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Economic wealth inequality a reality check for India

by Adrian David

MELBOURNE, 19 JUNE – The unexpected Indian election result, where Narendra Modi’s Bharatiya Janata Party (BJP) failed to secure an outright majority, was the populace’s clear indication of economic wealth disparity.

This is the take of the Australian National University’s Crawford School of Public Policy East Asian Bureau of Economics researcher Rojan Joshi.

Joshi observed that India experienced a disappointing electoral result, forcing it to role without a majority for the first time since 2014.

“A key factor in the electoral loss was the Indian populace’s clear indication that economic issues were of greater importance than divisive rhetoric, with growing discontent related to India’s significant wealth inequality and the lack of job opportunities for the country’s vast labour force playing a significant role.

“Modi’s disappointing electoral showing could be the catalyst that India needs for a shift away from divisive Hindu nationalism, back towards the imperative of economic development,” Joshi opined.

He wrote that Modi having set sights on a supermajority of 370 seats, not even a historic third consecutive term could shake the feeling of disappointment for the prime minister. Joshi felt that Modi’s Bharatiya Janata Party (BJP) stumbled to 240 seats, a 63-seat deficit from 2019, which meant that Modi had to rely on his alliance partners to form a government for the first time since his election in 2014.

“Coalition rule will require Modi to change his centralised, top-down approach to policymaking and adopt a more conciliatory tone in negotiating with his alliance partners, some of whom hold vastly different ideological views from the BJP.

“Indian voters have sent a clear message that dealing with the problems of the economy matters more than divisive populist rhetoric.

“In a country as diverse as India, a single unitary vision of Hindutva politics was never likely to have the appeal needed to deliver national success.

“The payoff from the BJP’s mixing of politics and religion seems largely to have been exhausted – exemplified dramatically by the government’s delivering on its promise of constructing the Ram Mandir Hindu temple in Ayodhya and then losing the constituency in which it was built,” wrote Joshi.

He added that India’s big economic numbers undoubtedly looked strong.

“It is the fastest growing major economy, expanding by 8.4 per cent in the last quarter of 2023, and boasts the world’s fifth-largest gross domestic product (GDP).

“On the campaign trail, Modi promised to make India the world’s third-largest economy by the end of his third term in 2029.

“But this impressive scale is built on the aggregation of 1.4 billion people.

“On a per capita basis, the country remains desperately poor with an average income of about US$2,700.

“Progress has been made in poverty reduction, but credible estimates of how much are difficult given the lack of reliable statistical data,” observed Joshi.

He noted that inequality between India’s rich and the rest of the population has grown worse in the past decade, due in part to the government’s favours to large domestic conglomerates and big business.

Joshi said that the richest 1 per cent now held 40 per cent of the country’s wealth, while the bottom 50 per cent held just 6 per cent.

“There is no starker demonstration of this disparity than the country’s financial centre Mumbai, home both to Mukesh Ambani (Asia’s richest man) and Dharavi (the world’s third largest slum).

“The ability of opposition parties to tap into the discontent of voters who felt left behind by India’s two-track growth story was a significant factor in their success,” he analysed.

Joshi questioned whether the loss of the BJP’s sizeable majority would now cruel its ability to cut through with the politically difficult land, labour and agricultural reforms that were necessary for India to sustain and accelerate its economic growth.

“Political majorities in the previous two terms didn’t deliver those reforms.

“Without his own parliamentary majority, Prime Minister Modi will be forced to negotiate with his coalition partners to take bills through parliament.

“Given that the Indian constitution splits legislative powers, including over land and labour laws, between the Union and the states, any step away from political centralisation and towards consensus augurs better for future reforms,” Joshi noted.

He analysed how Modi’s vision was for India to become a developed economy by 2047, 100 years after independence.

“This vision implies a $35 trillion economy and per capita GDP of US$18,000.

“This ambition would require growth of about 10 per cent per annum for the next 23 years.

“The BJP’s approach has been to support high-tech services and capital-intensive big business as the drivers of economic growth.

“In most emerging countries, the economy shifts from being dominated by agriculture to manufacturing as unskilled labour is absorbed into more productive employment.

“There are some in India who think that it can leapfrog this manufacturing stage, with high-end services carrying the economy forward,” Joshi submitted.

Yet, he observed, that the vast majority of Indians did not have the skills for work in high tech or service industries. “More than 45 per cent of India’s labour force is engaged in agriculture and the lack of decent jobs in the manufacturing sector has left them stuck at the bottom in low-productivity employment.

“Pervasive unemployment and the failure to deliver accessible manufacturing jobs, and the consequent growth in inequality, was the key economic issue that led to Modi’s electoral rebuke.

“Utilising its abundant labour endowment needs a paradigm shift in India’s development model.

“The political challenge for Modi is to build an economic agenda centred on the nation’s main resource: its abundant but on average low-skilled labour force, which is the source of its real comparative advantage for the next couple of decades at least,” said Joshi.

India, he added, had the world’s largest population, 68 per cent of whom were between the ages of 15 and 64.

He noted that each month, 1 million Indians turned 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 under policies that favour ‘self-reliance’ in primarily capital-intensive goods.

“This inward-looking growth strategy and its protectionist tilt will not absorb the country’s rapidly growing labour force in more productive employment.

“Tapping into foreign demand through an export-oriented approach offers opportunities for domestic firms. “Protectionist policies sabotage India’s growing role in global value chains,” Joshi summarised.

For competitiveness in world markets, he said import barriers needed to be low so that firms have access to cheap, high-quality inputs from abroad into production for export.

“India’s economic agenda remains the same as it has been for the past decade.

“But after this election, it will be harder for the Modi government to ignore,” Joshi concluded. – airtimes.my

#AirTimes #Global

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