Caste and the Indian Economy

By Charlie Yang


It has been 73 years since the Partition of India — the division of the British Raj into two autonomous states: Hindu-majority India and Muslim-majority Pakistan — catalyzed one of the greatest human migrations in living memory and left the country in a state of unchecked violence. In that time, India has come into its independence, establishing itself as a cultural melting pot and ushering in a new age of rapid modernization.


Nowadays, it is common knowledge that India has become one of the fastest-emerging global economic superpowers; for the past two decades, the nation has seen a period of sustained and rapid growth in GDP, averaging an annual growth rate of around 7 percent. This growth has catapulted India’s 3 percent share of the world’s GDP in 1947 to 8 percent in 2017. The days of an almost zero-growth pre-partition agrarian economy are now a distant past, and India has almost halved poverty rates — lifting 271 million people above the poverty line. These numbers are impressive, and have allowed families like 5 year old Kashih Kumar’s to no longer worry about bringing food to the table; but we must still ask the age-old question: can we do better?


The answer is a resounding yes. For all its economic progress, India still has 350 million people under the poverty line; she has comparatively failed to distribute her economic gains equitably. When compared to developing or recently developed countries like Brazil, Mexico, Japan, and especially China, India’s ability to raise living standards have been subpar. Whilst it cannot be questioned that India has lifted millions of her citizens out of poverty, the fact that over 90% of workers are employed in the informal sector — industries without access to employment securities and benefits — is problematic. Economic growth is nothing if it doesn’t help people.


A Long-Standing Blemish

The obvious explanation for India’s confusing dichotomy of macro-economic progress and stagnant micro-economic growth is the Caste system; but to understand the impact of Caste on India’s economic growth, or more specifically the benefactors of this growth, we must first ascertain what the caste system is. Originating over 3000 years ago, the system is among the oldest forms of social stratification, essentially dividing Hindus into 4 sects — Brahmins, Kshatriyas, Vaishyas and Shudras (descending order of superiority). Caste has long dominated the social scene in India; upper and lower castes have historically lived in different colonies, and the Dalits (deemed as outcasts from the 4 sects) were limited only to jobs that all others shunned: sewer work, tanning hides, or picking up roadkill. It is clear that an otherwise modernizing India is being held back by these draconian discriminatory traditions.


But what, exactly, is the role of Caste in India’s economic landscape? Whilst Caste has not prevented social mobility to the same extent that it did 50 years ago, it has historically played a limiting factor in transforming India's economy into an industrial one and has fostered a landscape of chaotic politics that distracts from effective economic policy.


The Lewisian Turning Point (the equilibrium point at which a developing nation’s market moves from a state of labour surplus to one of labour shortage) states that a move to industrialization and labor demand will lead to drastic increases in real wages and living standards. Essentially, a surplus of workers (due to a lack of employment infrastructure) tend to be employed in the agricultural sector in a sort of “disguised unemployment”, when these extra workers are absorbed into the industrial sector economic development logically occurs, but so does a rise in worker wages and general enfranchisement (as they are more integrated into urban life). As India continues to make the transition into an industrial state from its agrarian nature under the British Raj, the enduring designation of lower castes in agrarian jobs has limited this transition and thus economic mobility.


That being said, however, development in the past few decades has generally helped those in the Dalit class to reach out to their own networks, which, in combination with affirmative action policies, has allowed for greater economic mobility.


2020: A Step Back in Progress

It’s no secret that COVID-19 has come to define a year that has seen so much turmoil. The world’s GDP has seen a 5.2% contraction in 2020, whilst India has faced an even worse economic backslide, with its GDP contracting by 9.4%.


However, not everybody has been equally hit. Dalit workers, despite India’s attempts at affirmative action, still hold a disproportionate majority in casual labor. Accordingly, the nationwide lockdowns mandated by the BJP has stranded millions of laborers working in rural states from returning to their families. This, in combination with unemployment spikes, has exacerbated the poverty that Dalit workers face. No matter how you spin it, the Caste system has left India vulnerable to increases in inequality as a result of COVID.


It is clear that India has a bright future ahead, but whether or not she chooses to face the stark reality the caste remained an enduring problem may determine the next 50 years of sustainable, but more importantly universal and non-discriminatory, economic growth.

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