The Economist USA - 26.10.2019

4 Special reportIndia The EconomistOctober 26th 2019

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some of the troubling domestic indicators—such as this year’s

sudden plunge in car sales, lingering debts in banking, property

and power-distribution companies, and long-term declines in

consumer spending, household saving and industrial invest-

ment—could soon meet strengthening global headwinds to create

a nasty storm.

India’s current economic challenges are not due to some big

outside cause. The country has the resources and talent to grow

strongly for decades to come. This special report will argue that its

troubles stem largely from policy failures, albeit more by omission

than commission. Successive governments—at state as well as na-

tional level—have failed to pursue sensible, consistent policies to

promote growth. Mr Modi, too, for all his promise, is failing in this

regard, as he follows more his nationalist, rather than his reform-

ist, instincts.

India is not easy to govern. What other country has nearly 800

spoken languages, 22 of them languages of state? And what other

society is fragmented into more than 3,000 castes, each with its

own proud creation myth? Some caste rigidities have softened

over time, but the structure is remarkably robust: even now only

one in 20 marriages crosses barriers of caste. India’s large Muslim,

Christian, Sikh, Buddhist and Jain minorities often claim to be free

of caste. In practice they are nearly as compartmentalised as the

80% Hindu majority. Economic divisions coexist with social ones.

When introduced in 2017, the gstreplaced a web of local taxes

stretched over 29 states and seven territo-

ries. Goods move faster now, but they still

cross radically different economies. Resi-

dents of Goa on India’s west coast enjoy in-

comes per person 12 times those in Bihar, a

rural state to the north-east. Levels of fertil-

ity, literacy and life expectancy in the

southern states of Kerala and Tamil Nadu

approach those of Thailand or Turkey; in

parts of the Gangetic plain in the north they

are nearer to those of sub-Saharan Africa.

Banks in Maharashtra, home to India’s commercial capital, Mum-

bai, boast loan-to-deposit ratios of 100%, as in advanced econo-

mies. In India’s most populous state, Uttar Pradesh, they are stuck

at 40%, reflecting slim pickings and high barriers to enterprise.

Overlying such disparities are other divisions, between pros-

pering cities and struggling hinterlands, and between the few big,

globally competitive conglomerates with access to capital, know-

ledge and political clout, and millions of small firms at risk of ex-

tinction from a flick of the government’s bureaucratic tail. India’s

“formal” economy may indeed have grown by 8% in early 2018, as

the government’s gdpfigures insist. But the hard-to-measure “in-

formal” economy, accounting for three out of four jobs, may have

been growing by just 2%, or even tumbled into recession.

Understandably, India’s many fractures generate anxieties.

This is especially true when the pace of

change accelerates, and when awareness of

differences grows. Although India’s popu-

lation growth at national level has slowed

markedly, the total tally is still expected to

overtake China’s by 2027. India faces both a

big bulge in working-age people and a

growing rural exodus. Unemployment fig-

ures are unreliable, but the trend is unmis-

takable. Fewer young people can find a job,

never mind one that matches their hard-

earned qualifications. Openings for even

menial posts attract throngs of overquali-

fied applicants.

As such competition mounts, an explo-

sion in access to information is demolish-

ing archetypes and encouraging greater

ambition. By next year, 700m Indians will

be online, a 14-fold increase in ten years. All

but a small fraction of them use smart-

phones. Between 2014 to 2018, Indians’

consumption of mobile data grew 56 times.

The sheer volume of fake news, gossip, po-

litical spin and cricket highlights eclipses

anything carried by print, broadcasting or

Bollywood. For tens of millions of Indians,

revolutions that took generations to unfold

elsewhere seem to be happening over-

night; in literacy, in exposure to the wider

world and in expectations for personal

achievement and freedom.

Such factors may explain why, despite

strides in raising living standards, Indians

are not growing more cheerful. In 2018 they

ranked alarmingly low in a Gallup survey of

global well-being: just 3% said they were

“thriving”, compared with 21% of Chinese.

Moreover, India had sunk faster on the

“happiness index” than Egypt, Greece or

Yemen, which endured a collapsed revolu-

Rajasthan

Punjab

Gujarat

Goa

Haryana

Himachal

Pradesh

Delhi

Odisha

Jammu and

Kashmir

Andhra

Pradesh

Telangana

Tamil

Nadu

Karnataka

Bihar

Jharkhand

West

Bengal

Andaman and

Nicobar Islands

Sikkim

Arunachal

Pradesh

Nagaland

Manipur

Tripura Mizoram

Megalaya

Assam

Kerala

Uttar Pradesh

Uttarakhand

Madhya Pradesh

Ch

hattisgarh

Maharashtra

Kathmandu

Naypyidaw

Islamabad

New Delhi

Dhaka

Kabul

Colombo

Bengaluru

Mumbai

Ahmedabad

Hyderabad

Chennai

Kolkata

Line of Control

Pakistan-

administered

Kashmir

CHINA

BHUTAN

BANGLADESH

SRI

LANKA

NEPAL

PA K I STA N

AFGHANISTAN

INDIA MYANMAR

INDIAN

OCEAN

Arabian Bay of Bengal

Sea

250km

Ruling parties

GDP per person

By state*, 2017-18, $

BJP BJP ally Congress

Other Governor’s rule

1,000

2,000

5,000

Sources: Reserve Bank of India;

National Statistical Office; Election

Commission of India; state assemblies;

news reports *At current prices,

projected population in 2019

India’s current

economic

challenges stem

largely from

policy failures