Dispatch #94: Stigma and success- How caste shapes business outcomes in India
This dispatch explores how caste-based stigma in India impacts business outcomes, especially for Dalits.
In societies with systemic inequalities, the intersection of identity and opportunity often dictates economic outcomes. In India, caste continues to serve as a significant determinant of economic mobility, creating disparities that persist across generations. A recent study, It’s not who you know, but who you are, sheds light on how institutionalized caste-based stigma impacts business incomes, even when controlling for other disadvantages. The findings underscore how deeply entrenched biases affect stigmatized caste groups, particularly Dalits, and their ability to leverage social and human capital effectively.
Understanding the problem: Institutional stigma and inequality
What is institutional stigma?
Institutional stigma refers to the widespread and culturally ingrained prejudice that marginalizes specific social groups, limiting their access to resources, opportunities, and networks. Unlike isolated incidents of discrimination, institutional stigma is systemic, perpetuated through societal norms and power structures. For Dalits, this stigma manifests through public devaluation, limited access to markets, and structural exclusion.
The caste system in India is a prime example of institutional stigma, categorizing individuals into hierarchical groups based on birth. Dalits, positioned at the lowest rung, are not only economically disadvantaged but also subjected to unique social stigmatization that hinders their participation in business and commerce.
The authors explain:
The caste system, the way in which it stigmatizes members especially of the lower caste Dalit community, is an example of institutional stigma. The caste system places individuals on a graded hierarchy based on birth, and assigns them different occupational roles and social statuses, governing their social and economic life. Among the different caste groups, the members of the lowest castes in India, Dalits, are particularly stigmatized facing denial of access to education, civic facilities, public spaces, markets, and places of worship, as well as business opportunities. This stigma is rooted in the public devaluation of their worth and structural pressures to marginalize them.
Institutional stigma of caste is widespread, diffuse, and multifaceted, without a specific visible marker like skin colour, ascertained via a range of social cues and processes such as last names, food habits, and traditional family occupation, and cultural interests. Such cues can enable stigma, often without the stigmatizing agents consciously realizing these, causing material disadvantages to those who are stigmatized through two mechanisms—evaluation of stigmatized groups and resource distribution. Stigmatized groups face recognition gaps, affecting their access to resources and opportunities, leading to a recursive loop where limited opportunities exacerbate the stigma. Stigma excludes the stigmatized from community cores, hampering relationships and access to resources.
Research objectives and hypotheses
The study investigates how caste-based stigma interacts with two critical forms of capital—social and human—to influence business income outcomes. Four key hypotheses were tested:
Income disadvantage: Dalit business owners face significant income gaps compared to other disadvantaged but non-stigmatized groups.
Social capital amplification: The income gap widens at higher levels of social capital, particularly bridging social capital (connections outside one’s community).
Bridging vs. bonding capital: Bridging social capital exacerbates disadvantages more than bonding social capital (connections within one’s community).
Human capital mitigation: Unlike social capital, human capital (education and skills) reduces income disparities for Dalit business owners.
Key findings: The role of social and human capital
1. Dalits face a stark income disadvantage
The study found that all else being equal, Dalit business owners earn approximately 16% less than their peers from other disadvantaged groups. This disparity highlights how institutional stigma creates barriers beyond socioeconomic disadvantages faced by marginalized communities like OBCs, Adivasis, and Muslims.
2. The paradox of social capital
Social capital, considered a valuable resource for business success, was a double-edged sword for Dalits. While non-stigmatized groups benefit from expanding social networks, Dalits face diminishing returns. The study revealed that higher levels of bridging social capital—connections with diverse communities—worsen the income gap. Institutional stigma limits the trust and opportunities extended to Dalits, neutralizing the advantages of broader networks.
3. The protective effect of bonding capital
Unlike bridging social capital, bonding social capital—connections within one’s community—was found to benefit both stigmatized and non-stigmatized groups equally. This underscores the importance of intra-community networks as a safety net for Dalit entrepreneurs in navigating exclusionary market structures.
4. Human capital: A path to parity
Human capital emerged as a neutralizer of income disparities. Education and skills equally enhanced the earning potential of Dalits and non-Dalits. This finding suggests that while social capital is mediated by stigma, human capital operates independently of social biases, offering a more reliable pathway for economic mobility.
The authors summarize their findings by claiming:
We found that business owners who face institutional stigma (i.e., Dalits) have a lower income compared to those who do not face such stigma (i.e., non-Dalits), including those who face socioeconomic disadvantage (i.e., OBCs, Adivasis, and Muslims). This income gap is higher at higher levels of social capital, especially bridging social capital, suggesting that institutional stigma inhibits the degree to which stigmatized individuals are able to leverage their social capital, as compared to non-stigmatized individuals. In contrast, human capital, in the form of education, improves the incomes of Dalits to a similar degree as it improves the incomes of non-Dalits.
Methodology
The study utilized the India Human Development Survey (IHDS), a nationally representative dataset covering over 42,000 households. By focusing on 8,506 business-owning households, the researchers conducted a robust analysis, incorporating variables such as caste, education, income, location, and social capital. Advanced statistical methods, including interaction models, were employed to isolate the effects of institutional stigma from broader socioeconomic disadvantages.
Implications for policy and practice
The findings have far-reaching implications for addressing caste-based economic inequalities:
Reforming social capital strategies
Government and non-government initiatives often emphasize building networks for marginalized groups. However, the study shows that for Dalits, bridging social capital is not as effective due to the persistent biases they face. Policies should prioritize strengthening bonding networks within stigmatized communities while addressing societal attitudes that perpetuate exclusion.Investing in education and skills development
Human capital stands out as a reliable tool for mitigating income disparities. Programs focused on providing quality education and vocational training to Dalits can significantly enhance their economic outcomes.Rethinking development policies
Existing policies for marginalized groups often adopt a one-size-fits-all approach. The study highlights the need for caste-specific interventions that consider the unique challenges faced by Dalits, such as stigma and social exclusion.
Conclusion: Bridging the divide
The study reveals that institutional stigma operates as a hidden barrier, amplifying economic disparities for Dalit business owners. While human capital offers a hopeful avenue for equality, the limitations of social capital underscore the deep-seated nature of caste-based biases in Indian society. Addressing these issues requires a multi-faceted approach that combines education, policy reform, and societal change. By tackling the roots of stigma, India can move closer to a more inclusive and equitable economy.