Why is India poor? Part I

I purchased a used car last weekend. As a poor grad student, it is easily my most expensive purchase ever. Naturally I was cautious and wanted to get the best deal, and spent a disproportionately high time searching for the right car.
I called/emailed 70 used car owners, ran 54 carfax reports, and finally chose a few for a test drive and an inspection. It took me a few hours a day for a few weeks to achieve this.

The last few days I have been wondering why I spent a disproportionately high time over it. Perhaps I read Akerlof’s paper too many times, and I was petrified of being stuck with a bad car. One particular incident with a lemon during my car search made me even more distrustful and cynical.

I come from a background where institutions are so weak, and contracts are so weakly enforced, that one learns to be cautious during the time of purchase rather than litigate later. Add to this the usual skepticism ingrained during my training as a lawyer.

Finally I ended up buying the car from a Tamil speaking Indian (like me), because the car was in impeccable condition and also because I was able to judge him well given my past experience. At the DMV after the title was transferred, he didn’t even count the money I gave him and just shook my hand wishing me luck. I think I need to rewire myself to living in a more trusting society where trading with strangers is far easier.

This is why India is far poorer than it could be. People show reluctance in trading with strangers and markets do not flourish.