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Economy

The democratic economic growth of the Indian economy

India’s economic development path has been in discussion lately, especially because of the fragile point the economy is at right now. Post-pandemic, the Indian economy has had trouble getting back to its feet because of the wounds that the crisis reaped open. There certainly have been some fundamental and structural cracks in the roots of the country’s development path, the pandemic just accelerated their opening up through a big timeline gap. 

While we sit along, listening to the ruling party claiming a V-shaped recovery and the critics arguing an L-shaped path, it cannot be denied that the country is in dire need of a paradigm shift. This paradigm shift is in reference to the promises that have been made during the electoral hitherto, be it a 5 trillion-dollar economy or a global manufacturing hub.

Even though competitive populism and electoral bluff go hand in hand in the country’s divisive democracy, we can all agree with the fact that what we’re looking for, in the Indian economy, is another economic transition. Even before the pandemic, the country’s growth was sharply decelerating, irrespective of the fact that the ruling government never really acknowledged it. 

This entire discussion, however, brings one to wonder if the country’s political system is the reason behind the position we’re in right now. This roots primarily from the development path of our Asian neighbour, China, whose growth path serves as a prime learning example for a lot of development scholars. 

Why are we linking a political system with economic growth, you ask? Well, the link between the two is much deeper than what meets the eye, for the former serves as a major basis for the latter. Let’s see how through an example of the authoritarian economy whose quick economic recovery gave astonishing data for the world to discuss and ponder upon- the Soviet Union. 

Goldman: Total Democratic Control of Washington Will Improve Economic Growth  | Chief Investment Officer

Post-colonial rule, the Indian economy during the Nehruvian era had set out on a unique path of planning through democratic processes. It was unique because the world examples that the country had to look forward to at the time were of those economies whose exemplary growth came in an authoritarian setting, like the Soviet Union, or of those whose primitive growth came through a state-controlled paradigm, like in advanced economies.

In addition, China’s dramatic growth over the years has brought about numerous discussions as to if, at least in the initial stages, authoritarianism is a better alternative for economic development than a democracy. 

The primary target of the post-colonial Indian economy was to increase overall income in an attempt to mitigate the poverty levels of the country.

Now, this increase in income comes on the back of investment. Well, as for the Soviets, the rapid growth that they got was through the indefinite investments they could holler into the economy. Why could the Soviets do it and not a country like India? 

Well, as mentioned, the Soviet Union’s approach was that of a “command economy”, where the investment could be decreed by planners and enforced by commissars, as explained by the economic laureate, Pulapre Balakrishnan. What this means is that the economy would never run out of money to re-invest because the authorities could always force it. 

In India, however, there was the ubiquitous private system that worked on profits and revenues, which means that investment was a result and a corollary of growth. If there wasn’t scope for surplus, the investment would get to a halt too. This is why a political system influences the growth strategy so much.

This establishes a clear link between how a political system affects the growth oath of a country. 

Now, there’s no denying the fact that democracy, especially the one that India has, has its flaws that hamper economic growth in the long run. To state a few of those reasons-

India’s society prides itself on its diversity and pluralism. However, such a divided society has a weak civic culture of pursuit of the general welfare, allowing electoral politics to breed competitive populism. This comes at the back of short-term welfare promises like the subsidies, and water-electricity price cuts offered to retain the interests of a small group of people, foregoing the broader-based benefits from public goods. 

Not only that, the distorted political system of India hinders the very selling point of democracy- the legislative process. In Indian democracy, however, this has taken the back foot, with the arena becoming a place for slogan mongering and furthering political agendas, with important bills being passed without much discussion and opposing parties taking matters down to the street.

With breeding space for consensual dissent provided by any democracy, protests and disagreements become even more viable, bringing in the space for economic and political drawbacks and hardships. 

However, despite all these flaws, it cannot be said that democracy doesn’t foster economic growth, or authoritarianism definitely does. So, to say, authoritarianism is neither necessary nor sufficient for economic growth, and world instances of various countries prove both the point. 

To see why authoritarianism is not necessary for economic growth, let us pose examples of the economies that have grown without the authoritarian political or management system, such as India.

India’s economic growth started with the very concept of “progress with consent” and has brought in unprecedented results with it, especially considering the effectively low base the colonial rule left for India to begin from. 

The two five-year plans, undertaken on the Nehru-Mahalanobis model, gave India its largest transition of the 20th century, as estimated by economists Hatekar and Dogre. This transition is now on statistical terms but in terms of absolute value changes in the growth sectors like agriculture, services and others, while slowly making the move towards the country’s effective democracy and profit-motivated public enterprise system. 

And well, if that isn’t enough to consider why authoritarianism isn’t necessary, note that China’s reforms of the 1980s came on the back of the communist party let go of control in the hands of private individuals. This was reflected in the “household responsibility system” in the agriculture sector, and a similar one in the non-agricultural sector. 

Industrial and commercial enterprises were handed over residual control, allow them to attain the benefit of increased production incentives. This was the mark of the evident shift from state control to the market systems, which even though began with a little revolt, ended with a complete shift towards it thanks to the success received in various sectors.

These examples are the epitome of explanation for the case stating authoritarianism as a non-necessary condition for economic growth. Recalling the advantages that a democratic political system can have on economic growth would just seem appropriate at the time. 

To state, however, why it is not sufficient, let’s look at the cases where an authoritarian rule could not guarantee the required success in terms of economic growth. While the world presents a number of such examples, Africa serves to be one of the most prominent ones of them.

With the lack of strong institutions and state capacity in Africa, experts argue that European colonial powers had no incentive to develop state structures to protect their colonies and create institutions that would lead to formidable states. Instead, they focused on institutions that facilitated the exploitation of natural resources and African labour.

This, by the very definition, is the opposite of economic growth, for it banked on any menial opportunities available for the country to embark on its development journey. 

Authoritarian regimes also emerge out of the economic foundations of states. A large Petro-state like Angola can survive by distributing its massive oil rents to secure the support of elites. But when oil wealth dwindles, it opens fissures because people cannot meet the expectations they have had from the state.

In return, the ruling elites become ever more authoritarian. These oil states, including Equatorial Guinea, Gabon, Nigeria, Republic of Congo, Cameroon, Cote d’Ivoire, and Sudan, often do not fully rely on taxes. Taxes would require accountability on the part of citizens. Nigeria, for example, used oil resources to strengthen its military capacity.

It became a regional hegemon, but it is also susceptible to prebendalism, the idea that political leaders have the right to use public property for private interests

The above discussion forms the very basis of our question, as it turns out, authoritarianism is neither nor sufficient for economic growth. It is believed through the cases of political systems different from that of authoritarianism and through the cases where authoritarianism has failed to generate the wanted economic growth. 

To be precise, even though political systems have a large role to play in the growth path of a country, no political system can guarantee growth, nor can it ensure success. What really makes a country successful, however, is its adaptation to the systemic needs at different times. Sometimes, that comes from a combination of the two systems- command economy and market systems.

For example- China’s rural industrialization that today pose one of the greatest reasons for the country’s success came at the back of town and village enterprises. These town and village enterprises were controlled stringently by local authorities. However, they also realized the benefits of the market system, converting them into the success stories of the century.  

 

See also  To turbocharge the economy, focus on FDIs and sustainable recovery

Edited by Sanjana Simlai.

 

Simerleen Kaur

Talk to me about economics, trade, and all things India.

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