The Indian economy is yet to fully escape the state’s shackles

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Subscribe to enjoy similar stories. Indian citizens are hesitatingly capitalist. Perhaps because of this, Indian politicians are unhesitatingly statist.

There are many reasons for this. Independent India was born as a poor country with universal adult franchise. Most developed democracies widened the right to vote only after getting rich.

Capitalism works best when the institutional structures of a developed economy ensure equality of opportunity, fair competition and a hefty price for violating rules. For capitalism to work for a large majority of people, you need institutions to encode and enforce the rules, and prosperity to fund the welfare payments required to uplift specific disadvantaged segments of the population. Given the imperatives of a large and poor electorate, if a political economy becomes redistributive too early, then the wealth pie and institutions do not grow large and robust enough for the job.

Since Independence, India’s quandary has been just this. While nearly 400 million people have been elevated from abject poverty, any surplus has been distributed even before widespread prosperity could emerge. This column, the sixth in the series on the ‘quantity to quality’ reforms required for India to achieve upper-income status, tackles the pervasive but hard-to-grasp issue of statism.

For decades, governments on both sides of the political aisle in India have harboured a deep suspicion of the private sector. This suspicion runs so deep and nuanced that an intricate framework of rules amounting to a ‘chastity belt’ has left even well-meaning companies exhausted with compliance requirements. The unfortunate flip side of the coin is that to escape this dirigiste system, a few companies appear to have curried