Modi’s austerity appeals are a misplaced solution for India’s economic woes

Prime Minister Narendra Modi’s seven-point austerity appeal to citizens on Sunday has revived an old question: apart from budgets and policies, can governments steer economies by also shaping public behaviour and collective psychology?

Indians were urged to revive work-from-home practices to reduce fuel consumption, avoid unnecessary foreign travel and destination weddings abroad, postpone gold purchases, use public transport and electric vehicles, reduce edible oil consumption, support locally made products, and adopt farming practices that are less fertiliser-intensive.

There is an obvious economic rationale behind these suggestions. India faces a difficult global environment marked by geopolitical instability in West Asia, volatile crude oil prices, supply-chain disruptions and growing pressures on trade balances and foreign exchange reserves.

Yet these appeals are about more than conservation. They are an attempt to invoke economic patriotism: the idea that citizens can contribute to national economic resilience through voluntary changes in everyday behaviour.

History offers several examples. During the Second World War, Britain introduced rationing in 1940, covering essentials ranging from fuel to food, and sustained many of those controls well into the mid-1950s. In the United States, “Buy American” campaigns intensified during periods of industrial slowdown and external competition, particularly during the 1970s and 1980s.

South Korea, during the Asian financial crisis of 1997-’98, launched its famous national gold collection campaign in which citizens donated jewellery and household gold to help stabilise the country’s foreign exchange reserves.

India itself witnessed the Swadeshi movement during the freedom struggle, where economic choices became political acts tied to national self-reliance.

Governments often turn to behavioral mobilisation during moments of economic uncertainty. But such mobilisation works best when it is accompanied by public confidence, institutional credibility and a sense of shared sacrifice.

Economics of confidence

While economic patriotism seeks to mobilise sacrifice during difficult times, Keynesian economics reminds us that caution alone falls short. Economies are also sustained by confidence, trust, optimism and the willingness of individuals and businesses to act despite uncertainty.

Economist John Maynard Keynes famously described these psychological impulses as “animal spirits” He used the phrase to describe the emotions, instincts, confidence, fears, and psychological impulses that shape economic behavior.

Contrary to classical economics, which assumed that individuals are largely rational calculators, Keynes argued that investment, spending, and economic decisions are frequently driven by moods, expectations, stories and gut instinct.

Decades later, Nobel laureates George Akerlof and Robert Shiller revived this idea in their influential book, Animal Spirits. They argued that confidence, fairness, trust, corruption, and public narratives are central to understanding how modern capitalist economies function. Economies rise and fall not merely because of fiscal deficits or interest rates, but because collective confidence expands or contracts.

Seen through this lens, Modi’s appeals are psychological interventions to encourage behavioral coordination during a period of uncertainty. But can economic patriotism succeed if the broader climate of confidence and fairness itself appears fragile?

The limits of sacrifice

Aside from inflationary concerns, India’s economic climate also faces deeper uncertainties of employment, household purchasing power, private investment and opportunities.

India’s current account deficit widened to nearly $13.2 billion in late 2025, amid US tariffs and the decline in the value of the rupee. At the same time, growth projections, while still relatively strong by global standards, have moderated amid concerns about external demand, global trade fragmentation and geopolitical tensions.

More significantly, Modi’s appeals arrive at a moment when the gap between the rich and poor in India is increasingly stark. Recent inequality assessments suggest that the richest 1% of Indians control more than 40% of the country’s wealth, while the bottom 50% own barely 3%. Oxfam has repeatedly highlighted how wealth concentration has accelerated sharply over the last decade even as large sections continue to struggle with healthcare costs, insecure employment and stagnant incomes.

Behavioral economics repeatedly demonstrates that people cooperate more readily when sacrifices appear fairly distributed. Citizens are often willing to embrace restraint during difficult periods, but participation depends heavily on whether institutions themselves appear prudent, equitable and forward-looking. That is where the present discourse becomes more complicated.

Even before the crisis in West Asia began, there were opportunities to cushion the economic impact on households. Fuel prices have remained elevated despite periods that permitted some relief. Oil marketing companies reported substantial profits during certain phases, only to speak of mounting losses later. Questions naturally arise as to whether earlier interventions could have mitigated some of the present pressures.

Similarly, if the nation is now being called upon to embrace restraint, shouldn’t the austerity also extend to the visibly more affluent sections of society? Appeals to reduce foreign travel, luxury consumption or non-essential imports resonate more strongly when citizens perceive that economic burdens are being shared rather than selectively moralised.

Many of the suggestions are prudent in themselves. But the larger issue is whether behavioral appeals alone can substitute for deeper structural preparedness and credible long-term economic management.

Governments, Keynes believed, must sometimes intervene in markets, but also in moods. Yet such interventions succeed only when confidence itself is nurtured through credible policy action.

India today perhaps requires more than merely appeals for restraint: renewed confidence in economic direction and institutional foresight. Economies cannot conserve their way into optimism. Investment, entrepreneurship, and consumption ultimately depend on whether citizens and businesses feel secure enough about the future to act.

The debate triggered by Modi’s appeals concerns the evolving relationship between citizens, markets, and the state. Increasingly, governments across the world are attempting to convert economic behaviour into civic behaviour, where consumption choices are much more than private decisions but acts that have national consequences.

Modern economies are deeply interconnected, and collective behavioral shifts can indeed influence macroeconomic outcomes. Yet behavioral mobilisation cannot permanently compensate for weak confidence, delayed responses or widening perceptions of inequality.

Keynes understood long ago that economies move in numbers, but also narratives. Governments may legitimately ask citizens for restraint during turbulent times. But enduring economic resilience emerges only when sacrifice is matched by trust, fairness, and confidence in the direction of economic policy itself.

Freddy Thomas teaches Economic Analysis of Law at the School of Law, Christ University, Bengaluru, and writes on the intersection of law, economics and public policy.