An Indian State of the Union: An Assessment of Recent Economic Developments

On February 5, 2019, U.S. President Donald Trump presented his annual State of the Union address.  Typically an opportunity to tout the nation’s economic achievements and present the administration’s future economic policies, the State of the Union address provides a comprehensive assessment of the government’s aims in moving the country forward. 

Focusing on India, it is appropriate and timely to reflect on the subcontinent’s State of the Union, particularly with regards to the state of the economy.  As the country gears up for elections in April and May, the performance of the Modi government over the past five years has been and will be scrutinized.  Part of Prime Minister Modi’s electoral campaign in 2014 focused on rapid economic growth and creating millions of jobs.  With a BJP (Bharatiya Janata Party) coalition victory uncertain, has the government fulfilled its promise of improving the economy and the well-being of the Indian people?  Will the achievements of the governing party be sufficient to gain the support of the Indian electorate?

On a macro-economic level, the Indian economy has made significant strides over the past few years.  India has been the fastest-growing major economy in the world, with growth rates averaging at 7 percent.  For 2019, the Indian economy is expected to grow by 7.4 percent, reflecting sustained economic development.  Another promising development is that India is expected to be the second-largest economy in the world in 2030—according to Standard Chartered Bank—surpassing the United States and just behind China.  Currently, India boasts the sixth-largest economy in the world, standing at $2.59 trillion USD (2017), ahead of major advanced Western economies, such as France and Italy.

Speaking to BJP members in January, Prime Minister Modi said, “Earlier, the Indian governments would be in national and international headlines for scams.  Now, the focus has shifted to new schemes.”  He further noted that sanitation coverage in the country had increased from 38 percent to 68 percent during his premiership. 

However, despite these promising expectations and developments, there remain some long-standing challenges that could potentially stunt economic growth and the improvement of living standards. 

Firstly, a scandal involving the suppression of an official report on the national unemployment rate has hit the government.  On January 31, the government was accused of withholding the release of this report, which was expected to be released in December of last year.  It apparently stated that the national unemployment rate reached a 45-year high in 2017. 

If the report is accurate, the 2017 unemployment rate stood at 6.1 percent.  While comparable to the world unemployment rate (5.5 percent, 2017) and much less than that of other developing nations, the unemployment rate still poses challenges to future economic prospects.  It is roughly triple the rate at the onset of Modi’s premiership and, when considering the size of the Indian population, translates to 30 million people who cannot find a job.  For a workforce that increases by millions annually, this is not good news. 

Another policy decision that has tarnished the government’s economic track record was its decision in November 2016 to eliminate most of the country’s cash currency, with the intention of cracking down on the illicit flows of money, particularly from terrorist organizations.  This caused deep uncertainty in India’s currency, the rupee, and temporarily put economic growth at a standstill.  For an economy dependent on cash flows, this decision had profound repercussions.

Furthermore, the benefits of India’s stunning economic growth and its increasing economic linkages with the rest of the world have not reached all levels of society.  Geographically and socioeconomically, the gains of globalization have been unbalanced. 

Regionally, India’s economic development has been concentrated in a few states, such as Maharashtra, Tamil Nadu, and Gujarat.  It has also benefited the Indian metropolises of New Delhi, Mumbai, and Kolkata.  However, other Indian states and cities have not reaped the benefits of globalization.  Uttar Pradesh and Bihar, two northern states neighboring Nepal, have a GDP per capita that are less than $1,000 USD, comparable to Sub-Saharan African countries.  Meanwhile, Maharashtra enjoys a GDP per capita of $4,000 USD.

Socioeconomically, there are increasing income disparities between the rich and the poor.  While India boasts over 170,000 millionaires and more than 100 billionaires,  poverty remains a common feature of life.  Though millions have been raised out of poverty, much remains to be done.  It must be said though that poverty reduction has been substantial: 5 percent of the Indian population is considered to be living under extreme poverty; in the case of Nigeria, it is 44 percent.

With elections just a few months away, the most important issue has been the economy.  Opposition candidates, particularly Rahul Gandhi of the Indian National Congress (INC), have been quick to capitalize on the government’s mixed track record.  Although a Times Now-VMR poll indicated that the Prime Minister remains the most trusted leader in the country, it is less clear that PM Modi and the BJP will be able to secure a victory. 

If the economy is to serve as a litmus test of both Modi’s premiership and the state of the Indian union, it is the electorate who will determine if the past five years have been up to its expectations.  With the Indian economy at a crossroads, its future will determine not only regional developments, but also global economic trends.