The Evolution of Institutions in India and its Relationship with Economic Growth

Abstract

This paper examines the evolution in a few public institutions over time in India. It presents three types of evidence: on institutional outcomes (such as losses in power generation, backlogs in disposal of court cases); on perceptions-based measures of governance, some going back to the 1960s; and, finally, on customs administration and whether it has been more effective at detecting evasion over time. All the evidence suggests that institutional quality has not improved over time. It then addresses the two-way relationship between growth and institutions in terms of two apparent paradoxes. The first is why growth has turned around so dramatically in India despite the relatively limited nature of reforms, especially compared with other countries. The second paradox is why, despite nearly 30 years of rapid growth, institutions have not improved. The paper offers some explanations that might help explain these paradoxes.

Keywords: institutions, growth, India

JEL Classification: O17, O43, O53