- India’s economy has grown strongly under the Narendra Modi government, and the party is expected to seek re-election.
- India’s success has attracted the attention of celebrities such as Elon Musk, Jamie Dimon and Tim Cook.
- Youth unemployment, income inequality, regional disparities, and Russian oil remain major issues.
India’s strong economic growth and blossoming middle class under the government of Narendra Modi has attracted the attention of corporate giants such as Elon Musk, Jamie Dimon and Tim Cook.
The current national election ends on June 1, and Prime Minister Modi is almost certain to win a third term as prime minister. But his work begins there, as he must navigate thorny issues such as youth unemployment, income inequality, and poverty. He depends on licensed Russian oil.
Foster growth and shake hands
India’s economy has more than doubled in the Modi government’s 10 years, reaching more than $3.7 trillion last year.
The International Monetary Fund (IMF) recently raised its forecast for real gross domestic product (GDP) growth to a firm 7.8% this year, 6.8% in 2025, and 6.5% in 2026.
India has already overtaken Britain to become the world’s fifth largest economy. By 2027, it is on track to overtake Japan and Germany and rise to third place behind the United States and China.
The value of the country’s main stock index has also tripled since Mr. Modi took office in May 2014, due to rising wealth and increased investment appetite.
Furthermore, according to some estimates, less than 5% of India’s population lives on less than $2.15 a day, down from 12% in 2011. However, the World Bank expects this number to be closer to 13% in 2021.
India’s middle class has also expanded, with 60 million people now earning more than $10,000 a year, or the equivalent of about $37,200 when adjusted for purchasing power. Goldman Sachs predicts that the number of relatively wealthy people will rise to 100 million by 2027.
“Prime Minister Modi has done an incredible job in India,” JPMorgan’s Mr. Dimon said at the Economic Club in New York last month. “I know the liberal media here is slamming him to the teeth. He lifted 400 million people out of poverty.”
Mr. Musk is Posted X said he was looking forward to visiting India this year and meeting Prime Minister Modi. He postponed his trip last month, citing “very heavy obligations to Tesla.” The two men are expected to discuss Tesla’s plans to build a multibillion-dollar factory in the country.
Apple’s Mr. Cook said in an earnings call in November that India is an “incredibly exciting market” and that the number of potential customers is exploding as the local population becomes more affluent. It was praised as a major focus of the
Prime Minister Modi also met with Nvidia CEO Jensen Huang, Microsoft President Satya Nadella and Alphabet’s Sundar Pichai. He is likely looking to attract foreign direct investment (FDI) to India, given its strained relationship with the US, economic woes and how devastating the pandemic’s strict lockdowns have been globally. , likely trying to take advantage of leaders’ desire to hedge their bets on China. supply chain.
“India’s population and economic growth rates are causing many global executives to reconsider their presence in India and consider scaling up,” said Richard, senior advisor and director of U.S.-India policy studies at the Center for Strategic and International Studies.・Mr. Rosseau told Business. insider.
“Coupled with supply chain resilience and growing security concerns regarding China, this is a very good time to work hard to attract investment.”
The United Nations said that as of April last year, both India and China had a population of 1.426 billion, which means India is probably now the most populous country, given rising birth rates.
Change for the better — most of the time
Since taking office, Prime Minister Modi has pushed through a number of major economic reforms aimed at making India more friendly to do business and raising government revenue by increasing taxes on its vast informal economy.
He introduced taxes on goods and services, simplified bankruptcy laws, lifted restrictions on foreign direct investment, cut corporate taxes and abolished retroactive taxation.
But not all of Prime Minister Modi’s moves boosted growth.
Kunal Sen, director of the United Nations University’s World Institute for Development Economics, told BI: “Demonetization was an important economic policy that had a negative impact on the economy.”
Sen is the author of several books on the Indian economy and is Professor of Development Economics at the University of Manchester.
He was referring to Prime Minister Modi, who suddenly declared in November 2016 that all 500 and 1,000 rupee notes, which account for 86% of India’s circulating currency, would no longer be recognized as legal tender.
The government’s goals were to capture undeclared income, eliminate counterfeit currency, widen the tax base, and bring more activities into the formal economy.
“Another important economic policy was JAM – the trinity of bank accounts, mobile numbers and biometric cards for the poor. This last economic policy was revolutionary,” Sen said.
He praised the broader digitalization drive under the Modi government that has transformed the way Indians bank, invest, pay taxes and do business.
prosperity for all
While Mr. Modi’s efforts ushered in a more prosperous era for some Indians, many were left behind.
Youth are the heart of India, with around half of the population under 25 years and almost two-thirds under 35 years. Matching these hundreds of millions of people with jobs has proven to be a challenge, with youth unemployment nearly tripling from less than 6% in 2000 to about 18%. According to the International Labor Organization, it is still quite high at 10% in 2023.
According to the report, nearly 30% of India’s graduates will be unemployed by 2022, and only about 10% of the working-age population will be formally employed.
“Unemployment is a big problem,” Rossouw said, stressing that it’s not just a problem for new graduates, but “a much bigger bubble: underemployed farmworkers.”
Improving agricultural productivity is likely to help farm workers hasten their transition to urban life in the coming years, but “without significant reskilling and education” they will not be able to find modern jobs in the service industry. Rosseau said it would be difficult to secure one.
As a result, low-skill manufacturing and assembly jobs and lower-level service jobs will be needed, he added.
Another big challenge is addressing growing wealth inequality. According to an Oxfam report released last year, the richest 10% of the population owns more than 72% of the country’s wealth.
Businessmen Mukesh Ambani and Gautam Adani are both ranked among the 15 richest people in the world, according to the Bloomberg Billionaires Index. Luxury goods are selling well, with long waits for flashy purchases such as the Mercedes G-Wagon.
The lavish pre-wedding party held by the Ambani family earlier this year was seen by some as an insult to the vast number of Indians living in poverty.
Some 1.3 billion people live on less than $3,500 a year, according to some estimates, and India ranks 111th on the Global Hunger Index, below even North Korea.
Sen told BI that rising equality is partly explained by “capital-intensive economic growth with the increasing power of conglomerates,” and how giants like Adani Group , about securing large government contracts for bridges, highways and construction. Other infrastructure.
The third challenge is regional inequality, with some states such as Bihar and Uttar Pradesh not experiencing the same economic growth and modernization as other states, Rossow said.
mysteries of russia
One notable aspect of the Modi government’s economic boom is its dependence on Russia since its invasion of Ukraine in early 2022.
Before the war, India obtained 2% of its crude oil from Russia, but last year that rose to 35%. During this time, the United States and Europe cut funding to Putin’s military and imposed sanctions on Russian oil to punish Moscow for attacking a sovereign state.
Nevertheless, India purchased an estimated $37 billion of Moscow Oil in 2023. This is 13 times the annual purchase amount before the conflict. Its purchases helped Russia collect a record $320 billion in federal revenue last year.
India’s demand for Russian crude has cooled in recent months as new sanctions have driven up prices, but the purchases remain controversial.
Indian officials defended the purchases, saying global oil prices would have soared if they had bought Middle Eastern crude instead.
India is also one of the world’s largest oil refiners and has helped Western countries maintain access to refined oil products even as they refrain from buying Russian crude directly.
But the country imports 85% of its oil, so its overriding interest is to secure the cheapest oil possible to support its development, said CSIS Senior Research Fellow. said Neelima Jain, chair of U.S. India Policy Research.
“India has prioritized energy affordability and accessibility during a rapid rural-to-urban transition, leading to 6% year-on-year growth, so prices remain favorable. “India will continue to purchase Russian crude oil if it is able to guarantee reliable quantities as energy demand increases,” she told BI.
“In an inflationary environment, the economy [rather] Geopolitics will drive India’s energy choices.”
India is an IT hub
Under Modi, India has made great strides in modernizing its economy, fighting bureaucracy and appealing to foreign investors.
Big tech companies like Microsoft have a long history of outsourcing to India, but recent efforts to cut red tape and lower corporate taxes appear to be sparking renewed interest.
Significant layoffs at Alphabet, Amazon, Meta, Salesforce and other US tech giants over the past few years could portend a large-scale job exodus to India.
Randstad India’s Sanjay Shetty told the Economic Times last summer that he expected 30 to 40 per cent of the technology jobs being eliminated around the world to move to India by 2025. .
“India will be the biggest beneficiary in the medium to long term as almost all the companies we spoke to are looking to expand their footprint in India,” Shetty said.
Even if it works, this is a problem for a country that faces not only unemployment and underemployment, but also deep income inequality, regional disparities, and the risk of alienating its Western allies by continuing to buy Russian oil. It won’t be a panacea.
But overall, India appears to be heading in the right direction.
“If you focus on a few key states, the growth is real,” Rossow said. “India’s dynamic technology services sector is to IT services what China’s manufacturing is to it. There is much to cheer about, even if the reform agenda is far from over.”