As infrastructure booms and election spending surges, how much of India’s economic “miracle” is reality and how much is plain storytelling?
A factor marking out the Modi government from all those preceding it is the amount of creativity that has gone into the reporting of events and facts. We know that India has traditionally done this through “itihasa” which is both history as fact and storytelling. It took some doing to attune oneself to such reporting after 2014 when several things were announced one after another – smart cities, the end of black money, the seizure and return of slush funds stored abroad in Swiss banks, bullet trains and the ‘Make in India’ campaign among others, but not much was made known about progress after the initial fanfare.
One certainly sees differences after 2014, as for instance, the relative soundness of public sector banking and the resurgence of PSU industries like the HAL and BEL because of their new role in defence production, but one is uncertain about how this has been achieved, and some new doubts, as about the Tejas fighter, might suddenly emerge.
Such doubts have also surfaced in the reporting of budget deficits and growth indicators. The latest such doubt is being expressed over India’s registered growth rate of 7.8 per cent in the first quarter of 2026-27; and this is a speculative piece about what it might imply. We must, however, admit at the outset that in the “post-truth” age, all contentions must be first accompanied by such an admission of the purely speculative nature of political inferences.
Black money and electoral bonds
One of the first signs of change that one noticed after 2014 was the fact that fewer financial scandals surfaced than under the previous government. But political corruption had hardly ended, because (Opposition) leaders and entities continued to have their offices and residences raided and hidden assets discovered.
Also read: Why India’s new infrastructure projects are failing prematurely
People know that much of the corruption in India is necessitated by the high cost of elections, and the government introduced electoral bonds to reduce it—through an act of post-facto legitimization. The purchaser of an electoral bond could remain anonymous, which meant that it would be black money but officially channelled into the election process—where no accounts of expenditure are maintained.
The fact that the BJP raised the largest quantity (with the TMC as a distant second) should give us an idea of where black money most originated. When the Supreme Court declared electoral bonds unconstitutional in 2024, the prime minister regretfully admitted that there would now be more black money—suggesting that the bonds themselves were morally unassailable.
Black money channelled into infrastructure projects?
A key feature in evidence after 2014 is the amount of excitement in the electoral space with the no-holds-barred campaigning. No expense is spared, and no extravagant promise remains unfulfilled. We may presume that the increasing election ferment only means more money spent in pursuit of power, and the BJP unseated even those supportive to them (like the BJD) in this pursuit. Given the attention given by the BJP and PM Narendra Modi to winning elections, we could infer that the money spent is being raised by the party as black money, supported by the prime minister’s own acknowledgement. This black money will evidently come from wherever public money is actually spent.
When the high growth rate in Q1 2026-27 was questioned, it emerged that it included huge infrastructure spending, which the government has prioritized. This is standard practice since studies show that public infrastructure investment has a high economic multiplier, where every unit of currency spent generates a multiple return in GDP over time.
Also read: Cracking under pressure: Flagship highways suffer damage in monsoon showers
But the unforeseen problem is that the newly undertaken infrastructure projects are crumbling. These incidents range from brand-new expressways developing massive cracks to massive bridge collapses, highlighting severe gaps in engineering, oversight, and project execution. One could hence infer that there is the involvement of black money in the infrastructure projects and, based on whatever was said, this black money is being used to fight elections.
Infrastructure expenditure and GDP
In other words, India’s growth statistics include the unproductive expenditure on the elections as contributing to the GDP! When we come to GDP growth in the states, we find that Uttar Pradesh—which is where the BJP needs to record the strongest electoral wins—has a very large infrastructure expenditure. Uttar Pradesh has also been recording impressive GDP growths, as it had not under previous governments, when infrastructure expenditure was also much lower.
One of the advantages of incurring expenditure on construction projects to a government is that it is where inflated expenditure is easiest to conceal. In cities like Bengaluru, the government is always undertaking construction activity, which never comes to a standstill. Flyovers, underpasses and road construction (white-topping) are always underway and the frequency of the same structures needing repairs is astonishing. The unbearable pollution in cities like Delhi is largely due to construction dust.
Furthermore, virtually every kind of activity provided for in the budget includes a construction component. When a budget is drawn up and a certain sum is earmarked for education, for instance, we need to look at how much of that sum is used up for construction costs and how much for actual teaching aids like books and audio-visual equipment. Based on these arguments one would expect that a major portion of the education budget is being used for construction of buildings.
India’s high indebtedness
Since enormous political expenditure on electioneering needs to be provided for, funds needs to be raised anyhow. India’s indebtedness for a developing country is high, and the debt to indebtedness ratio of the central government is 59 per cent but including that of the states it comes to 84 per cent. In comparison, Pakistan is around 70 per cent and Bangladesh’s around 41 per cent.
Also read: Falling bridges, failing roads: Inside India's infrastructure crisis
When we come to external debt, however, India’s is around 20 per cent of GDP while Pakistan’s is around 35 per cent and Bangladesh’s is between 16 and 21 per cent. India has never defaulted on its external debt while Pakistan has been frequently in trouble.
With Foreign Direct Investments (FDI) not coming despite the “Make in India” campaign, the rupee was long being shored up by the FIIs investing in the Indian stock market, but that too has dried up with the weakening of the rupee. The recent compensatory move to invite foreign currency deposits where exchange rates are protected will increase the level of India’s external debt in the long term.
Why FIIs are moving out is not easy to guess because contradictory reasons are being offered by financial analysts. India’s sovereign rating has not been downgraded and one is not sure of how the FIIs decide on what market to invest in. The reason why they are pulling out of India despite India’s high GDP growth is uncertain, but one could worry that they might be using the same logic that I have been here.
Wars, El Nino, and looming scarcities
The Iran war and Trump’s doings have hit India hard economically since oil prices are up, with no relief in sight. But we must also acknowledge that apart from creative accounting, international oil prices also favoured India in the last decade and the Modi government had been lucky. But 2026 has been a bad year with El Nino being particularly bad (worse than 2024) and scarcities are looming. Prime Minister Modi has been appearing his weakest since 2014 and the CJP’s activities have suddenly shown that he is vulnerable as never before.
Also read: Modi cheers India’s GDP growth; why are economists less enthusiastic?
To conclude, winning elections has become the primary purpose of any leader in political life and this means that votes have to be bought through unviable schemes by all political parties to remain relevant. There is a limit to profligacy in the states doing it, but if the central government does it as well, it will only be done through deficit budgets and the printing of currency, which will drive up inflation. The central government under Modi has not engaged in financial hand-outs or farm loan waivers. The last waiver was in 2008, under Manmohan Singh. But the BJP in the states has often implemented non-viable schemes like free bus rides or monetary payments to select sections of the public.
Modi was to have retired in 2025 but he has made himself so indispensable within the once-democratic party structure of the BJP that his stepping down could endanger the party’s future prospects. But the momentum in electioneering and poll spending cannot be lessened since an electoral loss will carry blame. This means that creativity in economic reporting is here to stay regardless of who is in power. That will naturally implicate all the other factors noted in this article and it is difficult to envisage a way out of India’s economic problems.
One cannot get easily get out of “itihasa” once it has been accepted as fact.
(The Federal seeks to present views and opinions from all sides of the spectrum. The information, ideas or opinions in the articles are of the author and do not necessarily reflect the views of The Federal.)
