At last, good news about poverty

If only we would pause and look beyond the horizon of day to day events, we would see a trend of great significance. More people on the earth have risen out of poverty in the past 25 years than at any other time in human history, and this has happened primarily because of sustained high economic growth in India and China. Unlike China which has embraced growth enthusiastically, India has a vast industry of ‘poverty-wallas’, who incessantly raise doubts if our growth is pro-poor.

These ‘growth skeptics’ tend to make our reformers defensive, which slows reforms and the nation loses the potential for even higher growth. Earlier they argued that post-reform growth was ‘jobless’ until recent data has proved them wrong. Nowadays, they usually say, ‘growth but…’ While the type of growth does matter, the truth is that growth in itself is virtuous, and we should celebrate that India is experiencing this miracle.

Now, two experts on poverty have come up with new research which shows that India’s high economic growth since 1991 is, indeed, pro-poor and has decisively reduced poverty. Gaurav Datt and Martin Ravallion, both respected economists, employed a new series of consumption-based poverty measures from 1950 to 2006 and 47 rounds of National Sample Surveys, to show that slightly more than one person in two lived below the poverty line in India during the 1950s and ‘60s. By 1990 this had fallen to one person in three. By 2005, it fell again, and only one in five persons now lives below the poverty line.

The authors conclude that ‘the post-reform process of urban economic growth has brought significant gains to the rural poor as well as the urban poor’. (See ‘Has India’s Economic Growth Become More Pro-Poor in the Wake of Economic Reforms?’ http://econ.worldbank.org, Policy Research Working Paper 5103). The poor in urban and rural areas are now linked through trade, migration, and transfers, which explains why rising standards in India’s towns are helping to reduce poverty in the villages. Even though agricultural growth has been relatively weak since 1991, overall high growth has affected positively the lives of the rural masses.

This is an outcome that the reformers had dreamt of. They believed that the reforms would create a more efficient and productive economy, which would raise the overall growth rate and it would transform both urban and rural society. This had happened during the great transformations which occurred in the West during the 19^th century and in East Asia in the second half of the 20^th century. It is now happening in India.

An earlier study by the two economists had examined the period prior to 1991 when our economy grew more slowly. India’s per capita GDP grew at an annual rate of barely 1% in the 1960s and 1970s; it picked up to 3% in the 1980s; and accelerated to 4-5% after 1991. In the pre-1991 period, modest urban growth brought little or no benefit to the rural poor. (Rural poverty decreased only through rural growth, such as the green revolution.) High growth after 1991 seems to be different—it has pro-poor backward linkages to the rural economy. Hence, the effort to create a more productive economy through the reforms is benefiting the poor, and we have the permission now to dream of becoming a middle class country. The dampener, alas, is that inequality after 1991 is also increasing.

This happy news, however, must be seen in the context of lost opportunities. If only India had reformed agriculture and had functioning schools and health centers, the poor would have gained even more from high growth. In another study comparing India, China and Brazil, Martin Ravallion shows that China (with higher growth) and Brazil (with lower growth) have done a much better job at poverty reduction. India’s failure in education and health is not a function of money alone, as the Prime Minister suggested this week when he vowed to raise spending on education to 6%. When one in four teachers is absent and one in four is not teaching, we need accountability in delivering services to the poor. Thus, administrative reforms are just as important to the lives of the poor than even economic reforms.

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No ifs or buts, defeat Maoist violence

Arundhati Roy writes seductively. Recently I picked up her new book, Listening to Grasshoppers, and I was mesmerized by her luminous prose but I disagreed profoundly with her conclusions. I was revolted, in particular, by her support for violence. She regards Naxalism as armed resistance against a sham democracy. I call it terrorism.

Roy thinks that India pretends to be a democracy in order to impress the world. I think our democracy is as real as my grandson’s thumb. Yes, it has many flaws but it is legitimate. We need to reform the police; speed up justice; make babus accountable; stop criminals from entering politics; etc.. Yet, this democracy has done a colossal amount of good. It has raised the prospects and self esteem of the lowest in our society and protected us from the great genocides of the 20th century. Gujarat, to its disgrace, may have killed 2000 people but Mao’s China killed more than 50 million, according to the Marxist historian, Eric Hobsbawm. One may be justified in taking up arms against a loathsome African or Latin American dictator but not against the Indian state.

Like many in the 1960s I was a Leftist and admired Charu Mazumdar who had founded the Naxalbari movement. Although I belonged to that idealistic middle class generation, I was not tempted to abandon all and join the Maoists. Perhaps, it was because I lived in sensible Bombay rather than Calcutta. The Naxalite movement died in the 1970s but it revived subsequently and today it operates in 200 districts across ten states and controls huge Indian territory. The Prime Minister thinks it is the greatest security threat to India, and I agree.

Soon after the Maoist leader, Kobad Ghandy, the police in Hazaribagh got another prize catch. On October 10th, they captured Ravi Sharma and his wife, B. Anuradha. Top level Naxalites, they hailed from Andhra but were running the Maoist movement in Bihar and Jharkhand for the past ten years. On their laptop the police found their strategy and their plans. Ravi Sharma is an agricultural scientist and a member of the Maoist Central Committee. As he was being led by the police to the court in Hazaribagh, Sharma told reporters that he did not regret killing thousands of people. “During a revolution,” he spoke honestly, “one does not care how many are killed; only the goal should be achieved.”

Ravi Sharma thus raised the old dilemma of means and ends. Vidura posed the same question in the Mahabharata when he justified sacrificing an individual for the sake of a village and a village for the sake of a nation. Vidura, like Sharma, judges an act to be dharmic if it produces good consequences for the greatest number of people. Yudhishthira, however, is concerned with means rather than ends. Having given his word to Dhritarashtra, he refuses to give in to Draupadi’s insistent demand that Pandavas raise an army and win back their kingdom which was stolen in a rigged game of dice. No matter how great the goal, Yudhishthira would not condone the Maoists’ use of violence.

I usually agree with Vidura but on this one I am with Yudhishthira. Marxists have never valued human life and have always found it easy to take the gun. Mao and Stalin easily justified killing millions for the sake of the revolution. They never understood that violence in the end brutalises both the oppressor and the victim. Neither should we let the Indian state get away by using wrong means for the sake of good ends. I agree with Arundhati Roy that the state should not get away with unlawful detention or killing people in custody. I applaud her and human rights activists for raising these issues.

The Naxalite movement has always found sympathy in our influential, leftish upper middle class. Like most people I was aghast at the beheading of police officer Francis Induwar on September 30 by the Maoists, and I expressed my horror to an elegantly dressed friend who was visiting me. She is with an NGO and has sentimental feelings for Maoists. She said, “Yes, it is wrong, but we need development as well as force to defeat Maoists.” I could not disagree with her, but I was appalled at the ease with which she dismissed the beheading. Mamata Banerji, the leader of Trinamool Congress, had the same response.

For once we have a home minister who understands the Maoist threat to our nation and is determined to act with courage. It is pathetic that he should be slowed by endless debate on development versus police action; or whether helicopters should fire on rebels and risk civilian casualties. We have talked for two decades. Enough is enough. No ifs or buts, you cannot negotiate with someone with a gun. Now is the time for action.
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Gurcharan Das is the author of The Difficulty of Being Good: On the Subtle Art of Dharma

Mukesh’s Sacrifice

Corporate Affairs minister, Salman Khurshid, created quite a stir recently when he warned companies to refrain from paying “vulgar salaries” or face the music. Mukesh Ambani took his advice and cut his salary by 65%. Flaunting wealth is distasteful; it is also imprudent when market capitalism is still trying to find a comfortable home in India. However, the minister was profoundly wrong. The trouble with judging other people’s lifestyle is that soon you are tempted to control other things, and this is a short step to the command economy. Not to live ostentatiously is a call of dharma, not a legal duty.

The distinguished minister, who is a sensible lawyer, quickly realized his error and pulled back the next day. “Only the company’s shareholders can decide salaries…It cannot be mandated, but should be self-exercised,” he said. Yes, this is the right position—only shareholders have the right to fix salaries in a democracy, not the government. The significance of the minister’s two positions, however, goes beyond vulgar salaries and reflects an old conflict between our ideals of liberty and equality.
There is a voice in each of us which values liberty. It was alarmed at the spectre of the dreaded days prior to 1991 when our government did believe that the way to make a poor person rich is by making the rich poor. There is another voice, however, which values equality. This egalitarian voice was sympathetic to Khurshid’s advice to CEOs. Millions are hurting from the global economic recession and something is wrong when some earn Rs 40 crores while 250 million Indians survive on less than Rs 50 a day.

These two voices constitute the modern idea of a fair society. In democracies, liberty precedes equality. Socialist societies value equality more and will sacrifice freedom for more state control. The contest between these two ideals has been going on for 200 years but it ended when the Soviet Union collapsed in 1989. Liberty won, and it will win in China too one day. Absolute equality is unrealistic because the human ego will not shrink that far. So we have learned to live with the lesser goal of an “equality of opportunity”. In our desire for a just society, the political Left continues to champion equality while the Right gives precedence to liberty.

I have always believed that it is none of my business how much Mukesh Ambani earns. He creates lots of jobs, pays his taxes, produces wealth for society--and that is good enough for me. Moreover, we ought to be more concerned with reducing poverty in a poor country rather worry about inequality. Controlling CEO salaries will not lift the poor. But economic reforms will. A minister of corporate affairs can make a huge difference by making it easier for a person to start and run a business. The vast majority of Indians are self-employed entrepreneurs in the informal economy. They cannot enter the formal economy because of formidable barriers of red tape and bribery. Hence, India has the shameful distinction of being 134 in a list of 180 countries in the ease of doing business. Cut the tape, Mr Minister, and you will spawn enterprise and prosperity.

A well-ordered society, however, ought to design institutions that help to diminish inequality while preserving liberty. If the advantages of the affluent are perceived as a reward for improving the situation of the worst off, then the inequality will be perceived as more just. If the lowest worker in a company believes that his prospects will improve if his company performs well, then he will not resent an outstanding CEO earning 50 times more. This was elaborated elegantly by the American thinker, John Rawls, in his famous book, The Theory of Justice.

If you want to take the sting out inequality, Mr Minister, cut red tape but also give the poor titles to their small property so that they can get a loan against it and start a business. And persuade your UPA colleagues to implement labour reforms so that 90% of Indians in the informal economy can hope for some sort of safety net. This is the way to genuine, inclusive growth. And let’s not worry too much about vulgar salaries.

Is the middle path the way to peace with Pakistan?

The foreign ministers of India and Pakistan are meeting today in New York to carry forward the peace dialogue begun at Sharm-el-Sheikh. India’s decision to meet has been prompted by Pakistan’s arrest of Hafiz Saeed, the mastermind of the Mumbai terror attacks. Many Indians feel cynical, however, about today’s meeting, especially after the disappointment at Sharm-el-Sheikh. Negotiating with a nation whose secret service might be plotting the next terrorist attack on you seems bizarre, but is there an alternative to the slow, maddening grind towards peace with our neighbour?

All of us dream of waking up one day to discover that the border between India and Pakistan had become as peaceful as the one between Canada and United States. It seems hopelessly romantic, but this is precisely what happened to France and Germany who were in perpetual conflict for 75 years. Now one cannot imagine these two European enemies ever going to war. If India and Pakistan could pull this off, we might even realize the vision of C. Rajagopalchari, who wanted the sub-continent to become re-unified into a peaceful confederation of nations like the European Union.

After the terrorist attack on Mumbai on 26/11, Indians were divided over how to respond. The hawks wanted to make a precision attack on the camps of Lashkar-e-Toiba. They modelled their strategy on Israel’s retaliation for the attack of its athletes in Munich. (You can watch it in the thriller, Munich, available on DVD.) The doves, on the other hand, advocated ahimsa, preferring to take the high moral ground and turn the other cheek. The third position was more circumspect and lay between these extremes. It is the policy which the Indian government has patiently pursued--providing dossiers of evidence to Pakistan, hoping that world pressure would force it to act against the terrorists. Will this frustratingly slow middle path reward us with lasting peace?

The Mahabharata seems to think so. Unique in engaging with the world of politics, the epic also had to wrestle with the same three positions. The first was the ‘amoral realism’ of Duryodhana, who believed that ‘might is right’ and when in doubt strike your enemy. At the other extreme was the idealistic position of the early Yudhishthira, who refused to follow Draupadi’s sensible advice, which was to gather an army and win back their kingdom stolen by the Kauravas in a rigged game of dice. The epic also adopted a pragmatic, middle path of negotiation, but when Duryodhana refused to part with the Pandavas’ rightful share, Yudhishthira had to declare war.

Mahabharata would thus reject the hawkish idea of a retaliatory strike against the terrorist camps in Pakistan--not for ideological reasons, but because it would only escalate the conflict. Israel’s many retaliatory strikes against Palestine have failed to ‘teach them a lesson’. It would also reject the dovish high moral ground of ahimsa because ‘turning the other cheek’ sends wrong signals to terrorists and the ISI. It would commend upright Manmohan Singh’s middle path of negotiation. But if negotiations fail, the Indian PM must be prepared to wield danda, ‘the rod of force’, just as Yudhishthira had to.

This pragmatic middle path is akin to the evolutionary principle of reciprocal altruism, which socio-biologists have made popular in recent decades--smile at the world but do not allow yourself to be exploited. Your first move should be of goodness, but if you are slapped, then you have to reciprocate and slap back. Many Indians believe that our government is not following this sensible advice. We are either too conciliatory or too scared of Pakistan’s nuclear weapons. Hence, Pakistan thinks us weak, and its secret service has no qualms in planning its next terrorist strike.

This is not entirely true. We may be unwilling to play ‘tit-for-tat’ but we have never compromised on our basic principles. Take Kashmir. Pakistan believes that peace with India depends on settling the Kashmir dispute, which is a doubtful proposition. India has held firmly that the answer to Kashmir lies in getting everyone to accept the line of control as the permanent border. It is true we have lost many historic opportunities to achieve this. Our best chance was after the Bangladesh War when we should have made it a condition at the Simla Conference for the exchange of Pakistani officers and soldiers.

As the bigger and more powerful nation India has to be more conciliatory. As the world’s second fastest growing economy, we cannot afford to be distracted by interminable ‘tit for tats’. Yes, Pakistan does drag us into a pit of identity politics, hobbles us at every step, and sidetracks us from our real destiny. This is all the more reason to accept the slow, hard and frustrating grind towards a negotiated peace. In the meantime, the best medicine is to try and ignore Pakistan.

Let’s protect workers, not jobs

Anyone travelling in India by air must have got a sinking feeling last week when the Congress leader, Sanjay Nirupam, demanded that Jet Airways be nationalized. He raised the spectre of the ugly days when Indian Airlines had a monopoly of the skies before 1991. This would have effectively turned Jet Airlines from one of the world’s best airlines to one of the worst. Naresh Goyal, Jet’s founder, on the other hand, was scared of his pilots forming a union because of his memory of the 1974 Air India pilots’ strike which started the decline and fall of Air India.

The trouble in Jet Airways began when some of its pilots wanted to form a union. The management said 'no', and sacked two of the leaders. In response, the other pilots went on ‘mass sick leave’, which left tens of thousands of passengers stranded, wondering who to blame for their undeserved suffering. This comes at a time when the aviation industry is going through very tough times and Jet Airways has reported a loss of over Rs.200 crore in the last quarter. The strike added another Rs 200 crores to its losses.

The Mumbai High Court ruled the strike illegal. After the dispute was settled last week end, Justice D.Y. Chandrachud, refused to drop the charges against the pilots. Reflecting the angry public mood, he wanted to prosecute the pilots for contempt of court. “Employees of public utility services…cannot hold the public to ransom”, said the judge. The pilots’ lawyer argued, “Pilots are an emotional lot and have a sensitive task”. The judge countered, “Even doctors and judges have sensitive jobs”.

The right to form a union is part of every democracy but should pilots, who earn Rs 3-4 lakhs a month, be equated with down trodden labour? Should persons who perform essential services in public transport, military, police, and hospitals, be allowed to disrupt services? The judge obviously does not think so.

The Jet Airways affaire is an opportunity to revisit our archaic labour laws which hurt the interest of 90% of India’s employees while protecting an aristocracy like the pilots. Of course, labour laws are needed, but they should protect workers, not jobs. All governments try to prevent job losses but they never succeed. Companies have to survive in dynamic market conditions. In a downturn, orders are reduced from customers and the only choice before a company is to reduce its workforce or go bankrupt. Sensible countries, like those in Scandinavia, give employers the freedom to hire and lay-off workers based on market dynamics. They protect workers who lose jobs through a well designed safety net of unemployment insurance and re-training. .

India’s labour laws do the opposite—they protect jobs, not workers. They assume that a job is for a lifetime, and do not allow employers flexibility to lay-off workers in a downturn. Thus, Indian companies avoid hiring permanent employees, and 90% of India’s workers have ended up in the informal sector without any benefits or safety net. This is one of the reasons that the manufacturing sector has not become an engine of mass employment in India as it has in the Far East.

The answer is not to equate income security with job security. Let us begin by raising job retrenchment costs from the present15 days’ salary for every year worked to 45 or even 60 days. Second, amend Provident Fund rules so that employees can access their retirement accounts when they lose jobs. Third, raise the contribution to Provident Fund in order to provide a softer landing to job losers. Fourth, cover unemployed workers under a universal health insurance, such as the excellent RSBY (Rashtriya Swasth Bima Yojana). Finally, companies should pay for worker re-training and inflict pain on all employees before laying-off some—e.g. cut executive salaries by 50% (as Jet Airways has done) and worker salaries by 25%. Unions will object of course, but the reform of unions has to be part of the solution.

The Jet Airways strike has presented us with a mirror to look at our labour laws, showing how we deceive ourselves, thinking that we are protecting labour when we are only protecting an aristocracy like the pilots.

The dilemma of a liberal Hindu

With the rise in religious fundamentalism around the world, it is increasingly difficult to talk about one’s deepest beliefs, says Gurcharan Das

I was born a Hindu, in a normal middle-class home. I went to an English-medium school where I got a modern education. Both my grandfathers belonged to the Arya Samaj, a reformist sect of Hinduism. My father, however, took a different path. While studying to be an engineer, he was drawn to a kindly guru who inspired him with the possibility of direct union with God through meditation. The guru was a Radhasoami saint, who quoted vigorously from Kabir, Nanak, Mirabai, Bulleh Shah and others from the bhakti and sufi traditions.

Growing up Hindu was a chaotically tolerant experience. My grandmother visited the Sikh gurudwara on Mondays and Wednesdays and a Hindu temple on Tuesdays and Thursdays; she saved Saturdays and Sundays for discourses by holy men, including Muslim pirs, who were forever visiting our town. In between, she made time for Arya Samaj ceremonies when someone died or was born. Her dressing room was laden with the images of her gods, especially Ram and Krishna and she used to say in the same breath that there are millions of gods but only one God. My grandfather would laugh at her ways, but my pragmatic uncle thought that she had smartly taken out plenty of insurance so that someone up there would eventually listen.

I grew up in this atmosphere with a liberal attitude - that is a mixture of scepticism and sympathy for my tradition. Why then do I feel uneasy about being a liberal Hindu? I feel besieged from both ends — from the Hindu nationalists and the secularists. Something seems to have gone wrong. Hindu nationalists have appropriated my past and made it into a political statement of Hindutva. Secularists have contempt for all forms of belief and they find it odd that I should cling to my Hindu past. Young, successful Indians, at the helm of our private and public enterprises, have no time or use for the classics of our ancient tradition.

A few years ago, I told my wife that I wanted to read the Mahabharata in its entirety. I explained that I had read the Western epics but not the Indian ones. She gave me a sceptical look, and said, “It’s a little late in the day to be having a mid-life crisis, isn’t it?” To my chagrin, I became the subject of animated discussion at a dinner party soon after.

“So, what is this I hear about wanting to go away to read old books”, asked my hostess, “aren’t there any new ones?” She gave my wife a sympathetic look.

“Tell us, what you plan to read?” asked a retired civil servant who had once been a favourite of Indira Gandhi. He spoke casually as though he was referring to the features of a new Nokia phone. I admitted that I had been thinking of the Mahabharata.

“Good lord, man!” he exclaimed. “You haven’t turned saffron, have you?”

I think his remark was made in jest, but it upset me. I found it disturbing that I had to fear the intolerance of my “secular” friends, who seemed to think that reading an epic was a political act. I was reminded of a casual remark by a Westernized woman in Chennai who said that she had always visited a Shiva temple near her home, but lately she had begun to hide this from her fiercely secular friends, who she feared might paint her in saffron.

With the rise in religious fundamentalism around the world, it is increasingly difficult to talk about one’s deepest beliefs. Liberal Hindus are reluctant to admit to being Hindu for fear they will be linked to the RSS. Liberal Christians and liberal Muslims abroad have had the same experience. Part of the reason that the sensible idea of secularism is having so much difficulty finding a home in India is that the most vocal and intellectual advocates of secularism were once Marxists. Not only do they not believe in God, they actually hate God. As rationalists they can only see the dark side of religion -- intolerance, murderous wars and nationalism and cannot empathize with the everyday life of the common Indian for whom religion gives meaning to every moment. Secularists speak a language alien to the vast majority, so they are only able to condemn communal violence but not to stop it, as Mahatma Gandhi could, in East Bengal in 1947.

Part of the problem stems from ignorance. Our children do not grow up reading our ancient classics, certainly not with a critical mind as youth in the West read their works of literature and philosophy in school and college. In India, some get to know about epics from their grandmothers; others read the stories in Amar Chitra Katha comics or watch them in television serials.
If Italian children can read Dante’s Divine Comedy in school, English children can read Milton and Greek children can read the Illiad, why should “secularist” Indians be ambivalent about the Mahabharata? It is true that the Mahabharata has lots of gods and in particular that elusive divinity, Krishna, who is up to all kinds of devious activities. But so are Dante, Milton and Homer filled with God or gods?

I suspect Mahatma Gandhi would have understood my dilemma about teaching the Mahabharata in our schools. He instinctively grasped the place of the epic in an Indian life and he would have approved of what V S Sukthankar wrote: “The Mahabharata is the content of our collective unconscious .... We must therefore grasp this great book with both hands and face it squarely. Then we shall recognize that it is our past which has prolonged itself into the present. We are it." The epic has given me great enjoyment in the past six years and I have become a Mahabharata addict. I feel sad that so many boys and girls in India are growing up rootless, and they will never have access to these forbidden fruits of pleasure.

As we think about sowing the seeds of secularism in India, we cannot just divide Indians between communalists and secularists. That would be too easy. The average Indian is decent and is caught in the middle. To achieve a secular society, believers must tolerate each other’s beliefs as well as the atheism of non-believers. Hindu nationalists must resist hijacking our religious past and turning it into votes. Secularists must learn to respect the needs of ordinary Indians for a transcendental life beyond reason. Only then will secularism find a comfortable home in India.

Adam Smith's Dharma

In January this year, President Sarkozy of France, former Prime Minister Tony Blair of England, and the German Chancellor, Angela Merkel, kicked off a debate in Paris on the nature and the future of capitalism. It was in response to the global economic crisis. This article--my inaugural column for the Times on Saturday--is a contribution to this debate.

The idea that an ancient Indian epic might offer insight into capitalism’s nature, on the face of it, appears bizarre. The truth is that the Mahabharata’s world of moral haziness is far closer to our experience as ordinary human beings than the narrow and rigid positions that define debate in these fundamentalist times. Capitalism is also about ordinary persons--buying and selling goods in the market place.

The Mahabharata believes that human beings are flawed and these flaws make our world ‘uneven’, vishama--making us vulnerable to nasty surprises. Duryodhana is one of the chief causes of ‘uneveness’ in the epic. Others too have their flaws--Yudhishthira’s weakness for gambling, Karna’s status anxiety, Ashwatthama’s revengeful nature, Dhritarashtra’s excessive love for his eldest son, and so on. These defects are dangerous and they drive the epic towards calamity. Investment bankers on Wall Street and rating agencies suffered from similar infirmities. And they have brought the global capitalist system to its knees.

John Maynard Keynes, the great economist, had a comparable insight about our ‘uneven’ world. He lived during the Great Depression when there were also many calls to end capitalism. The unevenness of the world is caused by what Keynes called, ‘animal spirits’, which drive businessmen to take risks, often in the face of insufficient knowledge. John Nash, the Nobel Prize winning hero of the movie, A Beautiful Mind, traced this to ‘asymmetries of information’. And this leads to crises--such as the dotcom bubble, in which many sensible persons quit their jobs in order to make a fortune. It burst in 2000 but was soon replaced by another mania of the ‘smart flippers of securitized mortgages of sub-prime properties’, which sent the world into a recession in 2007. Keynes believed that a capitalist economy left to itself is unstable, and needs state regulation.

Standard economic theory makes the mistake in ignoring the role of human passions and animal spirits. Ever since Adam Smith, classical economics has assumed that capitalism is inherently stable. People buy and sell rationally, and this results in equilibrium. Classical economics ignores vishama--that people get into manias and even paan-wallas start buying shares on the basis of rumours. When manias take over there are bubbles and when bubbles are pricked confidence falls sharply and the whole economy collapses. Hence, we need regulation to ensure people are not falsely lured into buy bad assets. This regulation, however, must not kill the ‘animal spirits’ of entrepreneurs, which is what happened in India during the ugly days of the License Raj…and we almost lost two generations.

If Keynes thinks the answer lies in regulation, the Mahabharata seeks to ‘even’ out the world through dharma. Dharma is a complex word—it means virtue, duty, law, religion depending on the context, but it is chiefly concerned with doing the right thing. The Mahabharata recognizes that it is in man's nature to want more. Dharma seeks to give coherence to our desires by containing them within an ethical life. No amount of regulation will catch all the Duryodhanas and the Ramalingam Rajus of the world. What is needed is self-restraint on the part of each actor in the market place in order to build trust within society. The sunny world of Adam Smith may have been a tad optimistic, but Smith understood the importance of trust which underlies each transaction in the marketplace. This trust is the ‘dharma of capitalism’.

Regulators and central bankers around the world are wrestling with how to reform their financial systems. They are expending huge energy in debates between the political Left and the Right when the greater divide is between conduct in accordance with dharma and adharma. It is not enough to punish Ramalingam Raju. Institutions must also develop a culture of self-restraint and reward an act of goodness--one of the very few things of genuine worth in this world.
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The writer is the author of the book, ‘The Difficulty of Being Good: On the Subtle Art of Dharma’, which examines the ambiguous moral life of India under the lens of the Mahabharata. It is being launched next week.