Why democracy is vital to India's growth story

Prime Minister Narendra Modi shared with the Indian audience at London’s historic Westminster Hall last week how Prince Charles had travelled to New Delhi to invite him to attend the Commonwealth Heads of Government Meeting and how Queen Elizabeth II had written to him extending a personal invitation. He went on to say this was because India was a “respected” country, and he implied this enhanced respect had been the outcome of the four years he has been in office as Prime Minister. It was clear Mr Modi was flattered by the gestures of Prince Charles and the Queen, but he was quick to impute it to the country and not himself, though he would have loved to say it was due to him and he half-believes that it’s he who has changed India’s status for the better.

The reasons for Britain wooing India in the post-Brexit scenario have been well articulated. Britain is looking for a big market in place of the European Union. Britain wants places where it can invest. The terms of engagement between Britain and India have changed radically as India is poised to go past Britain as the fifth largest economy after the United States, China, Japan and Germany. It is interesting to note that Britain looked to 17th century Mughal India for trade opportunities with an opulent country, and 400 years later Britain is still eyeing the economic advantages of connecting with India.

But it is important to understand the reasons why India is becoming important in the world. India, along with China, is moving back to its dominant position in the global economy that it held in the beginning of the 18th century, as indicated by Angus Maddison. It was nearly a quarter of the world’s GDP in 1700 Common Era (CE). By the middle of the 21st century, India could move back to the position it had held in 1700. In 2017, India’s share of world GDP stood at 7.46 per cent. It will be useful to remember that India’s share of world GDP stood at 6.23 per cent in 2013, 6.41 per cent (2013), 6.66 per cent (2014), 6.97 per cent (2015), 7.24 per cent (2016) and 7.46 per cent (2017).

It would be futile to argue that India has made impressive gains from 1991 onwards when economic reforms were ushered in by the Prime Minister P.V.Narasimha Rao-finance minister Manmohan Singh duo. In case of China it will be argued that growth began only in 1979 under Deng Xiaoping, who had introduced economic reforms. It is now recognised that China’s Maoist period from 1949 to 1976, with all its disastrous turns, served as a building block because of the achievements in basic education and healthcare sectors, and the industrialisation that had occurred in those years. India-watchers will have to reckon with the fact that India’s “socialist” period from 1951 to 1991 had helped in preparing the base for the post-1991 growth.

The other major reason for India’s growing importance in the present global context is that India is a democracy. It will be argued that what matters in the world is not whether India is a democracy but whether it is an economic power, and that China commands respect in the world despite it not being a democracy. As a matter of fact, India’s hard-nosed realists are likely to argue that India would have done better on the economic growth front if it had not been a democracy. But this anti-democratic assumption is not even counter-intuitive.

India’s brainpower bloomed and flourished in a democratic setup, and it had expanded the socio-economic base through affirmative action. The reservations policy is usually blamed for India’s supposedly retarded growth rate, but the reverse is actually true. India has got a larger science and technology workforce base because of reservations over the decades. What makes a national economy vibrant and powerful is its large base. India is a rising economic power because India’s potential producers and consumers run into hundreds of millions of people. Reservations had facilitated economic inclusion. This was achieved through democratic means. Political egalitarianism has tremendous economic advantages.

If India were to weaken its democracy, it would not be an economy to reckon with because the market base of consumers would be much too small. One of the problems that China faces is that its domestic market of consumers is not large enough. China’s growth rate might be better, but India is the larger market in terms of consumers. On a smaller scale, the Asean (Asso-ciation of Southeast Asian Nations) lose the economic growth race because their domestic consumer base is small because of a smaller population and limited consumer base.
Democracy means rule of law, and it is important for global investors as well as those who want to sell goods in India. Ease of doing business is linked to the rule of law, which in turn is an offshoot of democratic governance. It would be a folly to believe that the speed of clearance of business projects is what the ease of doing business is all about. If this were the only criterion, then undemocratic countries are the best places to do business. In undemocratic countries, political power and economic wealth is not diffused, and they turn out to be a major bottleneck for growth.

Freedom — political, economic and social — is the engine of economic innovation and growth, and freedom is guaranteed only in a democracy. It would be salutary if a section of India’s intelligentsia stops bemoaning the fact that India is a democracy and therefore it is not able to achieve economic growth rates comparable to China. Market economies flourish only in a free society. Free market economies need new ideas and they in turn presuppose the freedom to think of new ideas and options.

India’s destiny is intertwined with that of democracy. In ancient Greece and Rome, democracies degenerated into political anarchy and necessitated the rise of militarised states. In the modern world, states are prosperous and they succeed because they are democratic and they are free.