KOLKATA, INDIA – JANUARY 12: Prime Minister Narendra Modi during the occasion of 150th-anniversary … [+]
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To fix India’s ailing economy, Prime Minister Narendra Modi needs to lift 360 million Indians out of poverty.That’s according to Dr. Namrata Goswami, senior analyst and author.
Goswami is bringing a fresh perspective to the debate over the causes of India’s slide into a growth recession.
Statistics published by National Statistical Office (NSO), Ministry of Statistics and Programme Implementation, in November 2019 reveal that the Indian economy is at an all-time low, with a growth rate of 4.5% (Sept-Nov 2019) compared to 7% in the same quarter in 2018.
A man takes a nap laying on a road divider in the old quarters of New Delhi on November 29, 2019. … [+]
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Meanwhile, unemployment is standing at 8.5%, well above the 5.16% average for the period 1983-2019.
“This is the first time since March 2015, under the Modi government’s watch, that the economy has fallen under 5%,” says Goswami. “The last time was March 2013, when under the Manmohan Singh government, the economy was at 4.3%. We know that a sluggish economy resulted in an election victory for Narendra Modi the next year (2014).”
That’s a situation that Modi changed for most of his term. In 2017-18, for instance, India’s economy was growing at around 7%, beating China, helping his re-election.
But the economic growth has turned south in Modi’s second term, as his finance minister, Nirmala Sitharaman admits.
What’s behind India’s slow-down? Reduced consumer spending according to Goswami. “The Indian economy is, however, suffering from a slowdown due to a decrease in consumer demand, and increasing debt in the private corporate sector,” she says.
And there’s a slow-down in investment, as discussed in a previous piece here.
What could help turn India’s economy around? Modi’s administration counts on a growing middle class (140 million) to open up their wallets and begin spending again.
The trouble is only 7% of the Indian population can be classified as upper-middle/high-income, as Goswami observes.
Then there are income disparities between metropolitan and rural areas that make a revival in consumer spending less likely. “As per World Bank data, India’s Gross Per Capita Income is $2,010 for households. This per capita income further collapses once you leave major metropolises, ” she explains.
“While the United Nations Development Programme’s Multidimensional Poverty Index credited India for lifting 270 million people out of poverty, between 2006-2007 and 2016-2017, 365 million remained below the threshold.”
Simply put, India remains a tale of two economies. One for the big metropolis’ and their financial centers, large corporations and healthy and highly skilled workers benefiting from the country’s opening to world markets; and the other for the countryside, which has yet to get a taste of any of these benefits.
What would it take to lift 270 million out of poverty?
“Few solutions can be thought of,” Goswami says. “Investment in the skill-based education sector, a more congenial climate for FDI, boosting the newly developed rural areas, and diversifying investments beyond just the metropolises and major cities to real sustainable development in India’s vast rural areas.”
Meanwhile, she is giving Modi credit for pursuing policies to encourage private investments by reducing corporate taxes, and a bailout package for the housing sector, though it has not helped yet. And she is hopeful about separate skill development and entrepreneurship ministry which should be audited for the work it has accomplished, and what it proposes to do in order to deal with unemployment.
That’s the key for lifting 360 million out of poverty.