Over the last three decades India's economy has grown at an impressive average rate of more than 6 percent per annum. While this growth rate trails well behind China's rate of more than 10 percent per annum, it compares favorably with the Latin American average of some 3 percent over the same period and puts India in the same high-growth league as South Korea, Malaysia, and Vietnam. It is also the case, however, that inequality in India has widened over this period, especially since 1990. While poverty has declined, a variety of human development indicators remain abysmal. In this chapter I analyze these broad economic patterns, focusing on their political and policy determinants and emphasizing the impact of the state-business alliance on patterns of growth and distribution. My argument is that the state-business alliance has led to policy choices that help explain both India's rapid economic growth and its growing inequality. With inequality growing, the poor do not benefit as much from growth as they might if inequality were stable. Of course, sustained growth has contributed to growing state revenue. As the ruling elites face electoral compulsions, some of this new revenue is finding its way into poverty eradication programs. However, the state's attention is focused on growth; a variety of these pro-poor programs are not implemented properly, further contributing to failures of human development.

As in the previous chapter, I first provide some historical background, summarizing key developments prior to 1980, including the Indian state's role in promoting import-substituting industrialization, the green revolution, and failed efforts at a variety of distributive programs, especially land reforms. This is followed by a core section on recent economic growth that emphasizes the late 1970s and early 1980s as a turning point for the Indian political economy – away from socialism and toward a closer alliance with business – and then traces the continuing economic impact of this pro-business shift on policies and growth outcomes over the next three decades. A final core section traces the distributional consequences of the narrowing state-business ruling alliance.