TThe International Monetary Fund issued its most unusual rebuttal this month. Julie Kozak, a spokeswoman for the association, told reporters in Washington that Director-General Krishnamurthy Subramanian’s forecast for India’s 8% growth does not represent the IMF’s view, adding that the country’s growth outlook is He said the rate remains at 6.5%.
Subramanian’s views were expressed at an event in New Delhi a few days ago, she said, in her role as India’s representative at the IMF. This “Executive Director” is actually one of the 24 members of the IMF’s “Board” elected by member countries, but very confusingly, the Executive Board does It is distinguished from.”How Subramanian’s accusations against her IMF staff make it clear X In response, it said the agency’s GDP forecasts for India are “consistently inaccurate”.
Mr. Subramanian, a former chief economic adviser to Indian Prime Minister Narendra Modi and delegated to the IMF by his government, is bristling at the slightest hint that India’s economy may not be as strong as it seems. There is a good reason. The narrative that India is a new economic miracle is fundamental to both Mr. Modi’s cult of personality and his government’s legitimacy at home and abroad.
Mr. Modi came to power in 2014 on a promise to revive the struggling economy. As chief minister of the western state of Gujarat, he developed a formidable reputation as a business-friendly and competent administrator, which he put to good use in reaching the country’s top job. “Achedin,” or “good times” was his promise.
Looking at the economic news coming out of India recently, it seems like he has done a good job of conveying it. As the fastest growing major economy, India is considered a “shining star of the global economy,” as S&P Global Ratings’ chief economist puts it. It has already surpassed the UK to become the world’s fifth largest economy, and is expected to overtake Japan and Germany to become the third largest economy within five years. The Indian stock market, currently the fourth largest in the world, is at an all-time high.
As India polls, such data points help promote Mr. Modi’s narrative of India’s transformation into an economic powerhouse. Domestically, his image as a solid figure who will lead India to greater heights will be further reinforced. Abroad, these policies have helped soften criticism of India’s secular democracy and his Hindu nationalist systematic attacks on Muslim and Christian minorities.
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Indeed, the size and scope of development of the Indian economy today makes it one of the most interesting growth stories. And big business has a lot to be thankful for under Prime Minister Modi’s governance. Red tape has been reduced and management has become more focused and boosted the industry. The government’s policy of encouraging business with subsidies and tax breaks and helping large local companies become “national champions” is working to their advantage.
But the perception of India’s supposed economic miracle is also the product of a tightly controlled information ecosystem where data is managed to suit the government’s narrative, with the deft support of pro-regime media. The simplest statistical fact is that the Modi government’s second term actually recorded the lowest GDP growth rate since India liberalized its markets in the early 1990s. Per capita income has grown over the past decade at half the pace of the decade under Prime Minister Modi’s predecessor Manmohan Singh of the opposition Nationalist Congress Party, but stock market returns have been lower than in the previous decade. .
Many of Prime Minister Modi’s positive changes, such as digitizing the economy and improving tax collection, are a continuation of past trends, policies, and technological advances. And much of the hype about the overall state of the economy doesn’t wash away when you dig into the numbers.
Even Prime Minister Modi’s former economic aides find the government’s recent 8% growth rate “incomprehensible”. There are major problems with the data because there are major inconsistencies in how GDP is calculated. One of Prime Minister Modi’s former chief economists believes that if measured correctly, India’s economy will actually prove to be slowing.
On the other hand, foreign direct investment has declined sharply. FDI levels are currently at their lowest in nearly 20 years. Even local investors are hesitant to open their wallets. Private capital investment remains low. Indeed, private sector investment has been a declining share of GDP since 2012, and the economy is now primarily driven by large government investments.
The consumer goods market continues to be sluggish, and people are holding back on buying essential items, a sign of economic stress. Consumer spending growth is at its lowest level in 20 years, excluding the pandemic-induced slowdown. Tractor sales, an indicator of the economic health of a village (where 70% of Indians live), plummeted. Banks are battling the worst deposit crunch in 20 years, with household savings at a 47-year low and household debt levels at a record high. This does not necessarily mean that there are signs of good economic conditions. In the last financial year, India’s manufactured goods exports fell by 3% and crude oil imports fell by 14%.
Unemployment is also widespread. The share of unemployed youth with post-secondary education has almost doubled in the last 20 years. One third of graduates are unemployed. Unemployed young Indians are now seeking opportunities in conflict zones between Israel and Ukraine and trying to smuggle them to Western countries. Indians are now the third largest group of illegal immigrants in the United States, and their numbers are rapidly increasing than those from any other country.
Despite Prime Minister Modi’s much-touted “Make in India” campaign to revitalize India’s manufacturing sector, manufacturing’s share of GDP is declining. Instead of adding manufacturing jobs, India is losing millions of jobs. Meanwhile, the number of farmers has increased by 60 million over the past four years. Agriculture actually employs a higher proportion of workers today than it did five years ago, a reversal of deindustrialization.
There are also concerns about data manipulation. Before the last parliamentary election in 2019, the government concealed its own employment statistics before the election, as unemployment was found to be at its highest level in 45 years, leading to the resignation of the National Statistics Commission member. The results of the key consumer survey, which is carried out every five years, were not made public that year due to “data quality issues”. When it was finally released in February this year, it showed that poverty and inequality had fallen and consumer spending had tripled in ten years.. This contradicts the government’s own research and data found elsewhere.
By some estimates, about 1 million people, known as the “octopus class,” now control 80% of the country’s wealth, creating an illusion of national prosperity. The latest World Inequality Report calls India “billionaire India”, with income inequality worse than it was under British rule. As the number of ultra-rich people in India has increased 11 times over the past decade, the country has fallen on the Global Hunger Index and now ranks below North Korea and war-torn Sudan. Recognizing this problem, the Modi government is giving free grain to 60% of the population.
None of these facts speak to the El Dorado that PM Modi claims to be creating. For India to fundamentally transform its economy, it will need more than headline management and upward mobility in small segments. Apart from the large investments in physical infrastructure that Prime Minister Modi can give credit for, his government has not done much else to transform it.
All of the Asian economies that have enjoyed spectacular development over the past half century have seen a high degree of synchronization between trade, industry, and social policy. Land reform, heavy state intervention in education and health, and other redistributive policies created a foundation of domestic demand and high productivity that stimulated Asia’s “miracle” countries. These are the reasons why Vietnam, considered Asia’s new wonder, exports more than India despite having less than a tenth of India’s population. Prime Minister Modi has given little indication that he has the inclination or ability to make such sweeping reforms to make India shine. All he can offer is a false gold rush.
