Friday, July 15, 2016

Stratfor: On Economy Modi Goes It Alone

Stratfor offers some useful analysis on Modi's economic predicament:

One of Modi's biggest dilemmas, though, is that his two primary goals — promoting growth and creating jobs — do not always feed into each other. India is growing at an impressive rate, true, but that growth has not yielded jobs. This is due in large part to the fact that India's labor laws are some of the most restrictive in the world; it is very difficult to fire workers in India. As a result, Indian factories tend to invest in machinery instead of manpower when they expand. This capital-intensive approach means that even as the Indian economy grows, it does not create enough new jobs to employ the million or so Indians who enter the job market each month. Because the formal economy cannot absorb all of these workers, many of whom are uneducated, the majority turn to the informal economy. This sector, which includes street sweepers, rickshaw drivers, construction workers, shopkeepers and mechanics, employs at least 80 percent of India's 470 million workers but without providing fixed incomes, benefits or job security.

Though Modi would prefer to create labor-intensive growth, he recognizes that he will have a hard time passing and implementing the necessary land and labor reforms while the opposition Indian National Congress continues to hold a sizable bloc in the upper house of parliament. That is why he has resorted to other methods, including monetary policy, to promote economic growth — even if such measures bring few gains in employment or investment. Either way, Modi's maneuvering gives his administration something it can tout as proof of its skillful governance ahead of the next elections, which are set for 2019.

The Modi govt cannot reform India's stifling labour laws until it has enough votes in the Rajya Sabha.

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