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India’s Welfare Balm

Indian economists and commentators expected economic growth to skyrocket once the pandemic was over, but it seems that the predicted boom has already fizzled. While one might expect Indians to be angry at their political leaders, there is a good reason why Prime Minister Narendra Modi’s government remains popular.

PROVIDENCE – During the height of the COVID-19 pandemic, many Indian economists and commentators believed the economy would skyrocket as soon as life returned to normal. But, despite the country’s robust recovery in the two years since the pandemic’s peak, the predicted boom has not materialized, nor does it seem imminent.

The latest data shed light on the country’s economic predicament. While many analysts have estimated India’s potential annual GDP growth at 7-8%, the most recent figures indicate a subdued rate of 4.4%. Private investment remains weak; credit uptake has slowed in recent months after a brief spurt; and while high-value service exports have soared, manufacturing exports’ global market share has plateaued.

The employment and inflation figures are also sobering. India’s worker-to-population ratio – perhaps the best measure of job opportunities – has declined steadily from about 44% in 2016 to 37% today, according to the Center for Monitoring the Indian Economy. Moreover, many industrial workers have been forced to shift back to agriculture, as the manufacturing sector’s share of total employment is still below pre-pandemic levels. And the increasing number of students with college degrees that are unemployed or underemployed attests to the predicament of millions of tuition-paying middle-class families. For them, the demographic dividend risks turning into demographic disappointment.