A humbled Modi faces economic woes

After a year-long spectacle of grand roadshows across India and heated debates with rival parties, Narendra Modi, who led the National Democratic Alliance (NDA) in recently concluded elections, has secured victory, paving the way for his historic third consecutive term as India’s prime minister.

But his victory falls short of expectations. The NDA alliance won 292 seats combined, far behind Modi’s bullish target of 400 seats. The BJP itself secured only 240 seats, falling short of the 272 seats needed to win an outright majority in parliament.

The opposition emerged with a poignant campaign that resonated with the ground realities, lambasting the BJP’s divisive tactics and inability to control the growing unemployment. With poignant fervour, they spotlighted the grim reality of attacks on minorities and the pernicious spectre of anti-Muslim rhetoric, emanating from certain quarters of BJP loyalists.

In addition to the opposition’s incisive campaign, credit for Modi’s poor electoral performance goes to stagnant manufacturing progress and a surging unemployment rate, which pose major hurdles to sustained economic growth. To retain his grip on power, Modi must now urgently tackle these pressing economic concerns.

According to the latest report by the International Labour Organisation (ILO), the unemployment rate in India in recent years has stood at around 7-8 per cent nationally. The problem is predominant among young Indians. In 2022, the share of unemployed young people in the total unemployed population was 82.9 per cent; the share of educated young people among all unemployed people increased from 54.2 per cent in 2000 to 65.7 per cent in 2022.

Reports from Indian media paint a stark picture of the country’s hyper-competitive job market: millions of young aspirants vying for a limited number of positions, such as 1.7 million applicants for just 3,400 jobs in Gujarat, 4.8 million candidates competing for 67,000 police vacancies in Uttar Pradesh (UP), and a staggering multitude applying for approximately 150,000 railway jobs in Bihar and UP.

Unemployed Indians, facing immense challenges in securing local employment, are increasingly seeking opportunities abroad. Some try to smuggle themselves into the West, primarily the US, while others venture into risky conflict zones such as the occupied territories in the Middle East and Ukraine. To tackle the pressing issue of unemployment, the government launched the ambitious ‘Make in India’ campaign, with the ambition of transforming the nation into a global manufacturing hub, thereby boosting job creation and bolstering the country’s exports.

Nevertheless, despite a decade-long endeavour, the results have proven underwhelming. The share of manufacturing employment has remained static at around 12-14 per cent; the sector’s contribution to the Indian GDP has hovered around 15-17 per cent, falling short of the 25 per cent target.

More worryingly, India is witnessing a resurgence in agricultural employment, coupled with a growth in the absolute number of workers in this sector. In a stark indication of de-industrialization, the agricultural workforce has swollen by a staggering 60 million over the past four years.

What factors have led to this scenario? Fundamentally, India has developed an economic model distinct from traditional industrialized powers, where growth is largely driven by software outsourcing services, with the service sector accounting for approximately 55 per cent of the GDP, while manufacturing represents only 18 per cent.

This model fails to fully capitalize on India’s abundant supply of low-cost labour, and inadvertently stifles the nation’s long-term industrial development aspirations. Compounding this issue, the government’s focus on transitioning from a service-based to a manufacturing-oriented economy has leaned heavily towards capital-intensive sectors, including IT services, pharmaceuticals and automotive manufacturing.

Unlike labour-intensive sectors such as construction, textiles and handicrafts, these industries have a significantly reduced appetite for labour, further exacerbating the imbalance in employment opportunities.

While the government’s policy of giving subsidies to electronic manufacturing firms has generated jobs to some extent, India’s market share in labour-intensive sectors such as textiles and leather manufacturing has gone down.

Consequently, India finds itself in a paradoxical situation where a large number of low-skilled workers remain unemployed, while high-skilled jobs go unfilled. According to a survey conducted by Ultimate Kronos Group, a human resources services provider, of over 300 manufacturers at the end of last year, 76 per cent of the firms reported that the shortage of skilled workers has undermined their profitability, with 35 per cent of them characterizing the impact as ‘severe’.

Informal employment is another feature of the Indian labour market. As per the report of the ILO, around 90 per cent of workers are informally employed, one of the highest in the world. Inadequate education and vocational training systems make it difficult for young people to acquire the skills demanded by businesses.

As a result, many who are seeking employment instead opt to continue their studies, engage in farming, or stay at home, relying on rental income and pensions from their elders. In the long run, if Modi’s team fails to integrate labourers into a productive workforce, what could have been a demographic dividend would be transformed into a demographic burden.

Rather than fueling prosperity, this untapped potential could inversely hinder economic development. Is this the beginning of the end for Modi?

The writer is a freelance contributor.