Speaking to members of the Indian diaspora at The Hague in mid-May, Prime Minister Modi said the war in West Asia can overturn the gains of the Indian economy in the past decade. Mass poverty could return, he warned, while listing the shocks of the COVID-19 pandemic, the ongoing wars and the global energy crisis.

To meet these challenges, he continued, India needs resilient supply chains, and conservation of energy must be seen as a national duty. Readers might remember similar exhortations during the demonetisation of November 2016.

No doubt, the pandemic was not of India’s making nor the current supply shock due to the closure of the Strait of Hormuz. Both adversely impact the economy, especially the unorganised sector. But all was not well with the economy before these shocks came.

Government policies have privileged the organised sector at the expense of the unorganised sector since 2014. As a result, the capital and energy intensity of the economy has risen and so have unemployment and inequality. The health of the Indian economy has increasingly depended on the organised sector, which employs a meagre 6 per cent of the work force. Even a small change in their fortunes and actions produces a disproportionate impact on the economy.

The black economy generated by the well-off and the organised sector has resulted in poor governance and policy failure and the flight of capital has created a shortage of capital and a loss of foreign exchange leading to a weak balance of payments. The corrupt rich hold hundreds of billions of dollars abroad that are not available to the national economy — and the prime minister has to make appeals for austerity and to conserve foreign exchange.

India’s economic data is suspect. This is partly due to the black economy but also for methodological reasons. The national GDP is overestimated; inflation is underestimated. The government’s default setting is to paint a glowing picture without bothering to remedy underlying weaknesses, which gets........

© National Herald