Third Term Tightrope

As India charts a course through soaring ambitions and simmering challenges, the Modi government needs to harmonise domestic growth imperatives with the complexities of global power plays

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The National Democratic Alliance (NDA) government, under the leadership of Prime Minister Narendra Modi, has commenced its third term with a pledge to maintain policy continuity across economic, foreign, and strategic domains. However, the path forward is fraught with a complex array of challenges. With a majority in the Lok Sabha that depends on the coalition dynamics, coupled with economic hurdles and escalating geopolitical tensions, navigating these issues will require deft manoeuvring.

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While deliberating on all pressing issues before the new dispensation at the Centre, may turn out to be a prosaic, academic issue, at a fundamental level, the underlying narrative needs to shift from the geopolitical to the economic. Today, international clout and stature are closely linked to a nation’s economic performance. The goal should be inclusive economic and financial growth, coupled with insistence on fair global governance, reflecting an emerging multipolar world order distinct from the dominance of the US dollar or China’s Yuan.

It is imperative to take on these challenges head on. The policy makers and mandarins need to acknowledge that India’s economic landscape is fraught with some pain points. Despite impressive GDP growth of 8.2 per cent, the country is grappling with rising unemployment and inflation. According to the Centre for Monitoring Indian Economy (CMIE), the unemployment rate in India rose to 8.1 per cent in April 2024 from 7.4 per cent in March. This increase affected both urban and rural areas, with rural unemployment climbing to 7.8 per cent from 7.1 per cent and urban unemployment rising from 8.1 per cent to 8.7 per cent. The labour participation rate (LPR) also inched down to 40.9 per cent in April from 41.1 per cent in March, while the employment rate fell from 38.1 per cent to 37.6 per cent .

The India Employment Report 2024, prepared by the Human Development and the International Labour Organization (ILO) and released on March 26, also offers no solace. Despite an increase in the proportion of youth getting an education from 18 per cent in 2000 to 35 per cent in 2022, the percentage of youth involved in economic activities decreased from 52 per cent to 37 per cent during the same period, says the report. The report points out that unemployment in India is predominantly a problem among youth, especially those with a secondary level of education or higher, and it has intensified over time. In 2022, the share of unemployed youth in the total unemployed population was 82.9 per cent, with the share of educated youth among all unemployed people increasing from 54.2 per cent in 2000 to 65.7 per cent in 2022. Among the educated (secondary level or higher) unemployed youth, women accounted for a larger share (76.7 per cent) than men (62.2 per cent).

India’s international clout and stature are closely linked to its economic performance. The goal should be inclusive economic and financial growth, coupled with insistence on fair global governance, reflecting an emerging multipolar world order distinct from the dominance of the US dollar or China’s Yuan

Economic disparity with the wealth concentration in the richest one per cent of India’s population is another worrisome trend. According to a 2022-2023 study by the World Inequality Lab, the wealthiest one per cent of India’s population controls 40.1 per cent of the country’s total wealth. This marks the highest level of wealth concentration since 1961, highlighting a growing disparity between the rich and the rest of the population. The report indicates that the benefits of India’s economic growth are not sufficiently reaching all segments of society. Experts suggest that income and wealth inequality rarely diminishes on its own; rather, it requires deliberate policy interventions. This disparity underscores the need for comprehensive tax reforms and equitable economic policies to ensure substantial investments in education, health, and other public infrastructures. Such measures by the government could help mitigate the growing disparity and promote a more equitable distribution of economic growth benefits.

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Furthermore, economic studies have shown that after adjusting for price hikes, real earnings and wages for people working in agriculture, construction, manufacturing, and services have stagnated over the past five years. Meanwhile, debt levels have increased significantly. To compound the matters, India’s inflation rate has shown a rising trend over the last decade, averaging 5.5 per cent from 2012 to 2022 and peaking at 6.7 per cent in 2022. In 2023, the annual inflation rate stood at 6.95 per cent. According to data from the Ministry of Statistics and Programme Implementation (MoSPI), rural inflation has consistently outpaced urban inflation for most months between March 2019 and March 2024. Recent figures show that since July 2023, rural inflation has remained higher. This disparity is largely attributed to rising food prices, which account for half of rural households’ total spending, and the economic impacts of the COVID-19 pandemic.

At the political front, the coalition dynamics necessitate a broad-based consensus, which can be time-consuming and politically challenging. The government must balance the demands of its coalition partners while maintaining policy continuity in areas like infrastructure spending and manufacturing support. The presence of stronger opposition parties may also subject government policies to rigorous scrutiny and debate, with a potential to delay their implementation.

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Externally, the Modi government must navigate a complex geopolitical landscape, particularly due to rising border tensions with an increasingly assertive and expansionist China. Since the Galwan Valley clash in 2020, where both sides suffered casualties, the situation along the Line of Actual Control (LAC) has remained tense with deployment of over 60,000 troops from each side.

China’s military activities, including live-fire exercises near the border and the expansion of its nuclear capabilities, have added to the tensions. Beijing’s massive military strength, exemplified by its two operational aircraft carriers and a rapidly growing naval fleet, further complicates the strategic equation for India.

Beyond the border, China’s strategic manoeuvres to increase its regional influence pose fresh obstacles for India. Beijing has consistently blocked India’s efforts to join the Nuclear Suppliers Group (NSG) and has used its influence to prevent the designation of Pakistan-based terrorists on United Nations watchlists. These actions reflect China’s broader strategy to undermine India’s regional standing and global aspirations.

The Modi government must navigate a complex geopolitical landscape, particularly due to rising border tensions with an increasingly assertive and expansionist China. Since the Galwan Valley clash in 2020, where both sides suffered casualties, the situation along the LAC has remained tense

Economically, China’s dominant position in the global supply chain, its larger economy and the Belt and Road Initiative (BRI) accentuate the irritants for India. The BRI, which aims to enhance global trade routes and infrastructure, has expanded China’s influence across Asia, Africa, and Europe. This initiative is meant not only to increase China’s strategic footprint but also present economic competition for India, as neighbouring countries may align with Beijing for development projects and investments.

Adding to these complexities are China’s repeated incursions and attempts to annex Indian territories. These violations of the LAC and China’s broader territorial ambitions undermine regional stability and challenge India’s sovereignty. The Doklam standoff in 2017 and subsequent skirmishes have highlighted China’s aggressive posture and its willingness to use grey zone warfare, instead of full-blown direct war, to achieve its objectives. Navigating these challenges requires India to carefully manage global alliances like the Quadrilateral Security Dialogue (Quad) while safeguarding against Chinese encroachments and territorial ambitions.

The world will be closely watching how the Modi government navigates these complexities, anticipating outcomes that will define its trajectory in both in both domestic governance and international diplomacy.

–The writer is a senior journalist and media consultant. The views expressed are of the writer and do not necessarily reflect the views of Raksha Anirveda

–The writer is a senior journalist and Consulting Editor of Raksha Anirveda

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