The Indian Economy: The Debate on Growth and Welfare

Economists once used the term “A Hindu Rate of Growth” to describe India’s economic performance in the 60’s. The label invoked the image of an elephant plodding steadily forward at a rate of 3% per year—not poor growth, by any means, but disappointing in comparison with the double-digit figures experienced by its neighbors, the East Asian Tigers.[i] Since the economic reforms in 1991, and the liberalization of the Indian economy, India’s elephant plod has picked up its pace. India grew 6.3% between 1988 and 2006.[ii] During the global financial crisis, India’s economy hardly rippled, with 6.7% growth, climbing even higher to 8.5% in 2010-2011[iii]. Although India’s GDP growth has been stalled over the past two years due to rampant corruption, a failure to implement fundamental market reform, and the global recession, India’s economy nevertheless remains expanding, whose GDP growth this year measures 5%, and is projected to climb higher to a 6.4% growth rate in 2013.[iv]

This economic expansion, however, does not immediately translate into jobs or an even distribution of wealth to the people. While India boasts a considerable middle class of 300 million, and adds millions of jobs every year, only few have access to these benefits. There is little social mobilization. In both rural and agricultural areas, approximately 300 million remain in poverty, not to mention the social barriers the lower-castes continue to face when they apply for jobs.[v] Today, India’s “Hindu rate of growth” applies more to the government’s ability to provide basic necessities for its people than it does India’s economic performance. Indeed, India’s economy no longer plods. Between 2003 and 2010, it stampeded. The question, then, is how the government can recover the power of this economic stampede through improved policy making so that a larger proportion of society can benefit.

Indira Rajaraman, a former member of the 13th Finance Commission, came to speak with my UVA foreign exchange program group in 2011 to outline to us the many issues facing India’s economic development. She opened her lecture with an article from the financial times by James Lamont: “High Growth Fails to Feed India’s Hungry.” The thrust of Lamont’s article criticized the Indian government for pursuing double-digit growth rates while much of its population remains malnourished. Niraja Jayal, in an article on the role of Indian civic society, states that “Indian democracy is flawed….most notably in its failure to ensure the provision of minimal basic needs for its citizens” such as food, water, and education for its people.[vi]

On the surface, Lamont’s assertion seems plausible. We spent a week of our program in New Delhi, the commercial and governmental capital of India. Billboards fought for every square inch of pubic space on buildings and roadsides, advertising the newest in fashion apparel, Airtel technology, or Tata products. The white tiled floors of shopping malls sparkled as we drove past; black manikins styled purses, dresses, and hats in the doorways. We couldn’t look out the bus windows without encountering the arched concrete back of a highway with people honking and rushing to work, buses crowded with businessmen with briefcases in their lap, or a skyscraper thrusting its head into the sky, as if to shout, “Yes, this is the face of India, this is India shining!”


Photo of a shopping mall in India neighboring our hostel in Faridabad

The “shining” skyscrapers threw into sharp relief the other face of India outside the bus windows. One night, on the way back to our hostel in Faridabad, the bus stalled in the traffic. Outside, underneath a highway overhang, a father lied in the dirt with a blanket wrapped around him, staring at his daughter near the curb of the highway. His daughter appeared no older than five or six. She sat with dirty bare ankles and feet with her knees tucked into her arms, shivering and staring at the ground. Her sister borrowed something from their father, and they started a fire. The bus moved on. The little girls’ fire was not uncommon in the New Delhi night. Underneath the artificial light of the skyscrapers, charcoal and red fires warmed the hands of the homeless. Others slept in slums, makeshift accommodations of cardboard, stray brick, metal, and sheets of fabric. Sheet-lines tied between trees displayed, in bright colors to rival the billboards, the few worldly possessions of the city’s dispossessed.

The skyscrapers shine in the sense that they are lighthouses to the Indian countryside, and attract migrants from as far as Bangladesh with the possibility of seizing some of the wealth of the rapidly rising city. The problem is that New Delhi’s economy, despite the rhetoric of an egalitarian, meritocratic, and socially mobile liberal market by the middle classes, is not open to all.[vii] Indeed, in the course of our program, we have stayed at the homes of three affluent Indian businessmen: Mr. Veda, Surabhi’s father, and Anjali’s uncle. Mr. Veda founded his own company, Surabhi’s father designs shoe boxes, and Anjali’s uncle works as an executive for CitiBank. All of these men had college educations, at least two of them in America. The migrants who show up in Delhi to add a little extra income to feed their families don’t even have access to primary educations.[viii]

It is tempting to say, like in James Lamont’s financial times article, that growth is being promoted at the expense of the poor. While certain aspects of the widening capitalistic divide are true, and while India’s middle class does appear to be populated more through self-progeny than social inclusion, it is nevertheless a simpleminded approach in analyzing the developmental problems facing India. Equitable development isn’t so easy as either / or, and indeed, both growth and poverty alleviation can be pursued in concert. Oftentimes economic growth provides the wherewithal—the money, capital, and ideas—to bolster the developmental process. According to the coordinator of the UVA alumni luncheon, the number of cell phone users is increasing dramatically by millions per month. If one extrapolates, this means that soon over 750 million people will own cell phones, and the infrastructure for old-fashioned telephone lines will no longer be needed in the village. Further, though malnutrition rates in India are still high, they have nevertheless dropped with India’s economic boom, from 51% in 1999 to 45% in 2006.[ix]

The main problem, then, is regulating and controlling economic growth, so that it benefits extend to all of India’s citizens. This responsibility falls within the hands of the national government, the state governments, and the bureaucracy, which have had varied successes in implementing such policies. An example of this “varied success” can be found in the developmental pockets across the Indian countryside. While growth is highly concentrated in such states as Maharashtra, Gujarat, Karnataka, Tamil Nadu, and Harayana, states like Bihar, Uttar Pradesh, and Orissa still remain impoverished.[x] As several students and I found out, it is only a twenty-minute metro ride from Delhi to Uttar Pradesh, from the richest state in India to the poorest. Luce describes this juxtaposition nicely when he says the Indian economy is a “modern and booming service sector in a sea of indifferent farmland.”[xi] Indeed, when we exited Jaipur on our return trip to catch our international flight out of Delhi, I spotted, outside on one of the fields, a man tilling his field, arched over and pushing against a wooden plough led by two oxen.


Bridging the gap between these two worlds is easier said than done. Since the financial reforms in the 90’s, India’s economic policy has become increasingly decentralized, and states have become the primary actors behind investment attraction and development. This phenomenon partially explains the asymmetry of growth between states, and why states like Uttar Pradesh, whose political arena is dominated with problems of social justice and caste politics, lags behind that of Delhi. [xii]Another problem is corruption, and the fact that even the best thought out policies aren’t always implemented in the way they are planned. Both Mr. Veda and Indira Rajaraman agreed that India has some of the best laws in the world, only no way to enforce them.

In recent years, the national government has replaced the state’s constitutional role of providing for the welfare of its citizens. The UPA’s social expenditure has risen to a large percentage of the national budget. In order to avoid the state bureaucratic apparatus (and lining politicians’ pockets), the national government has set up offices in the state to establish direct relations with the panchayat local governments. When money is given to the village, it is easier to hold a representative or bureaucrat accountable rather than miles away safe behind his desk in the capital city. Taking the relations between the national and local level a step further, one might pose the question, “Why not just give money directly to the poor?” This idea was resurrected at the UVA alumni luncheon. I overheard a woman named Priyanka and a journalist for Outlook discuss the viability of an identity card program, where every Indian citizen would have an account, and money would be directly transferred.

In my mind, however, this does not completely ensure freedom from corruption either. The national Congress Party is often times just as corrupt as its state counterpart, and has recently been involved in a scandal for the illegal allocation of spectrum technology to mobile phone companies. During the UVA Luncheon, an MP of a neighboring state came to visit with us, and I had the opportunity to confront him about corruption in government first hand. I asked about what kind of corruption he encountered in his day-to-day life, and what he did to avoid it or planned on doing in order to eradicate it in the future. He evaded the question, answering, “The system is good. It is the implementation that is the problem.”

The MP’s answer carried with it another heavy connotation. Rather than talk about his experience with political corruption, he instead points a finger at implementation, a term which may range from the bureaucracy to the state administration. This is troublesome because it highlights Indira’s point that, since the national government has adopted the constitutional welfare policies of the states, the responsibility of who is to blame has become blurred. After the telecom scandal, Sonia Gandhi gave a speech on the necessity of cleaning up the corruption of the Congress Party. To be fair, this MP helped to reform the Congress party by reinstating elections amongst the youth, which will undoubtedly help in ending the Congress system of patronage. And, according to his track record, he is also dedicated toward developing the poorer villages of his home state. As Luce suggests in the opening quote to his second chapter, corruption is not the exception, but rather the rule to doing politics in India.[xiii] However, until both the national government and state government can clean up their problems with corruption, development, profligate government spending, and hand-to-mouth welfare programs, an equitable distribution of India’s newfound wealth will be a slow, plodding process.

(This article was initially written in January of 2011. Pertinent facts have been updated for 2013.)


[i] Arvind Panagariya, “Distinguishing Four Phases,” in India: The Emerging Giant

Oxford: Oxford University Press, 2008, pp. 3-21, p. 7

[ii] Ibid, 21

[iii] “India’s GDP Grows at 8.5% in FY-2011, Q4 Growth at 7.8%.” The Economic Times.

N.p., n.d. Web. 20 Aug. 2013.

[iv] “Indian Economy to Grow at 6.4% Rate in 2013: United Nations.” The Economic

Times. N.p., n.d. Web. 20 Aug. 2013.

[v] Poverty Analysis –. World Bank. Web. 20 Aug. 2013.


[vi] Jayal, Niraja. “The Role of Civil Society.” The State of India’s Democracy. Ed. Sumit

Ganguly, Larry Jay. Diamond, and Marc F. Plattner. Baltimore: Johns Hopkins UP, 2007., p 143

[vii] Leela Fernandes and Patrick Heller, “Hegemonic Aspirations: New Middle Class

Politics and India’s Democracy in Comparative Perspective,” in Rina Agrwala and Ronald J. Herring (eds.) Whatever Happened to Class? Reflections from South Asia Lanham Md: Lexington Books, 2009, pp. 146-165, p 15

[viii] Luce, Edward. “The Burra Sahibs.” In Spite of the Gods: The Strange Rise of Modern India. New York: Doubleday, 2007. N. pag. Print.

[ix] Lecture, Indira Rajaraman, 2011

[x] Ibid.

[xi] Luce, Edward.  In Spite of the Gods: The Strange Rise of Modern India, p 25

[xii] Ibid., 135, 136

[xiii] Ibid., 64 and 78