Times of India, Oct 17, 2004
I have been visiting the Far East regularly now for the past thirty years, and each visit has left behind the taste of a sweet and sour Chinese dish. I have marvelled at the sweetness of their economic achievements, watching poverty vanish from country after country. The sourness comes from an unhappy comparison with India and from the sadness of our missed opportunities. Last week’s visit to Hong Kong was no different. Like many an Indian before me, I asked wistfully, what if in 1947 the British had kept the island of Mumbai for fifty years? And what if Mumbai had become like Hong Kong?
Well, for starters, there would have been a policeman on the street when you needed him and he would treat each citizen equally and politely. The roads would have been clean, nicely paved and lit at night. An impartial judge could be trusted to interpret the law fairly and speedily. A diligent teacher would have been insistently present in the government school to teach my child, and so would a doctor in a clean government hospital if I were sick. Today’s Hong Kong offers all this. Although Hong Kong does not offer political liberty or democracy, the average citizen’s life is paradoxically freer, more benign, and happier than the average Mumbaikar’s. The reason is that Hong Kong delivers far better governance and far more economic liberty. The combination of the two raises the quality of life to a level that is the stuff of ‘Bombay Dreams’.
Indians are also impressed with Hong Kong’s wealth, and for good reason. Its per capita income is higher than England’s; its exports are more than twice India’s; its reserves are also higher than the whole of India; its currency is stronger than the rupee and the Hong Kong businessman commands greater respect.
However, if Mumbai had become Hong Kong, its greatest gift would have been to fuel India’s industrial revolution, as Hong Kong has done for China. Mumbai would have kept open our window to the world when the rest of India shut down during our dark socialist decades of the License Raj. It would have kept alive our great trading traditions, as it went on to become one of the world’s financial capitals. And when India began integrating with the world economy after 1991, it would have brought not only capital for India’s industrial revolution, but also trusted relationships with customers in the global market. Smart businessmen understand that anyone can put up a factory, but it takes real talent to perceive unfulfilled needs of customers in a competitive market and success lies in satisfying and retaining their loyalty. This was Hong Kong’s great bequest to China--it not only invested financial capital in China, but it brought trusted relationships with customers that it had cultivated over decades. This is a crucial but less appreciated reason behind China’s industrial take-off.
This thought game is not a mere academic exercise. Even today, when we are struggling to unshackle the chains of state control over industry, our Leftists are determined to stop those reforms. Instead of amending our labour laws to bring us on par with our competitors, the Left wants to burden our under-performing industry by extending reservations to the private sector. I would humbly request our honourable Leftists to take the new Delhi-Shanghai flight at state expense to learn how to compete in the global economy and how to wipe out poverty in a sustainable way through growth and not subsidies. Only then will they realise the damage they are doing by returning us to the Jurassic Park of the Licence Raj.
Monday, October 18, 2004
Monday, October 04, 2004
NOW’S YOUR CHANCE, MANI
Times of India, Oct 3, 2004
Mani Shankar Aiyar is my friend. I don’t hold it against him for going to the wrong school. Nor do I grudge him his failure to learn economics from his sensible brother. I also ignore his juvenile scraps, such as the Savarkar affair. I even overlook his feudal bouts of sycophancy for the first family. With all his flaws, I like him because he is wilful. He is headstrong like Arun Shourie, and only determined people make history.
What I especially like about Mani is his passion for the Panchayati Raj. And this is why I am going to give him the best advice of his life this Sunday. It is to give up the ephemeral attractions of the no-win Oil Ministry and become instead a full time Minister for Local Government. If you don’t want to go the way of the forgettable Ram Naik, and if you want to be remembered as the man who brought good governance of India, I say, go and breathe life into Panchayati Raj.
We need determined people to fight the vested interests in the states that prevent the rightful devolution of power and funds to the panchayats. Don’t cop out by saying, it is a state subject. You know as well as I that the centre controls the purse strings, which means the clout to get things done. Panchayats need the authority to sack (or at least transfer) teachers that don’t show up in school; they need to withhold the salary of doctor and nurses who are absent from primary health centres. They need funds to dig wells for drinking water and build bunds for irrigation. The politicians and the bureacrats in the state capitals are naturally dragging their feet in passing on these powers to the panchayats, who now own them by law. Hence, there’s a man’s job waiting for you—go and implement the law.
In comparison, political suicide awaits you at the Oil Ministry. With oil prices at a historic high you will be the sacrificial lamb who will only be remembered for raising prices. Moreover, the only new idea to come out from your Oil ministry is a bad one, which is to merge the oil companies. We need the opposite. We need vibrant competition between companies, both government and private, to give us an efficient oil sector. We have seen time and again, whether in airlines or telephones or TV, competition has improved services and brought down prices. What is less well understood is that intense rivalry in the marketplace also makes companies stronger. Competition is a school where companies learn to improve products and lower costs--Michael Porter of Harvard taught this lesson to the world in the 1980s. For this reason we have competing brands within P&G, such as Ariel and Tide detergent. At J&J, they used to spin off an autonomous division when its sales crossed $100 million. Competition is the lifeblood of industry; so don’t merge the PSUs.
The ancient Greeks taught us the value of realizing our human capabilities. This is a theme that Amartya Sen and Martha Nussbaum have also taken up in recent years. The tragedy of modern India is that so many young people don’t realize their capabilities because they lack access to quality education and health care. With a single-minded focus on Panchayati Raj, you can improve governance on the ground and help millions realise their capabilities. It is the only moral thing to do. Besides, a man can either do one thing brilliantly or two things in a mediocre way. So, follow your passion, dear Mani
Mani Shankar Aiyar is my friend. I don’t hold it against him for going to the wrong school. Nor do I grudge him his failure to learn economics from his sensible brother. I also ignore his juvenile scraps, such as the Savarkar affair. I even overlook his feudal bouts of sycophancy for the first family. With all his flaws, I like him because he is wilful. He is headstrong like Arun Shourie, and only determined people make history.
What I especially like about Mani is his passion for the Panchayati Raj. And this is why I am going to give him the best advice of his life this Sunday. It is to give up the ephemeral attractions of the no-win Oil Ministry and become instead a full time Minister for Local Government. If you don’t want to go the way of the forgettable Ram Naik, and if you want to be remembered as the man who brought good governance of India, I say, go and breathe life into Panchayati Raj.
We need determined people to fight the vested interests in the states that prevent the rightful devolution of power and funds to the panchayats. Don’t cop out by saying, it is a state subject. You know as well as I that the centre controls the purse strings, which means the clout to get things done. Panchayats need the authority to sack (or at least transfer) teachers that don’t show up in school; they need to withhold the salary of doctor and nurses who are absent from primary health centres. They need funds to dig wells for drinking water and build bunds for irrigation. The politicians and the bureacrats in the state capitals are naturally dragging their feet in passing on these powers to the panchayats, who now own them by law. Hence, there’s a man’s job waiting for you—go and implement the law.
In comparison, political suicide awaits you at the Oil Ministry. With oil prices at a historic high you will be the sacrificial lamb who will only be remembered for raising prices. Moreover, the only new idea to come out from your Oil ministry is a bad one, which is to merge the oil companies. We need the opposite. We need vibrant competition between companies, both government and private, to give us an efficient oil sector. We have seen time and again, whether in airlines or telephones or TV, competition has improved services and brought down prices. What is less well understood is that intense rivalry in the marketplace also makes companies stronger. Competition is a school where companies learn to improve products and lower costs--Michael Porter of Harvard taught this lesson to the world in the 1980s. For this reason we have competing brands within P&G, such as Ariel and Tide detergent. At J&J, they used to spin off an autonomous division when its sales crossed $100 million. Competition is the lifeblood of industry; so don’t merge the PSUs.
The ancient Greeks taught us the value of realizing our human capabilities. This is a theme that Amartya Sen and Martha Nussbaum have also taken up in recent years. The tragedy of modern India is that so many young people don’t realize their capabilities because they lack access to quality education and health care. With a single-minded focus on Panchayati Raj, you can improve governance on the ground and help millions realise their capabilities. It is the only moral thing to do. Besides, a man can either do one thing brilliantly or two things in a mediocre way. So, follow your passion, dear Mani
Monday, September 20, 2004
THE POWER AND THE GLORY
Times of India, Sept 19, 2004
Some say that the last government’s great triumph was to open a dialogue with Pakistan; others think it is our dramatically improved relationship with America; still others point to the success in building highways. But I say Vajpayee’s crowning feat was to unleash the telecom revolution, which has done more to improve the Indian citizen’s daily life than anything else in the past five years. This is how history remembers great leaders—by one big hit. We remember Lincoln for abolishing slavery, Churchill for defying Hitler, Gandhi for India’s Independence.
What will be your ‘big hit’, Dr Manmohan Singh? I suggest your path to glory lies in electric power. Nothing diminishes us Indians more than our power shortages. They make a mockery of our lives and remind us daily that we are a third world country. If you could usher a power revolution in the next five years, all Indians would love you and re-elect your party. It will not be easy, however, because the action here, unlike telecom, lies in states.
Our telecom success holds two lessons for power reforms—one, the crucial importance of competition; two, reforms cannot be entrusted to the incumbent. For ten years the Department of Telecom used every trick in the book to retain its monopoly. Finally, Vajpayee got so disgusted--he virtually removed the reforms out of the ministry. He appointed a group of ministers headed by Jaswant Singh, which made the crucial decision to switch from licence fees to revenue sharing. In one stroke this made the private companies viable, who began to compete like crazy, rapidly multiplying telephones and dropping prices to unbelievable levels. The rest, as they say, is history.
Similarly, the power ministries in the states and the centre will not bring in competition. This is not because they are bad people, but because they are protectors of their State Electricity Boards (SEB), NTPC, etc. It is like asking Tendulkar to be player and umpire at the same time. Or a thief to be defendant and judge! This has been the fatal flaw in our reform process, which explains why our reforms are so painfully slow.
Fortunately, the excellent new Electricity Act 2003 is committed to open access and competition. It encourages anyone to generate and sell power to anyone, thus liberating us from the monopolistic clutches of the SEB. The same thing is happening around the world, as country after country is breaking the monopoly of its utilities, with the result that services everywhere are improving and rates are declining. It is not happening in India because our states are not implementing this fine law. Admittedly, the law gives them five years to give open access, but they will use every trick to subvert this reform. They don’t want to lose a cash cow that lets them give free power to farmers, connive in power theft, and benefit from huge SEB purchases and contracts.
Alas, Dr Manmohan Singh, you will have to take away power reforms from the power ministry, and execute a tough carrot and stick policy that will force the states’ hands. The PM’s committee to monitor infrastructure progress, I fear, may not be good enough. The new empowered Planning Commission does have considerable carrots—the states depend on it for central funds. It can wield the stick and stop funds going to states that don’t implement open access. This will need ferocious resolve and persistence. But then great leaders are wilful. They are one-pointed in pursuit of their ‘big hit’. They have an uncanny ability to be one-pointed while seeming to do hundreds of things in the routine of the day.
Some say that the last government’s great triumph was to open a dialogue with Pakistan; others think it is our dramatically improved relationship with America; still others point to the success in building highways. But I say Vajpayee’s crowning feat was to unleash the telecom revolution, which has done more to improve the Indian citizen’s daily life than anything else in the past five years. This is how history remembers great leaders—by one big hit. We remember Lincoln for abolishing slavery, Churchill for defying Hitler, Gandhi for India’s Independence.
What will be your ‘big hit’, Dr Manmohan Singh? I suggest your path to glory lies in electric power. Nothing diminishes us Indians more than our power shortages. They make a mockery of our lives and remind us daily that we are a third world country. If you could usher a power revolution in the next five years, all Indians would love you and re-elect your party. It will not be easy, however, because the action here, unlike telecom, lies in states.
Our telecom success holds two lessons for power reforms—one, the crucial importance of competition; two, reforms cannot be entrusted to the incumbent. For ten years the Department of Telecom used every trick in the book to retain its monopoly. Finally, Vajpayee got so disgusted--he virtually removed the reforms out of the ministry. He appointed a group of ministers headed by Jaswant Singh, which made the crucial decision to switch from licence fees to revenue sharing. In one stroke this made the private companies viable, who began to compete like crazy, rapidly multiplying telephones and dropping prices to unbelievable levels. The rest, as they say, is history.
Similarly, the power ministries in the states and the centre will not bring in competition. This is not because they are bad people, but because they are protectors of their State Electricity Boards (SEB), NTPC, etc. It is like asking Tendulkar to be player and umpire at the same time. Or a thief to be defendant and judge! This has been the fatal flaw in our reform process, which explains why our reforms are so painfully slow.
Fortunately, the excellent new Electricity Act 2003 is committed to open access and competition. It encourages anyone to generate and sell power to anyone, thus liberating us from the monopolistic clutches of the SEB. The same thing is happening around the world, as country after country is breaking the monopoly of its utilities, with the result that services everywhere are improving and rates are declining. It is not happening in India because our states are not implementing this fine law. Admittedly, the law gives them five years to give open access, but they will use every trick to subvert this reform. They don’t want to lose a cash cow that lets them give free power to farmers, connive in power theft, and benefit from huge SEB purchases and contracts.
Alas, Dr Manmohan Singh, you will have to take away power reforms from the power ministry, and execute a tough carrot and stick policy that will force the states’ hands. The PM’s committee to monitor infrastructure progress, I fear, may not be good enough. The new empowered Planning Commission does have considerable carrots—the states depend on it for central funds. It can wield the stick and stop funds going to states that don’t implement open access. This will need ferocious resolve and persistence. But then great leaders are wilful. They are one-pointed in pursuit of their ‘big hit’. They have an uncanny ability to be one-pointed while seeming to do hundreds of things in the routine of the day.
Monday, September 06, 2004
THE LAST MILE
Times of India, Sept 05, 2004
The 'last mile' is a nice way to think about governance, and I was happy when Finance Minister Chidambaram used this phrase in his budget speech. The last mile is the place where the state meets the citizen, a space that our impudent public servants would prefer to forget. Chidambaram has proposed the sensible idea to maximise returns from existing investments in irrigation by completing the last mile in dozens of incomplete projects across the country.
My engineer father also used to talk about the last mile when I was young. He had in mind feeder canals from Bhakra Dam that he would build to irrigate farmers' fields. It was a simple, logical idea, which his 12-year-old son grasped easily, but no one told the boy that callous, insolent politicians will do everything but the logical.
The Narmada flows serenely across Madhya Pradesh. In the 1970s, the state government began to harness the river. It built a dam near Jabalpur, at Bargi, submerged 162 villages, displaced thousands of people, but forgot to build the canals. So far, it has spent Rs 2,800 crore on this project but realised only 14 per cent of its irrigation potential — just 56,000 hectares have received water instead of the promised 400,000. Lakhs of people in the districts of Jabalpur, Katni, Narsinghpur, Satna are still waiting for water that is so near and yet so far. By spending another 25 per cent this vast area would have been bursting with prosperity and become the granary of central India. Instead, it remains arid and poor.
What went wrong is that succeeding chief ministers diverted Bargi's funds for projects in their own constituencies. The first one started a dam at Bansagar in northeast Madhya Pradesh. Before he could finish it, the second deflected Bargi's and Bansagar's funds to his constituency in Chattisgarh. A third came along and rerouted the funds to his Khandwa district. In the latter, Rs 5,369 crore Indira Sagar project, the dam has again been built, but there is no irrigation in sight. The water table in Khandwa keeps falling and people feel betrayed.
The 12 year old inside me wants to know why they don't build canals at the same time as the dam? It is what they did at Bhakra and at Sardar Sarovar next door in Gujarat. If they had built canals simultaneously in Bargi, Bansagar and Khandwa the face of poor Madhya Pradesh would have been transformed. Droughts would have been averted and peoples' incomes would have doubled to the levels of the Punjab. The tragedy is that they spent 75 per cent of the funds on each project and yet the farmers did not benefit.
The lesson from this story is simple: we, as citizens, must work relentlessly to minimise the power of public servants in a democracy. It is evil behaviour of this sort that resulted in the collapse of communism. It is nastiness of this variety that has driven countries across the globe to privatise their economies. If the Narmada Valley Development Authority of Madhya Pradesh had behaved like a private company, it would have been accountable to shareholders and lenders for results. Nowhere will shareholders tolerate three incomplete projects without returns. I wonder if there is a way to enforce more accountability of irrigation projects by making beneficiaries behave like shareholders. Could we mobilise the Panchayati Raj and the Right of Information Act to this end? Politicians and bureaucrats will naturally oppose this reform as well. But let's always remember that good people, when they become public servants and have to deal with other peoples' money, become bad.
The 'last mile' is a nice way to think about governance, and I was happy when Finance Minister Chidambaram used this phrase in his budget speech. The last mile is the place where the state meets the citizen, a space that our impudent public servants would prefer to forget. Chidambaram has proposed the sensible idea to maximise returns from existing investments in irrigation by completing the last mile in dozens of incomplete projects across the country.
My engineer father also used to talk about the last mile when I was young. He had in mind feeder canals from Bhakra Dam that he would build to irrigate farmers' fields. It was a simple, logical idea, which his 12-year-old son grasped easily, but no one told the boy that callous, insolent politicians will do everything but the logical.
The Narmada flows serenely across Madhya Pradesh. In the 1970s, the state government began to harness the river. It built a dam near Jabalpur, at Bargi, submerged 162 villages, displaced thousands of people, but forgot to build the canals. So far, it has spent Rs 2,800 crore on this project but realised only 14 per cent of its irrigation potential — just 56,000 hectares have received water instead of the promised 400,000. Lakhs of people in the districts of Jabalpur, Katni, Narsinghpur, Satna are still waiting for water that is so near and yet so far. By spending another 25 per cent this vast area would have been bursting with prosperity and become the granary of central India. Instead, it remains arid and poor.
What went wrong is that succeeding chief ministers diverted Bargi's funds for projects in their own constituencies. The first one started a dam at Bansagar in northeast Madhya Pradesh. Before he could finish it, the second deflected Bargi's and Bansagar's funds to his constituency in Chattisgarh. A third came along and rerouted the funds to his Khandwa district. In the latter, Rs 5,369 crore Indira Sagar project, the dam has again been built, but there is no irrigation in sight. The water table in Khandwa keeps falling and people feel betrayed.
The 12 year old inside me wants to know why they don't build canals at the same time as the dam? It is what they did at Bhakra and at Sardar Sarovar next door in Gujarat. If they had built canals simultaneously in Bargi, Bansagar and Khandwa the face of poor Madhya Pradesh would have been transformed. Droughts would have been averted and peoples' incomes would have doubled to the levels of the Punjab. The tragedy is that they spent 75 per cent of the funds on each project and yet the farmers did not benefit.
The lesson from this story is simple: we, as citizens, must work relentlessly to minimise the power of public servants in a democracy. It is evil behaviour of this sort that resulted in the collapse of communism. It is nastiness of this variety that has driven countries across the globe to privatise their economies. If the Narmada Valley Development Authority of Madhya Pradesh had behaved like a private company, it would have been accountable to shareholders and lenders for results. Nowhere will shareholders tolerate three incomplete projects without returns. I wonder if there is a way to enforce more accountability of irrigation projects by making beneficiaries behave like shareholders. Could we mobilise the Panchayati Raj and the Right of Information Act to this end? Politicians and bureaucrats will naturally oppose this reform as well. But let's always remember that good people, when they become public servants and have to deal with other peoples' money, become bad.
Monday, August 23, 2004
TEACHING WITH A BROKEN HEART
Times of India, Aug 22, 2004
I met a dear old friend last week. She had gone abroad as a young girl, and there made a big success as an educator. Twenty years later she returned, full of idealism, and invested her life's savings to start a school. I later heard that her school had become truly outstanding. So, when we met I had expected the scent of success; instead, I saw a woman with a broken heart.She confessed she had needed 11 permissions to start her school, and each one required a bribe. Almost 10 per cent of her savings went to pay bribes when she began, and 5 per cent of her running budget goes into graft each year. She shivers each time she faces an official, and something dies inside her when she has to pay off.
This is why I was saddened by the Supreme Court's decision requiring Delhi's government to regulate private school fees, further increasing the bureaucrats' hold over schools. I am an unabashed admirer of our highest Court, which has courageously upheld our wonderful Constitution even in our darkest days. But honourable justices are also fallible and in this case they have made a terrible mistake in compromising the autonomy of schools by reversing the TMA Pai judgement. Ironically, industry won freedom from Licence Raj in 1991, but it flourishes in education. The Court is right, however, in pronouncing that schools that were given cheap land and had agreed to provide free seats to the poor must live up to that contract.
There are sharks in education as well, and we need sensible governance to catch the guilty without harassing the innocent. But price controls do not work - every country has learned the lesson the hard way. It is one of the reasons why socialism failed and communism collapsed. Only in the case of natural monopolies are price controls needed. For the rest, competition is the best price control. Private schools are not natural monopolies and parents do have a choice. Our objective should be to increase that choice. Since demand for good schools greatly exceeds their supply, fees will rise naturally. If 100 children want to study and there are only 80 seats in a school, lowering school fees will not achieve justice. You will always disappoint 20 students. But if another good school comes up, everyone will find a place and fees will not rise. The answer then is to increase the supply of good schools.
Why don't more good schools come up? It's not easy to start a school. The bureaucracy puts huge obstacles in the way. According to the Centre for Civil Society, it takes 14 licenses and permits to open a school in Delhi, and each approval comes with a price. This naturally discourages honest, idealistic, and philanthropic persons, who are often the ones who start schools. Although my friend did not give up, many do. And this is a great tragedy, for it is products of these very schools that have succeeded on the world stage and made us proud.
The quickest way to increase the supply of good schools is to reform our government schools. They are so rotten that even the poor are abandoning them. Some think that it is impossible to reform state schools. They should look at our excellent Central and Navodaya schools. So, instead of ruining private schools, our babus should do their own job and fix their own schools. Meanwhile, who will wipe away the tears of my dear friend and of the million Indians that daily fall victim to our callous and arrogant bureaucracy?
I met a dear old friend last week. She had gone abroad as a young girl, and there made a big success as an educator. Twenty years later she returned, full of idealism, and invested her life's savings to start a school. I later heard that her school had become truly outstanding. So, when we met I had expected the scent of success; instead, I saw a woman with a broken heart.She confessed she had needed 11 permissions to start her school, and each one required a bribe. Almost 10 per cent of her savings went to pay bribes when she began, and 5 per cent of her running budget goes into graft each year. She shivers each time she faces an official, and something dies inside her when she has to pay off.
This is why I was saddened by the Supreme Court's decision requiring Delhi's government to regulate private school fees, further increasing the bureaucrats' hold over schools. I am an unabashed admirer of our highest Court, which has courageously upheld our wonderful Constitution even in our darkest days. But honourable justices are also fallible and in this case they have made a terrible mistake in compromising the autonomy of schools by reversing the TMA Pai judgement. Ironically, industry won freedom from Licence Raj in 1991, but it flourishes in education. The Court is right, however, in pronouncing that schools that were given cheap land and had agreed to provide free seats to the poor must live up to that contract.
There are sharks in education as well, and we need sensible governance to catch the guilty without harassing the innocent. But price controls do not work - every country has learned the lesson the hard way. It is one of the reasons why socialism failed and communism collapsed. Only in the case of natural monopolies are price controls needed. For the rest, competition is the best price control. Private schools are not natural monopolies and parents do have a choice. Our objective should be to increase that choice. Since demand for good schools greatly exceeds their supply, fees will rise naturally. If 100 children want to study and there are only 80 seats in a school, lowering school fees will not achieve justice. You will always disappoint 20 students. But if another good school comes up, everyone will find a place and fees will not rise. The answer then is to increase the supply of good schools.
Why don't more good schools come up? It's not easy to start a school. The bureaucracy puts huge obstacles in the way. According to the Centre for Civil Society, it takes 14 licenses and permits to open a school in Delhi, and each approval comes with a price. This naturally discourages honest, idealistic, and philanthropic persons, who are often the ones who start schools. Although my friend did not give up, many do. And this is a great tragedy, for it is products of these very schools that have succeeded on the world stage and made us proud.
The quickest way to increase the supply of good schools is to reform our government schools. They are so rotten that even the poor are abandoning them. Some think that it is impossible to reform state schools. They should look at our excellent Central and Navodaya schools. So, instead of ruining private schools, our babus should do their own job and fix their own schools. Meanwhile, who will wipe away the tears of my dear friend and of the million Indians that daily fall victim to our callous and arrogant bureaucracy?
Tuesday, August 17, 2004
Bureaucracy Crippling India
Financial Times, August 17, 2004
On Sunday, Manmohan Singh, India's earnest new prime minister, declared to the nation that his top priority was to change the way government runs and improve the provision of services to the poor. This happy focus on governance is one of the unexpected consequences of the change in government in New Delhi.
For the past two months, the left has smugly spread the myth that the election verdict was a revolt of the poor against the rich. Nothing could be further from the truth. It was, quite simply, a vote against day-to-day failures of governance. Local governments in India are so eaten away by corruption and mismanagement that they cannot provide basic services to the poor such as decent schools, primary health centres and drinking water.
My cousin says that her tap began to run dry this summer just as she went in for a bath, and that is when she decided to switch her vote. What matters to the rickshaw driver is that policemen do not take away a sixth of his daily earnings. The farmer wants a clear title to his land without having to bribe the village headman. His wife wants the doctor to be there when she takes her sick child to the health centre. She also wants the teacher to show up at her village school.
This is how government touches ordinary peoples' lives, and the sobering lesson from India's dramatic election result is that decent economic growth is not enough in a democracy. India's economy had grown at 8.1 per cent in 2003 - 0.3 per cent in the last quarter, surpassing China for the first time - and, not surprisingly, the ruling National Democratic Alliance, led by the nationalist Bharatiya Janata party (BJP), tried to capitalise on this feel-good factor with its "India Shining" advertising campaign. But it failed to win the election.
India's gross domestic product has been growing at close to a 6 per cent real rate for 23 years, making it one of the fastest-expanding major economies in the world. While this is slower than China, it is almost double India's growth rate of the preceding 30 years, and double the rate at which the west grew during the Industrial Revolution. More recently, India's population growth has also begun to slow; in 1998 it was down to 1.6 per cent, compared to a historic 2.2 per cent annual growth rate. And literacy has begun to climb - it reached 65 per cent in 2000 compared to 52 per cent in 1990. Almost 190m Indians have risen out of destitution since 1980 and the middle class has more than tripled to around 250m. Had India's GDP growth continued to chug along at the pre-1980 rate, Indian incomes would only have reached America's present per-capita income level by 2250; at the current rate, they will reach today's American income levels by 2066 - 184 years earlier.
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. The contrast between power and telecommunications is obvious to everyone. After a successful reform programme, we are in the middle of a telecoms revolution that is as profound as China's. The number of telephones has increased from 5m in 1990 to 75m and is growing by 2m a month. But power remains a "public good", as reforms have failed, and people whine about daily power cuts applied by the state monopolies.
No single institution has disappointed us more than our bureaucracy. When we were young we bought the cruel myth of the "steel frame" - a stable system that would provide continuity. We were told that Britain was not as well-governed as India because it did not have the Indian Civil Service. Today our bureaucracy has become the single biggest obstacle to development. Indians think of their bureaucrats as self-serving, obstructive, and corrupt. Instead of shepherding through economic reforms, they are responsible for blocking them.
In the 1950s, the idealistic Jawaharlal Nehru, India's first prime minister, wanted a regulatory framework for his "mixed economy", but instead, in the holy names of socialism, the bureaucrats created a thousand controls and killed our industrial revolution at birth. In my 30 years in business I did not meet a single bureaucrat who really understood my business, yet each had the power to ruin it. In the end, ourfailures have been due less to ideology and more to poor management.
Why have civil servants let us down so badly? Why do employees of India's central, state, and local governments not do their jobs? Many Indians are convinced that lifetime employment is the reason. Labour laws protect them, so they are no longer accountable. Yet we have excellent examples of good execution right under our noses - the building of the Delhi Metro, or the exemplary project management for the fast expanding National Highways system, or the running of the muncipalities of Surat and Thane. These may be exceptions, but they prove that it can be done.
Manmohan Singh believes the answer lies in sweeping administrative reform. Perhaps, he should look to Britain, where we are told 40 per cent fewer people work in the government than in 1979, and that this has not only saved more than GBP 1bn a year but improved governance. He cannot easily cut down our government, but he can certainly orient it more towards results and make it more responsive to citizens. Cynical Indians, however, have heard this song before. They think the bureaucracy is too clever and will sabotage his efforts, as it has done every time such reform has been attempted in the past 50 years.
On Sunday, Manmohan Singh, India's earnest new prime minister, declared to the nation that his top priority was to change the way government runs and improve the provision of services to the poor. This happy focus on governance is one of the unexpected consequences of the change in government in New Delhi.
For the past two months, the left has smugly spread the myth that the election verdict was a revolt of the poor against the rich. Nothing could be further from the truth. It was, quite simply, a vote against day-to-day failures of governance. Local governments in India are so eaten away by corruption and mismanagement that they cannot provide basic services to the poor such as decent schools, primary health centres and drinking water.
My cousin says that her tap began to run dry this summer just as she went in for a bath, and that is when she decided to switch her vote. What matters to the rickshaw driver is that policemen do not take away a sixth of his daily earnings. The farmer wants a clear title to his land without having to bribe the village headman. His wife wants the doctor to be there when she takes her sick child to the health centre. She also wants the teacher to show up at her village school.
This is how government touches ordinary peoples' lives, and the sobering lesson from India's dramatic election result is that decent economic growth is not enough in a democracy. India's economy had grown at 8.1 per cent in 2003 - 0.3 per cent in the last quarter, surpassing China for the first time - and, not surprisingly, the ruling National Democratic Alliance, led by the nationalist Bharatiya Janata party (BJP), tried to capitalise on this feel-good factor with its "India Shining" advertising campaign. But it failed to win the election.
India's gross domestic product has been growing at close to a 6 per cent real rate for 23 years, making it one of the fastest-expanding major economies in the world. While this is slower than China, it is almost double India's growth rate of the preceding 30 years, and double the rate at which the west grew during the Industrial Revolution. More recently, India's population growth has also begun to slow; in 1998 it was down to 1.6 per cent, compared to a historic 2.2 per cent annual growth rate. And literacy has begun to climb - it reached 65 per cent in 2000 compared to 52 per cent in 1990. Almost 190m Indians have risen out of destitution since 1980 and the middle class has more than tripled to around 250m. Had India's GDP growth continued to chug along at the pre-1980 rate, Indian incomes would only have reached America's present per-capita income level by 2250; at the current rate, they will reach today's American income levels by 2066 - 184 years earlier.
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. The contrast between power and telecommunications is obvious to everyone. After a successful reform programme, we are in the middle of a telecoms revolution that is as profound as China's. The number of telephones has increased from 5m in 1990 to 75m and is growing by 2m a month. But power remains a "public good", as reforms have failed, and people whine about daily power cuts applied by the state monopolies.
No single institution has disappointed us more than our bureaucracy. When we were young we bought the cruel myth of the "steel frame" - a stable system that would provide continuity. We were told that Britain was not as well-governed as India because it did not have the Indian Civil Service. Today our bureaucracy has become the single biggest obstacle to development. Indians think of their bureaucrats as self-serving, obstructive, and corrupt. Instead of shepherding through economic reforms, they are responsible for blocking them.
In the 1950s, the idealistic Jawaharlal Nehru, India's first prime minister, wanted a regulatory framework for his "mixed economy", but instead, in the holy names of socialism, the bureaucrats created a thousand controls and killed our industrial revolution at birth. In my 30 years in business I did not meet a single bureaucrat who really understood my business, yet each had the power to ruin it. In the end, ourfailures have been due less to ideology and more to poor management.
Why have civil servants let us down so badly? Why do employees of India's central, state, and local governments not do their jobs? Many Indians are convinced that lifetime employment is the reason. Labour laws protect them, so they are no longer accountable. Yet we have excellent examples of good execution right under our noses - the building of the Delhi Metro, or the exemplary project management for the fast expanding National Highways system, or the running of the muncipalities of Surat and Thane. These may be exceptions, but they prove that it can be done.
Manmohan Singh believes the answer lies in sweeping administrative reform. Perhaps, he should look to Britain, where we are told 40 per cent fewer people work in the government than in 1979, and that this has not only saved more than GBP 1bn a year but improved governance. He cannot easily cut down our government, but he can certainly orient it more towards results and make it more responsive to citizens. Cynical Indians, however, have heard this song before. They think the bureaucracy is too clever and will sabotage his efforts, as it has done every time such reform has been attempted in the past 50 years.
Sunday, August 08, 2004
PAPER BARRIERS OF GRIEF
Times of India, Aug 7, 2004
One of the better things to come from this new government is a welcome focus on governance. The Left's strident threat to raise government spending on poverty and social programmes so terrified everyone — raising the spectre of blowing away the nation's hard earned savings — that our sensible prime minister quickly responded. In his first address to the nation he declared that his top priority is to change the way government runs. He followed this up with a strong letter to the CMs urging them to improve the delivery of services to the poor. Next, he got his cabinet secretary working on key administrative reforms to improve implementation by the bureaucracy.
Manmohan Singh is aware that eliminating unwanted laws or simplifying them is a powerful way to improve governance. Ten years ago when he was finance minister, he set up a group under Bibek Debroy precisely to examine this. The group made an exhaustive study of central laws and concluded that 1,500 out of 3,500 laws were obsolete. If they were scrapped or significantly modified the citizen's life would improve. Known as Project LARGE, the group brought out 30 reports and seven books that Allied published between 1994 and 1998. Arun Jaitley, as law minister, scrapped 350 of these laws. Now is the time, Dr Manmohan Singh, to follow through with the good work you began.
Although our PM thinks that most delivery problems are in the states, there are plenty at the centre too, and I shall illustrate with two examples. There is a Protector of Emigrants, an office created in the 1980s when Indians began working in large numbers in the Middle East. Meant to protect our workers from being exploited, it has become in reality a paper barrier of grief for poor Indians going abroad. Obtaining the prized ECNR stamp (Emigrant Check Not Required) on the passport is as difficult as getting a passport, and a poor worker is forced to fill the pockets of touts and corrupt officials. Graduates have little difficulty in getting the stamp, and it is now planned to exempt those who have passed high school (10+2). But why not get rid of it completely? The law never made sense — when millions work in miserable conditions at home, why should the government set standards in which Indians work abroad? The law could not prevent the Malta boat tragedy, nor stop Indian mercenaries fighting in Iraq. If the PM scraps the law, he will bring joy to many grateful Indians who want to work overseas, including his fellow Sikhs in the districts of Punjab.
A second example is a law that harasses thousands of idealistic young people engaged in volunteer work. To receive funds from abroad, charity groups and NGOs need clearance under Foreign Contributions Regulations Act (FCRA), which was enacted during the Emergency in 1976 by Indira Gandhi to stop foreign money going to the opposition, especially to Jayaprakash Narayan's movement. Today, the FCRA is a paper barrier used by bureaucrats mainly to extract bribes. It has not stopped a single terrorist from getting foreign funds. Isn't it time we abolished FCRA in the same spirit as we scrapped FERA? The liberalisation of controls will give a huge fillip to philanthropy in India and improve the lives of voluntary workers and the poor who benefit from their work.These two examples illustrate the real task of government. This is what the BJP should reflect upon in its chintan baithaks; this is what the Leftists should rant about on the tube; this is what will reduce corruption; and this is what will win elections.
One of the better things to come from this new government is a welcome focus on governance. The Left's strident threat to raise government spending on poverty and social programmes so terrified everyone — raising the spectre of blowing away the nation's hard earned savings — that our sensible prime minister quickly responded. In his first address to the nation he declared that his top priority is to change the way government runs. He followed this up with a strong letter to the CMs urging them to improve the delivery of services to the poor. Next, he got his cabinet secretary working on key administrative reforms to improve implementation by the bureaucracy.
Manmohan Singh is aware that eliminating unwanted laws or simplifying them is a powerful way to improve governance. Ten years ago when he was finance minister, he set up a group under Bibek Debroy precisely to examine this. The group made an exhaustive study of central laws and concluded that 1,500 out of 3,500 laws were obsolete. If they were scrapped or significantly modified the citizen's life would improve. Known as Project LARGE, the group brought out 30 reports and seven books that Allied published between 1994 and 1998. Arun Jaitley, as law minister, scrapped 350 of these laws. Now is the time, Dr Manmohan Singh, to follow through with the good work you began.
Although our PM thinks that most delivery problems are in the states, there are plenty at the centre too, and I shall illustrate with two examples. There is a Protector of Emigrants, an office created in the 1980s when Indians began working in large numbers in the Middle East. Meant to protect our workers from being exploited, it has become in reality a paper barrier of grief for poor Indians going abroad. Obtaining the prized ECNR stamp (Emigrant Check Not Required) on the passport is as difficult as getting a passport, and a poor worker is forced to fill the pockets of touts and corrupt officials. Graduates have little difficulty in getting the stamp, and it is now planned to exempt those who have passed high school (10+2). But why not get rid of it completely? The law never made sense — when millions work in miserable conditions at home, why should the government set standards in which Indians work abroad? The law could not prevent the Malta boat tragedy, nor stop Indian mercenaries fighting in Iraq. If the PM scraps the law, he will bring joy to many grateful Indians who want to work overseas, including his fellow Sikhs in the districts of Punjab.
A second example is a law that harasses thousands of idealistic young people engaged in volunteer work. To receive funds from abroad, charity groups and NGOs need clearance under Foreign Contributions Regulations Act (FCRA), which was enacted during the Emergency in 1976 by Indira Gandhi to stop foreign money going to the opposition, especially to Jayaprakash Narayan's movement. Today, the FCRA is a paper barrier used by bureaucrats mainly to extract bribes. It has not stopped a single terrorist from getting foreign funds. Isn't it time we abolished FCRA in the same spirit as we scrapped FERA? The liberalisation of controls will give a huge fillip to philanthropy in India and improve the lives of voluntary workers and the poor who benefit from their work.These two examples illustrate the real task of government. This is what the BJP should reflect upon in its chintan baithaks; this is what the Leftists should rant about on the tube; this is what will reduce corruption; and this is what will win elections.
Sunday, July 25, 2004
THE SERIOUSLY RICH
Times of India, July 25, 2004
I didn't get the 20-page invitation cased in silver for Laxmi Mittal's daughter's wedding. I read about it in the papers, and like many, I was left with ambivalent feelings about the Rs 200 crore celebration near Paris. I told myself that he is, after all, a self-made billionaire and a British citizen and he can certainly do what he wants with his money. Yet, there are nagging doubts that something was wrong here.
A few weeks earlier, I had met some seriously rich American billionaires in Chicago. I was struck by their unassuming, modest manners and their desire to hide their money. They spoke little about their companies, more about their philanthropies. Their heart seemed to be in giving their money away rather than in making it. In this company it would have been coarse to talk about spending conspicuously, on a wedding for example. I was left feeling that seriously wealthy Americans, at least after the first generation, seem to have taken Andrew Carnegie's admonition to heart, "Anybody who dies rich, dies disgraced." Bill Gates, the richest of the rich, symbolises this ethic — he is busy giving away most of his fortune while he is still alive.
We have a saying in North India, haveli ki umar saath saal, (the life of a business family is sixty years). The first generation makes the money and naturally wants to flaunt it, like Laxmi Mittal. The second doesn't want more money; it wants power, which might explain Anil Ambani's curious decision to join politics. Born into money and power, the third generation dedicates itself to art, or more likely just squanders the fortune. The Kennedys, Rockefellers, and others illustrate this cycle. Thomas Mann, the great German writer, made the same point in Buddenbrooks, my favourite novel about a business family. In this saga of three generations, the scruffy and astute patriarch works hard and makes the family fortune; his son becomes a senator; but his aesthetic and physically weak grandson only wants to play the violin; thus, a grand family comes to an end. This rule also explains why business families break up in the third generation.
Dutch burghers amassed great wealth in Holland's golden age, but they spent it on social good as Simon Schama describes in his charming book, The Embarrassment of Riches. Similarly, most wealthy Jain families that I know are not ostentatious and devote their money to social uplift. Thus, they help to soften capitalism, making its unequal outcomes less offensive. Capitalism becomes acceptable if everyone feels they can become a millionaire. Our recent software millionaires prove this. They did not inherit wealth, nor did they have a family name. They rose because of merit, and reflect a new social compact for post-reform India, where talent, skill, and hard work have replaced inherited wealth. Inequality is accepted in Bangalore because it does not excite envy, but hope and aspiration.
I admire Laxmi Mittal for his business acumen. He has created enormous value and jobs around the world out of sick steel companies. I always wished he would invest in India, but he says he is afraid of India's red tape. If India is a hostile place to do business, I dearly wish that he would emulate Bill Gates and spend his millions in India doing good for the poor. It is this that will win him the respect of the world. Many men can get rich but only a few can be good. And, that is a legacy worth fighting for! Who wants to be remembered as the sad Indian Gatsby who dropped Rs 200 crores on a wedding?.
I didn't get the 20-page invitation cased in silver for Laxmi Mittal's daughter's wedding. I read about it in the papers, and like many, I was left with ambivalent feelings about the Rs 200 crore celebration near Paris. I told myself that he is, after all, a self-made billionaire and a British citizen and he can certainly do what he wants with his money. Yet, there are nagging doubts that something was wrong here.
A few weeks earlier, I had met some seriously rich American billionaires in Chicago. I was struck by their unassuming, modest manners and their desire to hide their money. They spoke little about their companies, more about their philanthropies. Their heart seemed to be in giving their money away rather than in making it. In this company it would have been coarse to talk about spending conspicuously, on a wedding for example. I was left feeling that seriously wealthy Americans, at least after the first generation, seem to have taken Andrew Carnegie's admonition to heart, "Anybody who dies rich, dies disgraced." Bill Gates, the richest of the rich, symbolises this ethic — he is busy giving away most of his fortune while he is still alive.
We have a saying in North India, haveli ki umar saath saal, (the life of a business family is sixty years). The first generation makes the money and naturally wants to flaunt it, like Laxmi Mittal. The second doesn't want more money; it wants power, which might explain Anil Ambani's curious decision to join politics. Born into money and power, the third generation dedicates itself to art, or more likely just squanders the fortune. The Kennedys, Rockefellers, and others illustrate this cycle. Thomas Mann, the great German writer, made the same point in Buddenbrooks, my favourite novel about a business family. In this saga of three generations, the scruffy and astute patriarch works hard and makes the family fortune; his son becomes a senator; but his aesthetic and physically weak grandson only wants to play the violin; thus, a grand family comes to an end. This rule also explains why business families break up in the third generation.
Dutch burghers amassed great wealth in Holland's golden age, but they spent it on social good as Simon Schama describes in his charming book, The Embarrassment of Riches. Similarly, most wealthy Jain families that I know are not ostentatious and devote their money to social uplift. Thus, they help to soften capitalism, making its unequal outcomes less offensive. Capitalism becomes acceptable if everyone feels they can become a millionaire. Our recent software millionaires prove this. They did not inherit wealth, nor did they have a family name. They rose because of merit, and reflect a new social compact for post-reform India, where talent, skill, and hard work have replaced inherited wealth. Inequality is accepted in Bangalore because it does not excite envy, but hope and aspiration.
I admire Laxmi Mittal for his business acumen. He has created enormous value and jobs around the world out of sick steel companies. I always wished he would invest in India, but he says he is afraid of India's red tape. If India is a hostile place to do business, I dearly wish that he would emulate Bill Gates and spend his millions in India doing good for the poor. It is this that will win him the respect of the world. Many men can get rich but only a few can be good. And, that is a legacy worth fighting for! Who wants to be remembered as the sad Indian Gatsby who dropped Rs 200 crores on a wedding?.
Monday, July 19, 2004
Biblio Essay - Medha M. Kudaisya, The life and Times of G.D. Birla,
Oxford University Press, New Delhi, 2003, 434 pages, Rs
Owning a dynamic, indigenous entrepreneurial group like the Marwaris would seem to give India a competitive advantage in the world economy, yet the Marwari has never quite won the respect from Indian society that he has yearned for. Most Indians know him as the furtive shopkeeper around the corner. Like the Jew in old Europe he is the moneylender of last resort, who charges extortionate interest and dispossesses widows of their land and jewellery when the loan is not repaid. Or he is perceived as the ruthless tycoon who did not stop at anything, including the pre-empting of licences during the hypocritical forty years of the Licence Raj.
The story of the Marwaris is a fascinating tale of how a tiny community from the desert sands of Rajasthan spread out to every corner of north, west, and central India, settling in thousands of villages and towns in the 19th century. With their enormous appetite for risk, Marwaris seized control of India’s inland trade, then gradually turned to industry after the First World War, and as recently as 1997 they controlled roughly half the nation’s private industrial assets. Although the profile of Indian business has begun to change with our success in information technology, but in 1997 fifteen of the twenty largest industrial houses were of vaishya or bania trading caste, and eight were Marwari. The question is what made them so spectacularly successful?
The answer to that question will not be found in Medha Kudaisya’s fine book, The Life and Times of G.D.Birla. There are hints, however. It had something to do with their wonderful support system. When a Marwari travelled on business, his wife and children were cared for in a joint family at home. Wherever he went in search of trade, he found shelter and good Marwari food in a basa, a sort of collective hostel run on a co-operative basis or as a philanthropy by local Marwari merchants. Ghanshyam Das (GD) Birla’s grandfather, Shiv Narian, the founder of the Birla Empire, settled in a basa when he first came to Bombay in the 1860s. When the Marwari needed money, he borrowed from another Marwari trader on the understanding that the loan was payable on demand, “even at midnight,” and he would reciprocate with a similar loan. At the end of the year, they tallied and settled the interest. He could count on community banks to insure his goods in transit and collect his dues when the goods arrived. His sons and nephews were apprenticed to other Marwari traders, where they earned their salary through profit sharing, learned business skills, and accumulated capital to start their own business when they were ready.
The Marwaris achieved their biggest successes in the British trading post of Calcutta. They smelled the chance for big money and they flocked there to become brokers and agents to the British (who called them “banians”.) Ramdutt Goenka was a typical example. He came to Calcutta in 1830. Starting as a clerk to a Marwari firm, he gradually became a broker to the major English firms. Nathuram Saraf began as a clerk in Ramdutt Goenka’s firm and he graduated to become a “banian” to other British firms. He opened a free hostel for migrants from the Shekhavati area of Rajasthan and GD Birla used to say that this hostel spawned many entrepreneurial careers. At night, the young apprentices would exchange stories of their commercial exploits of the day and draw lessons from them. Some of these stories became legendary. Passed on by word of mouth for generations, it was their version of Harvard Business School cases. The arrival of the Delhi-Calcutta railway in the 1860s quickened the migration to Calcutta and by the turn of the century, Marwaris had become dominant in the jute and cotton trade. During World War I, they made spectacular profits speculating in cotton, jute and hessian, and these profits laid the foundation for many industrial careers after the War.
Marwaris are socially conservative, and that too might help to explain their success. They took to English education much later than most other communities like the Bengalis or Punjabis, for example. But now their children routinely get MBAs and have a similar way of life as the young in other communities and as other young professionals. Nevertheless, they continue to be more religious and tradition continues to have a greater hold. Although professional executives run their businesses, most of them are from their community. Although they engage in the most sophisticated enterprises, their strength lies in the way they use old family networks and traditional accounting and financial controls. The Birlas, for example, continue to monitor the financial performance of their companies on a daily basis.
Medha Kudaisya’s The Life and Times of G.D.Birla is a sober, scholarly work, whose biggest strength is that it is among the first business biographies that is not a hagiography. It grew out of a PhD thesis for Cambridge University, and it is well researched, based for the first time on unrestricted access to Birla private papers. It offers a ringside view of the political and economic forces that have shaped our country in the 20th century, including the funding of the nationalist movement and the Congress Party. There are fascinating insights, for example, into the attempts at “reform by stealth” during the brief period that Lal Bahadur Shashtri was Prime Minister. GD Birla, more than anyone could see what “a precious opportunity had been lost” when Shastri died prematurely. I try to imagine, what sort of nation we might have been had the 1991 reforms begun in 1965! This has to be one of the tantalising ‘what ifs’ of Indian history.
Kudiasya poignantly describes the slow decline of GD Birla’s stature in national life after the death of his Sardar Patel, whose advisor and protégé he was. However, this did not necessarily reflect in the decline of his economic fortunes (with the exception of the nationalisation of Bharat Airways and his insurance company). Kudaisya describes in some detail how he moved with strategic foresight into basic industries after Independence, and the heartbreaking episode concerning the rejection of his Durgapur steel plant after so much work had gone into it. If his aluminium company, Hindalco, is anything to go by, he would have created a world class steel company as well. Today, after liberlisation, Hindalco is the lowest cost producer of aluminium and is one of our best companies. Just as Tata Steel is world class today; so too might have been Birla Steel; instead we are saddled with the unmanageable public sector company, Sail, which continues to struggle and keeps guzzling public money.
The best part of the book is the account of Birla’s growing relationship with Madan Mohan Malviya and Lala Lajpatrai and his growing involvement in nationalistic politics, culminating in his close relationship with Mahatma Gandhi. Equally noteworthy is how he suffered during the Indira Gandhi years when he was an easy target of any young, unscrupulous socialist (like Chandrashekhar) who wanted to make his mark in public life. Morararji Desai, in particular, comes out looking like an arrogant prig, happy to take the money of industrialists but without any grace or gratitude. Birla was too much of an old style Congresswallah; anyone else would have chucked up the Congress Party after Shastri’s death, when the rot began to set in, and joined the Swatantra Party.
Nehru was always suspicious of Birla, and not only because he had been Sardar Patel’s protégé. In Motilal’s and Jawaharlal’s case it was a caste prejudice, reinforced by the latter’s English education at Harrow and Cambridge, where he acquired the English upper class bias against trade and learned socialism from the Fabians. When he came to power in 1947, Nehru institutionalised the prejudice into the mindset of the national state. Lord Wavell, the British Viceroy in the 1940s, also shared the prejudice against Marwaris, who he thought were like the Lombards and the Jews in Europe. Nevertheless, he recognised G.D. Birla’s uniqueness and he paid him a huge compliment by preferring him to JRD Tata as Queen Mary’s companion for lunch in Bombay. JRD was then the young head of the largest and most respected business family, and Wavell wrote:
I think Queen Mary would find G.D. Birla better company than J.R.D. Tata if she wishes to invite one of them to lunch. Tata is a pleasant enough fellow to meet, but I have not found him communicative, and as a casual acquaintance he is much the same as any other wealthy young man who has had a conventional type of education. Birla has plenty to say, and whatever one may think of Marwari businessmen and their ways, he is well worth talking to. I think Queen Mary would have a very dull lunch with Tata and quite an interesting one with Birla.
Mahatma Gandhi, a bania himself, had no qualms about accepting money from Birla or other businessmen. Nor was he contemptuous of commerce like Nehru. He came from Gujarat, which had many ports and vigorous commerce, and where the merchant was held in higher esteem. Gandhi believed that a businessman’s wealth was not his own but held in trust for the rest of society. Today’s business titans of the new economy, men like Narayana Murthy and Azim Premji, oddly enough are closer to Gandhi’s way of thinking about the place of business and wealth in society. And fortunately, the old socialist attitudes to business are practically dead in the minds of the nation’s young, even though they linger in the minds of the ruling class, and this slows reform.
There are wonderful moments in the book, especially the descriptions of GD’s childhood in Pilani among women and without men, where Vaishnav religion pervaded the day. This religiosity never left him, and the Gita in particular was a great source of strength to GD during crisis. The men in the family were continuously away in Bombay and Calcutta, making their separate fortunes, and expanding the family’s wealth, and GD went to a local school, where there were no books and classes were held in the open air. In the end, of course, the education he received there was wholly inadequate, he realised, and he plunged into reading English books after he left Pilani. His proficiency in English placed him in a privileged position in the family firm from the beginning because he could negotiate with English brokers.
The weakness of the book—and it is a major flaw—is the inability of the author to tell us why GD succeeded in business. How did the Birlas succeed in making so much money? Why did they win when others lost? I found it frustrating that there is nothing to explain GD’s legendary ability to hire, train, and retain so many managers who ran his many companies when he was busy with politics? Aditya Birla inherited the same ability, and perhaps that is why he was GD’s favourite and he got the lion’s share of his empire. Equally disappointing is her silence on the division of the Birla companies. There was a real fight and it caused so much heartburning and she dismisses the whole thing in half a page.
The real failure of the book in the end is that it does not uncover the man within. This is not easily done, of course, because GD was (and Marwaris, in general are) secretive. Hence, he had thrown a challenge: “Certainly, no Indian can write my biography because biography isn’t an Indian skill,” he had said to Ian Jack of London Times in 1978. But it the job of biography ultimately, isn’t it—to uncover the man within?
It is true that Indians have traditionally not accorded a high place to making money. It is also true that a certain amount of antipathy to business exists in all societies. But Aditya, GD’s grandson, could not understand why the Indian public chose to target the Birlas as the ugly face of big business. He thought it unfair. After all, they had supported the nationalist movement for independence; they had invested huge sums in charities and philanthropy; they had maintained an austere and quiet life-style and reinvested their entire surplus rather than consuming it; they had come as close as anyone in the practice of Mahatma Gandhi’s idea of trusteeship—that the bania’s wealth belongs to the community and the businessmen is merely a trustee of this wealth during his lifetime.
In one of his letters, GD offered the following advice to Aditya when he was studying at MIT: “eat only vegetarian food, never drink alcohol or smoke, keep early hours, marry young, switch-off lights when leaving the room, cultivate regular habits, go for a walk everyday, keep in touch with the family, and above all, don’t be extravagant.” Aditya thought that his grandfather’s advice symbolised the ethic of the Marwari merchant, with restraint and austerity its defining tone, not dissimilar to the ethic of Protestant, Jewish, or Chinese business families. It captured the spirit of conservation that leads to accumulation. With all this going for them, why should the Birlas not be more esteemed?
Many think that the Birlas, were the great beneficiaries of the Licence Raj. They point to the Hazari Committee which had pointed a finger at the Birlas for pre-empting 20 per cent of all licenses awarded by the government between 1957 and 1966. From 20 companies in 1945 Birla companies had grown to almost 150 by 1962, and wasn’t this monopostic? I could not disagree more with this popular misconception. I believe the Birlas behaved in a rational manner, as any businessman would towards his competitor, and what was wrong was not the behaviour of the Birlas but the incentive system of the Licence Raj in that hypocritical, ugly world that ended in allowing our bureaucrats to kill our industrial revolution at birth.
Far from doing the Marwaris a favour, the Licence Raj made the Marwaris lose touch with the market. Competition is the great school where companies acquire skills. It is through intense rivalry in the market place that businesses learn to improve their products, hone their marketing skills, and improve their systems in order to become more responsive to the customer. The Licence Raj, by eliminating competition, distorted their behaviour and suppressed their business skills and made Indian businesses complacent and insensitive to customer needs.
When the economy opened in 1991 and markets became increasingly competitive, many old Marwari businesses were in trouble. Some of these will never recover, but for the others it has taken more than a dozen years after the economic reforms to become competitive. The shining example is the Aditya Birla Group, the direct inheritor of Ghanshyamdas Birla’s legacy, now headed by Kumaramangalam Birla. Its success is due to a great part to Aditya, who decided not to invest in India in the late sixties, when he realised the monster of a political economy that Indira Gandhi was creating, and which would not allow an honest enterprise to exist in India. He created instead a commercial empire instead in highly competitive South East Asia, which taught his managers competitive skills that came in handy when India finally opened up in 1991. Forty years of Indian style socialism fortunately was not able to destroy India's legendary entrepreneurship, although it did distort its behaviour.
Sunday, July 18, 2004
Jagdish Bhagwati, In Defence of Globalization
Oxford University Press, New York, 2004, 308 pages, $28.
This book has arrived not a day too late. A lot of rubbish has been floating in the air ever since May 13, when our election results came out. Silly ideas, discredited years ago, have been revived and assiduously marketed by the left, creating the illusion that India’s centre of gravity had shifted against the global market system. To those who are undecided in this battle of ideas Jagdish Bhagwati’s charming and highly readable, In Defence of Globalization, offers well thought out answers to the questions that have been raised over the past six weeks.
Jagdish Bhagwati is a distinguished economics professor at Columbia University, a former Adviser to the United Nations on Globalization, and one of the world’s authorities on international trade. He was one of the first persons to raise serious questions about the premises of Nehruvian socialism in the sixties. In his book with Padma Desai, India: Planning for Industrialization (OUP, 1970) he described how India was steadily degenerating into a “license raj”. A generation later, the same sorts of do gooders are blaming global capitalism for worsening poverty, for child labour, for degrading our environment, for cultural homogenisation and many of the world’s ills. In this book Bhagwati seriously takes on the bogus arguments of the anti-globalization movement and shows them for what they are--a threat to human development. He argues that globalization is not the problem but the solution, and he does it with wit and humour.
In recent weeks the Left in India has stridently argued that the economic reforms need a human face. Bhagwati shows that global capitalism does have a human face and he demonstrates its beneficial effects on poverty, child labour, women’s rights, and host of social issues. The left argues that growth by itself will not create enough jobs or alleviate poverty. Bhagwati shows that growth is the principal means of reducing poverty. He illustrates this with the examples of China and India.
Since 1980, China and India have been among the fastest growing economies in the world and both have reduced poverty spectacularly. China’s poverty ratio declined from 28 percent in 1978 to 9 percent in 1998, according to the Asian Development Bank. India’s poverty fell from 51 percent in 1978-79 to 26 percent in 1999-2000, according to official Indian data. In contrast, for a quarter century before this, when our growth was an abysmal 3.5 percent poverty, poverty had obdurately hovered around 55 percent. China had the same experience in its pre-reform period. As a result of high growth in Asia, Sala-I-Martin’s huge 97 country study, concludes that the poor in Asia as a whole declined to 15 percent of the world’s poor in 1998 (from 76 percent in the 1970s) while they rose in Africa from 11 percent in the 1970s to 66 percent of the world’s poor by 1998. Surjit Bhalla’s and Dollar and Kraay’s recent work has come to the same conclusion.
I had a sense of déjà vu as I noted Bhagwati demolishing the same arguments of the anti-globalizers that India’s reformers had faced in the early nineties when India began to seriously reform its economy. When we liberalised the rupee, the left warned us about a flight of capital, as rich Indians would run away with their money. The opposite happened, in fact, and our reserves shot up from $1 billion to $117 billion today. When our tariffs began to come down and import licensing was scrapped, the left prophesied that India would be flooded with luxury goods, and there wouldn’t be any foreign exchange to buy capital goods for our industry. Again the opposite happened; with declining tariffs, India became more competitive, and our exports grew.
When we lowered tax rates, the left forecast that our government would be reduced to a pauper; instead, government revenues shot up and income tax has consistently grown faster than our GDP since the reforms. When we liberalised foreign investment, the left predicted that predatory multinationals would swamp Indian businesses and our industry would be destroyed. None of this has happened, and Indian brands are thriving in many product categories. In fact, our worry is that we are not getting enough foreign direct investment. Forget China, countries much smaller than us—Vietnam, Malaysia, Thailand, Poland—attract far more foreign investment.
Given this terrible track record of the left, why should we should we now listen to it? It has been consistently wrong. It has always led us astray, and it now wants to bring back the sort of policies that made India, “the world’s greatest under-achiever” in the words of the Economist. Is it surprising that the markets continue to be spooked by the Common Minimum Program? I sometimes don’t know who is more likely to destroy our future--the lunatics of the left or the fascists on the right.
This book has arrived not a day too late. A lot of rubbish has been floating in the air ever since May 13, when our election results came out. Silly ideas, discredited years ago, have been revived and assiduously marketed by the left, creating the illusion that India’s centre of gravity had shifted against the global market system. To those who are undecided in this battle of ideas Jagdish Bhagwati’s charming and highly readable, In Defence of Globalization, offers well thought out answers to the questions that have been raised over the past six weeks.
Jagdish Bhagwati is a distinguished economics professor at Columbia University, a former Adviser to the United Nations on Globalization, and one of the world’s authorities on international trade. He was one of the first persons to raise serious questions about the premises of Nehruvian socialism in the sixties. In his book with Padma Desai, India: Planning for Industrialization (OUP, 1970) he described how India was steadily degenerating into a “license raj”. A generation later, the same sorts of do gooders are blaming global capitalism for worsening poverty, for child labour, for degrading our environment, for cultural homogenisation and many of the world’s ills. In this book Bhagwati seriously takes on the bogus arguments of the anti-globalization movement and shows them for what they are--a threat to human development. He argues that globalization is not the problem but the solution, and he does it with wit and humour.
In recent weeks the Left in India has stridently argued that the economic reforms need a human face. Bhagwati shows that global capitalism does have a human face and he demonstrates its beneficial effects on poverty, child labour, women’s rights, and host of social issues. The left argues that growth by itself will not create enough jobs or alleviate poverty. Bhagwati shows that growth is the principal means of reducing poverty. He illustrates this with the examples of China and India.
Since 1980, China and India have been among the fastest growing economies in the world and both have reduced poverty spectacularly. China’s poverty ratio declined from 28 percent in 1978 to 9 percent in 1998, according to the Asian Development Bank. India’s poverty fell from 51 percent in 1978-79 to 26 percent in 1999-2000, according to official Indian data. In contrast, for a quarter century before this, when our growth was an abysmal 3.5 percent poverty, poverty had obdurately hovered around 55 percent. China had the same experience in its pre-reform period. As a result of high growth in Asia, Sala-I-Martin’s huge 97 country study, concludes that the poor in Asia as a whole declined to 15 percent of the world’s poor in 1998 (from 76 percent in the 1970s) while they rose in Africa from 11 percent in the 1970s to 66 percent of the world’s poor by 1998. Surjit Bhalla’s and Dollar and Kraay’s recent work has come to the same conclusion.
I had a sense of déjà vu as I noted Bhagwati demolishing the same arguments of the anti-globalizers that India’s reformers had faced in the early nineties when India began to seriously reform its economy. When we liberalised the rupee, the left warned us about a flight of capital, as rich Indians would run away with their money. The opposite happened, in fact, and our reserves shot up from $1 billion to $117 billion today. When our tariffs began to come down and import licensing was scrapped, the left prophesied that India would be flooded with luxury goods, and there wouldn’t be any foreign exchange to buy capital goods for our industry. Again the opposite happened; with declining tariffs, India became more competitive, and our exports grew.
When we lowered tax rates, the left forecast that our government would be reduced to a pauper; instead, government revenues shot up and income tax has consistently grown faster than our GDP since the reforms. When we liberalised foreign investment, the left predicted that predatory multinationals would swamp Indian businesses and our industry would be destroyed. None of this has happened, and Indian brands are thriving in many product categories. In fact, our worry is that we are not getting enough foreign direct investment. Forget China, countries much smaller than us—Vietnam, Malaysia, Thailand, Poland—attract far more foreign investment.
Given this terrible track record of the left, why should we should we now listen to it? It has been consistently wrong. It has always led us astray, and it now wants to bring back the sort of policies that made India, “the world’s greatest under-achiever” in the words of the Economist. Is it surprising that the markets continue to be spooked by the Common Minimum Program? I sometimes don’t know who is more likely to destroy our future--the lunatics of the left or the fascists on the right.
Saturday, July 17, 2004
Terrorism, Democracy & Capitalism
On Tuesday September 11th I was visiting my aged mother in a village in northwest India, at her guru’s ashram by the banks of the river Beas, when my son called from China. “Turn on the TV,” he said, and we began to watch in stunned disbelief the barbarous tragedy unfolding on the other side of the globe. The second tower of New York’s World Trade Center came down before our eyes. After the initial horror had passed, I felt like many Indians that perhaps now the world might begin to understand what we have been going through. For over a decade we have been victims of Taliban trained terrorism that has taken hundreds of innocent lives.
Ironically, the same dreadful Tuesday was the deadline given by faceless terrorists to force women in Kashmir to cover themselves in veils. Tailors in the valley had been busy for weeks, but they could not catch up with the demand for burqas. An innocent 15 year old girl, whose tailor failed to meet the 11 September deadline, found acid sprayed on her face as she was rushing home from school. She lost an eye and her pretty face was disfigured for life.
Two years ago Osama bin Laden had announced from his hideout in the mountains deserts of Afghanistan, “India and America are my biggest enemies and all mujahideen groups in Pakistan should come together to target them.” Why are India and America the prime targets of Osama and the Taliban? It is because they are the most pluralistic societies and share the same ideals and liberal values. America is the oldest modern nation, and India is one of the world’s oldest civilizations. They are the two largest democracies in the world. They are also the only two nations, as far as I know, where democracy has preceded capitalism.
Migrations of diverse people have created both America and India. America is a nation of immigrants and the historic wanderings of many peoples and tribes of Asia over thousands of years created India. America dealt with its diversity historically through the “melting pot”; India accommodated its migrant minorities through the caste system, which made it possible for a vast variety of people to live together in a single social system. Today, India and America have emerged as unusually open pluralistic societies and diversity is their most vital metaphor. Both present a challenge to fundamentalists, who are only comfortable in monolithic states with one religion, one language, and one mind. Indeed, India faces this problem with its own Hindu and Muslim fundamentalists. These societies are vulnerable to terrorists because they are so open.
The U.S. got democracy in 1776 but it did not embrace full-blooded capitalism until the early 19th century with the industrial revolution. India became a full-fledged democracy in 1950, with universal suffrage and extensive human rights, but it was not until 1991 that it opened up to a freer play of capitalist forces. For the rest of the world it has been the other way around. Suffrage and rights were gradually extended in Europe and they altered the capitalist institutions that had come up after the industrial revolution. This historic inversion has made all the difference, and it goes a long way to explain these two noisy targets of terrorism.
In the past half-century, Indians went to the school of democracy. They learned to change their governments periodically and peacefully; they gave free reign to their litigious natures and pushed the courts to the limit; they created a vigorous free press and more recently a lively electronic media; and they began to internalize the rule of law. As a result, diverse voices have risen, backward castes have come forward, a more pluralistic middle class has developed, and there is a greater balance of opportunity.
While they were at the school of political liberty, Indians however gradually lost their economic liberty to a domineering socialist state. Hence, they failed to create an industrial revolution, though the farmers did manage to create a green revolution. But this changed in 1991 and since then India’s economy has grown 6.4 percent a year (and 7.5 percent for three years in a row), making it one of the ten fastest growing economies in the world. More recently, population growth has begun to slow, and in 1998 it was down to 1.7 percent compared to an historic 2.2 percent growth rate. Literacy has climbed to 65 percent in 2000 compared to 52 percent in 1990, with women and the backward states registering the biggest gains. More than 120 million Indians have pulled themselves out of poverty in the past decade as the poverty ratio has declined to 26 percent. And India may have finally found its competitive advantage in its booming software and IT services.
If the economy continues to grow at this rate for the next two to three decades, then half of India (that is, the west and the south) should turn middle class in the first quarter of this century and the other half should get there in the second quarter. If growth accelerates to eight percent with greater reforms, then this happy day will arrive sooner. At that point poverty will not vanish, but the poor will come down to a manageable 10-15 percent of the population, and the politics of the country will also change. By 2025, India will see its share of world product rise from 6 to 13 percent, making it the third largest economy in the world. By then India and China will account for 39 percent share of global output, which is about equal to the present share of United States and Europe combined.
The curious inversion between democracy and capitalism means, however, that India's future will not be a creation of unbridled capitalism, but it will evolve through a daily dialogue between the conservative forces of caste, religion and the village, the leftist and Nehruvian socialist forces which dominated the intellectual life of the country for 40 years, and the new forces of global capitalism. These “million negotiations of democracy,” the plurality of interests, the contentious nature of the people implies that the pace of economic reforms will be slow and incremental. It also suggests that India might have a more stable, peaceful, and negotiated transition into the future than say China. Equally, it will avoid some of the deleterious side effects of an unprepared capitalist society, such as Russia. Although slower, India is more likely to preserve its way of life and it’s civilization of diversity, tolerance, and spirituality against the onslaught of the global culture.
Despite appalling governance, corruption, and the indecisiveness of their democracy, most Indians believe that their plural, democratic and capitalist society is worth fighting for, because it offers the promise of preserving and enlarging human freedoms, creating prosperity, diminishing poverty, and upholding the dignity of a human being, and it does it better than any other system that human beings have tried so far. Because India is unique in this, like America, it is vulnerable to terrorists.
Friday, July 16, 2004
Who is America fighting and why ?
It is a month since the macabre dance of death in New York and Washington and we are now in the midst of a war, but I am not sure that we understand what this is all about. People around the world are uncomfortable and insistently ask whom is America fighting? Americans are also confused. They want to know who are their enemies and why do they hate us? And hate so much that that a few young men defied the instinct to live and died for it. The trouble is that America is at war against people it doesn’t know, and having gone off to war, it can’t very well return without having won it.
President Bush says that it is a war against freedom. He says that democracy and the American way of life is under attack. In the present atmosphere of grief and anger this is easy for Americans to accept. But surely it doesn’t sound right? If it were true then the terrorists would have targeted the Statue of Liberty? Instead they targeted the Pentagon and the World Trade Center--symbols, not of liberty, but of American military and financial might.
As a citizen of India, a country that has eagerly embraced these same liberal, democratic ideals for a half century, I can say unhesitatingly that people overseas admire America for its open, free society. Nor are the American people the objects of hostility. The world admires and loves the incredible achievements of America’s scientists, artists, writers, and filmmakers. Last month people around the world were also moved by the courage of New York’s firemen and rescue workers.
Most Americans do not know that for over a decade we in India have been victims of Taliban trained terrorism that has taken hundreds of innocent lives. Two years ago Osama bin Laden announced from his hideout in the mountains deserts of Afghanistan, "India and America are my biggest enemies and all mujahideen groups in Pakistan should come together to target them." Since then I have wondered why he singled out India and America as his targets.
It is also tragic irony that faceless terrorists in Kashmir had set September 11—-the same dreadful day--as the deadline for what women could wear. Tailors in the valley had been busy making burqas for weeks. But an innocent 15-year-old girl, whose tailor failed to meet the deadline, found acid sprayed on her face as she was rushing home from school. She lost an eye and her pretty face was disfigured for life.
It is tempting to believe that India and America the prime targets of Osama and the Taliban because they are open, pluralistic, and liberal societies. Both have to constantly appease minorities and they present a constant challenge to fundamentalists, who are more comfortable in monolithic states with one religion, one language, and one mind. (Indeed, both Hindu and Muslim fundamentalists have this problem in India.)
Yet, I believe, it is wrong to blame freedom, democracy and the open society for the September 11 suicide attacks on America.
Powerful and large nations have always been envied. They are symbols of arrogance, distrust, and fear. When the powerful get into trouble there is an understandable feeling of glee—an expression of “well, they deserved it”. For example, Mexicans express this envious feeling towards their powerful neighbor to the north: “Too close to America and too far from God”. But it is difficult to imagine that such envious feelings were the recent events. There must be another reason.
It is easy to see this as a clash of civilizations. Islamic people are angry over America’s consistent support to Israel in the Palestine dispute. They are upset that half a million Iraqi children have died as a result of American economic sanctions. They are consumed by the irony that Taliban and Osama bin Laden are America’s creation from the forgotten days of the Cold War. Islam also has an old tradition of jihad against infidels, but the fact is that the average person in Islam is moderate, and not very different from average human beings. They do not hate America enough to condone the terrible tragedy of September 11, and American leaders have rightly pointed out this is not a war against Islam.
I could be wrong, and many Americans may find this unpalatable, but I think one has to look to the American government’s record during the Cold War to explain the present situation. One has to remember the millions who were killed in Korea, Vietnam, and Cambodia; the thousands who died in Lebanon in 1982 and the hundreds of thousands during Operation Desert Storm in Iraq; the countless millions who were victims of American government supported dictators in Haiti, Chile, Nicaragua, and El Salvador. It is this disregard for non-American lives that might begin to explain why America is so hated around the world.
The present administration is in a difficult situation. The world approves the legitimate hunt for Osama bin Laden and applauds the will to destroy terrorist networks. But the risk to America is that wars have their own logic and innocent lives are inevitably lost. Having once contributed to Afganistan’s tragedy by creating the Taliban, America does not want to be remembered once again for creating enormous human suffering among innocent people. That would be counter-productive, and only reinforce the antipathy that brought about the present situation.
President Bush says that it is a war against freedom. He says that democracy and the American way of life is under attack. In the present atmosphere of grief and anger this is easy for Americans to accept. But surely it doesn’t sound right? If it were true then the terrorists would have targeted the Statue of Liberty? Instead they targeted the Pentagon and the World Trade Center--symbols, not of liberty, but of American military and financial might.
As a citizen of India, a country that has eagerly embraced these same liberal, democratic ideals for a half century, I can say unhesitatingly that people overseas admire America for its open, free society. Nor are the American people the objects of hostility. The world admires and loves the incredible achievements of America’s scientists, artists, writers, and filmmakers. Last month people around the world were also moved by the courage of New York’s firemen and rescue workers.
Most Americans do not know that for over a decade we in India have been victims of Taliban trained terrorism that has taken hundreds of innocent lives. Two years ago Osama bin Laden announced from his hideout in the mountains deserts of Afghanistan, "India and America are my biggest enemies and all mujahideen groups in Pakistan should come together to target them." Since then I have wondered why he singled out India and America as his targets.
It is also tragic irony that faceless terrorists in Kashmir had set September 11—-the same dreadful day--as the deadline for what women could wear. Tailors in the valley had been busy making burqas for weeks. But an innocent 15-year-old girl, whose tailor failed to meet the deadline, found acid sprayed on her face as she was rushing home from school. She lost an eye and her pretty face was disfigured for life.
It is tempting to believe that India and America the prime targets of Osama and the Taliban because they are open, pluralistic, and liberal societies. Both have to constantly appease minorities and they present a constant challenge to fundamentalists, who are more comfortable in monolithic states with one religion, one language, and one mind. (Indeed, both Hindu and Muslim fundamentalists have this problem in India.)
Yet, I believe, it is wrong to blame freedom, democracy and the open society for the September 11 suicide attacks on America.
Powerful and large nations have always been envied. They are symbols of arrogance, distrust, and fear. When the powerful get into trouble there is an understandable feeling of glee—an expression of “well, they deserved it”. For example, Mexicans express this envious feeling towards their powerful neighbor to the north: “Too close to America and too far from God”. But it is difficult to imagine that such envious feelings were the recent events. There must be another reason.
It is easy to see this as a clash of civilizations. Islamic people are angry over America’s consistent support to Israel in the Palestine dispute. They are upset that half a million Iraqi children have died as a result of American economic sanctions. They are consumed by the irony that Taliban and Osama bin Laden are America’s creation from the forgotten days of the Cold War. Islam also has an old tradition of jihad against infidels, but the fact is that the average person in Islam is moderate, and not very different from average human beings. They do not hate America enough to condone the terrible tragedy of September 11, and American leaders have rightly pointed out this is not a war against Islam.
I could be wrong, and many Americans may find this unpalatable, but I think one has to look to the American government’s record during the Cold War to explain the present situation. One has to remember the millions who were killed in Korea, Vietnam, and Cambodia; the thousands who died in Lebanon in 1982 and the hundreds of thousands during Operation Desert Storm in Iraq; the countless millions who were victims of American government supported dictators in Haiti, Chile, Nicaragua, and El Salvador. It is this disregard for non-American lives that might begin to explain why America is so hated around the world.
The present administration is in a difficult situation. The world approves the legitimate hunt for Osama bin Laden and applauds the will to destroy terrorist networks. But the risk to America is that wars have their own logic and innocent lives are inevitably lost. Having once contributed to Afganistan’s tragedy by creating the Taliban, America does not want to be remembered once again for creating enormous human suffering among innocent people. That would be counter-productive, and only reinforce the antipathy that brought about the present situation.
Thursday, July 15, 2004
This is not only America's war
It is more than a month since the short, macabre dance of death in New York and Washington changed the world. We are now in the midst of a war, but many are uncomfortable and ask who is America fighting? Some are confused, and insistently ask why were they made targets of the September 11 attacks? They also wonder why is America disliked? And in this case, so hated that a few young men were willing to defy the basic human instinct for survival and die for what they believed to be a worthwhile cause.
I shall attempt to answer these questions from a non-American perspective. I live in India, a country that has eagerly practiced the same American liberal, democratic ideals for a half century. But most Americans are unaware that we in India have been victims of Taliban trained terrorism for more than a decade that has taken hundreds of innocent lives. It is tragic irony that faceless terrorists in Kashmir had set September 11—-the same dreadful day--as the deadline for what women could wear. Tailors in the valley had been busy making burqas for weeks. But an innocent 15-year-old girl, whose tailor failed to meet the deadline, found acid sprayed on her face as she was rushing home from school. She lost an eye and her pretty face was disfigured for life.
Two years ago Osama bin Laden announced from his hideout in the mountains deserts of Afghanistan, "India and America are my biggest enemies and all mujahideen groups in Pakistan should come together to target them." Since then I have wondered why he singled out India and America as his targets.
It is tempting to believe that India and America are the prime targets of Osama and the Taliban because they are open, pluralistic, and liberal societies. They are the two largest democracies in the world. They have to constantly deal with diverse minorities and they present a constant challenge to fundamentalists, who are more comfortable in monolithic states with one religion, one language, and one mind. (Indeed, both Hindu and Muslim fundamentalists have this problem in India.) Yet, I believe, it is simplistic to blame democracy and the open society alone for the September 11 suicide attacks on America. If it were only a war against freedom, as President Bush says, then the Statue of Liberty would have been the first target.
Indians have welcomed Bush’s global war on terrorism partly because it has strengthened our own government’s hand to fight terrorists here. Maulana Masood Azhar is India’s Osama bin Laden. He is the mastermind of Jaish-e-Mohammad, a Pakistan based terrorist group that claimed responsibility for the suicide bombing in Srinagar which killed 38 people three weeks after the attacks in America. Indians were relieved when America announced the freezing of this group’s bank accounts because of its links with Osama. Azhar believes in jehad like Osama, and India needs to go after him with the same vigor that America is going after Osama.
Until America declared a war on terrorism, the rapidly growing Indian middle class had been resigned to live with terrorism. It regards all forms of religious extremism with disdain—as something divisive and irrational that comes in the way of its “rational” preoccupation with a rising standard of living, upward mobility, and the peaceful pursuit of electronic appliances. The world has not realized how much India has changed since the 1991 reforms. Its economy has grown 6.4 percent a year for a decade (and 7.5 percent for three years in a row), making it one of the ten fastest growing economies in the world. More recently, population growth has begun to slow, and in 1998 it was down to 1.7 percent compared to an historic 2.2 percent growth rate. Literacy has climbed to 65 percent compared to 52 percent a decade ago, with women and the backward states registering the biggest gains. More than 120 million Indians have pulled themselves out of poverty in the past decade as the poverty ratio has declined to 26 percent. And the nation may have finally found its competitive advantage in its booming software and IT services. At this rate half of India (that is, the west and the south) should turn middle class by 2025, and India will see its share of world product rise from 6 to 13 percent, making it the third largest economy in the world.
This is the future that terrorism threatens and this is why the Indian middle class supports America’s war. However, many Indians are offended by the America’s historical indifference to non-American lives. America has historically propped up dictators in Latin America and backed tyrants in Africa and Asia, and this has led to the death of millions around the world. I wonder if this disregard for non-American lives explains why America is so disliked around the world.
Then there is the usual anti-Americanism, just as fashionable in our influential left wing and academic circles as it is in Europe and Latin America. These are the same people who are against economic globalization, technology, free capital flows and foreign influences. They charge that America is arrogant, hypocritical and is exporting an unhealthy consumerist way of life. However, this sort of anti-Americanism does not resonate with the common person, who loves the incredible achievements of America’s scientists, artists, athletes, filmmakers, and only last month was moved by the courage of New York’s firemen and rescue workers.
About 12 percent of India’s population is Islamic, and they are more ambivalent about America’s war. Our Muslims are more ready to argue the Palestinian case, and believe that America could have done more to restrain Israel. They are upset that half a million Iraqi children have died as a result of American economic sanctions. They are consumed by the irony that Taliban and Osama bin Laden are America’s creation from the cold war. We have a few Islamic fundamentalists as well, but the truth is that the average Indian Muslim is moderate but confused about what is happening. Hence, we have not seen Indian Muslims protesting against this war.
Amidst the confusion, uncertainty and fear--after all, Afghanistan is almost our neighbor--ordinary Indians understand that in the end this is a war against fanaticism and terror, and for civilized tolerance. They realize that in all wars some innocent people will be killed. But they also know from unhappy experience that almost every victim of terrorism is an innocent person. Thus, this is not an American war. It is also our war. But President Bush has to be sensitive as he prosecutes it. He needs to convince the world that non-American lives are just as precious as American ones. Otherwise, for all the good that America will achieve, the world will continue to dislike America.
I shall attempt to answer these questions from a non-American perspective. I live in India, a country that has eagerly practiced the same American liberal, democratic ideals for a half century. But most Americans are unaware that we in India have been victims of Taliban trained terrorism for more than a decade that has taken hundreds of innocent lives. It is tragic irony that faceless terrorists in Kashmir had set September 11—-the same dreadful day--as the deadline for what women could wear. Tailors in the valley had been busy making burqas for weeks. But an innocent 15-year-old girl, whose tailor failed to meet the deadline, found acid sprayed on her face as she was rushing home from school. She lost an eye and her pretty face was disfigured for life.
Two years ago Osama bin Laden announced from his hideout in the mountains deserts of Afghanistan, "India and America are my biggest enemies and all mujahideen groups in Pakistan should come together to target them." Since then I have wondered why he singled out India and America as his targets.
It is tempting to believe that India and America are the prime targets of Osama and the Taliban because they are open, pluralistic, and liberal societies. They are the two largest democracies in the world. They have to constantly deal with diverse minorities and they present a constant challenge to fundamentalists, who are more comfortable in monolithic states with one religion, one language, and one mind. (Indeed, both Hindu and Muslim fundamentalists have this problem in India.) Yet, I believe, it is simplistic to blame democracy and the open society alone for the September 11 suicide attacks on America. If it were only a war against freedom, as President Bush says, then the Statue of Liberty would have been the first target.
Indians have welcomed Bush’s global war on terrorism partly because it has strengthened our own government’s hand to fight terrorists here. Maulana Masood Azhar is India’s Osama bin Laden. He is the mastermind of Jaish-e-Mohammad, a Pakistan based terrorist group that claimed responsibility for the suicide bombing in Srinagar which killed 38 people three weeks after the attacks in America. Indians were relieved when America announced the freezing of this group’s bank accounts because of its links with Osama. Azhar believes in jehad like Osama, and India needs to go after him with the same vigor that America is going after Osama.
Until America declared a war on terrorism, the rapidly growing Indian middle class had been resigned to live with terrorism. It regards all forms of religious extremism with disdain—as something divisive and irrational that comes in the way of its “rational” preoccupation with a rising standard of living, upward mobility, and the peaceful pursuit of electronic appliances. The world has not realized how much India has changed since the 1991 reforms. Its economy has grown 6.4 percent a year for a decade (and 7.5 percent for three years in a row), making it one of the ten fastest growing economies in the world. More recently, population growth has begun to slow, and in 1998 it was down to 1.7 percent compared to an historic 2.2 percent growth rate. Literacy has climbed to 65 percent compared to 52 percent a decade ago, with women and the backward states registering the biggest gains. More than 120 million Indians have pulled themselves out of poverty in the past decade as the poverty ratio has declined to 26 percent. And the nation may have finally found its competitive advantage in its booming software and IT services. At this rate half of India (that is, the west and the south) should turn middle class by 2025, and India will see its share of world product rise from 6 to 13 percent, making it the third largest economy in the world.
This is the future that terrorism threatens and this is why the Indian middle class supports America’s war. However, many Indians are offended by the America’s historical indifference to non-American lives. America has historically propped up dictators in Latin America and backed tyrants in Africa and Asia, and this has led to the death of millions around the world. I wonder if this disregard for non-American lives explains why America is so disliked around the world.
Then there is the usual anti-Americanism, just as fashionable in our influential left wing and academic circles as it is in Europe and Latin America. These are the same people who are against economic globalization, technology, free capital flows and foreign influences. They charge that America is arrogant, hypocritical and is exporting an unhealthy consumerist way of life. However, this sort of anti-Americanism does not resonate with the common person, who loves the incredible achievements of America’s scientists, artists, athletes, filmmakers, and only last month was moved by the courage of New York’s firemen and rescue workers.
About 12 percent of India’s population is Islamic, and they are more ambivalent about America’s war. Our Muslims are more ready to argue the Palestinian case, and believe that America could have done more to restrain Israel. They are upset that half a million Iraqi children have died as a result of American economic sanctions. They are consumed by the irony that Taliban and Osama bin Laden are America’s creation from the cold war. We have a few Islamic fundamentalists as well, but the truth is that the average Indian Muslim is moderate but confused about what is happening. Hence, we have not seen Indian Muslims protesting against this war.
Amidst the confusion, uncertainty and fear--after all, Afghanistan is almost our neighbor--ordinary Indians understand that in the end this is a war against fanaticism and terror, and for civilized tolerance. They realize that in all wars some innocent people will be killed. But they also know from unhappy experience that almost every victim of terrorism is an innocent person. Thus, this is not an American war. It is also our war. But President Bush has to be sensitive as he prosecutes it. He needs to convince the world that non-American lives are just as precious as American ones. Otherwise, for all the good that America will achieve, the world will continue to dislike America.
Tuesday, July 13, 2004
India Shining (1984 – 2004), RIP?
Outlook, 12 Jul 2004
It is no use pretending. While the last general election brought some good news--especially, a well deserved slap to Narendra Modi’s fascist face—it also brought bad news. The hugely positive global sentiment in favour of India that had prevailed until mid May has received a setback. The clearest example is the dramatic slowdown in the growth in the nation’s reserves. Until the week ended May 7, reserves had been growing at the rate of US $750 million a week. This accretion to reserves had diminished to less than US $100 million a week. The rupee has also reversed its appreciating trend. Although this may, in fact, be good for exports, but the currency trend combined with the stock market crash demonstrates that sentiment has changed, and if this is not reversed quickly it will hurt new private investment in the economy, and longer term growth, competitiveness, and jobs.
Sentiments are fragile and often irrational, but they do matter. Entrepreneurs invest when they are feeling good and stop investing when doubts creep in. This is what has happened in India. Doubts have crept in, and the self-confidence that had fuelled investment during the past nine months has largely evaporated. Both Indian and foreign investors have once again begun to have doubts about India as a worthy destination for investment. Thus P. Chidambaram faces a heroic task. For no matter how much you tell investors that the fundamentals of the economy have not changed—that it is still the same sound economy as it was two months ago—market sentiments have a life of their own, and they do not always listen to reason.
Although the left tends to dismiss it, national confidence is a good thing. Ask any CEO and he will tell you that a sustained positive feeling among employees often separates success from failure. Ask a historian of Rome, and he will testify to its amazing power. Or of 19th century Britain, or Japan between 1960-1990, or even current day China—they will all bear witness to the clout of self-belief, which makes ordinary people do extraordinary things. This confidence has been jolted by this election.
Before relegating “India Shining” to history’s dustbin it is well to remember that it did succeed in one space, and there it succeeded spectacularly. The business class both in India and abroad bought the idea that India had become a serious player in the world economy and was poised to make a leap forward. This had generated tremendous excitement in the corporate world, both in India and abroad, and for almost a year I could feel a palpable optimism in my interactions with investors and business people. The offshoring controversy in America may also have fuelled it, and the foreign press certainly reinforced it. From a land of snake charmers India had suddenly become a serious competitor for the white-collar jobs of the developed world. I was abroad in February and March this year and never have I seen such a spate of positive views expressed by foreign commentators about India.
Right through the nineties, China had been the big success story. Quietly over the past couple years, however, India had somehow crept onto the radar of global media. Hence, during the past year every time China was mentioned India’s name was attached to it. Earlier this year the New York Times wrote in a front page story that China and India were going to write the script for the 21st century. But the more cautious rendition was usually “China and to lesser extent, India” as the Economist put it. This positive perception of India has diminished, if not ceased entirely, ever since the stock market crash. The Indian left may have contempt for markets, but investors watch markets, and since we are part of the global economy, investor sentiment will determine investment, growth, and jobs.
I ask myself, why has this sentiment suddenly changed when the fundamentals about our economy are the same? In part, I think it is because the Indian whining story has also affected the business community, which has concluded that India’s economic prospects were perhaps never as rosy as they had been led to believe. And the defeat of the BJP has reinforced this perception. In the process of trashing the BJP’s tall claims, the opposition unintentionally ended in trashing India, the country. Investors began to wonder if the story of India’s prospects were a bunch of tall claims, when the reality may have been that it was still the same “under-achiever” which the Economist has been portraying for years. I don’t think that Congress meant to trash the country, but this is how it ended, and our country became the victim of competitive democratic politics. Self-confidence has always been lacking in our society, especially in the business community. I don’t know what and how long it will take to rebuild it. We certainly have an outstanding economic team in place today, but as I said before, sentiment is irrational and elusive.
The well intentioned Common Minimum Program (CMP) of the new government probably did more to kill this spirit than anything else. The idea of reservations in the private sector, when the prospect of labour reform had died--this frightened managers who were engaged in the hard day to day work of running companies. As it is, they had to put up with a sub-optimal work culture with endemic absenteeism, and now this burden of reservations. It is a future just too awful to contemplate!
Businessmen have repeatedly expressed the view that they would happily pay to lift the poor if they had the slightest faith that the money would reach the poor. They agreed that the best way to lift the poor was through good primary schools and primary health care. Hence, they didn’t mind the proposed education cess. But they worried about the condition of our municipal schools: 93 percent of Bengali primary schoolchildren can’t write their names in Bangla; 30 percent of teachers are absent in Bimaru states, 50 percent don’t teach and most beat their pupils. Unless we first reform our schools (by giving parents’ associations a voice, for example, in the teacher’s pay) we would only be wasting the nation’s hard earned money. As it is, India spends around Rs 1 lakh crores on education (which is higher than most countries as a percent of GDP), but because of teacher absence and other inefficiencies, a third is perhaps wasted. That is a waste of Rs 30,000 crores!
“India shining” is a nice expression and it’s a pity that it got mixed up with politics. Since it is synonymous with India’s economic success, not surprisingly both the BJP and the Congress wanted to take the credit. The BJP claimed that its policies were responsible for the past year’s fine performance and the changed mood; the Congress argued that the economy grew faster under their man, Narasimha Rao. Both were right (and wrong). The truth is that India’s economy has been shining for two decades, growing around 6 percent a year, making it the fifth fastest major economy in the world.
After stagnating for centuries, our economy did finally pick up after Independence. It grew 3.5 percent a year between 1950 and 1980; but our population also grew 2.2 percent; hence the net affect was 1.3 percent per capita income growth (3.5 minus 2.2)—this is what we mournfully called “the Hindu rate of growth.” Things began to change with modest liberalisation in the eighties when annual GDP growth rose to 5.8 percent while population growth remained at 2.1 percent; thus, income per capita moved up to a more respectable 3.7 percent. This happy trend continued in the reforms decade of the nineties when growth averaged 6.2 percent a year, and population, in fact, slowed to 1.8 percent average; thus, per capita income rose by a decent 4.4 percent a year.
What these numbers mean is that if our per capita GDP had continued growing at the pre-1980 level, then Indian incomes would have reached current American per capita income levels only by 2250. But if our economy continues to grow at the present 6 percent rate, and if population grows at 1.5 percent, then we will reach American income levels by 2066. This is a gain of 216 years, and this is what “India shining” really means. And it is worth dying for! It means that it is finally possible to believe that we shall soon be able to conquer India’s age-old worry over want and hunger.
It is easier to explain why India was shining in the nineties. The brave reforms of Narasimha Rao’s government opened our economy, dismantled controls, lowered tariffs and taxes and broke public sector monopolies. And the economy responded magnificently. But how does one explain the pick-up in the 1980s? And here I think we don’t give enough credit to Rajiv Gandhi. He too opened the economy, albeit reticently and modestly—lowering marginal taxes and tariffs, removing the most irritating import restrictions, and liberalised industrial licensing through “broadbanding”. Although modest, these efforts seem to have had a bigger impact that even the sweeping reforms of the 1990s. Bradford Delong, an American economist, wrestles with this puzzle in In Search of Prosperity: Analtytic Narratives on Economic Growth, edited by Dani Rodrik of Harvard. The real miracle, however, is that all the governments after Rao surprisingly continued the reforms, albeit in a frustratingly slow way. Yet this elephant-like pace has made India one of the fastest growing major economies in the world. So, the lesson is that if you consistently reform in one direction in a democracy, it adds up. Since we haven’t had strong reformers at the top, like Thatcher or Deng, is it possible that the reform process has become institutionalised?
This “adding up” over time has enhanced our national confidence, and which to my mind is central to the notion of “India shining”. Thus, it is the Indian people who are shining as they have overcome all the obstacles put in their way by self-serving bureaucrats, politicians, monopolistic industrialists, left intellectuals and labour leaders—in short, all the vested interests of the Licence Raj. But for all Indians to shine, we must begin to seriously reform agriculture and education. This ought to be the agenda of this government.
This election has reminded us that left’s historic role is to make the right sensitive to the needs of the poor and to humanize capitalism in the process. Unfortunately, our left is bankrupt in terms of ideas, and thinks that throwing good money at old problems will solve them. Moreover, the left has not ditched its naïve faith in state control when our nation is groaning under the weight of red tape. This statism makes the left look stupid. In the end, the problems of India’s poor will not be solved by ideology but by good implementation. And this needs mental application. We have to focus on the “how”, not the “what”. It is easier to abuse the India’s bourgeoisie, but more difficult to come up with real answers to real problems.
Monday, July 12, 2004
A DANGEROUS IDEA
Times of India, July 11, 2004
A lot of rubbish has been floating in the air ever since May 13, when our election results came out. Silly ideas, discredited years ago, have been revived and assiduously marketed by the left, creating the illusion that India's centre of gravity has shifted against the global market system.
The most dangerous of these is to extend reservations to the private sector. Let me illustrate with this thought game. Let's assume that this becomes a law. You are in the market for a new scooter, and just before visiting the Bajaj showroom a friend tells you that a quarter of Bajaj's workers were not hired on merit. Since you have a three year old daughter who is going ride at the back, you stop in your tracks. Since all Indian scooters suffer from the same defect, you are forced to buy an imported one. Soon Bajaj, Hero Honda, TVS and others will have to shut their Indian factories, start producing abroad (say in Thailand), and importing their scooters into India. Thus, Thai workers will gain from our reservations.
Not for a moment am I suggesting that a scooter made by a dalit is inferior. In fact, it is probably superior to one made by a brahmin (who has probably never worked with his hands). But you will suspect a Bajaj scooter if merit has been compromised in recruitment. Companies that employ nephews and nieces will always perform worse than those who hire the best. In our highly competitive global market, talented people are the scarcest of resources - ask any CEO, recruiting is his biggest challenge. If Infosys were to hire less than the best talent, it too will lose customers and market share.
A second problem is that jobs in the private sector are not for life, unlike the government. If a person doesn't perform she loses her job. So, if Bajaj were to hire on grounds other than merit, he will get into an endless cycle of hiring and firing people. Those fired will go to court, alleging discrimination. Thus, while Bajaj spends his energies on litigation, his foreign competitors will move ahead, improving products, distribution and customer satisfaction. Finally, our reservations have not benefited the poor. Studies show that they are monopolised by the creamy layer of the privileged among the backwards, giving the middle class backwards an unfair advantage. In fact, the politics of caste submerge the real problems of the poor.
This is not an academic discussion either. Maharashtra has already passed a law extending reservations to state-aided institutions (which some have interpreted to mean any company with a loan from a public sector bank). As a result, Rahul Bajaj has threatened to shift his factory from Pune. How can you advise anyone to invest in Maharashtra under the circumstances!
Although I am against reservations, I do think that there is a strong case for affirmative action. We should study the American model, where quotas are illegal, but institutions do attempt to achieve diversity. There are no short cuts in the end. The only way to genuinely lift the poor is through better schools and primary health centres. If our politicians had focused on education and health over the past 50 years, by now there would have been greater equality of opportunity, and we wouldn't need reservations. Instead, they chose to give subsidies and reservations, which didn't help the poor. Hence, India was ranked 134th out of 150 nations in the Human Development Index (2000). The worst indictment of Indian socialism is that in the end it did so little for the poor.
A lot of rubbish has been floating in the air ever since May 13, when our election results came out. Silly ideas, discredited years ago, have been revived and assiduously marketed by the left, creating the illusion that India's centre of gravity has shifted against the global market system.
The most dangerous of these is to extend reservations to the private sector. Let me illustrate with this thought game. Let's assume that this becomes a law. You are in the market for a new scooter, and just before visiting the Bajaj showroom a friend tells you that a quarter of Bajaj's workers were not hired on merit. Since you have a three year old daughter who is going ride at the back, you stop in your tracks. Since all Indian scooters suffer from the same defect, you are forced to buy an imported one. Soon Bajaj, Hero Honda, TVS and others will have to shut their Indian factories, start producing abroad (say in Thailand), and importing their scooters into India. Thus, Thai workers will gain from our reservations.
Not for a moment am I suggesting that a scooter made by a dalit is inferior. In fact, it is probably superior to one made by a brahmin (who has probably never worked with his hands). But you will suspect a Bajaj scooter if merit has been compromised in recruitment. Companies that employ nephews and nieces will always perform worse than those who hire the best. In our highly competitive global market, talented people are the scarcest of resources - ask any CEO, recruiting is his biggest challenge. If Infosys were to hire less than the best talent, it too will lose customers and market share.
A second problem is that jobs in the private sector are not for life, unlike the government. If a person doesn't perform she loses her job. So, if Bajaj were to hire on grounds other than merit, he will get into an endless cycle of hiring and firing people. Those fired will go to court, alleging discrimination. Thus, while Bajaj spends his energies on litigation, his foreign competitors will move ahead, improving products, distribution and customer satisfaction. Finally, our reservations have not benefited the poor. Studies show that they are monopolised by the creamy layer of the privileged among the backwards, giving the middle class backwards an unfair advantage. In fact, the politics of caste submerge the real problems of the poor.
This is not an academic discussion either. Maharashtra has already passed a law extending reservations to state-aided institutions (which some have interpreted to mean any company with a loan from a public sector bank). As a result, Rahul Bajaj has threatened to shift his factory from Pune. How can you advise anyone to invest in Maharashtra under the circumstances!
Although I am against reservations, I do think that there is a strong case for affirmative action. We should study the American model, where quotas are illegal, but institutions do attempt to achieve diversity. There are no short cuts in the end. The only way to genuinely lift the poor is through better schools and primary health centres. If our politicians had focused on education and health over the past 50 years, by now there would have been greater equality of opportunity, and we wouldn't need reservations. Instead, they chose to give subsidies and reservations, which didn't help the poor. Hence, India was ranked 134th out of 150 nations in the Human Development Index (2000). The worst indictment of Indian socialism is that in the end it did so little for the poor.
Monday, June 28, 2004
LETTER TO MY LEFTIST FRIENDS
Times of India, June 27, 2004
I sometimes find it hard to believe how many of my close friends are leftists. The reason, I suppose, is that I was a socialist once, and old associations don't die easily. Also, I admire your courageous idealism even though it is misguided, and your undoubted personal integrity. This election has reminded us of the left's historic role - it is to make the right sensitive to the needs of the poor and to humanise capitalism in the process. You now have a historic opportunity to do it.
You must have been surprised by the hostility that greeted the Common Minimum Programme. Although you may dismiss the Indian middle class (of which, btw, you are a part), the truth is that it would happily pay to lift the poor if it had the slightest faith that the money would reach the poor. Sadly, the government's delivery mechanism is a leaky bucket.
We both agree that the best way to lift the poor is through good primary schools and primary health care. Hence, your proposed education cess looks attractive. But ask yourself: why don't you send your child to a municipal school? It is because they are rotten. Only 7 per cent of primary schoolchildren in West Bengal can write their name in Bangla. Some 30 per cent of teachers are absent in Bimaru states and 50 per cent don't teach, and most beat their pupils. Unless we first reform our schools (by giving parents' associations a voice, for example, in the teacher's pay) you are only wasting our hard earned money. We already spend around Rs 1 lakh crores on education (which is higher than most countries as a per cent of GDP) and estimates show that a third is wasted.
In the past weeks, you have opposed labour reform, wanted loans waived to farmers, and asked for a roll back of the modest LPG price increase - all this in the name of the poor. Consider this: labour reforms will only hurt the lazy among organised labour (which is only 7 per cent of India's total labour) but it will improve the lot of the 93 per cent. Also, it is the rich farmers who default on loans, not the poor. Finally, it is the middle class which uses cooking gas while the poor use kerosene. It sounds suspiciously as though you champion the labour aristocracy, the rich farmers, and the middle class. For 40 years you supported the license raj, knowing full well that it helped big business houses against new entrepreneurs. There is no bigger indictment of the Indian left - in the name of the poor, it has done so little for the poor.
This brings me to your historic role. If you genuinely care for the poor, then help the state to improve the delivery of services to the poor. The problems of India's poor will not be solved by ideology but by good implementation. And this needs mental application. Since the 1970s the Economic and Political Weekly has been highlighting the horrendous leakages in the employment guarantee schemes. Focus on the how, not the what. It is easier to abuse the bourgeoisie, but more difficult to come up with real answers to real problems.
I sometimes think that you hate businessmen so much that you would keep everyone poor rather than allow a few businessmen to get rich. It is time you reconciled to the market as the only workable economic system. You may dislike businessmen, but you must value competitive markets. Finally, ditch your naive faith in state control. Our nation is groaning under the weight of red tape. Stop being statist - it makes you sound like Murli Manohar Joshi !.
I sometimes find it hard to believe how many of my close friends are leftists. The reason, I suppose, is that I was a socialist once, and old associations don't die easily. Also, I admire your courageous idealism even though it is misguided, and your undoubted personal integrity. This election has reminded us of the left's historic role - it is to make the right sensitive to the needs of the poor and to humanise capitalism in the process. You now have a historic opportunity to do it.
You must have been surprised by the hostility that greeted the Common Minimum Programme. Although you may dismiss the Indian middle class (of which, btw, you are a part), the truth is that it would happily pay to lift the poor if it had the slightest faith that the money would reach the poor. Sadly, the government's delivery mechanism is a leaky bucket.
We both agree that the best way to lift the poor is through good primary schools and primary health care. Hence, your proposed education cess looks attractive. But ask yourself: why don't you send your child to a municipal school? It is because they are rotten. Only 7 per cent of primary schoolchildren in West Bengal can write their name in Bangla. Some 30 per cent of teachers are absent in Bimaru states and 50 per cent don't teach, and most beat their pupils. Unless we first reform our schools (by giving parents' associations a voice, for example, in the teacher's pay) you are only wasting our hard earned money. We already spend around Rs 1 lakh crores on education (which is higher than most countries as a per cent of GDP) and estimates show that a third is wasted.
In the past weeks, you have opposed labour reform, wanted loans waived to farmers, and asked for a roll back of the modest LPG price increase - all this in the name of the poor. Consider this: labour reforms will only hurt the lazy among organised labour (which is only 7 per cent of India's total labour) but it will improve the lot of the 93 per cent. Also, it is the rich farmers who default on loans, not the poor. Finally, it is the middle class which uses cooking gas while the poor use kerosene. It sounds suspiciously as though you champion the labour aristocracy, the rich farmers, and the middle class. For 40 years you supported the license raj, knowing full well that it helped big business houses against new entrepreneurs. There is no bigger indictment of the Indian left - in the name of the poor, it has done so little for the poor.
This brings me to your historic role. If you genuinely care for the poor, then help the state to improve the delivery of services to the poor. The problems of India's poor will not be solved by ideology but by good implementation. And this needs mental application. Since the 1970s the Economic and Political Weekly has been highlighting the horrendous leakages in the employment guarantee schemes. Focus on the how, not the what. It is easier to abuse the bourgeoisie, but more difficult to come up with real answers to real problems.
I sometimes think that you hate businessmen so much that you would keep everyone poor rather than allow a few businessmen to get rich. It is time you reconciled to the market as the only workable economic system. You may dislike businessmen, but you must value competitive markets. Finally, ditch your naive faith in state control. Our nation is groaning under the weight of red tape. Stop being statist - it makes you sound like Murli Manohar Joshi !.
Sunday, June 13, 2004
THE BILLIONARIES CLUB
Times of India, June 12, 2004
During the past year the world has begun to see us differently. In the nineties, China occupied centre stage, but increasingly Western commentators have begun to club India with China as future economic powers. This image received a jolt with the change in government, but it will recover because our economy is strong.
We owe this new respect, in part, to the outsourcing controversy as the West has begun to think of India as a competitor for its service jobs. The changed perception has also made global investors look at us once again, which is why I received an invitation from a group informally known as The Billionaires Club, organised by the respected investment firm, Goldman Sachs.
Gathered in an elegant room in Chicago last month were 15 soft-speaking individuals whose collective net worth exceeded a hundred billion dollars. First, they listened to the now famous BRIC report, which projects India to be the star performer over the next fifty years, ahead of Brazil , Russia , and China . Next, I got up and unabashedly sold India for 45 minutes. Before concluding, I asked these worthies why they preferred to invest in China . One of them gently corrected me, ‘‘Forget China , we have much greater investments than India in smaller countries like Thailand , Malaysia , Vietnam .’’ I asked,
‘‘Why? Don’t you like us?’’
‘‘We love India , but we hate your red tape.’’ Over the next thirty sobering minutes I bit the dust, as I heard one horror story after another about India ’s officialdom. The owner of one of the world’s largest hotel chains described how it took 5 years to get land access to his hotel in Mumbai. Another spoke about his humiliation by the Reserve Bank. ‘‘In other countries we deal with banks, but why are we forced to deal with the central bank in India ?’’
Someone described how his factory was delayed by two months because he refused to bribe the engineer from the SEB. Another complained about our central excise and customs officials. The owner of an FII said, ‘‘Portfolio investors don’t take the Mauritius route to evade Indian taxes — we do it to avoid dealing with your tax officials.’’ To drive the point home, the group contrasted the welcoming behaviour of Chinese officials, who they said were also corrupt, but had created a business friendly environment.
A second reason for India ’s weak FDI performance, they pointed out, was our infrastructure, a point that Jeff Immelt, G.E.’s boss, also made in Bombay recently. ‘‘In the nineties, China ’s energy sector grew 20 times that of India , and transport market 8 times,’’ he said. On the other hand, the billionaires were hugely impressed with India’s human capital, and one of them recounted how Indians had upgraded Russian planes brilliantly with Indian avionics, ‘‘and this has impressed the hell out the American defence establishment.’’
‘‘Face it, Mr Das, Indians are a great people, but your red tape is the killer,’’ was the conclusion. I had tried to put up a brave front in the meeting, but as I trudged back to my hotel I had a sickening feeling in my stomach. I consoled myself thinking, why does it matter to India ’s poor what 15 rich Americans think? But I knew in my heart that it did matter — if these men invested, others would follow. And this would create jobs, bring technology, make India competitive, bring revenues to the government, and this in turn would make it possible to invest in village primary schools and health centres. This is how China has been lifting its poor, and this is why P. Chidambaram so desperately wants foreign investment.
During the past year the world has begun to see us differently. In the nineties, China occupied centre stage, but increasingly Western commentators have begun to club India with China as future economic powers. This image received a jolt with the change in government, but it will recover because our economy is strong.
We owe this new respect, in part, to the outsourcing controversy as the West has begun to think of India as a competitor for its service jobs. The changed perception has also made global investors look at us once again, which is why I received an invitation from a group informally known as The Billionaires Club, organised by the respected investment firm, Goldman Sachs.
Gathered in an elegant room in Chicago last month were 15 soft-speaking individuals whose collective net worth exceeded a hundred billion dollars. First, they listened to the now famous BRIC report, which projects India to be the star performer over the next fifty years, ahead of Brazil , Russia , and China . Next, I got up and unabashedly sold India for 45 minutes. Before concluding, I asked these worthies why they preferred to invest in China . One of them gently corrected me, ‘‘Forget China , we have much greater investments than India in smaller countries like Thailand , Malaysia , Vietnam .’’ I asked,
‘‘Why? Don’t you like us?’’
‘‘We love India , but we hate your red tape.’’ Over the next thirty sobering minutes I bit the dust, as I heard one horror story after another about India ’s officialdom. The owner of one of the world’s largest hotel chains described how it took 5 years to get land access to his hotel in Mumbai. Another spoke about his humiliation by the Reserve Bank. ‘‘In other countries we deal with banks, but why are we forced to deal with the central bank in India ?’’
Someone described how his factory was delayed by two months because he refused to bribe the engineer from the SEB. Another complained about our central excise and customs officials. The owner of an FII said, ‘‘Portfolio investors don’t take the Mauritius route to evade Indian taxes — we do it to avoid dealing with your tax officials.’’ To drive the point home, the group contrasted the welcoming behaviour of Chinese officials, who they said were also corrupt, but had created a business friendly environment.
A second reason for India ’s weak FDI performance, they pointed out, was our infrastructure, a point that Jeff Immelt, G.E.’s boss, also made in Bombay recently. ‘‘In the nineties, China ’s energy sector grew 20 times that of India , and transport market 8 times,’’ he said. On the other hand, the billionaires were hugely impressed with India’s human capital, and one of them recounted how Indians had upgraded Russian planes brilliantly with Indian avionics, ‘‘and this has impressed the hell out the American defence establishment.’’
‘‘Face it, Mr Das, Indians are a great people, but your red tape is the killer,’’ was the conclusion. I had tried to put up a brave front in the meeting, but as I trudged back to my hotel I had a sickening feeling in my stomach. I consoled myself thinking, why does it matter to India ’s poor what 15 rich Americans think? But I knew in my heart that it did matter — if these men invested, others would follow. And this would create jobs, bring technology, make India competitive, bring revenues to the government, and this in turn would make it possible to invest in village primary schools and health centres. This is how China has been lifting its poor, and this is why P. Chidambaram so desperately wants foreign investment.
Monday, May 31, 2004
LETTER TO A FRIEND
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.
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
ENOUGH IS ENOUGH!
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".
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.
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