This brief is part of the Insights @ Center for Emerging Markets, a publication focused on cutting-edge ideas and advice for global leaders about emerging markets.

By Kathryn Slomski (Northeastern University)

In Short: Devesh Kapur is the Starr Foundation Professor of South Asian Studies at Johns Hopkins University, and Arvind Subramanian is Senior Fellow at the Peterson Institute for International Economics and former Chief Economic Advisor to the Government of India. This note is based on their talk at CEM's Vivek and Vandana Sharma India Lecture, moderated by CEM Director Ravi Ramamurti. The talk drew on findings from their book, A Sixth of Humanity: Independent India's Development Odyssey. Their core message: India's decision to democratize before it developed was not an accident. It was a deliberate choice that held a diverse and fractured country together but made sustained economic development significantly harder.

An Outlier From the Start

Every successful democracy followed one of two paths to get there: gradual democratization alongside rising incomes, as in the US and UK; or development first, democracy later, as in South Korea and Taiwan. China represents a different trajectory: rapid development without democratization. India chose none of these. At independence in 1947, it extended universal suffrage at some of the lowest levels of income and literacy in the world, across a society fractured by caste, language, religion, ethnicity, and gender. No country had attempted anything like it.

Kapur and Subramanian call this irregular behavior “precociousness.” India democratized before it developed, built high-skilled services before manufacturing, and exported talented people before it exported labor-intensive goods. Each of these features carried costs that compounded across decades.

What Democracy Gave

The payoffs of democratization were real, if underappreciated. Despite its staggering diversity and the violence of partition, India has held together. Kapur and Subramanian argue that fiscal transfers kept poorer states invested in the union, and political voice gave marginalized groups a stake in the system. Compared to peer countries at similar stages of nation-building, India's levels of internal violence were remarkably low.

Democracy also served as a monetary anchor. Because India's poor voted in high numbers and inflation hit them hardest, politicians faced real electoral consequences for letting prices run. India avoided the hyperinflationary episodes that destabilized much of the developing world and largely avoided financial crises.

What Democracy Took Away

Democracy has also come with some costs, some of which show up starkly in the country's development statistics. In 1950, India ranked 79th globally in per capita GDP. After decades of growth, it sits at 66th. On the Human Development Index, combining income, health, and education, India ranked 63rd in 1950 and 69th today. In other words, after seventy years of development, the average Indian is poorer in relative terms than when the country started. The modest improvement in GDP ranking and the decline in HDI reflect a fiscal state that distributed subsidies broadly rather than investing in health and education, prioritizing short-term electoral demands over long-term human capital. Yet these averages mask the fact that one-third of India has grown at rates comparable to China for more than two decades.

That pattern has structural roots. Public sector enterprises absorbed enormous capital for decades while yielding low returns, with Kapur and Subramanian putting the opportunity cost at one to two and a half percent of GDP annually for fifty years.

Perhaps most consequentially, electoral politics made meaningful decentralization unworkable. India has, for its income level, the most expensive elections in the world. State governments depend on urban wealth to fund those elections and have no interest in devolving power downward. Public workers end up concentrated at the state level rather than locally, precisely where roads, schools, and healthcare need to be delivered. When those services are absent, private investment follows reluctantly if at all, and the conditions for sustained local economic development never fully materialize.

What This Means for Business Leaders

The paradox Kapur and Subramanian documented in their talks is one that any serious investor or manager in India needs to reckon with. The same democratic system that kept a uniquely complex country intact also created structural conditions that slowed human development, weakened local institutions, and produced a fiscal state that has run some of the highest deficits among comparable emerging economies even during periods of strong growth. Kapur and Subramanian emphasized that India's stability is a genuine achievement but so is its capacity to frustrate. Understanding both and where they come from is the starting point for understanding what India is today.