In his third term as Prime Minister, Narendra Modi faces the challenge of tackling India's persistent jobs crisis and addressing rural distress, as his coalition government prepares to present its first federal budget following a narrow election victory. With a focus on economic prosperity for the masses, Modi is expected to introduce spending policies that prioritize the rural majority, who have not reaped the benefits of the country's rapid economic growth.

Modi's previous terms have seen significant investments in state-funded infrastructure, including the construction of sea bridges and expressways, as well as tax cuts for large corporations. Additionally, subsidy schemes were launched to incentivize export-focused manufacturing. These measures stabilized the macro economy and contributed to the rise of India's stock markets. However, they failed to effectively alleviate inequality and rural distress, which have both seen a significant increase.

A majority of Indians, over 60%, are engaged in agriculture and allied activities. However, wages have stagnated, household savings have dropped, and well-paying jobs remain elusive for most. Moreover, India's regional imbalances are stark, with per capita incomes in the northern and eastern parts of the country lower than those in Nepal, and health indicators worse than in Burkina Faso.

The magnitude of the joblessness issue cannot be downplayed, as nine out of ten economists identify it as the biggest challenge facing Modi's government. A post-election survey revealed that seven out of ten Indians support taxing the super-rich and eight out of ten economists believe that economic growth has not been inclusive.

The implications of the jobs crisis and rural distress can be witnessed in rural areas such as Muzaffarnagar in Uttar Pradesh, where the agricultural economy has been in decline. Farmers like Sushil Pal have been hit hard, seeing their incomes decrease while input and labor costs rise. The promise made by Modi to double farm incomes has remained unfulfilled, exacerbating the struggles faced by rural communities.

Furthermore, the impact of rural distress is felt beyond the agricultural sector. Micro-enterprises, which form the backbone of India's economy, have been severely affected, with an estimated 6.3 million enterprises shutting down between 2015 and 2023, resulting in the loss of 16 million informal jobs. In contrast, profits reported by listed companies have risen significantly.

As Modi embarks on his third term, bridging the gap between the formal and informal sectors of the economy and bringing prosperity to rural areas will prove to be the biggest challenges. The upcoming budget is expected to tilt towards welfare-driven policies with a focus on the rural economy and job creation.

Economists suggest that a larger-than-expected dividend transfer from the central bank will enable the government to boost welfare spending while maintaining capital expenditure on infrastructure projects. Rajesh Saluja, CEO and Managing Director of ASK Private Wealth, believes poverty reduction can be achieved without upsetting the fiscal balance.

However, economists caution that cash handouts alone will not suffice. Real reform-led development and policies that allow for the coexistence of both formal and informal sectors are necessary to generate sustainable employment and create earning potential. Incentivizing low-end, labor-intensive manufacturing in sectors such as textiles and agri-food processing could also help address India's domestic demand.

Modi's post-election budget must provide a vision for how the government plans to empower millions of Indians to enter the workforce and improve their economic prospects. By focusing on producing goods that cater to the needs of the country's majority population, Modi aims to boost manufacturing and prevent the leakage of import demand to other countries.

As India grapples with deep-rooted economic challenges, the success of Modi's economic agenda in his third term will be closely watched, with hopes high for meaningful reform that benefits the country's rural majority and tackles the ongoing jobs crisis.