As Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP)-led alliance secures a narrower majority in the general elections than anticipated, India continues to grapple with economic issues such as high unemployment, fluctuating inflation along with the country’s low per capita income.
After the disappointing results for the party, PM Modi took to social media giant X (formerly Twitter) and wrote, “People have placed their faith in NDA, for a third consecutive time! This is a historical feat in India’s history.” He added, "I bow to the Janata Janardan for this affection and assure them that we will continue the good work done in the last decade to keep fulfilling the aspirations of people."
Interestingly, the BJP in its 2014 election manifesto listed job creation as a “high priority” task and earmarked manufacturing, infrastructure and housing as sectors with the potential to achieve the target. However, the International Labour Organisation (ILO) in its recent report stated that the unemployment rate of Indian youths is higher than for adults. The youth unemployment rate has been rising over the past several decades– from 5.6 per cent in 2000 to 6.2 per cent in 2012 and then increasing threefold, to nearly 18 per cent in 2018 and reaching around 15.1 per cent in 2020.
It added that unemployment among educated youths is particularly high and has exceeded global averages by 2018. Indian youths are attaining high levels of education, but not enough employment opportunities are created for them, as reflected by the declining participation in the labour force and workforce.
The challenge of educated youth unemployment is increasing and becoming huge in India, with immense implications for societal balance and peace, according to the report. However, a periodic Labour Force survey done by the government showed it further rose to 20.8 per cent in April-June 2020 during the Covid-19 pandemic before dropping to 3.2 per cent in 2022-23– nearly half of the 2017-18 levels.
Moreover, the informal sector, which forms the backbone of India's economy, has been particularly hard-hit, with many workers struggling to secure stable and decent-paying jobs. "In the wake of a new government formation, we anticipate a decisive commitment to formalising India's vast informal workforce. The expeditious enactment of labour codes and strategic measures to bridge the skills-jobs gap is critical," said Kartik Narayan, Chief Executive Officer (CEO) Staffing, TeamLease Services.
Narayan expects these actions to catalyse a structured, equitable labour market, ensuring sustainable livelihoods and fortifying the nation's economic framework.
Growing Economy, Low Per Capita
Political analysts noted that PM Modi's rare and historic third term in office is going to be very mixed. On one side India's economy is growing at a fast pace, on the other side, low per capita income and falling rupee remain a challenge.
Indian economy under PM Modi has grown massively as it stands out among major economies, poised to maintain its status as the fastest-growing in 2024. The International Monetary Fund's (IMF's) latest World Economic Outlook has revised its growth projections upward to 6.8 per cent for 2024, citing robust domestic demand and a burgeoning working-age population as key drivers.
Talking about the country's per capita income, presently per capita gross domestic product (GDP) levels, India is a “lower-middle income” (USD 1,136-4,465 range) country. According to experts, disparities in educational opportunities and skill development lead to income inequality. Rishabh Goel, Co-founder and CEO, Credgenics said," We look forward to policies that further enable ease of doing business, nurture tech-startups with sustained access to funding, and safeguard the intellectual property."
Goel is confident that the focus on sustainable infrastructure development, large-scale skill enhancement, and bridging the gaps in digital connectivity will provide the necessary impetus for businesses to scale and thrive.
Falling Indian Rupee
On Tuesday, the Indian rupee witnessed the brunt of market volatility and tumbled against the US dollar after vote-counting trends showed the BJP a narrow majority. It closed 0.47 per cent down at 83.53 against the greenback, making its worst single-day percentage decrease since February 2023.
Notably, the rupee’s slump came as a direct reaction to the election outcome, which fell short of the landslide victory predicted for PM Modi’s BJP in exit polls. To mitigate the impact of global issues, India’s Prime Minister Narendra Modi has urged the Reserve Bank of India (RBI) to create a ten-year strategy to make the rupee more accessible and acceptable worldwide.
However, industry experts have said that it is tough as the Indian rupee needs to be stable and strong, with consistent growth, a low inflation rate, a robust financial system with deep asset markets and a formidable export presence in global markets.
Interestingly, rupee-dollar exchange rates were Rs 47.69 in 2001-02 and Rs 45.46 in 2010-11 registering negative growth of 0.2 per cent on a compound annual growth rate (CAGR) basis. In 2007-08, it was as low as Rs 40.26. From 2011-2024, the exchange rate increased to about Rs 83.0 growing at 4.74 per cent on a CAGR basis.
Despite briefly touching a record low in April, the Indian Rupee largely remained stable for the month, with fluctuations driven by factors such as outflows of funds by foreign portfolio investments (FPIs) and the strength of the US dollar.
Throughout May, it continued to trade within a narrow range of 83.43-83.52 per US dollar, with minimal FPI inflows and demand for dollars from oil companies, according to a report by the Bank of Baroda (BoB). The rupee closed almost unchanged on Friday at 83.50 against the US dollar, mirroring the subdued performance of other Asian currencies.
For India, to stabilise the rupee, it needs to ensure high growth in manufacturing and exports and a trade surplus in goods and services. Experts stated that there is a requirement for a series of structural reforms and to ensure the easement of business and taxation laws.
Simultaneously, inflation continues to erode the purchasing power of ordinary Indians. Rising prices of essential commodities, from food items to fuel, have placed an unbearable burden on households across the country.
The inflation rate in India fluctuated between 3.6 per cent and 6.7 per cent from 2014 to 2023. It averaged around 5-5.5 per cent in 2014-2015. Then it dipped to 4.8 per cent in 2016 before rising to 6.2 per cent in 2020. The following year, it went down to 5.5 per cent and in 2022, it reached 6.7 per cent. In 2023, the average inflation rate was 4.4 per cent. In April 2024, it stood at 4.83 per cent.
According to the latest figures released by the Ministry of Statistics and Programme Implementation (MoSPI), the annual inflation rate, based on the all-India Consumer Price Index (CPI) numbers, stood at 4.83 per cent (provisional) for April 2024 compared to the same period last year.
Talking about India's gross domestic product (GDP) growth, it slowed to 7.8 per cent on-year in the fourth quarter (Q4) of the last fiscal from 8.6 per cent the previous quarter but was higher than 6.1 per cent in the year-ago quarter. Growth for the third quarter was also revised up to 8.6 per cent from 8.4 per cent.
Crisil Ratings in a report said that the growth moderation was driven by the fixed investment segment on the demand side. Private consumption trailed overall GDP growth but improved its performance in the second half of the fiscal. According to the report, “Net exports also impacted GDP growth positively in Q4, driven by pick-up in export growth and moderation in import growth."
On the supply side, gross value added (GVA) growth moderated to 6.3 per cent in Q4 from 6.8 per cent in the previous quarter. It remained much lower than the GDP growth as net taxes grew 22.2 per cent on-year during the quarter after a 31.2 per cent growth previous quarter.
While GVA growth for agriculture picked up (0.6 per cent in Q4 vs 0.4 per cent previous quarter), it slowed for industry (8.4 per cent vs 10.5 per cent) and services (6.7 per cent vs 7.1 per cent). The subdued growth in agriculture and allied activities reflects lower crop output this year. According to the SAE, total food production will be 1.3 per cent lower on-year — kharif 1.0 per cent lower and rabi 1.7 per cent.
Poverty And Inequality
In 2014, the BJP pitched the PM as an economic reformer who would root out corruption and help India’s middle class. But now as he seeks a rare third term, the gap between rich and poor has widened. A study by the World Inequality Lab revealed that India’s income and wealth inequality have become among the highest in the world, worse than in Brazil, South Africa and the US. The research showed that India’s top 1 per cent holds more income today than it did under the British.
NITI Aayog in collaboration with the UNDP and Oxford Poverty and Human Development Initiative (OPHI) developed the National Multidimensional Poverty Index (MPI) that offered a multi-dimensional perspective on poverty in the country. The paper released by the Niti Aayog has claimed that multidimensional poverty (MDI) has declined from 29.17 per cent in 2013-14 to 11.28 per cent in 2022-23 and that 24.82 crore people “escaped” from multidimensional poverty during these nine years.
The report also claims that various government initiatives such as Poshan Abhiyan, Anaemia Mukt Bharat and Ujjwala Yojana have played a major role in mitigating different forms of deprivation. However, several economists have argued that the Covid-19 impact on poverty is missing in the report’s findings. Observers stated that out of the number and share of the population below the consumption poverty line, the traditional method of estimating poverty globally is absent.
In 2023, India was ranked 111 out of a total of 125 countries in the Global Hunger Index (GHI) 2023. The Modi government, however, rejected the index while citing flawed methodology. Last year, the government extended the Pradhan Mantri Garib Kalyan Anna Yojana to provide free food grains to about 81.35 crore beneficiaries for five years.
Meanwhile, Congress asked the Centre if the poverty level has come down then why is the government providing free ration to 80 crore people?
