Economic Liberalization, Identity Politics and Investment Policies in India ∗ Kanta Murali ∗ Assistant Professor, Department of Political Science, University of Toronto 100 St. George Street, Toronto M5S 3G3, Canada; Email:
[email protected] 1. Introduction From the point of view of an extensive literature on redistribution, a focus on growth- oriented policies in poor democracies, including measures targeted to attract private capital, is very unlikely. Starting with the seminal models of Romer (1975) and Meltzer and Richard (1981), scholars have posited that individuals with lower incomes are likely to favor greater redistribution. At a more macro level, a related set of studies link democracies to redistributive outcomes (e.g., Acemoglu and Robinson 2005; Boix 2003). Some scholars also suggest that democracies are better for the welfare of the poor as they provide more social spending and public goods than non-democracies (e.g., Brown and Hunter 1999; Lake and Baum 2001).1 If the poor prefer greater redistribution and democracies have a proclivity to redistribute, we should expect to see poor democracies focusing predominantly on redistributive policies. Given resource constraints in developing countries, policymakers are unlikely to focus on strategies targeted specifically at growth, much less policies directed towards a privileged section such as business, under such circumstances. Yet, India’s growth transformation since 1991 poses a clear challenge to this hypothesis. Catalyzed by a shift in its policy framework, notably a move from a state-dominated system to one where private capital began to play a primary role, India has been one of the fastest growing economies in the world over the last two and a half decades.