By Mehmet Enes Beşer
There is no doubt that India’s economic rise is becoming a significant area of interest in academic and political circles. Against the backdrop of global turbulence and GDP growth in the region of 6-7 percent, India is presented as a case study of the country that has successfully recovered from the pandemic shock, attracted massive foreign investment, and is capable of balancing against the growing might of China.
However, while there are positive macroeconomic indicators on the surface, closer inspection reveals that the reality of the situation requires a much more complicated analysis, and it is worth applying a specific methodology.
Despite the success narrative, there are serious problems that the country has been experiencing, and these are reflected in issues such as underemployment, rising income inequality, distress in the countryside, and fiscal challenges. If India wants to reach its declared goals of inclusive development and economic power, then solving these issues becomes urgent and necessary.
The first issue that needs to be addressed relates to joblessness in the country. The CMIE demonstrates that India still ranks very poorly according to the labor force participation rate. Additionally, India suffers from the fact that women participate less in the workforce than men. Such a contradiction means that many people either leave the labor force altogether or work in the informal sector.
Even if there are new jobs provided in the digital sector and startups, they are highly capital-intensive, not labor-intensive. The manufacturing industry, whose role was expected to be crucial because of its ability to absorb labor, has shrunk its contribution to the GDP. Therefore, premature deindustrialization could become a reality for India if the country does not undertake reforms.
The second problem is related to rising inequality, even though the reduction of poverty has been an important political goal for the government. While poverty levels have been decreasing over the last ten years, the inequality rate has been increasing. According to the World Inequality Report, the top decile possesses about 65 percent of total national wealth. Thus, while real estate prices, stock markets, and other urban activities generate revenue, rural wages stagnate and inflation affects poorer groups.
The issue is not only economic but also geographical. Growth has been taking place only in certain states and cities, while vast regions have been deprived of any development. These disparities fuel political tensions, worsen infrastructure, and complicate budget transfers between the central and state governments. With such a growth model, India will face serious difficulties within its federal system.
Government expenditures on health, education, and social security remain quite modest, especially considering India’s ambitions as a global player. The country invests quite little in the development of its human capital. The public health system faces many challenges, and high out-of-pocket expenses contribute to the indebtedness of households. Enrollment rates have been impressive, but learning outcomes in public schools remain poor.
India can benefit from its demographic dividend, meaning that the number of young working-age people can provide an advantage to the economy if they receive proper training and education. Skill India is a government initiative designed to address this issue, but there is no clear progress to show how effective it is. Focusing solely on economic growth without investing in human development could lead to self-defeat.
In addition to fiscal problems, the issue of climate change poses macroeconomic risks. Severe weather, including unseasonal rain, heatwaves, and unstable monsoons, negatively affects agriculture and rural populations. India is undertaking an energy transition, but its coal production prevents rapid decarbonization. Moreover, certain states have employment dependent on coal mining, so the transition to green energy becomes difficult.
On the international stage, India is gaining economic weight. The G20 membership and diplomatic relations with Western countries increase expectations regarding its economic performance. India’s credibility abroad depends on its domestic development. While high GDP growth generates credibility, it is the overall development that creates legitimacy.
Conclusion
The economic rise of India is neither a fairy tale nor a tragedy. India is an interesting case because it demonstrates achievements and shortcomings simultaneously. While GDP growth can explain some aspects of economic activity, it cannot give a complete picture. A better picture can be formed by focusing on the quality and availability of employment, income distribution, access to healthcare, education, and social security.
If India wants to develop successfully, then it needs to revise its policies from growth-oriented to development-oriented. The government should not only invest in physical infrastructure but also in human capital and its training. Policy dialogue should involve peripheral regions and subordinate communities, not only metropolitan areas.
If Indian leadership manages to balance economic ambitions with foresight, India can achieve rapid development. However, unlike many countries around the world, India can do this sustainably.