A window of opportunity-II

India can prosper if independent institutions deliver inclusive politics, which forms the very foundation for inclusive economics

Why Nations Fail by Daron Acemoglu and James Robinson (A&R) distinguished between inclusive and extractive economic and political institutions.  Part 1 of this article argued that after a dream run of 40 years, China is starting to stumble. China’s struggles open a window of opportunity for India. China’s experience tells us that more inclusive economic institutions can lead to decades of rapid economic growth. And ultimately, inclusive economic institutions are founded on inclusive political institutions.

Building inclusive economic institutions: China’s growth since 1980 saw hundreds of millions more Chinese become better educated and get good jobs. Many hundreds of thousands became entrepreneurs, and innovated. China opened to the world, and became the world’s largest exporter (and second-largest importer) of goods and services.

Social policies can greatly enhance economic inclusion. Meeting each person’s education and health needs provides the essential foundation for inclusion. Free trade (that benefits all consumers) and making it cheap to do business (that benefits all firms) are policies of inclusion. For more detail on these, and more opportunities for economic inclusion in India, I refer the reader to my book, The Struggle and the Promise, releasing shortly (it pays to advertise!). I focus here on political inclusion.

Inclusive economics must rest on inclusive politics: A&R argue that “inclusive economic institutions can only survive in the long run if they are supported by inclusive political institutions”. They said in 2012 that China could not achieve a per capita gross domestic product (GDP) matching Germany or the United States, or even Portugal or Spain.  With its extractive political institutions of one-party rule, a strong ruler decided what to do.  After 40 years of rapid progress, Xi Jinping seems to be proving A&R right.  Zero-Covid policies with no end in sight, wobbly real-estate companies, and personal attacks on tech giants and big business are all, apparently, the policy of one authoritarian ruler.  The fact that they are unquestioned — indeed, that they are unquestionable — does not make them right. They are starting to have a real economic impact.  

India gave all adults the vote at independence regardless of income, education, gender, caste and religion.  This was unique at the time.  Every forecast then predicted that a united India would not survive. Ramachandra Guha’s magisterial India after Gandhi tells the story of how we not only survived as a democracy, but survived because we are a democracy. For other poorer countries, the transition to becoming a democracy might be when they crossed $8,000 in per capita GDP.  We were a democracy from 1947 when, emerging from colonial rule as one of the poorest countries in the world, our per capita GDP was $150. 

Illustration: Binay Sinha

But while we survived, even thrived, as a democracy, we under-performed economically. Many argued that India had “too much democracy” to rapidly do all those sensible things that help countries grow fast.  A&R help us understand that it is the nature of institutions, and how they change and function under different political circumstances, that matter.  My take of recent Indian history says that political dominance seems to have an adverse effect on economic progress. The Congress Party’s dominance of national politics declined after 1989, giving way to minority or coalition governments until 2014. The absence of a majority government created space in Indian politics, with power fragmented between dozens of regional parties. Weak and coalition governments have to be more inclusive for them to survive — inclusive of other political parties by definition, but also of the views that these parties represent. Power gets spread around, even if venality and vote-bank politics also spread around.  In the absence of a dominant political power, institutions such as the Election Commission of India, the Presidency, the Rajya Sabha, the Comptroller and Auditor General, and the autonomy of states gained authority and independence. The two decades from 1992 to 2012 were when we enjoyed our most rapid growth ever.  Since 2012, we have seen average growth fall significantly to 5 per cent from the China-style 8-9 per cent we achieved in the previous decade. Since 2014, the Bharatiya Janata Party has increased its hold on Indian politics, enjoying a dominance held before 1989 by the Congress.  Let’s apply our understanding of A&R to our recent history. In India, instead of a strong government helping drive good economics, the opposite seems to be true. Weaker government created the space for institutions to function with greater independence, and this independence delivered greater political and economic inclusiveness. Since 2012, growth has consistently under-performed — as it did before 1991. Those same institutions have seen their autonomy and power wane. The absence in the 1990s and 2000s of a dominant political party may have created space for more inclusive political institutions — and, with it, more inclusive economic ones too. 

All analysts agree that democracy is much more than a periodic free and fair election. The rule of law and equality before it for all, laws that themselves must comply with a Constitution that separates powers and limits its concentration in a ruling party, and independent institutions with public servants who do their job without regard to their political loyalties are even more important.    Inclusive political institutions may begin with free and fair elections that determine who forms the government.  But that is only the start.  Assuring the civil rights of every individual, especially those who feel different to the many surrounding them, is even more important. A woman in Delhi, a Muslim in Aligarh, a Dalit in Ahmedabad, and a Bhakt in Kolkata or Kochi must feel as welcome and safe as the majority around them.  They must not only have equality in society and before the law, but perceive this to be so.

Going by what the majority want is not always right. Much progressive change happens “against the will of the people”. Indeed, the essence of liberty in any civilised society is to protect the rights of the minority against the will of the majority (John Stuart Mill’s On Liberty is the classic statement).   For us in India, when independent institutions set the rules under which we operate, we seem to deliver greater inclusion. Whether that independence reflects wise intent or is an unintended consequence of a power vacuum is less important. It is in these democratic features, so different from China, that our future lies.

ndforbes@forbesmarshall.com 

The writer is co-chairman Forbes Marshall, past president CII, chairman of CTIER and Ananta Aspen Centre. His book, The Struggle and the Promise: Restoring India's Potential, releases next month