Political Stability and Economic Growth: Evidence from India

Political stability, defined in terms of stability in government and the absence of violence and conflict within the country, is a vital institutional factor affecting economic growth. The present study investigates the relationship between political stability and economic growth in India for the years 1996–2021, using autoregressive and distributive lag models. After validating the existence of levels of relationship, it emerged that long-term political stability might not be conducive to growth in India. The results countered the existing theoretical frameworks whereby political instability hinders economic growth and political stability facilitates it. In contrast, the limited nature of the tenure forces the governments to consider the needs of people and re-election incentivises them to design prolific policies. When the power is concentrated in the hands of the executive or policymakers for a long period of time, the bargaining power of economic agents might be rendered ineffective and the state might have little incentive to promote growth.