The State of the Indian Economy - Choices before Indian Voters in an Election Year

Upcoming Elections and the Indian Economy

With the election season approaching, it is time for us to take stock of the prospects and problems facing the Indian Economy. There is much talk about how the last Four years of the Narendra Modi government fared in economic terms. While there is much hype around the supposed successes and failures, there is an equal amount of criticism about the problems that persist in the economy.

For instance, the Demonetization move and the introduction of the GST or the Goods and Services Tax are widely seen as the high points of the Modi sarkar. Having said that, high oil prices and joblessness are also shown as proof that it has been unable to sustain the initial momentum.

Indeed, whichever side of the debate you are on, chances are that you might not have missed the significance of these four issues as the defining points of the NDA (National Democratic Alliance) government.

Acche Din and Realities of the Indian Economy

To start with, Prime Minister Modi inherited an economy from the previous UPA (United Progressive Alliance) government which was beset with several problems including high inflation, legacy debt and NPA or the Non Performing Assets of the banks, and most importantly, a culture of paralysis where major decisions were being postponed or simply not taken.

Thus, the initial period of the NDA government was rightfully focused on cleaning up the mess, as best as possible, and hence, the campaign slogan of Acche Din (or good days) seemed to come true.

However, the reality sunk in after a year or so when policymakers realized that the Indian Economy is too complex to be governed on the basis of mere slogans and catchy phrases. Indeed, given the fact that the Indian Economy had several structural problems, it is highly unlikely that such legacy problems cannot be dealt with quickly.

Why Big Bang Reforms Do not Work in the Indian Context

This was the reason why there was so much of focus on introducing Big Bang reforms that could dramatically alter the contours of the Indian Economy. Following this approach, the government tried the Demonetization move that effectively invalidated nearly 80% of the currency in circulation ostensibly with a view to tackle the menace of Black Money.

While the measure, per se, looks good on paper, it ignores the fundamental aspect of India being cash driven economy and where the large informal sector dwarfs the formal and organized sector several times.

Indeed, Demonetization, though laudable, had the opposite effect of creating more problems including the near collapse of the unorganized sector and the very real aspect of Black Money simply finding alternate routes to be hidden.

The fact that most of the withdrawn currency made its way back into the banking system means that either the Black Money was not held in cash and instead, was in real estate and gold, or the holders of such money found other ways to convert it into white. In short, Demonetization turned out to be a huge Money Laundering exercise that was an epic and colossal failure.

GST and the Persistence of the Informal Economy

Next, the widely anticipated move to bring in the entire country into the single tax bracket meant that the GST or the Goods and Services Tax was supposed to transform the Indian Economy in the same manner in which Demonetization was aimed at.

In other words, what Modi and his government were trying to do is to alter the structure of the Indian Economy from being overly dependent on informal sectors and instead, formalize the same.

Perhaps the added thinking was to introduce a behavioral change in the way Indians operated in the economic sphere. However, what was either overlooked or forgotten is that structural and behavioral changes often need time and careful planning and more so, when some of them are culturally conditioned.

Indeed, one cannot simply transform an economy from cash driven to digital powered just like that when such measures take years to fructify. Further, the GST like Demonetization is a good idea though badly implemented and hence, the combined effect of these measures was to cause more unemployment in the informal sector.

Where are the Jobs?

Talking about employment, perhaps the single biggest failure of the government has been in the realm of its inability to create jobs especially for the Millions of youth entering the job market every year.

While jobs cannot be created out of thin air, and need to be backed by solid policies, what is remarkable is that there were no serious attempts except for catchy slogans as far as job creation was concerned.

In other words, the much vaunted Make in India and the other policies simply failed to take off leading to more distress among the youth.

A Mixed Bag

Thus, taken together, the Modi Administration has had a mixed record as far as the economy is concerned, and hence, it remains to be seen whether it would risk bold moves in an election year when the need to be populist overrides the sound economic sense.

Indeed, one can go as far as to say that the government would now take the route of fiscal profligacy and abandon all pretenses at reining in the deficit when faced with an angry electorate that is grappling and drowning under agrarian distress, joblessness, high oil prices, and inflation that is inching up.

To conclude, while all it is not lost as far as the economy is concerned, all is not well either and hence, the people being the final arbiter, the verdict of the people would indicate whether they are willing to give more time or get impatient and vote accordingly.

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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.


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