As the world’s largest democracy celebrates the building of the much-awaited yet controversial Lord Ram temple, where once the Babri Masjid stood. The controversy sparked from the demolition of the mosque by a mob in 1992 stating that the mosque was built over the birthplace of Lord Ram. The prevailing Hindu nationalist government, the Bharatiya Janata Party (BJP) looks forward to another election in the upcoming months that will shape the country’s future alongside their own. Most Indian citizens have been positively influenced by the government’s decision to inaugurate the decade-long pledged temple weeks before the general elections, given that 79.8% of India’s population identifies as Hindu.
However, while the emotionally appealing ruling government expects to retain its power in the coming elections, it is imperative to address the elephant in the room: India’s Economic Dilemma. As the nation prepares to cast its vote, the state of the economy emerges as a critical factor that could influence the electoral outcome.
The Economic Dilemma
The economic dilemma that India faces is a fairly convoluted one with various factors at play. While the country has been the fastest-growing economy in the world, the citizens of India also grapple with high unemployment rates, rising levels of inflation and income inequality. In addition, the fiscal deficit of India, though lower than the set target of 5.9% in FY2023-24, continues to be a pressing issue. Moving forward, policymakers need to be careful in finding the correct balance between mediating these important issues and ensuring the continued growth of the economy.
Unemployment
Unemployment in India currently stands at 8.65%, as of December 2023, with a labour
participation rate of merely 42.4%. Being the world’s most populous nation, an unemployment rate of 8.65% results in severe consequences. Not only does it negatively affect national consumer spending and decrease consumer purchasing power along with low-income levels, but it also propels crimes and social unrest. Moreover, India is a country with the highest youth population in the world and yet has a 17.9%
rate of unemployment in people aged 15-24, illustrating an unbridled under-utilisation of
resources. Besides youth, women’s participation in employment lies just under 33%,
denoting a wide gender gap in the economy. Unemployment saw a steep incline due to the
The COVID-19 Pandemic is not the sole cause of such high numbers. There have been
major attempts at changes in government policy, including the demonetisation to tackle black money in 2016 and the introduction of the Goods and Services Tax to implement a centralised tax rate in 2017 that have significantly impacted the unemployment rate in India, both negatively and positively. These decisions of the ruling government in their first term shocked millions but still somehow managed to make a landslide victory in the general elections of 2019. The issue remains a criticism for the Modi government today as they are being blamed for not creating enough jobs.
Income Inequality
Income Inequality in India is another aspect of the country’s economic dilemma. The widening gap between the rich and the poor poses an issue of social instability and results in lower levels of happiness. While the country has seen significant economic growth and prosperity, the benefits have not been evenly distributed. The top 10% of the population holds a significant portion of the country’s wealth, while the bottom 40% struggles to make ends meet. India ranks 111th out of 125 countries in the Global Hunger Index with its progress against hunger nearly being halted since 2015. With a poverty rate of
21.90%, India struggles to lift a substantial portion of its population out of poverty. as they are trapped in a vicious cycle resulting from low incomes. In recent times, according to India’s consumer survey, the richest 20% of India’s population have seen a rise in their household incomes while the poorest 20% have seen a steeper fall in their incomes.
This difficulty of the rich getting richer and the poor getting poorer continues to be stubborn.
Fiscal Deficit
The fiscal deficit refers to the amount by which a government’s spending exceeds its revenue as a proportion of the Gross Domestic Product (GDP). While the ruling government not only managed to meet the target of 5.9% but also reduced it further to 5.8%, the deficit remains sufficiently higher than the prescribed 3% in the Fiscal Responsibility and Budget Management Act 2003. However, this value seems to be fairly difficult to achieve since it has only last been achieved in the 2007-8 period. It is also vital to acknowledge the pandemic which required substantial spending to boost economic growth. The most recent available data from the World Bank reveals that around 19.4% of the Indian Government’s expenses are paid in the form of interest. However, as the country is a rapidly developing economy, higher public debt is expected and interest payments are likely. In addition, the
existence of significant income inequality makes maintaining a balance on the fiscal accounts more difficult, provided that less than 5% of India’s population pays income tax. The government is, on paper at least, working towards uplifting the rural areas and providing them with a source of income with increased skills. Managing the fiscal deficit is a delicate task for policymakers. Striking the right balance between economic growth, social welfare, and fiscal responsibility is essential for India’s long-term stability.
Inflation
The inflation rate in India, as the article is being written, has been easing for three months and was recorded at a value of 5.09% in January 2024. Considering the current government regime, the Consumer Price Index (CPI) inflation has averaged 5.8%. While this figure is slightly higher than the 4% target set by the Reserve Bank of India (RBI), reflects the delicate balance policymakers must strike between economic growth and price stability. Food prices in particular, however, have seen a persistent rise with a 9.5% hike nationally, exacerbating the difficulties faced by the average Indian citizen by eroding the value of money. This inflationary pressure on food prices is further aggravated by supply chain disruptions and climate change impacts which have led to crop failures and increased the cost of agricultural inputs. The government’s efforts to mitigate these effects through various policy measures such as increasing the Minimum Support Price (MSP) for crops and implementing food subsidy programs have had limited success due to implementation challenges and other fiscal constraints.
The Road Ahead
Despite these challenges, it is important to highlight the persistence of the country to move
towards a developed nation. While the upcoming elections add a layer of complexity to the
economic issue at large, it is also credible that the government did not take any populist
measures to influence voters in the recently released interim budget. This might partly be a
demonstration of their confidence to win the approaching polls. Moreover, the religious appeal of the ruling government adds to their popularity among certain sections of the demography.
To conclude, the Indian economic dilemma is an intricate play of rapid economic growth and other instabilities relating to the improvement in the quality of life of the standard Indian household. The votes of only these households and individuals will not only ascertain the immediate economic path of India but also its course into the distant future. The correct push of a button will determine the prosperity of the world’s fastest-growing economy with the hope that the elected leaders will navigate through this economic dilemma and address the elephant in the room. The stakes are high and the world watches as Indians vote to carve out their economic destiny.
