India

by Shashi Tharoor

  There is a canteen, a personnel department, and an accounts department. There are promotions, job changes, pay rises, audits, and in-house trade unions. Engineers, electricians, plumbers and painters maintain the equipment with a care that is almost surreal. . . .

  In a series of newspaper articles a decade earlier, right-of-center congressman Vasant Sathe had pointed out that the public-sector steel industry in India employed ten times as many people to produce half as much steel as the South Koreans (according to 1986 figures not yet available to Sathe, the facts were even worse: the Steel Authority of India paid 247,000 people to produce some 6 million tons of finished steel, whereas 10,000 South Korean workers employed by the Pohan Steel Company produced 14 million tons that same year). The homegrown product that emerged from this labor-intensive process was uneconomically expensive: India’s finished steel cost $650 a ton, so it found few buyers abroad, since world prices were between $500 and $550 a ton. Ironically, India’s raw material — iron ore — was cheap enough to be imported by foreign steel manufacturers, who used Indian iron ore to manufacture their own finished steel cheaper than India could. Sathe pointed out that if India had been able to make steel efficiently to world standards and at the world price, it would be earning four thousand rupees a ton in profit from exporting finished steel, whereas it was now exporting iron ore and making just seventy-five rupees a ton. This was, ironically, what had happened under colonialism — India being used as a source of raw material by countries that did their own manufacturing abroad. Now the same thing was being done in a spirit of anticolonialism: we were doing it to ourselves.

  Sathe was an influential political figure and such views were increasingly common among thinking Indians, but governmental attitudes were slow to change. The rooting of economic policy in political atavism made change difficult; wary of opening the economy to foreign business for fear of repeating the experience of the East India Company, whose merchants had become rulers, India relied on economic self-sufficiency as the only possible guarantee of political independence. The result was extreme protectionism, high tariff barriers (import duties of 350 percent were not uncommon, and the top rate as recently as 1991 was 300 percent), severe restrictions on the entry of foreign goods, capital, and technology, and great pride in the manufacture within India of goods that were obsolete, inefficient, and shoddy but recognizably Indian (like the clunky Ambassador automobile, a revamped 1948 Morris Oxford produced by a Birla quasi-monopoly, which had a steering mechanism with the subtlety of an oxcart, guzzled gas like a sheik, and shook like a guzzler, and yet enjoyed waiting lists of several years at all the dealers till well into the 1980s).

  The mantra of self-sufficiency might have made some sense if, behind these protectionist walls, Indian business had been encouraged to thrive. Despite the difficulties placed in their way by the British Raj, Indian corporate houses like those of the Birlas, Tatas, and Kirloskars had built impressive business establishments by the time of independence, and could conceivably have taken on the world. Instead they found themselves being hobbled by regulations and restrictions, inspired by socialist mistrust of the profit motive, on every conceivable aspect of economic activity: whether they could invest in a new product or a new capacity; where they could invest; how many people they could hire, whether they could fire them; what sort of new product lines they could develop; whether they could import any raw materials; where they could sell what, and for how much. Initiative was stifled, government permission was mandatory before any expansion or diversification, and a mind-boggling array of permits and licenses was required before the slightest new undertaking. And if a business employing more than a hundred people failed, it could not be closed without government permission, which was usually not forthcoming.

  “What’s your father doing these days ?” I asked a Calcutta friend whose family had moved to Delhi in 1971. “Oh, he’s very busy,” replied the friend. “His job is to figure out ways by which his company can invest its profits at home without falling afoul of the various rules and regulations of the government preventing private-sector companies from expanding.” That such a job existed in a country that was crying out for productive investment was horrifying enough, but worse was the fact that the government justified its restrictions in the name of socialism, as if socialism had nothing to do with the members of society who could have gained productive employment and food in their bellies from the investments the capitalists were not allowed to make. It is sadly impossible to quantify the economic losses inflicted on India over four decades of entrepreneurs frittering away their energies in queuing for licenses rather than manufacturing products, paying bribes instead of hiring workers, wooing politicians instead of understanding consumers, “getting things done” through bureaucrats rather than doing things for themselves.

  The patriarch of the Kirloskar family, not without bitterness, compared his situation with that of Japan’s Toyota. In 1947 S. L. Kirloskar, despite the obstacles thrown in his way by the British Raj, was already a manufacturer of some consequence, with a couple of factories, using imported machinery, and a market whose potential seemed limitless. According to Kirloskar, Kiichiro Toyoda, at that time, ran a Ford dealership in Tokyo. Within three decades Toyota had become one of the world’s largest and commercially most successful automobile makers, with a brand name recognized around the world, while Kirloskar, struggling to grow under the stifling constraints imposed upon his like by the Indian government, had held his place as one of India’s leading industrialists but had no claim to being mentioned in the same breath as his Japanese contemporary. Toyota had been helped, encouraged, and abetted by the government of Japan and its Ministry of International Trade and Industry; Kirloskar had had to fight his government all the way to expand. Ironically, Mahatma Gandhi’s links with Indian businessmen during the nationalist movement suggest that a similar partnership between business and government, as in Japan, could have been possible, indeed might have been encouraged by a Vallabhbhai Patel (the pragmatic deputy prime minister who died within three years of independence). Nehru, who regarded capitalists with distaste and admired the great achievements of the socialist Soviet state, headed in another direction, and Mr. Kirloskar and his ilk had to run hard to stay in the same place. In an ironic footnote to the story, Kirloskar’s heirs announced in August 1996 that they would participate in a joint venture to manufacture a subcompact car in India; their partner in the venture was Toyota.

  Regulations and socialist-inspired restrictions on capital were only part of the problem. India taxed its businesses into starvation, and its citizens into submission; at one point the cumulative taxes on some Indians totaled more than 100 percent of their income. Taxation was meant to finance government overspending, but its yield — especially as extortionate rates drove more and more individuals and companies into tax evasion — could not keep pace with the voraciousness of the government’s appetite. When it could not tax any more, the government borrowed money, piling up higher and higher deficits. Concomitantly, it tried to control more and more of the economy. Prime Minister Indira Gandhi nationalized the country’s banks and insurance companies in 1969, and briefly even tried to take over the wholesale trade in food grains (though this proved disastrous and was quickly shelved).

  Bank nationalization achieved the political objective of burnishing Mrs. Gandhi’s socialist credentials and giving the government a ready source of money for essentially political purposes, with few questions asked; but it failed to fulfill either of the objectives it was ostensibly about, namely to serve the Indian masses better and to channel their savings efficiently into socially productive investments. Instead the government obliged the nationalized banks to make bad loan after bad loan to “priority sectors” designated for political purposes, reducing most nationalized banks to near insolvency, while basic services were provided in a manner that would be unacceptable anywhere in the democratic world.

  The Janata Party government that briefly replaced Mrs. Gandhi b
etween 1977 and 1980 proved no better, mainly because their dominant ethos was a combination of the Congress’s Nehruvian old guard and the fiery (if wholly impractical) idealism of the former Socialist Party. Janata rule saw no changes in the basic patterns of the Indian economy, and was best known for the departures from India of IBM and Coca-Cola (the latter because the government insisted that the company reveal its secret formula). Heedless of the signal these exits sent to the rest of the world — whose brief hopes that a change of government might have led to a more welcoming investment climate were poured down the same drain as the Coke — the Janata ministers chose to celebrate the departures of these multinational corporations as a further triumph for socialism and anti-imperialist self-reliance. (One good thing, though, about the departure of Coca-Cola was the development of two competing Indian brands, Thumbs Up and Campa-Cola. I am not alone in believing that both were better than the “Real Thing,” and when Coke returned to the country in 1995, it bought the Thumbs Up brand and kept it going for a loyal and discriminating Indian clientele.)

  The combination of internal controls and international protectionism gave India a distorted economy, underproductive and grossly inefficient, making too few goods, of too low a quality, at too high a price. The resultant stagnation led to snide comments about what Indian economist Raj Krishna called the “Hindu rate of growth,” which averaged some 3.5 percent in the first three decades after independence (or, to be more exact, between 1950 and 1980) when other countries in Southeast Asia were growing at 8 to 15 percent or even more. Exports of manufactured goods grew at an annual rate of 0.1 percent until 1985; India’s share of world trade fell by four-fifths. Per capita income, with a burgeoning population and a modest increase in GDP, anchored India firmly to the bottom third of the world rankings. The public sector, however, grew in size though not in production, to become the largest in the world outside the Communist bloc.

  Some economists argued that by protecting public-sector industry, the government actually damaged rural India, since the Mahalanobis plans completely neglected the agricultural sector, and the higher cost of manufactured goods in effect reduced the purchasing power of agricultural incomes. But these sins were compounded by a policy of generous subsidies to farmers, and an exemption from taxation on agricultural incomes, that gave the country’s agrarian elites the same sort of vested interest in economic policy as the public-sector workers whose jobs would disappear if common sense dawned on the government. Meanwhile, income disparities persisted, the poor remained mired in a poverty all the more wretched for the lack of means of escape from it in a controlled economy, the public sector sat entrenched on the “commanding heights” and looked down upon the toiling, overtaxed middle class, and only bureaucrats, politicians, and a small elite of protected businessmen flourished from the management of scarcity.

  As handouts drained the budget and restrictions hampered growth, there was an almost culpable lack of attention to the country’s infrastructure (with the solitary exception of the railways, whose development has been a rare triumph). The country’s overcongested roads, ports, bridges, and canals have fallen into disrepair, and few have been upgraded beyond the standards of the 1940s; goods sit (and sometimes rust or rot) at the docks because the harbors can no longer cope with the volume of cargo they need to handle; irrigation and power generation have made little or no progress (and power has actually taken several steps back, as demand has long since outstripped capacity, and ubiquitous power cuts have made the euphemism “load-shedding” a familiar cliche.) Communications was the worst of the list; the woeful state of India’s telephones right up to the 1990s, with only 8 million connections and a further 20 million on waiting lists, would have been a joke if it wasn’t also a tragedy — and a man-made one at that. The government’s indifferent attitude to the need to improve India’s communications infrastructure was epitomized by Prime Minister Indira Gandhi’s communications minister, C. M. Stephen, who declared in Parliament, in response to questions decrying the rampant telephone breakdowns in the country, that telephones were a luxury, not a right, and that any Indian who was not satisfied with his telephone service could return his phone — since there was an eight-year waiting list of people seeking this supposedly inadequate product.

  Mr. Stephen’s statement captured perfectly everything that was wrong about the government’s attitude. It was ignorant (he clearly had no idea of the colossal socioeconomic losses caused by poor communications), wrong-headed (he saw a practical problem only as an opportunity to score a political point), unconstructive (responding to complaints by seeking a solution apparently did not occur to him), self-righteous (the socialist cant about telephones being a luxury, not a right), complacent (taking pride in a waiting list the existence of which should have been a source of shame, since it pointed to the poor performance of his own ministry in putting up telephone lines and manufacturing equipment), unresponsive (feeling no obligation to provide a service in return for the patience, and the fees, of the country’s telephone subscribers), and insulting (asking long-suffering telephone subscribers to return their instruments instead of doing something about their complaints). It was altogether typical of an approach to governance in the economic arena that assumed that the government knew what was good for the country, felt no obligation to prove it by actual performance, and didn’t, in any case, care what anyone else thought.

  This is not merely a gratuitous attack on one minister, who was by no means the worst of his breed. Rather, it is intended to raise the question of attitude as an issue in itself, in understanding India’s disastrous persistence in an economic policy that was misconceived from the start and had clearly outlived its usefulness by the mid-1960s. The governmental attitudes of a C. M. Stephen underlay an approach that shackled the creative energies of the Indian people. One of the commonly asked questions of the 1970s and 1980s was how it was that India plodded along under its “Hindu rate of growth” when Indians thrived so spectacularly wherever they were given a chance abroad. The astonishing successes of the “Non-Resident Indians” or NRIs — the émigrés who, arriving penniless, soon broke into the ranks of the millionaires in Britain, and constituted the ethnic group with the highest per capita income in the United States — point to the Indian capacity for enterprise and hard work, a capacity that was stunted and frustrated at home, but flourished under systems that rewarded effort. Of course, some would argue that, merely by virtue of their expatriation, India’s NRIs were already more ambitious and hardworking than their compatriots back home, but I have seen too much evidence of toil and striving being obstructed or unrewarded in India to accept that argument. The only real difference between Indians in India and Indians abroad is that abroad their energies are not extinguished by the system. Instead they are tangibly rewarded. Once, after a particularly nationalistic column in an Indian magazine in which I poured contempt on the India-bashing of ignorant NRIs, I received a flurry of letters from Indian emigrants. One that particularly moved me contained the painfully honest words of a Mr. Bal Krishan Sood of Ilford, Essex:

  Over 90 per cent of us left India with “third division” matriculation [a barely passing grade] and no training whatsoever in any profession. When we arrived in other countries we could not find the other people around us, whether it was Europe or America, any better than us, yet [they were] living a better, cleaner and happier life than us in India. . . . We observe that we Indians outside, within a reasonable period, find ourselves owning a house, a car and many other luxuries of life, whereas the likes of us in India are left to live without ordinary necessities and amenities. And we on our visits fail to find a better life for those who were far better educated and trained [than us]. We ask, why? Do you know, why?

  Another, equally pointed, was from a clerk in Bristol: “In India I worked hard, did overtime, lived honestly and could not make ends meet. Here, with much less effort, I have a good salary, a car and a house and my children have a future to look forward to. And I do not have
to ask anyone for favors or pay any bribes. How do you expect me not to be angry when I think of India?”

  This was a healthy anger, the anger of one who knew it did not have to be that way. Senator Daniel Patrick Moynihan, known for his outspoken candor when he was the U.S. ambassador in New Delhi in the mid-1970s, used to enjoy comparing the port cities of Singapore, Rangoon, and Calcutta. In the late 1940s they were much alike: bustling, thriving ports, with the usual Third World combination of prosperity, poverty, and political agitation. By the 1970s, Singapore was a gleaming, modern city, the second largest port in the world, a haven of social peace and economic development; Calcutta was rundown, the port corrupt and failing, the city paralyzed by political violence,’ the homeless begging in the streets; and Rangoon was a forgotten, isolated backwater. I assume Moynihan’s point was to compare economic systems and choices, not political ones. But though his image is evocative comparisons of India with countries like Singapore, Taiwan, and South’ Korea are, on the face of it, invidious. There are obvious differences in the scale of the problems confronted, the size of the population, and the political systems adopted (autocracy drove economic growth in all three cases, but at a price that pluralist India could not pay). Nonetheless, Indians should not deflect the comparison. Our problems may have been larger in scale, but large problems could have been tackled as aggregates of small problems (by greater decentralization of economic decision-making to the states, for instance); and in any case, countries like Malaysia and Indonesia also grappled with comparable problems of overpopulation, ethnic diversity, and political conflict, while managing to spur economic growth. And Malaysia, in particular, did so with a democratic political system not significantly different from that which India enjoyed during the decades of Congress Party dominance. There is no getting away from the conclusion that the main difference with all these countries is not size, scale, or system, but substance — the substance of the economic policy that we chose, or that our elected rulers chose for us, self-righteously convinced that they were right.