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Indian elections: what 10 years of Modi have meant for the economy

As Narendra Modi marched towards victory in the 2014 elections, he said that “acchhe din aane waale hain” —Good times are coming.

With Modi set to secure another term as prime minister in elections starting April 19, the value of India’s stock market has tripled since he first took office. India’s economy is almost twice as big as before.

Stocks have risen so much because the number of Indians with sufficient wealth and appetite for investment risk has increased: from just 2 percent to almost 5 percent of the population.

But the economic benefits have been very uneven. Most of India’s growth depends on those at the top of the income ladder, including a circle of huge, tightly controlled companies.

It is estimated that ninety percent of India’s population of 1.4 billion people subsist on less than $3,500 a year. However, in poorer rural districts, life has become more bearable thanks to welfare programs that have been expanded under the Modi government. Many of the benefits are solid and visible: free bags of grain, toilets, gas cylinders and housing materials. Purely commercial developments have transformed village life: LED lights, cheap smartphones and almost free mobile data have changed the nature of downtime.

While the United States was experiencing a “vibration,” feeling gloomy despite upbeat economic news, India has been doing the opposite. Many of the signs here are contradictory, but the vibes are fantastic. International surveys show that Indian consumers have become the most optimistic in the world.

Foreigners also feel good about Modi’s economy. Banks such as Morgan Stanley and JPMorgan Chase are rushing to improve India’s weighting in their global stock and bond indices. Chris Wood, one of Asia’s most highly regarded market strategists, warned that if Modi was not re-elected this year, Indian markets could plunge 25 percent or more.

Something strange about Modi’s spirit of optimism about the economy is that India’s growth rates over the past 10 years have been very similar to those of the previous decade, under a government that Modi often blames for ruining the economy. country.

Real as it may be, India’s economic success story is also an attribute of what could be the singular characteristic of Modi’s years in the top job: his ability to control all the levers of power, with the spectacle as first priority.

Modi’s face is everywhere, perhaps more present in New Delhi than that of any democratically elected leader in any other capital. In the run-up to the Group of 20 summit last September, he took credit for virtually every positive development that could be found in this inexorably emerging economy.

In the bullish climate surrounding the Indian economy, even the pessimists are optimists. While official statistics anticipate a growth of 7.3 per cent in the current fiscal year, most finance professionals in Mumbai peg the figure between 6 and 6.5 per cent. The lowest estimate is around 4.5 percent, which would still surpass the United States and possibly China.

Expressing even mild skepticism is avoided. Economists who rely on government work must be careful not to speak bluntly. Economists who do not work with the government are becoming scarce, as independent think tanks are raided and closed.

Message control is much more pronounced than under Modi’s predecessor, award-winning economist Manmohan Singh. India became known as a “State in Crisis” during Mr. Singh’s tenure, even with growth occasionally reaching the 10 percent mark.

Modi has been busy remaking the institutions of Indian government. Political competition has been virtually eliminated nationally and animosity against the country’s Muslim minority of 200 million has exploded.

Modi has also used state power to make things happen in strictly economic matters, mostly for good, though sometimes for bad. The infrastructure is in trouble. There is some overbuilding, but the fact that it is being built is a welcome relief. Wellness programs have become more responsive.

India (especially in banking and business transactions) has made a widespread digital leap. The push began during Singh’s previous tenure, but Modi has pushed ahead. The “India Stack”, a set of software platforms running on the basis of Aadhaar, a biometric identification system, means that Indians now have access to faster and cheaper peer-to-peer transactions than Americans.

Taxes have been revised. India has pushed more of its economy into the formal sector, for example by enacting a goods and services tax like Europe’s value-added tax, allowing more revenue to be extracted from more people and businesses. That has freed up money for public spending and, by reducing corporate tax rates, for private financing.

A snag in the digitization book came on November 8, 2016, when at 8 pm Modi abruptly declared that all large notes suddenly became worthless. This was supposed to deprive criminals of “black money.” Rather, it paralyzed economic activity.

There are other ways in which the Indian government’s power to act decisively and generally unchecked has created distortions and inequalities. Larger companies have benefited greatly. Of the $1.4 trillion in wealth created by the most prestigious stock index between 2012 and 2022, 80 percent went to 20 companies, Marcellus Investment Managers in Mumbai estimated in 2022. Those companies are the ones that can talk directly to government.

No one better illustrates the concentration of corporate wealth and the risks associated with it than Gautam Adani. Outside India, few knew her name until 2022, when she suddenly appeared on the charts as the second richest person in the world, after Elon Musk.

The Adani conglomerate’s flagship stock nearly doubled in the year after Modi’s election and grew eight-fold after his re-election in 2019. The Adani Group became, in effect, a logistics arm of the government, building ports, highways , bridges and solar parks at speeds never seen before.

Then last year, Adani’s empire was accused of fraud by a New York short seller, costing Adani $150 billion on paper. Although Adani, who denied the allegations, recovered most of the money he lost, the episode exposed a risk in Modi’s strategy of allowing the few at the top to amass enormous influence.

Companies aside, at the individual level, India’s recent growth has been uncomfortably uneven. Having the largest population in the world explains why so many foreign investors are attracted to its consumer market. Most Indians are rural and 75 percent of them are, by most measures, poor, qualifying for free food rations aimed at preventing malnutrition. While this requires some caution, it leaves room for growth.

Sales of luxury goods have been booming, especially since the pandemic, generating years-long waiting lists for vehicles like the Mercedes G 63. Sales of motorcycles and scooters, which carry many more Indians than all four-wheeled cars together, they have stagnated.

The most painful aspect of the economy is the employment situation. Officially about 7 percent of Indians are unemployed. Many more are underemployed. In the last month, Indians desperate to find better incomes abroad have died trying: crossing US borders, fighting as ill-equipped mercenaries for Russia in Ukraine, and filling jobs left vacant by Palestinians forced to stop working in Israel.

And yet India’s rise in the global economy seems preordained. It has overtaken Britain to become the world’s fifth-largest economy, and is expected to overtake Japan and Germany to become the world’s third-largest in the coming years.

More multinational companies are expected to flock to India, creating opportunities for Indians. Only a small proportion of consumers can expect to enjoy standards of living that are taken for granted in the United States, but they are growing in number every year and can now be found even in small towns.

Bureaucracy continues to hinder companies without connections to the top of the government. But the direction of the movement is promising: Projects that used to require two years of permitting can now be completed in 15 days.

With achche din As he promised in 2014, Modi promised “minimum government, maximum governance,” sounding like a defender of the American free market of the 1980s. In practice, his economic approach has not been defined by theory or ideology. He has thrown everything against the wall to see what sticks. He has thrown with insistence and strength. When economists talk about India, they have stopped talking about the “State in crisis.”