India Growth: The untold story –Caste as social capital

By Prof. R Vaidyanathan

Indian economy has been growing at a compounded average growth rate [CAGR] of more than 8.5 percent in the last five years. [1].The largest segment of the economy namely the service sector accounting for nearly 65 percent is also the fastest growing sector. We find that the share of non-corporate sector namely partnership /proprietorship firms in the service sector are significant. It is more than 70 % in activities like trade, hotels and restaurants, transport and other areas like plumber/carpenter/painter/mason/priest etc. Domestic savings have been the primary source of funding of this growth. They constitute nearly 90 percent and the role of Foreign Institutional Investments [FII] and Foreign Direct investments [FDI] has never been more than 10 percent. Of this domestic savings; the role of House hold savings is phenomenal and it constitutes nearly 75% of the domestic savings. Hence the growth is due to households in service sector facilitated by self-financing or financing by extended families/communities. Different castes/communities have played important role in this growth in terms of capital formation, market access; risk mitigation and diversification etc.

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2 thoughts on “India Growth: The untold story –Caste as social capital

  1. Good article. Contribution of domestic savings for growth and development of the services sector and overall economy is certainly remarkable. Developed nations are trying to learn lessons from our growth story like U.S.


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