The state and the economy

As an emerging economy with steady economic growth, India is a counterfactual to theories that predict an inverse relationship of democracy and development in transitional societies. During colonial rule, India’s economy had remained an adjunct to rapidly industrialising Britain, turning the country into a supplier of raw material and a captive market for British manufactures. This caused India’s domestic industry and manufacturing to decline. Artisans and craftsmen fell back on agriculture, overcrowding it, and reducing the scope for mechanisation. Following Independence, the Five-Year Plans became the main institutional basis of development. After liberalisation of the economy in the 1990s, which brought bureaucratic planning to an end, corporate India entered the global market economy in a significant way. Though India is still ranked low in terms of per capita income and its manufacturing and agricultural sectors are still sluggish, at the aggregate level, India is currently ranked as the fourth biggest economy in the world. The slow pace of reform, frustrating for businessmen and investors, reflects the impact of electoral accountability, which makes it difficult for the state to achieve a consensus on structural reform of the economy, and particularly in agriculture, a subject that is sensitive and politically divisive.