India’s climb on the global economic ladder in the past two decades has been swift. It became a $1 trillion economy in 2007. The $2 trillion mark was crossed seven years later and now it is the fifth-largest economy. By 2030 it is expected to become the third-largest with a formidable GDP of $7.5 trillion.
Yet, if one were to examine intellectual attitudes towards capitalism in India—and there’s no point denying that its economic vitality is due to capitalism—the negative strands stand out prominently. Two examples illustrate this very well. The ongoing legal battle over the legality of electoral bonds is as much about the current government garnering a large share of donations as it is about alleged corruption by large companies. Then there is the never-ending saga of alleged malfeasance of the Adani Group. Seen dispassionately, these attitudes reflect a very negative perception of Indian capitalism; it is another matter that the real creator of India’s wealth and its march towards prosperity is its capitalist class.
How did India come to disdain this class and how did capitalism manage to survive in what have surely been a very hostile first 50-odd years after Independence?
Just as capitalism has evolved in the West so has it in India. But what is interesting are the very different trajectories and different rationales when India is compared to the West. The first thing to note is that India has a long and rich history of domestic enterprise and financial networks that goes back many centuries. Unlike the West, where the Industrial Revolution and the evolution of individualism deepened market relations, India’s colonial experience and its social structure gave its ‘capitalism’ a very different texture.
The rapid economic progress in the West, roughly from the time of the Industrial Revolution, delivered a clear lesson: Capitalism was the best system to allocate resources in the economy. This lesson took time and was delivered much after capitalism took root. That this was not accepted unquestioningly was clear from the series of booms and busts seen in the second half of the 19th century. It was also during this time that a veritable industry of people who questioned capitalism emerged. Francesco Boldizzoni, a scholar of ideas about the demise of capitalism, lists four kinds of theories about its imminent demise. These include theories about its implosion. Karl Marx and the 20th-century American economist Paul Sweezy are examples of this line of thinking. Another set of theories centre round the claim that capitalism will exhaust itself over time. The proponents of these exhaustion theories include John Stuart Mill in the 19th century and John Maynard Keynes in the 20th. Then there are theories about the convergence of capitalism and socialism based on how technology will push the two systems in the same direction over time. The proponents of this thesis included the Austrian Marxist Rudolf Hilferding and the American economist John Kenneth Galbraith. Finally there are theories about how the ‘contradictions’ of capitalism lay in the cultural and not economic sphere as Marx had prophesied. The champions of this idea included the Austrian-American economist Joseph Schumpeter and the American intellectual Daniel Bell.
Boldizzoni has shown that none of these theories about the demise of capitalism ever came to pass, though there were some near misses. In Foretelling the End of Capitalism: Intellectual Misadventures since Karl Marx (2020), he showed these theories were erroneous due to limitations of human cognition, theoretical flaws—especially the underestimation of culture as a force in human affairs—and, finally, what he describes as the “Enlightenment mind-set” of these thinkers. The latter implies that any system replacing capitalism was bound to be an improvement over it although there were no reasons—except for “imagination”—to make such claims.
In the end, capitalism survives because of its innate flexibility and its record of efficiency when compared with other systems like socialism and mixed economic systems.
India never underwent the actual economic processes and the intellectual understanding of how capitalism worked. India’s experience of colonialism ensured that it could not undertake a process similar to the Industrial Revolution. India’s history in the second half of the 19th century shows how its indigenous entrepreneurial class—that wanted to move from trade to industry—had to contend with a hostile colonial power. By the time independence came, the local industrial class had found its feet but had to contend with its own—Indian—version of hostility towards private enterprise. What is more, this hostility was not the product of actual experience with capitalism but was based on intellectual import of Western ideas about capitalism. This was a blend of 19th-century ideas of socialism, the alleged superiority of state-led development and, in general, hostility towards free trade.
Why not celebrate the fact that Indian companies and its big businesses are vital participants in the democratic process? But that would require a degree of honesty from India’s intellectuals to admit that capitalism is not just useful but is a system that enriches India
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It took almost 50 years and actual economic inefficiency of the government being at the “commanding heights” of the economy for some perceptible change in ideas about capitalism. It is worth pointing out that India became a trillion-dollar economy after 60 years of independence while the next trillion mark was reached just seven years after the first. No elaborate theories about efficiency of one system over the other are necessary. Facts speak for themselves.
In these dreary decades, Indian capitalism survived but it was a sheltered existence under the watchful eyes of governments that would neither let the capitalist class break chains and explore global horizons nor let it die. Unlike the West, where there were sound economic reasons for the success of capitalism, in India there were extra-economic, political ones that ensured its survival as well as limitations.
In Nehru’s India: A History in Seven Myths (2022), Taylor Sherman, a historian at the London School of Economics, shows in fascinating detail the origins of corporate funding of elections in the early decades after Independence. The problem was clear: elections in a vast country like India with adult franchise were expensive. The government did not provide funding for elections and private funds of politicians in the electoral fray were not sufficient. Enter the Indian private sector that generously provided funds for the purpose. It is interesting to note that when the Companies Act, 1956 was passed, the government allowed companies to donate money to private parties as long as the company was not government-owned and if its memoranda of association permitted such donations. Sherman notes that two leading companies quickly obtained permission from courts to change their memoranda of association. The courts permitted but one judge presciently noted that there were “great dangers” in the move.
What makes such developments fascinating is that these took place at the height of India’s experiment with socialism. Here was a government that believed that capitalism was unsuited for India and yet did not hesitate to allow the set of people running that emaciated capitalism from contributing fuel to the engine that powered democracy—its elections. Depending on your perspective, this can be a trifling matter of certain companies donating money to political parties. But in the political and intellectual climate that prevailed in India from 1950 till 1990, this was, and remains, the dirty secret of India’s democracy: Indian democracy is expensive and needs its much maligned capitalists to fund it.
The same attitudes inform the debate around electoral bonds today: Capitalism is bad (at least one leading advocate involved in the proceedings thinks so) and so is the political party getting the lion’s share of contributions from the private sector. But the contributions per se are not bad. On paper what is being argued is that such contributions should be “transparent” and that they should be “equitable”. But these are just fancy expressions for unhappiness at a particular political party being favoured. Never mind the fact that in the past, the system of political donations was far more odious and opaque.
It will be a stretch to say that elections and democracy are the raison d’être for the survival of capitalism in India but it is equally true that it forms an important, and unhappy, part of the explanation. Why not celebrate the fact that Indian companies and its big businesses are vital participants in the democratic process? But that would require a degree of honesty from India’s intellectuals to admit that capitalism is not just useful but is a system that enriches India. It would also require revisiting the history of the dreary decades from 1950 to 1990 and showing what it took to run democracy in India. It is hard to resist the temptation to use a Hollywood line here: “The problem isn’t the doing. It’s the people in power having to admit that they knew.”
Maybe a day will come when this history will see its day. But for now there are better reasons for the success and continuing enchantment with Indian capitalism: its ability to generate wealth for a new generation of Indians who are not ashamed of wealth and refuse to call it Mammon. India’s craze with startups, the race to become a ‘unicorn’ and more such phenomena are just signs that India is changing, and for the better. Hopefully, by the time India gets its fifth trillion dollar, capitalism and profit won’t be dirty words.