Is Modi's Economic Policy Beneficial for India's Growth and Well-being?
Social and economic disparities have long plagued India. In recent years, Prime Minister Narendra Modi's economic policies have been under scrutiny for their impact on the nation. Critics argue that high inflation and rising real estate prices are fueling corruption and hardship, while supporters claim that growth and modernization are driving progress. The discussion on whether Modi's policies have been beneficial involves examining core metrics such as GDP growth, unemployment rates, and inflation rates.
The Impact of Inflation
A recurring theme in the discourse on Modi's economic policies is inflation. Critics argue that high inflation, akin to a hidden tax, particularly affects the poorest segments of society. According to a study by the Academy of Management, inflation can erode the purchasing power of citizens, leading to widespread hardship. This is especially concerning in a nation where the majority of the population lives on less than $5.5 a day.
The implication is clear: the marginalized sections of the population are bearing the brunt of economic policies that prioritize economic liberalization and growth. While robust economic growth may boost the national GDP, it fails to improve the lived experiences of those who face daily challenges due to rising prices.
Economic Growth and Eroding Foundations
Another critical aspect is the economic growth trajectory under Modi's tenure. Initially, during the early years of his leadership, India saw a rebound from the Global Financial Crisis. However, this recovery was short-lived. A key turning point was the decision to demonetize 86% of India's currency overnight in 2016. This drastic measure not only disrupted the economy but also eroded trust in institutions. The GDP growth rate, a key indicator of economic performance, began to decelerate, even before the impact of the demonetization measure fully hit.
According to data from the Reserve Bank of India (RBI), the GDP growth rate fell from over 8% in 2017 to approximately 4% just before the onset of the COVID-19 pandemic. This trend is marked by an "inverted V" pattern, indicating a significant downturn in economic performance. This trajectory suggests that the foundational promise of robust economic growth, envisaged under the Modi government, has not materialized as expected.
Other Fundamental Metrics
In addition to GDP growth, other fundamental metrics such as unemployment rates and fiscal deficits provide further insights into the overall economic health. India has seen stark increases in unemployment rates, reaching as high as 6-7% in the years leading up to the pandemic. This is a significant departure from the norm, which typically ranges between 2-3%.
Furthermore, the fiscal deficit, a measure of the government's financial expenses and revenue, has not been as manageable as previously thought. The government has been underreporting its fiscal deficit by about 2% of the country's GDP, indicating a hidden complexity in the nation's financial health. This cyclicality and underreporting can lead to macroeconomic instability if not addressed adequately.
Addressing the Poverty Crisis
Given these metrics, there is a pressing need to address the deep-seated issues of poverty and inequality. While economic growth is crucial, ensuring that the benefits are inclusive is critical. In this context, the call for expanding government balance sheets—essentially printing money to stimulate demand—along with targeted spending on the needy, becomes pertinent. This approach can counteract the current economic downturn and boost consumer spending, which is essential for GDP growth.
The potential downside, however, is the risk of inflation. Excessive monetary expansion can lead to a spiral of inflationary pressures, which can undermine the stability of the economy. This risk cannot be ignored, and policymakers must carefully navigate the balance between stimulating demand and maintaining macroeconomic stability.
In conclusion, while Modi's economic policies have shown promise in certain areas, a closer look at the metrics reveals a complex picture. Addressing the vulnerabilities in GDP growth, unemployment rates, and inflation remains a critical task for the government. Balancing the need for economic growth with the welfare of the marginalized sections of society is essential for sustainable and inclusive development.