At first glance, it is a seemingly inconsequential development from the point of view of India's faltering economy. But on a closer look, it is not. The Economist Intelligence Unit, a part of the UK-based Economist Group, has said India slipped 10 places to 51st spot in the 2019 Democracy Index's global ranking. The reason cited is the erosion of civil liberties in Asia's third-largest economy. The rankings factor in electoral process and pluralism, the functioning of government, political participation, political culture, and civil liberties and is indicative of how one country is performing as a democracy. India was among the laggards in 2019.
The Economist list came just hours after the International Monetary Fund (IMF) cut India's 2019 GDP growth sharply and cautioned on the rising social unrest. These signals aren't good for India, which desperately needs foreign investments to support its collapsing growth. Investors are always wary to put money on the table in a market where there is social instability. Read this in the context of ongoing nationwide protests in the country against a controversial Citizenship Amendment Act (CAA), the internet lockdown in Jammu and Kashmir, and a few other places, the arrests, and detention of activists and the deaths. Reportedly some 26 people have been killed across India in the anti-CAA protests so far.
In an interview to NDTV, IMF's chief economist Gita Gopinath stressed that social cohesion is very important in the world. The Fund is keeping an eye on the ongoing anti-CAA protests and will make an assessment by April. That comment comes at a time when India is not on the right side of IMF's global GDP growth chart. It has predicted India to grow at 4.8 percent in 2019 and has blamed the country for the biggest drag on the world economy with its much lower-than-expected GDP numbers.
The present state of once the fastest-growing major economy in the world is worrying. A slowing economy has impacted all stakeholders"consumer demand has plummeted, the flow of bank credit to industries has reduced, there is a notable rise in bad assets of banks even after a massive clean-up exercise, the BJP-led National Democratic Alliance government is in a tight fiscal spot. The government doesn't have enough money to continue high spending due to a significant revenue shortfall, but without that, growth will suffer further. Private investments have slowed to a trickle putting the entire burden to shoulder the economic growth on the government. The government is also under an obligation not to deviate from the fiscal red line.
Unemployment among educated, skilled youth is on the rise. According to the Centre for Monitoring Indian Economy, unemployment rose to 7.5 percent during September-December 2019 and, even worse, among educated youth in case of educated youth, by over 60 percent.
The bitter standoff between the Narendra Modi-government and protesters thronging streets of Indian cities on CAA is more visible now. The Union home minister, Amit Shah has challenged the protesters saying the government won't go back on CAA.
India shouldn't let the social upheaval to continue forever jeopardizing its economic prospects further. That will be highly counter-productive for a much-needed economic recovery. Every blow on India's hard-won democracy has a corresponding impact on it's economy as well. Given the state of the economy today, that is an expensive proposition for its fund-starved government.