Is Prime Minister Narendra Modi a democrat? The answer ought to be obvious as the 73-year-old crisscrosses the vast geography of India, canvassing for votes in his quest for a third term in office. But his critics in India and abroad insist that Modi is eroding India's democracy. Indeed, he is eating away at something - a democracy that was captured by vested interests. And he is turning it into a democracy that responds to the aspirations of its people.
The late American institutional economist Mancur Olson, sadly missing from the list of Nobel Laureates, wrote three influential books, The Logic of Collective Action, The Rise and Decline of Nations and Power and Prosperity, which went beyond the inconclusive democracy-vs-authoritarianism debate in examining the economic success or failure of societies and nations. His fundamental insight was this: that small groups tend to organise and act on common interests much better than large groups (in which people lacked the incentives or motivation). The latter may represent the welfare of the society at large, but it is the former who have the power.
The Case For Democracy
The insight is agnostic towards the nature of the political system. It may be presumed that in an authoritarian system, a government or leader is able to overrun vested interests more easily. On the other hand, the government or leader could be totally captured by vested interests and the people have no recourse. It isn't surprising, therefore, that there are some amazing success stories of what may be called 'enlightened authoritarianism' (like South Korea, Singapore, China), where governments were able to rise above vested interests. However, there are many more cases of destructive authoritarianism from every continent of the world.
The reason a democracy, on average, is likely to be better, is because a government/leader/system is expected to be more responsive to the will of the people. But India's economic outcomes under a democratic system are a paradox. No collective population wills itself to be so poor for so long. India's per capita income 10 years ago was only $1,500. No collective population wills itself to not have access to the means of a better life - education, nutrition, healthcare. Despite the nationalisation of banks having been carried out in 1969, by 2014, only a minority of families had bank accounts. Despite an apparent welfare state, only a minority of recipients got a minority of their share of benefits, a fact admitted by India's late Prime Minister Rajiv Gandhi when he was in office 40 years after independence. The state of basic infrastructure, whether roads or schools or hospitals, or toilets, was dismal.
A Democracy Captured By Vested Interests
Was India a democracy? Yes, it was. But it was a democracy captured by the interests of small groups. While the vast majority remained poor, there were groups that enjoyed much comfort: large farmers, a handful of businessmen protected by barriers to competition, public sector companies and employees, bureaucrats, middlemen who made a killing siphoning off funds meant for welfare or infrastructure, labour unions, political parties controlled by families, civil society outfits with "povertarian" outlooks - you get the drift.
On occasion, a crisis spurred change for the wider good. The food crisis of the early 1960s led to the Green Revolution. The Balance of Payments crisis of 1991 led to liberalisation. The fallout of the Nuclear Tests led to another round of liberalisation. But even then, the one thing that did not change was the unresponsiveness of the state machinery. After 1991, the private sector drove India forward but often ran afoul of vested interests.
Driven By Aspiration
The reason 2014 was a watershed moment was that for the first time since independence, a leader and his government had the conviction to change the nature of the Indian government and make it responsive to the aspirations of the majority. The revamp of the welfare state with extensive use of technology has provided basic amenities (electricity, toilets, gas cylinders, piped drinking water) to every Indian. It has not made every Indian rich (per capita income is no longer low but a low middle income of $2,800), but it has put them in a position to move upward. The building of world-class infrastructure (never the agenda of any small interest group) was also taken up with an efficiency unseen in the past. This is the base for attracting investment and creating jobs. The unique exercise of building a public digital infrastructure (Aadhar, UPI, the entire India digital stack) combined with cheap connectivity has provided people with opportunities to build livelihoods and improve their quality of life. And it has made the government more accountable. Big improvements in the ease of doing business have created an entire new generation of young entrepreneurs. Job-creating domestic manufacturing is receiving a long-overdue focus.
In this recasting of the relationship between the state and the average Indian, several vested interests have been disturbed or destroyed. Much sound and fury (always a comparative advantage) is to be expected. But it is this shift away from entrenched vested interests, pioneered by Modi, that is paving the way to meet the aspirations of 1.4 billion Indians.
(The author is Chief Economist, Vedanta)
Disclaimer: These are the personal opinions of the author