Between Donald Trump and Narendra Modi, it’s often hard to tell who’s the better economic salesman.
Former U.S. President Trump’s ability to bend cold, hard data, charts and verifiable trendlines to his own will and political advantage seems unmatched. Until you consider Prime Minister Modi’s uncanny knack for convincing a critical mass of 1.4 billion Indians that he’s already made their economic prospects great again.
On the surface, it can be hard to quibble with Modi’s spin as his Bharatiya Janata Party tries to secure another five years in power. The election process that begins April 19 is well timed for the BJP.
India is growing north of 8% at a moment when the stock market is going gangbusters and foreign investors fleeing China are pivoting its way. That includes Japanese investors, who are increasingly buying into the “China-plus-one” theory and diversifying into Indian assets.
Xi Jinping’s challenges over in Beijing are making 2024 an even more unexpectedly serendipitous moment for New Delhi. Asia’s biggest economy is bleeding capital amid deflation and a deepening property crisis.
“People are interested in India for several reasons — one is simply it’s not China,” Vikas Pershad, portfolio manager at M&G Investments, told Bloomberg. “There’s a genuine long-term growth story here.”
Of course, Chinese leader Xi would say the same of his economy. But Modi has the advantage of economic ascendancy in statistical terms, too. By 2027, brokerage house Jefferies thinks India will replace Japan as the No. 3 economy. In dollar terms, India now produces about $3.6 trillion of annual output, the fifth most globally.
Below the surface, though, India’s moment in the global spotlight isn’t all it appears.
“All that glitters is not growth,” analysts at Nomura Holdings wrote in a recent note. “Underlying growth is weaker than what the headline suggests.” ll that glitters is not growth,” analysts at Nomura Holdings wrote in a recent note. “Underlying growth is weaker than what the headline suggests.” The reason, Nomura argues, is that India growth “is primarily supported by strong public capex growth, while private consumption and private capex remain subdued.”
The all-important agricultural sector, meanwhile, has “underperformed.” To be fair, as Nomura points out, certain industrial sectors are indeed “resilient.” Look no further than the fact that more than 7% of Apple Inc.’s iPhone production is now done in India.
Yet there are growing worries that India’s 8% growth isn’t producing nearly as many new jobs as hoped.
“While the unemployment rate eased in urban India, it rose substantially in rural India,” the Centre for Monitoring Indian Economy, an independent advisory firm, argued in a March 1 report. It believes India’s actual unemployment rate was 8% in February, more than double the official rate.
Yet the real worry is the outsized role of government expenditures in driving India’s current growth. Last month, Modi’s government announced a roughly 11% jump in capital expenditure in the fiscal year ending March 2025. That increase is on top of a 33% surge in the previous year.
All this helps explain why Arvind Subramanian, a top former chief economic adviser to New Delhi, finds recent data on gross domestic product “absolutely mystifying.” He pointed out at an India Today conference last week that the numbers “don’t add up.”
For example, Subramanian said, “the implied inflation numbers given by the government are between 1% and 1.5%, but the actual inflation is around 3% and 5%.” What’s more, he said, “the economy is growing at 7.5% even though private consumption is at 3%.”
“So it’s a lot of stuff about the numbers which you know, I don’t understand,” Subramanian said. “I am not saying these are wrong. That’s for others to judge.”
But one area of judgement that Subramanian finds significant is that while stock market inflows are increasing, long-term investments in factories generally aren’t. “You can see foreign direct investment actually collapsed quite a bit,” he said.
It’s an important point. The so-called “hot money” now swamping Indian markets is fine. But the really important money is the capital that builds bricks-and-mortar facilities that create jobs and represent long-term commitments to Modi’s India.
Until investors know for sure that India’s growth is driven more by private-sector energy than government efforts, India’s GDP trends will be a matter of debate. For all the excitement about India’s private-sector development, the hand of the public sector continues to dominate.
Something that India and China actually do have in common: both have macro dynamics that divert attention from cracks in their financial systems. To ensure India’s rapid growth is shared widely, Modi’s team needs to do serious heavy lifting on reforms to level playing fields across sectors.
It’s here where global investors have valid reasons for skepticism. That goes for Japan, of course, as stocks surge past the 1989 highs. And Trump’s claims to have been the one who made the American economy great again.
Yet Modi must close the gap between rhetoric and economic reality before it really gets away from him. Before it’s too late.