The Evolution of Institutions in India and its Relationship with Economic Growth

The tepid-to-torrid transformation in India’s economic growth since the early 1980s is one of the big stories of recent times. Whereas “Midnight’s children” saw their standard of living double over forty years, Midnight’s grandchildren—the “India Shining” generation—can expect a five- or six-fold improvement in their lifetimes. But how have India’s public economic institutions fared over this period? And what is their relationship with this growth transformation? This paper represents a modest and preliminary attempt at answering these questions. On the first, this paper presents some stylized facts and new empirical evidence on the evolution in selected public institutions in India. The main finding is that, at least based on the limited number of institutions explored in this paper—the bureaucracy and judiciary-- there does not seem to be evidence of improvements in the average quality of institutions over time; if anything, the evidence leans in the other direction. The second question that this paper addresses is the two-way relationship between economic growth and institutions in India. It does so in terms of two apparent paradoxes. First, why has growth taken-off despite institutional stagnation (see Aiyar, 2006)? And the second, which is the mirror image of the first, why despite nearly 30 years of rapid growth, has there been no perceptible improvement in India’s institutions? The central message of this paper is the following.