The Indian economy also has much to thank the Constitution for

As Ambedkar had argued, that would amount to “taking away the liberty of people to decide the social organization in which they wish to live.”

This principle was cited by India’s Supreme Court in its recent 7:2 ruling that said not all private property can be deemed a “material resource of the community” for redistribution under Article 39(b) of the Constitution. Contrary interpretations, as it noted, had the imprint of an ideology that was over-invested in public ownership at the cost of private.

Speaking in the context of how our ‘mixed economy’ first underwent “socialist reforms” and then “market-based reforms,” the apex court observed: “India’s economic trajectory indicates that the Constitution and [its] custodians—the electorate—have routinely rejected one economic dogma as being the exclusive repository of truth.”

A Constitution placed above ideology has served India well. In 1991, it gave us the space for a smooth shift in course, and it was India’s embrace of market forces, marking a break from socialist policies, that enabled the expansion of our economy to a size that lets us aim for rich-world standards of living today.

The big irony, however, is that we have reached a stage where even capitalist fortunes look reliant on socialist ideals—like redistribution. Electoral feedback from Maharashtra, a better-off state, suggests that cash handouts are popular. Other political signals also indicate that some kind of a universal basic income would please the Indian electorate.

Perhaps this was always a given in a country of enormous income gaps, but aiding have-nots has been lent extra urgency by recent divergence patterns. While it’s not literally a K-shaped story, the past half decade or so has seen heady prosperity among the well-off while multitudes struggled just to keep their earnings ahead of inflation.

At the macro level, India’s recovery from the covid pandemic was led by profits more than wages. At the bazaar level, evidence has piled up of a boom at the upper-end and stagnation at the lower-end. Markets for many durables and consumables have shown signs of premature saturation, with sales driven by upshifts within the category instead of new users, even though low per-capita usage speaks of huge unmet potential.

Such uneven consumer demand may explain why a revival of private capacity-creation is taking so long; even non-financial businesses have been inclined to invest in financial assets instead of factories. If people were less hard-up, consumer markets and the economy would expand faster.

The situation we’re in doesn’t make a slide back to socialist policies inevitable. Cash transfers and other redistributive tools may be useful within safe fiscal limits, but the pivotal question is whether an economy’s resources are directed more by demand and supply in free interaction, or by central diktat.

The former is a market formula that all successful economies have deployed (to varied extents), while the latter enables a welfare state to satisfy calls for equity. Structurally, our mixed economy has the state playing a large role (with scope for reduction) even after its pro-market remix.

For efficiency gains, we need further market reforms. We also need welfare, of course, but mustn’t let resource allocation get all statist again. Thankfully, the Constitution lets us search for an optimal mix.