The Magnificent Indian People: Resilient, Ingenious and Let Down by a Bureaucracy Built to Control

Before any diagnosis of India’s economic failures, one fact deserves to be stated plainly. The ordinary Indian has survived and progressed not because of the system, but in spite of it. India’s streets, markets, and neighbourhoods testify daily to courage, ingenuity, and endurance. Small shopkeepers, vendors, stallholders, repairmen, farmers, and informal entrepreneurs run their lives with minimal capital, little protection, and relentless uncertainty. Where they are allowed to operate freely, they display extraordinary resilience and commercial intelligence. India’s economy has always been kept alive from below: by families pooling risk, by neighbourhood credit, by improvisation, and by work that begins early and ends late. This is not a tribute to India’s wealthy elites, but to its poor and lower middle classes, among the hardest working people on earth, who contribute not only to economic life but to social cohesion and even environmental stewardship through frugality, reuse, and low consumption. Any serious critique of the Indian state must begin with respect for the people who succeed despite it.

India’s economic underperformance has been persistently misdiagnosed. The conventional explanations focus on capitalism’s alleged excesses, foreign pressure, or insufficient state planning. Yet for much of modern Indian history, the binding constraint on growth was neither technology nor talent. It was the state itself. More specifically, it was an administrative system designed to control entry rather than enable competition.

Javier Milei’s core claim is disarmingly simple. In modern economies, growth is not limited by ideas or machines but by government created barriers to entry. The decisive question is not whether firms become large, dominant, or profitable. It is whether new competitors are allowed to enter. When entry is open, scale is disciplined by rivalry. When entry is blocked, dominance hardens into privilege.

Applied to India, this logic leads to an uncomfortable conclusion. India did not fail because markets ran amok. It failed because markets were never allowed to function fully. Entrepreneurship existed, but it was forced to express itself through bureaucratic navigation rather than consumer discovery. That shift was not cosmetic. It altered the selection mechanism of the economy, determining who could grow, who would stagnate, and what kinds of firms survived.

A bureaucracy built for control

At the apex of India’s administrative state sits the Indian Administrative Service, the IAS, a small cadre of senior administrators who rotate through district leadership, state secretariats, and central ministries. In practice, this bureaucracy exercises coordinating authority over permissions, regulatory interpretation, and implementation across the economy.

The IAS is the successor to the colonial Indian Civil Service, the ICS, the administrative backbone of British rule. The ICS was engineered to govern a vast population through a small ruling elite. Its purpose was not to cultivate competition or encourage experimentation. It was order, revenue extraction, and compliance. Hierarchy, files, and discretion were not accidents. They were the design.

In 1922, British prime minister David Lloyd George described the ICS as the “steel frame” of British rule in India, insisting the structure would collapse if that cadre were removed. [oai_citation:4‡api.parliament.uk](https://api.parliament.uk/historic-hansard/commons/1922/aug/02/civil-service-india?utm_source=chatgpt.com) The phrase captured a colonial truth: the administrative system was built for control. Independent India retained much of that frame, repurposed it, and placed it at the centre of the development state. Sovereignty changed. Structure largely remained.

This inheritance matters because an administrative architecture built for command and compliance does not naturally evolve into one that enables competition. Where authority is exercised through permission, the official becomes a gatekeeper. Where gatekeepers exist, entry is rationed, and the economy becomes political at its core.

The lesson colonial rule taught the wrong people

Colonial administration was not merely a historical episode. It was studied as a technique of domination. In Hitler’s Table Talk, there is a section explicitly titled “Lesson of British rule in India.” Hitler remarks, in substance, that Germany should learn from Britain’s ability to govern a vast population with a small force and a cadre of administrators. [oai_citation:5‡Archive.org](https://ia601305.us.archive.org/27/items/HitlerTableTalk/Hitler%20TableTalk.pdf)

This is not introduced to dramatise the argument or to create moral theatre. It is introduced for institutional clarity. British colonial administration was admired by a genocidal regime precisely because it solved a problem of control: limited manpower, vast population, and rule by discipline and bureaucracy. India inherited that machinery and then deployed it, almost unchanged, in the management of economic life.

When permission replaces the market

From the era most associated with state dirigisme and the licence regime, especially under Indira Gandhi, India constructed what can fairly be described as a permission state. Industrial licences, import controls, capacity limits, price regulation, and administrative approvals replaced price signals with bureaucratic discretion. Entrepreneurs did not discover opportunities through open competition. They petitioned ministries.

From an Austrian economics standpoint, this substitution is decisive. Prices are not abstract numbers. They are an information system, coordinating dispersed knowledge and signalling where capital and labour are most valued. In a free entry environment, high profits attract challengers. Competition compresses margins and improves output. But when entry is blocked, prices cease to function as signals and become rents. The market is not abolished. It is redirected into political and administrative channels.

Ludwig von Mises framed the monopoly problem not as an aesthetic issue about large firms, but as an institutional issue about privilege. Monopoly becomes dangerous when it is protected from entry. India did not merely allow monopoly. It frequently manufactured and protected it by restricting entry.

Bureaucracy as a manufacturer of monopoly

The most persistent analytical error in India’s post independence economic thinking was to treat markets as inherently suspect and regulation as inherently corrective. In practice, the bureaucracy was not merely a referee. It became an allocator of permission. Its power lay less in overt corruption than in discretion. Licences could be delayed. Conditions could be added. Files could be escalated indefinitely. Time itself became a lever.

When entry depends on permission, incumbency becomes protection. New entrants face uncertainty, delay, and fixed compliance costs. Established firms with cash buffers and regulatory familiarity survive. Smaller rivals do not. The outcome is predictable: concentration without contestability.

This is why the Milei logic matters. A firm’s dominance is not the key question. The key question is whether entry is open. India’s problem was not that some firms were large. It was that the state frequently decided who was allowed to become large, and who was not allowed to try.

Hindustan Motors, or how policy can keep a bad product alive

The history of Hindustan Motors illustrates the mechanism with unusual clarity. Its iconic car, the Ambassador, did not survive because consumers chose it against alternatives. For long stretches, alternatives were blocked. Imports were heavily restricted. Foreign competitors were excluded. Capacity expansion was licensed. Consumers had no meaningful exit.

This is the core Austrian distinction. A product that survives because rivals are excluded is not a market champion. It is a policy artefact. The moment India’s economy liberalised enough to allow entry and meaningful competition, the fragility of such dominance became obvious. The protected incumbent struggled. The market verdict arrived late, but when it arrived, it arrived quickly.

Ambani, scale, and the misread lesson of Indian capitalism

The rise of Dhirubhai Ambani is often told as a story of entrepreneurial brilliance overcoming obstacles. It is that. But a colder reading is more precise. The environment shaped the type of entrepreneur who could thrive. In a permission state, success is not purely a function of customer satisfaction or productive efficiency. It is also a function of navigating licences, quotas, and administrative interpretation.

Heavy compliance costs favour scale. Large firms can afford legal teams, consultants, and the time required to absorb delays. Smaller challengers cannot. Regulation becomes an entry barrier that filters competitors before markets can discipline incumbents. The state therefore manufactures concentration while claiming to oppose it, then blames markets for the predictable result.

Antitrust without entry is intellectual theatre

The Milei logic is especially useful when applied to antitrust. There are broadly two traditions: one focuses on exclusionary conduct that blocks competitors, the other focuses on “excessive pricing” by dominant firms. The first is coherent because it targets barriers. The second is often incoherent because it confuses symptom with cause.

If a firm charges high prices in a contestable market, those prices are a signal. They attract entry. The discipline is the threat of competition. The problem arises when entry is blocked, and in India’s case, the state itself frequently blocked entry through licensing, quotas, exclusive rights, and administrative barriers.

This is why India spent too much time moralising about profits and too little time dismantling barriers to entry. The obsession with disciplining large firms often became a substitute for the harder work of dismantling a permission regime that protected incumbents.

Discretion is the factory where corruption is made

The same administrative architecture that manufactures monopoly also manufactures corruption. This is not a cultural claim. It is a structural one. Corruption arises where discretion is wide and accountability is weak.

India’s regulatory landscape is dense with discretionary choke points: licences, clearances, inspections, compliance certifications, environmental approvals, land permissions, procurement decisions. Delays are rarely bounded. Appeals are slow. Courts are overburdened. The rational strategy becomes caution, delay, and procedural escalation.

International indices reflect the outcome. Transparency International reports that India’s Corruption Perceptions Index score is 38, ranking 96 out of 180 countries. [oai_citation:6‡Transparency.org](https://www.transparency.org/en/countries/india) That is not an indictment of ordinary Indians. It is an indictment of a system that converts administrative permission into monetisable power.

When officials can delay or deny permission, acceleration becomes valuable. When permissions are scarce, access is monetised. Corruption is not a deviation from the system. It is the price of discretion.

Politicised transfers and the erosion of bureaucratic neutrality

In theory, an elite civil service can mitigate political turbulence through continuity and administrative neutrality. In practice, India’s bureaucracy has long been subject to politicised transfers and posting instability, weakening exactly that function.

Research by Lakshmi Iyer and Anandi Mani finds that transfers are frequent, with average tenure in a given post around 16 months, and a large share of officers serving less than a year in key roles. [oai_citation:7‡Harvard Business School](https://www.hbs.edu/ris/Publication%20Files/09-006_161d8937-9cd3-4709-b3ba-53cdc9588cfc.pdf?utm_source=chatgpt.com) Even if one treats this as an empirical description rather than a moral indictment, the incentive effects are obvious. Short tenure encourages risk avoidance. It discourages long horizon reform. It aligns the bureaucracy toward pleasing political patrons rather than delivering outcomes.

When an officer’s career depends on postings and transfers, neutrality becomes difficult. Decision making shifts toward safe procedure, deflection of responsibility, and slow movement of files. A permission state then becomes a delay state, and delay becomes leverage.

Identity politics and administrative capture

India’s political economy introduces a distortion that interacts toxically with bureaucratic discretion: identity based electoral mobilisation. Voting patterns in many regions reflect caste and community alignments. The incentive for politicians becomes targeted distribution, not universal administration.

In such an environment, the state is treated as a distributive instrument rather than a neutral enabler of competition. Licences, contracts, postings, and local enforcement priorities can become factional tools. The bureaucracy, instead of protecting impartial administration, becomes the arena through which political incentives flow.

The tragic outcome is that the resilience of ordinary Indians is exploited twice: first by the state that restricts opportunity, then by the political machine that allocates opportunity through identity blocs rather than open competition.

Regulators without discipline

Milei’s distinctive contribution is not simply deregulation as a slogan, but the notion that regulators themselves must be disciplined. A regulator that faces no competition, no exit, and no meaningful consequences for delay will predictably expand its reach. Requirements multiply. Documents are demanded that do not map to any genuine market failure. Timelines stretch. Costs rise. Entry shrinks.

India’s system offers limited exit. There is no parallel regulatory marketplace. There is little meaningful choice between regulated and unregulated segments for many industries. The regulator’s monopoly therefore becomes self reinforcing.

Where exit is impossible, discretion becomes sovereign. And where discretion is sovereign, the economy becomes less a process of discovery and more a process of petition.

Why China scaled while India stalled

China is not a free market model. Yet it structured bureaucratic incentives differently. Promotion pathways and performance evaluation, however imperfect, have often been tied to delivery, investment, and output. Local officials competed for growth and infrastructure. This created a form of internal discipline.

India’s bureaucracy historically operated under different incentives: seniority, caution, legal exposure, and political risk management. Transfer instability further encouraged short horizon behaviour. Bureaucracy was applied precisely in areas where profit based management could have been allowed to function.

Mises drew a hard distinction between profit management and bureaucratic management. Bureaucracy is necessary where profit calculation cannot operate, such as core state functions. But when bureaucracy is imposed where profit management could work, it tends to suppress innovation, distort incentives, and create waste. India’s post independence system frequently did exactly that.

The Austrian verdict

An Austrian economist examining India reaches a stark conclusion. India did not fail because markets created monopoly. It failed because a permission based bureaucracy manufactured monopoly privilege, suppressed entry, and converted administrative power into rent.

The magnificent Indian people did not fail. They endured. They improvised. They built livelihoods under pressure. They created commerce on the street corner and in the back room, in the market stall and the repair shop. They found ways to trade, to save, to educate their children, and to survive. India’s economic story is, in large part, a story of ordinary people refusing to collapse even when the institutions above them are designed for control rather than freedom.

The Indian bureaucracy did not restrain power. It concentrated it. Competition was not suppressed by capital but by permission. Prices were muffled. Entry was rationed. Monopoly became structural.

The corrective is not rhetorical. It is institutional. Remove discretionary choke points. Bound timelines. Replace permissions with transparent rules. Liberalise entry. Make regulators answerable to outcomes, not to their own internal procedures. In India’s case, the most pro poor reform is often the most boring: abolish the licence, remove the quota, delete the requirement, and let the vendor and the small entrepreneur breathe.

Applied to India, this is not ideology. It is diagnosis.