India’s capitalist class is large and heterogeneous, and it suffers from a long-standing collective action problem. It consists of big industrial capital, manufacturing capital that is tied to particular regions and has relatively limited mobility outside them, and a mass of small manufacturing capitalists and agrarian capitalists. Each faction has distinct short-term interests, none is able to conclusively impose its own interests, and no political regime has succeeded in brokering a long-term agreement between them.

The power of big and regional capital over state policy derives from its control over investment and its ability to bankroll favorable political vehicles. Agrarian and small manufacturing capitalists influence policymaking through their electoral influence, which derives from their own significant numbers and their ability to build wide electoral coalitions — with medium, small, and marginal peasants in the case of the former, and petty traders in the case of the latter.

Although capital accumulated in agriculture has been invested in regional manufacturing, especially since the 1990s, and some regional players have broken into the ranks of big capital, divergent policy preferences persist. In the 1960s, the defection of agrarian and regional capitalists precipitated the first major downturn in the INC’s electoral fortunes. Its marginalization as a serious contender for national power since 2014 stems from the big industrial bourgeoisie deserting it in favor of the BJP. The BJP has only recently shifted allegiance from its traditional base of small capitalists and traders and recast itself as a party of big capital.

Though big capital is unquestionably the dominant faction in India’s ruling coalition, two factors constrain the capacity of the state to act in its interests. First of all, the adoption of political democracy based on universal adult franchise in 1947 empowered classes that might have been dispossessed by an industrial transformation — small manufacturing and agrarian capital, small and marginal peasants, and a large mass of people surviving through petty commodity production, trade, and services — to influence state policy.

These classes are a durable presence in India’s capitalist economy, partly due to their political empowerment. Of these groups, small manufacturing and agrarian capitalists have been the best organized, even managing to rise, albeit briefly, to national dominance in India’s era of coalition governments.

Agrarian capitalists in particular have exercised a great deal of influence over policy, particularly at the state level, winning huge concessions by leading wide electoral coalitions couched in the language of “urban bias.” Although sharpening class differentiation has fractured these coalitions and the political clout of agrarian capitalists has declined since its peak in the 1980s, especially following extensive pro-business reforms in the 1990s, they continue to limit the state’s space for maneuver.

Secondly, the Indian state has little presence in India’s sprawling informal economy, which accounts for between 90 and 95 percent of livelihoods and 50 percent of GDP. For much of India’s history since 1947, the state, and the Congress party, which acted as a key integrative institution, have relied on patron-client ties with locally dominant elites to carry on the business of government away from urban centers and the regulated economy.

The informal economy, comprised of agriculture, small manufacturing, and assorted forms of petty production, exists entirely outside state regulation and taxation. This is the result both of historically limited state capacity rooted in patterns of colonial state formation and the deliberate creation, by omission and commission, of zones of nonregulation to create new opportunities for capital accumulation.

This strategy has worked especially to the advantage of electorally significant sections of the capitalist class. The minimum threshold of “small” enterprises has repeatedly been revised upward, allowing more proprietors to access state patronage in the form of subsidies, licences to produce goods reserved for small industries, exemption from taxation, and labor law. Agrarian capitalists are similarly exempt from taxation and labor and environmental regulations, while continuing to claim a significant, if declining, portion of public wealth.

After independence, the influence of big capital over the Congress leadership ensured the adoption of a strategy of state-led industrialization. This was no small task. Outside of pockets of industrial development, the overwhelmingly agrarian economy was dominated by forms of capitalist accumulation that squeezed high rents and interest rates from a large pool of labor with very little bargaining power working at very low levels of productivity. Even industrialists moved capital to rural trade and moneylending in pursuit of quick returns.

To address the endemic capital and technological constraints that plagued the Indian economy, the state created a protected domestic market, invested in infrastructure and capital goods, and provided subsidized inputs and cheap credit to capitalists. Land reforms were supposed to increase agricultural productivity, expand the domestic market, and generate investible surpluses for industrialization.

However, the state lacked the capacity to discharge the substantial burdens of investment and social engineering that it assumed. Land reforms were defeated by a war of attrition waged by agrarian capitalists who dominated government and the Congress party at local and state levels. The agrarian constraint on industrial development therefore remained in place.

Far from ensuring an efficient use of scarce public resources by big capitalist firms, the state ended up acting as risk absorber and guarantor of profits. The twenty-odd firms that dominated the regulated economy enjoyed assured profits without any compulsion to raise productivity.

The 1960s and ’70s witnessed the substantial accumulation of capital outside the regulated economy and the emergence of new factions of capital. In the 1970s, directed credit and the reservation of hundreds of product categories for small industries led to an increase in the number of small-scale industrial units. The adoption of the New Agrarian Strategy (NAS) greatly accelerated capitalist growth in agriculture. A new section of the big industrial bourgeoisie nurtured by copious state patronage also developed in this period.

The failure to execute land reforms and engineer an agrarian transformation meant that the demand constraint persisted. The state struggled to maintain the levels of investment required to sustain accumulation in industry. As an alternative, the NAS promoted energy- and capital-intensive agricultural methods by incentivizing private investment through input subsidies and guaranteed output prices.

This dramatic reversal in patterns of patronage led to a serious deceleration in industrial growth, as public resources were diverted away from industry to pay for subsidized fertilizers and pump-sets, cheap credit, cheap electricity, and above-market output prices. Electricity subsidies for agricultural users were offset by higher tariffs for industrial and commercial users, while the former also enjoyed preference in the allocation of scarce supply.

With profitability thus guaranteed, substantial capital accumulated in agriculture, which in turn financed the development of regional capital. The political clout of agrarian capitalists ensured that attempts to divert a portion of this surplus through taxation or adverse terms of trade were defeated.

Capital accumulation in the Indian economy depends on the state, not only to secure the conditions of exploitation but also to ensure profitability through routine direct transfers of public wealth. Competition for state patronage is thus a central point of conflict between different factions of capital. From 1956 to 1967, the big bourgeoisie’s disproportionate claim over public investment was virtually uncontested, thanks to the INC’s firm grip on power at the center and in all the states.

The party enjoyed a great deal of legitimacy during this period, and India’s electoral system was not truly competitive. Intra-elite conflicts were handled within the Congress, political opposition was fragmented, and the bulk of the rural electorate was managed through the agrarian capitalists who acted as “linkmen.” These “all-in-alls” often controlled local markets in land, labor, credit, inputs, and output, delivering the votes of the rural poor under their sway in exchange for patronage.

During the 1960s and ’70s, this arrangement unraveled as the Congress faced stiff competition from regional and right-wing parties, including the Bhartiya Jan Sangh (precursor to the BJP), representing factions of capital outside the charmed circle of direct patronage. The defection of agrarian capitalists eroded the Congress’s electoral machine at a time when the political terrain was becoming increasingly fractious.

The result was that fiscal populism — promising subsidies for votes — became commonplace, effectively institutionalizing the tendency to prioritize short-term spending over long-term public investment. From 1977 to 1980, the Janata party government established a regime of patronage that favored its base of rural, small, and regional capitalists — one that outlasted its short stint in power at the center.

The political clout of agrarian capitalists ensured that governments left agricultural incomes untaxed, abolished land taxes, waived agricultural loans, condoned mass defaults on dues to public power corporations, maintained input subsidies, and kept output prices artificially high. In the 1980s, the inter-sectoral terms of trade shifted in favor of agriculture. With its inelastic tax base, the state paid for this with dangerous levels of deficit financing. This laid the basis for recurring fiscal crises, the worst of which provided an alibi for economic liberalization in 1990.

In the early 1990s, the Congress government substantially changed trade and industrial policy to deregulate investment and markets. These were pro-business yet not pro-market reforms; they supported accumulation by existing firms rather than creating a competitive market economy. This was done by redirecting credit from public sector banks toward big capital. This reckless lending drove much of India’s post-liberalization growth and created a regime of
“riskless capitalism” where capitalist profits were guaranteed while public sector banks absorbed huge losses.

In anticipation of a political backlash, agricultural reforms were delayed till 1998, when the BJP-led National Democratic Alliance (NDA) took power. The implementation of reforms was left to state governments as a way of dividing opposition, but the general trend was one of declining government procurement prices and quantities, a contraction of formal credit, and falling agricultural prices.

Nevertheless, agricultural incomes remained untaxed and input subsidies, which disproportionately benefited the rich, remained steady despite large cuts to welfare spending. The backlash came in 2004 as the NDA lost rural voters and the general election. Mindful of this, the Congress-led United Progressive Alliance (UPA), which won two consecutive terms in office from 2004 to 2014, slowed down reform in politically controversial areas. It also halted the disinvestment of public corporations and increased welfare spending to unprecedented levels.

The dependence of the Congress on its coalition partners was a factor in this slowdown. These allies included an assortment of regional parties, representing rural and regional capitalists and, in its first term, India’s communist parties. The Congress was seen as a party unable, if not unwilling, to discipline farm lobbies and decisively push the reform agenda. Remarkably, from 2004–5 to 2013–14, the terms of trade moved further in favor of agriculture owing to rising procurement prices.

By 2011–12, the global recession and a bad loans crisis made the extravagant public expenditure that had guaranteed profitability for big capital unsustainable. Furthermore, in 2013, the INC’s reputation as a party friendly to big capital took a major hit with the Land Acquisition, Rehabilitation and Resettlement Act (LARRA).

Under pressure from a nationwide movement against displacement and the forced cheapening of land by using the state’s power of eminent domain to benefit large corporations, the law introduced protective provisions that made the acquisition of land more difficult. This was especially odious to big capital since accumulation relied heavily on ventures that required large swathes of land, such as mining and real estate speculation.

More generally, the regionalization of politics, reflected in the reliance of national parties on regional coalition powers to form governments and the decentralization of economic policy, created a heterogeneous policy environment that was unfavorable to big capital. Furthermore, state governments are vulnerable to the influence of competing factions of capital, particularly rural interests, irrespective of the party in power.

The support of the big bourgeoisie was a key element in the BJP’s victories in the general elections in 2014, 2019, and 2024. This period has seen an unprecedented concentration of capital and skyrocketing inequality.

The BJP’s parliamentary majorities in the first two elections enabled it to aggressively pursue its campaign promises to big capital. It has cut welfare spending, introduced long-desired reforms in labor law, and vigorously accelerated the asset stripping of publicly owned corporations. It has also forgiven a much larger volume of bad debts owed by large corporations to public sector banks than the UPA — a bailout in all but name.

In addition, the BJP government has unexpectedly moved against its traditional base of traders and small capitalists and reversed the policy of deliberate nonregulation by enacting a Goods and Service Tax (GST), purportedly to formalize the economy and expand the state’s tax base. A general trend toward centralization in India’s already asymmetrical federal structure works to the advantage of big capital.

The GST creates a unified indirect tax system and further curtails state control over taxation. The ability of state governments to evade central financial controls through off-budget borrowing that does not manifest itself in fiscal deficits has been curbed, preventing them from making good on loan waivers and other concessions promised to rural lobbies during election campaigns.

In the changed policy climate, a number of states, not all of them BJP-ruled, have amended land reform laws and accelerated the deregulation of land markets to favor industry. They have removed land ceilings (a key obstacle to corporate agribusiness) and eased the conversion of agricultural land for nonagricultural purposes.

Although the neoliberal policy consensus is shared by forces across the political spectrum in India, including by communist, socialist, and social democratic parties, the present BJP government has pushed it further than any regime since the 1990s. However, it has also hit familiar limits thanks to the electoral weight of the rural sector. This remains significant, even though the wide coalitions of the 1980s, led by agrarian capitalists that managed to draw in middle, small, and marginal peasants, have crumbled in the meantime, with sharper class differences in the countryside since the 1990s.

After losing power at the center in 2004, the BJP used an amended policy of narrowly targeted subsidies promoting labor-displacing technology in the cultivation of high-value crops for export to bring agrarian capitalists back into the circle of beneficiaries in states where it ruled. Fertilizer and food subsidies (which benefit surplus-producing farmers) have remained substantial, with the former even rising to an all-time high in 2022 when the government increased subsidies to absorb a price surge. Political opposition has stalled a law intended to reform the power sector and help recover the $75 billion owed to public power corporations.

At state level, the BJP, like any other party, has also promised loan waivers in the run-up to elections. A bid to further deregulate agricultural output markets and weaken MSP guarantees was defeated by a movement led by left-wing farm unions that represent middle, small, and marginal farmers — the only time in the last two decades that the BJP has had to conceded defeat on a major policy move. In the end, the consolidation of the BJP’s hegemony appears to have ameliorated, although not resolved, the crisis of bourgeois leadership precipitated by the decline of the Congress.