India in 2024 — Modi once more but bolder reforms wanted
Official results are not out until 23 May, but Modi and his incumbent coalition government are set to retain power as suggested by a few exit polls after India concluded the final phase of its six-week ballots. As the election is viewed as a referendum on Modi’s leadership in the past five years, the victory of Modi indicates that the public is willing to give him a second-term to carry on his unfinished tasks.
First, Modi has made progress but far from enough when compared to what India needs.
We analyzed Modi’s pledges within the framework of the Solow growth model, which looks at three factors of output/production: labor, capital and productivity (soft infrastructure reforms). India does not have a supply of labor challenge like those in East Asia, as its working age population is expected to expand rapidly so much so that it needs to create millions of jobs per year in the next decade to absorb the incoming labor (Chart 1). Beyond the employment needs, India struggles on total factor productivity, which requires capital to absorb existing and incoming labor into more productive sectors as well as reforms to reduce red tape. This requires reforms on all three aspects of the Solow growth model to escape from its current low middle-income trap.
Currently, India has a low labor participation rate, especially compared with China (Chart 2). Worse still, within the Indian employment population, the vast majority is still stuck in informal sectors, which equates to low total factor productivity. For China, informal employment is takes up significantly less proportion of total. The situation can only get worse for India unless many more jobs are created.
These challenges are well understood within the academic and political circle of India and have been sources of…