According to a study, if India discards religious beliefs that perpetuate caste and gender inequalities, it could more than double its per capita gross domestic product (GDP) growth of the last 60 years in half the time. In his book “An Inquiry into the Nations and Causes of the Wealth of Nations”, Adam Smith applies his laissez-faire philosophy (leaving things to take their own course without any interference) to several aspects of religion. He says that religious beliefs and activities are rational choices. People respond to religious costs and beliefs in a predictable and observable manner. They decide the degree to which they participate and choose to believe in a religion.

India is said to be a democratic and secular state. It has a population of 1.38 billion people who follow multiple religions without any restrictions from the government. There is a positive relationship between religion and economy especially if the government does not impose restrictions and there is freedom of belief. Let’s delve deeper into some of the factors which shed light on the unseen link between religion and economy.

With the freedom of religion, there is reduced corruption as it allows people to follow their spiritual values and moral teaching. Nine of the 10 most corrupt countries have high governmental restrictions on religious liberty. The best example of this instance is North Korea. Secondly, reduced religious liberty can result in violence and conflict. Such disruptions also act as a deterrent for local and foreign investment. Egypt’s religious regulations and hostilities have had an adverse impact on its tourism industry.

Furthermore, religious regulations can affect economic activity by creating legal barriers for import and export markets such as the halal food market. In order to attack business rivals, there is the usage of various rules introduced by the governments ranging from discrimination against women (over things such as headscarves) to anti-blasphemy laws. Lastly, freedom of religion can result in advantageous pluralism which can directly be associated with economic growth. Additionally, active participation of religious minorities results in economic growth. The 12 most diverse countries in terms of religion outpaced the world’s economic growth between 2008 and 2012.

Religion can influence some primary indicators of economic development such as education, urbanization, the value of time, among other things. With an increase in education, people tend to rely more on scientific explanations as a result of which belief in religion decreases. Additionally, urbanization also results in a reduction in religious beliefs.

Certain religions, such as Judaism, highly value the reading of sacred texts in early life and thus values education. Economist Evelyn Lehrer found that Jewish women attain high levels of education. When female education is valued equally with male education, there is low fertility rates and small size of families means more is invested in children during their formative years. This in turn results in an increase in economic development.

In religions, such as Hinduism, the last stage of life is reserved for religious activities, free from familial and societal obligations. Hence religions that permit people to put off religious activities to the end of their lives have seen a reduction in religious participation earlier on in life. This means that people spend more of their productive years at work rather than on religious activities.

Adam Smith also spoke about a disassociation between church and state as the lack of state intervention creates an open market in which religious groups engage in rational discussions about religious beliefs. One can find moderation and reason when freedom of speech and religion co-exist in an open market.

Belief in hell, heaven and afterlife as well as religious rewards such as absolution of sin and earning salvation by giving to charity also motivates people to work hard and ethically. Thus, all of the above-mentioned points lead us to deduce that with a reduction in religious activities, people are able to dedicate more of their time in work and this, in turn, results in an increase in economic development. Contrastingly, an increase in economic development also results in a decrease in religiosity.

As we have all heard that there are two sides to everything, with all the positive impacts that religion has on the economy, there are certain negative impacts as well. Social and cultural factors restrict women from working outside their homes in India. At just 27%, India’s female workforce participation is among the lowest in South Asia. Between 2004 and 2011, 19.6 million women left their jobs, according to a 2017 World Bank report.

India would stand to benefit considerably from increased levels of secularization. China, whose development India wishes to emulate, has been ranked first in secularization. However, it does not conclude that increase in secularization drives economic activity but that secularization precedes high growth.

Economic development causes religion to play a lesser role in the political process, in policymaking, in the legal process and in social arrangements like marriage, friends and colleagues. One of the main reasons why religion is not considered in economic theories is that it is difficult to be put in objective terms. With so many contrasting views on the impact of religion on the economy, it is difficult to emulate subjective opinions into economic theories. Policymakers who are looking to boost economic growth, particularly, inclusive economic development need to consider the linkage between religious thought and economy.

“Economic theory tells us that a competitive environment – one without different types of stratification, of the market – produces the best possible outcomes for consumers and society. But by precluding a huge section of the population, that is, women and scheduled caste people, from easy access to resources such as capital and know-how, especially in India, religion impedes economic activity.”

Read other articles in this Economics series:

Two C’s of destruction: Capitalism and Climate Change

Collectivist vs Individualist

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