Cultural Diversity and Economic Development in India: Evidence from the Post-Liberalization Period

India is among the most culturally diverse nations in the world; however, there remains debate regarding the implications of this diversity for the country’s economic growth. Sen’s Capability Approach, the Creative Capital theory, and the diversity–trust debate provides a foundational framework and this study examines the relationship between cultural diversity and economic development in India during the post-liberalization stabilization period, from 1997 to 2017. The annual time series data and ordinary least squares regression analysis with heteroskedasticity- and autocorrelation-consistent standard errors used to analyse the indirect influence of cultural diversity on development outcomes. The cultural diversity does not exert an immediate short-term influence on GDP per capita. Instead, variations in culture and institutional quality are associated with enhanced human development, which serves as the primary and most influential driver of income growth. Investing funds in health and education does not produce an immediate impact on human development or economic growth. Rather, it exerts its influence via longer-term pathways that are influenced by policy planning and fiscal limitations. The study introduces the Social Progress Capacity Indicator (SPCI), a framework for conceptualizing how inclusive social policies and the prevailing level of human development influence a society’s capacity to leverage cultural diversity in pursuit of sustainable development objectives.