like the “lotus-eaters” of Tennyson’s famous poem, lolling in a non-alcoholic inebriated state. It is a strange psychedelic state where Mr Modi claims that India is reviving its ancient Hindu culture of thousands of years past, and that a temple has been constructed which will last for a thousand years. It is a most reassuring mood-changing rhetoric. The economy is sailing on smooth seas, and there is sunshine everywhere. That the global economy is in shambles, that there is much strife in many parts of the world that will impact Indians and their economy, is outside this “feel-good” range of perception.