How India’s Economy Has Fared under Ten Years of Narendra Modi

The new welfarism

In its second term, the Modi government placed greater emphasis on delivering public goods and social welfare programmes in a less corrupt manner. This saw the launch of a massive rural road construction programme and the enrolment of roughly 99% of Indian adults in Aadhaar, a digital ID system linked to fingerprints and iris scans.

The Aadhaar rollout, in particular, has allowed national and state governments to distribute benefits to the poor directly through their Aadhaar-linked bank accounts. It has also helped to curb leakage in the delivery of subsidies to poor households, which has long been the bane of India’s welfare delivery.

Essential goods such as toilets and cooking cylinders, which are normally privately provisioned, were supplied in large numbers by the government. This led to what Indian economist and the former Chief Economic Advisor to the government, Arvind Subramanian, called “New Welfarism” in India.

The delivery of welfare programmes occurred most rapidly during the pandemic. For example, the government’s food subsidy bill increased by nearly five times between 2019–2020 and 2021–2022, ensuring people were able to access affordable food grains.

There have been other areas of success too. The proportion of Indian villages with access to electricity climbed from 88% in 2014 to 99.6% in 2020. And 71.1% of people in India now own an account at a financial institution, up from 48.3% in 2014.

These massive transfers of cash, along with the greater provision of goods and services to India’s poor, have led to the BJP enjoying increased popularity among marginalized groups. Historically, these groups have tended to vote for the opposition Congress Party.

The lack of good jobs

The Modi government has grown India’s economy. But it has not been as successful in creating productive jobs for the large proportion of India’s labour force who are unskilled and poor.

Around 40% of workers remain in agriculture, and only about 20% work in manufacturing jobs or business services such as IT. Pre-poll surveys suggest that increasing unemployment and inflation are sources of concern for many voters.

The weak record of the Modi government in creating jobs is surprising given that it has floated many initiatives to kickstart manufacturing. The Make in India programme, which was launched as soon as Modi came to power in 2014, aimed to reduce the costs of doing business in India.

This was followed by the more recent production-linked incentive scheme in November 2023. The scheme offered US$24 billion in industrial incentives to boost domestic production in key manufacturing sectors from electronic products to drones. However, manufacturing’s share of output remained the same in 2022 as it was when Modi first took office.

For India to emulate the labour-intensive industrialization success of China, deeper structural reforms are needed in the country’s product, labour and credit markets. But this will be politically difficult to do as it involves taking on India’s powerful conglomerates and trade unions.

As the Modi government seeks a third term in office, a key challenge that lies ahead is creating productive jobs outside of agriculture for the country’s increasingly educated and aspirational youth.

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