Richard Epstein on India's Economy

An American in India
Richard A. Epstein
Defining Ideas
January 7, 2014

On December 29, 2013, my wife and I boarded a United Airlines flight from New York to Mumbai for our first trip to India. We spent three days in Mumbai and one in Delhi. That short trip gave me a chance to observe a tiny sliver of a vast, diverse, and contradictory country. The startling contrast between rich and poor is so vividly etched in my mind that I’d like to devote this column to what I observed on my trip. The country’s many microenvironments and the larger macroeconomic picture help explain the great disparity of wealth.

The View on the Ground

In Mumbai, within shouting distance of heated toilet seats in luxury hotels, there lies squalor and poverty. The exteriors of most of the ramshackle structures that line Mumbai’s packed streets are battered and pock-marked. Upstairs, tiny, decrepit dwelling units lie hidden behind endless amounts of laundry hung out to dry. Downstairs are the small shops that are literally holes in the wall crammed full of merchandise, much of it foodstuff and electronics. There are no large shops in evidence, and the distribution system that services this peculiar form of retailing can only survive because of some hidden set of restrictions that prevent the emergence of larger and more rational forms of industrial organization.

The fragmentation of this system was made real to my wife and me when we sought to buy a local phone to make the occasional call back to family in the United States. What should have been a simple transaction became a major production. At stage one, our intrepid driver weaved and darted through a bewildering maze of streets to a small shop to have my picture taken for the needed government form. Eight copies of the same photograph were duly provided. The next leg of our car trip had us purchase the phone at another tiny shop; the SIM card was procured at yet another shop, smaller than the first.

Faculty: 
Richard A. Epstein