In the twenty-first century, India’s growth story has been good enough to attract a considerable amount of attention from analysts as well as from financial investors. The average rate of growth has been impressive, more so if one excludes the two years of the Covid-19 headwinds that had slowed down economic growth. Politically, economic growth has been taken to be one of the major achievements of the Narendra Modi government. Foreign investors look at India with optimistic expectations. Stock markets have soared much beyond the inherent strengths of corporate India. The positive perceptions have increased since the slowing down of the Chinese economy and the ascendancy of a new political nationalism that is contesting the idea of more open markets and labour mobility. The latest data, showing that the second quarter rate of economic growth has slowed down well below the expected mark, may not be of great concern since there might be upward revisions done to make the number optically better. Or growth might indeed pick up in the future. One quarter’s data are never sufficient to pass judgement on medium-run trends. However, despite this rosy perception of India’s growth story, there are many changing structural features of the economy that are of concern.
The neoliberal surge of globalisation during the last three decades or so saw two major changes in the economy. The first was the expansion of information technology-enabled services that brought in a sharp increase in export revenue and opened up new jobs for young and educated workers. The second was a consumer boom as liberal imports enabled international brands and the latest consumer goods to be available in India. The explosive growth of shopping malls and Western style fast-food restaurants and cafes was an indication of the arrival of the middle class. But these visible features of ‘modernity’ actually hid a number of problems.
One feature of this consumer demand-led activity was that employment growth became two-tailed — on one side was the growth of IT jobs, albeit at a low end consisting of code-writers and data entry operators. The second was the explosion in the growth of low-paid jobs of shop-assistants in malls and delivery people in the new, internet-enabled logistics of supply — Amazon delivery men, Swiggy and Zomato riders, and the ubiquitous security guards at every establishment. The middle class got a taste of the material ‘good life’ of modernity. This, however, came at a cost. While some jobs were paying more — one could get a shop assistant’s job with a better pay than working as an accounts clerk in a small business enterprise — the risks and uncertainties grew manifold. In the ‘modern’ emerging sectors, working hours were long, job-security completely absent, and labour rights heavily restricted. For domestic investors, trading became more lucrative than producing for the domestic market. The government’s campaign to ‘Make in India’ did not work well. It merely indicated an anxiety: since domestic producers are shy of investing in manufacturing, then at least foreign investors might consider doing so. This euphoria of ‘India on the move’ was short-lived. It was obvious that changes in foreign demand, rapid technology shifts, and international inflation could shake up the growth story. None of these factors was in the control of Indian policy makers.
A number of disruptions occurred between 2015 and 2021. The first was the self-inflicted shock of demonetisation, which took the breath out of the small and micro sectors of the economy that catered to the demands of the bottom 40% of the population. The second was the Covid pandemic, which arrived suddenly, further denting the prospects of the small and micro sectors and disrupting the lives of migrant workers across the nation. Suddenly, poverty increased and the middle class shrunk significantly. The third disruption is an emerging one but is likely to be the most profound — the advent of new technologies like Artificial Intelligence. This would trigger the loss of jobs even in the modern white-collar sector.
A number of implications can be inferred from these disruptive changes. The first is that the rural sector has, over the recent past, become more crowded and less productive. One significant trend, not much talked about except in the financial sector, is the stress on micro-lending portfolios across the nation. That there is a rising demand for small ticket loans is reflected in the rise of micro finance institutions and non-banking financial companies; even commercial banks are getting into the business of lending. That the loans are fast becoming sour is a signal of the depth of the distress in this segment of borrowers who reside at the bottom of the pyramid. The stress induced by demonetisation and compounded by Covid-19 simply refuses to go away.
The second implication is that a trade-and-consumption driven stimulus does make the economy grow but only to a limited extent — it cannot be sustained without a regular flow of fresh investments in capacity and infrastructure. Consumption spending can quickly reach a plateau. This is especially so with a depreciating rupee and international inflation making purchases more costly. Domestic income squeezes and job market uncertainties have made people more tight-fisted. Many in the middle class are getting relegated to poverty. Market demand for consumer goods has begun to shrink.
The final surge of job insecurity is beginning to dawn in the IT sector. Job creation is already shrinking. Once the AI revolution hits traditional employment, job losses and uncertainties in labour markets would increase worldwide. The future of the IT sector might thus be seriously jeopardised.
In all of these, basic food demand is unlikely to fall as it constitutes an inelastic fundamental need. Overall economic disruptions caused in agriculture, as revealed by the persistent discontent of farmers in India as well as climate change, have all contributed to erratic farm supplies. Hence, food inflation refuses to go away.
What we have then is sharply rising inequality, increasing relative poverty, unemployment and a growth in poor quality jobs. We have a shrinking middle class, discernable climate-related weather changes, and the threat of job losses from new technologies. On the external front, a large number of military wars and civil strifes are being magnified by the possible economic wars of tariff and migration restriction. This, in a way, is the worst of times for many.
Rising inequality also means the number of the very rich grows and their wealth grows even faster. The number of billionaires rose during the pandemic. That their political clout is rising can be seen in India from the power enjoyed by the nation’s biggest conglomerates. For them, any residual noise from dissenters is to be decisively silenced. For these few, it is the best of times.
Irrespective of whether the current growth rate is 5.4% or 7.2%, the structural weaknesses of the economy are not going away. Some might take comfort from the fact that we are better off than Pakistan or Bangladesh. But one lesson rings loud and clear from across the world — things can slip precipitously from bad to much worse. India needs to seriously question the nature and the composition of its economic growth and not the GDP numbers churned out every quarter.
Anup Sinha is former Professor of Economics, IIM Calcutta
