India’s Inequality Problem (?)
If you made bets based on Western coverage of India in the past decade, you most likely wouldn’t have a roof over your head. Year-to-year and wall-to-wall articles would bellow a prophecy of doom detailing catastrophic mismanagement and the economic pitfalls of a genocide that never came. This was narrative edging, always apparently so close to the climax of collapse, yet it just never got off. Instead of implosion, India exploded.
The ever-reviled Narendra Modi led India into a new chapter of its economic story. The renowned investor Ray Dalio has lauded Modi as India’s Deng Xiaoping, and while Modi may have a long way to truly live up to that title, he has indeed transformed India into the top emerging market in the world and in a much tougher environment than what Deng had faced. In the face of the most cut-throat and competitive democracy on the planet and with an opposition completely uninterested in reforms or development, instead panning on for India’s old socialism draped in a new wrapper, Modi has executed life-changing reforms for over a billion Indians.
Much of this rests on delivering basics. Swachh Bharat, Modi’s marquee mission of providing toilets to Indians, has caused a massive drop in infant mortality from 48.9 per 1000 births in 2003 to 23.5 in 2020. Jal Jeevan Mission, a policy to provide clean drinking water, started with only 17% of households in 2019 to 78.6% covered in 2024. More rural houses were constructed after 2014 than in the previous 29 years, with a mammoth amount of 37,400,000 houses in total. These, along with many other welfare measures, gave Indians not just material progress but basic human dignity. Not just this, but when it comes to infrastructure, many categories feature more work done in 10 years than in the previous 67 years combined. This, along with a number of backend financial reforms, digitization projects, manufacturing incentives, and various other schemes, has clocked India as the world’s brightest emerging market economy and the golden glint in investor’s eyes – all with a multi-decade low of a 4.17% unemployment rate.
But not everything shines so bright…
Special K
COVID ushered in a great divergence in Indian economics. A massive disruption began with mandatory lockdowns and homecomings of 43.3 million migrant workers, key factors in later long lingering effects. The primary one takes the form of a K-shaped recovery. Urban and upper-income households would recover with a boom, while rural and lower-income households slid down into stagnancy.
Modi would defy the world’s consensus by penny-pinching on a stimulus, a decision that would save India from much of the high inflation, but not all, that other developing and even developed economies faced. Food inflation, in particular, has been a sore spot for India’s poor. 80% of India’s poor come from rural backgrounds, and it is exactly this segment most affected by inflation in food and other non-core elements. Rural areas, many of which were flooded with returning migrant workers yet featured dried-up local industries, bore the brunt of COVID. Even by the 2023-2024 fiscal year, India’s rural employment fallback scheme, MGNREGS, was clocking in higher numbers than pre-pandemic levels indicating prolonged rural distress, some of which may be linked to migrant workers choosing to stay back.
However things are turning with time in India. Recently, rural India has shown signs of catching up to urban India’s gait. Rural consumption is now set to outpace urban, according to the most recent projections. A report in the New Indian Express points to a decline in poverty rates, agricultural growth, and wage growth, along with the aforementioned rise in consumption, to signal a convergence of the K shape. Still, this urban-rural theme of divergence will continue to be an aspect of Indian growth patterns.
Much of this, though, is par for the course of a rapidly changing economy. India’s economy is being dragged from the fields into the factories – from an agricultural economy to an industrial economy. This painful and chaotic transition is something all developed economies have experienced, but India is experiencing it in the age of the internet and a much more open democracy than other countries that have transitioned. The Indian government cannot partake in the autocratic and, indeed, sometimes violent moves that past states used to subdue their societies. This facet means India’s economic evolution will be more difficult than any other the world has seen.
The Arc of Economics
Integral to understanding this evolution in India is the Kuznets curve. The Kuznets Curve, drafted by economist Simon Kuznets in the 1950s, suggests that during the initial stages of economic development and industrialization, nations see accelerating inequality as industrial sectors grow faster and pay better than agricultural sectors. Urban areas also develop quicker than rural ones, exacerbating income gaps. After an economy settles into mature development, inequality is said to decline as the population becomes more educated and healthy, as demands for better social safety nets and redistribution set in.
Now, India hasn’t fully industrialized at all. 45% of the labor force is still engaged in agriculture, 30% in India’s outsized and very successful service sector, 24% in the now burgeoning manufacturing sector, and the rest in other small sectors. The transition from agriculture to manufacturing and other sectors is going to be very tough. With many much-needed reforms and growing pains on the way, this means a lot of political capital to execute, as we saw with recent failed reforms like the Farm Laws and labor law reforms earlier in Modi’s term.
And again, none of this is new. During the industrialization phases in America, China, and Japan, the state broke labor unions, feudal estates, and agrarian rebellions with impunity. Today, their methods would be called dictatorial and viciously anti-democratic. Forcing through market reforms, favoritism towards titans of industry, and adversarial stances towards labor all occurred in these countries. This is starting to sound familiar isn’t it?
America’s Gilded Age provides many relevant parallels to India today. Industrial giants like John Rockefeller, J.P. Morgan, Andrew Carnegie, and Cornelius Vanderbilt would work closely with the state to establish industrial sectors across America. They would violently face off against organized labor, with the US government frequently taking their side. The Pullman Strike of 1894 provides the most exemplary example of this, with the federal government sending military troops to quell a railway strike. Labor Day would be given in the bloody aftermath as a fig leaf to cover the violence. Deng Xiaoping’s legendary capitalist pivot in Communist China was marked by strident violence to force China’s industrialization and market orientation. Chaebols in South Korea and Japan’s large family-owned conglomerates (Zaibatsu) would be the vanguard of industrialization. Today, all of the above would be called tyrannical, corrupt, and anti-poor. But these countries had the luxury of a more malleable press, lack of internet access, and less foreign interference in affairs. India simply does not.
India has to contend with the wants of a million minorities and entrenched feudal groups. Mukesh Ambani, Gautam Adani, and other nouveau industrial titans are constantly demonized in India and beyond by pressure groups. Reforms to land, labor, and agriculture are framed as the gambit of India’s rich to destroy India’s idyllic relationship with its hinterlands, a long-held fetish in the Indian mind. All this is occurring in the chaotic maelstrom of Indian democracy, the toughest arena for change in the world.
This aspect—Indian democracy’s relationship with development—is seldom explored, primarily because it brings some uncomfortable truths to the fore.
Green Envy
When I traveled to India for several months earlier this year, I had to practice my terrible Hindi to get around. From every rickshaw I could find to going through villages and slums, I tried to get a read of the land and people’s experiences. One notion I constantly came across was that while people from India’s underclass would laud India’s development, many felt they were being left behind. When combined with ideas around caste and identity, this idea of unfairness is a potent political tool. This was reflected in the recent Lok Sabha elections, where Modi lost seats in many rural areas as well as vote share in lower incomes. Prior welfare and infrastructure, which won him large mandates prior, had gone through their half-life of gratitude. India’s poor want more.
I brought up the aspect of mass internet earlier for a reason. Ubiquitous smartphones mean more and more Indians can witness India’s inequality. This is not to mention the obvious inequality seen on India’s streets. Glistening glass towers of power punctuate rotting swamp-like slums, magnifying their light and might down to the sweltering garbage-laden soil of shantytowns. Indian inequality has long been taken for granted, exemplified by India’s servant culture, where India’s poor knew their place at the feet of India’s rich. But India’s economic churn and ideas of not just equality but also equity are providing a challenge to traditional relationships of economic inequality.
Combine this with India’s hyper-diversity or as I like to put it, India’s obesity of diversity, and you will see various groups quickly mobilize to thwart reforms and extort more and more from the government at every turn they can. Other industrialized countries usually gave their welfare sops to bandage the inequalities of industrialization at the tail end of the Kuznets curve and their development journey. But for India, this culture of freebies has always been in fashion. And arguably even more so now.
Taking advantage of this challenge are political parties and foreign governments. While India has centralized around ideas of nationalism in the past decade, a pushback is beginning to emerge. Inequalities between castes, as well as regions, are beginning to boil into a froth perfect for topping political rhetoric. Indian opposition parties, who have almost no penchant or intention for economic development and face mounting accusations of malicious foreign collaboration, extract hatred out of these growing inequalities. Social justice becomes societal revenge as the opposition proposes incendiary ideas such as wealth redistribution based on caste lines, flirtations with secessionist rhetoric in more well-off regions, and Lebanese-like proportional representation across various political, economic, and social fields, something that no doubt will have similar catastrophic consequences. All of these can only be achieved with or result in blood-curdling violence.
India’s open democracy and open internet are ripe for all its cleavages to be shown on every screen in India like an early 2000s music video. No amount of censorship can blur out its partitions. It must face these chasms head-on with a deft mix of making India’s have-nots feel like they are a part of the Indian story while at the same time allowing India’s animal spirits to run free with meritocracy and efficiency.
A Policy Prescription
I think the best place to start here is to examine how other countries passed through the gauntlet of development. It’s not going to be 1 to 1, but we’ll get some ideas and a feel for how to proceed. Overall, there are two main categories of policies to get through this tumultuous but necessary phase:
- Populist: Policies aiming at redistribution and making India’s less well-off feel a part of the growth story. This is especially important because of the nature of Indian democracy and the element of community envy that is rife. Modi and the BJP have to first stay in power to execute those reforms that the opposition is just not interested in, but that the Indian Republic needs to grow.
- Capitalist: The Indian state must rip Indians from the feudalism that much of the country still languishes in. This means many difficult reforms that will result in an electoral or even violent backlash. If the government doesn’t thread the needle properly here, they will find themselves out of power and their reforms repealed.
On the populist front, while India has lifted hundreds of millions out of poverty in the past decade, gratitude for the welfare initiatives that helped has a shelf life. In a political arena where various parties are competing to one-up each other in terms of freebies, even Modi’s BJP, the most economically right-wing major party in India, will have to play ball to stay in power. Modi may have to attempt a monetary homeopathy where diluted versions of the various poisonous policies that the opposition suggests will most likely have to be administered. Whether via taxation, new social security programs, or land redistribution, countries like America, Japan, and China all had to engage in these types of programs to dampen the hunger pangs of inequality during their periods of industrialization and market reforms. It’s just that in India, these programs will be coated in rhetoric around caste and community empowerment (read: extortion).
Indeed the Indian government will have to swallow the poison of populism and hold it in its throat, akin to Lord Shiva’s blue-throated labor at the churning of the cosmic ocean. But this swallowing of populism will be of no use unless the government has the stomach for reforms. Luckily, we are getting some good signs.
To address labor and agriculture, the government of India has indicated intent to execute labor reforms next year and has allocated $6 billion in incentives for states to implement agricultural reforms. While these provide hope, perhaps the most consequential reforms will be land reforms, which can balance out the spirits of capitalism and redistribution. These potential reforms will revolve around the standardization and digitization of land records. Currently, much of India’s land is under the law of tooth and claw. Feudal lords and gangsters dominate soil through force like in medieval times. Currently, only 19% of rural land has clear titles. Digitized formalization of land records will break the backs of India’s feudal lords, whose ownership of many plots remains suspect and amorphous. With black-and-white land ownership now established, the government can move on to easier buying, leasing, and selling models linked to technology such as India Stack. Redistribution from larger players staking more than they own to smaller players may also be on the cards once lines are drawn, but this is downstream of actual rule-making and shouldn’t be the exclusive aim of reforms.
The land reforms will magnify labor and especially agricultural reforms as well. Fragmented agricultural landholdings, with 86% of farmers owning less than 2 hectares, mean less potential for scaled and mechanized agriculture. By streamlining land acquisition with digitized formalization and liberalizing agricultural markets, a massive opportunity beckons on the fields of farmers. Similar benefits will accrue in urban areas as well, where around 35% of urbanites live in informal settlements bereft of formal land rights along with overall rigid zoning laws across cities.
These policies are among many that other countries have successfully adopted to conquer the growing pains of industrialization. Attracting foreign investment, increasing education expenditures, creating special economic zones, etc.… are all common paths to prosperity in this type of time period. The main idea, though, is that India must balance capitalism and populism to manage through a delicate age in its country’s history.
India’s story is one of contradictions—dizzying heights of growth paired with the deepest valleys of inequality. It’s the tale of a land where concrete towers rise beside crumbling slums, where fields still cradle nearly half the workforce even as factories hum with new industry. The road ahead is not a simple march toward prosperity; it is a dance—a delicate balance between giving a voice to the voiceless and letting ambition run free. The challenge is not just to grow, but to grow together, to pull every corner of this sprawling, vibrant democracy into the warmth of progress. The promise of India lies in its ability to craft a future where all its citizens can share in its light, no matter how long it takes to get there.
“The world is changing, and we must change with it. To stand still is to fall behind.”
-Deng Xiaoping