India is recognized for two pre-dominant factors. First, it is the most populous democracy in the world. Secondly, India’s high economic growth has positioned it as an emerging global power. India’s major challenges are 25% of the population is below poverty line, corruption is pervasive, politics has religious overtones, terrorism threat is high and infrastructure requires improvement.
The prevailing mindset is that with economic growth the challenges will automatically resolve itself. As per capita income improves, corruption will reduce and politics will be cleaner. The Democracy Index 2010 prepared by The Economic Intelligence Unit gives statistical data that contradicts this assumption. India is ranked 40th in 2010 in the list of 167 countries with an overall score of 7.28. In 2008, India was ranked 35th with an overall score of 7.80. Limited political participation and flawed political culture have contributed to the low scores. This clearly indicates that though India has shown economic growth, as a democracy it has deteriorated. Hence, one cannot assume that there will be any direct correlation between improvement in democracy and economic growth in future.
Considering the world scenario also there is no significant correlation between democracy and economic growth. Authoritarian regimes economic success is amply demonstrated with economic growth of China and high per capita income of oil rich countries in Middle East. Secondly, France, Italy and Greece democracies were downgraded from full democracies in 2008 to flawed democracies in 2010. India therefore cannot presume that its economic success or global positioning will result in a better democracy.
From a business perspective, this result has significant implications. McKinsey Economic Studies Snapshot 2010 report indicates 85% respondents consider India to be a major influencers in global markets in the next five years. Secondly, 69% of the respondents said that government should make it easier for countries to do business in their country. West European countries and United States consider investment in India desirable in comparison to China due to its democratic status. Lack of transparency in government dealings due to authoritarian regime of China inhibits other democratic countries from developing stronger relationships with China. This is a clear advantage for India. This shows that India to maintain its place as an economic power has to focus on improving its democracy.
In nutshell, there are two contradictory positions from this analysis. India has grown economically while its democracy has worsened. However, to support its economic growth in future, India needs to improve its democratic governance.
What is your opinion? Do you think India can risk its democratic status for economic growth? How would you assess this as a country risk at a macro level?