India’s ascent baffles people. They see the stupendous rise of the IT industry and prosperity spreading across the nation amidst government failures and wonder, why do we need government at all? Who needs corrupt politicians and unresponsive bureaucrats? India grows at night when the government sleeps. 

Modern India is in some ways like its city of Gurgaon, writ large. Gurgaon’s disadvantage turned out to be an advantage. It had no municipality and was more or less ignored by the state government. This meant less red tape and fewer bureaucrats who could block development. Gurgaon flourished primarily because of its self-reliant citizens. They didn’t just sit around and wait. 

To rise without the state is a heroic thing, but is it wise, or sustainable? Wouldn’t Gurgaon be better off with a functioning draining system, reliable water and electricity supply, public sidewalks and parks, and public transport?

We find in contemporary India a paralysis in executive decision-making, a parliamentary gridlock, and the courts routinely dictating action to the executive. Whilst economic growth is necessary for lifting the people it is not enough. We also need honest policeman, diligent officials, functioning schools and primary health centres. India needs an effective state.

“The ‘growing at night’ strategy is no longer viable and the current slowdown in the economy is a reflection of hitting a wall with this strategy.”

The ‘growing at night’ strategy is no longer viable and the current slowdown in the economy is a reflection of hitting a wall with this strategy. The task now is to reform state institutions. The state must now come out of the shadows and become a strong liberal state. 

Such a state has three pillars:

  1. It is capable of quick decisive determined action
  2. The action is bound by the rule of law
  3. It is accountable to the people.

This was the original conception of the state as imagined by the classical liberal thinkers who also inspired our founding fathers in India as well as in the US. One factor that makes it difficult is that the three pillars don’t always reinforce each other. Too much accountability actually weakens the executive. 

The mistake that people make when they compare India and China is to ask which country will get rich first. Both countries will become middle class in the next couple of decades. But that’s not the right race. Will China fix its politics or will India fix its governance first? Whoever does that will win. And if they don’t, they both risk getting stuck in the ‘middle-income’ trap. India has always been a weak state with a strong society, unlike China that has always been a strong state with a weak society. The fact is you need both a strong state and strong society to make the government accountable. The Chinese person is always defined by the state whereas the Indian is always defined by society. 

In the process of writing this book, I myself have changed ideologically. I grew up in the idealistic days after independence in 1947. We were all socialists who passionately believed in Nehru’s dream. But as the years went by we found that Nehru’s command of the economy had taken us to a dead end. Instead of socialism we ended with statism.

I then became a libertarian committed to individual freedom and deeply suspicious of state power. The reforms were a defining moment in my narrative of Indian history. India had gained only political independence in 1947, but economic freedom in 1991.

For our vibrant democracy I give credit to Nehru, but India rose economically only after Nehru’s overregulating state stepped out of the way. As a result of this, I began to believe that the state was a second-order phenomenon. I became a believer in a laissez-faire and limited government and celebrated the idea that India was rising despite the state. 

“At a time when Western economies and their way of doing business is under a cloud a large nation is rising in the East based on political and economic liberty.”

Now two decades later, I have realised that I may have been wrong. I now realise that the state is a first order phenomenon and it can either allow human beings to flourish or it can become the biggest obstacle to their realising their potential. A laissez-faire state, a completely free market, has never existed, so the real issue is the extent and quality of government regulation. The state achieves this primarily by protecting human liberty, by guaranteeing a rules-based order. 

In conclusion, the economic rise of India has been the defining event of my life. It is not only good news for its 1.2 billion people, but it’s also an instrument for the good in the world. At a time when Western economies and their way of doing business is under a cloud a large nation is rising in the East based on political and economic liberty. Proving once again, that open societies, free trade and multiplying connections throughout the global economy are the pathways to lasting prosperity and national success. 

An extract from a three-part video interview with Gurcharan Das is also available below.

Part ll available here.

Part III available here.