With the first phase of the Indian Lok Sabha elections set into motion, Reuters has confirmed that unemployment is the biggest economic challenge for the government, citing less than sustainable growth in it’s economy and a decade of “near jobless growth.” Kunal Kundra, India economist at Societe Generale, said that “the rising number of discouraged workers had pushed India’s LFPR (labour force participation rate) down well below the levels exhibited by the four Asian tigers at comparable stages in their demography.” 

In BJP’s election campaign back in 2014, one of Prime Minister Narendra Modi’s major promises had been creating more jobs. But since then, the unemployment rate has not shown any significant difference. According to the Periodic Labour Force Survey data, in 2013-14 the unemployment rate stood at 3.4% and had only marginally lowered to 3.2% in 2022-23. In a report by the Centre for Monitoring Indian Economy, the unemployment rate was 7.6% in March. 

“Bharatiya Janata Party's focus on existing employment drivers (infrastructure, manufacturing, and government jobs) that have not moved the needle much to date is all the more worrying. Without a more concrete plan, India runs the risk of missing out on potential demographic dividends.” Kundra added. 

In a poll held by Reuters, a majority of economists (15 out of 26 polled) said that unemployment would quickly become the most important thing for the newly elected government to deal with, alongside being key in electing the next government. Aside from this, eight of these economists said that rural consumption would be the next big problem; two claimed that inflation would require urgent address and one chalked it down to poverty. Regardless of what these issues may be, be it unemployment, rural consumption, inflation or poverty, it symbolises a significant problem festering in the cogwheels of the nation’s economy, preventing it from growing as fast as it is capable of. 

A majority of economists believe that inflation will be higher than the current prediction, despite the fact that in March this year, consumer price inflation was fixed at 4.85% and has since been forecasted to average 4.5% this fiscal year and the incoming one.

However, 2023 saw a faster than expected growth rate of 8.4% of the economy in the October- December quarter, due to the government pushing for aggressive capital expenditure (capex) that increased demand and economic activity, created assets, employed the multiplier strategy of creating income for workers and business involved and attracted private investment by improving infrastructure and facilities. 

For the entire fiscal term of 2023-24, ending on March 31, 2024, the economy likely grew by 7.6%. In the January-March 2024 quarter, growth was estimated to be pinned at 6.5%. For the current 2024-25 fiscal year, growth forecast is projected at 6.5% and 6.7% respectively. 

But capital expenditure is not a long-term solution to sustain these growth rates. Limited financial capabilities and need for fiscal prudence may limit the chances of such a boost occurring in the coming years, according to Alexandra Hermann of Oxford Economics.

“Repeating the exceptional strength of 2023 shouldn't be taken for granted. Last year's growth was strongly supported by the government's capex push, but the need for fiscal prudence will limit the boost this year and over the coming years,” said Alexandra Hermann at Oxford Economics.

Still, a strong majority of economists polled by Reuters answered that the economic growth was estimated to be higher than their expectations, with various institutes like International Monetary Fund (IMF) claiming India’s growth forecast the risk to outlook was to the upside. This implies that there are factors that can cause the foretold economic performance to supersede itself, citing that last year’s economic resilience maintained it’s surefire trajectory into the beginning of 2024. In essence, this means that the continued momentum from 2023 into early 2024 and the additional contextualisation by IMF suggests that the actual GDP growth rate could potentially surpass the current projections if this positive trend sustains. Upside risk implies that the risks are tilted towards economic performance exceeding expectations rather than underperforming.