India and Oligarchic Capitalism

India, currently the 10^th largest economy in the world (when measured using market prices), is widely expected to emerge as the third-largest global economy, behind China and the United States, over the next two decades. 

According to the International Monetary Fund’s ‘World Economic Outlook’ data, the Indian economy grew faster than the Chinese economy in 2010.  Indeed, although a lively debate has ensued amongst intellectuals such as Amartya Sen and Jagdish Bhagwati on the merits of comparing India and China, there’s still little doubt that India’s rapid economic growth rates since the opening up of its economy in the early 1990s have unleashed the country’s entrepreneurial energy while also reducing poverty.

High growth rates are now deemed essential for India’s rapid economic development, even if ‘inclusive growth’—ensuring that all sections of society benefit from the its rapid development—continues to pose a challenge for the government. But while the economic benefits of high growth rates are apparent, India’s rapid economic development also poses two particularly daunting challenges for its democratic political order—the threat of oligarchic capitalism on the one hand, and of left-wing Maoist violence on the other. 

Highlighting the threat of oligarchic capitalism in India, noted economist Raghuram Rajan has observed that after Russia, India has the largest number of billionaires in the world per trillion dollars of GDP.  Rajan, a Distinguished Service Professor of Finance at the University of Chicago and an honorary economic adviser to Indian Prime Minister Manmohan Singh, was also previously Chief Economist at the International Monetary Fund.

While being largely welcoming of wealth creation, Rajan is highly critical of what sees as ‘privatization by stealth’ in the world’s largest democracy. He has argued that even as it’s true that many businessmen and women have generated wealth legitimately in India, it also remains true that the predominant sources of wealth in India are land, natural resources, and government contracts—all of which remain within the purview of governments. Rajan has warned that ‘if we let the nexus between the politicians and the businessmen get too strong, we could shut down competition. That could slow us down tremendously and also maybe create questions eventually for our democracy.’ 

While India doesn’t yet face the danger of oligarchic capitalism, in which a small group of rich and politically influential capitalists control the levers of the state and the direction of policy (as in Russia and many Latin American countries), it makes eminent sense to pay attention to Rajan’s warnings. 

If the inequities generated by rapid economic growth aren’t addressed quickly, India may risk falling into the ‘middle-income trap.’  A middle-income trap occurs when a developing country’s median income gets stuck in the middle-income bracket even as its economy continues to grow. This happens when oligarchic capitalism begins to distort economic policymaking in the country to pursue its own vested interests at the expense of the interests of the vast majority of the country’s citizenry. India must improve governance, reduce corruption, and implement further economic reforms to avoid the fate of Russia and several Latin American countries.

Already, the inequities created by economic (and social) deprivation threaten the authority of the Indian state in the region stretching along the north-south corridor from the Indo-Nepalese border southward to Andhra Pradesh.  Singh has very aptly described the threat of left-wing Naxalite/Maoist violence, which confronts nearly a quarter of India’s administrative districts, as ‘the greatest internal security threat’ to the Indian state. There are a number of reasons for the violent revolutionary threat that is challenging the Indian state. However, poverty and social tensions generated by rapid economic development are undoubtedly key factors. India needs a multi-dimensional strategy to control and eliminate the violence that this threat poses. In practical terms this means that in addition to a viable counterinsurgency strategy, the government will also have wo work on redressing socio-economic inequalities and bringing these communities into the country’s democratic political process.

How India moves to avoid the threat of oligarchic capitalism on the one hand, and the threat of Maoist violence on the other will shape the nature of Indian democracy in the years ahead.

Manjeet S Pardesi is a PhD Candidate in the Department of Political Science at Indiana University, Bloomington.  Sumit Ganguly is a professor of Political Science and holds the Rabindranath Tagore Chair in Indian Cultures and Civilizations at Indiana University, Bloomington.