Before the Indian election results came in this week, Prime Minister Narendra Modi was widely seen as a charismatic and popular strongman, celebrated by the business world for raising his profile even as he failed to solve a vexing problem: how turn rapid economic growth into a critical situation. necessary work.
After the election, Modi finds himself facing the same monumental puzzle, but relegated to a new and uncomfortable status. He is the leader of a party that has been punished at the polls, forcing him to forge a coalition to maintain power.
Modi’s governing authority is likely to be limited by the complexities of keeping his coalition partners on his side. He failed to solve India’s deep-seated economic challenge when he exercised a monopolistic hold on power. He is now a weakened leader who must balance additional interests, although he still lacks an obvious way to improve living standards.
“There has been a sense that job growth has been weak in the last four or five years,” said Arvind Subramanian, a former chief economic adviser to the Modi administration who is now a senior fellow at the Peterson Institute for International Economics in Washington. . “How do you create more jobs? “This is really India’s core economic challenge, but I think the government will find itself with relatively limited tools.”
The humiliation of Modi’s party resonates in part as an expression of popular frustration that India remains a land of economic peril for hundreds of millions of people, as well as a country defined by staggering contrasts in wealth. In major cities, five-star hotels with sumptuous spas look down on crowded slums that lack plumbing. In rural areas, malnutrition prevails under many roofs and families struggle to find the money to keep children in school.
Although its working-age population numbers roughly one billion, India has only 430 million jobs, according to the Center for Monitoring the Indian Economy, an independent research institution in Mumbai. And most of those counted as employees are trapped in precarious circumstances as day laborers and farm laborers, without reliable wages and government workplace protections.
Improving livelihoods are evident in many cities, from high-rise apartments filling skylines to air-conditioned shopping malls and luxury cars clogging the roads. But the profits are highly concentrated. Professionals working in the technology centers in the south of the country and around the capital, New Delhi, have experienced substantial advances. A rapidly growing domestic auto industry is a source of relatively well-paying jobs.
Tycoons like Gautam Adani, one of Asia’s richest men, have seen their business empires strengthened by their relationships with Modi and his willingness to remove regulatory impediments to his greater fortune.
But the majority of Indian workers are effectively abandoned in the so-called informal sector: they work in street stalls, in small shops and in street businesses where they have no guarantee of income or possibility of promotion.
The failure of economic growth to generate more jobs is largely the story of how India missed out on the manufacturing boom that unfolded in East Asia over the past few decades. From South Korea and China to Thailand, Indonesia and Vietnam, hundreds of millions of people have escaped poverty thanks to factory wages.
India has not participated in that transformation largely because of a historical focus on self-reliance, a disdain for international trade and a stultifying bureaucracy that has discouraged investment.
“The whole manufacturing thing bypassed India,” said economist Subramanian. “It is that greater failure in development that continues to haunt India.”
Modi has carried out initiatives aimed at boosting manufacturing and increasing exports. His administration has simplified regulations and improved ports. However, despite some high-profile developments, such as Apple moving assembly of some iPhones to India, manufacturing accounts for only 13 percent of the country’s economy, according to World Bank data. This is a lower proportion than a decade ago, when Modi took office.
Foreign money has flowed into India’s stock markets, boosting share prices, a key element of Modi’s pro-business image. But persuading international investors to put money directly into Indian companies – a riskier bet – has been a tougher sell. His Hindu nationalist party has demonized the Muslim minority, a source of social ferment that has raised fears of instability.
The election could further discourage additional investment, because Modi will likely have a harder time securing passage of stalled reforms sought by businesses, including laws making it easier to accumulate land and hire and fire workers.
With no clear path to economic dynamism and more challenging political circumstances, Modi could turn to a traditional method to shore up support: He will expand social welfare programs, tapping government coffers to deliver more money to communities in need.
Such a course could potentially decrease the funds available for advancing the government’s flagship program: its aggressive construction of roads, ports, airports and other infrastructure. Those plans are critical to maintaining India’s strong economic growth and the broader drive to encourage investment in manufacturing.
Some fear that any short-term political favor-seeking by dispersing money could undermine the long-term project of stimulating employment by promoting industry.
“There is a need to ensure that the benefits of economic development reach maximum number of people,” said Shumita Deveshwar, chief India economist at Global Data.TS Lombard, a forecasting and consulting firm in London. “If people continue to rely on welfare and don’t get the benefits of economic development, it basically creates stagnation.”
Geopolitical disruptions appear to give India a new opportunity to grow its manufacturing base. As the United States and China engage in trade hostilities, multinational brands are seeking to reduce their heavy dependence on Chinese factories to manufacture their products. Large retailers like Walmart are increasingly looking to India as an alternative to China.
But capturing that potential investment requires continued improvement of roads, rail links and ports, along with a focus on vocational training to give people the skills needed to take factory jobs.
Even before the election, there were doubts that the Modi administration was acting quickly enough to achieve these achievements.
“India is a counterweight to China in terms of geopolitics, and we will continue to see some of that investment flow,” Deveshwar said. “But the scale at which they are providing the ecosystem for these opportunities is simply not large enough.”