Sunday, July 14, 2024

How Effective is Modi’s Economic Policy?

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In India’s 2024 general elections, Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) won enough seats to form a government in coalition with allies but lost its absolute majority in the Lok Sabha, causing market volatility [para. 3]. This poses a new challenge for Modi, who must now navigate governance with more compromises and cooperation [para. 5]. Modi, who has been in power since 2014, aims to make India the third-largest global economy, building on a decade of 7-8% annual growth rates [para. 2][para. 7].

During his tenure, Modi has propelled the “Make in India” initiative, supported by tax reforms and substantial infrastructure investments, though challenges like high youth unemployment and social inequality persist [para. 10][para. 11]. India’s economy has rebounded impressively since the COVID-19 pandemic, recording 8.2% growth in the fiscal year 2023-2024, surpassing expectations [para. 13][para. 14].

However, the post-pandemic recovery has been uneven, showing a “K-shaped recovery” where high-income groups thrive while lower-income groups struggle [para. 21]. Modi’s ambitious “Developed India 2047” vision aims for India to be a developed nation by its 100th independence anniversary [para. 16].

Despite significant investments, India still lacks a strong domestic supply chain, essential for the “Make in India” initiative, especially in electronics manufacturing [para. 36]. Apple has increased its production in India, yet the country remains heavily dependent on imports for components like semiconductors [para. 38][para. 39].

Critics like Raghuram Rajan argue that India’s significant subsidy-driven manufacturing efforts might not be the optimal development path, suggesting an alternative focus on its strong services sector [para. 42][para. 43]. The discrepancies in the labor market show India’s struggle to elevate a large portion of its population from low-income sectors to more productive and high-income jobs [para. 61][para. 66].

Observers note that the BJP’s defeat in key states like Uttar Pradesh in the recent elections highlights persistent issues like unemployment and income inequality [para. 26][para. 27]. Despite these challenges, Modi’s government remains focused on making transformative reforms, although the new coalition dynamics may slow down policymaking processes [para. 74][para. 78].

India must address its trade and investment deficits, as private investment in manufacturing has been sluggish post-pandemic [para. 58]. The country’s vast young labor force presents a demographic dividend, but converting this into a workforce skilled for manufacturing remains a significant hurdle [para. 72][para. 75]. Critics also argue that India’s education system and labor policies need substantial reforms to better equip the labor force for future economic demands [para. 64][para. 67].

In terms of infrastructure, India has seen substantial advancements, such as expanding its national highways and modernizing its rail system, yet these are primarily driven by government investments [para. 46][para. 50]. The challenge lies in balancing fiscal deficits while continuing necessary infrastructure investments [para. 51][para. 55].

The future of Modi’s economic reform agenda in his third term hinges on navigating a coalition government and leveraging India’s demographic and industrial potential to build a more inclusive and robust economy [para. 73][para. 80].

AI generated, for reference only

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