Modinomics 3.0 - A Critical Point of View


-          Omkar Patil (Finvestos)

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Politically speaking, Modi has had capitalistic tendencies. India is trying to achieve the growth what US has achieved in 200 years. This can only happen in a capitalistic economy. I agree to fact that in capitalistic economies, companies earn far more than the jobs provided. Well, I am an advocate of the trickle down effect. I also agree that extreme capitalism won't help India, but right now the way the modi administration is designing the policies, it is focusing on privatising things because -

GOVERNMENT HAS NO BUSINESS DOING BUSINESS

I think we all would agree on the fact that privatisation boosts the efficiency in the economy. On the other hand , if we see soo much of growth in Indian economy, why has the demand growth been so sluggish in India.

-> The WPI fell from 2014 till 2017

-> The WPI fell from 2022 till 2024

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                                                                                WPI Data

 

 

 

 

 

If government has no business doing business, why is mixed economy model is so successful ?

Looking at economics doesnt mean only looking at GDP growth or capital market growth right? It more is about the growth along with welfare that makes an economy more stable. Yes, there has been a lot of welfare amongst people, but has it led to long term human capital formation ? For eg. Skill India has not reported its numbers since years now.

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I mean just look at this chart, the most amount of highly educated people migrating to OECD nations are Indians. Is India failing to create job opportunities ?

 

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Unemployment data is also peaking during the BJP reign currently. Whats exactly going wrong?

Now you would say that BJP is bad and this and that. Listen to the other part of the story as well. There is no two ways regarding the control of inflation in India. While the entire world is leading towards an economic turmiol, India has been able to manage the economy prolifically. Yes, the cost of borrowing might have increased in India, but it has also lead to control of inflation.

As the world is globalised , the world economy is bound to affect the Indian economy. The repo rate hike was nesseccary to control inflation. Understand it like this :-

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Unemployment rate in India rose sharply to 9.2 per cent in June 2024 from 7 per cent in May 2024, according to CMIE’s Consumer Pyramids Household Survey. The unemployment rate increased in urban India as well as in rural India. Rural unemployment rate rose to 9.3 per cent in June from 6.3 per cent in May. Urban unemployment rate climbed from 8.6 per cent to 8.9 per cent.

Source

 

There will always remain a tradeoff between the employment numbers and inflation. If less people are employed, less money would be spent, leading to decrease in inflation. India has been brilliant at showing control over inflation or so called "Mahengayi".

The current situations indicate that there is infrastructure growth in India and India is buckling up to become a future economic giant, however the growth in GDP is mainly coming from the increase in government spendings. Lets have a look on the progress in per capita GDP of India since 2014 :-

 

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BJP is currently portraying that during their reign, the per capita GDP has doubled. This picture painted by the BJP is a bit illusive. Asking for votes on the basis of this this stat does not make any sense. The per capita GDP has doubled since 2014 till now, but if you factor the data for inflation, the per capita GDP hasn't even 1.5x. This basically means that there has been a rise in income but comparitivily very less rise in purchasing power. I strongly condemn such kind of election practices.

The Indian economy has been sky rocketing on governement expenditures mainly. Is this a problem ?

Not exactly, most of this money is being fueled into infrastructure to create long term wealth, perhaps BJP wants to make an infrastucture that becomes capable of accomodating the entire workforce and labourforce of India. They are actually seeming to a bit visonary. What I like about this government is that the have clear vison and goal. The exact same thing was done by China when they used to grow in double digits. But that stage was followed by a stagnation in GDP growth as even an economy reached some sort of medium term saturation point. Their demographics have also changed considerably over the years. As long as the tradeoff of inflation and unemployment works properly, there should not be any problem. Suppose if there was a situation where the government was not able to control both, that would be trouble.

The main GDP growth has come from infrastructure only. This has created has capitalistic divide in the Indian population which has restrited it from reaping the benifits of population dividends. All of this explains that why congress is showing socialistic tendencies.

This article is not to critisize Modi or to promote Gandhis. I want you to become more educated in terms of what questions you should ask to this government. Many a times we ask pointy questions without proper basis, that only leads to conflict and miscommunication. Ask the right questions to the government and become an educated voter. Its you and me in who's hands the nation lies. Trust me, I love my nation more than anything. Lets join hands and help refine our nation. 😊🫡

 


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