How a 'dharma-ordained' caste system has killed India's prosperity

The Narendra Modi government is keen reshape the Indian economy based on principles propounded in ancient Hindu texts. The Federal has come up with a three-part series that explores the implications of this 'Hindu Economics'. In the first part, published yesterday, we saw how a new draft labour policy, which effectively shifts the Indian state away from its constitutional duties, leaves workers to navigate challenges on their own.

Part II looks at how the policies tailored on centuries-old thoughts and concepts, based on a rigid caste hierarchy, have eroded India's ability to grow economically. It traces the ideological roots of this framework in the RSS philosophy and the writings of its key thinker, Dattopant Thengadi.

The origin of it all

If ancient Hindu texts guide the Indian state’s new economic policies, the draft labour and employment policy, Shram Shakti Niti 2025, merely marks an official acknowledgement of it.

But before looking at those economic policies, here is what dharma and “civilisational ethos and guiding principles” actually mean and where they may lead India to.

Part 1: How Shram Shakti weakens workers, shields Centre from constitutional duties

The Rashtriya Swayamsevak Sangh (RSS) is the ideological fountainhead of the Bharatiya Janata Party (BJP), which rules at the Centre as the leader of the National Democratic Alliance (NDA) coalition and also rules 19 states and two Union Territories, either singly or as part of the alliance.

The late Dattopant Thengadi, an RSS ideologue, has had an overwhelming influence on the BJP’s economic philosophy. He founded the RSS’s workers' and farmers' unions (Bharatiya Mazdoor Sangh, or BMS, and Bharatiya Kisan Sangh, or BKS, respectively) and also its economic wing (Swadeshi Jagaran Manch, or SJM). The three units closely interact with the Indian government and other BJP-ruled states, influencing their economic policies.

The Third Way

Thengadi’s 1995 book, Third Way, is the most comprehensive account of the RSS’s economic philosophy. Given that this is a compilation of his speeches and writings – unlike a textbook – it needs patience and attention to decipher.

He describes his economics variously as “The Third Way”, “The Hindu way”, “The Hindu Approach” and “Hindu Economics”. Declaring that both capitalism and Marxism have failed, he says this is the best bet. He attributes some of these concepts to Dr MG Bokare (first convenor of the SJM) and the second RSS chief, MS Golwalkar. For instance, he writes that Golwalkar declared “national self-reliance our immediate goal” way back in 1972.

Also read: Caste barrier: Where Ambedkar and Savarkar were on the same page

This book helps in understanding why the Shram Shakti Niti 2025 — and also some of the Centre’s big-ticket policies — is anchored in dharma and ancient texts.

Dharma, swadharma, rajdharma

Like the Shram Shakti Niti 2025, Thengadi’s book doesn’t define labour, work or workers, but the drift is clear.

For example, in the chapter on “Hindu Economics” – which isn’t spelt out but alluded to through examples – Thengadi outlines the Hindu “value systems, institutional arrangements and parameters” to differentiate those from the Western ones.

Three key descriptions are:

• “Man – a physical-mental-intellectual-spiritual being”

• “Society – a body with all individuals therein as its limbs”; and

• “Economic theories – centred around self-employment” or Vishwakarma.

In the chapter on “The Hindu concept of world order”, dharma is defined as “the religious, ethical, social, political, juridical, and customary law organically governing the life of the people”. It says ancient India experimented in various forms of government (13 by Vedic rishis) and that even in monarchy, dharma reigned supreme (“a greater sovereign than a king”); “a king was only the guardian, executor and servant of the Dharma”.

Also read: Economist Venkatesh Athreya: ‘Aatmanirbhar Bharat is more rhetoric than reality’

Rajdharma is not mentioned, but evidently, the king was a “guardian, executor and servant of the Dharma”.

Family, clan, caste

In this scheme, individuals “faithfully” followed swadharma, qualified as “the right order of life” and defined as “the true law and norm of his nature and the nature of his kind and by the group-being, the organic collective life, doing likewise”. The “organic collective life” may be surmised as “family, clan, caste, class, social, religious, industrial or other community, nation” – these being “organic group-beings”.

Nobel-winning economists Daron Acemoglu and James A Robinson identified India’s “uniquely rigid hereditary caste system” as the sole factor that prevented it from turning into a prosperous country

Individually and collectively, swadharma was to be self-determined, the “ideal” and to follow it was “the condition of their preservation, healthy continuity, and sound action”.

The king didn’t interfere in this order: “It was not the business of the state authority to interfere with or encroach upon the free functioning of the caste, religious community, guild, village, township or the organic custom of the region or province or to abrogate their rights, for these were inherent because they were necessary to the sound exercise of the social Dharma.”

In short, dharma is all-powerful in “Hindu economics” – above the king or state.

Does it surprise you that Army chief General Upendra Dwivedi said in Chail (Himachal Pradesh) on October 11 that the Indian defence forces followed the principles of dharmayudh during Operation Sindoor?

Caste and traditional occupations

Caste is central to this order. In ancient India, “free functioning of the caste” (from the king) was the norm. Preserving it or “occupation-wise organisation” is significant to Hindu economics.

Also read: Bihar still trapped in BIMARU shadow with fragile economy, abject poverty

Thengadi wrote, the introduction of modern technology made “most of the 3,000-odd traditional trades” obsolete or uneconomical, which “resulted in the breakdown of the traditional caste-system” – even as “casteism” was “growing stronger for political reasons”.

He advocated that consolidation and organisation of occupational or trade groups “must be pursued”, and along with Golwalkar, supported their “due representation on elective bodies”.

Rigid heirarchy

Going back to the earlier description of “society” as “a body with all individuals therein as its limbs”, does it sound familiar?

It does, because it echoes how the caste system is defined in ancient texts like the Rig Veda and Manusmriti. These texts say there were four castes – Brahmana, Kshatriya, Vaishya and Shudra – who originated from the creator Brahma’s mouth, arms, thighs and feet, respectively.

The hierarchy of this order was rigid – with Brahmins at the top and Shudra, the untouchable now called the Scheduled Caste or Dalit, at the bottom. Women were treated as inferior to men, often at par with the Shudras, and both were meant to serve. The occupations of each caste were defined – the swadharma mentioned earlier. The Shudras were ordained to serve the upper castes, not permitted to live in villages (society) or own land.

Also read: Is Nobel-winning innovation theory applicable to Indian economy?

In short, the caste system was exclusionary, discriminatory, exploitative, fostered inequality, ordained secondary status to women and permitted slavery at various levels – about which many scholars, including Ambedkar, have given extensive accounts.

Did you know how this dharma-ordained caste system has cost India its prosperity? Read on.

What Nobel laureates said

The 2024 Nobel Prize in economics went to Daron Acemoglu, Simon Johnson and James A Robinson for their work on the prosperity of countries or lack of it. Their Nobel citation says their work “demonstrated the importance of societal institutions” for a country’s prosperity, adding, “societies with a poor rule of law and institutions that exploit the population do not generate growth or change for the better”.

According to Thengadi, modern technology made “most of the 3,000-odd traditional trades” obsolete or uneconomical, which “resulted in the breakdown of traditional caste-system” – even as “casteism” was “growing stronger for political reasons”.

Two of them, Acemoglu and Robinson, wrote Why Nations Fail: The Origins of Power, Prosperity and Poverty in 2012. It traced world history for 700-800 years and identified the key driver of prosperity as “inclusive institutions” – political inclusion followed by economic inclusion.

They marked India as an outlier (along with China) and identified its “uniquely rigid hereditary caste system” as the sole factor that prevented it from turning into a prosperous country, despite its rich civilizational (the Harappan) and trading histories.

Also read: Mr Piyush Goyal, what Indian startups have achieved is despite the system

They explained how: “In India, institutional drift worked differently and led to the development of a uniquely rigid hereditary caste system that limited the functioning of markets and the allocation of labour across occupations much more severely than the feudal order in medieval Europe.”

The caste system is alive and kicking today.

Alive and kicking

On October 6, a lawyer hurled shoes at the Chief Justice of India, Justice BR Gavai, inside the courtroom for his remarks on a plea seeking the restoration of a temple, in the name of protecting dharma. Justice Gavai is a Dalit. The offender was let go by the cops because the court didn’t press charges.

One day later, a senior IPS officer (Additional DGP) of Haryana, Y Puran Kumar, a Dalit, died by suicide, blaming his senior officers for blatant caste-based discrimination, targeted mental harassment, public humiliation and atrocities – in his ‘final note’.

Consider the plight of ordinary Dalits. Humiliation and atrocities against them are routine these days.

On October 11, 2025, Justice Gavai said in Vietnam that the Constitution of India gave him equality (“equal to that of every other citizen”) and “opportunity, freedom and social recognition”.

Muslims under threat

There is even a greater threat to the “Viksit Bharat@2047” goal now: Consistent persecution of Muslims and other minorities for a decade and more.

Also read: India’s startup moment is now: Kumar Vembu on innovation and brain drain

Muslim traders are driven out of Hindu colonies and markets, their shops are forcibly shut on Hindu religious occasions, their 'masjids' are attacked, and they are publicly lynched for suspected smuggling of cows or eating beef. The Christians and Sikhs face similar treatments, though milder.

The two groups, minorities and Dalits, together constitute 40 per cent of India’s population (2011 Census).

Can India ever become prosperous by excluding nearly half its population?

Swadeshi and atmanirbharta

Two other words now often in use are swadeshi (made in India) and atmanirbharta (self-reliance).

Thengadi’s book doesn’t mention atmanirbharta, it uses “self-reliance”. His definition of swadeshi is: “Essentially, it concerns the spirit determined to achieve national self-reliance, preservation of national sovereignty and independence, and international co-operation on equal footing.”

To him, swadeshi is a much larger concept. He wrote: “Introduction of modern technology and economic system is the inauguration of an entirely new civilisation, inconsistent with the nature of all non-western cultures. This is the basic point of difference.”

He equated swadeshi with patriotism, describing it as “the practical manifestation of patriotism”, serving a larger cause of preventing “foreign economic imperialism”.

In his view, “westernisation” doesn’t mean “modernisation” because modernisation should be “in keeping with the spirit of national culture”.

King as patron

The Shram Shakti Niti 2025 draws inspiration from the ancient “guilds (śreṇīs)” system, which it says, “represented collective groups of artisans and workers” and “exemplified an early form of tripartite harmony, balancing the roles of the State, employers, and workers in maintaining industrial peace”. These indigenous traditions “were participatory, inclusive, and self-regulatory in character”.

Thengadi wrote in Third Way that the guilds had “autonomous character” and “there could be no interference by the state” in their internal administration, except to resolve disputes.” He ascribed this to Kautilya’s Arthashastra.

The role of the state, he wrote, was “that of a patron” and cited the case of the Mauryan and Vijayanagara empires to illustrate it. This would explain the draft labour policy envisaging the Indian state as a “facilitator” and its allusion to rajdharma.

All these words, phrases and narrations are used in public discourses by the leaders of the RSS and BJP.

To know how these concepts actually shape key policies, continue to Part III.

Coming next: How dharma and ancient ethos have influenced economic policies