Copyright 2016,

Gurcharan Das: Free Markets - The Indian Way

Exercising 'dharma' or restraint is the key to maintaining the balance in capitalism

Gurcharan Das
The Man:
Gurcharan Das's second career as a writer and public intellectual is more noticed and in some ways far more influential than his first as a professional manager. It spanned 30 years, and across six countries and included a term as CEO of Procter & Gamble India. His writings drew from his experience and also from his wide reading. He tells us that individuals could be immoral but the institution of the market itself is deeply moral.

The Oeuvre: His first book India Unbound captured the country in economic transition and became an instant best seller.  In Difficulty of Being Good, his most recent book, he turned to Mahabharata to find answers for some of the pressing ethical questions.

X-Factor: A beautiful writer—wise and pragmatic.

The Message: There is a purpose to economic activity, and the pursuit of money is justified so long as it leads to the good life.

The Hypothesis
Human beings may be immoral and will behave badly whether in a socialist or a capitalist society or under a democracy or autocracy. But the institution of the market itself is deeply moral and has its underpinnings in the Indian notion of dharma.

 So What?
Dharma is a frustrating word and not easy to translate. Duty, goodness, justice, law and custom have something to do with it, but it is chiefly concerned with doing the right thing, both in the private and the public life. The market system depends ultimately not on laws but on the self-restraint of individuals. A sense of dharma provides that restraint for the vast majority of people who tend to behave with mutual respect in most societies.

Although two decades have passed since the reforms of 1991, when Indians began their love affair with free markets, capitalism is still trying to find a comfortable home in India.  Like most people, Indians believe that the market is efficient but not moral. I have come to believe, the opposite. Human beings may be immoral and will behave badly whether in a socialist or a capitalist society or under a democracy or autocracy. The institution of the market itself is deeply moral and what has convinced me about its ethical nature is the classical Indian notion of dharma. At the heart of the market system is the idea of exchange between ordinary, self-interested human beings, who seek to advance their interests peacefully in the marketplace. The reason that strangers are able to trust each other in the market is, in part, due to dharma, which is like an invisible glue that is based on underlying shared norms and which gives people a sense of safety when they cooperate and transact.

Supplier, customer, and employee—all business relationships depend on a certain behaviour which one could call the behaviour of Dharma. When people behave according to that, the business runs well. Very often companies cut corners, squeeze their suppliers. They will be the ones that will lose their employees, their suppliers. If they are not honest to their customers then the repeat purchase of their products will not happen. The whole market system depends on this shared belief that we will all do the right thing. There are companies who default on their debt obligations and it would seem they can do it repeatedly. But ultimately they pay the price. Their multiples [of stock price] are low and investors are wary of putting their money into the company’s equity.

The idea that an ancient Indian idea might offer insight into capitalism’s nature is, on the face of it, bizarre. I was exposed to Western ideas when I was in college, and I assumed unthinkingly that ‘capitalism’ came from the West. I read Adam Smith, Marx, John Locke and others, who introduced me to the liberal tradition. But I realised my mistake later in life when I happened to read the two thousand year old Sanskrit epic, Mahabharata. The epic is obsessed with the notion of dharma, and as I tried to come to grips with it I realised that there might also be non-Western roots for the ideas of liberty and market capitalism, and the liberal tradition might, in fact, be universal.

Dharma is a frustrating word (even for Indians) and not easy to translate. Duty, goodness, justice, law and custom have something to do with it, but it is chiefly concerned with doing the right thing, both in the private and the public life. It derives from the Sanskrit root dh, meaning to ‘sustain’ and ‘hold up’ like a foundation. It is the moral law that sustains an individual, society and the cosmos.  From its root ‘to sustain’ dharma carries the connotation of ‘balance’—it is the balance within each human being, which is reflected in the balance and order of the cosmos. When individuals behave in accordance with dharma there is order, balance and trust within society.

Dharma is especially suited for understanding the dynamics of the market place in particular and of public policy in general, because it does not seek moral perfection. It is based  on a pragmatic view of human beings—it views men to be sociable but imperfect, with strong desires and passions that need to be restrained by dharma. For example, the king’s dharma is to nurture the productive forces in society:  ‘The king, O Bharata, should always act in such a way towards vaishyas, ‘merchants’ and ‘commoners’, so that their productive powers may be enhanced. Vaishyas increase the strength of a kingdom, improve its agriculture, and develop its trade. A wise king levies mild taxes upon them.’ [Mahabharata XII.87] Practical advice indeed, for otherwise, the epic adds, they will shift to the neighbouring kingdom. 


Dharma thus provides the underlying norms of a society that are commonly shared by the people, and which permits them to cooperate. It creates obligations and duties for the rulers and the ruled. In the marketplace, it places restraints for buyers and sellers. Because we share a common dharma I readily accept a cheque from you. A cab driver takes me in as a passenger because he knows that the restraint of dharma will ensure that I will pay him at the journey’s end. I trust my fruit vendor who claims that her mangoes are expensive this week because of their higher quality. If the mangoes turn out to be bad, I will accuse her of not adhering to dharma, and I will punish her by going to her competitor. She will not only lose my custom but that of others, as word of mouth spreads—she will come to be known as a person of low dharma. Suppliers will not trust her; she will not be able to attract good employees. On the other hand, a person of high dharma will be rewarded with a good reputation; she will also enjoy high satisfaction among customers, suppliers, and employees.

 The market system depends ultimately not on laws but on the self-restraint of individuals. A sense of dharma provides that restraint for the vast majority of people who tend to behave with mutual respect in most societies. However, there are also crooks in all societies who do not feel bound by dharma, and hence, law and enforcement is needed. The ruler’s dharma (as Bhishma instructs King Yudhishthira in the epic) requires regulation and danda, the ‘rod of the state’, to punish those of low dharma.

 That India should be rising economically on the back of free markets is not entirely surprising. It has a long history of markets. Since ancient times the merchant has been a respected member of society, one of the ‘twice born’—among the high caste in the social hierarchy. India will always have a successful market economy because we have always had a tradition of encouraging markets. In India the merchant had an official place in the society, the vaishyas. And they are described as a twice-born, which is a high caste. A lot of story-telling traditions—be it Panchatantra or Hitopadesha—portray merchants in a sympathetic light. There are not too many countries in which the trader is seen in a positive light! Traditionally in India, the state was weak and the society strong, unlike China, which has traditionally had a strong state and a weak society. Hence, India’s history has been that of warring kingdoms and China’s is that of empires. Dharma also placed limits on the power of the king. Unlike the Chinese emperor who was the source and the interpreter of the law,  dharma in India existed prior to the Raja, who was expected to ‘uphold dharma’; the Brahmin, not the Raja was the interpreter of dharma; thus a check on state power was built early in Indian history.

 The socialist state between 1950 and 1990 was thus an anomaly in Indian history. India tried to industrialise through the agency of the state by placing the public sector at the ‘commanding heights’ while stifling private enterprise with the worst controls in the world, which came to be called ‘the license raj’. Not surprisingly, it failed. The Indian state did not have the capacity to manage a command economy, nor was a centralised bureaucratic state in keeping with the country’s decentralised historical temper. Facing bankruptcy, India made a U-turn through a series of reforms beginning in 1991, which dismantled socialist institutions and replaced them with market oriented ones. 20 years of capitalist growth have made India the second fastest growing major economy in the world. True to its history and its temper, India is today rising from ‘below’,  almost despite the state, unlike China whose success has been scripted from ‘above’ by an amazing, technocratic state that has built extraordinary infrastructure.

There is a purpose to economic activity and the ancients in India were acutely aware of this when they posted artha, ‘material well being’, as one of the goals of life. They believed that the pursuit of money is justified to the extent that it leads to the good life. That good life also consists of other goals, in particular, dharma, ‘moral well-being’. Mahabharata reminds us that the goal of artha is subordinate to dharma. In other words, there is a right and a wrong way to pursue wealth. In today’s language, the pursuit of artha is to make the world a better place—to lift the poor out of poverty. Thus, the moral purpose of capitalism is to take societies from poverty to prosperity. The problem begins when poverty has been conquered and a society has become prosperous and middle class. Beyond a certain point increased wealth does not make people happier, and they seek other goals. Successes of capitalism produce enervating influences when a generation committed to saving is replaced by one devoted to spending. This is a problem which will confront India and China in the next generation. Ferocious competition is another feature of the free market and it can be corrosive. But competition is also an economic stimulant that promotes human welfare.

It is in man’s nature to want more. And dharma seeks to give coherence to our desires by containing them within an ordered existence. Since no amount of regulation will catch all the crooks, self-restraint is needed on the part of each actor in the market place in order to achieve dharma within society. The choice for policy makers is not between unregulated free markets and central planning but in getting the right mix of regulation. Except for communists, hardly anyone in India wants state ownership of production, where the absence of competition corrodes the character even more. Dharma’s approach is not to seek moral perfection, which leads inevitably to theocracy or dictatorship. It offers a modestly coherent world that is also close to our day to day life and hence suited for exchanges in the market place. Self-restraint is one of the meanings of dharma and the trust that self-restraint helps to create in society is I believe the ‘dharma of capitalism’.