Indian Economic Policymaking When the Bottom Half Stagnates: A Comparison with the Previous Regime.....

Introduction  

The central question for judging Indian economic policy should not be whether GDP has grown rapidly, stock markets have risen, corporate profits have expanded, or India has become one of the world’s largest economies. The harder question is whether economic growth has translated into sustained improvements in the purchasing power, employment security and incomes of ordinary households. On this test, the last twelve years present a mixed and uncomfortable picture. India has achieved substantial macroeconomic expansion, infrastructure investment, digitalisation, financial inclusion and formalisation, yet the evidence on wages shows that the benefits have not translated proportionately into higher real earnings for many workers. The International Labour Organization’s India Employment Report 2024 found that average real monthly earnings of regular salaried workers fell from about ₹12,100 in 2012 to ₹10,925 in 2022, while self-employed real earnings also weakened and casual workers experienced only modest real growth. This does not prove that every person in the bottom 50% became poorer, because India lacks a continuous, comprehensive annual household-income series capable of measuring the real income of precisely the bottom half. But it does establish a serious policy problem: aggregate growth has not automatically produced broad-based growth in labour incomes.

 

The Starting Point: What Happened Under the Previous Regime?  

The comparison with the United Progressive Alliance period is important because the present wage problem did not originate entirely after 2014. Between roughly 2004-05 and 2011-12, India experienced exceptionally strong growth in employment, wages and poverty reduction. The ILO reported that average real daily wages roughly doubled between 1993-94 and 2011-12, with particularly strong improvements among rural, casual and lower-paid workers. Economic growth averaged around 7.7% annually during the UPA’s ten-year period, although inflation became a major problem during its later years. The distinction is therefore not that the earlier regime produced perfect inclusive growth while the later regime produced inequality. Rather, the evidence suggests that the earlier high-growth phase generated a stronger rise in real labour earnings, particularly before 2011-12, whereas the post-2014 period has struggled to reproduce that wage momentum. The previous regime consequently deserves criticism for inflation, inadequate infrastructure, fiscal weaknesses and policy paralysis in its later years, but its record cannot simply be dismissed when evaluating the distribution of economic growth.

 

The Post-2014 Growth Model  

Since 2014, Indian policymaking has placed considerable emphasis on macroeconomic stability, infrastructure, formalisation, manufacturing, digital payments, financial inclusion, public capital expenditure and supply-side reforms. These policies have generated important gains: inflation targeting strengthened monetary credibility, GST created a more unified indirect-tax system, insolvency reform improved the framework for resolving stressed assets, public infrastructure investment expanded, and digital public infrastructure dramatically reduced transaction costs. The problem is that these achievements do not automatically create high-paying employment. An economy can become more productive, formal and capital-intensive while the bargaining power of low- and middle-skilled workers remains weak. Indeed, the ILO data show the contradiction particularly clearly: regular salaried workers’ real monthly earnings declined from ₹12,100 in 2012 to ₹10,925 in 2022, while the real earnings of casual workers rose from ₹3,701 to ₹4,712. The result is not an absence of economic progress but a weak transmission mechanism between productivity, investment and household purchasing power.

 

The Bottom Half and the Income Distribution  

The distribution of national income makes the problem more serious. World Inequality Database estimates for 2022-23 suggest that the bottom 50% received approximately 15% of national income, compared with about 57.7% for the top 10% and 22.6% for the top 1%. These figures are estimates rather than household-survey measurements and therefore should not be treated as perfectly precise. Nevertheless, they illustrate the extraordinary concentration of income at the upper end. A rapidly expanding economy can simultaneously make millions of people better off while becoming more unequal if the income of the richest groups grows much faster than that of ordinary workers. The relevant criticism of policymaking is therefore not that India’s GDP growth is fictitious, but that the distributional elasticity of growth has been inadequate: too little of each additional unit of national output has translated into stronger labour income for those near the bottom.

 

Real Wages: The Most Important Warning Signal  

Real wages matter because nominal wage increases can be misleading. If a worker’s salary rises by 6% while the cost of living rises by 6%, purchasing power has not improved. The ILO’s findings are especially significant because they adjust earnings for inflation. Between 2012 and 2022, real monthly earnings of regular salaried workers declined by roughly 10%, from ₹12,100 to ₹10,925. Real self-employed earnings also weakened, while casual workers recorded an increase of roughly 27% over the decade. But even this improvement must be interpreted cautiously: casual workers began from extremely low earnings, and casual employment itself represents insecurity rather than economic security. A worker moving from ₹3,701 to ₹4,712 in real monthly earnings is better off in purchasing-power terms, but remains economically vulnerable. Thus the wage evidence points toward a structural problem rather than simply a temporary downturn: India has created employment, but not enough employment capable of generating sustained improvements in household living standards.

 

Why Has Growth Not Produced Stronger Wages?  

Several explanations compete. India’s labour supply remains enormous, particularly among workers with limited skills, allowing employers to restrain wage increases. Manufacturing has not absorbed labour on the scale required for a structural transformation comparable with East Asia. Agriculture continues to employ a large share of workers relative to its contribution to GDP. Informal and self-employment remain widespread, while small enterprises frequently operate with limited productivity and thin profit margins. The COVID-19 shock further damaged employment and household balance sheets. At the same time, technological change, automation and capital-intensive investment can raise output without generating equivalent demand for lowskilled labour. Consequently, GDP growth alone cannot solve the wage problem. What matters is the composition of growth: whether investment creates labour-intensive factories, construction, logistics, tourism, modern agriculture and tradable services capable of employing millions at progressively higher wages.

 

Inflation, Food Prices and the Cost-of-Living Problem  

The bottom half is particularly vulnerable to inflation because poorer households spend a larger proportion of their income on food, fuel, housing, transport and other necessities. A four- or fivepercent average inflation rate therefore does not necessarily feel like four or five percent to every household. Food-price shocks can have a disproportionately large effect on purchasing power. India’s monetary policy framework, with a 4% inflation target and a tolerance band of 2–6%, has helped establish greater macroeconomic stability than the high-inflation episodes associated with the later UPA years. Yet price stability alone is insufficient. If nominal wages grow slowly while food, rent, education, healthcare and transport costs rise, households can experience declining welfare even when headline CPI inflation appears moderate. Economic policymaking therefore needs to focus on the composition of inflation as well as its aggregate rate.

 

Comparing Employment Performance  

Employment provides perhaps the strongest distinction between headline economic success and household experience. India’s labour-force participation and worker-population ratios have improved in recent years, particularly after the pandemic, but the quality of employment remains contested. The Economic Survey’s recent data show nominal earnings rising substantially between 2018-19 and 2023-24: average monthly earnings of regular workers rose from about ₹15,885 to ₹20,702, while self-employed earnings increased from ₹10,323 to ₹13,279. Yet nominal increases must be deflated by inflation before concluding that living standards have improved proportionately. Moreover, the enormous expansion of self-employment can represent both entrepreneurship and disguised labour-market distress. A street vendor, unpaid family worker or low-productivity own-account worker is technically employed, but that employment may not provide the same economic security as a productive salaried job.

 

What Should Be Criticised in Policymaking?  

The strongest criticism is therefore not that the government has done nothing, but that its economic strategy has been insufficiently centred on labour-income growth. Public investment can crowd in private investment, but the transmission from infrastructure to household wages takes time and is not automatic. Tax reform can improve efficiency, but small businesses can initially face adjustment costs. Labour-market reform can encourage investment, but worker protection and bargaining power remain essential. Corporate tax reductions may improve investment incentives, but they do not guarantee that firms will distribute productivity gains through wages. Similarly, welfare transfers can prevent poverty but cannot substitute permanently for productive employment. The policy failure, if real wages for large sections have stagnated, is therefore one of economic composition: too much emphasis on aggregate supply and investment without an equally powerful strategy for raising labour productivity, employment intensity and workers’ share of productivity gains.

 

Was the UPA Better?  

The answer is neither an unconditional yes nor an unconditional no. The UPA’s strongest economic achievement was the acceleration of real wages and poverty reduction during its highgrowth years, particularly between the mid-2000s and 2011-12. Its weaknesses included persistent inflation, weak infrastructure in several areas, fiscal deterioration, banking-sector stress and later investment paralysis. The NDA period has arguably performed better on infrastructure, digitalisation, formalisation, macroeconomic credibility and public-capital expenditure, while the UPA period appears stronger on the growth of real wages during its best years. The crucial difference is that neither record provides a complete model of inclusive growth. The UPA demonstrated that rapid GDP growth can produce strong improvements in labour incomes, but failed to maintain macroeconomic stability and investment momentum. The NDA has demonstrated stronger macroeconomic and infrastructure management but has faced a more difficult challenge in converting growth into broad-based wage growth.

 

Conclusion: The Real Test of Indian Growth  

India’s economic performance over the last twelve years should therefore be judged neither through political slogans nor through a single GDP number. If the bottom half of the population has experienced stagnant or declining real incomes while corporate profits, asset prices and the incomes of the richest households have risen much faster, policymakers have a legitimate distributional problem to solve. At the same time, the evidence does not justify the simplistic claim that all poor Indians are poorer than in 2014. Welfare schemes, food support, electrification, housing, financial inclusion, higher labour-force participation and rising casual earnings have produced genuine gains. The more defensible conclusion is that India has experienced substantial economic growth without sufficiently broad-based growth in secure, high-productivity labour incomes. The previous regime should be criticised for inflation and institutional weaknesses, but the present regime should equally be criticised if twelve years of investment, reform and high aggregate growth have not generated stronger real wages for ordinary workers. The next phase of Indian economic policy must therefore move beyond the question of how fast GDP grows to the more consequential question of how rapidly productivity, employment quality and real incomes rise for the bottom half. That is the real measure of inclusive development.