The Indian economy under Prime Minister Narendra Modi is in the spotlight, as business leaders recently gathered for the Vibrant Gujarat Global Summit in his home state. Despite global growth projections slowing down, India’s economy is booming. With an anticipated annual growth of 6% or more for the rest of the decade, investors are seeing a ray of hope in India’s economic potential.
As the country prepares for its largest election in history, the Modi administration’s economic track record is coming under scrutiny. To go beyond the surface-level, The Economist delved into India’s economic performance and the impact of Modi’s key reforms.
The picture remains complex. On one hand, India’s economic growth has outpaced most other emerging economies. However, challenges persist in the labor market and private-sector investment. The Modi administration has been in the spotlight for its economic strategy, including the reform initiatives undertaken, such as demonetization and the pursuit of formalizing the economy, making it easier to conduct business, and boosting the manufacturing sector.
One of the most contentious aspects of Mr. Modi’s tenure has been demonetization. Although it had its negative consequences and was widely criticized, it accelerated digitization and formalization of the economy, resulting in improved transparency and ease of welfare distribution. Digitization initiatives, including the Aadhaar universal identity scheme and a national payments system, have been significant achievements under Modi’s leadership. They have helped reduce poverty rates and drawn more economic activity into the formal sector, aligning with Modi’s economic objectives.
Modi’s second objective, improving the ease of doing business, has seen some progress with the introduction of the goods and services tax (GST) and additional infrastructural investments, all aimed at eradicating red tape and simplifying market dynamics. However, the effort to industrialize the economy has had mixed success. While the government has announced substantial investment projects and subsidies into manufacturing, the industrial sector’s contribution to the GDP has shrunk.
Despite these ups and downs, there are signs that India’s economic engine is poised for a major shift as private investment is set to surge. Many believe that promising signs in corporate and bank balance-sheets and growing interest from private corporations could signal the beginning of an investment boom. If this hypothesis rings true, then Modi’s reforms will be largely vindicated, and India’s growth will be set on a new trajectory.
As India grapples with ongoing economic challenges and reform initiatives, including building local government capacity and sustainable job creation, voters are cautiously optimistic about the economic changes that Modi has introduced. We shall stay on top of our India coverage and follow the upcoming developments closely. If you wish to remain up to date, feel free to sign up for our free weekly newsletter, Essential India.
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