Inequality, corruption and the investment boom-and-bust cycle India’s history and trajectory.
“Bollygarchs” (Indian billionaires) have grown exponentially and at a much faster rate than China in a similar point in history.
India has experienced significant inequality with the top 10% controlling 55% share of the national income whilst the middle 40% only controls 40%.
The Indian corruption index has steadily risen.
Although Modi’s new mandate of a clean government has resulted in a decline of large-scale corruption, it is not entirely clear that progress has been made. Exiled tycoons and businessmen such as Vijay Mallya epitomize the cesspool of corruption plaguing India and the excessive crony capitalism practiced in the past.
The boom-and-bust cycle in India’s model has crippled the corporate sector with burdensome debt.
Rules were bent to accelerate growth over the last decade which resulted in a growth slowdown and a debt boom hangover. This is exemplified by India’s non-performing loans which currently stands at 9% – this is higher than China at 1.8%.
Given the context highlighted above, India needs to better manage the next stage of globalisation and build state capacity to ensure vitality of its Collective Brain.
All over the world, hyperglobalisation that started in the 1980s was not managed well.
In the developed West, the unequal redistribution of the gains from trade and immigration led to the rise of populist politics observed today. In India, poor management of re-globalisation since 1991, which gave rise to the above context, also led to the rise of populist politics in the country today.
The next stage of globalisation will be driven by digital goods, Chinese influence, climate change, and Asian urbanisation.
The next stage of globalisation will be driven by increased trade in digital goods rather than tangible goods while being shaped by Chinese rules, systems, and institutions rather than American ones. Moreover, climate change and increasing urbanisation in Asia will drive this next stage of globalisation.
One way of successful management of the next stage of globalisation is having strong state capacity.
How state capacity is used to manage the Collective Brain is useful for thinking about how low income countries will grow over the next few decades. For India to go further, it would do well to learn from the experience of East Asian Tigers that have relatively high-quality public institutions that managed the process of development.
Looking ahead, India will not likely grow as fast as China, but its growth path could be more durable – which is a reason for optimism.
India can mirror the transformation of US with political reforms.
India’s experience today is similar to that of the Gilded Age of the US in the 1880s – India’s GDP per capita today is similar to the US then. During that time, US was dominated by Robber Barons and corrupt politicians working together. However, excesses in that era was overturned by Progressive reforms that broke up trusts and created enduring institutions in the US today.
India has a more robust economic system and will likely be a wealthy economy by the middle of this century.
Given India’s current low state capacity and vibrant democracy, it’s not likely that India will grow as fast as China. However, being democratic could be the key to a more durable growth for India. But China’s experience remains as a test case of the viability of authoritarian systems.