India is governed as a vibrant democracy. While the quality of government provided by India's democracy remains uneven, the survival and institutionalization of democracy in a large, poor, multiethnic society is India's singular achievement. In this chapter I provide some background materials that help shed light on how and why democracy has put down roots in India. The focus of this chapter, however, is on the changing character of India's contemporary democracy. In the discussion that follows, two themes are emphasized. First, the Indian state over the last few decades has become more and more pro-business. I analyze both the causes and consequences of this important shift. And second, the political management of a narrow ruling alliance creates numerous electoral and institutional challenges, especially the challenge of how to deal with the excluded masses. I analyze the political strategies pursued by both the rulers and the ruled.

Background

By the time the British left India in the mid twentieth century, key elements of what would eventually become a sovereign, democratic Indian state were already in place. Summarizing a complex history, one might suggest that the British left behind such moderately well-functioning state institutions as a civil service, an army, and a judiciary. Indian nationalists, in turn, knit together diverse elements of India's political society and adopted a parliamentary democracy with full adult suffrage. Thus, avowedly working against each other, the colonial rulers of India and Indian nationalists together laid the foundations of the modern democratic Indian state.

Over the last three decades India's has been among the world's fastest-growing economies. And yet poverty in India has come down only slowly, leaving some 450 million Indians to subsist on less than $1.25 per day; in addition, nearly half of India's children continue to be malnourished. In the pages that follow I analyze both the political origins of this pattern of development, on the one hand, and how the resulting social context of poverty amid plenty is molding Indian politics, on the other. The argument is that, over the last three decades, the Indian state has prioritized economic growth as a goal and established a partnership with Indian business groups in order to achieve this growth. This pro-business ruling alliance has facilitated both rapid economic growth and widening economic inequality. Growing inequality along rural-urban, regional, and class lines has limited the impact of growth on poverty alleviation. A state with its primary focus on growth has also pursued a variety of social programs only half-heartedly. The exclusion of a significant proportion of Indians from the fruits of rapid economic growth is in turn creating a host of new political problems for India's democratic rulers, ranging from how to win the electoral support of the many while facilitating gains for the few, to insurrection by dissatisfied groups, to farmer suicides; the ambitions of India's political class for India to be a global player also suffer. The book suggests that inclusive growth in India is not likely either via pure market-oriented solutions or as a result of an active civil society. Although these will be ingredients of a longer-term inclusive pattern of change, state intervention will remain critical for facilitating inclusive growth in the short to medium term. Given the inadequacies of the Indian state, however, prior political and bureaucratic changes remain necessary for facilitating inclusive growth in the near future.

Books take time to write, preferably uninterrupted time. My first and foremost thanks are thus to Princeton University for its generous leave policy. Much of this book was conceptualized and written over two years of sabbatical leave. I was associated during those two years with the Center for the Advanced Study of India at the University of Pennsylvania. I would like to thank both the founder-director of the center, Francine Frankel, and the current director, Devesh Kapur, for providing congenial intellectual affiliation. I presented materials from this book at two seminars, one at Harvard University and the other at the Jawaharlal Nehru University. The comments of seminar participants helped me rethink some issues. I would like to thank Prerna Singh and Ashutosh Varshney for the opportunity to present at Harvard and to Niraja Gopal Jayal for the same at JNU.

Over the last three decades India's economy has grown at an impressive average rate of more than 6 percent per annum. While this growth rate trails well behind China's rate of more than 10 percent per annum, it compares favorably with the Latin American average of some 3 percent over the same period and puts India in the same high-growth league as South Korea, Malaysia, and Vietnam. It is also the case, however, that inequality in India has widened over this period, especially since 1990. While poverty has declined, a variety of human development indicators remain abysmal. In this chapter I analyze these broad economic patterns, focusing on their political and policy determinants and emphasizing the impact of the state-business alliance on patterns of growth and distribution. My argument is that the state-business alliance has led to policy choices that help explain both India's rapid economic growth and its growing inequality. With inequality growing, the poor do not benefit as much from growth as they might if inequality were stable. Of course, sustained growth has contributed to growing state revenue. As the ruling elites face electoral compulsions, some of this new revenue is finding its way into poverty eradication programs. However, the state's attention is focused on growth; a variety of these pro-poor programs are not implemented properly, further contributing to failures of human development.

As in the previous chapter, I first provide some historical background, summarizing key developments prior to 1980, including the Indian state's role in promoting import-substituting industrialization, the green revolution, and failed efforts at a variety of distributive programs, especially land reforms. This is followed by a core section on recent economic growth that emphasizes the late 1970s and early 1980s as a turning point for the Indian political economy – away from socialism and toward a closer alliance with business – and then traces the continuing economic impact of this pro-business shift on policies and growth outcomes over the next three decades. A final core section traces the distributional consequences of the narrowing state-business ruling alliance.

India's economy is growing briskly, but many Indians are being left behind. The democratic promise of inclusive growth is not being met. This study has sought both to focus attention on this fact and to explain why it might be so. The facts of the situation are relatively clear. India's economy has grown handsomely since about 1980, and the growth rate is now approaching that of the world's fastest-growing economy, China. Compared both to its own past and to other countries, growth acceleration in India is a major achievement. This impressive growth performance, however, has been accompanied by widening economic inequality along a variety of cleavages: rural versus urban; across Indian regions; and along class lines, especially in the cities. As the rich have gotten richer, the life chances of the poor have not improved proportionately. Poverty has declined at only a modest pace, forcing some 450 million Indians to survive on less than $1.25 per day. Literacy is also improving, but again at a fairly slow pace. Health conditions are especially abysmal: nearly half the children in the country remain underweight and anemic, and some third of Indian women suffer from low body mass index.

If the facts of want amid plenty are relatively clear, why this may be so and what can be done about it are controversial issues. One somewhat sanguine view of India's current developmental trajectory takes comfort in the fact that the Indian economy finally opened up to the world in the early 1990s and grew rapidly as a result. Since poverty and destitution in India are age-old problems, this view might continue, the new growth finally offers the possibility of incorporating the poor into a productive economy. Economic growth also generates public resources that might be used to help those at the bottom. Sooner rather than later, democratic pressures will push the rulers to use these resources constructively to provide improved education, health, and income to the majority of Indians. This is a respectable perspective on contemporary Indian development; at times I too am attracted to it, especially because of the sense of hopefulness it creates. And yet such a view is too sanguine. It is also misleading insofar as it does not take account of how deeply economic changes are embedded in political and social realities. Economic growth in India accelerated only when the ruling elite prioritized growth and slowly but surely created a narrow ruling coalition with the growth producers, commercial and business groups. More important, new economic growth is creating not only new wealth but also new power realities. New private wealth is further empowering India's business classes. These powerful groups, in turn, have begun to mold Indian politics in ways that they hope will make the Indian state even more pro-business. It is not at all obvious why such a state would prioritize distributive goals that favor the underprivileged. Electoral pressures and an occasional farsighted leader can clearly make some difference. However, systematic inclusive growth will require well-organized representation of the underprivileged in the political sphere so as to facilitate a shift, not toward populism, but toward real social-democratic politics. It will also require significant improvement in the capacity of the Indian state to deliver resources and services to the poor, a capacity woefully lacking at present.

India in the recent past has been a country of socialist and contentious politics, sluggish economic growth, and numerous poor and illiterate people. Beginning around 1980, India's political economy started moving in a new direction. Over the next three decades Indian democracy put down firmer roots, socialist rhetoric was discarded for pro-business policies, and the economy grew rapidly. Unfortunately, this “new” India remains a country of numerous poor, illiterate, and unhealthy people. Significant pockets of violence also continue to dot the political landscape. How the apex of the political economy in India, but not the bottom half, has undergone some basic changes since 1980 is the subject of this book. A central theme of the book is that the pro-business tilt of the Indian state is responsible both for the progressive dynamism at the apex and for the failure to include India's numerous excluded groups in the polity and the economy.

One has only to recall the decade of the 1970s to underline some key features of the “old” India. During that decade Indira Gandhi sought to move Nehru's socialism in a populist direction, committed the Indian state to alleviating poverty, mobilized the poor, and centralized power in her person. Opposition forces undertook their own mobilization against Indira Gandhi. Political polarization produced a series of rapid political changes in the late 1970s: the proclamation and rescinding of a national Emergency, Indira Gandhi's electoral defeat, the inability of opposition forces to provide stable government, and the return of Indira Gandhi to power. Populism and instability hurt economic growth, leading to a lackluster decade for the economy. Moreover, Indira Gandhi's rhetorical commitment to the poor was not translated into meaningful outcomes; a sluggish economy and an organizational inability to intervene on behalf of the poor remained major obstacles.

The focus of the discussion so far has been mainly at the national level. In Chapter 1, I analyzed political changes since about 1980, emphasizing the tight nature of the state-business alliance that now governs India and the problems that this ruling alliance creates, especially the recurring problem of how to gain the support of the excluded masses in the democratic process. The focus in Chapter 2 was on the impact of the state-business alliance on patterns of economic growth and distribution; I suggested that policies pursued by India's pro-business rulers since the 1980s have generated both rapid economic growth and growing economic inequality, the latter especially during the post-1991 period, leading to only modest gains for those at the bottom of Indian society. While the issue of regional diversity has been touched upon all along, a national-level discussion masks enormous political and economic variation across Indian states. In what follows I introduce the reader to some of this variation, though only in a highly abbreviated fashion, focusing on the political and social determinants of economic outcomes.

India's federal system provides a fair amount of political and policy autonomy to its constituent states. For example, agriculture, land rights, law and order, education, and health are some of the important policy areas that are mainly under the control of state governments. Since the shift in the industrial policy regime in the early 1990s, state governments are also in a position to actively promote new industries in their respective states. Recall that the largest of India's states – say, Uttar Pradesh (U.P.) at nearly 200 million people, or Maharashtra and Bihar at nearly 100 million each – could easily be among the largest countries in the world. The populations of these and other Indian states are organized in complex and diverse social structures that are products of varied historical pasts. Since many of their people speak different languages, regional identities are often strong. Of course, none of this is to minimize the fact that India is a relatively centralized political system in which the national government not only controls taxation and finance, defense, and foreign policy, but also sets the overall framework of politics and of economic policies. The center and the states often jockey for influence. Any understanding of India's political economy would thus be incomplete without some understanding of its regional diversity.