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Narendra Modi has begun his third term as prime minister on the back of a largely healthy macroeconomic scenario. India’s GDP grew at an accelerated rate of 8.2% in 2023-24 compared with 7.2% in the previous year, maintaining its position as the fastest-growing major economy. The retail inflation, although has stayed above RBI’s comfort level, is easing in recent months.

Healthy balance sheets of banks and the corporate houses – most of the scheduled commercial banks have recorded high margins in the last fiscal – indicate that both lenders and borrowers are equipped with enough resources to take India’s growth journey further. India’s current account deficit has narrowed down considerably over the months while foreign exchange reserves touched record high of $ 655.82 billion on June 7, giving a healthy cushion against external exigencies.

Backed by investors’ confidence following higher economic growth, Indian stock indices have continuously moved upward. On the global map, India is now the fifth largest stock market behind only Hong Kong, Japan, China and the US. The Indian stock market has achieved a remarkable feat by entering the prestigious $5 trillion club for the first time last May, despite facing FII pullout.

The good macroeconomic fundamentals of today are promises of a better tomorrow. Recognising India’s improved macro parameters, the World Bank has upwardly revised India’s GDP growth forecast for the current financial year, 2024-25 by 20 basis points to 6.6% from its earlier projection of 6.4% made last January. The International Monetary Fund (IMF) appears more optimistic and has revised India's growth forecast to 6.8% last April from 6.5% earlier. Taking into account a normal monsoon and sustained momentum of investment, India’s central bank too has revised the GDP growth forecast upward to 7.2% for the current year from 7% earlier.

New government’s tasks ahead

With Narendra Modi elected as prime minister for the third time in running, the question uppermost on people’s minds is: Would he now work for his undone promises such as creating more jobs, raising farm incomes and eradicating poverty?

The government is certainly in a better position this time to undertake innovative policies to reach people's expectations. After taking charge as finance minister for a second term, Nirmala Sitharaman said that the government is fully committed to ensuring 'Ease of Living' for its citizens and will continue to take more steps. Sitharaman has further added that the government intends to move on the reforms path to boost macroeconomic stability and growth. Understandably, stability and growth cannot be achieved without improvement in income and the living standard of people at the lower strata of the society.

Growing unemployment and income inequality

But although Indian economy is exhibiting resilience and growing fast, there are multiple challenges emanating from still elevated inflation, increasing joblessness, growing inequalities and incidence of persisting poverty. Tackling India's chronic joblessness will be the biggest challenge for the new government over the next five years, even as the country remains the world's fastest-growing major economy, according to policy experts polled by Reuters.

"In India, we have a very peculiar problem - supposedly very high aggregate growth rates and no increase in employment. Modi came to power offering aspirational youth jobs and a better life, but it's gotten significantly worse since then," said Jayati Ghosh, professor at the University of Massachusetts Amherst.

The issue of job creation has been central to India’s development project. The challenge is to generate more productive job opportunities — employment has so far largely been in the form of self-employment and casual wage labour — for the millions entering the labour force each year. However, as the India Employment Report 2024 prepared by the International Labour Organisation and the Institute of Human Development points out, post 2019, roughly two-thirds of the increase in employment consisted of

self-employed workers, “among whom unpaid (women) family workers predominate”. The report also notes that in recent years employment in agriculture has gone up, while the share of employment in manufacturing has remained almost stagnant. These are worrying signs that call for a closer examination. 

This is reflected in the persisting high unemployment rate. Unemployment rate, persons aged 15 years and above, rose to 8.1% in April 2024 from 7.4% in March 2024, according to CMIE’s Consumer Pyramids Household Survey. The unemployment rate increased in urban India as well as in rural India. Rural unemployment rate climbed to 7.8% in April from 7.1% in March. Urban unemployment rate rose from 8.1% to 8.7%.

Annual unemployment rate at 8% in 2023-24 was the highest in the last three years according to CMIE. Unemployment rate was 7.6% in 2022-23 and 7.7% in 2021-22.

To realise demographic dividend, India needs to create non-farm jobs for three population groups. First, it needs to pull millions out of agriculture to counter the reverse migrations since 2020–21. The second group is better-educated youth, especially girls since India improved enrolment rates. The final group is the openly unemployed.

The government job is not the answer. The Centre and the state governments employ no more than 5% of the total workforce of India. Only the growth in private sector jobs can end the crisis. It is also the only way for economic growth to be inclusive.

What strikes a casual observer the most is the stark contrast in fortunes. India is home to the second-highest number of billionaires in Asia but has tens of millions relying on the government's 100 days minimum guaranteed wage employment program. This program involves low-paying manual labour like digging wells and filling potholes for about $4 a day, the Reuters poll has observed.

New Delhi is, however, happy that poverty is declining. A recent discussion paper by NITI Aayog, titled ‘Multidimensional Poverty in India since the year 2005-06,’ said that multidimensional poverty has declined sharply from 29.17% in 2013-14 to 11.28% in 2022-23, resulting in 24.82 crore individuals escaping multidimensional poverty during the 9-year period. The paper focused on the prevalence of multidimensional poverty in India from 2005-06 to 2022-23, utilising both NFHS (National Family Health Surveys) data and projection methods for years when NFHS data was unavailable.

This is good news but the fact remains that even if one trusts these figures, at 11.28% of poverty rate, over 160 million people – more than the combined numbers of Europe’s two biggest countries, Germany and France – are still under multidimensional poverty.

The government does its job by providing free food to India’s poor. It has declared to give free food grains to about 81.35 crore beneficiaries at an estimated  cost of Rs. 11.80 lakh crore over a five year period under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) with effect from 1st January, 2024.

This move shows the government’s benevolence and concern for the underprivileged, the question arises that why should more than half of India need free food when we are the fastest growing economy? The answer is simple: Because of extreme income inequality.

Half of India may need the government's dole to fill their stomachs but the country is generating wealth faster than ever. This is a different thing that the wealth is concentrated in a few pockets. There has been a massive jump in the number of Indian billionaires last year as per Forbes billionaires list of 2024. The roster now boasts 200 Indian individuals, a significant rise from the 169 counted last year. Collectively, these Indian billionaires have amassed an impressive $954 billion, reflecting a remarkable 41% surge from the previous year's total wealth of $675 billion held by 169 billionaires..

The vulgarity of income inequality in India has been barred opened in a recent study by World Inequality Lab. The study finds that by the end of 2023, India's richest one per cent citizens owned 40.1% of the country's wealth, the highest since 1961, and their share of total income was 22.6%, the most since 1922.

Retail inflation remains above RBI threshold

And if inflationary pressures moderated albeit unevenly during 2023-24, reflecting the combined impact of calibrated monetary tightening, easing of input cost pressures and supply management measures, the rate has still remained above the central bank’s comfort zone. Headline inflation softened to 5.4% during 2023-24 from 6.7% in the previous year, driven by the fall in core inflation (CPI excluding food and fuel) to 4.3% from 6.1% in the previous year.

Food inflation, however, hardened amidst high volatility. Sustained pressures from prices of cereals, pulses, spices and vegetables due to overlapping supply shocks pushed up food inflation to 7.0% in 2023-24 from 6.7% a year ago, thereby keeping headline inflation above the RBI target. The story is the same in the first two months of the current fiscal; retail inflation eased to 4.75% in May 2024 but the food inflation remains high at 8.69%. India’s consumer price inflation eased a little from 4.83% in April to a one-year low of 4.75% in May, but food price rise remained unchanged at 8.7%, with urban households facing a sharper 8.83% spike in food inflation.

The impact of price rise on the daily life of an average Indian is reflected in their subdued consumption growth over the years. As per a recent NSSO survey, the average  monthly per capita consumption expenditure (MPCE) for 2022-23 is  Rs. 3,773 in rural India and Rs. 6,459 in urban India, up 164% and 146% respectively since 2011-12. Adjusted to 2011-12 prices, the growth is 40% in rural and 33% in urban areas in 11 years when the country has seen one of its brightest growth eras.

Farmer’s income rises marginally

Indian farmers were probably the worst sufferers of this low consumption growth. For, while the share of agriculture in total GVA is falling over the years, the share of people depending on it is not. This is further eroding the economic condition of the farmers, especially, the small and marginal farmers who are left to the mercy of the market forces to sell their produce. This dichotomy of deprivation amid abundance portrays the true picture of Indian agriculture. Agricultural production is growing but benefits of growth are not reaching the farmers despite repeated promises, like doubling farmers’ income. Farmers’ lobby put the blame on low prices of farm produce.

The government has promised to double the farmers’ income by 2025. It has announced a host of schemes for the development of the farm sector and has also increased the minimum support prices (MSP) of agricultural commodities at regular intervals to address farmers’ immediate problem. Granted, the government revises the MSP upward on a regular basis but since they do not fully reflect the cost structure of farming, farmers are not benefitted much from these revisions. According to the National Sample Survey, the estimated average monthly income per agricultural household has increased from Rs. 6,426 in 2012-13 to Rs. 10, 218 in 2018-19. The real increase will be far less when price rise is taken into account.

But then the average monthly income figure of Rs. 10,218 itself is grossly misleading. There is a very wide disparity of income across the states. The average monthly income of a farmer’s family in Punjab is more than five times that of Odisha and Jharkhand, four times that of West Bengal and three times that of Uttar Pradesh.

But while farmers’ income grew marginally over years, their debt burden increased sharply. An average agricultural household in India has debt equivalent to 60% of its annual income. According to the National Sample Survey, the annual income of a farm household was Rs.1.23 lakh, and the average debt was Rs. 74,100 from July 2018 - June 2019. 

The government argues that higher prices of farm produce would raise farmers’ income but that would not give a long-term solution. Indian agriculture needs a definite strategy to develop its land, extend mechanization, manures and HYV seeds to raise yield rates. Low productivity is probably the main problem of Indian agriculture.