India’s inclusive political institutions and extractive economic institutions..

A hopeful paper on India’s economy and institutional development. It is by Ashima Goyal of IGIDR and is an interesting read.

She says India was blessed with inclusive political instis. But still could not grow as Acemoglu and Robinson suggested..


In the view that liberalizing reforms alone drive growth, external shocks and continuing restraints on markets are responsible for the 2012 slowdown. Extreme versions of this view regard domestic institutions as so dysfunctional only external forces can make a difference. But overdependence on external drivers also creates risk, and a large country like India cannot be driven only by external factors. Moreover, the Spence commission (2008) showed nations that successfully sustained high growth embraced openness but did not blindly apply market friendly reforms. Therefore India‘s nuanced reforms are not necessarily a drawback.

Acemoglu and Robinson (AR) (2011) argue that only countries with broadly inclusive political and economic institutions succeed in the long run. Without that they fail despite openness. In their view, Indian failures are due to the extractive institutions the British left it with. But the British also left India with legal and democratic institutions, and sixty years is long enough for institutions to change. Why should a broad inclusive democracy like India create dysfunctional economic institutions? The answer may lie in the contribution of ideas and of structure.

 Well, India had these inclusive political instis only on paper. Reality was very different. AR did clarify this point in one of their blog posts. They said:

We go to pains in the book to emphasize that electoral democracy isn’t the same as inclusive political institutions. This becomes particularly binding when it comes to India. India has been democratic since its independence, but in the same way that regular elections since 1929 don’t make Mexico under PRI control an inclusive society, Congress-dominated democratic politics of India doesn’t make India inclusive. Perhaps it’s then no surprise that major economic reforms in India started when the Congress Party faced serious political competition. In fact, the quality of democracy in India remains very low.

Politics has not only been  dominated by the Congress party but continues to be highly patrimonial, and as we have been discussing recently, this sort of patrimonialism militates against the provision of public goods. Recent research by Toke Aidt, Miriam Golden and Devesh Tiwari (“Incumbents and Criminals in the Indian National Legislature”) shows there are other very problematic aspects of the Indian democratic system: a quarter of the members of the Lok Sabha, the Indian legislature, have faced criminal charges, but alarmingly, such politicians are more likely to be re-elected than those without criminal charges, reflecting the fact that Indian democracy is far from being an inclusive ideal.

What’s more, blaming India’s poverty on its democratic recent past, as Subramanian seems to do, is probably more than a little unfair. After all, India has been growing since independence even if the growth rate was disappointing for the first three decades, and it seems to have largely stagnated during British colonialism as Tirthankar Roy shows in The Economic History of India, 1857-1947.

AS quoted for fin glob literature, India’s inclusve instis were de jure not de facto…

Anyways Prof Goyal does point to what went wrong:

The dominant development ideas of the time favoured a closed economy with government led growth and re-distribution. Democracy was broad-based but politicians could exploit divisions of caste, religion and region to maintain a stagnant equilibrium that delivered neither growth nor equity. Economic controls gave additional power to elites to enrich themselves, with minimal doles to the groups that kept them in power. Continuing poverty created dependence through a need for further doles.

Institutions are congealed structure and ideas as well as interests. Thus post-independence  dominant development ideas imposed on inherited heterogeneous structure and colonial  institutions created stagnancy. Institutions weakened by ideas and structure could be hijacked by interests. But a change in ideas and a rise in the proportion that benefit from growth are strengthening institutions. There is a steady deepening of horizontal democracy, but critical changes in the institutions of governance are slow. Even so, they are happening and are illustrated through Centre-State relations, contestations in the telecom story and in  agricultural intervention. Since the process is messy and prolonged growth is volatile, but to  the extent appropriate institutional change is occurring, growth could be more long-lasting.

She is more hopeful that India can turn its way.  She says tainted ministers  did face court cases and had to resign.  jail in Telecom-Commonwealth Games scam. This is not possible in China. Well this does not matter as most were out and one of them even went to London to cheer Olympic leaders! So we are no way better off.

At the end:

These improvements suggest that although catch-up  growth has been volatile in India, it may be able to avoid the middle-income trap, as broader  sections are systematically empowered for active inclusion.

Well let’s reach the middle income levels first…MI trap comes much later…We are currently stuck in all kinds of traps..

India growth story is as unique as India history is…How much India is growing and is expected to grow depends on where you are placed. There are so many different viewpoints from environmentalists, sociologists, ecologists etc. Time has perhaps come to take a more comprehensive review based on all social sciences..instead of economics alone..


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