A precocious, cleavaged democracy that starts out poor will almost certainly distrust the private sector. Reinforcing this notion was the prevailing intellectual zeitgeist of socialism.
The founders of India wanted to “build the country” by developing industry that would make India economically, as well as politically, independent.
The private sector had conspicuously failed to do this under colonial rule, not only in India but in every other newly independent nation, giving rise to severe doubts as to whether it could ever do so.
In contrast, the example of the Soviet Union, which had transformed itself from an agricultural nation to an industrial powerhouse in a few short decades, suggested that rapid development was indeed possible, if the state would only take control of the commanding heights of the economy and direct resources into priority areas.
Of course, while India adopted planning and a large role for the state sector, it never abolished the private sector unlike the Soviet Union.
Instead, it tried to control private businesses through licensing and permits. Paradoxically, however, this only further discredited the private sector, because the more the state imposed controls, the more the private sector incumbents were seen as thriving because of the controls, earning society’s opprobrium in the process.
Another important implication of India’s precocious, cleavaged democracy is that India had to redistribute early in the development process, when its state capacity was particularly weak.
India did not invest sufficiently in human capital – for instance, public spending on health was an un unusually low 0.22% of the GDP in 1950-51 (MoHFW, Government of India, 2005).
This has risen to a little over 1% today, but well below the world average of 5.99 per cent (World Bank, 2014).
