Recent research from the Centre for Economic Policy Research reveals a striking pattern: citizens who experience stronger economic growth throughout their lives exhibit significantly higher levels of trust in government, while those who endure economic stagnation become increasingly disillusioned with political institutions Centre for Economic Policy Research. This relationship isn't merely academic—it's playing out in real-time across democracies worldwide, with India serving as a particularly compelling case study.
As India grapples with its own economic challenges—from a shrinking middle class to youth unemployment reaching alarming levels—the country offers valuable insights into how economic stagnation breeds the very conditions that populist movements thrive upon. The implications extend far beyond India's borders, offering lessons for democracies everywhere about the hidden costs of slow growth and the political instability it invariably spawns.
The Trust Deficit: When Growth Fails, Governments Fall
The relationship between economic performance and political trust operates through what researchers call "cohort experiences"—the economic conditions that different generations live through during their formative years shape their lifetime attitudes toward government. In the United States, for instance, Americans born during the Great Depression maintained lower levels of political trust throughout their lives compared to those who grew up during the post-war boom, even when surveyed decades later.
This pattern holds globally. Countries experiencing sustained economic growth—like China, Qatar, Ethiopia, and Rwanda—exhibit some of the highest levels of government trust worldwide, while advanced democracies that have struggled with low growth, including Japan, Spain, and Greece, show some of the lowest trust levels globally. The implications are profound: economic stagnation doesn't just hurt living standards; it erodes the social contract between citizens and their governments.
In India's context, this trust deficit manifests in increasingly polarized politics and the appeal of populist rhetoric. When economic promises fail to materialize, voters become susceptible to simplistic explanations and scapegoating—precisely the conditions under which populist movements flourish.
This pattern holds globally. Countries experiencing sustained economic growth—like China, Qatar, Ethiopia, and Rwanda—exhibit some of the highest levels of government trust worldwide, while advanced democracies that have struggled with low growth, including Japan, Spain, and Greece, show some of the lowest trust levels globally. The implications are profound: economic stagnation doesn't just hurt living standards; it erodes the social contract between citizens and their governments.
In India's context, this trust deficit manifests in increasingly polarized politics and the appeal of populist rhetoric. When economic promises fail to materialize, voters become susceptible to simplistic explanations and scapegoating—precisely the conditions under which populist movements flourish.
India's Economic Paradox: Growth Amid Inequality
India presents a fascinating paradox in the global economic landscape. While the country has maintained respectable GDP growth rates—averaging 6.5% in 2024-25 according to government statistics—the benefits of this growth have been distributed highly unevenly Press Information Bureau. The World Inequality Lab's comprehensive analysis reveals that by 2022-23, India's top 1% captured 22.6% of national income and held 40.1% of total wealth—levels higher than even during British colonial rule World Inequality Lab.
This "Billionaire Raj," as researchers term it, has created a situation where aggregate growth statistics mask the reality of stagnant or declining living standards for vast segments of the population. For India's middle class—historically the backbone of the country's consumption-driven economy—the situation has become particularly dire.
This "Billionaire Raj," as researchers term it, has created a situation where aggregate growth statistics mask the reality of stagnant or declining living standards for vast segments of the population. For India's middle class—historically the backbone of the country's consumption-driven economy—the situation has become particularly dire.
The Middle Class Squeeze
Recent analysis reveals that India's middle class is experiencing what economists call a "meltdown" Policy Circle. Despite overall economic growth, middle-class households face:
- Real wage stagnation: Wage growth has been virtually non-existent at just 0.01% over the past five years
- Persistent food inflation: Running at 10.87%, forcing families to prioritize essentials over discretionary spending
- Rising debt burdens: High interest rates have made credit prohibitively expensive
- Employment insecurity: Automation and AI are eliminating white-collar jobs faster than new opportunities are created
The Youth Unemployment Crisis: A Demographic Dividend Becomes a Demographic Disaster
Perhaps nowhere is the cost of economic stagnation more visible than in India's youth unemployment crisis. By 2017-18, youth unemployment had tripled to 6.1%—the highest level in 45 years The Wire. This figure likely understates the problem, as many young people have become "discouraged workers" who stop actively seeking employment.
The consequences extend far beyond economic statistics. Unemployment among educated youth leads to:
The consequences extend far beyond economic statistics. Unemployment among educated youth leads to:
- Social unrest: Frustrated young people become susceptible to extremist ideologies
- Brain drain: Talented individuals emigrate in search of opportunities
- Political disillusionment: Young voters lose faith in democratic institutions
- Mental health crisis: Rising suicide rates linked to economic desperation
Research indicates that youth unemployment doesn't just represent a waste of human capital—it fundamentally alters political preferences. Young people who experience prolonged unemployment during their formative years are more likely to support authoritarian leaders who promise simple solutions to complex problems.
Social Mobility in Decline: The American Dream Fades in India
Economic stagnation doesn't just affect current living standards; it fundamentally alters social mobility—the ability of individuals to move up or down the economic ladder based on their efforts and talents. India's social mobility index, which measures the likelihood that children will achieve economic positions different from their parents, has shown concerning trends.
According to the World Economic Forum's Global Social Mobility Index, India ranks poorly among major economies, with limited intergenerational mobility particularly affecting lower-income families. When economic growth is concentrated among the wealthy—as it has been in India—it becomes increasingly difficult for talented individuals from modest backgrounds to improve their circumstances.
This decline in social mobility has several political consequences:
According to the World Economic Forum's Global Social Mobility Index, India ranks poorly among major economies, with limited intergenerational mobility particularly affecting lower-income families. When economic growth is concentrated among the wealthy—as it has been in India—it becomes increasingly difficult for talented individuals from modest backgrounds to improve their circumstances.
This decline in social mobility has several political consequences:
The Erosion of Meritocracy
When hard work and talent no longer guarantee advancement, faith in meritocratic systems erodes. Citizens begin to believe that success depends more on connections, corruption, or inherited wealth than on individual effort. This belief system is fertile ground for populist politicians who promise to "drain the swamp" or "fight the elite."
Identity Politics and Scapegoating
When economic mobility stagnates, people increasingly define themselves by unchangeable characteristics—caste, religion, ethnicity—rather than by their economic roles or aspirations. Politicians exploit these divisions, offering simple explanations for complex economic problems and directing anger toward minority groups or foreign influences rather than addressing structural economic issues.
The Appeal of Authoritarianism
Research shows that societies with low social mobility are more susceptible to authoritarian appeals. When people feel trapped in their economic circumstances, they may be willing to trade democratic freedoms for promises of order, stability, and protection from perceived threats.
The Populist Response: Simple Answers to Complex Problems
Economic stagnation creates the perfect conditions for populist movements to flourish. Populism thrives on the gap between expectations and reality—when people expect their lives to improve but instead experience stagnation or decline, they become receptive to politicians who offer simple explanations and dramatic solutions.
In India's context, populist appeals have taken various forms:
In India's context, populist appeals have taken various forms:
Economic Nationalism
Politicians blame economic problems on foreign competition, international agreements, or multinational corporations rather than addressing domestic policy failures. This narrative appeals to voters frustrated by their economic circumstances but offers little in terms of practical solutions.
Cultural Grievances
When economic advancement becomes difficult, politicians redirect attention to cultural or religious issues. They promise to restore traditional values or protect cultural identity, offering psychological compensation for material deprivation.
Anti-Elite Rhetoric
Populist leaders position themselves as champions of "ordinary people" against corrupt elites, even when their policies may ultimately benefit the wealthy. This rhetoric resonates particularly strongly when economic inequality is visible and growing.
Welfare Populism
Rather than addressing structural economic problems, populist politicians offer short-term relief through subsidies, cash transfers, or debt forgiveness. While these measures may provide temporary benefits, they often undermine long-term economic growth and fiscal sustainability.
The Global Pattern: Stagnation Breeds Instability
India's experience reflects a broader global pattern. Across democracies, periods of economic stagnation have coincided with the rise of populist movements and political instability:
- United States: The 2008 financial crisis and subsequent slow recovery contributed to the rise of both progressive and conservative populist movements
- Europe: Economic stagnation following the European debt crisis fueled support for populist parties across the continent
- Latin America: Boom-bust economic cycles have repeatedly destabilized democratic institutions
- Southeast Asia: Economic crises have often preceded democratic backsliding or military coups
The Vicious Cycle: How Political Instability Worsens Economic Performance
The relationship between economic stagnation and political instability creates a vicious cycle. Political instability, in turn, undermines economic performance through several mechanisms:
When governments face political challenges, they often delay necessary but unpopular economic reforms. This policy uncertainty discourages investment and long-term planning, further slowing economic growth.
Politicians facing electoral pressure focus on policies that provide immediate benefits rather than long-term growth. This leads to unsustainable fiscal policies, underinvestment in infrastructure and education, and regulatory inconsistency.
Political instability can manifest as protests, strikes, or violence, all of which disrupt economic activity. Businesses become reluctant to invest in unstable environments, further slowing growth.
Political and economic instability drives away talented individuals who have the means to emigrate. This brain drain deprives countries of the human capital needed for economic growth.
While the relationship between economic stagnation and political instability is strong, it's not inevitable. Several countries have successfully broken this cycle:
Following its democratization in the 1980s, South Korea invested heavily in education, technology, and export-oriented industries. This strategy generated rapid economic growth that was broadly shared, maintaining political stability during economic transitions.
Despite its unique political system, Singapore's focus on merit-based governance, investment in human capital, and pro-growth policies has maintained both economic dynamism and political stability.
Ireland's transformation from one of Europe's poorest countries to one of its most prosperous demonstrates how the right policies can generate rapid, broadly-shared growth that strengthens rather than undermines democratic institutions.
When governments face political challenges, they often delay necessary but unpopular economic reforms. This policy uncertainty discourages investment and long-term planning, further slowing economic growth.
Politicians facing electoral pressure focus on policies that provide immediate benefits rather than long-term growth. This leads to unsustainable fiscal policies, underinvestment in infrastructure and education, and regulatory inconsistency.
Political instability can manifest as protests, strikes, or violence, all of which disrupt economic activity. Businesses become reluctant to invest in unstable environments, further slowing growth.
Political and economic instability drives away talented individuals who have the means to emigrate. This brain drain deprives countries of the human capital needed for economic growth.
While the relationship between economic stagnation and political instability is strong, it's not inevitable. Several countries have successfully broken this cycle:
Following its democratization in the 1980s, South Korea invested heavily in education, technology, and export-oriented industries. This strategy generated rapid economic growth that was broadly shared, maintaining political stability during economic transitions.
Despite its unique political system, Singapore's focus on merit-based governance, investment in human capital, and pro-growth policies has maintained both economic dynamism and political stability.
Ireland's transformation from one of Europe's poorest countries to one of its most prosperous demonstrates how the right policies can generate rapid, broadly-shared growth that strengthens rather than undermines democratic institutions.
Policy Prescriptions: Addressing the Roots of Stagnation
Breaking the cycle of economic stagnation and political instability requires comprehensive policy approaches that address both immediate symptoms and underlying causes:
Inclusive Growth Policies
- Progressive taxation: Implement wealth taxes and close loopholes that allow the wealthy to avoid taxation
- Investment in public goods: Expand access to quality education, healthcare, and infrastructure
- Labor market reforms: Strengthen worker bargaining power and ensure wages keep pace with productivity
- Financial inclusion: Expand access to credit and financial services for small businesses and entrepreneurs
Institutional Reforms
- Transparency and accountability: Strengthen institutions that combat corruption and ensure government accountability
- Independent institutions: Protect the independence of courts, electoral commissions, and statistical agencies
- Civil service reform: Create merit-based, professional bureaucracies insulated from political pressure
Long-term Investments
- Education and skills: Invest in education systems that prepare workers for changing economic conditions
- Infrastructure: Build physical and digital infrastructure that supports long-term growth
- Research and development: Support innovation and technological advancement
- Environmental sustainability: Address climate change and environmental degradation that threaten long-term prosperity
The Role of International Cooperation
Economic stagnation and political instability are not purely domestic problems. International cooperation can help countries avoid or escape these traps:
Trade and Investment
Open, rules-based international trade systems can provide opportunities for growth that might not exist in domestic markets alone. However, the benefits of trade must be broadly shared to maintain political support.
Technology Transfer
International cooperation in technology and knowledge sharing can help countries leapfrog development stages and achieve faster growth.
Financial Stability
International financial institutions can provide countercyclical support during economic downturns, preventing temporary problems from becoming permanent stagnation.
Best Practice Sharing
Countries can learn from each other's successes and failures, adapting successful policies to their own contexts.
Conclusion: The Stakes of Success and Failure
The relationship between economic stagnation and political instability represents one of the most significant challenges facing democracies in the 21st century. As India's experience demonstrates, even countries with strong democratic traditions and growing economies are not immune to these pressures when growth benefits are concentrated among the wealthy while the majority experiences stagnation.
The stakes could not be higher. Countries that successfully generate inclusive economic growth tend to have more stable political systems, stronger democratic institutions, and greater social cohesion. Those that fail to do so face a spiral of economic stagnation, political polarization, and institutional decay.
For India, the path forward requires acknowledging that aggregate GDP growth is insufficient if it doesn't translate into broadly shared prosperity. The country's democratic institutions, built over decades, depend on the belief that the system can deliver better lives for ordinary citizens. When that belief erodes, as it has in many parts of the world, democracy itself becomes vulnerable.
The hidden costs of economic stagnation—erosion of trust, decline in social mobility, rise of populism, and political instability—represent threats to democratic governance everywhere. Understanding these costs and taking action to address them isn't just an economic imperative; it's essential for preserving the democratic institutions that millions of people have fought to build and protect.
The choice facing India and other democracies is clear: create inclusive economic growth that strengthens democratic institutions, or risk watching economic stagnation tear apart the social fabric that holds diverse societies together. History suggests that the window for action may be narrower than many realize, making urgent reform not just desirable but essential for democratic survival in an increasingly uncertain world.
As India continues to grapple with these challenges, its experience will undoubtedly provide valuable lessons for other democracies facing similar pressures. The question isn't whether economic stagnation breeds political instability—the evidence is overwhelming that it does. The question is whether democratic societies have the wisdom and will to address these challenges before they become insurmountable.
The stakes could not be higher. Countries that successfully generate inclusive economic growth tend to have more stable political systems, stronger democratic institutions, and greater social cohesion. Those that fail to do so face a spiral of economic stagnation, political polarization, and institutional decay.
For India, the path forward requires acknowledging that aggregate GDP growth is insufficient if it doesn't translate into broadly shared prosperity. The country's democratic institutions, built over decades, depend on the belief that the system can deliver better lives for ordinary citizens. When that belief erodes, as it has in many parts of the world, democracy itself becomes vulnerable.
The hidden costs of economic stagnation—erosion of trust, decline in social mobility, rise of populism, and political instability—represent threats to democratic governance everywhere. Understanding these costs and taking action to address them isn't just an economic imperative; it's essential for preserving the democratic institutions that millions of people have fought to build and protect.
The choice facing India and other democracies is clear: create inclusive economic growth that strengthens democratic institutions, or risk watching economic stagnation tear apart the social fabric that holds diverse societies together. History suggests that the window for action may be narrower than many realize, making urgent reform not just desirable but essential for democratic survival in an increasingly uncertain world.
As India continues to grapple with these challenges, its experience will undoubtedly provide valuable lessons for other democracies facing similar pressures. The question isn't whether economic stagnation breeds political instability—the evidence is overwhelming that it does. The question is whether democratic societies have the wisdom and will to address these challenges before they become insurmountable.
