Presentation done by Pranab Bardhan, Distinguished Professor Emeritus of Economics, University of California, Berkeley on "Reflections on Political Economy of New India" at #TheIndiaDialog on February 29, 2024 at Stanford University. The #TheIndiaDialog was organised by Institute for Competitiveness and US Asia Technology Management Center at Stanford University. #TheIndiaDialog looks at inviting the world’s leading experts and intellectuals in the areas of economics, business, policy, social development, science, technology, art and culture to provide their perspectives and foster an understanding of India. There would be a series of keynote addresses, panel discussions, and fireside chats during the dialog.

1. Reflections on the Political Economy of
‘New India’
Pranab Bardhan

2. Economic Achievements
● The rate of growth of per capita GDP (in purchasing power parity terms) in the last 10 years
has been at the annual average rate of 4.3% (lower than that in China, Bangladesh and
Vietnam but better than in Indonesia and Brazil). This growth rate was 6.2% in the previous
10 years.
● Many Improvements particularly in road transport, telecommunication, connectivity, and
other aspects of economic integration, and in digital infrastructure, particularly payment
systems
● --though digitization of public service delivery bypassing intermediaries can undermine
political accountability processes at the local level.

3. ● At a huge cost to tax-payers the banking system has now been largely cleansed of the
big burden of bad loans.
● The Insolvency and Bankruptcy Code has been a major change, though recovery of loans
has been extremely low and marked by long delays—the system is often gamed by the
politically connected and the delayed court judgments are often due to evasive actions
by defaulting borrowers, even as they continue their asset-stripping.
● Large improvements in access to sanitation (yet to show up in child health measures)
and extension of banking among the poor
● --though much less than what the hype about them suggests, as various surveys have
shown.

4. ● Absence of Census and official Household Survey Data (occasionally suppressed) for
a dozen years has made it difficult to assess the trends in extreme poverty and
vulnerability of the population. Multi-dimensional Poverty Index, like the one released
by Niti Ayog, is no substitute, and also has its own problems (like unwarranted
interpolation methods) .
● Continuing misery particularly in small enterprises and in the informal sector
(accentuated by the disastrous policy of Demonetization and then the pandemic and
its mismanagement), inadequately reflected in GDP data.
● Rural real wage rates (both agricultural and non-agricultural) have grown at a much
slower rate in the last 10 years than in the previous 10 years—this growth rate was
negative in the last 5 years.

5. The Aborted Structural Transition from Low-productivity to High-productivity Sectors
● ‘New India’ has not succeeded in resolving this long-standing structural stagnation -- in
spite of tall promises of ‘20 million jobs every year’, ‘Make in India’, ‘Skill India’, ‘Doubling
of Agricultural Income by 2022’, etc.
● Low-skilled entrants to the labor force (nearly 7 million each year) have mainly crowded
into the low-productivity informal sector.
● Alarming figures of youth unemployment and, and more importantly, of
underemployment, and discouraged drop-outs from labor force (mainly for women, but
also for men). Increase in self-employment in recent years is likely to be a sign of
distress.
● The new Labor Codes, rammed through Parliament, involve dilution of labor rights,
particularly in the matter of job security, and weaken the power of arbitration courts in

6. ● The Indian success stories mainly in capital- or skill-intensive manufacturing (autos and
auto parts, pharmaceuticals) or skill-intensive services (software, financial and business
services).
● The recent emphasis on Production Linked Incentives is not likely to change this
significantly.
● Manufacturing as a percentage of total employment has remained stagnant, even
declining somewhat in the last few years.

7. Extreme Centralization of Power (mainly in PMO)
This damages the incentive and information effects of decentralization
‘Cooperative Federalism’ has largely been a hoax.
● Vertical fiscal imbalance between the Center and the States has continued.
Today while the States incur 64 per cent of total Govt. expenditure, they collect only
about 38 per cent of the revenue (much lower in the poorer states), and their borrowing
power is subject to Central approval.

8. ● In the quarter century of 1989-2014 with powerful regional political parties and coalition
Govts in New Delhi, the imbalance in Indian fiscal arrangements were partly corrected
through negotiations, but these corrections were not institutionalized. Now those
arrangements are over and largely discarded, by power that is over-centralized.

9. Federalism now battered in various ways.
● The completely arbitrary and unilateral breaking down of the state of Jammu and
Kashmir, now legitimized by the Supreme Court, shows what can happen to any state
● A significant chunk of border states put under the authority of Border Security
Force (even apart from AFSPA)
● Governors in non-BJP States regularly used to harass and hinder elected Govts
● Elected Delhi State Govt. openly incapacitated in its administration of services

10. ● Much of the grant-giving authority of the erstwhile Planning Commission that used
to be exercised in consultation with the States now unilaterally transferred to the Ministry
of Finance
● Centralization of welfare schemes, bypassing State Govts and giving credit to the
Prime Minister, have weakened State-level welfarist Chief Ministers (including those
belonging to the ruling party).
● Even on welfare schemes only partly funded by the Centre funds often denied to the
opposition states on flimsy grounds like ‘branding’
● Central bureaucrats often bypass State Govts and give orders directly to district-level
administrators

11. ● State subjects like law and order, agriculture and public health often trespassed by
unilateral central actions—for example,
○ misuse of investigative agencies to hound opposition leaders
○ wanton use of controversial laws like Unlawful Activities Prevention Act against
minorities and dissenters
○ arbitrary Farm Laws rammed through Parliament without any discussion
○ during the pandemic use of the central Disaster Management act that did not take
into account the varied stages of preparation and incidence in different States, and
so on)

12. ● Imposition of central laws in education and labor with very little consultation with the
states in areas that belong to the Concurrent List. Even on a concurrent subject like
criminal law the recent 3 major criminal laws were passed without any consultation with
the states.

13. ● It should be said that the State Govts have been somewhat complicit in the ruling party’s
attempts to wreck the federal structure.
Example: Reaction to breaking-up of Jammu and Kashmir.
● Many State Govts have themselves been delinquent in devolving power and finance to
the panchayat and municipal levels
● The poor performance of sub-provincial local bodies in the last-mile delivery of public
services and facilities (particularly compared to China) is partly attributable to this.

14. ● In India’s major cities, urban planning and development projects are designed and run by
agencies controlled by the State Govts, with no accountability to the elected municipal
bodies, leading to a great deal of misalignment and dysfunctionality.
● Reform of the local tax structure missing: local property taxes as percentage of GDP are
among the lowest in the world, much lower than, for example, Brazil, Turkey or the
Philippines.
● Without local revenue or unconditional block grants (as in Kerala) the local
decentralization process will remain politically deformed and corrupt.

15. A Concentrated Enclave Economy
● The World Inequality Report suggests that the top 1 per cent of households in India now
hold about 33% of total wealth, while the bottom half of the population holds about 6%; in
1991 these shares were 16% and 9% respectively.
● This wealth does not include items of human capital like education. If one crudely
measures inequality in the distribution of human capital in the form of, say, years of
schooling of the adult population, India is one of the world’s most unequal countries in
terms of education, much worse than even Latin American countries like Mexico, Brazil
or Argentina.

16. ● The pattern of high inequality generates a Latin American-style ‘enclave economy’,
where a limited sector caters to an affluent elite demanding relatively capital-intensive
and skill-intensive goods, whereas much of the general economy (and primarily rural and
informal) suffers from insufficient demand and under-utilization of capacity, and thus low
private investment and employment.

17. What about corporate concentration?
● Marcellus investment consultancy has estimated that the 20 most profitable firms
generated 14% of total corporate profits in 1990, 30% in 2010 and 80% in 2022. (Unlike in
the period 1990-2010, in the last decade not much ‘churning’ in the composition of most
profitable firms.)
● Evidence suggests that these profits were mainly due to market power. The standard
Herfindahl-Hirschman index of industrial concentration is generally high, and particularly
so for aluminum, aviation, commercial and passenger vehicles, tires, copper, paints,
steel and telecom.

18. ● Acharya (2023) has estimated that in the period 2016-21 the concentration particularly in
the top-5 business groups has increased sharply (largely through mergers and
acquisitions). These big-5 conglomerates are in over 40 NIC 2-digit sectors covering
much of the non-financial corporate India. They are sheltered from foreign competition
through a protective trade regime (generally called ‘atmanirbhar’).
● This may be good for profits, not for productivity.
● Not a single global brand due to Indian billionaires.

19. ● India’s current political-economic regime is thus one of crony oligarchy. Favors and
special regulatory dispensations tend to be reserved for select big firms. There are
several examples of rules and goalposts changed midstream to help the cronies.
According to estimates by the Economist magazine, India’s share of billionaire wealth
derived from ‘rent-thick’ or crony sectors rose from 29 to 43 per cent between 2016 and
2021.
● Crony capitalism is corrupt capitalism. Those who consider the current regime as less
corrupt than the earlier regime often overlook this. (Even by the flawed ‘corruption
perception index’ of Transparency International, India’s rank was 85 in 2014 among 180
countries; it is 93 in 2023.)

20. ● Central agencies (like CBI, ED, etc.) are weaponized to bring corruption charges against
opposition or dissenting groups. If you join the ruling party you are mostly exempt from
such charges.
● The other side of a corrupt political-economic system is in effect a quid pro quo process
It is widely inferred that big money from the favored corporate houses flows to fill the
ruling party’s coffers, largely under the ingenious con game known as ‘electoral bonds’
with no limits or public disclosure requirements.

21. ● Since some of the conglomerates also own media companies they also contribute to the
ruling party by carrying government propaganda, full of hype and misinformation.
● With the ruling party’s near-monopoly on the media and election funds, and increasing
control on the composition of the Election Commission, elections are not on a level
playing field.
● Decay of democratic institutions has been going on for some time, but its pace much
accelerated in the last 10 years, however much we shout from the rooftop that we are the
“mother of democracy”.

22. ● Press freedom, and the freedom to debate and criticize are vanishing. A climate of fear: a
recent CSDS survey suggests that two-thirds of respondents are ‘scared’ to express
their opinion online.
● Jailing of opposition leaders, journalists and dissenters, bullying and lynching of
minorities, and “Bulldozer justice” meted out to the poor by thuggish government
officials are now routine.
● While opposition parties are often dynastic, the ruling party is monarchic. Shameless
Cult of Personality.

23. ● Essence of democracy is in civil liberties and political rights (including respect for
minority rights), more than elections.
● Russia today has an elected czar in Putin, but hardly anybody calls Russia democratic.
● Even centrist media like the Economist and the Financial Times now call India an
“illiberal democracy”—which is an oxymoron.

24. ● I have a book “A World of Insecurity: Democratic Disenchantment in Rich and Poor
Countries (Harvard University Press, 2022)” which discusses the erosion of democracy
in India in the context of similar erosion elsewhere.
● With weak and crumbling institutions, the sway of merchants of hype and hate, and a
popular hankering for ‘strong’ leaders, the Indian democratic erosion is likely to be
severe and long-lasting. Things will get even worse if the new AI technology is abused in
the form of state surveillance and deep-fake misinformation.