5 Things to Know to Understand India’s Economy Under Modi

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Narendra Modi has big money behind him as he appears set to win a third term as India’s prime minister. His party has collected more political cash than the others combined, and the country’s richest business leaders support him.

The campaign is fueled partly by a winning story Mr. Modi tells about India’s economy, some of which can be traced to changes made during his decade in office. He has also benefited from geopolitical currents that have made India more attractive to global financiers. Here are five factors that are essential to understanding India’s economy. Elections will start on April 19 and conclude June 4.

India, the world’s largest population, has been poor for centuries on a per person basis. But its economy has developed an undeniable momentum in the past three decades and is now worth $3.7 trillion. Size like that has its advantages: Even one percentage point of growth is monumental.

“Fastest-growing major economy” has become India’s signature in the past few years. In 2022 India became the fifth-largest economy — stepping over Britain. Even if it continues to grow at a relatively modest pace, it should overtake Germany and Japan to become the third-largest economy around 2030, behind only China and the United States.

The “India growth story,” as local businesspeople call it, is attracting a surge of excitement from investors, especially overseas. Under Mr. Modi, Indians are becoming more hopeful about their country’s economic future. As the economy gets bigger, even smaller rates of growth pile on huge sums of wealth.

Yet many facts of the Indian economy remain stubbornly in place. A large proportion of the work force toils on farms, for instance, and a relatively small part of it is employed in factories. Without better jobs, most Indians will be left waiting to taste this success.

Over the past 10 years, the rest of the world has given Mr. Modi opportunities to turn adversity into India’s advantage. He took office as oil prices were cut in half, a huge boost to the country because it relies heavily on imported crude.

The next few years were bumpier. Shocks caused by Mr. Modi’s boldest moves — an abrupt ban on bank notes and a big tax overhaul — were slow to be absorbed. By 2019 growth was slowing to less than 5 percent. Mr. Modi won re-election that year on the strength of a nationalistic campaign after brief border clashes with Pakistan.

When the Covid-19 pandemic came, it was cruel to India. During the first lockdowns, the economy shrank 23.9 percent. A 2021 wave pulled India’s health-care system into crisis.

India’s economic recovery then coincided with a supercharged enthusiasm by Western countries to tap India as an economic and strategic partner. The pandemic had exposed the world’s deep dependence on China as a supplier and manufacturer. And China’s heightened tensions with the United States, its own border clashes with India, and now its uncertain economic prospects inspired businesses and investors to look to India as a solution.

The most visible improvements to India’s economy are in infrastructure. Mr. Modi’s gift for implementation has helped build up capacity exactly where India has missed it most.

The building boom started with transportation: the railways, ports, bridges, roads, airports. India is remaking itself rapidly. Some of the developments are truly eye-catching and are laying the tracks for faster growth. The hope is that local businesses will start investing more where the government has lent its muscle.

Investment in India’s education and public health has been less meaningful. Instead, the government under Mr. Modi has aimed to make concrete improvements for ordinary Indians: bringing electricity to most remote villages, and drinking water and toilets to homes that lacked them.

Less tangible but perhaps more significant has been India’s rapid adoption of what the government calls “digital public infrastructure.” This is a web of software that starts with Aadhaar, a biometric identification system established under Mr. Modi’s predecessor, Prime Minister Manmohan Singh. From unique digital identities, it has tied together access to bank accounts, welfare benefits and tax requirements.

This new organization of India’s data, combined with a dense and cost-effective mobile network, has brought efficiencies that grease the gears of commerce. India is proudly exporting the basic framework of its digital architecture to other countries.

Some of the Indian economy’s persistent ailments have been left to fester. Mr. Modi has tried and failed to fix things that plagued previous governments, like industrial policy, the broken agricultural markets and rules for land acquisition. What has become even worse under his government is the country’s vast inequality.

A study published last month by the World Inequality Database in Paris found that while the number of billionaires in India nearly tripled in the past 10 years, the incomes of most Indians were stagnant. The median income is still only $1,265 a year, and 90 percent of the country makes less than $3,900. When so many are left with so little, it is hard to see how domestic consumption will spur faster growth.

The Indian government is quick to reject most such reports; the underlying data is too thin, its economists say. But that’s partly because of the government’s own doing. For all of India’s digital innovation, deciphering what is going on in the country’s economic life has become harder. Under Mr. Modi’s government, fewer official statistics are published and some important data sets, such as those tracking household consumption, have been delayed and redesigned.

What’s more, institutions like think tanks and universities face legal and financial pressure to fall in line behind the government’s messaging.

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