We need more trust between Centre and State to solve India’s challenges: Arvind Subramanian

India’s generous, almost “Kamadhenu-like” fiscal habits is a downside of its “precocious democracy”, Arvind Subramanian, former Chief Economic Advisor to the Government of India, said on Saturday at The Hindu Lit for Life 2026.

“If you look at the government deficit in India since 1991, it is the highest amongst comparable emerging market countries at almost 10% of GDP every year. The Indian state has been like ‘Kamadhenu’, the generous bovine goddess in mythology,” he said. “Every clamour” of every section of society is accommodated by India’s precocious democracy, the economist and author said.

Mr. Subramanian was speaking in a session titled India’s Path To Development, and was accompanied by Devesh Kapur, political scientist and Professor at Johns Hopkins University. The duo, who are co-authors of A Sixth of Humanity: India’s Development Odyssey, were in conversation with economist Narendar Pani. 

All this has led to a vulnerable fiscal position for India but its high growth levels are helping the country sustain fiscally. “We don’t need hard austerity measures, but both the Centre and State governments should reduce deficit, especially welfare measures around cash transfers scheme,” Mr. Subramanian said.

As for their mantra for economic development, Mr. Kapur says the best thing is to “do no harm”. Many of India’s challenges require a strong cooperative federalism with the Centre and the State working together and trusting one another, he added.

Mr. Kapur pointed out that Indian manufacturing has fallen short of its full potential and government labour markets have a role to play in this. Government employees are paid 4-5 times more than what their skills would get in the private sector, and this has set an upward push on wages, he said. Millions of youth still seek the coveted and scarce government job rather than work in a manufacturing enterprise.

Mr. Subramanian said that India’s manufacturing growth has not been labour-intensive. Our manufacturing firms are still in the realm of “midgets making widgets”, he said. “India ends up exporting its high-skilled talent.”

Speaking of the educational system, the authors note that no political unit has understood its importance over the years. The public exchequer has not gained from IITs; instead of becoming “world-class” centres of research, they have become a place that ships off talent to the United States,” Mr. Subramanian said. The quality of India’s early universities has been disrupted due to the entry of student politics as well, Mr. Kapur said.

Tracing India’s economic decisions over the years, Mr. Subramanian said “affirmative action” for disadvantaged minorities and to not base the State on any one language or religion has been among its best decisions. “But these great achievements of the early years we risk squandering today, and that would be fatal for India as a country and democracy,” he said.

Summing up their idea of development, the authors note that it is much broader than just economic development, and it is about how the early visionaries had to build a sense of nationhood and, at the same time, create universal franchise-based democratic politics.

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