How Modinomics shaped India’s economy, explained in six charts

The ruling BJP had centred its recently-concluded Lok Sabha election campaign around one slogan — ‘Viksit Bharat’.

Prime Minister Narendra Modi’s vision of Viksit Bharat implied making India a developed economy by 2047. Even as scepticism clouded India’s ambitions of becoming a developed nation, Modi believed in laying the foundations to take his dream forward, Indians were told.

10- year performance

Here is what the numbers suggest. When Modi took oath as Prime Minister in 2014, India’s economy was experiencing sluggish growth, low investor sentiment and the banks were struggling amid poor asset quality. 

A decade after, India is now the world's fifth largest economy, and Asia's third largest – with China and Japan occupying the top slots – with its GDP growth at 8.2 per cent in FY24 outpacing the other major economies. The banks are now stronger, the forex reserves are at a record high of over $650 billion, and the fiscal deficit is under control.

The macroeconomic indicators, on the face of it, signal that Modinomics is pivoting India into a high-income economy. But there's a lot more to this story.

Complex scenario

Diving deep into the numbers, one would realise the scenario is quite complex. Employment, household consumption, and wage levels are still low and stagnant.

The creation of jobs is no less a migraine for the Modi government. According to the International Labour Organisation (ILO), the share of educated youths among all unemployed Indians rose to 65.7 per cent in 2022 from 54.2 per cent in 2000.

The unemployment crisis is a major concern even as India bets big on its demographic dividend. India’s median age in 2050 is likely to be 37, and it is imperative for the nation to create enough jobs for its youth, which still remains a fundamental challenge.

'Never a certainty'

Arvind Subramanian, former Chief Economic Advisor and India’s leading economist says the demographic dividend was always an opportunity, not a certainty.

“While China thrived, capitalising on its potential, achieving similar success requires proactive measures, providing quality education and ensuring access to employment opportunities – areas where India has fallen short. Without these foundational steps, it's unsurprising that we may miss out on reaping the demographic dividend,” he told The Federal.

Manufacturing and services

Modi’s ambitious vision of making India a manufacturing hub too remains a distant dream. From Make in India to Aatmanirbhar Bharat, the Modi government has offered incentives to private companies to scale up the manufacturing sector. However, there’s no breakthrough yet.

Manufacturing’s share of the GDP, in fact, reduced to 13.35 per cent in 2022 from 15.07 per cent in 2014, despite the Centre's much-touted China-Plus-One (C+) strategy.

The services sector, on the other hand, accounted for 48.44 per cent of the GDP in 2022, registering a slight increase from 47.82 per cent  in 2014.

“India historically neglected labour-intensive manufacturing in favour of services, which, while high-skilled, offer limited job opportunities due to their nature. High-skill services drive growth but do not provide broad employment,” Subramanian said.

“Realistically, India may never achieve the manufacturing dominance China once did; even reaching a 10 per cent share of global exports in labour-intensive sectors would be significant given current constraints,” he added, calling for a concerted effort from both the Central and state governments to stimulate investments in small-scale manufacturing.

Infra makeover

Infrastructure too is at the crux of Modi’s economic policy. From metro rails to bridges to ports to even statues, India is getting a complete makeover. The government believes infrastructure can offer a significant economic stimulus.

However, success has remained elusive with investment remaining weak. In fact, the new investment plans slumped to a 20-year low in the first quarter of this financial year, with just ₹44,300 crore of fresh outlays from corporates.

Digital initiatives

Modi has been praised for his revolutionary digital initiatives. India ranks at the second spot globally in terms of internet penetration, only next to China, with around 700 million active users.

The Modi administration rightly capitalised on this to build a digital payments infrastructure, paving the way for seamless transactions within a billion people, cutting red tape, counterfeit currency and corruption.

N Kamakodi, MD and CEO, City Union Bank (CUB) hailed Modi for driving inclusivity, particularly in banking. “The JAM Trinity — Jan Dhan accounts, Aadhaar, and Mobile — has significantly increased financial inclusion across all segments of society, particularly facilitating efficient direct benefit transfers,” he told The Federal.

“The introduction of UPI has revolutionised the payments infrastructure, enhancing both consumer transactions and business operations. These advancements are not only driving economic growth but also paving the way for future advancements. India's success owes not just to technological innovation but also to supportive policies designed to accelerate economic and banking ecosystem growth,” he added.

Per capita GDP

India’s GDP per capita figures showcase a distressing scenario in stark contrast to the overall GDP figures. Modi’s critics say his last two terms in office as Prime Minister have been characterised by a widening gap between the rich and the rural poor.

According to the World Inequality Lab, India's wealth concentrated in the richest 1 per cent of the population is at its highest in six decades. India's richest citizens owned 40.1 per cent of the country's wealth, the highest since 1961, the study found.

"India, as the world's most populous country with a significant number of people living in poverty, faces challenges in generating adequate employment opportunities," KR Shanmugam, Director, Madras School of Economics, told The Federal.

"The country has experienced a structural transition from agriculture to services leaving industrial growth stagnated. Moreover, over half of India's GDP is concentrated in just six states largely due to issues related to the quality of human capital," he added. 

“Strengthening the industrial sector, particularly MSMEs, promoting export-oriented manufacturing, increasing total factor productivity through higher investment in research and development, implementing labour market reforms and improving ease of doing business are the need of the hour,” Shanmugam further said.

Looking ahead

India’s economy is full of complexities, ruling out any sure-shot conclusions. But experts believe the country’s on track for relentless growth in the coming years.

Its demographic dividend, C+1 strategy, tech talent, digitalisation and transition to renewable energy suggest that the leverage is on India’s side. But there’s a lot more for Modinomics to fix as it seeks to lay the foundation for India to become a high income economy by 2047.

“Instead of fixating on lofty numerical targets, I believe our focus should be on practical priorities: generating employment, fostering economic growth, and improving the skills and health of our population. By addressing these fundamental aspects, other metrics may naturally improve,” Subramanian said.