Dr Surjit S. Bhalla

As India approaches 75 years, it is time to review from where we came, where we are, and where we are going. It may be time to reset the parameters of the discussion and debate. It is also the time for reflection, celebration, truth, reconciliation, and hope.

At the time of our independence, India was celebrated for leading the sub-continent towards a non-violent battle for independence. Separate, but equal, is how the “planners” envisioned the creation of a Muslim country (albeit separated by the wide chasm of India) and a country (India) with no official religion. That the “planners” never anticipated the Partition battle is a birth-mark not explained sufficiently by any historian or analyst or politician. It was a subject best not discussed, but the scars, both explained and un-explained, still remain.

75 Years Of Freedom

We were an illiterate population (one year was the average level of school attainment), fertility was extra-ordinarily high (but not unlike levels prevailing for other countries with a per-capita income of less than a $150 a year), and our political leaders were enamored by Russia’s brand of communism and industrialization and state control. One of the advantages of commenting on the past is the luxury of fore-casting history. And in that past, we were all complicit, with rare exceptions. So much so that we changed the Preamble to our Constitution with an addition that defined us to be both a secular and a socialist state; this was India in 1976, this was broadly India at age 30, with a per-capita income level little that achieved in 1947. In US dollar terms, per capita income in India was $126 in 1976, in PPP dollar terms, around PPP$365, and we were the 8th poorest country in the world, in US dollar terms; the sixteenth poorest in PPP$. In 1950, we were the second poorest nation. In 2021.

We will examine India at 75 in terms of democracy and nation- hood.What binds us together – admittedly, a difficult question to answer. Other questions – how we have done on the twin goals of growth and poverty alleviation? And the inevitable comparison with the benchmark success model of China.

The objective of most (if not all) societies is the provision and attainment of a just society, and most agree that a necessary condition for a just society is democracy. Section 2 deals with this important dimension of India, and the inevitable comparison with the oldest democracy, US. Section 3 discusses how India has been able to grow at a reasonably fast pace since the reforms of 1991, with each decade yielding an accelerated path of per capita GDP growth, with the last decade (2021 with IMF forecasts till 2027) yielding an expected per capita growth of 6.1 % per annum. In addition, despite the travails of the pandemic, and the Russian-Ukraine conflict, dollar GDP in 2025- 26 will be very near, and might well exceed, the PM Modi 2019 expectation (and hope) of a $ 5 trillion economy. Section 4 discusses the exceptional Indian record of poverty alleviation, the elimination of extreme (PPP$ 1.9 a day poverty) in 2019-21, and the fact that it was able to achieve it at a per capita PPP income level which was half that of the level when China achieved the same just a few years earlier in 2017.

There is much for India, and Indians, to be proud of. Section 5 does not conclude, but instead discusses the challenges that remain; most importantly, the challenge of preserving both unity and diversity.

Section 2: Democracy – More “democracy” than the US?

India is the largest democracy, USA the oldest. Before we compare the two democracies, a prior question on India – how did India end up as a democracy in the first place? No one gave India a chance to succeed as a democracy. A strong consistent correlate and cause of societies adopting a democratic form of government is a significant presence of the middle class or the bourgeoisie. In his classic study, Barrington Moore (Social Origins of Democracy and Dictatorship, 1964) suggests that the equation is ‘no bourgeoisie, no democracy’. India in 1947 had, according to most definitions, no middle class. So India’s adoption of democracy in 1947 is a genuine puzzle.

There is a different interpretation for India adopting democracy and an alternative hypothesis as to why it has stayed democratic. This explanation, the one that provides a solution to Barrington Moore’s puzzle, is that there is no puzzle. India adopted a democracy because that was its ‘heritage’. This inheritance consisted of two aspects: India was both a British colony and it was ethnically and culturally diverse. The former near-guaranteed the presence of democratic institutions and the latter hinted that there were very few alternatives. Democracy is the only form of government that guarantees an important role for different ethnic and cultural groups. It is this diversity that provides the glue of coinciding interests. Look at our neighbors. Very homogeneous, very little diversity and democracy constantly under threat.

There is considerable empirical support for the democratic heritage hypothesis. Bhalla (‘Freedom and Economic Growth: A Virtuous Cycle?’, in Democracy’s Victory and Crisis: Nobel Symposium 1994 ed. Axel Hadenius, Cambridge University Press, 1997) in which econometric estimates are presented to show that the British colonies had a higher probability of democracy and political rights. These data suggest that, at the time of independence, there was a strong tendency in South Asia towards democracy. This is also supported by the fact that the four major South Asian economies: India, Pakistan, Bangladesh and Sri Lanka, all adopted democracy as their first form of government. They did not stay that way, most notably Pakistan. So other factors may have been important in sustaining democracy in India. One such factor is likely to be the extreme nature of heterogeneity in the Indian body politic.

The model suggests that in 1960, the predicted probability for India being a democracy was 73 percent. Indeed, India has the fourth highest predicted probability. The results suggest that Indian democracy is not such a great surprise, and especially, that the Indian democracy experiment, believed by many to be sui generis, was just not so.

India may have succeeded as a democracy because it was the only political system compatible with a heterogeneous population. Most analysts focused on India’s poverty and illiteracy in 1950, not expecting India to be democratic, and not fully appreciating that only democracy can keep everyone the least unhappy. A democratic process gives, at least in theory, every group and each individual a chance to participate in decision-making. A small chance, one might say, but an infinitely higher chance than if the system was non- democratic, either as a monarchy or communist dictatorship, and all possibilities in between. It is important to appreciate the existence of these small probabilities. The fact that they exist is the glue for solidifying expectations and for perpetuating democracy.

The logic of Indian democracy can therefore be summarized as follows. Inheritance of British institutions meant a strong, positive,

The Largest and the Oldest Democracy

If discussion is about democracy, a comparison of India and US is inevitable. The conventional wisdom leans towards the US being a more mature, and a better functioning democracy. But the truth is likely different from this perception. India brought in universal suffrage from inception – one person, one vote, regardless of caste, religion, ethnicity, or ownership of property. Not so the case of the US – universal suffrage came there later than India, and property rights have played a much more important role in US democracy than human or individual rights.

There is another marked difference in the practice of democracy in the two countries. US has an electoral college system which means that the choice of the President need not reflect the electoral vote. A rough approximation suggests that 30% of the electorate controls more than 70% of the Senate seats. A cursory look at the important question of gun violence in the US (or women’s rights) reveals how the practice of democracy in the US is far from ideal. India also has had its share of electoral violence and distortion of democracy (e.g. the Emergency from 1975 to 1977). But electoral violence has significantly declined, and many changes of government have occurred, and done so with democratic regularity, and declining political violence.

A genuine problem with Indian democracy is too many elections such that India is always in electoral mode (a similar democratic disadvantage in the US). But as India at 75 beckons, so does the proposal, from PM Modi, about holding simultaneous elections for both the centre and the states. According to many, that proposal should have been acted upon, yesterday.

Section 3 – India $5 Trillion Economy in 2025-26?

In 2019/20, India recorded one of the lowest GDP growth rates in post-1991 reform India – only 3.6%, per capita GDP growth of only 2.6%. Then COVID followed in 2020-21, and when economies around the world were beginning to recover, Russia-Ukraine conflict, with the attendant oil and food shortages, has put some brakes on the world economy. GDP forecasts get updated with reality, but as of now, India is forecast to be the fastest growing major economy over the next several years. India can take great solace from the fact that it did it in its own democratic way, and is today at the top of the performance charts. Happy 75th, India.

Section 4: Eradication of Extreme Poverty (PPP $1.9 per person per day)

There is another celebration in store for India at 75. For decades, India has been the “poster country” for absolute poverty. However, a recent IMF working paper (Surjit S. Bhalla, Karan Bhasin, and Arvind Virmani: Pandemic, Poverty and Inequality: Evidence from India, IMF Working paper, April 2022; hereafter BBV) contends that extreme poverty in India has been eliminated i.e. magnitude of extreme poverty defined via monthly real consumption is less than 1 % of the population. Even more remarkably, because of innovative pro-poor policies of the Modi government, and targeted implementation of state benefits to the needy, India was able to keep extreme poverty below 1% in the pandemic year 2020-21.

For 2017-18, the World Bank (Povcal data) estimates poverty in India in 2017 to be 10.5%. This estimate is according to the World Bank assumption of poverty being derived from now a discarded method of consumption measurement (reporting of consumption expenditures via a 30 day uniform recall period (URP)). The URP has a 30-day reference period in which all items of consumption are accounted for by the question ‘How much of X did you consume over the last 30 days?’ The now official method of estimation of consumption is that lumpy durables are measured on the basis of a 365-day recall, perishables (fruits and vegetables) on a 7 day recall basis, and remaining consumption items on the basis of 30 days. This official method of measuring consumption is termed as MMRP – Modified Mixed Recall Period.

One of the major reasons for discussion about democracy and its effects on growth and poverty alleviation is the spectacular success of a non-democratic country, China. China effectively reduced the absolute poverty rate (PPPUS$ 1.9 a day) from 57 percent in 1993 to 8 percent in 2011, and 0.53% in 2016. However, an important caveat here. Chinese data on poverty, unlike that for most other countries, developing and/or advanced, is NOT based on publicly available unit level data for households. Instead, the Chine government “releases” the household data in the form of ventiles (5% of the population) for both urban and rural households to the World Bank. These data are then processed by the World Bank and the results termed as data from China. In contrast, every household data from India (excluding the universally acknowledged bad quality data for 2017-18) is scrutinized by all – graduates students and professors and policy makers from across the world.

Regardless of the source and/or validity of the data, China has had high poverty reduction. This poverty reduction, not surprisingly, has been accompanied by strong per capita growth; close to an average of nine percent per annum1993-2016. Amartya Sen has for decades been emphasizing that China has both delivered growth and quality of life, an important aspect of which is poverty reduction.

India’s record of poverty reduction: extreme poverty was 48% of the population in 1993 which declined to 23.6% in 2011/12. However, as measured by MMRP, the headcount index of poverty in India was only 12.2% – or just 4 percentage points higher than China.