INDIA’S BOOM IS A DANGEROUS MYTH

Indian elites are giddy about their country’s economic prospects, and that optimism is mirrored abroad. The International Monetary Fund forecasts that India’s GDP will increase by 6.1% this year and 6.8% next year, making it one of the world’s fastest-growing economies. Other international commentators have offered even more effusive forecasts, declaring the arrival of an Indian decade or even an Indian century.

In fact, India is barreling down a perilous path. All the cheerleading is based on a disingenuous numbers game. More so than other economies, India’s yo-yoed in the three calendar years from 2020 to 2022, falling sharply twice with the emergence of COVID-19 and then bouncing back to pre-pandemic levels. Its annualized growth rate over these three years was a feeble 3.5%, about the same as in the year immediately preceding the COVID crisis.

All forecasts of higher future growth rates are extrapolating from the latest pandemic rebound. Yet, even with pandemic-related constraints largely in the rearview mirror, the economy slowed in the second half of 2022, and that weakness has persisted this year. Describing India as a booming economy is wishful thinking clothed in bad economics.

Worse, the hype is masking a problem that has grown over the 75 years since independence: anemic job creation. Over the next decade, India will need 200 million more jobs, on net, to employ those who are of working age and seeking work. But this challenge is virtually insurmountable, considering that the economy failed to add any net new jobs over the past decade, when 7-9 million additional jobseekers were entering the market each year.

This demographic pressure often boils over, fueling protests and episodic violence. In 2019, 12.5 million people applied for 35,000 job openings in the Indian railways: a job promised for every 357 people who sought one. In January 2022, the railway authorities announced that they were not ready to make the job offers. The applicants went on a rampage, burning train cars and vandalizing railway stations.

With urban jobs scarce, tens of millions of workers returned during the pandemic to eking out meager livelihoods in agriculture, and there many have remained. India’s already distressed agriculture sector now employs 45% of the country’s workforce. Farming families suffer from stubbornly high underemployment, with many members sharing limited work on plots rendered steadily smaller through generational subdivision. The epidemic of farmer suicides persists. To those anxiously seeking support from rural employment-guarantee programs, the government unconscionably delays wage payments, triggering recurrent protests.

India’s heroic run with startup unicorns is also fading. The sector’s recent boom relied on cheap funding and a surge of online purchases by a small number of customers during the pandemic. But most startups have dim prospects for achieving profitability in the foreseeable future. Purchases by the small customer base have slowed, and funds are drying up – even for firms like edtech giant Byju.

Looking past the illusion created by India’s rebound from its COVID depths, the country’s economic prognosis appears bleak. As the demand for jobs continues to grow, the economy will struggle evermore to supply decent, honorable employment. Rather than indulge in wishful thinking and gimmicky industrial incentives, policymakers should aim to power economic development through investments in human capital and by bringing more women into the workforce.

SOURCE: PROJECT SYNDICATE

ASHOKA MODY The writer is a visiting Professor of International Economic Policy at Princeton University, previously worked for the World Bank and the International Monetary Fund