The preamble to the Constitution of India affirms the solemn resolve of its people to found a ‘socialist, secular, democratic republic’.footnote1 Today, on the 75th anniversary of the country’s Independence, it is plainly neither socialist nor secular—nor, one could well argue, democratic. Indeed, contrary to journalistic wisdom, India has never been ‘socialist’, unless one confuses the term with statism. The concept of secularism is contested, but if we use the political theorist Rajeev Bhargava’s thoughtful interpretation of it as entailing a ‘principled distance’ between religion and the state, then it certainly does not exist in India any more, going by the practice and utterings of its current leaders.footnote2 India’s democratic institutions have been on the decline for decades, but this has accelerated so much in the last few years that Sweden’s V-Dem Institute has authoritatively described it as an electoral autocracy.footnote3 In a negative sense this helps to define some key aspects of the ‘new’ India.
What follows will reflect on broad trends in India’s political economy over the last few decades. The aim is not to provide a detailed blow-by-blow account, nor an exhaustive or quantitative analysis of what has happened in this vast heterogeneous country. Instead I want to paint a broad-brush picture of the obstacles to India’s economic development and the respects in which these represent failures on the part of its state. I go on to analyse India’s ‘governance effectiveness’ in terms of three factors: public resources, state capacity and the centralized federal structure, with the concomitant weakness of regional and local government. I then examine the performance of the private economy, focusing first on the aborted structural transition that lies behind India’s politically explosive failure to create productive jobs for its bulging youth population and the general weakening of the bargaining power of labour, before going on to explore the ways in which the inequalities and concentrations of the Indian economy foster a conclave economy and a crony-oligarchic capitalism of an increasingly Latin American kind. Finally, I discuss how this is legitimated through a mixture of limited welfare measures for the poor and a majoritarian nationalism that sustains itself by stifling the democratic process.
Since many may find this diagnosis rather grim, let me state right away that India has unquestionably made tremendous strides since Independence in income, life expectancy, literacy, transport, road networks, communications and other aspects of economic integration; there is no doubting the vibrancy of private entrepreneurship and technological advance—notably the digitalization of the national identification and payment systems—or the general social awakening and upward trends in other socio-economic indicators. The disappointments are mostly with regard to India’s unrealized potential, all the more striking in comparison to some other developing countries. By conventional measures, economic performance was notably buoyant in the early 2000s. Although the 2010s were largely disappointing, growth fundamentals are still potentially strong: the majority of the population is relatively young, there is a vigorous entrepreneurial spirit in all corners of the economy and there has been a remarkably fast spread of connectivity through roads, mobile phones and digital technology.
But major structural and institutional problems are blocking the full realization of these growth fundamentals. Focusing on long-term issues, rather than the immediate overwhelming problems caused by the pandemic, for example, we could single out the following.
Infrastructure. The Indian economy has suffered from a substantial infrastructural deficit—railways, roads, power, irrigation, ports, airports; now broadband connectivity, etc—for many decades. There have been creeping improvements but nowhere near what is needed for a sturdy growth process in the economy as a whole, and nothing compared to China’s dazzling achievements in this field. Logistics problems and creaking infrastructure keep Indian goods uncompetitive in world markets. Public budgets have long been so laden with subsidies, salaries and debt servicing that relatively little is left for investment in infrastructure.footnote4 Most tellingly, the central government’s fiscal deficit is overwhelmingly a revenue deficit (some 70 per cent), another indicator of its shrunk capacity for public investment. For a time, this deficiency of public funds for infrastructure was supplemented by public-private partnerships (ppps). But, as elsewhere, these were often saddled with problems of mismanagement, high debt-equity ratios, regulatory capture, opportunistic renegotiation, non-transparent regulations, corruption and cronyism, leaving a mountain of bad loans on the books of public banks, often underwritten by an unholy nexus between defaulters, bankers and politicians. Yet ppps are still very important for India’s roads and ports, and the private sector now owns almost all the country’s renewable-energy capacity and about 40 per cent of its thermal power, although the financing depends more on the banks than on the capital markets.
Education and vocational training. Although secondary education is a minimum qualification for many good non-farm jobs, the children from poor families overwhelmingly drop out before entering or completing secondary school, on account of economic and—particularly in the case of girls—social compulsions. (The pandemic did enormous damage to human-capital formation on top of this, which has not received the necessary remedial action.) The quality of school and college education remains low, and is not sufficient even for some manual jobs. The provisions for vocational training and skill formation are extremely deficient, particularly for rural and small-town youths—not to mention the lack of projects to provide them with viable connections to potential employers. In a so-called ‘labour-surplus’ country, there is now a serious shortage of employable labour in many factories and enterprises.
Health and sanitation. As the pandemic has made disastrously clear, there has been a major, long-standing social and organizational failure in matters of public health and sanitation, where India lags behind many African countries. There has been an energetic campaign to build more toilets in recent years; but the problem of their underutilization, and the puzzle of their scant impact on public-health issues, such as child stunting, have not been resolved. These failures keep India’s disease burden high and productivity correspondingly low.