Empowerment comes first.
People are given the constitutional and legal rights to build the social and
economic order of their choosing. The political structure that follows is
mostly downstream of that economic choice, and for societies opting for a free,
capitalist economy, parliamentary democracy has proven the most durable
vehicle. The move from aristocracy or oligarchy to full parliamentary democracy
is rarely smooth, if only because a newly enfranchised electorate is not always
equipped, through education or experience, to identify the wisest rulers or the
wisest policies on the first attempt.
Enablement follows. People empowered on paper now need
to be enabled, in practice, to walk the economic path of their choice. Social
equality, economic equality and gender equality are the usual stated goals, and
the tools are familiar the world over — redistribution through taxation and
welfare, land-ceiling laws, restrictions on asset ownership, and affirmative
action to bring the economically poor, the socially marginalized and women into
government and commerce. This phase is rarely peaceful. Tension between the
propertied and the dispossessed spills into social unrest, and institutions
that are still too young or too weak to supervise redistribution honestly tend
to generate more corruption, not less. There is also a subtler failure I have
seen recur across very different countries: some of enablement’s intended
beneficiaries become powerful enough, in turn, to appropriate resources meant
for their peers — reproducing, under a new banner, the very inequity the phase
was meant to correct.
Engagement is the pay-off.
The empowered and enabled population now participates directly in building the
economic institutions and free markets around it. This is usually the golden
period for any society that has chosen the free-market route — a larger share
of the population riding the virtuous loop of earning, consuming, saving,
investing and earning again, which is what sustainably higher consumption and
investment demand actually looks like from the inside.
This sequence is not uniquely Indian and the three phases
need not run in a fixed order. South Korea and Taiwan are the clearest case of
the sequence inverting rather than merely compressing: both achieved deep
economic engagement — export-led manufacturing, mass industrial employment,
rising incomes — for years under authoritarian rule, and only democratized, and
so achieved political empowerment, in the late 1980s. Enablement and economic
engagement arrived first; political empowerment followed. Post-1989 Eastern
Europe shows a different risk: rapid privatization, undertaken before
institutions were mature enough to supervise it, let a small circle of insiders
capture state assets almost overnight, delaying the broader population’s
engagement by a decade or more even as headline growth recovered. The United
States offers a longer, messier version of the classic order — its
constitutional empowerment dates to the 1780s, but it took roughly 190 years,
until the Voting Rights Act of 1965, before that empowerment was extended in
practice to all its citizens, and arguably longer still before enablement was
complete. The lesson I take from all three is that empowerment, enablement and
engagement are better thought of as three tracks — political, redistributive
and economic — that often but do not always move in step, rather than one fixed
sequence every society must climb in order.
India’s constitutional framework offered both a democratic
polity and a free-market economy from the day the Constitution came into force,
26 January 1950. In that narrow sense, India’s empowerment was immediate and
complete — faster, in fact, than the American experience above. In practice,
though, I would argue meaningful empowerment was delayed by at least three
decades. The Indian National Congress, which had led the freedom movement,
converted itself into the ruling party, and its leadership through the 1950s,
60s and 70s remained heavily drawn from the country’s landed and professional
elite. Policy through this period concentrated control over resources and
enterprise with the state, leaving room for little beyond bare necessities for
the ordinary citizen, and space for organized dissent was narrow — what
opposition existed came mostly from communist and socialist groupings whose
support base tended to be regional or sectional rather than national.
The first genuinely nationwide push for real empowerment
took shape in the mid-1970s, under Jayaprakash Narayan, and the Emergency that
followed only sharpened the demand once it was lifted. Momentum built through
the 1980s, and enablement began in earnest a decade after the Mandal Commission
submitted its report, when V.P. Singh’s government implemented its
recommendations in August 1990. As with most enablement phases, India’s has
been shaped as much by electoral calculation as by social or economic logic,
and it has carried the familiar costs — patchy execution, leakages, and no
shortage of allegations of corruption along the way.
The socialist and regional political current that Mandal
unleashed gained real power through the 1990s and 2000s, at various points
anchoring or propping up the federal government. It could not sustain its early
energy — several of these parties settled into family- or faction-led
leadership that looked, in time, uncomfortably similar to the entrenched
structures they had set out to replace. But the underlying shift proved
durable: Indian governance since then has grown structurally more
welfare-oriented, and India’s states and local bodies now hold far more real
power than they did in 1980.
On reflection, the real trigger for India’s economic
engagement was 1991. The dismantling of the license-permit raj, the opening of
the economy to trade and foreign capital, and the birth of a modern equity and
mutual-fund culture that followed are what first let ordinary Indians
participate directly in building enterprise and markets rather than simply receiving
what the state chose to redistribute. That leaves a gap I should be honest
about: enablement (1990, via Mandal) and the start of economic engagement
(1991) arrived almost simultaneously, while political consolidation of the
enablement agenda — more welfare-oriented governance, more powerful states —
continued to unfold for another two decades alongside it. The two tracks ran
side by side rather than one strictly following the other, which is itself a
reminder that this framework describes overlapping currents more than a clean
staircase.
2014 marked broadening and deepening of the engagement phase—
and, again whatever else one makes of the government’s record, that period has
combined continued affirmative action for the underprivileged with a decisive
widening of the direct-tax base and of market participation. Personal income
tax collections now exceed corporate tax collections; private enterprise,
including a wave of new-age companies in defence, space, medical research and
manufacturing, is doing real work alongside the state; indirect-tax
participation has widened; and household savings are flowing into financial
markets at a scale that makes retail investors, for the first time, a
meaningful source of growth capital. The 1990s built the plumbing; the last
decade is where the volume running through it has become large enough to matter
for the aggregate economy.
Engagement, though, meets resistance every step of the way.
Privatization proposals are met with cries of cronyism. Every effort to raise
the tax-to-GDP ratio runs into pushback. Direct contribution from citizens who
have drawn on public infrastructure and subsidies for two generations is too
often read as an imposition rather than a fair ask. That is not, historically,
how the economics of development actually works — somebody has always had to
pay for the plumbing, literal or digital.
The row over the Merchant Discount Rate on UPI belongs
squarely in this bucket. From 15 October, the National Payments Corporation of
India will apply a 0.4% MDR on person-to-merchant UPI payments above ₹2,000 — a
charge that sits with the merchant, not the customer, and merchants are
explicitly barred from passing on to the price a customer pays. Peer-to-peer
transfers stay free at any size, as do merchant payments under ₹2,000. Small
merchants receiving up to ₹1 lakh a month through a UPI QR code are exempt
altogether, and essential services — railways, fuel, telecom, insurance — get a
flat, low fee rather than a percentage cut. By NPCI’s own reckoning, barely 4%
of merchant transactions will be touched at all. What this buys is a modest,
dedicated revenue stream to fund the servers, fraud detection and cybersecurity
that a network clearing close to ₹30 lakh crore a month genuinely needs,
instead of leaning indefinitely on the exchequer to keep something running that
has never actually been free to operate.
This, to me, is engagement working as intended, not
oppression dressed up as reform. The people being asked to contribute are
precisely the ones who have gained the most from a public digital rail built at
public expense — merchants who no longer pay card-network swipe margins, and
the platforms layered on top of UPI. If UPI is to remain the backbone of Indian
retail commerce for another decade, someone has to fund the upkeep, and it need
not be the taxpayer carrying that alone.
Payment companies — issuing banks, acquiring banks and
payment aggregators — gain access to a real, durable UPI revenue pool for the
first time since MDR on UPI and RuPay debit was zeroed out in 2020; watch for
read-through to listed payments and fintech names.
Small and informal merchants are shielded by design, so
there is no near-term disruption risk to the grassroots digital-payments
adoption that underwrites the broader financial-inclusion and formalization
theme.
The cost-sharing template used here — protect the retail
base, charge the commercial layer — is a plausible model for monetizing other
public digital rails (ONDC, the Account Aggregator framework, OCEN), and worth
tracking for any portfolio exposure to platforms built on India’s digital
public infrastructure.
The broader signal — a rising share of direct taxes,
deepening retail participation in markets, and now direct monetization of
public payment infrastructure — is consistent with my longer-running thesis
that India’s financialization is structural, not cyclical, and continues to
favor domestic financial intermediaries over time.
I keep returning, at moments like this, to the idea at the
heart of the Bhagavad Gita’s discussion of yajna — that any system, cosmic or
economic, is sustained only by what its participants are willing to put back
into it, not merely by what they draw out. A nation that wants its digital
public goods to last will eventually have to fund them the way it funds
everything else that lasts: through contribution, not entitlement. That, more
than any single percentage point of MDR, is the real story here.
