Is the growth improving lives?

The ripple effect of the war in west Asia has led to a discussion on the state of the economy. This is a good thing but the diagnosis is mostly wrong. Independent observers have claimed the growth model pursued by the Modi government has run out of steam. And, according to media reports the deliberations of the most recent meeting of the Prime Minister’s Economic Advisory Council (PMEAC) revolved around what to do to ensure that growth does not falter and how reforms can advance “ease of living” in India. What’s missing in both cases is the realisation that while the economy is growing quite fast today it may not be delivering the outcomes that we would like. Before coming to the outcomes, let us take a quick look at the growth figures. If we focus on phases of growth, rather than growth in any particular year, we would find that after 2014, growth in 6 of the 11 sectors of the economy identified in the national accounts statistics have slowed after 2014. Only real estate grew faster. Economy-wide growth has slowed from 2016-17, the year of the demonetisation.

While a comprehensive slowing of the economy may have occurred, growth need not reflect well being, for which we should be looking at consumption and the standard of living. Serial NSS household expenditure surveys point to slower growth of consumption after 2011-12. This is significant, as PM Modi had promised “achche din aanewale hai”. The Household Consumption Expenditure Survey 2023-24, also enables an assessment of the standard of living. From it we find that the consumption expenditure on food does not translate to two thali meals costed at Rs. 30 each per day for 50 percent of the rural population and 20 percent of the urban population. Food subsidy raises their consumption level, but the all-India figure for those who consume less than two thali meals a day is yet 30 percent. This reflects high food deprivation. It may be read along with data from the UN’s Food and Agricultural Organisation on the affordability of a healthy diet, which shows that 50 percent of India cannot afford a healthy diet, a figure very high by global standards. We may turn next to employment. While, the unemployment rate has declined over the past five years, in 2025 it was still higher than it was in 2011-12, when growth was actually lower. The same pattern holds for youth unemployment, except that in 2025 it was still close to 10%, which is thrice the figure for the labour force as a whole. The riots in Noida and the recent protests at Jantar Mantar need not come as a surprise.

            The high unemployment rate and low food consumption level show that the relatively high growth of the past three years is not trickling down to a large section of the population. It has been claimed that inequality in India has been growing from what is already a high base. While precise numbers on the income distribution may not be available, we have data that is consistent with rising inequality. I refer to the decline in real wages that has taken place over the past five years. Real wages decline when the cost of living rises, which we see is happening. We also know that the cost of living rises mainly due to rising price of food. Real wages reflect the purchasing power of workers and, therefore, the demand for goods emanating from this section. With expenditure on food being a large part of household budgets, less will be available for other goods and services when food becomes costlier. As the price of food rises, the consumption of other goods by workers slows. As workers consume relatively labour-intensive goods, this gets reflected in employment. This is the chain that links the price of food, real wages, consumption and employment. Rising profits, which may accompany declining real wages would lead to higher demand for goods, but for relatively capital-intensive goods, the employment-generating impact of which is less.

            In the context, the solution offered by some economists that what India needs is “more reforms” is off the mark. For instance, it has been suggested that reforms should be undertaken to attract foreign direct investment, which has slowed in recent years, to raise growth. Foreign investment is an important source of foreign exchange but, given its form and size in relation to the economy, it is not the factor behind the high youth unemployment or the low standard of living. That factor is the price of food. The real price of food, which is its price relative to that of all other goods, has risen by over 30 percent since 2011-12.

          The PMEAC reportedly discussed the ease-of-doing-business in India. This is of course an important dimension pertaining to non-agricultural activity. But this segment of the economy is facing a demand shortage, while the ease of doing business is concerned with the supply side. If the rising price of food is the problem, then its production is what we should be focusing on. Reforms would have a role if they can contribute to steadying, if not lowering, the real price of food. Yield is the critical factor in restraining that price, and interventions focused on raising it are what is most needed right now. This aspect has been neglected in the economic policy of recent years.