The GDP Is Booming On Paper But Where Are The Jobs?

The most recent GDP figures for the first quarter (April-June) stand at an impressive 7.8 percent. This growth rate is quicker than the 6.9 percent observed a year ago. Prime Minister Narendra Modi hailed it as a "Herculean feat" achieved despite global uncertainties. The GDP, or gross domestic product, is the total value of all goods and services produced within a nation.

When it expands at 7.8 percent, it suggests a surge in job opportunities, wage increases, and an enhanced quality of life. However, GDP is an average metric. Similar to a few affluent individuals elevating the "average income" of a community without most residents experiencing a boost in earnings, select thriving sectors can inflate the GDP even if many individuals see minimal changes in their daily lives.

Growth appears uneven when scrutinizing the 7.8 percent figure. Finance, real estate, and professional services are leading the pack with a 12.1 percent increase – a substantial share of the economy, but one that is challenging to quantify. Meanwhile, agriculture, although growing at 3.6 percent (up from 4.4 percent last year), is lagging behind.

Even more concerning, mining is contracting at a rate of 2.4 percent. The fastest growth is observed in sectors that are difficult to measure and employ the fewest. Conversely, the sectors that are straightforward to measure and provide the most jobs are experiencing a slowdown. Government spending, aimed at alleviating the situation, has surged, but this is only a short-term solution.

The issue is that if the government reduces its capex, the private sector may not be prepared to step up. Moreover, there is another concerning sign. According to the RBI's own predictions, the GDP is anticipated to grow at 6.7 percent for the entire fiscal year. Given that Q1 was pegged at 7.8 percent, the subsequent three quarters would average out to a mere 6.3 percent.

Either the RBI is anticipating a significant decline – an explanation remains elusive – or its projections have been persistently underestimated. Consequently, it has now missed three quarters in a row. Despite these indicators, the employment and income situation in India remains a matter of concern. None of this implies that India's growth is fictitious.

India is likely still the fastest-growing large economy. However, this growth appears to be driven by the government absorbing a price shock that it cannot sustain indefinitely, and that is the alarming aspect. Therefore, the pertinent question resurfaces: While the 7.8 percent growth may appear impressive, does this surge in GDP translate into better job prospects, higher incomes, and a reduced cost of living? So far, the evidence suggests otherwise.