Page 61 - Nuvama | IC Report 2023

INDIA: THE 5D ADVANTAGE

Democracies are also stark beneficiaries in other ways. For instance, India’s share in emerging market
(EM) indices far outpaces its share in EM GDP. Moreover, India always commands a valuation premium
to EMs—a tacit acknowledgement of its democratic credentials and a reward for its free polity.
Secondly, the quality of economic growth under democracy is arguably superior to an authoritarian
regime. On the surface, democracies might appear chaotic, noisy and directionless, and lacking Democracies
any vision, but such regimes have ear to the ground. Democracies function with a broad-based even allow for
understanding of human development, including fulfilment of basic needs of human life—public health, a vibrant civil
malnutrition, mortality rates, food security and so on. Democracies even allow for a vibrant civil society, society, which goes
which goes a long way in filling out the gaps in the social safety nets left by the state. a long way in filling
out the gaps in the
In Shakespeare’s King Lear, at a deeply ironical moment, when Lear asks blinded Gloucester, “yet you social safety nets
see how this world goes”; Gloucester replies, “I see it feelingly”. This is the way of democracies; they left by the state
may seem to lack a big vision, but they understand the world ‘feelingly’. In other words, democratic
regimes are more attuned to the pulse of the nation.

One must therefore appreciate the way in which poverty in India has been reduced—and not just by
how much or how rapidly. For instance, on Human Freedom Index, China ranks 150 out 165 countries
while India is far ahead at 119. On the Rule of Law as well, India ranks 77th versus 96th for China. In sum,
economic development in isolation is not the end objective of governance; it must uphold human
dignity, which the Human Freedom Index and the Rule of Law Index signify. In fact, the top rankers on
both the Human Freedom Index (Switzerland) and the Rule of Law Index (Denmark) are democracies.
Finally, democracies have the capacity to evolve. Take the case of India. At one point, large, unwieldy
coalition governments had led to complete policy stasis in the country. Economic reforms were a
political hot potato while caste was seen as the key instrument for political mobilisation.

This has changed, over time. Policy stasis is over, and good governance and development are now the
new grounds of electioneering in India. There is now a political consensus on economic reforms. Over
the last ten years, India has undertaken momentous reforms – GST, energy, DBT, Digitalisation, RERA,
bankruptcy code – which even an authoritarian regime would shy away from. In other words, the Indian
democracy is now combining the effectiveness and purposefulness of an authoritarian regime with
the liberty and freedom of the democratic polity.

In a nutshell, when economic development is seen in more holistic terms and in fullness of time, Democracies
democracies tend to trump authoritarian regimes. Among the swathe of EMs, India and China are tend to trump
two exceptions in context of democracy and economic development. India has one of the highest authoritarian
democracy scores despite it having the lowest GDP per capita. China scores poorly despite its high regimes on
GDP per capita. It is no coincidence that it’s the former – India – that has been an investor favourite economic
over the last decade via-a-vis the latter (China). development when
seen in holistic
A suitable market analogy would be a small-cap stock being accorded a much higher valuation terms and in
premium than a large-cap stock—not necessarily for growth, but for its superior corporate governance. fullness of time
This dynamic is even more critical in today’s uncertain world.

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