NEW DELHI — India’s brisk economy has created a tail wind for Prime Minister Narendra Modi’s reelection campaign, although some analysts caution that the reality might not be quite as rosy as the headline numbers suggest.
The South Asian country’s gross domestic product for the October to December quarter surprised most economists, growing by 8.4%. Most forecasters had predicted the economy would struggle to clear 7% for the quarter. Although India only reports figures for fiscal years, the reading resulted in a robust growth rate of about 7.7% for the calendar year.
The GDP jump is part of a string of glowing reports on the Indian economy. “We expect India to be the fastest-growing economy among major G20 countries, with its real GDP growth to accelerate to around 8% in the fiscal year ending March 2024,” up from 7% in the last financial year, Moody’s Ratings said in a report last Thursday. The government has forecast a 7.6% growth rate for the full fiscal year.
Earlier, brokerage house Jefferies had predicted India would become the world’s third-largest economy by 2027. It pointed out that over the last decade — since Modi assumed power — India has achieved a 7% compound annual growth rate in dollar terms, with an economy worth $3.6 trillion, jumping from eighth to fifth globally. In the next four years, Jefferies said India’s GDP would likely reach $5 trillion thanks to favorable demographics as well as “improving institutional strength and improvement in governance.”
All this is music to the ears of Modi and his Bharatiya Janata Party (BJP), who are gearing up to seek a third straight term in power in the April-May election. Most analysts expect that the country’s 960 million eligible voters will keep the BJP in power. The economic trends are doing little to dispel that notion, although some experts say the credit should be shared.
N. R. Bhanumurthy, vice chancellor of the Bengaluru-based Dr. B.R. Ambedkar School of Economics University, said India’s growth trajectory has much to do with policies implemented by successive governments over the past two decades.
“I would say that certainly the recent implementations of policies and reforms [by the Modi government] had an impact. But, in my view, what has happened is actually the continuation of the [policies] of the past 15 to 20 years,” he told Nikkei Asia. “Whether you take tax reforms or macro market reforms, disinvestment, fiscal policy reforms — all this has been happening for many years. I think you need to give credit to many people for that, I would say definitely from 2002 onward.”
That encompasses both BJP governments and a decade under Indian National Congress party Prime Minister Manmohan Singh.
Many say India also finds itself in a sweet spot as various countries seek to diversify supply chains away from China.
“Compared to every other large economy today, we know that China is not doing well, Europe is not doing well, the U.S., of course, is doing well, but that will actually help India as it is one of our biggest export destinations,” an economist with an industry body told Nikkei Asia, asking not to be named. “Whatever reorientation of the global supply chain that is taking place, that is favoring India.”
Jefferies also pointed out that India has “excellent relations” with the Western world, Japan, Australia and the Middle East, “making it a key beneficiary of ‘China+1,'” a strategy aimed at building up additional production outside the world’s No. 2 economy.
At the same time, while the strong growth gives the BJP numbers to trumpet on the campaign trail, some economists express more guarded views. “All that glitters is not growth,” Japanese brokerage Nomura said in a note earlier this month. “Underlying growth is weaker than what the headline suggests.”
India’s economic expansion, Nomura continued, “is primarily supported by strong public capex growth, while private consumption and private capex remain subdued.” It also said that the agricultural sector has “underperformed,” although the industrial and services sectors have remained “resilient.”
In an interim budget unveiled Feb. 1, the Modi government set the capital expenditure allocation at a record 11.11 trillion rupees ($133.98 billion) for the year ending March 2025, although the roughly 11% increase was down from a 33% surge the previous year.
V. Upadhyay, a former professor of economics at the prestigious Indian Institute of Technology, Delhi, said the government may play up the 8%-plus growth rate, “but it doesn’t have much strength.”
“The gross value added, or GVA, in the [December quarter] was 6.5%, nearly [2 percentage points] down from the GDP growth rate,” he noted, explaining that GVA — measured by subtracting net indirect taxes from GDP — is a better indicator of economic health.
“Household consumption and private investment remain weak, and agriculture is down,” said Upadhyay. Generating enough jobs for India’s world-leading population of 1.4 billion remains an issue as well. “But the government would [cash in] on the GDP numbers because elections are around the corner and they will say the economy is growing rapidly,” he said.
In his view, becoming the world’s No. 3 economy simply a matter of “arithmetic,” as Japan and Germany struggle. Japan narrowly avoided a recession as it revised its GDP growth for October to December to 0.4%.
“Even if India grows at a 1% slower rate than now, this [jump in spots] has to happen in the next few years,” Upadhyay said.
Some claim that India is experiencing jobless growth.
According to the independent Centre for Monitoring Indian Economy, the country’s unemployment rate jumped to 8% in February, from 6.8% in January. “While the unemployment rate eased in urban India, it rose substantially in rural India,” CMIE said in an economic outlook report dated March 1. The report said the rural figure surged to 7.8% last month, from 5.8% in January, while the urban rate ticked down to 8.5% from 8.9%.
Separately, government data based on the periodic labor force survey released earlier this month showed that the unemployment rate among people aged 15 and above declined to 3.1% in the 2023 calendar year, from 3.6% in 2022 and 4.2% in 2021.
The industry body economist said the jobless growth argument does not hold up.
“This is not a fair criticism because if you see sectors that are growing such as construction, they are big job generators. Then there are sectors like aviation, travel and tourism in general which are really doing well and again generate employment,” the economist said. “In my opinion, when growth is high, it is bound to create jobs.”