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By:

Amey Chitale

28 October 2024 at 5:29:02 am

The Currency Called Trust

Trust is one of the economy’s most valuable yet least visible assets. It underpins everyday interactions between individuals, businesses, and institutions, making lending, investment, trade, and long-term partnerships possible despite incomplete information. Built through strong institutions, sound governance, and shared social norms, trust reduces uncertainty, lowers transaction costs, and encourages cooperation. When trust is high, markets function more efficiently and growth is stronger;...

The Currency Called Trust

Trust is one of the economy’s most valuable yet least visible assets. It underpins everyday interactions between individuals, businesses, and institutions, making lending, investment, trade, and long-term partnerships possible despite incomplete information. Built through strong institutions, sound governance, and shared social norms, trust reduces uncertainty, lowers transaction costs, and encourages cooperation. When trust is high, markets function more efficiently and growth is stronger; when it erodes, uncertainty rises and economic activity slows. Stable Foundation It reduces the need for excessive checks, legal safeguards, and constant monitoring, saving time and money while creating the confidence needed to invest, collaborate, and plan for the future. In doing so, trust provides the stable foundation on which prosperous economies are built.
Kenneth Arrow, the Nobel Prize-winning economist, highlighted the importance of trust by noting that nearly every commercial transaction depends on it, especially when commitments extend over time. Economists today increasingly view trust as an important form of capital. Along with physical capital (infrastructure and machinery), human capital (skills and knowledge), financial capital (money and investments), and social capital (networks and relationships), trust is often considered a fifth form of capital. Research consistently shows a strong connection between trust and economic growth. Countries with higher levels of trust generally achieve faster growth in income and productivity. Studies suggest that a 10 percent increase in the share of trusting people can raise annual per capita GDP growth by about 0.5 percent. A business succeeds because of the trust it earns from its employees, customers, investors, and regulators. Trust strengthens a brand, builds customer loyalty, and reduces sensitivity to price changes. It also helps companies attract investment at lower costs and improves employee commitment and productivity. On the other hand, when trust is broken through scandals or poor governance, businesses can face financial losses, stricter regulations, and long-lasting damage to their reputation. To understand the economics of trust in India, it is useful to observe how many everyday transactions rely on relationships rather than formal contracts. For years, economic activity has been supported by strong community ties and mutual confidence. A good example is the local kirana store, where shopkeepers often extend credit to regular customers based on personal trust rather than formal credit checks. Another example is the Mumbai Dabbawalas, who deliver thousands of lunchboxes daily with exceptional accuracy. Their success depends not on advanced technology or complex agreements, but on trust, accountability and shared values. Traditional economic theory assumes that buyers and sellers have equal access to information. In reality, consumers often find it difficult to assess the quality, safety, or reliability of products and services before making a purchase. To bridge this gap, markets depend on trust-building mechanisms such as brand reputation, warranties, customer reviews, and third-party certifications. When trust is low, the economic costs are significant. Businesses and individuals spend more on monitoring, legal safeguards, compliance, and fraud prevention, increasing the cost of transactions and reducing efficiency. Low trust also discourages companies from working with unfamiliar partners, making it harder to build strong supply chains and expand into new markets. India is undergoing a significant transition from traditional, relationship-based trust to digital and institutional trust. This transformation is being powered by the country’s Digital Public Infrastructure (DPI), commonly known as India Stack. Today, people can make secure and instant transactions without relying on personal relationships. The Unified Payments Interface (UPI) has been at the center of this change, making digital payments fast, convenient, and reliable while reducing dependence on cash and lengthy banking procedures. The JAM Trinity, consisting of Jan Dhan accounts, Aadhaar, and mobile connectivity, has strengthened financial inclusion and created a robust digital identity framework. Direct Benefit Transfer (DBT) enables government benefits to reach citizens directly, reducing leakages and improving confidence in welfare delivery. DigiLocker offers a secure platform for storing and verifying documents, while ONDC is building an open and trusted digital ecosystem for e-commerce. As economies become increasingly digital, trust is gradually shifting from personal relationships to technology-based systems. Innovations such as Artificial Intelligence (AI) and blockchain are transforming the way individuals, businesses, and institutions interact. AI is already being used in areas such as credit evaluation, financial services, and supply chain management. For AI to gain widespread acceptance, it must be transparent, reliable, and free from bias. The experience of high-trust countries such as Japan and the Nordic nations highlights the economic value of trust. When people trust institutions and one another, business transactions become faster, costs decline, and cooperation improves. This results in more efficient public services, smoother business operations, and stronger long-term growth. Political scientist Francis Fukuyama also emphasized that trust is a key determinant of a nation's prosperity and competitiveness. Building Trust Capital For India, fostering social cohesion, strengthening institutions, and encouraging inclusive growth will be essential for building trust and achieving sustainable economic progress in the years ahead. It will also depend on building strong trust capital across society, institutions, and the economy. The first pillar is institutional trust. Businesses and investors need confidence that contracts will be enforced fairly and disputes resolved quickly. Delays in contract enforcement and dispute resolution continue to be a major challenge. To address this, the Government has introduced initiatives such as e-filing, electronic case management, mediation mechanisms, and the Enforcing Contracts Portal. While these are positive steps, the pace of reform needs to accelerate. The second pillar is digital trust. Platforms such as India Stack, UPI, Aadhaar, DigiLocker, and the eRupee have transformed the way citizens and businesses interact. As India’s digital economy expands, strong data protection, cybersecurity, and privacy safeguards will be essential to maintain public confidence. The third pillar is social trust. Sustainable development requires social harmony, equal opportunities, and inclusive growth. Excessive inequality, polarization, and social divisions can weaken cooperation and reduce economic progress. As India moves towards 2047, a high-trust economy will be the foundation on which India's long-term prosperity and global competitiveness are built. (The writer is a Chartered Accountant with a leading company in Mumbai. Views personal.)

Caste-based Census Sparks Nationwide Debate

Updated: Oct 22, 2024

Caste-based Census

Caste-based identities continue to dominate rural India, directly or indirectly shaping electoral outcomes. Many major elections are influenced by specific caste groups. After the Bihar government released the first phase of its caste-based socio-economic survey, the caste census became a hot topic. The results, backed by evidence, showed improvements in the living standards and social status of marginalised communities, both in cities and villages. With parties like the JDU and NCP backing a caste census, there is growing momentum for the government to conduct one. However, every story has two sides—joy and sorrow. Even Mahatma Gandhi, the Father of the Nation, raised concerns about the caste census.

Rahul Gandhi accused the BJP of being “anti-Bahujan.” The clear meaning is that his father and forefather refused to execute a caste-based census, which might have far-reaching effects and even permanently fracture India’s social fabric. This may be negative for caste-based beneficiaries. The last caste census in India was conducted in 1931 by the British government. Those times were different from the present scenario. The data was made public and became the basis for the Mandal Commission Reports and reservation policies for Other Backward Classes. Rashtriya Swayamsevak Sangh (RSS) has clarified that the caste-based population count data will not be used for core politics. But the agenda for politics is always twisted and expanded.

The Central Government also joined the legal debate by filing an affidavit with the Supreme Court, leaving the matter unresolved. India’s partition, rooted in the divide-and-rule strategy, is frequently cited as a cautionary tale. Including caste in official census data could further deepen social divides. This issue has become a political pressure point, with various states pushing the Centre for action. Although the Constitution uses the term “class” instead of “caste,” the Supreme Court has consistently ruled that caste is a relevant, and at times, sole or dominant criterion for defining a backward class.

After the release of caste-based census data in Bihar, discussions around conducting similar censuses have gained momentum in states like Rajasthan, Chhattisgarh, and Jharkhand. Karnataka, which has already conducted its own caste census, may release its data soon as well.

Notably, all these states are governed by anti-BJP parties. Congress leader Rahul Gandhi also announced that Congress-ruled states have committed to carrying out caste censuses. Meanwhile, the BJP has remained silent on the matter, creating a significant roadblock.

Caste-based censuses focus on proportional representation in areas like jobs and education, with the argument that this will aid in targeted planning for the disadvantaged. However, the situation remains unclear, much like a foggy winter morning. The BJP’s stance on caste-based censuses and reservations seems different, as they fear the caste-based calculations could fragment their traditional Hindu voter base—an underlying concern for the party.

Professor Sanjay Kumar from The Centre for the Study of Developing Societies, says, “Let alone the BJP; no party can openly oppose it; it is not free from danger. BJP gets a large number of votes from the OBC community, their population across the country would be around 52%. Another downside is that the caste-based censuses could disrupt the balance of socio-economic zones. Data theft is a common issue in government systems, and people may feel disconnected from their actual rights.

The moot question is that if the financial status of an ST/SC/OBC or Dalit citizen moves up by a few notches, will his social status change automatically? The lifestyle of any class will only change when the income of a particular class is changed. The actual source of income is employment. The reality is that only metro cities have enough place and space for workers. Aside from the GIDC and IT sectors, less than 30% of industries have their own designated vacancy periods. After a decade, the Jamnagar and Rajkot Corporations have opened their doors to newcomers alongside experienced staff. However, age and caste bias often operate behind the scenes. It’s important to recognise that poverty is also widespread among many upper-caste individuals, and their needs cannot be overlooked. In the overall interests of the nation, terms like SC/ST/OBC, Dalits, etc. must be deleted from the nation’s vocabulary. Every citizen should have only one classification, that of being an ‘Indian’, in the spirit of the constitution.

Last year, when the Bihar government decided to conduct a caste survey in the state, the BJP was also Nitish Kumar’s partner in the state government, and it supported it. Political expert and former professor of Tata Institute of Social Science, Pushpendra Kumar, says, “It is not that the BJP does not talk about caste. It tries to reveal the caste of the Prime Minister as well. For caste politics, the BJP also tried hard to raise the issue of Pasmanda Muslims.”

(The writer is a management professional based in Ahmedabad. Views personal.)

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