By M Muneer & KM Chandrasekhar,

When a first-generation businessman beats legacy conglomerates to become the wealthiest individual in the country in a couple of years, questions will be raised about the nation’s governance and its leadership’s integrity — more so when 60% of the nation’s population begs the government for sustenance.

Is capitalism as we know it failing in India, just as it is globally? Once celebrated for its ability to drive economic growth and innovation, capitalism is now increasingly criticised for its role in exacerbating inequality, environmental degradation, and social unrest. Despite impressive GDP growth, India faces significant challenges that highlight the shortcomings of its capitalist model.

One of the most glaring failures is the widening gap between the rich and the poor. According to the World Inequality Report, the top 1% of the Indian population holds over 40% of all wealth, while the bottom 50% owns just 6%. This stark inequality is visible in the juxtaposition of luxury high-rises and sprawling slums in most cities — it’s not just a moral issue but also a threat to economic stability.

Capitalism’s relentless pursuit of profit has also come at the expense of the environment. India is home to 22 of the world’s 30 most polluted cities. The over-exploitation of natural resources, deforestation, and poor waste management are all consequences of a growth-at-all-costs mentality deeply rooted in capitalism.

With an ever-growing workforce, India has a huge unemployment issue. Centre for Monitoring Indian Economy reports peg the unemployment rate at 7-8% average over the past few years, with youth unemployment reaching as high as 23.1%. Furthermore, much of the workforce is in informal, low-paying jobs with little job security or benefits.

On top of it, there have been numerous corporate scandals in the last decade alone, driven by politically connected/greedy promoters. From Lalit and Nirav Modi to Byju’s and NSE, there are many examples of how corporate greed and a lack of regulatory oversight can lead to financial instability and loss of public wealth. Corporations are driven by the need to maximise shareholder value, and focus on short-term profits rather than long-term sustainability. This myopia has led to underinvestment in innovation, employee welfare, and environmental, social, and governance norms. Almost 87% of senior executives surveyed agree they are pressured to delivering financial performance within two years or less, mostly sacrificing long-term prospects.

Arguably, capitalistic policies led to thousands of farmer suicides and their revolt against oppression. The agriculture sector employs over half of India’s workforce but their prosperity is eaten away by the nexus of politicians and intermediaries despite numerous efforts by non-governmental organisations (NGOs) to eliminate this middle layer.

Capitalism’s emphasis on cost-cutting and efficiency is responsible for the exploitation of workers in many states. The International Labour Organization estimates that 25 million people globally are trapped in forced labour, with many more working in precarious conditions for paltry wages — a source of social instability.

While Bibek Debroy has suggested inequality is good in India’s case, there is growing outrage against that view, calling to balance profitability with social responsibility. Many countries recognise concepts like stakeholder capitalism, shared value, and circular economy as the next phase of capitalism.

Stakeholder capitalism advocates for a business model that balances the needs of all stakeholders — employees, customers, communities, and the environment — rather than focusing solely on shareholders. The World Economic Forum championed this approach, arguing businesses are responsible for addressing global challenges like climate change and inequality.

The shared value model involves integrating social impact into core business strategies. Many large multinational companies including Mastercard, Nestlé, and Unilever have demonstrated that achieving economic and societal value is possible, offering a more sustainable path forward.

The circular economy model promotes the efficient use of resources by designing products for durability, reuse, and recycling. This approach contrasts with the traditional linear economy, where products are made, used, and discarded. The circular economy aims to decouple economic growth from resource consumption, addressing the environmental limitations of capitalism.

The “shared value” concept holds the most significant promise for India. By integrating social needs into the core business strategies, companies can create value for society while enhancing competitiveness. This dual focus represents a significant departure from the more traditional approach of corporate social responsibility (CSR). The current CSR activities are forced on most companies, and they have found ways to get the money to the promoters’ pockets via willing NGOs at a cut.

CSR initiatives typically involve spending funds on the few areas that the government has mandated. These efforts are seen as separate from the core operations and are frequently viewed as non-essential. Shared value, on the other hand, goes beyond CSR by embedding social impact directly into the company’s business model. It involves rethinking products, markets, and value chains to create economic value in a way that also benefits society. This is why it is key for India.

India Inc. could be persuaded to consider one of the following for embracing shared value concept:

  • Develop new products or enter new markets that address societal needs. This opens up new revenue streams and helps solve pressing social issues.
  • Reinvent value chains to be more sustainable and socially responsible. This involves reducing resource use, improving labour conditions, or enhancing product quality.
  • Redesign the ecosystem. This includes investing in infrastructure, education, and healthcare in the communities where the company does business. Amul is a classic example for this.
  • On their part, policymakers should be willing to reconsider the assessment of growth. India’s current policy is premised on achieving the $5 trillion mark and an undefined concept of Viksit Bharat by 2047, which will have no value if poverty is increasing alarmingly. Alternatively, measure growth by per capita GDP at the lowest quartile of population, which will change the direction of economic policy.

Martin Luther King’s words are most appropriate for the new phase of capitalism: “I never intend to adjust myself to economic conditions that will take necessities from the many to give luxuries to a few.”

The authors are respectively, Fortune-500 advisor, start-up investor, and co-founder, Medici Institute for Innovation, & former Cabinet secretary.

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