As Narendra Modi swept to victory in the 2014 elections, he said that “acche din aane waale hain” — good times are coming.
Now that Mr Modi is preparing to secure another term as prime minister in elections starting on April 19, India’s stock market has tripled in value since he first took office. India’s economy is almost double what it was.
Stocks have risen so much because the number of Indians with enough wealth and an appetite for investment risk has soared — to nearly 5 percent of the population from just 2 percent.
But the economic gains have been largely uneven. Most of India’s growth depends on those at the top of the income ladder, including a group of huge and tightly controlled corporations.
Ninety percent of India’s population of 1.4 billion is estimated to live on less than $3,500 a year. But in poorer rural areas, life has been made more bearable by welfare programs expanded under Mr. Modi. Many of the benefits are tangible and visible: bags of free grain, toilets, gas cylinders and shelter materials. Purely commercial developments have changed life in the village: LED lights, cheap smartphones and almost free mobile data have changed the nature of idle time.
While America was experiencing a “building”, feeling down despite upbeat economic news, India was doing the opposite. Here a lot of the signals are mixed — but the vibes are fantastic. International surveys show that Indian consumers have become the most optimistic anywhere.
Foreigners also feel good about Modi’s economy. Banks such as Morgan Stanley and JPMorgan Chase are rushing to upgrade India’s weighting in their global equity and bond indices. Chris Wood, one of Asia’s top market strategists, has warned that if Mr Modi is not re-elected this year, Indian markets could collapse by 25 per cent or more.
One curious thing about Mr. Modi’s spirit of economic optimism is that India’s growth rates over the past 10 years have been very similar to those of the previous decade, under a government that Mr. Modi often accuses of ruining the country.
True as it may be, India’s economic success story is also a feature of what might be the unique feature of Mr. Modi’s years at the top: his ability to control all the levers of power, with a masterful display as first priority.
Mr. Modi’s face is everywhere, perhaps more present in New Delhi than any democratically elected leader in any other capital. Ahead of the Group of 20 summit last September, his slogans took credit for almost every positive development to be found in this relentlessly emerging economy.
In the bullish climate surrounding the Indian economy, even pessimists are optimistic. While official statistics predict growth of 7.3 percent in the current financial year, most financial professionals in Mumbai peg the figure at 6 to 6.5 percent. The lowest estimate is 4.5 percent, which would still beat the United States and possibly China.
The expression of even mild skepticism is avoided. Economists who depend on government work must be careful not to speak frankly. Economists who don’t work with the government are becoming rare as independent think tanks are raided and shut down.
Control over messaging is much tighter than it was under Mr. Modi’s predecessor, the award-winning economist Manmohan Singh. India became known as a “failure state” during Mr Singh’s tenure, even with growth occasionally touching the 10 per cent mark.
Mr. Modi has been busy reshaping the institutions of Indian governance. Political competition has been virtually eliminated at the national level and has exploited hostility against the country’s Muslim minority of 200 million.
Mr. Modi has also used state power to make things happen in strictly economic affairs, mostly for the better, but sometimes for the worse. The infrastructure is in tatters. There is some overbuilding, but the fact that construction is ending is a welcome relief. Welfare programs have become more responsive.
India — especially in banking and business transactions — has taken an extensive digital leap. The push started during Mr Singh’s previous administration, but Mr Modi has run with it. The “India Stack,” a suite of software platforms that runs on top of Aadhaar, a biometric identification system, means Indians now have access to faster and cheaper peer-to-peer transactions than Americans.
Taxes have been revised. India has driven more of the economy into the formal sector, for example by introducing a goods and services tax like Europe’s value-added tax, allowing more revenue to be extracted from more people and businesses. This freed up money for public spending and, by lowering corporate taxes, private financing.
A minus in the digitization book came on November 8, 2016, when at 8 p.m. Mr. Modi abruptly declared that all major currency notes were suddenly worthless. This was supposed to deprive criminals of “black money”. Instead, it crippled economic activity.
There are other ways in which the Indian government’s power to act decisively and often unchecked has created distortions and inequalities. The biggest companies have won wildly. Of the $1.4 trillion in wealth created by the most famous stock index from 2012 to 2022, 80 percent went to 20 companies, Marcellus Investment Managers in Mumbai estimated in 2022. These companies are the ones that can talk directly to the government.
No one better illustrates the concentration of corporate wealth and the risks associated with it than Gautam Adani. Outside of India, few knew his name until 2022, when he suddenly appeared on lists as the second richest man in the world, after Elon Musk.
Mr Adani’s flagship conglomerate almost doubled in the year after Mr Modi was elected and grew eightfold after his re-election in 2019. The Adani Group has become, in effect, a logistics arm of the government, creating ports, highways, bridges and solar farms at speeds never seen before.
Then, last year, Mr. Adani’s empire was accused of fraud by a New York vendor that cost Mr. Adani $150 billion on paper. Although Mr. Adani, who has denied the allegations, has recovered most of the money he lost, the episode exposed the danger in Modi’s strategy of allowing the few at the top to amass enormous influence.
Apart from companies, at the individual level, India’s recent growth has been painfully uneven. Having the largest population in the world explains why so many foreign investors are attracted to its consumer market. Most Indians are rural and 75 percent of them are basically poor, who qualify for free food rations meant to prevent malnutrition. While this requires some attention, it leaves room for growth.
Sales of luxury goods have boomed, especially since the pandemic, creating multi-year waiting lists for vehicles like the Mercedes G 63. Sales of motorcycles and scooters, which carry far more Indians than all four-wheelers combined, have stagnated.
The most painful aspect of the economy is the jobs situation. Officially, about 7 percent of Indians are unemployed. Many more are underemployed. In the past month, Indians desperate to find better incomes abroad have died trying: crossing the United States border, fighting as poorly equipped mercenaries for Russia in Ukraine, and filling positions left vacant by Palestinians forced to stop working in Israel.
And yet, India’s rise in the global economy seems preordained. It has moved ahead of Britain to become the world’s fifth largest economy and is expected to overtake Japan and Germany to become the world’s third largest in the coming years.
More MNCs are expected to flock to India, creating opportunities for Indians. Only a small percentage of consumers can expect to enjoy the standard of living that is taken for granted in the United States, but they are becoming more numerous over time and can now be found even in small towns.
Bureaucracy remains to hinder business without connections to the top of government. But the direction of the move is promising: Projects that used to take two years to seek permission can now be completed in 15 days.
Together with acche din promised in 2014, Mr Modi promised “minimum government, maximum governance”, which sounds like a free-market trader in 1980s America. In practice, his economic approach has not been defined by theory or ideology. He’s thrown everything at the wall to see what sticks. He has thrown hard, and hard. When economists talk about India, they have stopped talking about the ‘status quo’.
