Modi government taking India into middle-income trap, income inequality has worsened: Congress ahead of union budget

Former Finance Minister P Chidambaram, who released report 'Real State of the Economy 2025: What happened to growth?' at a press conference here, said there is huge inequality, the gap between the rich and the poor is growing, and government has done nothing to address this inequality.

"The economy is in a slowdown, that cannot be denied at all. The second important factor is- there are no jobs, youth employment is perhaps close to 40 per cent. Among graduates', unemployment rate is close to 30 per cent. There are no jobs, despite the letters handed over from time-to-time by the Prime Minister, the jobs are not being created, those letters of appointment are filling jobs already vacant, they are not creating jobs," he said.

"The third is, wages are stagnated for four or five years, especially rural wages, agricultural wages, daily worker's wages are stagnated for four or five years, in the meanwhile inflation is raging. Look at food inflation, education inflation and healthcare inflation, all are in double digits. Food, education and healthcare inflation are in double digits. While, inflation has been raging for two or three years and in many cases in double digit inflation, yet the wages have stagnated. And finally, there is huge inequality," he added.

Chidambaram accused the government of reducing expenditure on health, education; both higher education and school education, social welfare, and rural development. The report came two days before the union budget.

"India's GDP growth for 2024-25, as per government data, is expected to be 6.4 per cent, as against 8.2 per cent growth of 2023-24. This rate of growth is not a cause for celebration. If India is to encash its historic demographic dividend, sustained GDP growth of at least 8 per cent is necessary. Unfortunately, over the last few years India has consistently failed to achieve these targets," the report said.

The report said that GDP growth in the 6 per cent range is insufficient to create jobs for our growing youth population, especially when rapid technological change is disrupting the future of jobs.

"It will keep India stuck in a state of high inequality, where two-thirds of our population remain dependent on free grains from the government, while the Prime Minister's favoured few accumulate wealth rapidly. Such economic underperformance robs millions of the Constitution's promise of a more just, prosperous, and equal future," the report said.

"But the Modi government appears focused on enriching his coterie of corporate supporters. In 2019, it announced a massive tax cut for corporations, but the private sector has not stepped-up investment in return. Common people and small businesses continue to be burdened with punitive taxes on fuel and an extractive Goods and Services Tax regime," it added.

The report said that unplanned COVID-19 lockdown, the harshest in the world, brought the economy to a standstill.

"The following years, some unequal recovery ensued but that too is tapering off. In every corner of the country, families, workers, farmers, and businesses are feeling the weight of the government's failure to deliver on its core commitments and poll promises. The first step toward fixing the economy is to acknowledge what is going wrong. Instead, the government has consistently discredited unfavourable data and stayed in a state of denial," it said.

The Congress said that jobs, the cornerstone of Prime Minister Modi's pitch to the youth, are nowhere to be found. Indian youth continue to struggle due to lack of gainful employment. Factories have shut down, small businesses are struggling to survive, and the dreams of an entire generation have been crushed. "The Modi government's abject failure to address India's unemployment crisis has left the country reeling under the weight of broken promises and economic mismanagement," the report said.

It said youth unemployment stood at a staggering 45.4% in 2022-23 and practically every second young person is jobless.

"Joblessness is particularly high among the educated youth. Graduates face a 29.1 per cent unemployment rate. There has been serial job destruction in the formal sector. The share of manufacturing in the workforce has declined from 12.6 per cent in 2011-12 to just 11.4 per cent in 2023-24. More people are moving back to farms when they should be working in the factories. For the first time in decades, the share of workers engaged in agriculture has increased, rising from 42.5 per cent in 2018-19 to 46.1 per cent in 2023-24," the report said.

"Due to lack of quality job creation, over over half of men and two thirds of women are now self-employed, typically in low-productivity and low-income jobs. Job growth in the non-farm sector has dropped from a high of 75 lakh per year under the UPA to just 29 lakh per year under the Modi government," it added.

The report said the estimated GDP growth of 6.4 per cent is a sharp decline from the 8.2 per cent recorded the previous year, despite favourable conditions like a normal monsoon and no major external shocks. "This is the unmistakable result of a decade of economic mismanagement, and it spells disaster for the millions of Indians already struggling under mounting inequality.

"The decade of BJP rule has seen a fall in average growth to 6%, compared to the 7.6% average under the Congress-led UPA. India faces a "Middle Income Trap," with per capita income growing at a sluggish pace of just 4.52 per cent since 2014. The benefits of growth have been disproportionately captured by the richest, with the number of billionaires increasing to 200 and their wealth rising 41per cent in 2024 - while the vast majority of Indians grapple with stagnant incomes," the report said.

"Income inequality in India has worsened to levels unseen even under British rule, with the top one per cent controlling over 40 per cent of the nation's wealth. Meanwhile, one-third of Indians survive on less than Rs. 100 a day. Government debt (including states) has soared to an unsustainable 83 per cent of GDP, leaving future generations to cope with this heavy fiscal burden," it added.

The Congress said that from workers in agriculture and construction to salaried employees, incomes have remained stagnant or, in some cases, even declined.

"This stagnation, coupled with high taxes and poor policy decisions, has eroded household savings and crushed consumption, driving millions further into debt."

The Congress alleged that in the past decade, India's trade and investment performance has taken a devastating hit.

"India's export sector is at its weakest in years, while foreign investment is dwindling. Private investment has not picked up. The government's inability to address this economic malaise has put India on a path of stagnation."

The party alleged that Modi government has systematically dismantled the welfare state, leaving millions of citizens to fend for themselves. Social safety nets for the most vulnerable have been torn apart, with government schemes slashed, essential services gutted, and inequalities deepened.

The Congress said that India's agricultural sector, which employs nearly half the population, faces a deep crisis under the Modi government's economic mismanagement. Despite the workforce's heavy reliance on agriculture, its contribution to the economy has drastically shrunk, with growth falling from 4.7 per cent in 2022-23 to a mere 1.4 per cent in 2023-24 - the lowest in eight years.

The report said that Modi government's "economic policies have worsened inflation, eroded real incomes, and undermined the livelihoods of the Indian people."

"Inflation is eating away at purchasing power. Food costs have risen faster than incomes, leaving families with less for essential needs like healthcare and education."

Answering a query on the union budget, Chidambaram said he would call it Modi 2.1.

"I don't think there is a radical change from Modi 2. Unless they accept the realities of the Indian economy, they will continue to trudge on the same path which is what I fear, which is what I criticise, unless they change, their approach to growth and development, and they adjust their fiscal and monitory policies accordingly. I am afraid it will be more of the same, but I don't wish more of the same. I hope that they will change, but if they have not changed until yesterday, in their pronouncements there is barely 48 hours for them to change," he said.

Answering a question on Direct Tax Code, Chidambaram said direct taxes are a small part of the economy. "The number of people who pay income tax which is what the Direct Taxes Code is. The number of people who pay income tax is about 8 crore or so and out of them little over 5 crore file nil tax returns. So, the Direct Taxes Code really applies only to about 3 to 4 crore people. I welcome a Direct Taxes Code. We attempted, Pranab Mukherjee attempted, but it failed, fail because the BJP leaders in the Lok Sabha and the Rajya Sabha told me that they have no appetite for any more reform. This was in 2013-14," he said.

"The Direct Taxes Code could not have been passed without the opposition support at that time because the government did not have an absolute majority, the Congress didn't have an absolute majority in both houses. So, I will welcome the attempt to introduce a Direct Taxes Code, but if the Direct Taxes Code is going to be a similar exercise like the so-called IPC, CrPC, Indian Evidence Act, revisions, it's a waste of time because as you know 90 to 99 per cent of the old three laws were cut and pasted into the new law, if the present Income Tax Act is going to be cut and pasted 90 or 95 per cent it's a waste of time," he added.

The report has been brought out by the AICC Research Department headed by Prof MV Rajeev Gowda. (ANI)