Long-term prosperity vs short-term populism

“Life can only be understood backwards but it must be lived forwards,” says an epitaph from the philosopher, Soren Kierkegaard. It rightly belongs on the grave of this dying UPA government that has destroyed our economy, with the traumatic collapse of the rupee its latest achievement. The epitaph reminds us that we must not ignore history if we want to lead a reasonably predictable life in the future.

One of the greatest lessons of history is that only an industrial revolution can make a poor nation prosperous. Every country has done it this way. Only thus can a nation hope to provide jobs for the millions of young people on the farms. But after two decades of reform, India’s economy is driven not by manufacturing but services.

Tragically, 90% of Indians work in the informal economy and even Ganesh idols are sourced from China. Our prime minister knew about this structural weakness when UPA came to power, and his government should have focused on making India a great manufacturing nation — by reforming rigid labour laws, investing in power, roads and ports, cutting red tape, and removing “inspector raj”— so that India does not rank 134th in the ease of doing business.

Instead, this government turned against industry. It brought retrospective changes in taxes, stopped hundreds of projects through red and green tape, imposed arbitrary penalties on companies and placed silly conditions when inviting foreign investment. Given this very unwelcoming and unpredictable climate, honest business people lost all faith in the system. Only crony capitalists remained faithful. And now, in the midst of one of the worst crises faced by our country, this government has championed two disastrous pieces of legislation.

It has proposed a new law based on the dreadful premise that acquiring agricultural land for industry is inherently coercive and bad. Under the new law, it will now take years to acquire land, as the land acquisition proposal even for small projects will have to pass through a hundred hands. This will ensure that India remains disadvantaged against its competitor nations and does not experience an industrial revolution.

Secondly, it has enacted a law on the ridiculous assumption that two thirds of Indians go hungry to bed. Hence, the state will now have to provide 80 crore Indians with grain at 10% of the market price when less than 2% of Indians claim to be hungry according to official surveys. Where will the colossal money come from when the nation is teetering on bankruptcy with its rating about to be downgraded to junk status? Two weeks ago Sonia Gandhi told Parliament that if there is no money for the food security bill, it would just have to be found. And if the public distribution system is broken, she said, it would have to be fixed. But how, she did not say.

We used to believe that even if India reformed slowly, it was reforming surely and there was no going back. Under this premise businessmen made huge investments after 1991 and this unleashed the gift of high growth, gradually making India the world’s second fastest growing economy. But this government sneered at this gift and has even undone some reforms. Despite some excellent moves by the finance minister in the past year, there is uncertainty and confidence remains low.

The coming of Raghuram Rajan at RBI has stemmed the rot somewhat. But it will take time to rebuild confidence that has been recently shaken by the fall of the rupee which brought huge collateral damage to the bond and equity markets. India can still create an industrial revolution if it remembers Kierkegaard’s epitaph. The rupee’s devaluation has once again presented an opportunity for export driven manufacturing growth. But it will require a deep commitment from the next government to create reliable infrastructure and transparent rules.

Meanwhile, the best that this government can do is to call early elections and put an end to some of our misery. Let people decide if they want to take the path of long-term prosperity or the path of short-term populist giveaways. One can never be sure in a democracy about the next government but it is in the nature of the human heart to hope for a better tomorrow.

Just one hour a week is the answer to our political discontent

Democracy is as depressing in practice as it is uplifting in theory. There have been so many corruption scandals in the past few years but political parties refuse to learn. In Uttar Pradesh, which always leads the country in bad behaviour, workers of the Samajwadi Party are back to their crooked old ways while they settle scores against Dalits. At the centre, the UPA has pushed through a dreadful food security law via an ordinance in a desperate move to shore up its popularity before the coming elections, knowing full well its potential for fraud and waste.

The new food law comes at a gigantic cost to a nation that cannot afford it. It will not solve the problem, which is malnutrition and not hunger. But it will undoubtedly result in a colossal scam when a large part of the grain mountain is diverted into the black market. Instead of improving delivery of the current PDS system, we have burdened a weak, corrupt institution with a massive new mandate. When institutions cannot implement existing laws, it is madness to create new ones. It only widens the gap between aspiration and performance, damages the nation’s moral character, and undermines the trust between rulers and the ruled.

Anna Hazare’s movement has proven that crowds may awaken people but they do not achieve the goal, and Arvind Kejriwal is discovering that it is not easy to turn a protest movement into a political party. What then is the answer to our democratic discontent? The key lies with decent individuals to move out of the dogged pursuit of material comfort and engage with politics. The right place to begin is one’s neighbourhood. When public spirited individuals engage in the community they help create new ‘habits of the heart’ in society. This was the great insight of Alexis de Tocqueville who wrote, Democracy in America, perhaps the best book on democracy. What impressed Tocqueville about Americans almost 200 years ago is that they were ‘joiners’ and engaged in volunteer activities for a few hours a week. By joining local clubs and social activities, they connected with neighbours. And when neighbours meet, what do they talk about? They discuss the condition of the roads, the schools, garbage collection and so on. Thus, civic life and ‘citizen’ are born.

Between 1947 and 1949 a diverse assembly of deeply principled men and women worked selflessly to create the concept of ‘citizen’ through a fine Constitution. It was one of the great moments in our history. India was blessed with an amazing first generation of leaders who thought of politics as the noblest of endeavours. In the Mahabharata, Bhishma returned from his deathbed to give the same message to Yudhishthira, who wanted to renounce the throne after the bloody war at Kurukshetra. Sixty five years after independence the nobility of politics has been replaced by criminality. The best spurn politics, leaving it to the worst. If decent men and women do not take the plunge, criminals will take over entirely.

What inhibits decent people from entering politics in India is black money and political dynasties. A talented, high minded person will not join a party without inner democracy where merit is not rewarded. Fortunately, a new generation of political leaders has begun to realize that a young India is waking up politically and it will not tolerate the old sycophantic politics of ‘rishwat’ and ‘sifarish’. Political parties will have to learn to value talent the way India’s companies’ do, and a party with inner democracy and meritocracy is bound to gain competitive advantage in the end. Dynasties are thus warned.

All of us struggle to give meaning to our lives. The standard Indian solution is to turn inwards and seek liberation from human bondage through meditation. But there also exists in our tradition the path of action, karma yoga, which means to leave the world a little better than we found it. The answer to our democratic discontent is thus to dive into one’s neighbourhood and assume the duties of a citizen. Don’t worry about the corruption of 2G, Commonwealth Games, or Coalgate. Act instead against the sleaze in our locality. Just one hour a week in the neighbourhood is the best way to reciprocate the compliment that our founding fathers paid us.

Waiting for inspiration, sirji!

The spot fixing scandal in the Indian Premier League of cricket is only the latest disgrace in the sickening, never ending saga of moral failure in our national life. We have got so used to blaming governance and the institutions of the law that we forget that our pathetic education system is also responsible. And yes, parents too are guilty, for the home is the crucible of the moral life. However, one inspiring teacher can make all the difference in moulding the values of young human beings. This is one of the findings of the 33-year-old Harvard economist, Raj Chetty, who recently won the prestigious Clarke Medal which is second only in status to the Nobel Prize.

Some of us were lucky to have had such a teacher when we were growing up. She incited and fed our curiosity and when we did wrong she gave a little nudge in the right direction. That course correction resulted in a new action, which when repeated became a habit, and the habit in time became our character. As we grew older we reaped the consequences of our character, which is another way of expressing the old idea of karma. The development of the intellect and moral character are related. Just as there is an order in nature and in the realm of numbers, so too is there a moral order that gives coherence to our lives. A good teacher is able to transmit this order, not by exhortation but by becoming a role model.

About 20% of India’s children today receive a decent education, but for the rest it is a depressing story. On the positive side, 97% of children do enter school. However, after a year only 43% can recognize letters. By class 5, half the children cannot read a class 2 textbook and three quarters cannot do simple division. By class 10, Indian children rank second last, aboveKyrgyzstan, in a test recently given by the Program for International Student Assessment in 74 countries. This is tragic! Our education establishment is, however, in denial and the Right to Education Act is totally silent on learning outcomes.

The weakest link in our appalling system is the tired and cynical teacher, who lost his spark decades ago if he ever had any. Too few teachers think of teaching as their dharma. How many wake up in the morning, look at the mirror and exclaim, “Today, I shall inspire one child in my class!” Yet not one of our political leaders has the guts to say bluntly what President Obama did on American television a few years ago: “Bad teachers should be fired”.

In this dismal scene, however, there are green shoots of hope. Teachers’ salaries have risen in recent years. This means that the right sort of persons will be attracted to the teaching profession. Technology also offers lots of possibilities. Children can now watch the world’s best teachers teach online, even on their mobile phone. The amazing ‘Teach for India’ programme, modelled after ‘Teach for America’, selects outstanding college graduates and offers them a chance to teach in poor schools where they soon become role models of change. Cities like Mumbai have begun to turn over failing municipal schools to NGOs who have quickly brought in the world’s best practices. Who knows, one day we may again produce legendary teachers, such as the one in Dharmapuri district in Tamilnadu, who bicycled 20 km in rain and shine to his village school for thirty years and produced a whole generation of great leaders.

Obviously, we cannot wait for an inspiring teacher to fall from heaven. Neither is there any point in complaining about corruption in high places. The moral foundation is laid at home and parents must take responsibility to teach moral reasoning to their kids. But parents must also get involved in the school. Studies show that where parents take an interest, the quality of the school improves. Even poor parents can make a difference. Although the Right to Education Act provides for parents’ involvement via school committees, this is not an easy task in a callous system of rapacious unions and uncaring bureaucrats. But it has to be done.

Narendra Modi: temptation of the middle class

The sudden ascent of stocky, 62 year old Narendra Modi as a serious contender for the nation’s leadership has taken people by surprise. The general election is still a year away but the average, open minded, middle-of- the-road Indian wonders how to think about the polarizing chief minister of Gujarat. Either you love him or hate him, which is precisely why one must not react with a knee-jerk but try and go beyond the shallow surface of a flawed but remarkable human being.

India today is discontented and troubled as a result of corruption scandals, high inflation, declining growth, and a government in denial. Sick of the drift and paralysis, people desperately seek a strong leader, and insistently ask if Narendra Modi might be the one. Clearly, he has proven the ability to build a vibrant economy and usher in corrupt free governance. Could he be India’s best chance to ungum the bureaucracy, tackle corruption and restore the economy to health? But Modi also has a clear downside: he is dictatorial with communal tendencies. Should one risk India’s precious secular and collaborative traditions for the sake of good governance and prosperity? It is a dreadful moral dilemma between equally important values--a classic dharma-sankat.

No Indian leader in recent times has spoken with such passion about ‘governance’ and ‘development’. His talk of ‘less government and more governance’ resonates with the aspiring young middle class. He has changed the language of politics with words like outcomes, accountability, and unbureaucratic service delivery. Visit a municipal office, he says, and you will only see clerks; but an urbanizing nation needs technical people to solve sanitation, transport and infrastructure problems; so, he hired engineer interns and gave them an opportunity to solve municipal problems in Gujarat. Implementation is his obsession and he compares two canals of equal size--the Sujalam Sufalam Yojana, which he completed in two years while the old Sardar Sarovar canal from Nehru's days is still incomplete.

Every country must protect its environment, he argues, but none stops 750 industrial projects and delays them for years. By covering Gujarat’s canals with solar panels, he is conserving water and has made Gujarat a model of solar power. India’s schools face a serious problem of quality, and the Right to Education Act refuses to measure outcomes; so, he plans to make Gujarat’s schools accountable through continuous, quality testing. He inspires young people, saying ‘IT + IT = IT’ (Indian Talent + Information Technology = India’s Tomorrow.) Not since Jawaharlal Nehru has a politician given people such a sense of possibilities. They see in Modi an underdog, a David challenging the Goliath of the Nehru-Gandhi dynasty.

But every temptation has a price. Modi is considered anti-Muslim and many cannot forgive him for the events in Gujarat in 2002. He may not have actively connived in the violence, they say, but why doesn’t  he show remorse? After all, it happened under his watch, and he is responsible. By polarizing the country, people fear he might alienate India's Muslims and this might enhance the risk of domestic terror. The temptation to vote for prosperity and good governance must be tempered by the imperative to keep the nation united and secular.

Those who dismiss the middle class’ impact on elections forget that a new generation of voters has joined the middle class after 1991, and it is in a rage over violence against women and children and longs for a leader who is tough against crime. But it also does not want an Indira Gandhi who will subvert the institutions of democracy. Modi is not likeable--Rahul Gandhi is far more affable--but people today seek an effective, not a friendly leader. India's dilemma is that Modi is the most likely candidate to provide corrupt free governance and restore the economy to high growth, create masses of jobs and lift millions into the middle class. But his communal past is a threat. In the end, each voter will have to choose in 2014 between several imperfect candidates and make a trade-off. Those who think corrupt free governance and prosperity are more important will vote for Modi. Those who worry about communal harmony and domestic security, will not vote for him. It is an unhappy but unambiguous choice.

Food security bill: Corruption by another name

On the same day as the central cabinet approved the food security bill two weeks ago, Delhi’s chief minister, Sheila Dixit, stood up courageously to defend the rising price of electric power in the Delhi assembly. She explained patiently to the legislators that you cannot have something for nothing--electricity costs money and those who use it should pay for it. In the end she succeeded. By not raising the power subsidy, Delhi’s chief minister was able to increase investment for roads, public transport, education and health care in Delhi state’s annual budget.

The contrast between the two actions of the centre and the Delhi state could not have been more dramatic. Sheila Dixit’s actions will lead to productive jobs, better skills and long term prosperity of the people. The food security bill, on the other hand, will condemn India’s poor to perpetual poverty.

The proposed food security law plans to distribute grain to two thirds of India’s population at a 90% subsidy, which will cost the nation over Rs 100,000 crores.  Giving people virtually free food will keep them dependent on a ‘mai baap party’, trapping them into a permanent vote bank. It is a brilliant strategy of the Congress Party at the centre—both the voters and the party will thus have a vested interest in keeping people poor and dependent.

If the same Rs 100,000 crores were to be spent in providing public goods--roads, schools, power, and law and order--it would opportunities. It would encourage entrepreneurs to start businesses, which would create sustainable jobs and raise the state’s tax revenues. These taxes, in turn, would make it possible to invest in more public goods. Thus, a virtuous circle would be created and lift the society’s standard of living. But the Congress Party would lose out for people would move out of poverty and the party would lose its vote bank. The party needs for people to remain poor.

There are other serious risks associated with the food security bill. The fact is India just cannot afford this colossal spending. The latest budget of the central government shows how vulnerable are the nation’s finances. This new spending will increase India’s fiscal deficit and could well lead to a downgrade of the country’s sovereign rating to junk status. A downgrade of the rating will raise the cost of money available to India from the world market and also discourage foreign investment at a time when it is much needed.

Moreover, past experience shows that less than half the food in such programs reaches the intended beneficiaries. Hence, half of the 50 million tonnes of grain are likely to get diverted to the black market by this bill, and this could result in another scam which this scam tainted government cannot afford.

Worse, this bill will tempt people to lie about their financial status and weaken public morality even further. For example, 83% of Karnataka’s people call themselves poor based on BPL cards issued. But government records show that less than a quarter of the people in the state are, in fact, poor. West Bengal also discovered last year that forty percent of its BPL cards were fake. In Uttar Pradesh, the situation is much worse. A law that turns people into liars would have horrified our founding fathers. They had a profoundly moral vision of the Indian republic--so much so that they placed the wheel of dharma, the Ashok Chakra, in the nation’s flag. When a government forces its people to become dishonest, it wounds public dharma and undermines the trust between the rulers and the ruled.

When we were young our parents taught us the importance of honest and  hard work. We learned that if you did not work you did not eat. But when the government starts giving people something for nothing, it weakens the work ethic. It undermines the ethic of responsibility and dharma taught to us by our parents. When the government starts giving away to people subsidized food, diesel, cooking gas, NREGA jobs, it sends the wrong message. It teaches them that they can get something without working for it. This is another form of adharma.

The reforms of 1991 were based on an unwritten social contract which created a new basis of trust. The contract was that the government would stop running businesses and focus instead on governance and public goods. Entrepreneurs and markets would do a more efficient job of managing businesses and this would lift the economy’s growth rate. This has, indeed, been happening. As a result of high growth, almost two hundred million people have risen out of poverty and another two hundred million have joined the middle class in the past two decades.

 Thus, the private sector has done its job. But the government has not lived to its side of the bargain. It has done a very poor job of providing infrastructure. Instead of investing in roads, electricity, and other public goods, it has focused on giving ‘bribes for votes’ to the people. These bribes are subsidies on food, electric power, diesel, cooking gas, NREGA jobs etc. Unlike investment, subsidies do not result in production. When spending is not backed by production, it leads to inflation. Thus, ‘bribes for votes’ policy has contributed to inflation in our county

 Giving away virtually free food and power, waiving loans to farmers, creating ‘make work’ jobs, as the UPA government has been doing, has undermined the social contract. Markets meanwhile have helped to accelerate social change and re-shaped public character. A new class of citizens has risen who are now demanding a corruption-free state. They are angry over poor governance and corruption, and this has widened the gap between people’s aspirations and government’s performance.

The UPA’s campaign managers for the 2014 elections may think that India’s vast majority is untouched by the new dharma, but the recent protests against corruption and violence against women have shown otherwise. This cynical food security bill, instead of winning votes, may thus only add to the woes of the UPA, which will discover to its peril in 2014 that voters will think of the food security bill as amounting to corruption by a different name.

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A Budget speech you will never hear

It is Budget time again and next Thursday the finance minister will address  parliament with a speech which you will never hear except from my auto-wallah: 
  

            Madam Speaker, I rise to present the Union Budget for 2013-2014. This is a pre-election year and the people expect give-aways and bribes-for-votes. But this is not going to happen in this Budget. So, here is my advice to citizens. Go home; on the way, pick up the garbage that you threw out the window. Wash the street. Teach your children about their duties, not just their rights. Tell them to spend an hour each week on their neighbourhood, learning democratic ‘habits of the heart’.

 India does not owe you cheap diesel, cooking gas or subsidized food.  Nor does it owe free electricity, make-work jobs, loan waivers, or even reservations. The only thing the state owes is good governance. This begins with law and order, as Nirbhaya has reminded us. Btw, none of you stopped to help her on the road. We also owe you public goods--roads, clean drinking water and other infrastructure; plus, functioning schools and health care. After that, it is up to you to work hard, pull yourself up, pay your taxes and make India a great nation.

            A few years ago India was the envy of the world. We were growing rapidly, creating masses of jobs, and lifting millions out of poverty. All this happened because of our reforms. All governments after 1991 kept reforming, albeit slowly, but even the slow reforms added up to make us the world’s second fastest growing economy. The reforms stopped after the UPA came to power because we made a false trade-off between equity and growth. Instead of investing on growth we started spending on the poor. We also stopped approving new projects. This has led to high inflation, low growth, and an unsustainable fiscal deficit, which threatens our nation’s sovereign rating.

            Madame Speaker, our growth numbers hide real misery that has been inflicted upon the Indian people as growth has plunged from almost 9% to 5%. One percentage point of GDP growth means roughly 15 lakh jobs; each direct job creates three indirect jobs; and each job supports a family of five. If you do the arithmetic, Madam, you will find that a four percentage point drop in GDP has brought pain and suffering to around twelve crore Indians.

            Here are some examples of what went wrong. If we had continued the momentum in road building after we came to power, we might have been looking at a different India. A recent study by Ejaz Ghani and others for the World Bank shows that the highways built or upgraded by the Golden Quadrilateral have brought enormous gains in new manufacturing activity, jobs and productivity within ten km of the new highways. Land acquisition has been a problem. But we have made it worse now. To acquire an acre of land under the new Land Acquisition Bill will “take at least two years as the proposal would have to pass through about a hundred hands.. social assessment would be carried out and its report would be vetted by an Expert Group...there would be an R&R Committee and a National Monitoring Committee to pontificate over the reports of the junior committees...The bill is anti-farmer and anti-growth, but it is certainly pro-civil society,” says a respected member of the National Advisory Council.

            What keeps me awake at night is that many of our policies have corrupted the morals of our people. When we cancelled loans of Rs 60,000 crores in 2008, a farmer who had just repaid his loan, sadly said, ‘What is the use of being honest?’ Human society is based on trust. We learned as children to keep our promises and repay our debts. Tulsidas reminded us, ‘praan jaye par vachan na jaye’. Loan waivers wound our moral universe in the same way as ‘make-work’ jobs, adulteration of diesel with kerosene, and the vast theft of PDS food.

The economic rise of India has been the defining event of our lives. But we let it slip. Today I shall promise to push reforms and try to restore the old magic. With this, I hasten to conclude, Madame Speaker. 

An aspiring young India needs a new liberal party

India is a nation in ferment. People have taken to the streets because they no longer trust the existing political order. The old way of doing politics is under challenge but a new way has not yet been found. No one knows quite what the next eruption will bring. After Anna Hazare, Kejriwal, and Nirbhaya, there will be another outrage and another protest, and this will not stop until the political class learns to cope with the aspirations of a new, young, self confident nation. There were hints of this realization last week at Jaipur but no one had the courage to say so at the Congress conclave, not even Rahul Gandhi.

The aspiring young are about third of the country now, and in a decade or so they will be half. This is the new aam admi and it finds it has no one to vote for in 2014. The existing parties continue to view voters patronizingly as poor, ignorant, grieving masses. So, they resort at election time to the same tired populist formula of bribes and giveaways--free booze, loan waivers, free power and TV sets, caste reservations, subsidized food, NREGA jobs and now cash transfers. The giveaways benefit only a section of the people. But Nirbhaya’s lesson is that people want public goods which benefit all citizens. Everyone gains from efficient law and order, corruption free governance, good roads and schools, whereas only a section gains from reservations, free power, and PDS rice. Everyone benefits where the police quickly file an FIR and the judge gives quick justice.

The aspiring young cannot understand why their tolerant nation, which offers the most astonishing religious and political freedom, fails to give economic freedom. Why must amazingly free India rank 119 on the global freedom index? Why must it reform by stealth? In a country where three out of five people are self-employed, why should it take 42 days to start a business, and the entrepreneur is victim to endless red tape and corrupt inspectors?

India ends up reforming furtively because none of the political parties has explained to the people the difference between being ‘pro-market’ and ‘pro-business’. To be ‘pro-market’ is to believe in competition in the marketplace, which helps keep prices low, raises the quality of products, and leads to a ‘rules based capitalism’. To be ‘pro-business’ means to turn over the market’s authority to politicians and officials, and this leads to ‘crony capitalism’. Competition means that some businesses should be allowed to die because they are poorly managed such as Kingfisher Airlines and Air India, and should not be bailed out. Not making this distinction has led to the false impression that reforms make the rich richer when they actually help the poor. The aspiring young demand rules based capitalism, and to get there will mean shifting our politics away from populism towards the centre.

Protests awaken a people but do not solve the problem. Only the hard work of politics can do that in a democracy. It would be smart for one of the two major national parties to recognize this opportunity and come into tune with the new aspiring, secular aam admi. But that seems a hopeless prospect. The DNA of the BJP is not secular; the DNA of the Congress is statist, populist and socialist. Neither has shown the commitment to drive institutional reform needed for good governance. The regional parties lack a national vision and left parties do not believe in market-based outcomes. The Aam Admi Party could have filled this space but it has illiberal tendencies and does not endorse economic reforms. So, while the last thing India needs is a new party, it is the only alternative.  

A young aspiring, secular India needs a new liberal party of the 21^st century which trusts markets rather than officials for economic outcomes, and relentlessly focuses on the reform of the institutions of governance. Only thus, will the country begin to move away from crony capitalism and towards rules-based capitalism. It may not win votes quickly but it will bring governance reform to centre stage and gradually prove to voters that open markets and rules-based government are the only civilized ways to lift living standards and achieve shared prosperity.

Stop talking, start doing

Ratan Tata is a reticent man. He is 74 and retires this month as chairman after guiding his group to be the country’s number one, $ 100 billion, in revenues. He commands respect not only from his 450,000 employees but from the entire global business community. He is courteous and complains rarely. But earlier this month he spoke out in anguish. “Government inaction is driving investment away from the country,” he said, and this was forcing groups like the Tatas to seek opportunities abroad where you don’t have “a seven or eight year wait to get clearance for a steel plant.” The finance minister, P. Chidambaram, echoed this view, reminding us that over 100 mega projects had been stuck for years because of a lack of approvals. Clearly, this failure of the government is greatly responsible for bringing India’s economy to its knees. 

Not only CEOs but ordinary Indians have been voicing the same complaint for years. Why should it take 12 years to build a road or 10 years to get justice in our country? Our public debate is filled with talk of corruption, about the right to information, of democratic answerability but almost no one speaks about the need for quick decision making or enhancing the capacity of our weak, soft, and ‘flailing’ state. No amount of CAG’s disclosures or ranting about the Lokpal will improve the state’s ability to act or strengthen our crumbling institutions. Is our obsession with accountability and transparency making us forget that the state was, in fact, created for collective action?

Accountability is, of course, important. Over the past decade, campaigns by activists supported by intellectuals have brought significant gains, such as the Right to Information Act. The pressure exerted by Anna Hazare’s movement backed by the media have raised awareness of corruption in high places and even helped in the arrest of powerful people. We are rightly proud of these achievements which have strengthened our democracy. But these laudable steps have not significantly improved services of the state to the citizen. Cases are still stuck in the courts; roads are built at a snail’s pace; police will delay registering an FIR unless influence or money is exchanged; it takes 117 approvals and 7-10 years to build a power plant. The list goes on.

Oddly enough, the push for democratic accountability may have weakened our already feeble state. The average official, always faint hearted and timid, is now even more afraid of putting his pen to paper. This is the other side of our fight against corruption. The modern democratic state has to balance the ability to deliver services on time with accountability to the people. Other democracies have also faced this problem of balance but they have found a way to cope by reforming their institutions. All institutions, in fact, must aim for a balance between accountability and action. A company could not survive if the CEO spent the whole day listening to shareholders. A school would not be effective if its principal spent his time only listening to parents. Already scorned as a “nation of talkers and not doers”, India needs to shift its focus to action.

There is a great deal to be hopeful about India’s future. It is stable, open, and amazingly tolerant. Its economic reforms have put it on a promising path of rapid growth. It is breeding outstanding companies which are more innovative than most in Asia. Its middle class is growing rapidly and its poor will benefit from a more effective welfare system based on cash transfers. But India’s soft underbelly is a soft, weak state, whose institutions of governance—the bureaucracy, the judiciary and the police--are in desperate need of reform. This is one of the reasons why its economy has hit a wall as it approaches the $ 2 trillion GDP mark.

Ratan Tata and P. Chidambaram have focused on one symptom of the disease—paralysis in decision making at the centre. But even the solution--the recently formed cabinet committee on investment—invites scepticism. The issue is not ideological—a big versus a small state. India needs to achieve an effective balance between our government’s ability to act and be accountable to the people. 

To equate capitalism with greed is a mistake

On an evening in early October , the announcer at one of our premier news channels screamed 'greed' while describing the misdeeds of the latest victim of Arvind Kejriwal. Earlier that day, Mr Kejriwal had accused Robert Vadra of receiving favours from the real estate company DLF Ltd. In the next breath, the announcer explained that crony capitalism was at the root of the problem. 

Indeed, not a day goes by when someone does not employ the word 'greed' to describe capitalism. They say that if envy is the sin of socialism , greed is the sin of capitalism. Capitalism is sometimes called a 'system of greed' and is this perhaps a reason why capitalism is finding it difficult to find a comfortable home in India? India is an open, tolerant, liberal democracy, but why is it unable to institutionalize free markets? Why does India have to reform by stealth? Corruption, for example , will not be beaten with a big, new authoritarian bureaucracy, as antigraft protesters want. It will diminish only when discretionary powers are wrested from dodgy bureaucrats and politicians and turned over to transparent, competitive markets. 

To equate 'capitalism' with 'greed' is a mistake. We tend to confuse self-interest in the marketplace with selfishness or greed. At the heart of capitalism is the idea of exchange between ordinary, self-interested human beings, who seek to advance their interests peacefully in the marketplace . Adam Smith called this 'rational self-interest' . It is the same motive that gets one to jump out of bed in the morning or makes one carry an umbrella if it rains—nothing selfish about that. To be human is to be self-interested , and this is what exchange in the market place entails. 

Greed or selfishness, on the other hand, is an excess of self interest and often transgresses on the rights of others. It is present in all of us, but we find it easier to see it in others and difficult to see it in ourselves. Greed can motivate theft, entail himsa—hurting anotherwhose opposite, ahimsa, is a virtue that Mahatma Gandhi extolled. But the other side of greed is ambition, a positive thing, and when rightly directed, is life-affirming . Herein lies the conundrum of human existence: that the same inner forces that result in a vice can just as easily become virtues that can motivate the well-being of our species. 

Those who believe that capitalism has been forced on us by the imperial West are also wrong. Friedrich Hayek, the Noble laureate, called the market a spontaneous order—it is natural for human beings to exchange goods and services, and this is how every society evolved money, laws, conventions and morals to guide behaviour in the marketplace. These are natural products of human endeavour. Competing and cooperating in the marketplace existed in India before the West was imperial or modern. 

Whether we like it or not, India is headed in the direction of some sort of democratic capitalism. After two decades of reforms, hardly anyone in India wants state ownership of production, where the absence of competition corrodes the character even more, as we know too well from the dark days of the 'license raj' . Our animus against capitalism has diminished after communism's fall as people increasingly believe that markets do deliver greater prosperity, but most think that capitalism is not a moral system. They continue to believe that morality must depend on religion. 

Although the market is neither moral nor immoral, human self-interest usually brings about good behaviour in the marketplace. A seller who does not treat his customers with fairness and civility will lose market share. A company that markets defective products will lose customers. A firm that does not promote the most deserving employees will lose talent to its competitors. A buyer who does not respect the market price will not survive. Lying and cheating will ruin a firm's image, making it untouchable to creditors and suppliers. Hence, free markets offer powerful incentives for ethical conduct, but they must be backed by state institutions that enforce contracts and punish criminal behaviour . If the market has an inbuilt morality, why are there so many crooks in the marketplace? The answer is that there are crooked people in every society, and this is why we need effective regulators, policemen and judges. We should design our institutions to catch crooks and not harass innocent people as we do so often. 

The other cause of our grief is to mistake being 'pro-market' with being 'probusiness' . To be 'pro-market' is to believe in competitive markets which help to keep prices low and gradually raise the quality of products . Competition also means that some businesses will die because they are poorly managed and cannot compete. Kingfisher Airlines and Air India should be allowed to die and not be bailed out by the government . Thus, being pro-market leads to 'rules-based capitalism' ; 'pro-business' often leads to 'crony capitalism' . Not to have explained this difference has been the great mistake of our reformers and this has led to the false impression that the reforms only make the rich richer. Crony capitalism exists in India today because of the lack of reforms in sectors such as mining and real estate. To get rid of crony capitalism we need more rather than less reform. 

The doom-mongers , who claim that we are now resigned to live in an age of decaying moral standards, are also wrong. Yes, the new Indian middle class is permissive and indulges enthusiastically in har mless pleasures. Yes, it is materialistic , consumerist and capitalistic. But these impulses are not to be mistaken for greed. Only when one's pleasure hurts another does it become a matter of the law and then, of course, it must be punished. The shared imagination of the new India with its harmless pleasure and victimless vice should not be condemned. Think of ours as a society in transition . Mass wealth is profoundly disturbing but once there is enough, India might again return to its old character of renunciation. 

Instead of religious rules, young Indians are motivated by duties to fellow human beings rather than to gods. Those who accuse them of shallow materialism ignore the injustices that prevailed when religion held a monopoly on morality. They overlook real ethical progress with regard to sexual and caste equality that our secular society has begun to deliver. So, the next time Kejriwal makes an expose and the TV screams 'greed' , do not fall into the trap of believing capitalist culture is morally sick or that we should return to a moral order rooted in socialism or religion.

The loss of inheritance

The approach of another festival season raises the old question of the place of myth and classical culture in our contemporary lives. This is not an idle question—it forces one to confront the difficult problem of what it means to be fully and richly human. For millions of young Indians who have risen in recent years and are now part of the confused, upwardly mobile, post-reform internet generation, the question has a new urgency. With a degree of prosperity has come the luxury of being able to face up to one’s inheritance, even though the answer might be frightening.

Akhilesh Yadav, the young chief minister of Uttar Pradesh, is typical of this generation. Unlike his father, Akhilesh finds no votes in the old bashing of English and “angrezi hatao andolans” especially when English medium schools are flourishing in the poorest Muslim mohallas of U.P. Yes, young Indians are more relaxed about the place of English in their lives, and gone is the earlier anxiety over “Indian-ness” or the belief that one has to read and write in one’s mother bhasha to be authentically Indian. Moreover, no one could have imagined the intellectual ferment that would come with the flowering of Indian writing in English. Yet, despite the new cosmopolitanism, Akhilesh and his generation cannot conceive of exchanging it for a riotous celebration of Dusehra, Diwali, and Ramzan, even though the significance of the festivals has receded from their consciousness.
   

What will shock Akhilesh Yadav and his friends in the political class is the sobering truth that an Indian who seriously wants to study the classics of Sanskrit or ancient regional languages will have to go abroad. “If Indian education and scholarship continue along their current trajectory,” writes Sheldon Pollock, the brilliant professor of Sanskrit at Columbia University, “the number of citizens capable of reading and understanding the texts and documents of the classical era will very soon approach a statistical zero. India is about to become the only major world culture whose literary patrimony, and indeed history, are in the hands of scholars outside the country.”

This is extraordinary in a country with dozens of Sanskrit departments in all major Indian universities, along with network of maths, pathshalas, and vidyapeeths. The ugly truth is that the quality of teaching in these institutions is so poor that not a single graduate is able to think seriously about the past and critically examine ancient texts. They are parrots who can only repeat words without converting them into true knowledge. Politically motivated appointments have also ruined the few centres of excellence that once existed at Pune University, Deccan College, and the Banaras Hindu University. Fifty years ago, India had great scholars like P.V. Kane, V.S. Sukhthankar, S.N. Dasgupta, S. Radhakrishnan and many more. The tradition of pandit learning is also disappearing. Where is India’s soft power when there are fewer and fewer Indians capable of interrogating the texts of Kalidasa or the edicts of Ashoka?

The gift of economic growth is that for the first time parents are beginning to be freed from earlier middle class insecurities and their children are beginning to take risks in the pursuit of unusual careers. One of these is driven by a natural curiosity about one’s past. The proud discipline of making sense of ancient texts is called philology which is practically dead in India. But as academic salaries have improved in recent years, it is increasingly possible once again to make a scholarly career. No one, however, will be able to study in India unless our institutions improve. Akhilesh Yadav and leaders in other states have in their power to stop the rot and reform our third rate institutions so that young Indians can one day help to recover our historical memory. 

To be worthy of being Indian does not mean to stop speaking in English. It means to be able to have an organic connection with our many rich linguistic pasts. To be truly ‘whole’ is to realize that mythical themes are universal and portray eternal truths of mankind, and can help us to cope with life at different stages. What separates man from beast is memory and if we lose historical memory then we surrender it to those who those who will abuse it.

Don't turn Gurgaon into a Faridabad

It was the same question on everyone's lips. Aggrieved Suparna Prasad Dev asked, "If 50 policemen were at the scene, why didn't they act when a hundred Maruti workers brutally attacked managers and killed my husband?" When the police did finally act, it was too late. The factory was in flames, almost a hundred managers were bleeding, many injured seriously. Awanish Kumar Dev, head of human relations, was dead.

There are many lessons in the recent tragedy at the Maruti-Suzuki factory at Manesar in Gurgaon district. One of them is that labour trouble is not only a management's or a union's problem but a vital concern of the state. Haryana has not learned this lesson. It destroyed the vibrant industrial town of Faridabad more than a generation ago due to poor industrial relations. It is now bent on scaring industry away from Gurgaon as well. Last year's unrest at Maruti resulted in Rs 2,500 crore loss. This is a shockingly high figure-half a billion dollars-for any company to lose anywhere in the world from industrial trouble. For Suzuki, whose Indian operation brings in half its global profit, it is appalling. For a Japanese company to be continuously in the news for labour unrest is extraordinary when Japan has taught teamwork and industrial harmony to the world. Suzuki should ask itself if it has the right persons in charge.

The role of the state is less obvious. In the 1970s, Faridabad had an active municipal government, fertile agriculture, a direct railway line to Delhi, and a host of industries. Gurgaon at the time was a sleepy village with rocky soil and pitiable agriculture. It had no local government, no railway link and no industries. Compared to Faridabad, it was wilderness. Thirty years later Gurgaon has become the symbol of a rising India. Called 'Millennium City', it has dozens of shiny skyscrapers, 26 shopping malls, seven golf courses, countless luxury showrooms of the world's most famous brands. It has 32 million square feet of commercial space and is home to the world's largest corporations. Its racing economy is reflected in fabled apartment complexes with swimming pools, spas and saunas, which vie with the best gated communities anywhere. How did this happen?

Gurgaon's disadvantage turned out to be an advantage. It had no municipality and was more or less ignored by the state government. This meant less red tape and fewer bureaucrats who could block its development. Seeing its stupendous rise, people began to ask, why do we need a government at all - with corrupt politicians and unresponsive bureaucrats? When they saw prosperity spreading across the nation amidst governance failure, they cynically claimed, "India grows at night when the government sleeps." But the Maruti incident teaches that India also needs to grow during the day. It needs an effective state. An alert police could have prevented the tragedy. Rational labour laws would have stopped Maruti from hiring contract workers, whose status and benefits are at the root of the worker unrest. If red tape and corruption are the downside of Faridabad's governance model, then the problem with Gurgaon's laissez faire model is the lack of basic services-it has no functioning sewage system; no reliable electricity or water supply; no decent roads or public transport.

A sensible company in India will not hire a permanent worker today because of our senseless labour laws. Instead, it hires contract workers to which it denies long-term benefits. Meant to protect workers, the laws have harmed them. They are the main reason why India has not been able to create a manufacturing revolution and create more jobs. The spread of contract labour has reduced the bargaining power of unions as well, who now represent less than 4% of India's workers. Nowhere in the world has so much harm been done by a piece of legislation.

The lesson from the Maruti story is that India cannot forever grow at night. It must have an effective state which upholds the rule of law and grows during the day. Neither Faridabad's nor Gurgaon's model of governance are the right ones. Haryana should ponder over the vigorous competition that exists between the states for investment. It will lose out to the states that offer better governance.

Will ‘tyranny of cousins’ decide who’ll rule in ’14?

Andimuthu Raja, former telecom minister, having spent 15 months in jail under trial in the 2G spectrum scam, received a hero’s welcome in Chennai a few weeks ago. The ecstatic crowds burst firecrackers for a man who was largely responsible for his party's defeat in Tamil Nadu’s election, demolishing India’s image in the eyes of the world, and bringing the government of India to its knees. Even bigger celebrations are planned next week when he visits his Nilgiris constituency and his hometown, Perambalur. What explains Raja’s popularity is the ‘rule of life’, which may actually decide who will be Prime Minister in 2014.

Justice V R Krishna Iyer of the Supreme Court made a distinction between the ‘rule of law’ and the ‘rule of life’. In a judgment in 1975, he used this distinction to uphold the election of a Muslim candidate who had won supposedly by appealing to his Hindu constituents that his mother was Hindu. It was a sectarian appeal and contrary to the law. But Justice Iyer gave greater weight to the primordial, irrational realities of social relations in day-to-day life. In his mind, this sometimes trumped the higher, rational ideals embodied in the rule of law and the Constitution. To do otherwise, he felt, would mean not listening to the voice of the people.

Justice Iyer was wrong —it is dangerous for a judge not to uphold the rule of law. The judge was articulating, however, the ever-present tension between a universal ‘rule of law’ and an insular ‘rule of life’ at the heart of India’s democracy. The human DNA is imprinted with a natural propensity to favour family, friends and community. These loyalties invite corruption and nepotism in the absence of strong incentives in favour of impartiality. The social anthropologist, Ernest Gellner, labelled it ‘tyranny of cousins’. The historian David Gilmartin equates the ‘rule of life’ to sva-dharma, duties to one’s family, caste and community. In contrast, the rule of law is akin tosadharana dharma, duties which reflect the higher, universal ideals of the Constitution.

The great achievement of our Constitution was to create strong incentives to behave impersonally in public life. But India’s political parties have become family firms. They are overflowing with relatives and cronies, thus undermining the impartial principle. This is at a time, ironically, when our best companies are managed by professionals from outside the family. Almost a third of India's parliamentarians in 2009 had a hereditary connection, according to Patrick French in India: A Portrait. Every MP under the age of 30 had inherited a seat; more than twothirds of the 66 MPs under age 40 were hereditary; every Congress MP under the age of 35 was hereditary. Because of the ‘tyranny of cousins’ merit does not prevail. Since there is no democracy inside any party, the inheritors often behave like feudal lords. Napoleon would have called these mediocrities “hereditary asses, imbeciles, and this curse of the nation.” This is why it is so difficult to come up with a leader for 2014.

The hope for the 2014 election may, however, lie with some of our best performing states (such as Bihar) whose leaders did not inherit the mantle and came up through merit. But Sukhbir Badal, heir to the Akali Dal, put up a spirited defence of dynastic leaders. Soon after his party retained power in February 2012, he said, “I have lineage and this is a huge plus, but the post is not hereditary. If I fail to deliver, I will be voted out the next time.” Yes, the distinction between legacy and dynasty is useful, but it’s not enough consolation. India’s “tyranny of cousins” has drastically reduced our options for merit-based leadership in 2014.

Raja was asked if he was surprised by the hero’s welcome he received in Chennai. “No”, he replied, “It was natural”. As natural, perhaps, as passing along hundreds of crores of ill-gotten money allegedly to the Karunanidhi family. Katherine Hepburn’s advice in The African Queen was really meant for Raja rather than Humphrey Bogart. "Nature is what we are put in this world to rise above," she said. Leaders of all our political family firms might ponder over it.

Free Markets - The Indian Way

Gurcharan Das
The Man: Gurcharan Das's second career as a writer and public intellectual is more noticed and in some ways far more influential than his first as a professional manager. It spanned 30 years, and across six countries and included a term as CEO of Procter & Gamble India. His writings drew from his experience and also from his wide reading. He tells us that individuals could be immoral but the institution of the market itself is deeply moral.

The Oeuvre: His first book India Unbound captured the country in economic transition and became an instant best seller. In Difficulty of Being Good, his most recent book, he turned to Mahabharata to find answers for some of the pressing ethical questions.

X-Factor: A beautiful writer—wise and pragmatic.

The Message: There is a purpose to economic activity, and the pursuit of money is justified so long as it leads to the good life.

The Hypothesis
Human beings may be immoral and will behave badly whether in a socialist or a capitalist society or under a democracy or autocracy. But the institution of the market itself is deeply moral and has its underpinnings in the Indian notion of dharma.

So What?
Dharma is a frustrating word and not easy to translate. Duty, goodness, justice, law and custom have something to do with it, but it is chiefly concerned with doing the right thing, both in the private and the public life. The market system depends ultimately not on laws but on the self-restraint of individuals. A sense of dharma provides that restraint for the vast majority of people who tend to behave with mutual respect in most societies.

Although two decades have passed since the reforms of 1991, when Indians began their love affair with free markets, capitalism is still trying to find a comfortable home in India. Like most people, Indians believe that the market is efficient but not moral. I have come to believe, the opposite. Human beings may be immoral and will behave badly whether in a socialist or a capitalist society or under a democracy or autocracy. The institution of the market itself is deeply moral and what has convinced me about its ethical nature is the classical Indian notion of dharma. At the heart of the market system is the idea of exchange between ordinary, self-interested human beings, who seek to advance their interests peacefully in the marketplace. The reason that strangers are able to trust each other in the market is, in part, due to dharma, which is like an invisible glue that is based on underlying shared norms and which gives people a sense of safety when they cooperate and transact.

Supplier, customer, and employee—all business relationships depend on a certain behaviour which one could call the behaviour of Dharma. When people behave according to that, the business runs well. Very often companies cut corners, squeeze their suppliers. They will be the ones that will lose their employees, their suppliers. If they are not honest to their customers then the repeat purchase of their products will not happen. The whole market system depends on this shared belief that we will all do the right thing. There are companies who default on their debt obligations and it would seem they can do it repeatedly. But ultimately they pay the price. Their multiples [of stock price] are low and investors are wary of putting their money into the company’s equity.

The idea that an ancient Indian idea might offer insight into capitalism’s nature is, on the face of it, bizarre. I was exposed to Western ideas when I was in college, and I assumed unthinkingly that ‘capitalism’ came from the West. I read Adam Smith, Marx, John Locke and others, who introduced me to the liberal tradition. But I realised my mistake later in life when I happened to read the two thousand year old Sanskrit epic, Mahabharata. The epic is obsessed with the notion of dharma, and as I tried to come to grips with it I realised that there might also be non-Western roots for the ideas of liberty and market capitalism, and the liberal tradition might, in fact, be universal.

Dharma is a frustrating word (even for Indians) and not easy to translate. Duty, goodness, justice, law and custom have something to do with it, but it is chiefly concerned with doing the right thing, both in the private and the public life. It derives from the Sanskrit root dh, meaning to ‘sustain’ and ‘hold up’ like a foundation. It is the moral law that sustains an individual, society and the cosmos. From its root ‘to sustain’ dharma carries the connotation of ‘balance’—it is the balance within each human being, which is reflected in the balance and order of the cosmos. When individuals behave in accordance with dharma there is order, balance and trust within society.

Dharma is especially suited for understanding the dynamics of the market place in particular and of public policy in general, because it does not seek moral perfection. It is based on a pragmatic view of human beings—it views men to be sociable but imperfect, with strong desires and passions that need to be restrained by dharma. For example, the king’s dharma is to nurture the productive forces in society: ‘The king, O Bharata, should always act in such a way towards vaishyas, ‘merchants’ and ‘commoners’, so that their productive powers may be enhanced. Vaishyas increase the strength of a kingdom, improve its agriculture, and develop its trade. A wise king levies mild taxes upon them.’ [Mahabharata XII.87] Practical advice indeed, for otherwise, the epic adds, they will shift to the neighbouring kingdom.