The Economics of Caste, Religion and Language in India

India has a combination of religious, caste and linguistic heterogeneity incomparable to any country in the world. This paper reviews the literature of how these various phenomena have interacted with the Indian economy. Results are disheartening. India has an entrenched caste system that reduces the optimal allocation of employment, high degrees of linguistic diversity that prevent trade, and religious tensions that have consistently led to costly conflict. The future looks brighter if India continues its path of liberalisation. For example, the ability to speak English has the effect of eliminating predetermined inequalities imposed by the caste. A theoretical model is drawn on to interpret these key results.