The Paradox of Prosperity, India’s Economic Freedom Deficit and the Rise of a Gilded Archipelago

The Paradox of Prosperity, India’s Economic Freedom Deficit and the Rise of a Gilded Archipelago

India’s narrative as the world’s fastest-growing major economy, a rising global powerhouse, and a nation on the cusp of becoming a developed country is ubiquitous. Yet, a critical counter-narrative emerges from the latest data on economic freedom and consumption patterns, painting a stark picture of a nation developing two distinct, diverging economic realities. According to the Heritage Foundation’s 2025 Index of Economic Freedom, India ranks a dismal 128th out of 176 nations, consistently labeled “mostly unfree” for over two decades. This statistic, juxtaposed against roaring GDP figures, reveals a profound paradox: a growing economy that is failing to translate its expansion into broad-based economic liberty for its citizens. The story is no longer merely one of poverty versus wealth, but of a consolidating “Indial”—an affluent, high-income archipelago within India—increasingly detached from the economic constraints and eroded freedoms of the billion-strong mainland.

Deconstructing Economic Freedom: Beyond GDP Fetishism

The concept of economic freedom extends far beyond national income metrics. It encompasses the fundamental human right to control one’s labor, enjoy its fruits, own property, and participate in a free market with minimal coercive interference. It is the bedrock of human dignity, confidence, and the ability to navigate life’s challenges. The Heritage Index measures this through pillars like property rights, judicial effectiveness, government integrity, tax burden, fiscal health, business freedom, labor freedom, monetary freedom, trade freedom, investment freedom, and financial freedom.

India’s stagnant, low score of 53 (on a 0-100 scale) indicates systemic deficiencies across these pillars. Over-regulation, bureaucratic hurdles, judicial delays, protectionist tendencies, and inconsistent policy implementation create a thicket of constraints. This environment stifles entrepreneurship for the many, while often being navigable only by the well-connected or the colossal—the large corporations and the ultra-wealthy. The result is that economic freedom becomes a privilege of scale and capital, not a universal right.

The Birth of “Indial”: An Engine of Consumption on a Gated Island

The most striking revelation supporting this bifurcation comes from the “Indus Valley Report 2025” by Blume Ventures. It identifies a segment it terms “Indial”—the top 10% of India’s population, approximately 140 million people. This group is not just wealthy; it constitutes a “high-income country” within India, with a per capita income that would rank 63rd globally, far ahead of India’s overall 140th rank.

Indial is the undisputed engine of India’s consumption-driven GDP, accounting for an estimated 66% of discretionary spending on non-essential goods. Their preferences are reshaping the nation’s market landscape:

• Real Estate: The luxury and ultra-luxury housing segment has doubled in five years. Sales of homes priced above ₹4 crore surged nearly 28% year-on-year in 2024. The boom is fueled by demand for larger homes in gated communities, where 16 million households (32% of the population in top 50 cities) account for 45% of urban spending. These are “islands of affluence” where residents pay a premium for “invisibility” and protected rights.

• Automobiles: While overall passenger vehicle sales grow slowly, the premium and luxury car segment experiences sharp, consistent growth.

• Travel: Outward remittances for foreign travel have skyrocketed from 21% to 54% of total personal remittances in a decade.

• Lifestyle: Their consumption dictates trends in destination weddings, luxury brands, gourmet dining, and even urban aesthetics.

Indial’s economic behavior signifies a profound decoupling. Their economic freedom is tangible: the freedom to consume globally, invest in appreciating assets, live in secured enclaves, and command premium services. They operate in a market that is responsive to their high-margin demands.

The “Bharat” Majority: The “Unfree” Mainland of Constrained Existence

In stark contrast lies the reality for the bottom 90%—over a billion Indians. For them, the term “discretionary spending” is an abstraction. As the report starkly notes, a staggering one billion Indians have no money left after meeting basic needs. Their lives are a precarious balance of covering ever-rising costs for food, housing, healthcare, and education, often on stagnant or inflation-eroded real wages. Savings are a fantasy; luxury, a distant dream. Poverty, in its most visceral sense, is the absolute antithesis of economic freedom.

But the crisis is deeper than traditional poverty. It is a growing financial fragility across the lower and middle classes. Even those above official poverty lines operate on “razor-thin margins.” Job creation remains weak, and the jobs that exist often lack security, benefits, or dignity. Inflation consistently outpaces wage growth, leading to a decline in purchasing power. For this majority, the market is not a realm of freedom but a source of coercion—a place where they are price-takers for essentials and have little leverage as workers or consumers.

The market structure exacerbates this. Corporate strategy, chasing high margins, increasingly focuses on premium and luxury products for Indial. This diverts innovation, capital, and attention away from producing affordable, quality goods for the mass market. The result is a form of market-driven exclusion. When a company’s R&D is aimed at the next luxury car or smart home device for the gated community, it is not working on affordable electric mobility solutions or efficient, low-cost housing for the many.

The Vicious Cycle: How Inequality Erodes Freedom for All

The divergence is not benign; it creates a self-reinforcing vicious cycle that erodes economic freedom systemically.

1. Political Economy of Preference: As Indial’s spending power dominates GDP metrics, policymakers may unconsciously tailor policies to fuel this already roaring engine—further liberalizing luxury imports, facilitating real estate clearances for high-end projects, and creating tax structures that favor capital over wage income. The urgent needs of the billion—for job-intensive manufacturing, affordable housing, and robust social security—receive less focused attention because they contribute less to short-term GDP growth figures.

2. The Coercive Power of Bigness: The report warns of the “monopolistic inclination of the market.” Large corporations, enjoying disproportionate power, can exploit both consumers (through opaque pricing, data misuse, lack of choice) and workers (through suppressing wages, precarious contracts). Their “freedom” to maximize profits can directly curtail the freedom of others. This is not free-market capitalism; it is oligopolistic coercion.

3. Spatial and Social Apartheid: The rise of gated communities represents a physical manifestation of this economic apartheid. These are not just residential choices; they are privatized utopias with their own security, utilities, and services. They allow the affluent to opt out of the shared civic reality—the crumbling public schools, congested public hospitals, and under-policed public streets. This secession undermines the collective political will to improve public goods for all, further trapping the majority in a cycle of poor services and constrained opportunity.

4. The Hope Deficit: Perhaps the most pernicious effect is on aspiration. When the pathway from the struggling majority to the affluent elite appears virtually closed—a “deepening” instead of a “widening” of the top tier—it breeds cynicism and despair. The Indus Valley Report’s warning is poignant: “When a billion citizens can no longer participate in the non-essential economy, the ripple effects will be felt across every sector – from industry to innovation. The challenge for policymakers is to restore not just incomes, but hope.”

The Path to Rebalancing: A Policy Agenda for Genuine Economic Freedom

Reversing this dangerous trajectory requires a conscious, multi-pronged policy shift away from GDP fetishism toward a freedom-centric development model.

1. Institutional Foundations: India must ruthlessly improve its scores on the pillars of economic freedom that benefit the many. This means:

   • Strengthening Property Rights and Judicial Efficiency: Especially for small landowners and entrepreneurs, to protect them from arbitrary state or corporate power.

   • Rationalizing Regulation: Simplifying the compliance maze for MSMEs, the true job creators.

   • Ensuring Government Integrity and Curbing Cronyism: To ensure a level playing field.

2. Reorienting the Market’s Purpose: Policy must incentivize businesses to serve the mass market profitably. This could involve:

   • Innovation Missions for Affordability: Public-private partnerships focused on affordable healthcare tech, housing solutions, and agricultural productivity.

   • Reinvigorating Antitrust: The Competition Commission of India must be empowered to check monopolistic practices and protect small businesses and consumers.

   • Support for Worker Power: Encouraging formalization, collective bargaining for fair wages, and portable benefits to increase labor’s share of national income.

3. Investing in Public Goods and Social Security: To provide the foundational freedom from fear. A universal social security floor (pensions, health insurance), massive investment in quality public education and healthcare, and affordable public housing are not socialist distractions; they are prerequisites for a population confident enough to be economically enterprising.

4. Fiscal Reforms for Equity: Moving towards a more progressive tax system that taxes wealth and luxury consumption more effectively, and uses those resources to fund the investments above, can help mitigate extreme inequality.

Conclusion: One Nation, Two Destinies?

India stands at a crossroads. The current path leads to a future where a dynamic, globally integrated “Indial” thrives in its gated archipelago, while a vast, struggling “Bharat” remains economically unfree, its potential locked in a daily struggle for subsistence. This is not a stable or morally tenable outcome for a democratic republic.

The quest for economic freedom cannot be an afterthought. It must be the central objective. True development will be achieved not when India’s GDP reaches $10 trillion, but when its Economic Freedom Index score rises decisively into the “moderately free” and eventually “free” categories, reflecting broad-based empowerment. This requires choosing policies that deliberately dismantle coercive structures, break the shackles of poverty for good, and build an economy where freedom and prosperity are not the possessions of a fortunate tenth, but the shared inheritance of all its people. The alternative is not just continued low rankings on a global index, but the unravelling of the social contract and the democratic promise of India itself.

Q&A: India’s Economic Freedom Deficit and the “Indial” Phenomenon

Q1: What is “economic freedom,” and why does India rank so poorly (128th) in the Heritage Foundation’s Index?
A1: Economic freedom is the fundamental right to control one’s labor, own property, and participate in a free market with minimal coercion. It encompasses property rights, judicial effectiveness, regulatory efficiency, and open competition. India ranks poorly (score: 53/100, “mostly unfree”) due to persistent systemic issues: burdensome regulations, a slow and overburdened judiciary that weakens contract enforcement, bureaucratic red tape that stifles small businesses, protectionist trade policies, and inconsistent implementation of reforms. This creates an environment where economic liberty is accessible primarily to the well-connected and large corporations, not the average citizen or entrepreneur.

Q2: Who or what is “Indial,” and how does it represent a divergent economic reality within India?
A2: “Indial” is a term coined in the Indus Valley Report 2025 to describe the top 10% of India’s population (~140 million people). This group functions as a “high-income country” within India, with a per capita income ranking 63rd globally (vs. India’s 140th). Indial drives 66% of discretionary spending on non-essentials, reshaping markets towards luxury goods, premium real estate (gated communities), high-end cars, and foreign travel. They live in an economic reality of significant freedom and choice, largely decoupled from the constraints faced by the majority.

Q3: How does the consumption pattern of “Indial” exacerbate inequality and constrain freedom for the majority?
A3: Indial’s luxury-focused consumption creates a self-reinforcing cycle of market exclusion.

• Corporate Strategy Shift: Companies chase the high margins of the luxury segment, diverting innovation and investment away from affordable, quality products for the mass market.

• Spatial Inequality: The boom in gated communities (“islands of affluence”) allows the wealthy to opt out of public systems, eroding political will to improve shared public goods like schools and hospitals for everyone else.

• Policy Distortion: As Indial’s spending disproportionately fuels GDP growth, there’s a risk policies become tailored to this segment, neglecting job creation and wage growth for the bottom 90%. This skews economic freedom towards the few at the expense of the many.

Q4: What is the economic reality for the bottom 90% of Indians, according to the analysis?
A4: For over a billion Indians, economic freedom is severely constrained. A staggering number have no discretionary income after covering basic needs like food, housing, healthcare, and education. They face stagnant real wages, weak job creation, and a lack of social security. They are price-takers in essential markets and have little bargaining power as workers. Their reality is not just poverty, but pervasive financial fragility and a “hope deficit,” as pathways to join the affluent tier appear closed. For them, the market feels coercive, not free.

Q5: What are the key policy changes needed to improve India’s economic freedom for all its citizens?
A5: Moving from a “mostly unfree” to a “free” economy requires a foundational shift:

1. Strengthen Institutional Pillars: Drastically improve judicial efficiency, simplify regulations for MSMEs, ensure property rights, and combat cronyism to create a level playing field.

2. Reorient Innovation & Market Incentives: Use policy to spur innovation in affordability (e.g., low-cost housing, healthcare) and strengthen antitrust regulation to prevent corporate coercion.

3. Invest in Universal Public Goods: Build robust social security (pensions, health insurance), quality public education, and healthcare. This provides the security needed for people to take economic risks.

4. Progressive Fiscal Policy: Implement more equitable taxation on wealth and luxury consumption to fund investments in inclusive growth and human capital.
   The goal must be to break the cycle where the freedom of the few expands at the direct expense of the freedom of the many.