Sunday, December 31, 2000

Times of India 2000 Columns

Find a dream 12 March, 2000

Not since the heady days of the Green Revolution in the late sixties have we seen the same excitement and fever amongst our people. This time it is the educated young in our largest cities that are leading the charge. The last time around, I remember Daniel Thorner, an extraordinary American academic, used to travel extensively in Indian villages in the 1960s, and he wrote passionately about capitalist stirrings in the Indian countryside. He described how thousands of farmers in Punjab, Haryana, and Western Uttar Pradesh were electrified by the arrival of the Mexican seeds and rushed to adopt the new technology. While leftists complained in the Economic and Political Weekly, these courageous farmers went on to transform India from "a basket case" to a food surplus country. I have just returned from a tour of college campuses, including IITs and IIMs, where I found the same energy and fire that Thorner wrote about thirty years ago. Once again, it is the thrill of a new technology that is electrifying young Indians. This time it is the Internet. Although the subject of my talks was different, students on the campuses wanted to talk only about how to become Internet entrepreneurs (because of my association with a venture capital fund.) They had the most amazing ideas, which they referred to as their ``inner dreams''. I encouraged them to pin their dreams to a business model, and quickly seek venture funding. "`The moment is yours,"' I reminded them, for God's sake, seize it. Some brave ones have found the religion and have taken the plunge. They are beginning to burn the midnight oil as Internet players. And venture companies are falling over each other to grab the best early players. Companies like NIIT are setting aside funds to incubate hundreds of entrepreneurial ventures. You have only to read The Economic Times and Business World to follow this revolution from week to week. My fund alone has evaluated more than 500 business plans in the last three months. Young managers in our industrial companies and banks have also been bitten by the Internet bug and are beginning to leave their secure jobs and become partners in Internet start-ups. These ventures will soon face tough competition from our established companies and from Internet companies from the US, the home of the Internet. This is happening in Japan where Sony and Fujitsu are linking with American dotcoms. NEC has recently acquired a 30 per cent stake in eBay, and Yahoo Japan's share price is quoting at 2,000 times projected earnings for fiscal 1999. I am also associated with traditional Indian firms and the contrast is dramatic. Whereas older members of bania families usually run our established companies, it is rare to find someone over 40 at the head of an Infotech company, and they come from various caste backgrounds. The average age of Internet entrepreneurs is 25. The old companies are tight-fisted; the new ones spread their wealth-typically 15 per cent of the shares are owned by employees in the form of ``stock options''. The older firms are unionised with a thin layer of professional management. Everyone is a professional in the new companies and he feels like an owner. Because of the boom in infotech stocks, many have become rich beyond his wildest dreams. Our industrial companies are generally not globally competitive and they focus only on the Indian market; our new companies in the information economy have their customers overseas and their employees think globally. Many people ask if the Internet is a fleeting fancy or is it here to stay? The answer is that there is hype but there is also solid base in reality. The Internet will change everything we do, and it will revolutionise business. Last year in America 15 per cent of shares and 5 per cent of books were sold on the Web and 40 per cent of car buyers consulted the Net. Traditional travel agencies are beginning to disappear. Although Web businesses have still not any made profit and e-commerce in America is only 1 per cent of retail sales -- no company can afford to ignore the Internet. The mania for infotech stocks, however, is a technology bubble. Their shares are over-valued and 3 out of 4 Internet stocks in America now trade below their issue prices. When dotcoms can raise capital so easily, they will tend to waste it. Having said that, the Internet is like the discovery of electricity and young Indians are right to chase their ``inner dreams''. This moment is theirs, and they must seize it.

American Beauty April 23, 2000

I have just returned from New York, where I had gone to sell my new book to American publishers. The book, India Unbound, is being released this month in India by Viking, and it is the story of how a rich nation became poor and will be rich again. The average American, I discovered, is not interested in India although he is obsessed with China. ``Why couldn't you have been Chinese?'' said one publisher wistfully. There is, however, a growing realisation among a section of America that India is poised at the cusp of history. They understand that the new digital economy is likely to transform India, which will turn increasingly middle class in the early part of the 21st century and might even conquer poverty. Clinton has focused on this theme since he went back home and the New York Times and other papers have run extensive stories on the new Indian and Indo-American entrepreneurs. Americans instinctively understand this message because they have experienced the power of the new information revolution. They have seen their productivity surge in the last five years. As a result, the American economy today carries the rest of the globe on its shoulders. It is the world's market, and its dynamism exerts a strong pull on economic activity around the world. After the Second World War, America experienced unprecedented prosperity and all income groups shared in it. This pattern changed after 1970 as the growth in American productivity slowed down. Rich Americans in the top 20 per cent bracket continued to get richer while the incomes of the bottom 40 per cent stagnated or declined. This disparity in incomes continued until late 1995 when suddenly American productivity began to surge again, reaching an astonishing 6.4 per cent annual rate in the last quarter of 1999. At the same time, unemployment fell to its lowest levels for decades, inflation remained low and wages of the poorest began to rise. The ranks of the long-term jobless plummeted from almost 2 million in the 1993 to just 637,000 today. The unemployment rate of high-school dropouts declined from 12 per cent to 7 per cent and among blacks it came down to 7.3 per cent, the lowest since 1972. In the face of these promising numbers Americans are for the first time in decades cautiously optimistic that perhaps inequality may finally have been tackled and the rising tide of the new economy may lift up all the boats. The question is whether America's productivity revolution is exportable, and can the new digital economy do the same for India. Many are sceptical. They argue that only a tiny minority will have access to computers and the Internet. Instead of broadly lifting the masses, the new economy will create a digital divide between the haves and the have-nots. ``When there aren't enough blackboards, how can we expect all Indians to become computer literate?'' they say. The answer may well lie in a little known experiment by NIIT in 371 schools in Tamil Nadu where NIIT instructors are providing subsidised computer education to school children. After school hours, NIIT's school facilities are thrown open to the residents of the town to enable NIIT to make up for profits lost during the day. If the Tamil Nadu experiment succeeds, the country might have found a model for taking computer education into government schools, and computer literacy could explode across the country. If there is profit to be made, competing education companies like Aptech will scramble to replicate this across the country. Punjab and Karnataka have already started the bidding process. When the Prime Minister Vajpayee's IT Task Force offered us the dream of making all school children computer literate by 2010 we thought it was a pipe-dream. If this model works, that dream might well come true. If we can solve the education challenge the rest will be easy. The Indian economy is embarrassingly sound today with high growth, low inflation and swelling reserves. And the forces of the information economy are relentless, profound, and are spreading like virus. Capital is no longer a hurdle, and capital-rich nations do not have an inherent advantage. Neither does inherited wealth. Nor does it help to be white. Anyone with a powerful idea can succeed. One-third of the new economy millionaires in Silicon Valley are reportedly Indian or Chinese. Thus, the new economy is far more democratic. Indians will undoubtedly succeed in the new economy, but will the masses be able to ride on the wave? The answer to that question lies in the quality of our governance, which remains the soft-underbelly of India.


V.S. Naipaul was in India recently and he was speaking once again on his old theme-the Muslim invasions of India. This is a delicate subject, and it takes courage to confront it in these inflammatory times. But Naipaul has never lacked courage. His thesis is that the creative urge dried up on the subcontinent with the Muslim invasions as all our talent was slaughtered. It disappeared so completely that it took us five hundred years to recover from this terrible tragedy. Naipaul may well be right, but I think he overlooks at least one powerful example of creative flowering in the interface of Muslim Sufis and Hindu saints. I refer to the bhakti movement, which swept across India after 1400 and touched the lives of ordinary people as nothing did since Gautama Buddha. The central idea of bhakti is the passionate belief that I can be united with God through unconditional love and devotion. Love has long been a metaphor for religious experience in India. An ancient passage in the Brihadaranyaka Upanishad compares the attainment of freedom and enlightenment to the experience of a man in his wife's embrace. A person, it says, 'in the embrace of the intelligent Soul [knows] nothing within or without…[H] is desire is satisfied, in which the soul is his desire, in which he is without desire and without sorrow'. Tamil saints first popularised this idea of bhakti, and later it was spread across India by a galaxy of medieval bhakti saints-Kabir, Mira, Nanak, Tulsidas, Lalla, Chaitanya, Tukaram, Ravidas, and many others. The chief mood of bhakti poetry is erotic (sringara), as seen from a woman's point of view, whether in its phase of separation or of union. When Mira addresses love poems to Krishna she adopts the feminine personae of a wife, illicit lover, a woman with a tryst, even Radha herself. Krishna is her god but he is also her lover. The most common sentiment is the pain of separation from the lover and the constant theme is self-surrender of the beloved. In classical times Indians sensibly pursued multiple ends in life. These were virtue or righteousness (dharma), wealth and power (artha), pleasure and sex (kama), and release or enlightenment (moksha). During the prime of life a worldly householder (grihasta) pursued wealth, power and pleasure. Only later in life did he turn to moksha. Thus, in antiquity there was a nice balance in the aims of life and Indian civilisation was not as "other-worldly" as it became later in medieval times when a fifth objective (pancham purushartha) swept the minds of hearts of men and women. This was love and it supplanted the other goals, becoming the highest, higher even than moksha. By reaching out to the masses in their everyday languages, the bhakti saints created a veritable social revolution. By offering entry to the lower castes they forced reform on Hinduism and prevented mass conversion to Islam. Since boundless love of God was the only requirement all were rendered equal. By promoting a direct relationship between the soul and God, the bhakti saints eliminated the priests (as Martin Luther did in the Reformation and Buddha did two thousand years earlier). They offered confidence to the poor masses and helped bind together the diverse elements of the subcontinent into a single functioning society. A new form of musical composition also took shape in their songs, which continue to be performed even today in concerts, on the radio and television. Although saints like Mira subverted the traditional ideals of Indian womanhood and challenged the social order, her mystical love for Krishna did not create the sort of problems for her as Saint Joan's visions did in the West. The conservative Rajputs thought she was mad, or a liar or a sorceress but she was not burned at the stake. (Joan was burned, remember!) Critics contend that bhakti flowered because Muslim rule prevented most men from pursuing worldly power. Society had become more rigid, the caste system more entrenched, which checked the ambitions and mobility of men. Turning inwards was a natural response, allowing people to accept their unhappy material condition. They argue that bhakti permanently damaged the Indian psyche by making us ambivalent about the value of human action in this world, and this places us at a competitive disadvantage today. Personally, I am shy of such cultural explanations. I do believe, however, that whether one is a believer or an agnostic, these desperate medieval lovers made a great contribution to world civilisation, and traditions like bhakti provide us today with a safeguard against the onslaught of the mindless global culture.


One evening last week, as I sat down to watch the news on television, I was assaulted by a series of confused images: there were heart-rending faces of the drought in Saurashtra, confident youngsters in Chennai preparing to launch a dotcom company, a corrupt bureaucrat caught stealing from tribals in MP, and Lara Dutta beaming under her crown. I asked myself, how does one begin to make any sort of sense out of all this? We are used to thinking of India in terms of dualisms-the rich vs the poor, upper vs lower caste, illiterate villagers vs sophisticated urbanites. But the real dualism that these TV images portrayed, I thought, is the contrast between the vibrant private space of India and the impoverished and callous public space. And no single institution has contributed more to our disenchantment with public space as our bureaucracy. No single institution has disappointed us more. When we were young we bought the cruel myth of the 'steel frame.' We were told that Britain was not as well governed because it did not have the Indian Civil Service. Today our bureaucracy has become the single biggest obstacle to development. Indians think of bureaucrats as self-servers, rent-seekers, obstructive, and corrupt. Instead of shepherding economic reforms, they are responsible for blocking them. Experts widely believe that East Asian bureaucrats helped in engineering their economic miracle. Why did they succeed and Indian bureaucrats fail? A Korean businessman told me that man for man your bureaucrats are smarter. 'But, whereas your bureaucrat is a know-it-all, ours listens to us and collaborates with the citizen.' Secondly, East Asian bureaucrats are specialists, who are not shifted from job to job, and they acquire expertise and commitment. Third, their bureaucracies are smaller, with shorter lines of authority and this makes for quicker decisions. Fourth, when you bribe, your work gets done; in India, even after a bribe you are never sure. The competitor is the enemy of businessmen in other countries. In India, it is the bureaucrat. Compare this with China. Mr. Sahgal, an executive of Phillips Carbon Black, visited China two years ago to set up a plant. A senior Chinese official met him at the Shanghai airport. He was short of time; so the bureaucrats came to see him at his hotel. The land officials promised him a plot within thirty days. The tax officers in their uniforms and epaulettes patiently explained their seven-page income tax code and three-page excise code. The head of the electricity board agreed to give a two-km transmission line in thirty days. The mayor came in the afternoon to take him in his car to his factory site in Wuxi, 200 km away-a distance they covered in two hours on the new highway. In contrast, Phillips Carbon Black took nine months and a half dozen bribes only to acquire the land in Durgapur and six months to get an electricity connection, with a full-time person chasing after the officials. It is too easy to blame politicians in a democracy. The idealistic Mr. Nehru wanted a regulatory framework for his 'mixed economy,' but the bureaucrats gave him License Raj. In the holy name of socialism they created a thousand controls and killed our industrial revolution at birth. In my 30 years in active business I did not meet a single bureaucrat who really understood my business, yet he had the power to ruin it. In the end, our failure has been due less to ideology and more to poor public management. In the summer of 1991 we did finally get rid of the License Raj. We put DGTD out of the way, but we did not get rid of the DGFT, which together with Customs continues to destroy our exports. The Inspector Raj is also well and alive, and its victims are not only businessman, but the poorest rikshaw-pullers in our city. Since the reforms began, the bureaucracy has blocked investment in infrastructure because it does not remove the policy infirmities in the way. Liberalisation is the economic independence of the nation, not from foreign rulers but from our own desi rulers. If I were a bureaucrat today I would hang down my head and cry because my son is ashamed of me. What is the answer? Clearly, it is not to abolish the bureaucracy. Every country needs governance. But we must cut down our government and make it results oriented. The Vajpayee government must understand that the second-generation reforms will not take off without serious administrative reform. It can be done as Britain has shown-it has 40 per cent less people in government than in 1979, saving a billion pounds a year.

The goodly middle class June 4, 2000

It has been a long hot summer and almost everyone seems to be having fun criticising the economic reforms. The Congress party has taken leave of its senses and wants to undo all the good work of its worthiest member, Manmohan Singh. The RSS continues to make noises against globalisation. The Left parties want to protect the labour aristocracy in the public sector against the interests of the labouring masses. Sharad Yadav has shamelessly given away free telephones to all telephone company employees. That leaves only the Prime Minister to fight for India's future all alone, with only a handful of reformers to depend upon. The reforms are anti-poor this is the constant refrain of the critics. Talk of the poor, I am convinced, confuses the debate on reforms. In the short term, the reforms will have no impact on the poor. In the longer run, the reforms will pull up the poor into the middle class. In any society, the top 15 per cent of the people will do well and look after themselves. The bottom 15 per cent will fail and will need to be looked after. In between is the 70 per cent or the vast majority of the people, which in successful economies becomes the middle class. Our real tragedy in the last 50 years is not our poverty but that we did not create the middle class. Our socialist policies suppressed initiative, jobs, economic growth and middle class opportunities. Hence, our middle class was barely eight per cent of the population in 1980. After the economy started seriously growing from the 1980s, the middle class has tripled, according to the National Council of Applied Economic Research, and is now 18 per cent of a much larger population. Given the right incentive system, the middle class invariably pulls itself up through hard work, self-help and education in a competitive society, and the task of the economic reforms is precisely to create such an incentive system. If the reforms are successful, they will succeed in making a majority of India's population middle class within a generation. And then, it will also be easier to look after the poor when they are 15 per cent of the population rather than forty. Who have the reforms hurt so far? Scrapping licensing has only hurt the corrupt bureaucrat and businessman. It does not immediately affect the poor. Similarly, opening the economy to trade and investment has only hurt the inefficient Indian producer and his labour. Neither of them are the wretchedly poor. Reducing controls on the economy has only brought efficiency, removed monopolies, and liberated new entrepreneurs. It is true that the second phase of reforms will cause job losses and pain. But these jobs belong to our pampered organised labour, primarily in inefficient public sector companies. This labour has amongst the lowest productivity in the world, is insensitive to consumers, and gives Indian industry a bad name. By no stretch of the imagination can we call it poor. Nor will cutting subsidies significantly hurt the poor. Experts are unanimously agreed that over 75 per cent of the subsidies do not reach the poor. Fertiliser and power subsidies are enjoyed by the rich and the middle class farmers the rural poor are mainly landless labour. Similarly, the food subsidy through the PDS does not reach the poor, especially in Bihar and UP. Food subsidy has largely been enjoyed by the urban middle class. Economists around the world have been arguing that subsidies are the worst way to help the poor because they distort the price mechanism for the whole economy and misallocate society's scarce resources. Instead of subsidies it is better to give money to the poor (which, of course, has its own problems, for all Indians, including millionaires, will stand in a queue to be counted among the poor). The reforms, thus, do not hurt the poor. Unlike our past policies, the reforms focus on prosperity and not on poverty. They assume that the poor do not want handouts; they want viable jobs so that they can pull themselves up into the middle class. By making the economy efficient and productive the reforms will create jobs, growth, and the middle class. Our politicians need to understand this, and proclaim from the rooftops: "The reforms are not anti-poor!" Meanwhile, the experts in the academia, the NGOs, and the development institutions need to dig deeper into the explosive growth in our middle class to gauge the success of the reforms (and not be mesmerised by our controversial poverty figures). Finally, let us remember what Aristotle said: "The most perfect political community is one in which the middle class is in control and outnumbers both of the other classes."


Ever since Amartya Sen we have come to believe that Kerala is a model of successful government policies in education. We avidly read V.K. Ramachandran's essay on Kerala's achievements in Indian Economic Development-Selected Regional Perspectives, edited by Sen and Dreze, and we discovered that the communists at least educated their people. We concluded that the answer was for the state to raise its spending on education and everything would look after itself. Thus, our battle cry throughout the 1990s was to lift India's spending on education to 6 per cent of GDP. Now we learn that we were wrong. Digging deeper we have found that the real reason for Kerala's success lay not in government policies but in community action. The initial spark for the spread of education began more than hundred years ago with the Christian missionaries who set up the first modern, open-to-all schools in the old state of Travancore. This spurred the Nairs, led by Mannathu Padmanabhan, to set up a vast number of community schools. Muslims and Ezhavas did not want to be left behind and they followed the example. Kerala's community initiatives also led to the famous reading room movement and libraries came up in the smallest villages. After Independence the Left parties unionised the teachers, brought the schools under state control, and forced the government to pay their salaries. But even today 65 per cent of Kerala's 12,400 schools are in private hands. The lesson from Kerala is that success in education usually comes from private and community efforts, and not from the state. Americans have learned the same lesson. Their best schools are in communities where parents are involved and Parent-Teachers Associations are strong. Even a few volunteers can make the difference. Wherever this American idea of community initiative been tried, such as in gram shiksha samitis in Madhya Pradesh and Andhra or by NGOs in other parts of India, it has made all the difference-despite enormous opposition from the bureaucracy. We have learned from painful experience that the state is highly inefficient in providing education, just as it is inefficient in producing steel, watches, power, or banking services. The Indian state spends Rs 3000 per child per year in primary education, but a third of our children are illiterate. Teachers earn Rs. 10,000 to Rs. 15,000 per month but a shocking number don't show up in classrooms. The ones that do are uninspired and pour rote learning into students. The reform of Indian education has to begin with the conviction that schools have to become accountable to parents and neighbourhoods instead of to bureaucrats at state capitals. We have to fight for the autonomy of our schools and make teachers responsible to parents. Since the state has failed as a producer of education, its role should change to one of enabler. Parth Shah in his Agenda for Change suggests that the state should completely get out of classroom teaching and NGOs or panchayats or the private sector should run schools and charge fees. The state should give parents coupons worth Rs 3000 per child per year. The central idea is competition among schools and choice for parents. If their neighbourhood school is bad they should be able to move their child to a competing school. Some schools will charge the basic price of Rs 3000 a year; others will charge more and offer higher quality education; and some parents will be willing to supplement coupons with their own funds. Thus, schools will compete for students and become innovative in providing better education. Parents will be empowered, teachers will be forced to become 'customer friendly' and Indian education will blossom. This may sound radical but the idea of putting parents in charge of the Rs 3000 per child per year that we spend on education today is sensible. The key is that we don't need to increase spending to dramatically improve the quality of education. But will our parents return the compliment and get involved in Parent-Teacher associations? I think they will because they want their children to get ahead. Murali Manohar Joshi, our minister for human resource development, thinks that education is about Saraswati Puja, packing research bodies with saffronites, and deleting Marx from history books. All of this has nothing to do with educating our young. He should be aware that in the 21st century winners will be divided from losers, not on the basis of capital or natural resources or skin colour. They will be divided on the basis of useful knowledge. This applies to individuals and to nations. Hence, smart nations are racing to reform their education systems, and we too should bring education centre stage in our second phase of reforms.


It is the height of our monsoon season, the air is heavy with dampness, and our reactions are slow. Fortunately, our economy is moving nicely it continues to be among the fastest growing in the world which is why it is so difficult to understand the behaviour of our capital markets. Our weakness, however, is governance. This is ironic, for we have had much greater experience with the institutions of democracy than of capitalism. We began our schooling in democracy fifty years ago, but we did not give a free play to the market until a decade ago when our reforms began. Yet, governance at all levels is appalling, all our states are bankrupt, and our confidence in government institutions is at its lowest. We need both economic growth and robust political institutions to be a successful nation. Although we now rely more on markets, we still need clean and efficient civil servants to regulate them. The slow pace of the reforms is also a symptom of the weakness of our politics, which allows vested interests to hijack policies for the common good. Politicians blame our failures on the reforms and the ordinary person confuses the ills of government with those of the market. At the best of times it is difficult to appreciate the market system. Over the centuries human beings have dealt with the problem of survival through tradition or command. They organised society around custom and usage, the son following the occupation of his father from generation to generation. Adam Smith tells us that in ancient Egypt, every man was bound by a principle of religion to follow the occupation of his father. In India, as we well know, our caste system assigned us occupations in the same way. The whip of authority has been the other method of organising the jobs of society. The pyramids of Egypt and the temples of India were built by the command of pharaohs or maharajas. More recently, the Five Year Plans of the Soviet Union were carried out by the command of the Politburo in the same manner. It is only in very recent times that human beings invented a third solution to the problem of making a living. Called the market system or capitalism, it gives individuals the freedom to follow their inclination to do what is in their best interest. And the lure of gain (not tradition or authority) steers a person to his task or occupation. And yet in this interplay of self-interested individuals, the tasks of society get done by an invisible hand, as Adam Smith called it. Because it is invisible, this system is more difficult to grasp. It lacks the simplicity of custom or command, which are visible for everyone to see. It is harder to understand how a society can function or how the dirty jobs in society get done cleaning toilets, for example if there is neither a ruler or tradition to command it. Banias and bazaars have been around for thousands of years, ever since there was an agricultural surplus. Historians tell us that this began between 8,000 BC and 10,000 BC, when the first towns emerged as centres of exchange. But markets are not the same thing as the market system. For one thing, it requires that money making be regarded as respectable, and we know thathistorically, commerce has had a bad odour in all societies, including India. Although we see today the wondrous spectacle of thousands of young Indians, starting new business ventures all around us, the idea that their struggle for personal gain might actually promote the good of the whole society is too bizarre for most people. Even the most sophisticated Indians distrust the market because no one is in charge. Hence, politicians find it difficult to win votes by appealing to economic reforms. No wonder Samuel Johnson said, There is nothing which requires more to be illustrated by philosophy than trade does. Democracy, in contrast, is easier to understand, but it is more difficult to achieve. Capitalism is easier to achieve (because exchange is natural to human beings) but more difficult to understand. The irony in India is that we have established the more difficult political institutions of democracy over the past fifty years. But it is the younger institutions of capitalism that are currently more successful. Sadly, it is our political institutions of governance that are letting us down. The lesson in all this is that we cannot take democracy or capitalism for granted. Neither do they necessarily go together, even though they have human freedom in common.


For good or for bad we have a nationalist government in power. Nationalism is generally not a pleasant virtue and the world has grown rightly suspicious of it after all the damage it has inflicted during the last two centuries. Nationalism drove the European nations to colonise the world; it made Germany and Japan militaristic and this caused two world wars; it led to the murder of six million Jews in the holocaust. These were terrible tragedies of nationalism. However, nationalism also has its uses when a nation is young. It can help a country modernize and develop with a sense of urgency as Japan did after the Meiji Restoration in 1867-1868. It can help a people to unite to throw out a foreigner as India did in the years before Independence. Nationalism can also help a country become cohesive, which is useful for a diverse and plural country like ours. We have suffered heavily in the past because we were disunited and did not act as a team. India was lost, first to Babur and then to the British because of parochial quarrels and intrigues among our divisive rulers. Independence too might have come a dozen years earlier if Gandhi, Nehru and Jinnah had been able to work together as a team. Bernard Lewis once observed that "when people realize that things are going wrong, there are two questions they can ask. One is, 'What did we do wrong?' and the other is 'Who did this to us?' The latter leads to conspiracy theory and paranoia. The first question leads to another line of thinking: 'How do we put it right?'" In the second half of the nineteenth century Japan asked itself "How do we put it right?" Contrary to what many believe Japan was not always unified. Before the Meiji revolution the feudal Shogunate was divisive. There were dissension and dissents, often violent. The lords of the great fiefs of the Far South and the West, once enemies, finally united against the Shogunate. After the emperor replaced the shogun, the Japanese decided to become one, under the slogan. "Honor the emperor!" The second thing they decided was to catch up with the West. So, they hired Western technicians and sent Japanese agents abroad to learn Western technology. They did not complain. Japan began to modernize by sending a high level delegation, including Okubo Toshimichi to Europe and the United States, visiting factories and schools to learn how the West had modernized. The delegation returned to Japan after two years "on fire with enthusiasm" to reform. One of the reforms that it implemented with characteristic intensity was to give universal schooling to boys and girls. The schooling imparted knowledge but it also instilled punctuality, discipline and a sense of national unity that helped create the modern Japanese personality. In contrast, Latin Americans and some Indians complained. They said that our poverty and backwardness were the misdeeds of world capitalism. Multinational companies replaced the colonial rulers in their script. Raul Prebisch, the Argentine economist, who created the "dependency theory," argued that poor nations would always remain dependent on Western nations because of unequal terms of trade. After the Asian miracle in the 1980s this second rate theory was rightly discarded. It is always easy to blame the "Other". It feeds into the hands of narrow nationalists who want India to return to isolationism and become a cocoon economy once again, cut off from competitive stimuli and opportunities for growth. Our nationalist government should reflect deeply on Japan's experience with modernity. It will quickly realise that the first thing it must do is to redefine its nationalism and become inclusionary and shed its antipathy for the minorities. The idea is not to be Hindu but to be Indian. Only then will it realize the power of national unity. Meiji Japan did the job so well that Japanese teamwork has become the envy of the world. Next it should be "on fire with enthusiasm" to reform the economy like Okubo Toshimichi. Third, it should with equal intensity overhaul our education system and not only ensure education to all Indian boys and girls but improve its quality. Finally, it should remember that all nationalisms run the risk of becoming militaristic and it should create powerful safeguards against that eventuality, including giving up the nuclear bomb in a negotiated settlement with Pakistan and China. Only thus will India realize the positive benefits of nationalism. If it were my world I wouldn't have nationalists, but since it isn't, the second best thing is to make the best use of what we have

THE LIBERAL FALLACY 10 September, 2000

I find it difficult to understand why there has been almost no appetite for education reform in India when there is universal consensus that education is not only good in itself but it also helps a nation to become competitive. It is just as incomprehensible that India, which followed a socialist path before 1991, progressed so slowly in education over its forty socialist years. After all, education is one of the few things that socialists around the world generally did fairly well. My historian friend, Sabyasachi Bhattacharya, reminds me that I am guilty of the liberal fallacy--that is, I naively assume that reasoning will prevail over interests. Hence, I tend to get surprised when the opposite happens too often in the real world, whether in democracies or autocracies. The road to power is through satisfying interests, Jeremy Bentham tells us. It is not enough to point out what the wrong policies are, as liberals tend to do, but one has to go beyond the irrational policies and trace them to the interests--both economic and political. The agenda of the state is set by interest equations and the discourse of knowledge is effective only to the extent that it is congruent with the discourse of power. Reasoning about right and wrong policies, while not entirely irrelevant, is of limited use if one's agenda is, in fact, to shape a new reality. India's democracy has an overwhelming majority of poor voters. This too makes a difference to the way things work. The journalist, T.C.A. Srinivasa-Raghavan, points out that in the long run the forces that drive markets and democracy will converge; in the short run these forces often tend to pull in opposite directions. Since politics is a short run game and growth is a long run one there will never be a situation that is completely optimal, with the result that at every point in time most of the people will be disappointed. Hence, no one bothers about education because results take a long time to come. When a politician promises rice for two rupees a kilo when it costs five, he wins the election. N. T. Rama Rao did that in the 1994 state elections; he won the election, became the chief minister, and went on to bankrupt the state treasury. He also sent a sobering message to Prime Minister Narasimha Rao in Delhi, who slowed India's reforms because he realized that votes resided in populist measures and not in doing what is right for the long term. Since the 1980s politicians have vigorously competed in giving subsidized electricity to farmers--in Tamil Nadu and Punjab, they have actually given it away free. When politicians do that, where is the money to come from for creating new schools or improving old ones? But there are now some signs of hope. At least two reforming chief ministers might have won their elections as a result of reforms. Digvijay Singh in Madhya Pradesh opened schools with vigour and made them accountable to village panchayats. Chandrababu Naidu in Andhra, among other things, turned over the management of water to its users in villages; he also raised electricity rates to farmers and brought transparency in governance through the use of information technology, much to the annoyance of his bureaucracy. It is exceedingly important for political scientists to study these two elections and tell us exactly what happened. If it is true that the reforms won the elections, then it might embolden political leaders in other states to pursue education and economic reforms. George Bernard Shaw wrote, "Reformers have the idea that change can be achieved by brute sanity." He was telling us the same thing--reformers must create a coalition of interests behind sensible policies if they want to succeed. This seems to be happening in many countries. Politicians everywhere are realising that their countries will be left behind in the globalised knowledge economy unless they improve their education systems. In the United States, both candidates are competing to demonstrate to American voters that if elected they will undertake the biggest education reform in American history; to prove it, they have each visited over a hundred schools since their campaigns began. Recent surveys show that mothers in India, including the poor, also understand that the passport to their children's future is good schooling. They seem to care more about literacy than promises about free electricity and two rupee rice, which they know to be false. This may be why they have been booting out the incumbent politicians at regular intervals. Now is the time for our geriatric political class to get smart, tap the huge unsatisfied demand for schooling among voters, create a coalition behind education, and start winning elections

OF LIFE AND DEATH 24 September, 2000

Early this month I read in the papers that a celebrated and attractive couple had killed themselves in Bristol, England in a death they had planned for forty years. It was a tragic and haunting love story: the wife had terminal cancer, and instead of being divided by disease the couple chose to be united by death, taking a lethal overdose and breathing their last in each others arms. The news item caught my eye because one of them, Stephen Korner, was the author of a book on the German philosopher, Immanuel Kant that I read as an undergraduate in college. The book had made me reflect on my own beliefs about right and wrong and had taken away some of the pain of reading the almost unreadable Kant in the original. Ironically, Kant had argued that it was wrong to take one's own life. I discovered from Anajana Ahuja's moving account in the London Times that this was not an ordinary couple. They were both handsome and brilliant. They had fled to Britain from Czechoslovakia, met in London, and married during the war, and then rose to distinguished positions in British public and academic life. She became a pioneer in the National Health Service and an eminent magistrate and he a famous professor of philosophy. When their daughter was twelve they told her about their suicide pact. It was an unusual conversation to have with a child, but the Korners had always treated their children as adults. Their daughter grew up to become a molecular biologist and married the Noble laureate, Sidney Altman at Yale. When the suicide finally happened, the daughter was devastated. Her parents had left a note for the police and Schubert's Trout Quintet, their favourite music, was played at the funeral. She exclaimed that no one should ever emulate her parents. Suicide is an old subject and people have debated it over the centuries. In recent years, however, it has acquired significance because modern medicine has made it possible to live far beyond one's useful life. Doctors can keep one alive even when all other organs have stopped. This has raised the question of social cost. Experts calculate that sixty per cent of Western society's health care costs occur in the last nine months of a person's life. Is it fair, people ask, to prolong someone's life at the expense of the rest? Activists of the "right to die" movement strongly advocate that a person has the right to end his life rather than face the indignity of life support systems at a hospital. This issue has got connected in America to the debate on abortion, where "pro-choice" liberals support the individual's right to choose to have an abortion; the "pro-life" conservatives counter that the foetus is alive, and they would jail the mother for terminating a pregnancy. One of my readers, Dr. Pankaj Shah, an orthodontist in Rajkot, has written an unusual letter. Many of mankind's problems, he says, would be solved if men and women were to know their date of death in advance. They would plan their life better, would not indulge in misdeeds, become religious, and love their families and friends. However, Dr. Shah says that his friend doesn't agree. The friend says that on his last day he would get an AK47 and finish off not only his enemies but all the politicians. As a liberal, I certainly think that a person ought to have the right to commit suicide. It is his or her life after all. The stigma that attaches to suicide in most societies is unfortunate. But, perhaps, it would go away if the legal framework were changed. In the abortion debate I am also strongly pro-choice, and I think it is disgraceful that the extreme right in America has forced this onto the Republican agenda. As a social democrat, I could never vote Republican, in any case. Neither do I have a desire to live a long life-and certainly not in the humiliating surroundings of hospital. I have always desired a short and intense life. Like most people, I would prefer to die a natural death. But if it meant prolonging life unnecessarily I would not hesitate to pull the plug. Yet, I am a conservative when it comes to re-engineering human beings. I like people as they are--with their foibles. Like George Kennan, I wouldn't want human beings to be perfected or tampered with. (Sorry Dr. Shah!) Who knows what we might unleash if we started on that genetic route? I'd like human beings to remain "cracked vessels" in Kennan's words or "crooked timber" in Kant's famous description. In the same vein, I would resist attempts by science to meddle with our imperfect weather.

THE WILL TO LIVE 8 October, 2000

The Korners' suicide last month, and my column on it, has brought an unusually large amount of mail, and some phone calls, as well. My mother admonished me, saying that no one has the right to take his life-it is God's gift, she says. Another reader reminds me that one's life is not one's own, but it also belongs to one's family and society. If one commits suicide, then not only does one place one's parents' old age in jeopardy, but also infringes on the rights of one's children and grandchildren to whom one owes the sharing of one's lifetime of experience, thereby ensuring that culture is passed on. The most moving letter came from Gujarat, and it reminded me of King Lear. After leading an honest life and discharging his obligations, my middle class correspondent retired to live with his children. But now he finds that he is unwanted by his children for whom he sacrificed everything. He feels humiliated and wonders if it might not be better to opt for mercy killing. There is but one truly serious problem, wrote Albert Camus, and that is suicide. Judging whether life is worth living or not amounts to answering the fundamental problem of our existence. Since the beginning people have debated whether it is natural or perverse to escape from life's difficulties. As for me, I have come to believe like Montaigne, that to die well requires greater moral stamina than to live well. Heroism consists in facing death with equanimity, and this reflects the highest qualities of a well-resolved life. I want to comfort my letter-writer and tell him that human life is the mystery of undeserved suffering. The innocent always suffer. This is not only the central problem of the human condition, but it also gives birth to tragedy. I commend to my Gujarati friend Nietzsche's famous definition of tragedy: "a reaffirmation of the will to live in the face of death and the joy of life's inexhaustibility when so reaffirmed." Nietzsche had Greek tragedy in mind, especially that of Aeschylus, the first writer of tragedy, who revealed to the world the strange power that tragedy has to present suffering and death in such a way as to exalt and not to depress. The ancient Greeks had a wonderful ability to see the world clearly and think it beautiful at the same time. They thought freely and deeply about human life, without the burden of religion and priests, and were willing to confront the giant agony of the world. In India, the Buddha also saw that the world is made up of individuals, each with a terrible power to suffer and there is this awful sum of pain in the world. His solution to sorrow was to turn inwards and deny our everyday world of experience. The Greeks were aware that injustice was built into the nature of the world, but they dealt with it in the spirit of enquiry and poetry. And when enquiry met poetry tragedy was born. We tend to misuse "tragic" in everyday discourse. We confuse the word with disaster. Tragic pleasure, as the Greeks knew it, and as Aristotle defined it, is the emotion of pity and awe, which purges and purifies us in the end. The result is a feeling of exaltation that Nietzsche spoke about. Aeschylus' Prometheus is an innocent sufferer, who passionately rebels and defies the gods and the powers of the universe. To the messenger of the gods who bids him to yield, he replies that he cannot, just as the wave in the sea cannot fail to break on the sand. With these last words, the universe comes crashing upon him, and he proclaims, "Behold me, I am wronged!" Thus, the tragic poet shows us that mankind can meet disaster grandly, forever undefeated. The same is the case with Sophocles' Antigone, the high-souled princess who goes with open eyes to her death rather than leave her brother's body unburied. Rather than give in to her uncle's unjust law, she cries out, "Courage! The power will be mine and the means to act." In another play, Euripides' Trojan Women, Troy has lost the war to Greece and a handful of women are waiting for the victors to carry them away to all that slavery means for women. The Greek messenger comes to tell the Trojan queen, Andromache that her son is to be thrown from the wall of Troy. She says to the child: "Go die, my best beloved…" When we see Prometheus, Antigone and Andromache on stage, we feel pity and awe; as we identify with their defiance and affirmation of life, we feel purified and freed and better able to face life and death.

THE ENEMY IS INSIDE 22 October, 2000

ur old family companies are woefully depressed. What a contrast to the heady days after 1991 when they were exhilarated-finally, they thought, their day had come. Now, no one gives them respect. The stock markets have punished them, and any corporate raider lurking in the dark can take over their company at a fraction of its book value. The raid on Mr. Nusli Wadia's Bombay Dyeing has sent a shiver. The economy, too, has irreversibly changed from a sellers' to a buyers' market and is moving, like the rest of the world, from manufacturing to services. Globally, competitors have increased the gap by re-engineering, downsizing, and other harsh measures. Many of our industrialists' problems are, unfortunately, of their own making. For the past decade they have been screaming for protection against foreigners when all along the enemy was inside. The fault is not with external liberalisation-our import duties are still among the highest in the world. The real problem is that India is still not a good place to do business. And the reason is that we have not had enough domestic reform. Indian companies do not have the freedom to downsize, restructure and close companies. Our road transport is hugely inefficient and expensive, but there is no alternative because railways are even worse. Truckers can put up with bad roads but not with the delays and bribery at octroi and police posts. Thus, it costs more to ship some products from Haryana to Mumbai than from Mumbai to London. Industry would not mind our absurdly high cost of power-as high as Rs. 6 per unit-but it is unreliable and leads to work stoppages. Fortunately, thanks to the Prime Minister, we have substantially reformed our telecom, but we shall not have quality communications until the timid TRAI decides to protect the consumer rather than DOT. At a 13% prime leading rate, our cost of capital is 50 per cent higher than it should be. Most Indians cannot begin to fathom how we have suffered from reserving more than 700 industries for the small-scale sector. Our policy rewards a small manufacturer for remaining small and prevents him from achieving economies of scale. Ironically, Chinese small industry is sweeping the world because their policy encourages them to mechanise, grow, and become large. Foreign buyers give credit and take equity in small Chinese firms and focus them on exports. Our competitors don't have to put up with our venal "inspector raj." The excise inspector frivolously hauls up industrialists. The customs inspector stops their shipments for insufficient reason. Even software exporters suffer because labour inspectors walk into their offices and demand a bribe in order to allow their employees to work more than eight hours a day. The factory inspector challans them up for not whitewashing their staircase. This harassment is a terrible distraction for top management, especially in smaller companies. Whereas our competitors are focused on building customer relationships and supplier networks our top managers continue to worry about the "midnight knock". Other countries also suffer from corruption, but nowhere does it lead to inefficiency the way it does in India. Foreigners say that it takes nearly twice as long to start a factory in India than it does in other countries. When asked why his company preferred Malaysia to India as an export base for the manufacture of electronic products, a multinational executive bluntly replied that India is still not reliable because of uncertainties and delays related to customs, excise, power, octroi, and a host of bureaucratic hassles. Hence, smaller countries like Vietnam, Thailand and Malaysia receive more foreign direct investment that we do. Of late, people insistently ask why Indians are doing so well abroad and foreigners, including the largest multinational companies, are doing so poorly in India? The answer, I am afraid, is that India is still not a good place to do business despite a decade of reform. Hence, our ranking is 49th out of 59 countries in the Global Competitiveness Report 2000. The irony is that the BJP recognised this in its last election manifesto and promised vigorous domestic reform, but our own industrialists, backed by swadeshi-wallas diverted its attention towards protection. The lesson for our industrialists is blindingly clear-the next time you are tempted to open your mouth to complain about foreigners and imports, stop; take a deep breath; instead of asking for protection, ask the government for domestic reform. Every well-meaning swadeshi person that wants his nation to be great should stop whining about multinationals and demand domestic reform. There are no shortcuts to creating competitive advantage-you have to become the lowest cost producer, make outstanding products, and give unsurpassed service. But Indian business will only be able to rise to that challenge when we conquer the enemy within.


What wondrous times we live in! A bolt of rationality seems to have struck the planet, and our world is beginning to turn into a freer, democratic, and a more humane place. More than fifty per cent of the world's people live under market based democracies today compared to less than twenty per cent in 1975. The liberal revolution that is sweeping the world is being fed in turn by a series of technological revolutions. In the 1980s it was the telecommunication breakthroughs which destroyed the old state monopolies and are liberating us from state control. In the 1990s it was the Internet which is leading to a digital economy. Now, we are on the verge of an electricity revolution, which holds the promise of producing power, quite literally, in every backyard over the next two decades. In a recent cover story, the Economist described dramatic breakthroughs in "micropower" technology, which will allow the generation of clean electricity from small fuel cells and small gas turbines. Because of large inflows of venture capital funds (estimated to be $800 million dollars in 2000) and the involvement of multinationals like GE and ABB, micropower could soon become a commercial reality. Experts predict that the world market for these backyard generators will be $60 billion a year in a decade. Localised power generation has finally become economically competitive, partially because there are few transmission losses since power does not have to travel across distances. The biggest advances have come in fuel cells, which consist of two electrodes separated by an electrolyte; in the cell hydrogen combines with oxygen from the air to produce power; and water is the only waste product, much to the joy of environmentalists. Companies working on this technology expect that the cost of these fuel cell systems will come down to Rs. 25,000 per kw within eighteen months compared to Rs. 50,000 per kw currently achieved by coal-fired power stations around the world. The second advance is in micro-turbines that are powered by natural gas. Because these turbines have only one moving part-a compressor-cum-rotor that moves at very high speed-it now costs only one-third of the running cost of a comparable diesel generator. The third advance is in photovoltaic solar cells where high equipment costs have so far hindered commercialisation. Here, too, costs have finally come down to a fourth of what they were twenty years ago and are likely to further decline because of breakthroughs in making silicon wafers. Solar energy is everyone's dream fuel because it is clean, reliable, and the fuel is free. The whole world will benefit from the electricity revolution, but India will be one of its biggest beneficiaries, because we have failed to deliver decent conventional power. Before we can be worthy of this revolution, however, we have to do further reform. We have to allow private trading of power for every "backyard" generator will produce more energy that it needs. Even today, many of our power plants have surplus power at various times. But government holds the trading monopoly and it is making a mess of it. A smart trader would hustle, make forward contracts and take risks and a spot and futures market in energy would develop. By recently refusing Enron permission to trade in power, the government has lost a huge opportunity. Power trading entails taking big risks, and bureaucrats are incapable of taking risks. Instead of becoming a trader, the government should run a "power stock exchange", which allows buyers and sellers of power to transact in an orderly manner. The promise of micropower should not slow our resolve to implement our current power reforms. Unlike in telecom and insurance, where there is light at the end of the tunnel, power reforms have failed to take off. The key is to privatise distribution, and some states are indeed moving forward--for example, Orissa, Karnataka, Andhra, Delhi and Maharashtra, and U.P. The other states may soon go dark if they don't act. Unless politicians learn to say "no" (to free or cheap power for farmers) and bureaucrats learn to say "yes" (to liberalising and creating a free market for distribution, generation, transmission and trading of power) there will be little hope. Most of the world is currently liberalising its power markets. Roughly half of America's states have broken power monopolies and created competition. As energy markets liberalise, consumers are winning the right to select their suppliers. The next step is energy trading and spot markets as hundreds of micropower units will get linked together in microgrids. ABB is currently building microgrids that will be operating by 2001 in Europe and America. Just as competition in telecom has led to furious investment, jobs and innovations in India and abroad, the same should happen in power.

THE WATER OF LIFE 19 November, 2000

"It has no taste, no colour, no smell, no definition in fact, yet it is life itself," wrote Saint-Exupéry on the wonders of water. What could be more fundamental to life? Yet a third of our people do not have access to safe, drinking water, and this is the most damning measure of our failure. And the main reason is the myth that water must be free. Because we get it so cheaply we tend to squander it. The myth in our collective unconscious harks back to an idyllic past when few people inhabited the earth and they would drink from the streams. Hence, the Biblical saying, "Whoever will, let him take the water of life freely." Today we are a billion people and it costs money to bring water to people. Unless we learn to pay what it costs, we will continue to waste it. The controversy over the Sardar Sarovar Dam has recently focused attention on the charmed liquid. I shall not enter into the dams' debate today, but only point out that we need large storage spaces because water flows unevenly in rivers. During the rains river basins overflow and run off. In the dry months the flows slow down. But people need water year round; hence, storage of river water is a necessity, especially as our need for water is expected to double over the next fifty years. The answer to the Gujarat dam is to resettle the 41,000 displaced families brilliantly and get on with the job of creating more reservoirs in the future. There is a saying that we never know the value of water till the well runs dry. The starting point of the political economy of water is to appreciate that we are running out of fresh water and the greatest scarcity in the 21st century will be of water-not of oil or fossil fuels. The second point is to acknowledge that we waste much of our water today. Despite great shortages in many parts of the country we do not meter homes or farms so there is no incentive to turn off taps or pipes. Worse, we charge only a fraction of what it costs. Though our local governments spend thousands of crores on water, the main benefits flow to the middle and upper classes while the poor rarely get piped water. Our wonderful old canal systems are falling apart because water rates to farmers (like electricity rates) are so low that there is no money to maintain the canals. Because of these subsidies farmers over-pump ground water to grow water guzzling crops like rice and sugarcane. Cheap water is inevitably overused and this has turned vast stretches of land into water logged and saline wastes. Economists have always argued that subsidies are bad. Subsidies distort prices in the whole economy, send wrong signals to producers, who go on to produce the wrong things. Subsidies also eat away funds meant for investment in infrastructure. Worse, the benefits of subsidies go mainly to the rich and the middle classes. Thus, it is always better to give money or vouchers to the poor rather than subsidise products and services. The answer is price to water properly to reflect its true cost. Once this happens, people will conserve it. It will also attract efficient private firms to invest in improving water delivery and give access to safe drinking water to many more, including the poor people. The poor will pay for water-even today they often pay while the rich get it free. Private supply of water may seem radical, but in France private firms have managed water for more than a century. Britain handed over its water assets to private companies a decade ago. From Indonesia to Mexico, private firms are helping governments to improve bill collections, reduce leakage, and expand water supply to the poor. Buenos Aires has recently handed over its water works to a private company, which invested $1 billion to upgrade equipment and this has given water to 1.6 million additional people without significantly raising water rates. Where did the money come from? From cutting out the huge, corrupt and costly municipal bureaucracy. Country after country is learning that it is easier to get efficiency and good behaviour from private companies than from its own bureaucracy. Besides, governments today do not have the funds to improve water supply. Private companies, on the other hand, have the money and the management skills. The answer, then, is to begin the liberalisation of water. This means that we must transfer the management of water from populist politicians and corrupt bureaucrats to professional managers. If we learn from the best practices in the rest of the world we too will begin to give our thirsty the fountain of the water of life.

WILL JUSTICE PREVAIL? 3 December, 2000

I have always believed that individuals make history rather than other way around. Our Green Revolution would not have happened without C. Subramanium's wilfulness. England would not have possessed Bengal without Clive's stubborn wish to teach Siraj a lesson. In the same way, the Lok Adalat in Chandigarh would not have cleared 20,000 court cases in 17 months without S.K. Sardana. And, the Supreme Court would not have disposed of 76,000 cases in 12 months were it not for justices Venkatachalliah and Ahmadi. We have long despaired over judicial delays, but we did not know how bad things were until Bibek Debroy, an economist, collected the data. Soon after the 1991 reforms, we began to realise that a market economy could not succeed unless contracts between buyers and sellers in a free market could be speedily enforced in the courts. Debroy headed a project in the Ministry of Finance and discovered that the backlog in our legal system is more than 25 million cases. It takes up to 20 years to settle a dispute, and it would need 324 years to dispose the backlog at the current disposal rate. 1500 out of 3500 central laws are obsolete and should be scrapped, and half the 30,000 state laws as well. Digging deeper, Debroy found that things were not quite as alarming as they first seemed. He found that the average civil case is, in fact, settled in two years once you exclude tax disputes, land and tenancy quarrels and government to government litigation. When the VAT comes into force, the tax area will come under control. With computerisation of land records, land disputes too will get sorted out eventually. What has shocked the nation's conscience is that the main culprit behind judicial delay is the government, which appeals automatically all judgements and proceeds to lose them again. Thus, it crowds out the private individual. This happens because the decision to litigate is made at the lowest level in the bureaucracy but the decision not to litigate is made at the highest level. If this process were simply reversed, government litigation would come down. Pressure is building to punish bureaucrats who launch frivolous litigation, but nothing will come of it because of poor accountability. Another practical solution is to remove the disputes between government departments and settle them outside the court system. This was agreed, in fact, in the 1994 conference of state law ministers. Lawyers are the other reason for judicial delay. They have been fighting the amended Civil Procedure Code. It is not ideal, but it will speed up the system. It permits summons to be sent by registered post (rather than via a corrupt bailiff); it introduces pre-trial hearings, which disciplines both lawyers and judges; it shortens verbal arguments in favour of written submissions; it reduces adjournments, and speeds up post-trial decree. The new code has passed both houses of parliament, and if Mr Jaitley is courageous and honourable, he will notify it immediately, and score six runs for speedy justice. How did Lok Adalat Sardana and chief justices in the Supreme Court achieve their miracles? First, they computerised the cases. The computer found that most pending cases were related. The chief justice then made the judges specialise-e.g. all environmental cases went to justice Kuldip Singh. Computerisation ensured that all related cases were scheduled on the same day. If the Supreme Court can do it, so can the High Courts. Wilful Sub Division Magistrates (SDMs) can also achieve the same miracles in the lower courts. Why don't they just do it? S.K. Sardana also discovered that the computer was his best friend. He found that most of the 100,000 cases pending in the union territory related to landlord-tenant, motor traffic, and divorces. He brought together retired judges and social workers, gave them desks, called in the feuding parties and they conciliated and mediated between them. Since lawyers were the reason for delay, he forbade lawyers and court processes, and pressured the parties to reach a voluntary agreement, which was final and could not be appealed. In the same way, mediation has dramatically reduced the backlog in Andhra, indirect tax cases in Tamil Nadu and land cases in Gujarat. We have Lok Adalats in most states, and if S.K. Sardana can do it, why can't they? I have learned from long years in business that it is not intelligence but will that moves the world. The more you believe in a thing, the more it exists. If we want justice to prevail we need wilful men like Sardana, Venkatachalliah, and Ahmadi. Better still, hundreds of SDMs across India should say, "we too can do it." Remember, the feeling of injustice born of delay is insupportable to the human spirit and when justice does not prevail the judge is condemned.

STOP THIS WICKED BILL 17 December, 2000

The principle of competition, Hesiod pointed out long ago, is built in the very roots of the world. There is something in the nature of things that calls for a real victory and real defeat. The competitive spirit is at the heart of a vibrant economy, and it is precisely what we have been trying to foster through our economic reforms. In the end, competition guarantees individual liberty far better than laws or regulators. Now a Competition Bill is being introduced in Parliament this winter for fostering competition, but ironically, it will result in having the opposite effect. With all good intentions, it wants to ensure that no company becomes dominant in the market and abuse its monopoly power. The bill gives a proposed Competition Commission the power to investigate any acquisition or merger between companies whose combined assets exceed Rs. 1000 crores or turnover exceeds Rs. 3000 crores. According to Omkar Goswami, 144 of our listed companies already exceed that asset limit, and among them are our best companies, the very ones with the potential for building infrastructure and competitiveness. The Commission can also investigate an acquisition by an "industrial group" whose assets exceed Rs. 4000 crores. The bill has revived foul memories of the MRTP days because it gives "experts" (read retired bureaucrats and judges) once again the power to decide the fate of our successful companies. They will be able to stop, for example, companies like Reliance or Infosys from acquiring other Indian or foreign companies to become competitive in the global market. Mergers are an essential part of a vibrant economy and they are just beginning to bloom in India. They are already subject to clearances under SEBI's take-over code and the Companies Act. Do we really need a third hurdle of a Competition Commission? If we are worried that an Indian company may become monopolistic, the simple answer is to protect the consumer by opening our markets to imports and lowering tariffs. We live in a global economy and market dominance can no longer be measured in simplistic terms. We are also a small economy-a little larger than Belgium-that has only recently found its path to growth. Only growth will help us to escape from poverty, and growth will come if we allow our companies to grow larger and efficient so that they compete in the world. The new bill will only cut them down. Fifty years ago other developing countries envied us because we had robust companies belonging to Tatas, Birlas, and others. But the MRTP commission came and destroyed their drive and ambition. Meanwhile, our competitor countries created giants with global empires. Do we want a repeat performance? People assume that market concentration inevitably leads to monopoly profits (following Bains' work). This assumption has been thoroughly discredited by recent empirical data (including the idea that economies of scale and advertising create barriers to entry for new firms.) Baumol's theory of "contestable markets" reaches the same conclusion. Even where there is only one firm left, its behaviour is not necessarily monopolistic. On the other hand, Stigler has shown that companies inevitably capture government regulatory agencies that regulate them. Thus, a Competition Commission could actually create entry barriers. Having said that, this bill has laudable provisions related to unfair and restrictive trade practices. These are needed, but they can be incorporated in the Consumer Protection Act. We don't need another bureaucracy for that. America, with its giant multinationals can afford the luxury of chopping down its companies in the name of dominance. It has mature policy makers who can be trusted not to destroy the institutions that create wealth. India's bureaucrats, however, have been destroying wealth for fifty years. This bill could seriously undermine investor confidence. America does not have the same worry--it is the investment destination of the world. It was able to withstand Microsoft's shock. But our investment confidence is fragile. As it is, we do not receive enough foreign investment, and a poor judgement by the Competition Commission could totally undermine our frail edifice. The only benefit, as far as I can see, of this law is to reassure people who are opposed to liberalisation. But a law that could undermine our fragile companies, stifle liberty and prosperity is a huge price to pay for this reassurance. It is sad! Here is a huge country with a potential to grow 10 per cent a year, and it is held back because it gets diverted by irrelevancies like competition laws. India should focus single-mindedly on growth. It should concentrate one-pointedly on fixing infrastructure, liberalising agriculture and reforming education. India needs more competition, but a competition law will not create it. It will come from freer trade and an investor friendly environment.

THE INDIAN WAY 31 December, 2000

Tomorrow really is the first day of the new century, experts tell us, but it is also a second chance to sit back and look at the big picture. It is now plausible that India will solve its economic problem in the first half of the 21st century. The problem, of course, is our age-old worry that there is not enough to go around. Some parts of Asia are already affluent and others have seen the light. For the first time in history Indians will also emerge from the struggle against want, and it will not happen evenly. Some regions will get there before others-e.g. Gujarat will be twenty years ahead of Bihar. The reason this will happen is simply a matter of arithmetic. India has experienced five to seven per cent sustained annual economic growth over the past two decades, which has more than tripled the middle class. More recently, population growth has begun to slow, and in 1998 it was down to 1.7 percent compared to our historic 2.2 per cent. Literacy has also begun to climb-it had reached 62 percent in 1997 compared to 52 in 1990. If our economy continues to grow at its current par rate of seven percent for the next two to three decades-and there is no reason why it should not--then half of India (that is, the west and the south) should turn middle class in the first quarter of the century and the other half should get there in the second quarter. If growth accelerates to say eight per cent with greater reforms, then this happy day may well arrive sooner. At that point poverty will not vanish, but the poor will become a manageable fifteen per cent of the population, and the politics of the country will also change. The question is, then what? Once anxiety about making ends meet diminishes, then people's thoughts will turn elsewhere, perhaps to culture. Some believe that by then India, like the rest of the world, will have turned into "McWorld", the phoney and fictitious global culture of American consumerism. I disagree. The Indian way is robust, and has been built into our psyche for centuries. The antiquity of Indian tradition is less impressive than its extraordinary continuity, and this is because it has been able to adapt to alien virtues. We survived the Mughals, the British, and we will survive Coca Cola (although, the latter's challenge is far stronger.) What is the Indian way? An American scholar, John Koller, writes that its central idea (at least, for 85 per cent of Indians) is the possibility of human liberation from our fragmented, finite and suffering existence. It is based on the insight that the basic energising power of the cosmos and of human beings is the same. Because we have an impressive capacity for thinking, imagining, and acting to shape our world, the writers of the Upanishads believed that there must be a link between the dynamic energy of human beings and of the universe. Our world of distinct and separate objects must be manifestation of a more fundamental unity. Initially developed in the Vedas and Upanishads, this idea of undivided wholeness went on to inspire various Indian ways of the Buddha, the Jains, the Yoga systems, and even the Sufi and Bhakti saints. Indians have always known that their gods and goddesses are symbols of reality rather than reality itself. As symbols they point beyond themselves to the ultimate. That is why a Hindu can say in the same breath that there are millions of gods, but only one God. Within a family the father may be attached to Ganapati, an uncle may worship Vishnu, the mother Krishna and the son could be an atheist. In this syncretic attitude originates the spirit of tolerance of the Indian way. Although Indians are fond of rational argument, they all seem to agree that reason is limited when it comes to comprehending the deepest reality. Reason differentiates and compares and is thus a good faculty for exploring the empirical world. It fails when it comes to comprehending undivided and undifferentiated reality. Hence Indians of various persuasions look to meditation and direct insight. We regard our day to day life as superficial and in bondage to the law of karma, which determines mundane happiness, suffering and repeated births and deaths. We can free ourselves from karma in various ways-by knowledge according to Jains, by self-less action according to Gita, by devotion according to bhakti saints and Sufis. Whatever way one chooses, the Indian way is a way to freedom from human bondage based on the wonderful potential for perfection of ordinary human beings. It is also our strongest defence against "McWorld".