India’s Economic Growth and Democracy are Negatively Correlated?

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?

6 comments on “India’s Economic Growth and Democracy are Negatively Correlated?

  1. Hi Sonia

    Once again, you ask excellent questions and provide great links.

    But I would not believe anyone who presumed to rank democracies and rated he US as 17 and above “flawed democracies” when the US has been waging a war on democracy for decades, see for example.

    I would also caution you about McKinsey materials (I used to work for them).

    Also correlation is not causality, as I am sure you know. There is a strong correlation between ice cream consumption and incidence of rape. This doesn’t mean that eating ice cream makes people sex mad, merely that both happen more often on hot days.

    By the way, Joshua Cooper Ramo does a neat job of debunking Dean Babst’s Democratic Peace Theory in Chaper 2 of his “The Age of the Unthinkable” (a book to borrow from the library not buy). The stunning thing is that thinking as simplistic as the Economist’s and McKinsey’s has guided diplomatic thinking.

    I am sure you don’t really think it is all as simple as a question of growth vs democracy.


    • Geoffrey,

      I liked this statement the best “I would also caution you about McKinsey materials (I used to work for them).” As consultants we generally are skeptical about reports and data, specially where we have the inside story :).

      I agree with you, that US and UK and in some aspects other European countries are on the pretext of war on terrorism are compromising on the principles of democracy.

      Secondly, correlation is not causailty. That is exactly the point. Indians are presuming there is a correlation between economic growth and democracy, however there is nothing like that. The two factors actually need to be addressed independently to quire an extent. And questions can be simple, it is the answers which are complex 🙂 and cause a whole lot of trouble.

      Thanks for sharing the video link and the book, I will go through them. I liked the previous link which you provided of the video- Kant’s philosphy on motives and morality. If I stretch his logic, no business is ethical.


    • Lkashya,

      I don’t think India has democratically gorwn in the true sense. We are considering Capiltalism equivalent to Democracy which is not true. Democracy means people participation, more equality, justice etc. which have really eroded in the last decade. How can we consider oursleves truly democractic when 25% of the population is below poverty line and India is the 4th unsafe country in the world for women. Muslims are still feeling isolated and do not have adequate facilities. That means around 60-70% of the population is facing injustice either due to poverty, religion or gender. The benefitting party is the upper class and upper middle class, mostly men and hindus & sikhs. So I think we are far away from achieving democracy and unless we learn to fight for it as we fought for independence nothing much will change. I think the only positive I see is Anna Hazare’s movement and other such initiatves were people have started losing their apathy and self interest, and are looking at the bigger picture.


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