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Modi's electoral setback: A reality check on India's economic woes – Analysis – Eurasia Review

Modi's electoral setback: A reality check on India's economic woes – Analysis – Eurasia Review
Modi's electoral setback: A reality check on India's economic woes – Analysis – Eurasia Review

 


By Rojan Joshi

Narendra Modi's disappointing election results could be the catalyst India needs to abandon divisive Hindu nationalism and return to the imperative of economic development.

Having set his sights on a supermajority of 370 seats, not even a historic third consecutive term could shake Modi's sense of disappointment. His Bharatiya Janata Party (BJP) fell to 240 seats, a deficit of 63 seats from 2019, meaning Modi will have to rely on his alliance partners to form a government for the first time since his election in 2014 .

Coalition rule will force Modi to change his centralized, top-down approach to policymaking and adopt a more conciliatory tone in negotiations with his alliance partners, some of whom have very different ideological views from those of the BJP .

Indian voters have sent a clear message that solving economic problems matters more than divisive populist rhetoric.

In a country as diverse as India, a unitary vision of Hindutva politics would probably never have the traction needed to ensure national success. The benefits of the BJP's mix of politics and religion appear to have been largely exhausted, as dramatically demonstrated by the fact that the government kept its promise to build the Hindu temple Ram Mandir in Ayodhya and then lost the constituency in which it was built.

India's headline economic numbers undoubtedly look strong. It is the fastest growing major economy, growing 8.4% in the final quarter of 2023, and has the fifth largest GDP in the world. During the election campaign, Prime Minister Modi promised to make India the world's third largest economy by the end of his third term in 2029. But this impressive scale relies on the aggregation of 1.4 billion people . Per capita, the country remains desperately poor with an average income of around US$2,700. Progress has been made in reducing poverty, but it is difficult to estimate the extent due to the lack of reliable statistical data.

Inequalities between India's wealthy and the rest of the population have worsened over the past decade, in part because of the government's favoring of large national conglomerates and corporations. The richest 1 percent now hold 40 percent of the country's wealth, while the poorest 50 percent hold just 6 percent. There is no more stark demonstration of this disparity than the country's financial hub, Mumbai, home to both Mukesh Ambani, Asia's richest man, and Dharavi, the world's third-largest slum. .

The ability of opposition parties to exploit the discontent of voters who felt left behind by India's two-speed growth was an important factor in their success.

The question is whether the loss of the BJP's large majority will now damage its ability to carry out the politically difficult land, land and land reforms that are necessary for India to sustain and accelerate its economic growth. The political majorities of the previous two mandates did not implement these reforms.

Without his own parliamentary majority, Prime Minister Modi will be forced to negotiate with his coalition partners to pass bills through Parliament. Given that the Indian Constitution divides legislative powers, particularly in matters of land and labor laws, between the Union and the States, any step towards political centralization and consensus augurs better for future reforms. .

Modi's vision is for India to become a developed economy by 2047, 100 years after independence. This vision involves an economy of $35 trillion and a GDP per capita of US$18,000. This ambition would require growth of around 10 percent per year over the next 23 years. The BJP's approach has been to support high-tech services and large, capital-intensive businesses as engines of economic growth.

In most emerging countries, the economy is shifting from an agricultural dominance to a manufacturing economy as unskilled labor is absorbed into more productive jobs. Some in India believe they can move beyond manufacturing, and that high-end services drive the economy forward.

Yet the vast majority of Indians do not have the skills needed to work in the high-tech or service sectors. More than 45 percent of India's workforce works in agriculture and the lack of decent jobs in manufacturing has left them stuck at the bottom of the ladder, in low-productivity jobs. Widespread unemployment and the failure to create accessible manufacturing jobs, and the resulting growth in inequality, were the key economic problems that led to Modi's electoral rebuke.

Utilizing its abundant labor force requires a paradigm shift in India's development model. The political challenge for Modi is to build an economic program centered on the country's main resource: its abundant but on average low-skilled workforce, which is the source of its true comparative advantage for at least the next two decades.

India has the world's largest population, 68 percent of which is aged 15 to 64. Every month, 1 million Indians turn 18. This is a potential demographic dividend, but it could easily become a demographic disaster with jobless growth.

The government's Make in India initiative encourages domestic manufacturing and production, but within policies that promote self-sufficiency in capital-intensive goods. This inward-looking growth strategy and protectionist orientation will not absorb the country's rapidly growing workforce into more productive jobs. Tapping into foreign demand through an export-led approach provides opportunities for domestic businesses. Protectionist policies are sabotaging India's growing role in global value chains. To be competitive in global markets, import barriers must be low so that businesses have access to cheap, high-quality foreign inputs for export production.

India's economic agenda remains the same as it has been over the past decade. But after these elections, it will be more difficult for the Modi government to ignore them.

  • About the author: Rojan Joshi is a researcher in the East Asian Economic Research Bureau at the Crawford School of Public Policy at the Australian National University.
  • Source: This article was published by the East Asia Forum

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