Two Indias


back to issue

IN 1966, Barrington Moore wrote, ‘That India belongs to two worlds is a familiar platitude that happens to be true.’1 In this essay I highlight and put in perspective aspects of a different duality than Moore’s ‘traditional’ and ‘modern’ worlds.

Two worlds of capital and state-capital relations coexist in an uneasy embrace creating both vitality and weakness in India’s growth trajectory. The first paradox is the renewal of state power combined with business influence and threat of exit as well as a lack of trust in the current government. Second, capital itself has many ‘faces’ as a large literature documents.2 These two elements create a dualistic pattern of state-capital relations and internal capital variation. All generalizations about India need to account for these patterned dualities; there is no single India-wide pattern.

Yet, we can use some common concepts to understand these trends and patterns. I propose four concepts that may be useful: marketcraft, credible commitment, divided capital, and a porous fabric. I also try to address what policy responses may be necessary to address the credibility deficit and the joint effect of these dualities. These enduring paradoxes mean that reforming the current politico-economic balance will be difficult and require the ability to revive state capacity and listen to experts. In essence, the heterogeneity of types of capital, and state-capital relations will have to be kept in mind in creating a complex and calibrated national response.

What explains the first paradox of both state power and business power? On 15 August 2019, PM Modi made a statement from the ramparts of the Red Fort: ‘Wealth creation is a great national service. Let us never see wealth creators with suspicion. If wealth is not created it will not be distributed. If wealth will not be distributed, then country’s poor people’s well-being will not improve… So, people who are investing in creating wealth – for me they are my wealth.’3 Subsequently, Nirmala Sitharaman, India’s finance minister announced many policies reflecting this view.

These statements had become necessary given a precipitous decline in business sentiment. The economy had been declining since 2017-2018 and capital flight had become a real concern. Businessmen had begun to perceive an absence of ‘credible commitment’, defined as pre-commitment not to overreach after a policy has been announced. Cases of ‘tax harassment’ began to circulate. By now, many business actors began to say publicly what they had said privately: ‘corporate India felt alienated and distant from the government.’4


In an interview V. Balakrishnan, former Infosys board member, stated: ‘The reality is that India is seeing a big economic slowdown that is clearly seen in the earnings of all the companies today… Add to that, the tax authorities have become much more confrontational. We are seeing tax terrorism increase across the board. Talk to any entrepreneur, any high net worth individual and they will have some kind of friction with the tax department.’5

While the structural power of business given the possibility of capital flight is a powerful constraint on any government, yet, Modi government’s mismanagement of the economy in its first term, and a statist reassertion created a mutual ‘trust deficit’. So, at a time when India needs investment capital to revive the economy, there is less of it and what remains is more hesitant. How can we understand both the increasing power of capital6 and reassertion of the state embodied in Modi’s efforts to centralize the management of economic policy?

By all accounts business enjoys unparalleled social and political power. Liberalization has become the ‘only game in town’ with a consensus that private investment and economic growth are central to India’s economic trajectory, prosperity, and even its rising global power. This consensus and the evolving needs of a complex globalized economy demand mutual dependence between capital and the state. Yet, India’s trajectory of liberalization has also seen an increased power of the state to set the terms of regulation, and rewrite the social contract for economic growth, social welfare, and global ambitions. A new form of state centrism and new developmentalism has taken root.7


Under Modi this trend may have taken a distinctive form but this is also part of a larger trend wherein opening markets requires re-regulation and even state renewal. State renewal rather than withdrawal, a common trend across the developing and even developed world, can be understood in the following way: markets demand rules, or as Vogel terms it, marketcraft. In a globalized world it might also necessitate tradecraft, that is, the creation of fair trade rules and participation in global supply chains through technological modernization aided by the state.8 State regulation and market competition are not zero-sum, and if they work well, may enhance each other. Naseemullah notes: ‘a strong and effective state is necessary to overcome the capital requirements and coordination challenges necessary for industrialization in the developing world.’9

Yet, there is a fundamental contradiction at the heart of this mutually dependent relationship in a capitalist society: ‘a government that is strong enough to protect property and enforce contracts is also strong enough to confiscate the wealth of its citizens and expropriate property.10 In the Indian case, the needs of a crisis-ridden globalized economy demand more state action; this has been joined by a bottom-up demand for public services and welfare.

These imperatives coalesced when the current government began enhancing the state’s capacity to ensure revenue extraction. The revenue needs of an expanding welfare state, its increasing capacity to monitor income with the linkage of bank accounts with Aadhaar and PAN meant that central ministers began placing steep targets for tax collection, and revenue officers were under pressure to meet those targets.11 When problems arose PM Modi tried to address them, but it was too late to restore credibility.


In an interview PM Modi said: ‘…some black sheep in the tax administration may have misused their powers and harassed tax payers, either by targeting honest assesses or by taking excessive action for minor or procedural violations… I have also instructed the revenue secretary to come up with measures to ensure that honest taxpayers are not harassed and those who commit minor or procedural violations are not subjected to disproportionate or excessive action.’12 Yet, tax officials continue to report that they are ‘stuck between a push to meet unrealistic collection targets… and the fear of being accused of overzealousness if they crack down on evasion.’13 This highlights the credibility problem: even when the PM assures investors, once the state has shown itself capable of expropriating taxes, it is difficult to restore trust and credibility.


Through the past three and a half decades some credible commitment measures have been instituted. The liberalization of the economy in 1991 was one of them, but included the Fiscal Responsibility Act of 2003 and the independence of the RBI. Modi’s actions to push against the fiscal responsibility contract, undermining of RBI’s autonomy, and of other regulatory agencies may have created a credibility deficit with its attendant problems of capital flight and low investment. Low investment and capital flight – outflows of Indian investment – preceded this period but has become a cumulative problem with distinct Modi-specific features.

Yet, this macro-level account while necessary is not sufficient to explain the paradox of renewed state centrism and sustained business power. We also need a more micro-story of how individual-level actors, both from the business and political spheres, participate in the new equilibrium. In India state re-regulation also has a porous face as business and political actors move across political spaces and institutions, shaping the architecture undergirding state action.14

We know that business actors are entering legislative bodies in much larger numbers. In the newly formed Lok Sabha elected in 2019, 28.4% of the MPs belong to business occupations.15 Importantly, this trend extends to the subnational level and across all political parties. 30-49% of Andhra Pradesh, Gujarat, Karnataka, Tamil Nadu, and Uttar Pradesh’s MLAs come from business occupations, while Maharashtra’s is even higher (50-70%); subnational MLAs are increasingly drawn from industry and business related professions in larger numbers than even the Lok Sabha.


The other side of this – politicians entering business occupations – reveals that the incentives of politicians and their families have shifted towards business activities. Many MPs and MLAs and notably their wives, children, sisters, and brothers hold equity stakes, and board membership in a variety of real estate, media, education, finance, infrastructure, and cement firms. And, it is not a coincidence that many of these sectors are non-tradables and generate rents. Businesspeople entering politics and entrepreneurial politicians – politicians who invest in business – is the micro-level complement to a macro account that privileges the logic of state power with business as a junior partner. An added element is Modi’s personal power and ambition – his individual-level goal – to be the ‘tallest leader of India’ and supplant J. Nehru and Indira Gandhi.

This imperative may account for his personalist centrism but the sources of statism in India go deeper (needs of re-regulation with economic reforms) and are wider (subnational spaces). These diverse individual-level incentives combined with renewed statism mean that reforming India’s rent-seeking elements will be difficult as actors and institutions across the polity have become implicated in economic and business activities.


There is also need to think through the second dualism: Multiple types of capital. Building upon existing scholarship which has documented twin, even multiple types of capital, I argue that India’s model of capitalism is not a single modal pattern but two distinct orders: One of performing, competitive, export-oriented sectors and firms, and the other more inward-looking, protectionist, and less nimble.16 While our attention mostly focuses on firms in a collusive nexus with the state embodied by CEOs such as Vijay Mallya, there are also firms such as Arvind, Sun Phama, Nirma, Biocon, Infosys, and Dr. Reddy’s Laboratories, and many others, which even if not completely innocent, adopt competitive practices and have undertaken technological modernization in the past two decades or so.

These diversities can also be seen through a prism of self-governance across firms17 or national vs. regional business – what Upadhya calls ‘vernacular capitalism’ – or public vs. private sector.18 Many businesses have figured how to ‘self-govern’ and manage their capital and labour needs in Naseemullah’s formulation. In essence, India’s ‘dominant’ industrial class is not a homogenous and unified group but a diverse one, and this diversity has been enhanced over time.


How did this happen? The liberalization of India’s economy in 1991, the creation of the knowledge economy, subnational developmentalism in the regions,19 and globalization disrupted the old nexus of business-state relationships in the shadow of the license raj, creating new winners and losers. Some old business restructured but others went into decline. An acceleration of investment in the 2000s combined with restructuring and linkage with export markets created Indian MNCs and externally linked firms and sectors. Some salaried professionals have become global entrepreneurs supported by subnational developmental states.20 These are the performing and innovative firms and sectors in the new economy responsible for the higher growth of the Indian economy in the 2000s.

A clear differentiation between competitive and export oriented vs. protected and domestically oriented sectors has emerged with ‘pressure on all firms and sectors to become more competitive and export oriented.’21 Paradoxically, the new winners from sectors such as IT, telecom, biotechnology, pharma, automobiles, synthetic textiles and many others, seek new policy advantages from the state. These companies and sectors ‘are willing to accept a loss of regulatory control for access to lucrative markets’,22 which India’s state helps them achieve, even if imperfectly. So, we need to conceptualize the Indian variety of capitalism as a dual and differentiated system combining a globalized order and a regionally differentiated domestic order.


Understanding these diversities will be aided if we discuss how ‘faces of capital’ intersect with other dimensions of state-capital relations. All types of capital seek political access and policies, either for dealing with global competition, investment support, personal favours, or tax concessions. Seeking particularistic concessions such as loan extensions are also frequent. Rent-seeking actions as well as policy-seeking actions resonate in every sector or type of industrial firm. It is important to remember that crony capitalist relationships existed even during the dirigisme area (1960-1990) and have continued and taken new forms, but these relationships are not the complete picture. The emergence of more competitive and technologically adept firms has to be part of our analysis.


A Typology


Rent-seeking Firms

Overlap between rent-seeking and policy-seeking also exists

Policy-seeking Firms

Export-oriented Sectors/Performance Oriented

I. Example: Kingfisher Airlines, Satyam’s Ramalinga Raju

Specific Business firms may follow both policy-seeking and rent-seeking: Reliance

II. Biocon, Infosys, Mahindra, TATA, TCS, Sun Pharma, Dr. Reddy’s Labs, many textile firms like Arvind and others

Domestic-oriented Sectors including state owned sectors

III. Cooperative Banks, PNB Bank; Coalgate; 2G spectrum scam


IV. SpiceJet, Indigo

Source: Author’s analysis.

Table 1 presents a two-by-two table, showing that each of the segments of industrial classes and firms has a rent-seeking as well as a policy-seeking face. While there is overlap (middle column) the conceptual intersections show that both types of capital (globally linked sector and domestically oriented sectors) have a dark and light side; these intersections need more empirical analysis of patterns and effects. For example, the combination of adaptive and policy seeking firms (II & IV) may create a productive capitalism while other boxes (I and III) create pernicious effects. National and subnational policy regimes have to figure out how to encourage the first while upgrading and curtailing the second.


This diversity of Indian business means that the private sector lacks cohesion to lobby for themselves as a group, thereby increasing the power of the Indian state. Importantly, rent-seeking and collusive deals support the electoral incentives of politicians who have become businesspersons and the motivations of economic actors, who seek state largesse – policy and rent-seeking concessions – for both growth and particularistic purposes. Development enhancing business behaviour coexists with more corrupt and rent-seeking actions across both globally linked and protectionist sectors. India is neither a Russian style oligarchy nor Silicon Valley capitalism; it combines both in a hybrid model with other Indian characteristics such as a strong but ineffective state.


What should be done? Is there any hope? How can we address these endemic problems? The fundamental dilemma at the heart of state action – the credibility problem – means that state agents have to credibly commit not to expropriate business property ex ante, if investment has to proceed and business confidence maintained. The logic of the global economy cannot be ignored as well as the needs of the poor. A reform of institutions and revival of autonomous regulatory agencies such as RBI, SEBI, TRAI, and many others is a prerequisite. India’s economy is a multilayered complex one, and different arenas of the economy must operate according to non-partisan principles with a respect of experts and autonomy for managers while addressing vulnerabilities of the poor, and migrant populations. While business actors are culpable for rent-seeking, the ball is in the government’s court as a vicious cycle of distrust and overreach is undermining India’s growth story. Modi’s PMO should ‘tie its own hands’ and let independent and expertise-led institutions work on the basis of rules while also addressing the structural problems of investment and demand slowdown.

Paradoxically, we need to refurbish state capacity while curtailing its discretionary powers: State agencies need a combination of legal, market and regulatory expertise to deal with complex industrial economies that are sectorally and regionally specific, technologically intensive, and global.23 The Indian state has been hollowed out of its regulatory capacity even as it is overreaching and undermining India’s economic foundations. India’s growth potential is in danger of being reversed unless the state’s nimble – infrastructural – capacities are enhanced while restraining the state’s coercive ambitions.24 It is a tall order, and at least until now, Modi’s government has not shown that it has even grasped the nature of the challenge.


Importantly, regional and sectoral centres of capital will need special attention. Those sectors of the economy that are globally linked – textiles and garments, auto, pharma, communication services, software, biotech, and others – are the dynamic parts of the economy and their health has to be revived. Many of these sectors are also employment intensive (textiles and garments for example) and those must be prioritized. New sectors such as solar and technical textiles might benefit from rules based market creation while old sectors such as coal or steel will need new solutions for a technological and global age.25 Any solution to India’s persistent economic problems must encourage these regional and adaptive firm-level possibilities.


This essay has presented a framework to help us understand dual transformations underway in India. This account focused on the imperatives of statecraft and its specific incarnation in Modi’s centralization, but also suggested the need for a micro-foundational story that focuses on individual-level motivations of politicians, and the credibility problem made worse by this phase of state activism. The negative effects on investment and growth can, then, be understood.

Two trends – resurgence of state developmentalism (long term) and Modi’s personal ambitions (short run) combined with multiple types of capital that pursue both policy-seeking and rent-seeking is consolidating a dualistic political economy in India. Even as Modi tries a move away from a fragmented state, the underlying structure beyond Lutyens Delhi continues to be a porous and ‘polycentric one’ with multiple choice and veto points, and shared policy responsibility between states and the central government, and in addition, the transformation of business into diversified forms. Indian capitalism reveals itself as a dual and differentiated system combining a globalized industrial order and a regionally differentiated domestic order.

This larger argument helps us understand dual paradoxes with some unifying concepts. How an overreaching state undermines credible commitment and how both forms of capital pursue both rent-seeking and policy-seeking helps us understand contemporary India as an organic story not as separate parts of an elephant that our blind lenses fail to grasp. Two Indias are here to stay but a more nuanced and smarter developemtnal state is even more urgent than before.



1. Barrington Moore, Social Origins of Dictatorship and Democracy. Beacon Press, Boston, 1966, p. 314.

2. Michael Walton uses the phrase, ‘face’ and a large literature documents diversity of capital. For example, Sinha focuses on the externally linked sectors of pharma and textiles and Naseemullah focuses on two self-governance firm orders. See: Aditi Gandhi and Michael Walton, ‘Where do India’s Billionaires Get their Wealth’, Economic and Political Weekly 47(40), 6 October 2012; Aseema Sinha, Globalizing India. CUP, Cambridge, 2016; and Adnan Naseemullah, Development After Statism. CUP, Cambridge, 2017.

3. Author’s translation of PM Modi’s speech:

4. Shaw on NDTV show on 1 August 2019:

5. G. Rao, ‘Slowdown, Plus Tax Terror Hits Entrepreneurs Hard’, The Asian Age, 7 August 2019,

6. C. Jaffrelot, A. Kohli and K. Murali, Business and Politics in India. Oxford University Press, New York, 2019.

7. Elizabeth Chatterjee, ‘New Developmenta-lism and its Discontents: State Activism in Modi’s Gujarat and India’, Development and Change, DOI: 10.1111/dech.12579.

8. Aseema Sinha, Globalizing India, op. cit. focuses on tradecraft; Steven Vogel, Market-craft: How Governments Make Markets Work. Oxford University Press, New York, 2018.

9. Naseemullah, 2017, op. cit., p. 27.

10. Barry Weingast, ‘Constitutions as Governance Structures: the Political Foundations of Secure Markets’, Journal of Institutional and Theoretical Economics 149, 1993, pp. 286-311.



13. Alexander Ulmer and A. Roy, ‘Tax Officials Caught Between Modi’s Unrealistic Targets and Warnings Against "Tax Terrorism"’, The, 15 November 2019,

14. Aseema Sinha, ‘India’s Porous State: Blurred Boundaries and the Evolving Business-State Relationship in India’, in C. Jaffrelot, A. Kohli, and K. Murali (eds.), Business and Politics in India. Oxford University Press, New York, 2019.

15. Aseema Sinha and Andrew Wyatt, ‘The Spectral Presence of Business in India’s 2019 Election’, Studies in Indian Politics 7(2), 2019, pp. 247-261.

16. A few references: Aseema Sinha, ‘Business and Politics’, in N. Gopal Jayal and P.B. Mehta, Oxford Companion to Politics in India. Oxford University Press, New Delhi, 2010, pp. 459-476; Roselyn Hsueh, ‘China and India in the Age of Globalization: Sectoral Variation in Postliberalization Reregulation’, Comparative Political Studies 45(1), 2012, pp. 32-61.

17. Naseemullah 2017, op. cit.

18. Elizabeth Chatterjee, ‘Reinventing State Capitalism in India’, Contemporary South Asia 25(1), 2017, pp. 85-100. Many have focused on regional business; I include a few: Harish Damodaran, India’s New Capitalists: Caste, Business and Industry in a Modern Nation. Palgrave Macmillan, 2008, and Carol Upadhya, ‘Assembling Amravati: Speculative Accumulation in a New Indian City’, Economy and Society 49(1), 2020, pp. 141-169.

19. Aseema Sinha, The Regional Roots of Developmental Politics in India. Indiana University Press, Bloomington, 2005.

20. Carol Upadhya, ‘A New Transnational Capitalist Class? Capital Flows, Business Networks and Entrepreneurs in the Indian Software Industry’, Economic and Political Weekly 39(48), 27 November 2004.

21. Sinha, 2016, op. cit, p. 283.

22. Pepper Culpepper, ‘Structural Power and Political-Science in the Post-Crisis Era’, Business and Politics 17(3), 2015, pp. 391-410, 404.

23. There are important oases, for example, within India’s trading state, where new legal and economic expertise has increased India’s capacity to negotiate within the WTO. See Sinha, Globalizing India, Chap. 3 and G. Shaffer, J. Nedumpara, and A. Sinha, ‘State Transformation and the Rise of Lawyers: The WTO, India, and Transnational Legal Ordering’, Law and Society Review 49(3), 2015, pp. 595-629.

24. The distinction between infrastructural and coercive state is M. Mann’s, ‘The Auto-nomous Power of the State’, European Journal of Sociology 25(2), November 1984, pp. 185-213.

25. MKUQI.html