India today has the fifth-largest economy in the world—and with an annual growth rate of roughly 7 percent, one of the fastest-growing. But for decades, the country was an economic laggard. The policies pursued by India’s founders, most notably its first prime minister, Jawaharlal Nehru, produced neither growth nor equity. They granted a disproportionate role to the state, dramatically regulated industry, and limited India’s integration into the global economy.
After fitful attempts to bring about reform in the 1980s, Indian policymakers were forced to grasp the nettle in the wake of an unprecedented fiscal crisis in 1991. Faced with few options, they sporadically embraced market-friendly reforms that ultimately set the country on a path of steady economic growth. That growth, in turn, played a critical role in reducing endemic poverty even as it contributed to deepening inequality.
India today has the fifth-largest economy in the world—and with an annual growth rate of roughly 7 percent, one of the fastest-growing. But for decades, the country was an economic laggard. The policies pursued by India’s founders, most notably its first prime minister, Jawaharlal Nehru, produced neither growth nor equity. They granted a disproportionate role to the state, dramatically regulated industry, and limited India’s integration into the global economy.
After fitful attempts to bring about reform in the 1980s, Indian policymakers were forced to grasp the nettle in the wake of an unprecedented fiscal crisis in 1991. Faced with few options, they sporadically embraced market-friendly reforms that ultimately set the country on a path of steady economic growth. That growth, in turn, played a critical role in reducing endemic poverty even as it contributed to deepening inequality.
India’s economic circumstances—despite the numbers—are decidedly mixed. Even amid the adverse effects of the Iran war and trade uncertainties in U.S. President Donald Trump’s second term, the country’s growth rate remains sound. However, India is confronting head on the problem of jobless economic expansion with soaring youth unemployment, as underscored by the Cockroach movement protests this summer.
Both political scientists and economists of repute have sought to trace India’s development trajectory and offered various explanations for its successes and failures. These works have documented the ideational sources of the country’s policies, discussed critical historical junctures, and offered prescriptions to promote sustained growth and tackle persistent poverty.
Few have taken on a task as monumental as Devesh Kapur and Arvind Subramanian’s new book, A Sixth of Humanity: Independent India’s Development Odyssey, which was republished this year as an academic title. Their work is significant because of its sheer scope. Owing to its careful discussion of the evolution of India’s economic policies, the book provides a clearer understanding of the country’s achievements as well as its persistent challenges.
Kapur, a political scientist, and Subramanian, an economist, bring to bear their respective skills and training to produce a volume that is lucidly written, deftly argued, and intellectually sound. A Sixth of Humanity will no doubt be considered a milestone in the extant scholarship on India’s political economy in its assessment of policy choices made over the decades—but particularly in the country’s early years—and their lasting consequences.
At the outset of A Sixth of Humanity, Kapur and Subramanian challenge a widely held proposition about India’s early developmental choices—and namely, its apparent embrace of the strategy of import-substitution industrialization (ISI). Proposed by Argentine economist Raúl Prebisch in 1950, ISI involved raising high tariff barriers that would limit imports and create a conducive milieu for so-called infant industries to thrive.
Unless developing countries chose this option, Prebisch argued, they would remain “mere hewers of wood and drawers of water”—producing raw materials in exchange for industrial goods. Many countries in the global south adopted this pathway to economic development, including Brazil, Ghana, and Nigeria.
Kapur and Subramanian argue that India, contrary to popular belief, didn’t implement ISI in a way that would have enabled the country to realize its full potential. Instead, its policies shut off foreign supplies, encouraged an unwieldy public sector, and choked off a potentially productive private sector. The public sector turned out to be loss-making, and private investment was limited, hampering both efficiency and innovation. This pushes against the conventional wisdom that India pursued a fulsome embrace of ISI.
A Sixth of Humanity also argues that apologists for India’s growth strategy in its early years highlighted that the country’s economic performance was better than under British rule—but this was, of course, specious. Kapur and Subramanian show that between 1950 to 1980, close to 60 percent of India’s population remained trapped in poverty. This can be attributed in large part to a regulatory framework that limited entrepreneurship and innovation and stunted growth.
Simultaneously, the Indian state pursued welfare measures that mostly benefited a small, privileged class within the organized sector of the economy. They largely contributed to the well-being of a small segment of the working class because those in the economy’s informal sector, such as daily-wage earners in agriculture and construction, did not enjoy protections. The workers outside the formal system’s ambit derived no advantages, while unionized labor often made big demands.
In a strikingly counterintuitive fashion, India’s early democratization proved to be harmful for fiscal policy. In the late 1960s, as the dominant Indian National Congress lost ground and politics became more competitive, Prime Minister Indira Gandhi resorted to populist measures to bolster the party’s sagging electoral fortunes, including the nationalization of banks and the expansion of subsidies.
Kapur and Subramanian argue that after the government embarked on this path, few politicians were willing to alienate their electoral constituencies—and India failed to return to fiscal prudence. These policies resulted in deficit spending with adverse consequences for growth and prosperity while coddling powerful interest groups. Large firms cornered segments of the market, which today has resulted in the growth of India’s crony capitalism.
The Indian state’s ability to extract revenue also proved to be flawed, with only a small part of the population paying direct taxes. To compensate for this paucity of revenue, the government devised mechanisms for indirect taxation, from tariffs to consumption taxes. The result was a weak revenue base that often contributed to a deficit. Electoral considerations again played a role, and Kapur and Subramanian identify a handful of reasons for India’s anemic taxation system.
Since a large segment of the population lived in rural areas and relied on agriculture in the 1950s and 1960s, the constitution exempted the sector from national taxation. India’s investment in inefficient public sector enterprises that were not subject to market discipline led to a drain on the treasury. Additionally, the country’s politically influential middle class has benefited from various tax exclusions.
Choices made in the early years of the republic not to impose significant taxes on land transactions further harmed the treasury. Land values in India have soared since the liberalization of the 1990s, yet the state has still not undertaken commensurate measures to change the tax regime. Finally, during India’s initial flirtation with socialism, it taxed the very wealthy at extortionate rates, leading to widespread tax evasion.
Other policy choices since the 1950s—most notably the neglect of critical infrastructure—have dogged India’s growth. Instead, the country focused on building large-scale, state-run factories designed to boost industrialization. In the past few decades, these shortcomings have been inadequately addressed with some showpiece developments, such as high-speed trains between major cities, but without tackling more basic needs, such as investing in quality public transport.
Unfortunately, other approaches were also lopsided. For example, India’s leadership invested in education but not in public health. This was further skewed by privileging higher education over primary and secondary education, unlike in many East Asian states. The last issue did lasting damage to both growth and equity in India, with its burgeoning youth population.
To that end, Kapur and Subramanian approvingly cite the conclusions of the late American political scientist Myron Weiner, who argued that India’s political elites failed to grasp the significance of mass primary and secondary education—and that this neglect could be attributed in part to the stranglehold of caste in Indian society, which contributed to a scant interest in the plight of the socially disadvantaged.
Some of these trends came to the fore with the emergence of the Cockroach Janta Party movement this year. The online satire quickly evolved into nationwide youth-led protests that succeeded in forcing the resignation of India’s education minister over leaked exam papers. The movement didn’t stop there—it has kept pushing the government on the shortcomings in the education system, as it has spawned some copycats focused on other issues of inequity.
If A Sixth of Humanity has one shortcoming, it is that unlike the work of the noted Indian economist Vijay Joshi, the authors offer few policy prescriptions. Joshi’s policy guidance in the 2010s included a need for greater privatization, increased labor market flexibility, improved governance, and boosting educational reforms.
Unfortunately, New Delhi has made only sporadic attempts at implementing these or similar suggestions. The government is likely seeing the consequences, especially with growing youth unrest.
Instead, Kapur and Subramanian conclude with a brief discussion of four forces that are likely to shape development policies in India and elsewhere in the world: geopolitical shifts, technological developments, climate change, and demographic changes. How India’s leadership responds to these imminent challenges will shape the future of one-sixth of humanity.
Members of the younger generation are increasingly concerned about the likely effects of these shifts on their personal and professional fortunes. Unfortunately, the Modi government has yet to devise policy options that could address their very legitimate fears and offer them meaningful pathways to a more secure and prosperous future.