Some international investors seem oddly troubled at prospects for India with a chastened Modi at its helm. There should be relief in the election results. Fresh economic reform may address the severe unemployment that is a curse on the Indian story.
The allure of economic growth has sustained global interest in India. The outlook is validated in just-released World Bank data that designates India as the fastest growing major economy this year. That point masks structural issues in the domestic setting. Notably, youth unemployment soars near 45%. The figure is one of the worst in the world.
Interlinked with the demand for quality jobs is the need to improve human capital. Ironically, the much-lauded infrastructure story in India has been held back because of shortages in skilled labor. Building roads and bridges is difficult if you cannot find trained workers to operate specialized construction machinery. The problem may be rooted in substandard primary and secondary education.
The Modi regime centered much of its job-growth strategy on infrastructure development. The approach proved insufficient for low-income households, many of which are locked into the agricultural sector. The number is enormous. More than half of the Indian population depends on farming for its livelihood. That trait explains why Modi and his BJP Party lost so much ground with rural voters in the parliamentary election.
A counterpoint to this dour assessment can be found in electronics manufacturing. Apple’s efforts in India—among a scattering of other companies—are indeed grabbing headlines. The field, however, is not particularly labor intensive. And shaping a robust semiconductor industry will take years. Some experts argue that end-to-end production for advanced chips may take as long as two decades to execute at world-class standards.
With Modi and his BJP Party having an oblique record on job growth, international investors should find solace in the new government. The ruling party was not very good at exploring alternative ideas and embracing disparate voices on its own. Somewhere in the coalition mix may be an answer to the job-market crisis. For the record, we discount concern about broad policy risk at this juncture.
One approach to resolving unemployment issues is to nurture private investment, acutely so. If the coalition government can figure out that challenge, then international investors will truly have something to celebrate. ■
Our Vantage Point: While any assessment of Indian government policy is now less streamlined than it has been, we are drawn to the potential of the fresh economic reform. A coalition government is poised to claw back a wasted demographic dividend.
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