The Dark Side of India's Emergence as a Global Superpower
- India is currently the first or second most populous nation on Earth and one of the world’s fastest-growing economies. But the narratives Westerners hear about its emergence as a world superpower are flawed, says Indian-born economist Ashoka Mody.
- Ashoka’s book “India is Broken: A People Betrayed, Independence to Today” takes a hard look at the nation’s recent history and contemporary challenges.
- Ashoka shares insights on why India lags behind other Asian countries in economic development and what it can do now to improve the lives of its citizens.
In 2018, when economist Ashoka Mody became an American citizen after living in the United States for almost 35 years, he felt conflicted. To be more specific, he felt “a sense of emotional rage.” Because India does not allow dual citizenship, Ashoka had to give up his Indian citizenship.
But his father reassured him that “you will always be an Indian at heart,” Ashoka recalls.
It is with that kind of fierce affection he wrote “India is Broken: A People Betrayed, Independence to Today,” an incisive analysis of the political, economic and cultural forces that shape a country on the cusp of becoming world’s most populous nation. As the title suggests, he has a somber view of the harsh realities of life for most Indians today.
Yet he calls himself an idealist. He has hope for a better future built on education, health care, judicial reform, job creation and addressing climate change.
India is an ancient culture but a young nation. It celebrated 75 years of independence in 2022. Its populous is young, too: Globally, one out of every five people under the age of 25 live in India. And it’s one of the world’s fastest-growing economies. The International Monetary Fund (IMF) forecasts that India’s GDP will increase by 6.1% in 2023 and 6.8% in 2024. Morgan Stanley is bullish on the Indian stock market. McKinsey claims the 21st century will be the “Indian century.”
But the lived reality of the Indian people doesn’t reflect that kind of optimism. Ashoka sees progress as “halting at best” and decries an erosion of social norms and public accountability. His prescription: more decentralized, community-based governance — and what Alexis de Tocqueville would call “civic consciousness.”
My colleague Kevin Coldiron welcomed Ashoka to an Ideas Lab episode of Top Traders Unplugged to talk about the challenges and opportunities India faces today. In this post, I share highlights from their discussion about the country’s economic development after independence in 1947, as well as a warning about the precarious state of democracy in the place nearly 1.4 billion people call home.
From IIT to the IMF and beyond
Ashoka was born, raised and educated in India. His father worked for the country’s central bank, which meant his family lived in some of India’s biggest cities: Calcutta, Delhi, Bombay and Chennai. He earned a bachelor’s degree from the elite Indian Institute of Technology at Madras. But “although I graduated in electronic engineering, my heart was always in economic development,” he says.
He went on to study Applied Economics at the Centre for Development Studies in Trivandrum, and then came to Boston University to complete a Ph.D. in America.
“From there, life just took its own course,” he says.
He did a brief stint at Bell Labs before joining the World Bank, where he worked from 1987 to 2003. He also served in the International Monetary Fund’s European Department, where he was the chief IMF representative to Ireland during that country’s troika bailout.
“In some ways, the high point of my professional life was doing the bailout of Ireland in the midst of the global financial crisis,” he says.
Now, he turns his attention to the daunting problems of poverty, environmental justice and gender inequality in his native land.
India’s arrested development
“There’s been a narrative about India which has been prevalent at least since the early ’90s,” says Ashoka. “India is a country ‘on the go,’ a competitor of China. People often used India and China in the same breath for a long time. Then China raced ahead … [and there] was this notion that India will become a counterweight to China.”
Although he acknowledges that he belongs to the “first-world” part of India, he sees a disconnect between the upbeat narrative we hear from the Indian government (and the Western elite) and the messier, more difficult truth.
He felt that “telling a contemporary story was not enough — because the history [of India] is important … in the sense that once we started down a certain path, the choices increasingly became limited.”
In his book, Ashoka explains that when India became independent in 1947, the country faced three challenges: to increase agricultural productivity, to create good jobs in the cities for a growing population and to compete internationally. To meet those challenges, India created what he calls “an improbable democracy,” relying on the wisdom of poor and largely illiterate citizens.
Three-quarters of a century later, those three challenges are still unmet. Some scholars say that today, India is an elected autocracy, based on the erosion of press freedom and rising violence.
“That’s quite a different story than what we often hear in the Western press,” Kevin notes.
So where did India go wrong?
Slow growth under Nehru
East Asian countries like Japan, Korea, Taiwan, Vietnam and China took their economies from agrarian to industrial in the 20th century, although they each did it in their own ways.
“Japan, by one estimate, at the time of the Meiji Revolution, had about 80% of its workforce in agriculture,” Ashoka explains. “India, at the time of independence had about 70% of the workforce in agriculture.”
Development economics is “essentially [about] transferring people out of low-productivity agriculture into higher-productivity urban jobs,” he adds. “Japan did it relatively quickly, in the sense that by the 1920s, pretty much everybody who wanted an urban job could get one. Korea and Taiwan and China did it much faster than Japan … which took almost 50 years to do it.”
This kind of transformation requires a dual effort: Raise productivity in the agriculture sector so it requires fewer workers — and create manufacturing jobs for those who leave agricultural labor. India “never really got around to doing that,” says Ashoka.
For the first 17 years of Jawaharlal Nehru’s tenure as the first prime minister of India, agriculture (as a share of the nation’s GNP) remained essentially the same before it “inevitably did decline,” he notes. Because Indian farms tend to become subdivided and smaller with each generation, agricultural jobs declined but there weren’t enough urban jobs to offset the shrinking rural workforce.
Women and children first
East Asian countries that developed faster emphasized universal primary education (including women), and they were willing to allow the “aggressive devaluation” of their currencies to create demand for their goods.
“India did not make those choices for the first 35 years after independence,” Ashoka says. “For reasons I have still not understood — except in a very broad cultural sense — there is a sense of humiliation if the currency is devalued.”
Ashoka cites a recent book by Oded Galor, “The Journey of Humanity,” in which the author argues that every industrializing country “has educated its kids and has brought women into the workforce.”
Once primary education is universal, a country can focus on secondary and tertiary education.
“That’s on the supply side if you will,” Ashoka says. “On the demand side, you want to create demand through a currency that is relatively cheap.”
He notes that “all of these countries initially produced relatively shoddy goods.” But after a while, as they become part of the global markets, countries with growing economies learn that the buyers they seek demand higher quality — and “that demand forces them to upgrade,” says Ashoka.
“There is this tremendous infusion of knowledge that occurs slowly at the start and then it picks up, and that’s the process of development that all these East Asian countries went through,” he says.
‘Temples’ and turmoil
For the most part, India didn’t take that path. Instead, it did what Ashoka calls “building temples.”
Instead of focusing on education and manufacturing, Prime Minister Nehru focused on heavy industry and developing a few elite universities. The newly independent India’s development skewed more toward industries like locomotives and fertilizers.
“But these were not job-creating [industries],” Ashoka says.
Meanwhile, the number of people seeking jobs kept increasing but the population’s skill base didn’t keep up. And while Nehru’s administration built a strong tertiary education system, it didn’t address the larger issues of income inequality and widespread unemployment.
Ashoka knows that he is a “beneficiary of the Nehruvian policies,” but points out that the overwhelming majority of Indian citizens didn’t have the opportunities he did. In fact, most Indians did not finish primary school until relatively recently. The country didn’t reach 100% enrollment at the primary level until sometime in the 1990s.
As Ashoka writes in the book, “How many Indian geniuses were left undiscovered?”
Insulation of the elites
As he sees it, the longtime neglect of primary schools left a legacy of poor teaching quality and corruption in the educational system. So fifth graders struggle to do second-grade-level tasks and a domino effect results. The gap between curriculum standards and their abilities widens, and about 30% of students drop out by the time they reach high school.
Those who finish secondary education are funneled to the “slew of tertiary education colleges, which are run by politicians and notables almost as a racket.”
At the same time, a small group of Indians get an excellent education — but often decamp to the U.S. to work in places like Silicon Valley and leading research hospitals. The vast majority of people in India are either undereducated, underemployed or both. That’s what Ashoka means when he writes about the “two Indias.”
First-world Indians “send their kids to elite schools. Increasingly, they send their kids to colleges abroad because the elite colleges [in India] have very few openings,” he says. Wealthy Indians have “insulated themselves” from the rest of the country, from the “second” India.
“They have their own water systems. They have extremely high-quality healthcare systems. The judiciary does not function for most people … because the courts are clogged. But if you are well-connected, you can navigate the judicial system,” he adds.
For the elite, “the main point of connection with the other 98%, so to speak, is cheap labor, to have housekeepers and maids and chauffeurs.”
Democracy in peril
Ashoka argues that India is neither a strong economy nor a strong democracy.
He points to a 2023 report by Swedish research institute V-Dem (Varieties of Democracy) that categorizes India as an electoral autocracy.
“I think that sounds very reasonable in terms of the nature of the state’s use of power, in terms of the [lack of] freedom of the press and in terms of a broad lack of tolerance of dissent,” he says.
The solution, says Ashoka, lies in strong communities and local government: Tocqueville’s “civic consciousness” or Robert Putnam’s concept of “social capital,” which relies on networks, norms and trust.
“My plea, my hope, my cry is that we begin there so that that process of rebuilding norms and trust occurs,” Ashoka adds. “Hopefully, then it begins to filter up and across the country. That will be the basis for a renewed commitment to health, to education, to a judiciary that is fair, an environmental policy that is considerate of the next generation, to cities that function. Because without those, the economic and political prospects for India remain very bleak.”
This is based on an episode of Top Traders Unplugged, a bi-weekly podcast with the most interesting and experienced investors, economists, traders and thought leaders in the world. Sign up to our Newsletter or Subscribe on your preferred podcast platform so that you don’t miss out on future episodes.
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