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Business Journal
Indians Are Optimistic, but Business Challenges Persist
Business Journal

Indians Are Optimistic, but Business Challenges Persist

by Steve Crabtree

Story Highlights

  • 48% say their standard of living is getting better
  • Creating a business-friendly environment won't be easy
  • Government needs to accelerate market-friendly reforms

Economic optimism is running high in India, even as creating a more business-friendly environment remains a challenge for the country's leadership.

But India's current leader could be the right person to meet that challenge. Prime Minister Narendra Modi, whose pro-development agenda helped usher him and his Bharatiya Janata Party (BJP) into power a year ago, remains broadly popular. The country is seeing robust economic growth, thanks in part to a decline in oil and commodity prices and rising consumer demand. In June, the World Bank forecast 7.5% economic growth for India this year, which would make it the world's fastest-growing major economy. That represents a symbolic change from as recently as 2012 when many pundits were still lamenting India's slower growth relative to China's, as if it was the East Asian giant's underachieving sibling.

For India to sustain its momentum, a rising share of the country's massive population must feel these economic gains. The proportion of Indians who believe the national economy is improving has surged from about three in 10 in 2013 (29%) to about half (48%) in 2015, Gallup's World Poll shows; by contrast, 13% now say national economic conditions are getting worse. Similarly, 48% currently say their own standard of living is getting better, up from 37% in 2012, while 14% say it is getting worse. Increased confidence is already resulting in higher consumer spending levels, which in turn are fueling further economic growth.

Economic optimism is on the rise in India

Perhaps most importantly given India's urgent need to provide jobs for its burgeoning youth population, optimism about local employment conditions has climbed significantly over the last two years. Currently, 39% of Indians say it is a good time to find a job in their area, up from 29% in 2013, and nearly on par with the 44% who say it is a bad time for job seekers.


The Modi Effect

If any one person is most responsible for Indians' rising optimism, that person is Modi himself. His election in May 2014 represented a sea change in Indian politics; his conservative, pro-business BJP won by a landslide, unseating the Congress party, which had been in the majority for the past decade. Modi's job approval was close to two-thirds in 2014 (64%) and 2015 (63%), a dramatic resurgence after former Prime Minister Manmohan Singh's approval rating had fallen from 50% to 27% between 2012 and 2013.

That Modi's approval rating remained high during his first year in office is noteworthy, particularly in light of criticism from some that he missed an opportunity to make more sweeping reforms during his honeymoon period. Well-educated Indians are most likely to approve of the prime minister, including 84% of the relatively small segment with 16 or more years of education; however, this is largely because those with less education are more likely to say they don't know enough to rate him. Given the BJP's Hindu nationalist history, it is noteworthy that 58% of Muslims in India approve of Modi's job performance, which is statistically on par with his 63% approval rating among Hindus.


Modi's emphasis on pro-market policies and private-sector development has strongly resonated with a population frustrated with the obstructive effects of endemic corruption and burdensome government regulations. His government has a stated goal of making India one of the top 50 countries in the World Bank's Doing Business index (it is currently ranked No.142).

However, creating a more business-friendly environment at the national level will likely prove far more difficult than it was in Modi's home state of Gujarat, where he served as chief minister for 12 years. The proportion of Indians who believe the government makes it easy to start a business jumped from 13% in 2013 to 33% in 2014 just after Modi was elected. But that figure fell back to 25% in 2015 and remains far below the 55% who currently say the government makes it difficult to start a business. Indians' perceptions of how easy it is to start a business may be an important gauge of the Modi administration's success at promoting business startups and reducing the high proportion of economic activity outside the country's formal business sector.

Growing Pains

Though the positive turn in economic perceptions among Indians overall is certainly a welcome development, living standards among the country's 1.27 billion residents are far from homogenous. Millions have seen little benefit from the country's recent growth, and poverty remains widespread. Close to one-fourth of Indians overall currently say they've lacked enough money for food (27%) or shelter (22%) for themselves or their families in the past year.

There are large regional differences in India's economic vitality, with the states along the southwestern coast responsible for a disproportionate share of growth, while much of central and northern India remains mired in poverty. Almost two-thirds of residents in the central provinces of Madhya Pradesh and Chhattisgarh (64%) say there have been times in the past year when they didn't have enough money to buy food for themselves or their families; in no other region does this figure exceed one-third. Optimism about local job markets also varies starkly by region, with most Indians in the southwestern provinces (58%) saying it is a good time to find a job in their area, and just 17% of those in the central provinces saying the same.

Optimism about local job markets strong in the southwest, weak in central India

There is another stark negative offsetting India's positive economic news: Indians are no more likely to assess their overall lives positively now than they were in 2008. Gallup combines respondents' ratings of their overall lives today and their predicted ratings of their lives in five years to classify them as "thriving," "struggling" or "suffering." The proportion of Indians who rate their lives highly enough to be classified as thriving dropped to 8% in 2015 -- the lowest figure since Gallup began tracking life evaluations in 2006. Indians are now more than three times more likely to be suffering than they are to be thriving.

This trend in life evaluations may be an example of what Carol Graham of the Brookings Institution has termed "the paradox of unhappy growth." As Graham recently noted with regard to China, rapid economic change brings disruption as well as opportunity, and these growing pains may be leading India's overall well-being measures to get worse before they get better. Notably, the largest increase in suffering between 2008 and 2014 was not among the poorest Indians, but among those in the middle-income quintile, increasing from 8% to 35%.

Regarding the life evaluations reflected in the thriving, struggling and suffering trends, hope for the future is particularly important -- and that means having avenues for social mobility. A key component of this sense of hope is access to educational opportunities and quality health services to improve one's job prospects -- or the prospects of one's children. It remains to be seen whether the Modi government will be effective at making such services more equitable nationwide.

Government Must Accelerate Market-Friendly Reforms

Economists have long debated whether China's centralized, closely managed markets would continue to outperform India's messier, more dysfunctional -- but also more democratic -- economy. These include professors Yasheng Huang of the Massachusetts Institute of Technology and Tarun Khanna of Harvard, who predicted in a 2003 Foreign Policy article that despite China's historic growth since the 1980s, India's strong emphasis on protecting individual freedoms may give it a more sustainable foundation for economic development over the long run.

Scholars who agree with Huang and Khanna's view about India's economic development are looking smarter every day, though it's far too early to say they're correct. Rising optimism and Modi's reform and anti-corruption efforts have the potential to better position India to cash the demographic check that its young, urbanizing population represents and to see improved economic growth rates for years to come. But much depends on whether the government can accelerate the pace of market-friendly reforms while managing the drawbacks of rapid change.

Historical data for this question are available in Gallup Analytics.

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