It’s five years since the right-wing nationalist Bharatiya Janata Party (BJP), led by Narendra Modi swept back to power in India’s Lok Sabha (parliament) elections. Now in the world’s third largest economy (in PPP terms), over 800m Indians have voted in elections lasting six weeks to re-elect its leaders.

The BJP ruled before, from 1998 to 2004. But the BJP then proved to be an unreliable tool for Indian capital, riddled as it is with former members of what is basically a Hindu religious fascist party, the Rashtriya Swayamsevak Sangh (RSS), an organisation modelled on Mussolini’s Black Brigades. Modi was a long time member of the RSS who then moved seamlessly into the BJP. But in the last five years, Modi is now seen as leading a ‘business-friendly’ government with what he likes to call Modinomics.

Modinomics boils down to neoliberal economic policies aiming to raise the rate of exploitation of labour so that the profitability of capital is boosted and thus provide an incentive to invest. To do this, Modi has introduced new sales taxes on the population and abolished high-denomination banknotes in an attempt to ‘demonetise’ the economy and put the banks more firmly in control of credit.

In the first years of Modinomics it seemed that India was leaping forward, with real GDP growth even faster than in China and with rising incomes for the rural workers and farmers that the BJP relies on principally for its votes, while being backed by big business and Indian capital. But those early years have given way to increasing problems. The world’s fastest growing major economy is now headed for a slowdown. The official economic growth figures slowed to 6.6% in the three months to December, the slowest in six quarters and now the same rate as in China.

And these GDP figures are dubious anyway. Back in 2015, India’s statistical office suddenly announced revised figures for GDP. That boosted GDP growth by over 2% pts a year overnight. Nominal growth in national output was now being ‘deflated’ into real terms by a price deflator based on wholesale production prices and not on consumer prices in the shops, so that the real GDP figure rose by some way. Moreover, this revision was not applied to the whole economic series, so nobody knows how the current growth figure compares with before 2015. Also the GDP figures are not ‘seasonally adjusted’ to take into account any changes in the number of days in a month or quarter or weather etc. Seasonal adjustment would have shown India’s real GDP growth well below the official figure. A better gauge of growth may be found in the industrial production data. And that has just hit zero.

Sales of cars and SUVs have slumped to a seven-year-low. Tractors and two-wheelers sales are down. Net profits for 334 companies (excluding banks and financials) are down 18% year-on-year, according to the Financial Express newspaper. The vehicle industry’s rapid expansion under the Modi government had prompted predictions that India would soon overtake Japan and Germany to become the world’s third-biggest motor market. But last month, passenger vehicle sales were 17.7% lower than a year before.

The car sector has become one of the most prominent victims of a debt market crunch that began in the ‘shadow banking’ market in India last September, when defaults by infrastructure and finance group IL&FS triggered sharp outflows from mutual funds. That drained money from the commercial paper market, a major source of funding for nonbank financial companies that had driven the growth of loans as they took market share from the ailing state-controlled banks. The so-called NBFCs were particularly active in areas such as vehicle loans and lending to small businesses.

That’s not all. In March, passenger growth in the world’s fastest growing aviation market expanded at the slowest pace in nearly six years. Demand for bank credit has spluttered. Hindustan Unilever, India’s leading maker of fast moving consumer goods, has reported March quarter revenue growth of just 7%, its weakest in 18 months.

It seems that middle-class ‘consumer boom’ initiated by Modi has burnt itself out. There is a fall in both urban and rural incomes. A crop glut has seen farm incomes drop. Kaushik Basu, former chief economist of the World Bank and professor of economics at Cornell University, believes the slowdown is “much more serious” than he initially believed. Export growth has been close to zero for the last five years. And now the domestic consumer boom is weakening.

Unlike China, India seems to be heading into what the World Bank has called a ‘middle-income’ trap, where the vast majority of population remain in poverty while the top 10% live well and spend, but there is no investment or drive to deliver employment, training, education and housing for the rest. India will end up like Brazil, not China, Korea or Japan – just going nowhere. Under Modi, unemployment is at an all-time high. The “Make in India” plan seems to have flopped. And no Boeing, Airbus or Apple has come to invest in factories in India.

Two-thirds of Indian workers are employed in small businesses with less than ten workers, where labour rights are ignored – indeed most are paid on a casual basis and in cash rupees, the so-called ‘informal’ sector that avoids taxes and regulations. India has the largest ‘informal’ sector among the main so-called emerging economies. But small businesses are not very productive.

Indeed, India has the lowest productivity levels in Asia. Between 1950 and 1980, labour productivity growth averaged a meagre 1.7%. The two decades to the turn of the millennium saw that average more than double to 3.8%. This was the period when India’s manufacturing and services sectors took off, leaching labour from the lower productivity agricultural sector. Labour productivity growth peaked at 10.2% in 2010 and has been on the decline since. In 2016, it stood at 4.75%. This does not bode well for achieving the growth targets that are needed to raise living standards.

Productivity would rise if generally underemployed peasants could move to the cities and get manufacturing jobs in the cities. This is how China has transformed its workforce, of course, to be exploited more by capital, but also to raise productivity and wages. China has done this through state planning of labour migration and huge infrastructure building. India cannot, so its rate of urbanisation is way behind that of China. Indian and foreign capital are still not fully exploiting the huge reserves of mainly youthful labour for profit. As a result, employment growth is pathetically slow. An estimated 10-12m young Indian people are entering the workforce each year but many cannot find jobs due to their paucity or because they lack the right skills.

Already, India is one of the most unequal societies in the world. The richest 1% of Indians now own 52% of the country’s wealth, according to the latest data on global wealth from Credit Suisse Group. The richest 10% of Indians have increased their share of the pie from 68.8% in 2010 to 77% by 2018. In sharp contrast, the bottom half of the Indian people own a mere 4% of the country’s wealth.

The Gini coefficient is one way of measuring inequality, with a reading of 100% denoting perfect inequality and zero indicating perfect equality. According to Credit Suisse, the Gini wealth coefficient in India has gone up from 81.3% in 2013 to 85.4% in 2018, which shows inequality of income is very high and rising.

As the Credit Suisse report says: “While wealth has been rising in India, not everyone has shared in this growth. There is still considerable wealth poverty, reflected in the fact that 91% of the adult population has wealth below $10,000. At the other extreme, a small fraction of the population (0.6% of adults) has a net worth over $100,000.”

And there is the issue of basic resources for India’s 1.2 billion people. Mechanically pumped groundwater now provides 85% of India’s drinking water and is the main water source for all uses. North India’s groundwater is declining at one of the fastest rates in the world and many areas may have already passed “peak water”. The World Bank predicts that a majority of India’s underground water resources will reach a critical state within 20 years.

The big demand from Indian capital is to cut back the size of the state. Bureaucratic and inefficient as it is, India’s central and state government, as well as state enterprises set up in the early days of ‘socialist’ India, have provided some solidity to India’s economy. But the multi-nationals and large Indian capitalists want this to go. Central and state government run up significant annual budget deficits because they subsidise food and fuel for the millions of poorer Indians. Those deficits are funded by borrowing and the cost of that borrowing has steadily eaten into the available revenue from taxes, leaving little for education, health or transport.

Government tax revenues are low because Indian companies pay little tax and rich individuals even less. Inequality of income in India is not as high as in China, Brazil or South Africa, but it is probably higher than the official gini index because of huge hidden income among the rich and it has been rising. According to the OECD, income inequality has doubled in India since the early 1990s. The richest 10% of Indians earn more than 12 times as much money as the poorest 10%, compared to roughly six times in 1990.

This inequality is not down to the Modi government alone. Previous Congress-led governments perpetuated this inequality too – indeed, under the corrupt Gandhi dynasty, made it worse. That’s why the BJP is probably going to stay in power if with a reduced number of seats.

The real problem for Indian capitalism is the falling profitability of its business sector. The rate of profit is high by international standards, like many ‘emerging economies that have masses of cheap labour brought in from rural areas. But, over the decades, rising investment in capital equipment relative to labour has started to create a reserve army of labour alongside falling profitability.

Indian capital’s profitability had been falling steadily (if from a high ‘emerging market’ level) even before the global economic slump started. It has fallen further since and is now some 20% below levels in the 1980s. The boom double-digit growth years of the early 2000s, when all the talk was about India’s software outsourcing industry and new auto companies, seem unlikely to return without drastic reductions in the share of value going to labour.

Source: Extended Penn World tables and Penn World Tables 9.0, author’s calculations.

The answer for Indian capital and endorsed by Modi is privatisation, cuts in food and fuel subsidies and a new sales tax, a tax that is the most regressive way to get revenue as it hits the poor the most. The aim here, as it always is with neoliberal economic policy, is to raise the rate of exploitation of labour so that the profitability of capital is boosted and thus provide an incentive to invest, something Indian capital is refusing to do right now.

Just as in 2014, India’s electorate are faced with a choice between a corrupt, family-run party backed by big business and landholder interests and an extreme nationalist party (with increasing backing from big business and foreign investors). For the moment, Modi wins their vote (just).