The Double Life of the Indian Economy Jayati Ghosh

As India gears up for a potentially momentous general election over the coming weeks, the general perception within and outside the country is that the result is a foregone conclusion, with the prime minister, Narendra Modi, and his Bharatiya Janata Party likely to win a third term in office. This is surprising, because many of the indicators that voters are supposed to be concerned about, such as economic conditions and corruption, are not going so well interms of lived reality for most Indians and therefore, presumably, also for the incumbent government.

The headline news creates the impression that the economy is booming and is a bright spot in a world in which growth in many other countries is sputtering or stagnant. But this is a very partial picture. The economic trajectory of India has been quite unequal for several decades, but inequality has increased dramatically in the last decade. The recovery after the pandemic has been especially K-shaped, with the top 10 per cent or so of the population still around 140 million people doing extremely well (the upward tick) but the vast majority doing less well and often experiencing significantly worse material conditions (the downward slide).

‘Billionaire Raj’

The extent of inequality in India has been highlighted by recent research from the World Inequality Lab, which combines national income accounts, wealth aggregates, tax tabulations, rich lists and surveys on income, consumption and wealth in a consistent framework to derive long-run data on income and wealth inequality. (Official data tend not to capture adequately the incomes and assets of the very rich.) The shocking finding is that India under ‘the billionaire raj’ is more unequal than under the colonial British Raj.

The soaring away of the 1 per cent has been particularly marked under the Modi governments since 2014. By 2022-23, the shares of income and wealth held by the top percentile of the population, at 22.6 and 40.1 per cent respectively, were at their historically highest levels—higher even than in the egregiously unequal South Africa, Brazil and United States.

Such inequality is both a consequence and a cause of the pattern of economic growth under Modi. A consequence, because many policy decisions by central government were designed to favour large corporations (and some crony capitalists in particular) even while adversely affecting employment and living standards for the majority.

For example, the abrupt demonetisation of large-value currency notes in November 2016, without any warning, had a terrible impact in a country where around 90 per cent of transactions were in cash and around 85 per cent of workers were employed in informal activities which relied on it, while doing nothing towards the stated goals of reducing corruption and ‘black money’. The rushed implementation of a badly designed Goods and Services Tax in July 2017 was another blow to informal activities, allowing large enterprises to grab market share from smaller informal operations unable to cope with the new system.

The excessively harsh lockdowns during the pandemic came once again with little notice for preparation and little by way of social protection or compensation for loss of livelihoods. This created an economic catastrophe for hundreds of millions of workers, with many forced to trek hundreds of kilometres back to their homes in very adverse conditions. Meanwhile, the mismanagement of the health system created several fresh waves of infection, resulting in the terrible spectre of hundreds of bodies flowing down the Ganges, as hapless families were unable even to cremate their dead. Schools and other essential public services remained closed for more than a year and the educational system has still not fully recovered from the mess.

Depressing Reading

These shocks naturally affected employment and economic activity. Not that one would readily know: Modi’s administration has actively interfered with what was earlier one of the finest statistical systems in the developing world, to further its own political narrative—thus far, this public-relations exercise seems to have been quite successful. Indeed, the researchers at the World Inequality Lab record that the quality of Indian economic data is noticeably poor, having seen a decline recently.

Even so, the official employment surveys indicate the extent of the problem. The recently released India Employment Report 2024, brought out by the Institute of Human Development and the International Labour Organization, makes for depressing reading.

Work for remuneration has barely increased in recent years; this is even true of informal work, while formal employment has stagnated. An increase in women’s workforce participation, to a relatively low 21 per cent, was largely due to more women over a third of those in work working unpaid in family enterprises. The proportion of women above the age of 15 who get paid for work they do is thus just 13 per cent!

Along with employment, real wages have stagnated or even declined. Male regular workers in both urban and rural areas experienced declining real wages in the decade to 2022. Meanwhile, wage differentials have also exploded, such that in 2022 female casual workers in urban and rural areas were receiving only one-fifth of the average wage received by urban male regular workers.

Investment Flatlining

This helps to make sense of other macroeconomic indicators that might seem puzzling. The investment rate, which increased and remained above 35 per cent of gross domestic product in 2005-10, fell thereafter and has flatlined at around 32 per cent. Private investment has not responded to incentives like the massive cut in the rate of corporation tax in 2019, which reduced government revenues by more than 2 per cent of GDP.

This is probably because mass consumer demand is not increasing—hardly surprising when real wages are stagnant. Indeed, sales of several goods catering to the mass market, such as two-wheeler vehicles, are lower than they were before the demonetisation of 2016, even as sales of luxury cars are skyrocketing.

It may well be that Modi and his party can succeed in getting re-elected, with the current strategy of religious polarisation, control over mainstream media, manipulating caste loyalties and open repression or co-option of opposition parties by misusing various state agencies. Even so, India’s underlying economic reality should not be ignored.

(This article was originally published in Social Europe on April 8, 2024)