Understand 'MODINOMICS'! Transformation Buffeted by Works in Progress!

Standout changes in India’s economic landscape visible over the last 10 years, but more pace and focus warranted in certain areas. The Processor Intelligence Unit offers a unique Economic Review.

Processor Intelligence Unit
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What is common among miracurall pill, the annihilin pistol, and the omniscope? These are cutting-edge innovations of Professor Trilokeshwar Shonku, a fictional Bengali scientist master film-maker Satyajit Ray portrayed in the 1960s in his extremely popular Professor Shonku stories. In the fiction of Prof Shonku, the world was in awe and spiteful of his innovations, his eccentric  genius showcasing lateral thinking founded on an indigenous knowledge system.

Six decades later, in the real world,  a far-reaching tech-tonic transformation, triggered by India, is poised to sweep the world.

UPI's Trailblazing Decade: A Technological, Financial, and Behavioral Revolution in India's Payment Landscape

The indigenously developed United Payments Interface (UPI) has brought about a momentous transformation in India’s payment landscape. This change is technological, regulatory, financial, and importantly, behavioural, involving hundreds of millions of people. The extent and sweep of this change has had no parallel in history, anywhere in the world.

A decade ago, India’s vibrant local markets were filled with people buying and selling goods with well-worn banknotes. Today, they are just as likely to use smartphones. UPI is now the default payment option for most Indians-- from small ticket purchases at roadside shops to settling utility bills to restaurant bills, to now IPO stock purchases and mutual fund payments.

For the record, in December 2023, total transactions valued at Rs 18.23 lakh crore took place through UPI. The monthly volume stood at 12.02 billion.

The convenience, ease and formalisation of UPI embodies a significant and rapid journey, from a time when withdrawing money from the bank was an hours-long expedition – write a cheque, take a token, get a physical verification of signature and account number, wait to be summoned to the teller, sign the cheque again, collect and count he money.

Things improved significantly, as ATM and debit cards came along, but then this still involved a visit to an ATM kiosk.

With UPI, all this has changed. Thousands of crores of rupees move across accounts at a click of a phone app through highly encrypted and secure gateways.

The edifice of this change has been infrastructure — “digital public infrastructure” (DPI), also called the India Stack, the superstructure on which welfare schemes, services, payments and products are delivered seamlessly in real time.

There’s no other tech stack in the world that has a prefix with a country’s name. India’s government has led the creation of a tech stack for the entire country— from identity to payments to other services, that has made this country a fintech pioneer in its own way.

This one innovation has easily been the most successful tech development in recent history.


Unraveling the Layers: A Decade of GST Transformations in India's Tax Landscape

While the India Stack has powered its aspiration to transition into a developed economy, some of the changes over the last ten years have been more structural.

Ten years ago, a usual bill in a restaurant had multiple components: food bill, service charge, VAT, and service tax.  This mirrored the untidy patchwork of India’s indirect tax structure, which was a gobbledygook of central excise duty, additional excise duty, duty levied under the Medicinal and Toiletries Preparation Act, service tax, countervailing duty, special additional duty of Customs, VAT, CST, entertainment tax, octroi, purchase tax, luxury tax, taxes on lottery, betting, gambling and cesses and surcharges, and sundry other levies.

The Goods and Services Tax (GST), has dramatically altered this by consolidating this web of levies into a single tax.

That said, seven- and-a-half years since it has been in place, GST continues to remain a work in progress.

A few pain points have been ironed out along the way, but many still remain.

The primary among the remaining issues is, of course, the multiple slabs. Multiple slabs ago against the conceptual construct of a uniform, unified, nation-wide tax system.

While multiple tax slabs continue to run against the GST’s definitional idea, it is the interpretation of rules by taxmen that have not only flummoxed many, but also raised major questions whether too much has been left open for unpredictability.

Take this as an example.

On March 10, 2022, the Haryana Appellate Authority for Advanced Ruling (AAAR), ruled in favour of levying a higher GST on pizza toppings, stating that a pizza topping isn’t pizza, its preparation method is different, and should therefore be categorised differently. This is a classic example that, effectively, shows that there are three different tax slabs not only for various parts of the pizza, but where it is made, bought or eaten.

A pizza made, bought and eaten in a restaurant attracts 5 per cent GST. However, if the pizza is delivered at home, it is considered a service and attracts 18 per cent GST. It gets even more complicated when the pizza is made at home. A pizza base will attract a 12 per cent GST, 18 per cent GST on the topping and 12 per cent on the rest of the ingredients such as sausages etc.

GST’s promise of a “Good and Simple” version continues to remain a goal not yet achieved.


India's Ascendance: From 'Fragile Five' to Global Economic Beacon

In the summer of 2013, a financial analyst at Morgan Stanley coined the term “Fragile Five” to represent emerging market economies that have become too dependent on unreliable foreign investment to finance their growth ambitions. The five members of the Fragile Five included Turkey, Brazil, India, South Africa and Indonesia.

In 2023, India moved up to become the world’s fifth largest economy, overtaking the United Kingdom, its former colonial rule. The symbolism is inescapable. It is on course to become the world’s third largest by the turn of this decade.

When, 10 years ago, Narendra Modi rode on to a landslide victory promising to usher the country on a path of rapid development, the results haven’t been disappointing.

  • The World Bank has projected that India’s real or inflation-adjusted GDP will grow at 6.3-6.5 per cent growth for the Indian economy during 2023 to 2026, ranking it among the top-tiers in the growth sweepstakes.
  • The USA is projected to grow 1.1 per cent in 2023, slowing to 0.8 per cent in 2024 before picking up to 2.3 per cent in 2025.
  • The Euro area, according to World Bank’s June projections, will grow 0.4 per cent this year, followed by 1.3 per cent in 2024 and 2.3 per cent in 2025. Japan’s growth will likely remain flat at 0.8 per cent this year, 0.7 per cent in 2024 and 0.6 per cent in 2025.
  • China's gross domestic product growth is now pegged at 4.4 per cent for 2024.

This, effectively, implies that the world will lean heavily on India to pull the global economy in an uncertain period.

India Growth

From Silver Screens to Sky High: A Decade of Changing Aspirations in India's Economic Landscape

The change, however, can be best gauged in how people’s lives and aspirations have changed, powered by spending ability and inter-generational upward mobility. Trends and stories in the film industry can serve as a useful marker to examine this.

In 2014, the best-selling film grossed about Rs 500 crore (Dhoom 3). In 2023, Jawan, the Shah Rukh Khan-starrer blockbuster, clocked more than Rs 1,100 crore.

A family’s movie-out is as much a function of recreation, as it is of spending ability. Movies grossing more money broadly means that more people are going to the theatres or logging on to OTTs. It is people’s money spent on entertainment and recreation that has been keeping the film industry’s cash counter ringing.

Family expenses on showbiz content and events mirror their growing discretionary spending ability, which is a function of rising income. People spend more on such getaways when they feel confident about the stability of their current and future incomes.

That’s true of expenses on creating assets too, such as houses. The key determinant of a family’s decision to buy a house is not as much as current income, but more about what it thinks about its future income.

Most houses, particularly in the urban areas, are bought on loans. A commitment to buy a house would imply that the family feels confident about its ability to fund it over a 10-15 year period. The home loan statistics can be a good marker to gauge this. Between 2014 and 2023, housing loans have grown 241 per cent—from Rs 5.4 lakh crore to Rs 18.4 lakh crore, clearly demonstrating greater current spending ability and the confidence about future income.


Another interesting way to measure changes is how people travel. The flight status display board at an airport today makes for a fascinating sight. Tier-2 towns and cities now clearly outnumber the metro and state capital destinations as more Indians are taking to the skies. The data reinforces this. The commercial fleet strength in India has gone up from 395 in 2014 to 714 in 2023, vaulting by nearly 81 per cent, as millions criss-cross across the country's firmament.

Anecdotally, there is now evidence that shows that mofussil towns are increasingly getting integrated into the formal money economy. The Indian equity market added around 15.69 million investors in 2023, with Uttar Pradesh leading the pack with 2.31 million, outgrowing Maharashtra. Maharashtra, however, retains the largest investor base at 14.9 million, while Uttar Pradesh and Gujarat come next with 8.9 million and 7.7 million investors.

The heartland is getting financially savvy. Digitisation of financial systems and deeper bank penetration is transforming people's savings behaviour, from locking up money in physical assets such as gold or stocking up cash, to more return-yielding financial assets. This is a socio-economic change that is, perhaps, telling a story of change.

Value of shares and debentures held by households jumped 1031 per cent during 2014-23—from Rs 18,930 crore to Rs 2,14,191 crore. Mutual funds’ assets under management has vaulted 378 per cent – from Rs 8,25,240 crore in 2014 to Rs 39,42,031 crore in 2023. Savings deposits have galloped from Rs 20,05,441 crore in 2014 to Rs 59,58,755 crore—soaring by 197 per cent.

A large part of this may have been driven by the PM Jan Dhan Yojana (PMJDY), the world’s largest financial inclusion scheme launched in 2014. In 2014, an estimated four out of 10 ten adults in India did not have a bank account. In January 2024, there were 51.50 crore PMJDY accounts, with Rs 215,803.17 crore lying in these accounts.

This bullishness is showing up in the market indices too. The Bombay Stock Exchange (BSE) market capitalisation has crossed USD 4 trillion recently, a nearly four-times climb from the levels of USD 1.1 trillion in 2014. The BSE Sensex has nearly tripled—from 24,000 levels in 2014 to more than 71,000 now.

If people are setting more in financial assets, it can serve as a reasonably good proxy to assume that people’s income levels, at the macro level, are rising.

Income is the main basis that influences a person’s decision to buy assets (such as houses and financial products), acquire means of comfort (such as cars), spend on children’s education, pay for health care and utilities such as telephone, power and transport, and to spend on recreational indulgences such as a vacation or eating out.

The headline macro numbers over the last ten years appear to corroborate this hypothesis. India’s gross domestic product (GDP), which is the sum total of everyone’s income or expenditure. For, one person’s spending is another person’s income. (Savings is income set aside or not spent).

India’s GDP at current prices has grown nearly three-and-a-half times—from Rs 1,12,36,635.0 crore in 2014 to Rs 2,72,40,712 crore in 2022-23, rising by 142 per cent. During this period, the average income of an Indian more than doubled or by 119 per cent. The annual per capita income—the level of income that an Indian on average earns in a year—grew from 89,821 crore in 2013-14 to Rs 1,96,983 crore in 2022-23.

flying high

Behind the Numbers: Navigating the Reality of India's Economic Progress Amidst Inflationary Challenges

The glow in these numbers, however, could be masking some economic discomfitures that should not be glossed over. A more appropriate way of measuring how much people’s well-being (measured purely by income levels) has progressed in the last 10 years, would be to test it against the “real” or inflation-adjusted values.

Tempered by inflation, India’s real per capita income growth has not really been sizzling, growing by a relatively modest 47 per cent from Rs 78,480 in 2014 to Rs 1,15,746 in 2023. True, people’s average earnings have more than doubled. But equally true that high prices have shaved about a third of these earnings growth.

The strongest markers are seen in household kitchen budgets. A kilo of rice now costs Rs 40 in Delhi, 38 per cent higher than 2014. Atta or wheat too have become costlier by 38 per cent, from Rs 21 a kg in 2014 to Rs 29 a kg now. The main fuel for food—subsidised LPG—has become costly by 46 per cent, from Rs 414 in 2014 to Rs 603 per cylinder now.

A kilo sugar now costs Rs 83, more than double of Rs 37 in 2014. Milk (22 per cent), mustard oil (42 per cent), tea (15 per cent), salt (53 per cent), onion (46 percent), and tomatoes (75 per cent), all have turned sharply dear, making the platter expensive.

This isn’t limited to food prices only. Tanking up your car pinches the wallet far more than ten years ago. Petrol and diesel now cost 35 per cent and 58 per cent more, respectively.

India’s foreign exchange reserves have surged from USD 292 billion in 2014 to more than USD 623 billion now. At the same time, paradoxically, the rupee has fallen from 62 to a US dollar in 2014 to more than 82 to a US dollar now.

This has made imported goods – from computers, to imported mobile phones, to gold, to imported fruits and chocolates, costlier. Overseas education and travel is now sharply more expensive than ten years ago. It has also made crude oil imports costlier, prompting oil companies to hike petrol and diesel prices.

A weaker rupee has played its part in fanning inflation. Elevated prices have also kept interest rates high as the Reserve Bank of India (RBI) continued its unrelenting focus to bottle up the inflation genie. For consumers, home loan EMIs have crept up significantly, offsetting gains from higher income and salary levels.

Roads to Progress: India's Infrastructure Surge Transforms Economic Landscape


In all of these, India’s infrastructure creation have become visible symbols of transformation. From the iconic trans-harbour road in Mumbai, to the Dhola-Sadiya bridge over the Brahmaputra, to the rapid drop in port turnaround times, ports, airports and highways have turned India’s image of a country with creaky roads to highway hotspots.

For too long India was identified for its crumbling roads. Not any longer. India is building highways and expressways that until not-to-long-ago many would have thought unthinkable.

Drive times out of Delhi have less than halved.

  • Delhi to Dehradun -- three-and-a-half hours
  • Delhi to Haridwar -- three hours
  • Delhi to Jaipur -- four hours
  • Delhi to Chandigarh -- four hours
  • Delhi to Amritsar — six hours
  • Delhi to Srinagar -- ten hours

It is similar in others parts of the country. These highways are acting as a powerful forceful multiplier for the broader economy, connecting the hinterland with the metropolises, dramatically cutting down logistics costs, and increasing India’s competitiveness.

  • An average of 36 kilometers of highways are built now in a day, four times the speed of nine kilometres in 2014.
  • The ship turnaround time in ports have also fallen from an average of 4.3 days in 2014 to 2.1 days now.

Such projects have spun jobs, with cascading benefits on intermediate industries, such as cement and steel as also triggering a cycle of private sector investment, or what economists sometimes describe as the “crowding in” phenomenon.

Over the last ten years, the Indian economy’s progress has been a tale of transformation, but work in progress in certain areas warrants more attention.

The world continues to remain engaged and interested in India, seeing it as a preferred destination for manufacturing and services. With continued political stability and a set policy direction, the transformation is expected to only get quicker and better.