How bad political equilibrium in India makes for bad economics

This is the second of a two-part series. Read the first part here.

India’s youth population is growing rapidly, fueling mindless predictions of a demographic dividend that will power a surge in savings, investment, and growth. For 75 post-independence years, India has failed to create adequate numbers of dignified jobs, pushing the country toward a dangerous tipping point. With job opportunities scarce and new job-seekers multiplying, India is rushing into an imminent demographic disaster.

Recently, 25,000 applicants showed up for the recruitment of 2,216 airport loaders, resulting in a stampede-like scene as desperate seekers vied for attention. In another instance, 1,800 aspirants arrived for just 10 jobs, causing chaos and risking safety. Such episodes, one particularly horrifying example of which I narrate in my book’s Epilogue, occur daily across the country. Private businesses hire too few, leaving most job seekers to pursue government jobs. From 2014 to 2022, 220 million young Indians applied for just 0.75 million government positions. The simmering frustration increasingly finds expression in violent reactions.

The simple truth is India faces a mind-boggling jobs’ challenge. Of the country’s 1.4 billion people, about a billion are of working age (15 years or older). Of these, about 670 million are in the workforce, the other 330 million are neither working nor looking for a job. Nearly half – 46% – of those are in agriculture.

Alarmingly, over the five years between 2018 and 2023, as the share of those working in agriculture increased, 70 million more working Indians crowded into that already overcrowded, low-productivity sector. People engage in agricultural work only when left with no other choice: farm sizes are shrinking, groundwater levels are falling, and suicides among debt-burdened farmers (cynically undercounted in national statistics) have become endemic. Menacing clouds are gathering over agriculture. A healthy economy moves people out of agriculture into urban and industrial jobs. India’s economic structure is catastrophically regressing.

Recall that Indian “workers” are not necessarily employed in the commonly understood sense. Most “share” work on farms and in small urban businesses. Two or sometimes three people do the work of one person. Others find work only for part of the year. India’s employment problem is one of underemployment, of surplus labor that can stop work without causing loss of output. Probably 200 million people are severely underemployed: although they need more income, they cannot find more work. For this reason, the Indian “unemployment rate” refers only to the the relatively small numbers who can afford to be unemployed not to the multitudes stuck in partial work.

Let it sink in: at least half a billion Indians are without adequate work (over 300 million who do not work and do not look for work and over 200 million who are underemployed). Every year another almost 10 million Indians reach working age. They add to the backlog of those outside the workforce, the underemployed, and the unemployed. India’s political and policy leadership is paralysed by the gigantic task it faces.

Unsurprisingly, despite the country’s large population size, the Indian domestic market remains small because too many Indians have limited earning potential. Sadly, Indian leaders have not absorbed the implications of the small domestic market, refusing to foster expansion into global markets, a development path that East Asia pursued so successfully. Pioneered by Japan nearly a century ago, countries on this path maintained a competitive exchange rate to expand sales to a vast international market, educated their children to help them grow up as productive workers, and integrated women into the workforce.

India’s leadership, however, views a strong exchange rate as a symbol of national virility, which is unfortunate because India’s unproductive economy needs the help of a weaker rupee to sell labour-intensive products at globally competitive prices. While policymakers may eventually see sense and allow the rupee to weaken, deep gender inequalities and failures in mass education present formidable obstacles. The tentacles of gender discrimination extend far, manifesting in the horrific and frequent episodes of violence against women, including a daily drumbeat of rapes. India often ranks high, even at the top, in international rankings of violence against women, with particularly high incidence of rape. The toxic mix of wealth and caste inequalities, overlaid by Hindutva’s hypermasculinity, embeds such violence against women.

And, Indian education is at risk of deteriorating further or, at the very least, falling much behind rising education quality standards elsewhere in the world. By the early 2000s, Indian authorities had enrolled almost all children in schools but that only revealed a harder problem to tackle. Surveys of learning outcomes have kept reminding us that the schools rarely educated the children. Stanford University’s Eric Hanushek – the world’s preeminent scholar on the tight relationship between education quality and growth – estimates that only about 15% of Indian school students have the basic reading and arithmetic skills required for an international economy; 85% of Chinese children have those skills.

And China is not standing still. Since 2018, Chinese school students have bettered the world’s best in the Programme for International Student Assessment (PISA) conducted by the OECD. Successive PISA evaluations and internal Chinese assessments show ever-larger numbers of Chinese children achieving world-class levels of learning. India participated in a 2009 PISA evaluation, and dropped out after a cringeworthy performance. The repeated lesson is: low wages do not help when factory workers are unproductive.

And Indian university education is in a treacherous downward spiral. The problems are manifold. First, the pool of students that emerges from the school system has weak learning ability (high-performing students are increasingly going abroad for college education). Second, the high-stakes need for most students to take national or statewide tests for college admission has pushed many of them away from schools to coaching centers, handicapping those who cannot afford the expense and depriving all of social and bonding functions schools serve. Cheating in these exams is becoming more common, accelerating the decay of norms, and placing a question mark on the quality of students being admitted.

And, finally, teaching quality is slipping at colleges and universities. India’s well-known, outstanding engineering and medical colleges have limited capacity. Large, public universities are suffering from a multitude of problems: poor administration, too few well-qualified instructors and professors, and an increasing priority to aggressive Hindu nationalism. The decay of Delhi University, described so poignantly by the historian Mukul Kesavan, is but the most glaring example of the state of Indian university education.

I have described at some length how India’s two central developmental deficiencies – in job creation and education – are becoming more entrenched and complex to resolve. On other matters, I can be brief. On health, life expectancy continues to improve despite the Covid setback. But poor public health and nutrition are reflected in stunting among children and anemia among women, both of which remain stubbornly high. A particularly serious concern for most households is the unmanageably large out-of-pocket expenses they incur when they fall ill. Cities continue to be unlivable for the vast majority. For them, housing is cramped and unhealthy and commuting costs to their places of work are too burdensome. And the judicial system seems more broken by the day. The number of pending cases increases relentlessly, leaving thousands of cases unresolved for years, if not decades. Custodial deaths are all too common. The judicial overlords make high-minded statements about life and liberty but defer to the state in its use of coercive power. And on major policy matters, Indian courts have become a rubber stamp of the executive, having ceased to exercise any check on executive powers.

But perhaps India’s greatest moral failure is in the damage being being inflicted on its environment, eroding the legacy being left for the coming generations. The country’s abominable air quality gets much of the attention (for good reason). But a vastly more serious, and ultimately devastating, problem is the degradation of the nation’s water supply and quality. Effluents from homes and factories have been polluting Indian rivers for decades. Detergent levels wildly in excess of the normal cause rivers to “froth.” Rampant construction over traditional water bodies such as lakes and tanks, along with construction debris in rivers and canals has clogged drainage systems, rendering cities unable to withstand heavy downpours – a now all-too-common occurrence because of global warming. (The recent death by drowning of three students in Delhi is but the latest example of this growing environmental tragedy.) And not least, illegal sand mining continues despite occasional law enforcement efforts. Dredging river beds of their sand, stones, and gravel dries up the beds, prevents the natural replenishment of groundwater, and damages crop production by changing the river’s course. And sand mining sustains one of India’s largest organized criminal networks. Altogether, the collective failure to protect water resources hurts the poor most severely, since the rich and well-connected are able to escape the adverse effects of shortage and pollution.

More examples of the dangers of environmental damage amid accelerated climate change are increasingly evident. Air pollution along with the mowing down of pristine forests – increasingly encouraged by lax regulations – makes heatwaves worse. Melting glaciers increase the frequency of landslides along mountain slopes crowded with ill-conceived and often unauthorized roads, commercial properties, and housing. Rising sea-levels hasten the pace of coastline erosion due to reduced tree cover and excessive construction.

Every part of the political system works, as if, to deepen and accelerate India’s long-term development deficiencies. The general elections in April-May 2024 raised the hope that India, which had become a virtual autocracy, may be experiencing a revival of democracy in which the government would respond to the people’s immediate and long-term needs. But is that hope wishful thinking?

The lack of ideas and accountability in Indian politics

In the recent general election, many voters gave priority to their material interests over Hindu nationalism, delivering a shock to the ruling Bharatiya Janata Party (BJP). In doing so, they demolished the “India on the move” hype propagated by international and domestic elites. The hype – built on exaggerated GDP growth numbers and detached-from-reality declarations about the end of poverty – faced its most brutal repudiation in Uttar Pradesh.

Despite Prime Minister Narendra Modi’s claims of UP being on the “frontline” of progress, the state remains a poster child of economic backwardness and poverty. Its voters rejected the notion that Hindutva should overshadow their demand for a better life. They refused to be swayed by the inauguration earlier this year of a temple dedicated to Lord Ram in Ayodhya. Construction of that temple, built on the site of a 16th-century mosque that Hindu extremists demolished in 1992, had long been the rallying cry for Hindu nationalists.

Indian democracy deserves one cheer for this outcome; more applause must wait. Voters expressed their material needs mainly through caste-based demands. While caste identities inherited by birth place many at economic and social disadvantage, the demands of the finely divided caste groups often conflict and are impossible to satisfy without a progressive social democratic agenda to expand opportunities – an option no party has offered.

The resurgence of caste interests reflects diminished hope for a future that is both expansive and inclusive. Uplifting and giving dignity to the oppressed is essential, but the election fragmented the electorate rather than uniting it in pursuit of jobs and public goods such as education, healthcare, livable cities, fair judicial systems, and a clean environment. As more castes feel economically marginalized, their focus on reserved jobs, college admissions, and representation has created a zero-sum game.

Also, the transformation of caste-based politics into electoral successes for the opposition Indian National Developmental Inclusive Alliance (INDIA) was largely due to the strategic unity among traditionally rival parties. Their unity prevented vote-splitting, which in the first-past-the-post system would have favored the BJP. Importantly though, despite their focus on social justice, the INDIA-alliance parties failed to present a cohesive economic and social strategy, leaving voters without a vision for progress. More jobs and the provision of long-term public goods remain empty slogans.

As a result, despite the shock it experienced, the BJP managed – with the help of its core Hindutva constituency and coalition partners – to form a government. Hindutva’s hold persisted, diluted in a few places, but with an iron grip in others. Additionally, Hindutva spread its geographic tentacles. The BJP and Hindutva could regain dominance with small vote-share shifts or better seat allocation.

More worryingly, the election revealed deepening pathologies in Indian democracy, which gives voters limited political choices to improve their material interests. While voters generally make the best-informed choices they can, the self-serving political class cares little for the public interest. The share of thugs in the Lok Sabha – those with serious pending criminal charges – reached 31%, continuing its relentless increase. Barring rare exceptions, political aspirants treat politics as a business to enhance their power and enrich themselves. Voters can vote leaders out, but because one venal politician replaces another, they cannot enforce democratic accountability.

The result is a bad political equilibrium. Realising that they cannot expect any better from their leaders, voters have learned to demand immediate tangible benefits – not just reservations but also cash and in-kind transfers. This focus on the immediately visible overshadows the demand for the longer-term pursuit of jobs and public goods, which bolster everyone economically and promote social cohesion. As this election reminded us, no one has an incentive to change the system. The focus on short-term political gains is set to continue, as will the neglect of the long-term.

Indeed, political leaders, freed of the obligation to improve people’s lives, have aligned with the interests of the elite. Authoritarianism in the form of the state’s use of coercive power blends with this elite-driven polity. While it is early to give up hope, It would be a mistake to see this election as reversing Indian democracy’s decline. Almost certainly, there is little hope of fresh ideas to improve people’s lives or to be accountable to them. Indeed, without new ideas and greater accountability, democracy’s decline will accelerate.

Will anything change?

As we look into the crystal bowl, of this we can be sure: the basic developmental model will remain unchanged in favor of big business. Signaling that continuity, India’s two biggest tycoons, Gautam Adani (with wife Priti) and Mukesh Ambani (with son Anant), were featured guests at Prime Minister Modi’s swearing-in ceremony. There they mingled with Bollywood stars in an orgy of power, money, and glamour.

To keep the coalition partners in good humor, especially Andhra Pradesh Chief Minister Chandrababu Naidu, perhaps new favorite tycoons will join the chosen few. But we should not expect action on agrarian distress, jobs, and public goods. No party promised anything because no one has any ideas about how to address these deep-rooted and intractable problems. Instead, invocation of a magical technology wand to leapfrog development deficiencies will continue.

In place of development, cash and in-kind handouts will surely increase and, as Bihar Chief Minister Nitish Kumar’s presence in the ruling coalition might require, caste-based reservation will gain greater prominence in the name of social justice. Thus, unable to grow the pie, the political leadership will seek ways of dividing it into finer slices. Political tribalism will increase.

Surely, there are limits on how finely the pie can be divided before running into budget realities and the limits of reservations. Meanwhile, as high-minded caste-based reservation transforms into unmanageable social conflict and disorder, working conditions for labour will deteriorate further, foreshadowed in the abuse of contract labour in factories and even in educational institutions that represent the India brand.

Not recognising the intellectual vacuum within which Indian politics and economic policy operate, many progressive commentators are disappointed that the INDIA alliance failed to gain a parliamentary majority and a claim to form the government. The alliance partners, however, should count themselves lucky that they did not win. They have no solution to India’s immediate economic problems or its long-standing development deficiencies. Better to let the BJP fester in the mess which, although a product of several past governments, it made worse.

Bigger question marks hang over the practice of Indian democracy. The aggressive Hindutva agenda, characterised by lynchings of Muslims and persecution of Hindutva dissenters, may pause, although recent reports are not encouraging. Sadly, all political parties have adopted a soft-Hindutva stance, competition for Hinduness has become more common among political leaders, films have an increasing Hindutva tilt, and H-pop has made cultural inroads. The notion of India as a Hindu nation has seeped in very deep. Despite two secular coalition partners the Prime Minister has no Muslim in his Cabinet, signaling a continuing bias against Muslims.

The other authoritarian tendency, the prosecution of political opponents and critics could slow down, but again – as recent evidence suggests – is unlikely to stop. The reality is that with so much money and criminality in politics, a plausible case for corruption is possible against virtually anyone. And, as with the elite-favoring model of economic development, draconian preventive detention and money laundering laws pre-date the Modi era; and no party campaigned to repeal them. Modi lost no time in making his intention clear. He would, he said, “strike hard at corruption”. Translation: he will use the state’s coercive power against political adversaries.

As for suppression of critics, within days of the new government assuming power, the writer and activist Arundhati Roy was charged under the draconian Unlawful Activities Prevention Act for a 2010 statement that Kashmir was not an integral part of India. Claiming sovereignty over Kashmir – and decrying those who appear critical of those claims – is always a politically winning rallying cry.

Reacting to Roy’s prosecution, an editorial on the Article 14 website despairingly concluded: “What felt like a new morning for democracy after the general election was a false dawn.” That despair is understandable. It applies not just to the state’s misuse of its coercive power, but also to the economic model we can realistically expect, and to the influence of Hindutva in politics and social relations.

That said, the first-past-the-post electoral system did give the opposition deserved breaks, and a dawn might yet break. But in harboring such hope, we must remember that the pervasive degradation of politics is hard to reverse. India’s has the facade of democratic institutions and rule of law. But the erosion of norms and accountability is eating away the foundations of institutions and law. This is the “bad equilibrium”: if everyone around behaves deviantly, doing otherwise threatens survival. We can expect a more fractious public arena, but we should not interpret the drama as indicating a healthy democracy. People’s lives could well get worse as the problems of the past accumulate.

In a bad equilibrium, pathologies fester. The jobs’ crisis worsens, and we blithely speak of a demographic dividend. Hyper-individualism reigns, inequalities deepen, power relationships become more entrenched. Political and intellectual elites take refuge in handouts as a “new welfarism”, undermining true welfare aimed at social progress. The education system falls apart, violence against women remains unchecked, judicial backlogs grow. Landfills rise into garbage mountains, rivers die, heatwaves take heavier tolls, groundwater levels fall, and farmers’ suicides persist. Persisting pathologies numb the mind, and become the norm. A moral commitment to collective advance seems naive. This is a moment for broader social reflection.

Ashoka Mody has recently retired from Princeton University. He previously worked for the World Bank and the International Monetary Fund. He is the author of India is Broken: A People Betrayed, Independence to Today (2023).