Monday, May 31, 2004


Times of India, May 30, 2004

Dear Prime Minister,

I remember the day you made me tea. I was privileged to visit you at 9 Safdarjang Lane soon after you relinquished office in 1996, and nobody, it seems, was at home, your wife was away visiting friends and the servant had gone on some chore. I was deeply moved by the quiet simplicity of your life, and when I told this to my wife, she said, Are you surprised? He is the only dignitary we know who answers his own telephone.

You opened our economy to the world in 1991, and this unlocked India ’s astonishing brain power to a degree that even you could not have imagined. Your reforms brought us the best years in our economic history. And all the governments after yours miraculously continued the reforms, albeit slowly. The lesson is that if you consistently reform in one direction, it does add up, and this has made India one of the fastest growing economies in the world.

Growth, you said that day, is the best anti-poverty programme, I hope you will repeat this to your colleagues when they try to pressure you into populist programmes that our deficit burdened treasury cannot afford. The best way to distribute the fruits of growth, as we both know, is through better schools and better primary health centres. This is the only way to give reforms a human face (and not leaky poverty programmes). However, the reform of education and health is not just about spending more money. It is about making teachers and nurses accountable, so that they will, at least, show up.

Like it or not, India ’s general elections have become municipal elections. What matters to the rickshawala is that the cops not take away a sixth of his daily earnings. The farmer wants a clear title to his land without having to bribe the patwari. The sick villager wants the doctor to be there when she visits the primary health centre. The housewife doesn’t want the water tap to go dry while she is washing. This is how government touches ordinary people’s lives, and in successful societies people take these things for granted. You might say that these are local subjects, but to ordinary citizens you are the face of the government and they expect this from you.

Where does the illness of governance lie? Why don’t employees of the central, state, and local governments do their jobs? In the Far East , for example, citizens get far better service. Is it because we protect labour excessively in India , to the point that they no longer feel accountable? This was my experience in the private sector, at least — our labour laws have taken away accountability and diminished our companies competitiveness. Thus, you may have to tackle labour laws despite your partners.

If you buy my argument about governance then your focus will shift from policy to implementation. Hold your finance minister accountable for the behaviour of income tax officers. Judge your home minister, for example, for eliminating harassment of honest NGOs who get foreign donations. Reward your economic ministers for eliminating red tape — foreign investors repeatedly tell us that they prefer China over India because of our red tape.

In the end, even if you make a small but perceivable difference, you will break the anti-incumbency factor, which is a code word for poor governance. If you do not, then you will be asking for the return of the BJP in 2009.

Sunday, May 16, 2004


Times of India, May 15, 2004

The most popular word in our election vocabulary is "anti-incumbency" and this ungainly word re-emerged this week to explain why the Indian voter has punished the ruling coalition. Everyone has his own definition of "anti-incumbency", but I am convinced that it is a code word for, "Enough is enough! I am sick and tired of bad day-to-day governance."

Despite strong economic growth, good monsoons, improved relations with Pakistan and America , and a new national self-assuredness, Indians were unwilling to forgive bad governance. And they employed their favourite weapon against one of our best governments in recent times — they didnt re-elect it.

My neighbour told me last week, "I voted for the BJP the last time because I thought they would be different, but they turned out to be no better. So, I think I'll change my vote, and I'll change it again and again, until my neighbourhood improves." She despairs over the simplest public goods — good behaviour from the policeman on the beat, for a government schoolteacher to actually show up in school, for honest justice from the lower judiciary. This is what governance is all about and she will remain anti-incumbent until she gets it.

Like many Indians I used to blame ideology for our economic failures. But now I have realised that the bigger villain is poor day-to-day management. Even socialism could have delivered more and need not have degenerated into License Raj. It is this boring, everyday failure of implementation by our public servants that makes the average citizen's life dismal in India . And because bureaucrats are not accountable, our governance is weak and our public institutions fail.

Yet, we also know that good institutions are possible in India . We admire our armed forces, the Supreme Court, Reserve Bank and the Election Commission. If these institutions can be successful, so can others. This is the message of this and every recent election. The voter is telling the politician: "Reform the institutions that affect my daily life." But no one seems to be listening.

The sari tragedy in Lucknow was the defining image of this election. Apart from other sadnesses, it brought home the colossal managerial ineptness in our public life. Since the supply of saris fell short of demand from the thousands of hopefuls gathered, a good manager would have found a way to distribute them fairly and calmly.

Instead, panic and incompetence resulted in the tragic death of more than 20 women. The nation awaits Commissioner Lakkha's enquiry report. He has interviewed more than 180 eyewitnesses, and it will not be a surprise if he indicts both the police and the organisers for their callousness. I admire Atal Behari Vajpayee, and I could feel his anguish when he confessed there were huge areas of darkness while India was shining.

Ram Madhava of the RSS is wrong in saying that the BJP lost because it diluted its ideology. The secularists are wrong in thinking that the BJP has paid for Hindutva and Gujarat . The leftists are wrong to blame the economic reforms. (People are not against reforms; they want the reforms to be broadened, in fact, to agriculture so that everyone can shine.)

The voters have punished the BJP alliance for poor governance. What matters to the ordinary person is her daily life and this will only improve when our institutions improve, when babus implement, and when politicians hold babus accountable. By now you'd think our politicians would havedecoded the meaning of "anti-incumbency".

Monday, May 03, 2004

India’s New Self-Assuredness

Wall Street Journal, May 3, 2004

(Copyright (c) 2004, Dow Jones & Company, Inc.) NEW DELHI -- Next Monday, India's general elections -- which began on April 20 -- will finally conclude. In an exercise that was both staggered and staggering, 670 million Indians will have had the opportunity to vote at 700,000 polling booths via 1.1 million voting machines -- with all this, the greatest democratic show on earth, supervised by 5.5 million stateofficials.
But there is another impressive number this time around. The economy has grown at 8.1% in 2003 -- 10.3% in the last quarter, surpassing China for the first time -- and not surprisingly, the ruling National Democratic Alliance, led by the nationalist Bhartiya Janata Party (BJP), capitalized on this feel-good factor with a highly successful "India Shining" ad campaign. The opposition Congress Party retorted with "India Whining," and as if to prove it my mother phoned to say, "How is India shining when my house is in darkness because of a power cut this evening?"
Whether India is shining or whining, what makes this election different is a shift in rhetoric from religion and caste to the economy. Amidst the usual scramble for seats and alliances, politicians in urban constituencies have been forced to learn Economics 101 in order to debate economic reform with an increasingly sophisticated urban voter. The stridency of Hindu nationalism seems to have died, and even dark talk of Congress leader Sonia Gandhi's Italian origins lacks conviction. The turning point was last December, when four major state elections were decided on economic issues - much to everyone's surprise. Thus the slogan "Bijli, Sadak, Pani" or "Electricity, Roads, Water" has entered the political lexicon, having replaced "Mandir, Masjid, Mandal" or "Temple, Mosque, Caste." If this is an enduring trend, then we may be looking at the most dramatic change in the Indian political mindset in 50 years.

The BJP claims that its policies are responsible for the fine economic performance and the changed mood; Congress argues that the economy grew faster under its man, Narasimha Rao, who was prime minister in the '90s. Both are right (and wrong). The reality is that India, in a sense, has been shining for over two decades, its GDP having grown at an average annual 6% real rate, making it one of the fastest growing major economies in the world over a 23-year period. While its growth is slower than China's, it is almost double the Indian growth rate of the previous 30 years, and double the rate at which the West created its Industrial Revolution. More recently, India's population growth has also begun to slow; in 1998 it was down to 1.7%, compared to a historic 2.2% growth rate. And literacy has begun to climb -- it reached 65% in 2000 compared to 52% in 1990, with the biggest gains among women and in backward states. Almost 170 million Indians have risen out of destitution since 1980 as the poverty ratio has declined to 26%. Finally, India may have at last found its competitive advantage in its boomingsoftware and business process outsourcing services to the world.If its economy continues to grow at this rate for the next few decades -- and there is no reason why it should not -- then a majority in the south, west and northwest should be middle class by 2025. The poorer Eastern states should get there by 2050. Had India's GDP growth continued at the pre-1980 level, Indian incomes would only have reached American per-capita income levels by 2250; but at the current rate India will reach it by 2066. It is thus increasingly possible to believe that India will finally be able to conquer its age-old worry over want and hunger. The amazing thing is that all this growth is happening alongside the most appalling governance. In the midst of a booming private economy, Indians despair over the simplest public goods -- good behavior from the cop on the beat, honest justice from the lower judiciary, or for a government schoolteacher to actually show up in a village school in Bihar. Hence, it is the public sphere that is "whining." So, also are the unreformed sectors of the economy, such as electric power. The contrast between power and telecom is obvious to everyone. After a successful reform program, India is in the midst of a telecom revolution that is as profound as China's. Its telephones have grown from five million in 1990 to 60 million today and they are growing by two million a month. Yet power reforms have failed, and no wonder my mother whines about power cuts. (Like most Indians, however, she is not aware that legal reform has now set the stage for a similar power revolution over the next five years.)

More and more Indians hold ideology responsible for their past economic failures rather than poor management. They blame Nehru's and Indira Gandhi's socialism without realizing that even that socialism could have delivered more and did not have to degenerate into "License Raj." It is this failure of quotidian implementation that makes institutions weak. Indians admire their army, the Supreme Court, Reserve Bank and the Election Commission. (Curiously, except for the Election Commission, these are the institutions that Americans admire most in their country.) So they know it is possible for India to have good institutions, and that India will not truly shine unless there is a vigorous reform of institutions. It is easier to explain India's economic rise after 1991, when Mr. Rao's government opened the economy, dismantled controls, lowered tariffs and taxes and broke public-sector monopolies. And the economy responded with three years of 7.5% growth. But how does one explain the jump in the '80s? And here Indians don't give enough credit to Rajiv Gandhi. Although modest, his reforms seem to have had an impact. The real miracle, however, is that all the governments after Mr. Rao's continued the reforms, albeit in a slow manner. Yet in spite of an elephantine pace of reform, India is one of the fastest growing economies in the world. So the lesson is that if you consistently reform in one direction in a democracy, it adds up. This "adding up" has enhanced confidence, which is at the heart of "India shining."
Where has this self-assuredness come from? I traveled widely across India in 1995 and discovered that the nation's mindset had changed in the '90s. Many Indian minds had become decolonized. This mental liberation is a powerful force in national regeneration. A changed attitude to English illustrates the new mindset. Ever since the British left we have heard constant complaining against the English language, and then in the '90s it suddenly disappeared. Quietly, without ceremony, English became one of the Indian languages. English lost its colonial stigma, oddly enough, around the time that the Hindu nationalists came to power. Hindi-language protagonists lost steam because they lost their convictions -- their own children wanted to learn English. Based on present trends, India will become the largest English-speaking nation in the world by 2010, overtaking the U.S.

When I was growing up, it mattered how you spoke; you could speak rubbish but you had to do it with the right accent. Today, young Indians in the new middle class think of English as a skill, like Windows. This is why a confident "Hinglish" (Hindi mixed with English) is spreading, encouraged by flourishing private TV channels and supported by advertisers. A new cultural confidence has emerged. Perhaps, it is due to the reforms, which have been reducing the intrusive power of the state, making Indians more self-reliant. Pop stars like Daler Mehndi display an exuberant nonchalance, as do the young Bollywood heroes. So do the fiction writers in English, the fashion designers, the beauty queens and the cricket stars. Indians seem to have lost their hypocrisy toward making money and getting rich.
Last month, Kiran Mazumdar became the richest woman in India when her biotechnology company went public and her personal net worth crossed $500 million. To some Indians this is the true shining India, and they point to the many multinationals that have set up R&D centers in India in recent years, including GE, Microsoft, IBM, Texas Instruments, Cisco, Intel, General Motors, and Motorola. Supplementing them are Indian companies like Wipro and Infosys, both with a billion dollars in sales, who provide customers with R&D services. Some Indians attribute the explosive growth in R&D labs to their Brahminical heritage, arguing that they are conceptual people and that the knowledge age plays to their advantage. They explain that Indians have wrestled with the abstract concepts of the Upanishads for 3,000 years.

We are past the halfway mark in the election, and the exit polls seem to suggest that the ruling BJP coalition is likely to win by a narrower margin than expected earlier. If these polls turn out to be right, it will mean that the winning side will have to horse-trade to bring in coalition partners. This will weaken the government and diminish its ability tocontinue the reforms. That might slow the rate of growth.

The most popular word in the Indian election lexicon is "anti-incumbency," and this awkward word is being used to explain why the voter is not keen to return the ruling party with a bigger majority, especially at a time when the economy is shining. This, I think, goes back to poor governance on the ground. Despite strong growth, Indians are unwilling to forgive bad governance and this is the weapon they use against incumbent politicians.

They don't re-elect them.


Times of India, May 02, 2004

Thousands of miles away in distant Peru lives Hernando de Soto and he has a simple message for us in India . People are poor, he says, because they usually lack formal title to the little property that they own. Without a legal right they cannot use their property as collateral. They cannot go to the bank and get a loan in order to start a business. Their potential is locked up in "dead capital". De Soto calculates that the dead capital locked in untitled assets held by the world's poor is around $9.3 trillion, which is many times the total foreign aid given by all the rich countries to all the poor countries for the past 50 years.

Whether a sharecropper in Bihar or a slum dweller in Mumbai, the vast majority of India 's poor have unclear titles. For decades after Independence , we had socialist minds and thought that property rights were a capitalist idea; so, we ignored this terrible flaw in our governance. But after the 1991 reforms our mindset has changed and we have lost our hypocrisy towards private property. Today, the best thing that our state and local governments can do for the poor is to simplify and streamline the process of granting property titles. Two of our states, Andhra and Karnataka, have recognised this problem and have tried to make land transactions easier. My friend in Guntur district tells me that land records and titles in Andhra are now on the Internet, and corrupt officials who deal with land are the unhappiest people there.

Hernando de Soto observes in his book, The Other Path, that most businesses in Peru also lacked titles. To find out why he and his colleagues started a fictitious clothing factory. It took them 289 days working full time plus Rs 55,400 in bribes and expenses to get all the approvals they needed from 11 departments. Next, he and a group of low-income families petitioned the state for a vacant plot to build housing; it took them six years and 11 months plus Rs 97,020 per person to get all the bureaucratic clearances. Finally, to get a pushcart licence to sell fruit on the street in Lima took them 43 days plus Rs 26,550. ( India is not the only country with License Raj!)

Poor people are not stupid. In countries like Peru and India they naturally avoid this bureaucratic nightmare and simply start businesses without approvals; and this is called the informal or the black economy. Every Indian city, and especially Delhi , is a hive of this feverish activity. The poor, thus, have houses but no titles; crops but no deeds; business without licences. The informal economy is people's spontaneous response to the state's failure to do its job. Much maligned, this parallel economy is in many ways more authentic, hardworking, and creative than our legal economy.

When the common citizen has to fight for 10 months with 11 departments just to keep the file moving - this explains why the Third World is poor. The answer to poverty is not the socialist one - for the state to provide all things - but to give people freedom to own property and create wealth from it. We need the state to quickly confirm title on the citizen and get out of the way. Classical liberals were right in believing that true liberty flows from the right to property. Curiously, de Soto 's ideas have had so much impact that he was the target of the Shining Path, the Marxist terror group, in the early nineties - the only economist I know with the distinction of an assassination attempt.