20 Briefing India’s economy TheEconomistMay14th 2022
analysis firm. Exports are rising.
What, though, of jobs? Formal employ
ment is rising: enrolment in the national
socialsecurity scheme for formal blue
collar workers has risen by 19m, to 56m,
since early 2020. But that reflects the for
malisation of the economy. The share of
Indians aged over 15 in work of any sort was
55% in 2012 but only 51% in 2020. Sluggish
jobs growth, with a paucity of women in
work, are longstanding problems. The
jobs that exist are often miserable.
Hence the fourth pillar, digital welfare,
with payments for some 300 schemes for
needy Indians, from job support to fertilis
er subsidies, sent straight to people’s bank
accounts. This cuts out bureaucrats and al
lows spending on a staggering scale. In the
year to March, payments reached $81bn, or
3% of gdp, up from 1% four years earlier.
Payments have totalled $270bn since 2017.
Roughly 950m people have benefited, at an
average of $86 per person per year. That
makes a difference to struggling house
holds: India’s extreme poverty line is about
$250 per person per year at market ex
change rates. Mr Modi has not managed to
initiate a national jobs boom, but he has
created a national safetynet of sorts.
Money for the masses
These four pillars could sustain a transfor
mation of India’s economy over the next
decade. It would have a core of highly pro
ductive firms. Digital services would mean
most people’s consumption took place ef
ficiently in the formal economy (even if
their jobs remained informal), raising pro
ductivity and channelling funds into the
banking system. All this would be taxed,
allowing the government to pay for redis
tribution, using the direct welfare system
to placate a great mass of underskilled and
underemployed people.
One risk to this vision is economic in
stability. India is dependent on inflows of
capital to finance its currentaccount defi
cit. Though it uses almost a fifth less oil per
unit of gdpthan it did a decade ago, almost
all of that oil is imported. When interest
rates and commodity prices rise, it tends to
suffer. Welfare spending has helped push
the budget deficit to 10% of gdpand public
debt to 87% of gdp. On May 4th India’s cen
tral bank raised interest rates from 4% to
4.4% in response to inflation and the glo
bal tightening of monetary policy.
That said, the financial system is more
resilient than it was. Banks’ bad debts have
at last been cleaned up. A growing pool of
domestic investors offer resilience should
foreigners feel forced to flee. And formali
sation of the economy gives the govern
ment more taxraising clout.
Another danger is Mr Modi’s style of
rule. Businesspeople know he is not the
progenitor of all that is working well; he
did not invent the tech stack, roadbuild
ing or unicorns. But they see a government
that is more consistent and less corrupt
than its predecessor. What is more, his po
litical dominance provides continuity.
“They are not ideas guys, but they are
open,” says one company founder. “Modi
puts the full weight of the system behind
it. They are able to kick butt, to get it done.”
A penchantforquick,secondbestdeci
sionshascosts,though.Intractableprob
lemsfester.Despitesurgingprivateinvest
ment in renewable energy, the state
ownedfirmsthatdistributeelectricityare
bankruptandsupplyisunreliable.Educa
tionremainsterrible.Althoughschoolen
rolmenthasrisentoover90%forchildren
under16,manyleavebarelyliterate.More
efficientwelfareisnotasubstitutefora
systeminwhichpeoplearemorefullyable
torealisetheirpotential,ratherthanbeleft
ontinyfarmsasautomatedfactoriespass
themby.Toolittleisbeingdonetoprepare
suchfarms,orthecountryasa whole,for
theravagesofclimatechange.
Thereareotherdisturbing aspectsto
themindsetofMrModi’sbjp. Theideology
of selfreliance and habit of tinkering with
tariffs could yet morph into fullblown
protectionism. The culture of intimidation
it fosters in the political world could be
come a bigger feature of the business
world, too. It has already bullied the press
and eroded judicial independence.
So far the economy seems to be insulat
ed from the religious tensions that the bjp
continuously heightens to sustain itself in
power. This is not new. In 2002, in the last
big bout of religious violence, over 1,
people, most of them Muslims, were killed
in riots in the state of Gujarat. But the econ
omy shrugged off the horror: the national
stockmarket dipped by 4% for a day and
then recovered. Gujarat’s gdpgrew by 8%
the following year, twice as fast as the na
tional economy—growth which helped Mr
Modi, then the state’s chief minister, rise to
his current office.
Unlike, say, ethnic Chinese in Indone
sia, India’s persecuted Muslim minority
does not have a disproportionate role in
business. Their exclusion reflects discrim
ination. It also limits the potential scale of
any capital flight should things deteriorate
further. But there is a chance that sectarian
violence could return on a large scale. And
Mr Modi’s chauvinism could also damage
the economy by destabilising the federal
system. Promoting Hindi as a national lan
guage goes down badly in the south and
Maharashtra, which have disproportionate
economic weight. A potential redrawing of
India’s parliamentary seats could heighten
regional tensions. The government’s sinis
ter tendency to undermine rival sources of
power could obfuscate problems and pro
mote cronyism.
Mr Modi wants to restore Indian great
ness. For him, that seems to involve not
only bolstering Hindu pride at the expense
of minorities, but also building a large, in
tegrated, hightech economy. So far the
two ambitions have gone together, but that
may not always be so. India’s Rockefellers
and tech stars are hoping that thecountry’s
economic modernisation andunification
will survive his divisive politics.n
Stacking up
India, formalisation
% of estimated monthly GDP
Sources:NPCI;GSTC;Bloomberg;TheEconomist
*UnifiedPaymentsInterface †GoodsandServices Tax
3
50
40
30
20
10
0
22212020
MonthlyUPI*
transactions
10
8
6
4
2
0
22212020
Monthly GST†
receipts