Who Reaps the Benefits of India’s Growth?

India now ranks as the world's fifth largest economy, boasting an impressive annual growth rate of around 7 percent, one of the highest globally. However, this trajectory contrasts sharply with the country's past economic struggles. When India gained independence, it found itself lagging in economic development, a situation that persisted for decades.

The policies established by the nation's founding leaders, notably the first Prime Minister, Jawaharlal Nehru, failed to foster growth or economic equity. These policies poured resources into an overbearing state apparatus, heavily regulated industries, and restricted India's involvement in the global market. In the 1980s, India's economic situation deteriorated catastrophically with a severe fiscal crisis.

In response to this dire situation, policymakers were left with limited options and were eventually compelled to adopt market-oriented reforms. These gradual adjustments eventually propelled the nation onto a course of sustained economic expansion. It's worth noting, however, that while this growth has contributed to reducing endemic poverty, it has also exacerbated income inequality.

Despite these mixed economic conditions, India continues to demonstrate resilience, maintaining a robust growth rate even amidst challenges such as the Iran war and trade uncertainties under President Donald Trump's administration. The country is now also grappling with joblessness resulting from this economic expansion, as evidenced by the recent Cockroach movement protests.

Scholars have long sought to analyze India's developmental journey, explaining both the successes and failures. Among the most comprehensive works on this subject is Devesh Kapur and Arvind Subramanian's new book, "A Sixth of Humanity: Independent India's Development Odyssey." This book, recently republished, provides a meticulous examination of India's economic policies, offering invaluable insights into the nation's achievements and ongoing challenges.

Kapur, a political scientist, and Subramanian, an economist, offer a lucid, persuasive, and intellectually rigorous account of India's developmental odyssey. Specifically, they challenge the widely accepted notion that India pursued a strategy of import-substitution industrialization (ISI), a policy that would have involved imposing high tariffs to shield domestic industries.

According to the authors, India's actual policies stifled foreign competition, fostered a bloated public sector, and stifled potential private sector growth. The public sector was found to be highly inefficient and loss-making, while private investment remained limited, negatively impacting both efficiency and innovation. This contradicts the conventional view that India followed a full-fledged ISI strategy.

Additionally, the authors argue that supporters of India's early economic strategy often overlooked that the nation's growth performance was inferior to Britain's rule. Between 1950 and 1980, nearly 60 percent of India's population remained in poverty, largely due to a regulatory environment that discouraged entrepreneurship and innovation, and welfare measures that primarily benefited a small, privileged class within the organized sector.

Those in the informal sector, such as daily wage earners in agriculture and construction, were largely left out of these benefits. Interestingly, India's early democratization, a period characterized by growing political freedom, turned out to have negative fiscal implications. During the late 1960s, as the Congress party lost its grip, the government's fiscal policies became increasingly strained.