Expert Analysis: Is Modi’s India Truly an Economic Miracle?

Ira Singh
Khabar Khabaron Ki,01 May’24

In a rare turn of events, the International Monetary Fund (IMF) found itself embroiled in an internal disagreement over growth forecasts for India. The controversy unfolded when Julie Kozack, the IMF spokeswoman, addressed reporters in Washington, stating that the growth forecast of 8% for India, presented by the IMF’s executive director Krishnamurthy Subramanian, did not align with the organization’s official projection. The IMF stood by its forecast of 6.5% growth for the country.

Subramanian, who serves as India’s representative at the IMF, had voiced his optimistic outlook during an event in New Delhi, emphasizing a more buoyant economic expansion trajectory. However, Kozack clarified that Subramanian’s views were articulated in his capacity as an executive director, a role separate from the IMF staff responsible for projections and analyses.The distinction between the executive board and the IMF staff,though ostensibly clear, sparked confusion among observers. The IMF’s executive board comprises 24 directors elected by member countries, functioning independently from the institution’s staff. This complexity came to the forefront when Subramanian openly criticized the IMF staff for their consistently inaccurate GDP forecasts for India. The rift underscores broader tensions within the IMF regarding forecasting methodologies and the interpretation of economic indicators.

Subramanian’s divergence from the official projection underscores the challenges inherent in forecasting emerging economies, where economic data can be volatile and subject to diverse interpretations. As India seeks to navigate its economic recovery amid global uncertainties, the clash between Subramanian and the IMF staff raises questions about the reliability of growth projections and the dynamics within international financial institutions.

Since Prime Minister Narendra Modi’s rise to power in 2014, India has been portrayed as a beacon of economic potential, promising growth, and development on a monumental scale. As chief minister of the western state of Gujarat, he had built up a formidable reputation as an efficient business- friendly administrator, which he successfully leveraged in his bid for the nation’s top job,”Achhe din” or “good times,” was his promise.

Looking at the economic news coming out of India these days, it would seem he has delivered. As the fastest growing major economy, India is considered “the shining star of the global economy,” as the S&P Global Ratings chief economist calls it. It has already surpassed the U.K. to become the world’s fifth largest economy and is expected to overtake Japan and Germany to become the third largest in five years. The Indian stock market, now the world’s fourth largest, is at an all-time high.

As India goes to polls, data points like these help megaphone Modi’s narrative of the country’s makeover into an economic powerhouse on his watch. At home, they amplify his image as a steady hand on the tiller taking India to ever greater heights. Abroad, they help mute criticism of his Hindu supremacist dispensation’s systematic attacks on India’s secular democracy and its Muslim and Christian minorities,point out experts.To be sure, the Indian economy’s size today and the scope of development makes it one of the most interesting growth stories. And, Big Business has much to be thankful for Modi’s reign. There’s less red tape and more administrative focus and push for industry. The government’s policy of incentivizing businesses with subsidies and tax breaks, and helping major homegrown firms to become “national champions”works well for them.

However, a critical examination of India’s economic trajectory under Modi’s leadership suggests that the reality falls short of the rhetoric. Despite ambitious policies and promises, the much-touted economic miracle remains elusive for many Indians.

PM Modi’s second term has witnessed a significant downturn in GDP growth, marking the lowest period of expansion since India’s market liberalization in the early 1990s. This simple statistical fact challenges the prevailing narrative of economic success touted by the government. Additionally, per capita income growth over the past decade has lagged behind the pace set during Modi’s predecessor Manmohan Singh’s tenure, casting doubt on claims of widespread prosperity under Modi’s rule.Moreover, stock market returns have failed to match the performance of the previous decade, further undermining assertions of a thriving economy,believe economists.

Many of the purported achievements attributed to Modi, such as the digitization of the economy and improved tax collection, are not novel initiatives but rather a continuation of existing trends, policies, and technological advancements. Despite attempts to portray these as revolutionary reforms, economists argue that they merely build upon groundwork laid by previous administrations. This challenges the narrative of Modi’s transformative economic leadership and calls into question the extent of his government’s contributions to India’s development. Even Modi’s former economic aides find the recent growth rates of 8% announced by the government mystifying.

Major discrepancies in the way GDP is being calculated make the data hugely problematic. One of Modi’s former chief economists holds that if correctly measured, India’s economy would actually be found to be decelerating. Meanwhile, foreign direct investment is plunging. FDI levels are now the lowest in nearly two decades, according to estimates. Even local investors are shying away from opening their wallets. Private capital expenditure remains low. Private sector investment has in fact been falling as a proportion of GDP since 2012 and the economy is now largely driven by huge government investment.

One of the most pressing issues facing India is unemployment. Despite Modi’s promises to create millions of jobs, the reality is starkly different. Unemployment rates have remained stubbornly high, particularly among the youth. The much-touted ‘Make in India’ initiative, aimed at boosting manufacturing and employment, has failed to deliver meaningful results, leaving millions of young Indians disillusioned and without viable employment opportunities.Far from increasing manufacturing jobs, India is losing them in millions. The ranks of farmworkers, meanwhile, have risen by 60 million in the past four years, according to information. Agriculture now actually employs a greater share of workers than it did five years ago, a reversal that points to deindustrialization.

There are also concerns about data manipulation. Before the last parliamentary election in 2019, the government buried its own employment data before the election as it showed the unemployment rate to be at a 45-year-high, leading to resignations of members of the National Statistical Commission, according to information. A key five-yearly consumer survey result was withheld that year because of “data quality issues”.When it was finally released this February, it showed poverty and inequality has fallen, and consumer spending had tripled in a decade. That contradicts the government’s own findings and data found elsewhere.

All Asian economies that have sparkled in the past half-century have seen heavy synchronization between their trade, industrial, and social policies. Land reforms, enormous state intervention in education and health, and other redistributive policies created the bedrock of domestic demand and higher productivity that spurred Asia’s “miracle” countries. These are the reasons why Vietnam, seen as the new Asian miracle, exports more than India with less than a tenth of India’s population. Modi has done little to suggest he has the inclination or the ability for such deep reforms to make India shine.A false gold rush is all he can offer,critics argue.

While some economists acknowledge that India has made progress in certain areas under Modi’s leadership, they caution against overstating the country’s economic achievements. They argue that sustained and inclusive growth will require addressing deep-seated challenges through comprehensive reforms and targeted policy intervention. Amidst growing skepticism among economists, the Modi government faces mounting pressure to deliver tangible results that improve the lives of all Indians and fulfill the promise of a truly inclusive economic miracle.

As economists dissect India’s economic performance under Modi’s leadership, the prevailing narrative of an economic miracle gives way to a more nuanced understanding of the challenges facing the country. The tightly controlled dissemination of data and the complicity of a regime-friendly media have obscured the underlying realities of sluggish growth and unmet promises. By unpacking these discrepancies and confronting the truth behind the numbers, economists aim to foster informed discourse and hold the government accountable for its economic stewardship. Only through a transparent and evidence-based approach can India chart a path towards genuine economic prosperity and inclusive development for all its citizens.