Trickling down to Viksit Bharat

A new government in New Delhi will shortly take over. There is a lot of hope among businessmen and stock-market participants that a third term led by Narendra Modi will transform India into Viksit Bharat (developed India). The question is how we measure such a transformation. The popular indicators are growth in gross domestic product (GDP), tax revenues, stock-market indices, growth in corporate profits, investment flows, and so on. An improvement in these points towards increasing prosperity for the vocal, urban and prosperous minority. They dominate the chatter, so one automatically assumes these indicators will change India into a prosperous country. But will they? Over the past several years, all these markers have been extremely positive. But have they delivered rapidly rising per capita income, which is one of the most important signs of overall prosperity?
 

It pays to remember that India’s per capita income or net national income rose from Rs 72,805 in 2014-15 to Rs 98,374 in 2022-23, at just a 3.83 per cent compound annual growth rate, according to the government’s own data. Since the impact of actual inflation is underestimated, the rise in per capita income would be even lower. The living conditions of the average population encompassing education, health, public transport, pollution, the justice system, etc. have not improved. In fact, these indicators have deteriorated. I know most readers switch off when one mentions these indicators while talking of Viskit Bharat, but they can’t be wished away or substituted by narrow indicators like the stock market boom, growth in corporate profits, and mutual fund inflows, as measures of real prosperity.
 

Most readers of this paper, including those connected to the stock markets, are less interested or simply unaware of the issues facing the vast majority of India’s population that lives in rural and semi-urban areas. The general elections gave us an opportunity to sample the problems they face, when the television channels, which normally belt out screaming matches from their studios in Noida, went out and queried people about their poll choices, which spilled over to answers about their living conditions. What did these answers reveal? Captured by an otherwise pro-government media were three themes: Inflation, unemployment, and income inequality — all encapsulated in two words “rural distress”.
 

Prime Minister Narendra Modi is certainly aware of the issue on income equality. After all, he allowed a question on inequality to be asked by a reporter during the dozens of interviews he gave to a grateful media as part of his poll campaign. His answer was to ask a counter question: “Should everybody be poor? Everyone should be poor, then there will be no difference. This was the case in the country earlier.” He went on to argue: “Now you say that everybody should be rich, so it will happen gradually, not overnight. Some will come, they will bring those who are below. Those who will come a little higher will pull up others. So there is a process.” This is the famous trickle-down theory, which works ever so slowly, keeping generations of people poor. Interestingly, when it came to examples of the trickle-down theory working, the Prime Minister drew them from the prosperous class: 125,000 startups, increased foreign travel, and huge orders for airplanes by airline companies — examples which do little to support any change in the fate of 800 million (of the 1.40 billion) living on 5 kg rations doled by the government every month.  
 

To charge up economic growth after seven years of slow improvement, the Modi government has spent and will continue to spend Rs 11 trillion every year — on railways, roads, urban transport, waterworks, energy transformation, defence production, etc — which would create millions of jobs. This will no doubt create a corporate and stock market boom, but it should also have led to job growth. It hasn’t, or not enough to make much of a difference. In a report in 2023, Knight Frank, a real estate consultancy, had forecast that India’s booming housing market in its top eight cities would propel the construction sector to contribute about one-fifth to the economy by 2030, employing 100 million workers. Real estate stocks have been on a tear. The Nifty Real Estate index is up 200 per cent over the past two years. How much of this prosperity has trickled down? According to an analysis by Arindam Das and Yoshifumi Usami, between 2021-22 and 2022-23 the average daily real rural wages of construction workers declined, with female workers getting a worse deal. While there is a national minimum wage for unskilled construction workers (who form about 80 per cent of the sector’s workforce), according to CEIC, a data and analysis company, 15 of the 20 states tracked didn’t meet this minimum wage “signifying the extent of informal employment in the economy and weak enforcement”.
 

There is another way to understand how little is trickling down. Strong trickle-down through wage growth would eventually lead to a higher consumption of essential items such as basic clothing, utensils, and personal care products like soaps. But the financial performance of companies selling these products is stagnant. Not surprisingly, the CEIC data also reveals that 10-year real-wage growth for construction workers in nine out of 20 states was negative and for four states was insignificant. Political strategist Prashant Kishor, who has travelled all over Bihar for the past two years, highlights that people are suffering acutely due to unemployment, income inequality, and inflation. Unless the government addresses these issues, protests — with or without political leadership — would erupt. The irony is that if the urban elite truly want Viksit Bharat, they would have to part with their prosperity in some form or other, which they are loath to do. Trickle down and Viksit Bharat are incompatible ideas. 

The writer is editor of www.moneylife.in and a  trustee of the Moneylife Foundation; @Moneylifers