India

by Patrick French

  Ranganathan was so excited to be talking about his early days in business that he let our meeting overrun, and through a glass door I could see members of the CavinKare board assembling for a conclave. In appearance, they were mainly south Indian men of middle age in drab slacks with pens lined up in the top pockets of their checked cotton shirts, looking modest and solemn. If India is the land of talented nerds, south India may be the source, the fountain.

  They were known for their tendency to innovate and for their dedication to a project once it had started. Arunachalam Muruganantham, a college dropout from Coimbatore, a little further south, always had ambitions to do something different with his life. He was in his mid-thirties, the son of a handloom weaver, and frustrated by working as an assistant in a welding shop. One day he came home and had the sort of encounter that would be embarrassing in any culture but was particularly awkward in a conservative Tamil family. His wife was holding something. What was it? She refused to let him see. He insisted she show him. It was torn strips of old cloth that she was using as an improvised menstrual pad. Why did she not buy sanitary towels, he asked, shocked. Because, his wife told him, if all the women in our household bought sanitary towels, our milk budget would have to be cut by half. He had touched on a serious problem, which was that poorer women in India still relied on strips of cloth when they had their period. So Muruganantham set to work.

  For four years, he dedicated himself to the invention of a low-cost sanitary towel. He bought new ones and pulled them apart. He experimented with the absorbency of pine wood pulp padding and cotton gauze. He made samples and distributed them for free, and collected the used pads to see how well they had worked. He researched methods for sterilizing the materials, the causes of cervical cancer and the risks from dioxin exposure. He built simple machinery to manufacture the pads, which used little electricity, and perfected the production. His family were humiliated by his obsession. His sisters avoided him; his mother even moved out of the family home. By 2008, Muruganantham had sold more than a hundred sanitary-towel manufacturing machines around the country, focusing on rural areas where women could buy and operate the equipment themselves, and start their own cooperative business. Each machine produced around 16,000 pads a month, and he was planning a new design.2 Plans were now being made to roll out this low-cost project across the country.

  Ten years before Sonia Maino went to the Lennox Cook School in Cambridge to do an English language course and met her future husband, Rajiv Gandhi, Manmohan Singh arrived in the town to study economics at the university. He was a diligent and teetotal Sikh student, somewhat withdrawn and polite, and he seemed to be interested in nothing but his academic work. Maybe this was because he had seen too much to want to have fun. His mother died when he was a baby, and he was brought up by his grandparents in a poor farming village in what is now Pakistan. His father, finding it hard to scratch a living from the land, had moved to Peshawar and became a munshi, or bookkeeper, for a businessman who imported dried fruits from Afghanistan. Aged eleven, Manmohan Singh went to live with his father and his new wife. During partition, he walked to school in Peshawar past dead bodies sprawled in the road. His grandfather, who had helped to raise him as a child, was murdered in the communal violence and the family home was burned down. At the age of fourteen, he escaped over the border to the new India with his father.

  After spending some time in Haldwani in the Himalayan foothills, the family migrated to Amritsar. Manmohan Singh had three half-brothers and six half-sisters, and made it clear to his father that he hoped to study rather than to work with him in his retail business. At this desperate and dislocated time, he succeeded in winning a university place in Chandigarh and later gained a scholarship to study abroad. Singh said his interest in economics had stemmed from a puzzling question he read in a book when he was a child: why was India, a potentially rich country, full of poor people? After winning the Adam Smith Prize at Cambridge, which Keynes had won in 1909 for an essay on index numbers, he departed to do a D.Phil. at Oxford. Manmohan Singh was now accompanied by his wife, Gursharan Kaur, and their young daughter.3 His chosen subject was the collapse of India’s export market and its prospects for recovery.

  In the second half of the nineteenth century, sometimes known as the First Age of Globalization, the Indian economy grew by 1–1.5 percent per annum, aided by the export of commodities like tea, jute and cotton.4 It was during the period of recession following the First World War, when the population grew rapidly while per capita income dropped, that India gained a reputation as a desperately poor country. Nationalist campaigners like Nehru, appalled by the suffering they saw around them, took up an explanation first suggested by Dadabhai Naoroji, a Congress patriarch and mentor of Jinnah who had served as a Liberal Party MP in the UK Parliament, about why India was suffering from extreme poverty. Naoroji said it faced “the continually increasing, exhausting and weakening drain” of its resources by the colonial power. He was joining up different things here: debt servicing on infrastructure projects like canals and railways, money that was being made by European firms and spending on forced imperial services like the India Office. By 1947, London was in debt to New Delhi through the sterling balances, but in a newly independent nation this was less important than the sense that money would no longer be draining away to a foreign country. The benefits of the infrastructure supplied by the British could not be separated from the memory of their cultural presumption and racial contempt.

  The new national leaders believed a policy of “laissez-faire and free trade” had been the root of the problem. They disliked the way that for nearly a century India had been importing large quantities of foreign manufactured goods rather than making them indigenously, and Nehru himself thought international trade was a “whirlpool of economic imperialism.”5 It was also an antagonistic response to the intrinsic Indian tendency towards capitalist activity. As the business strategist C. K. Prahalad said, on a typical street “virtually every individual is engaged in a business of some kind—whether it is selling single cloves of garlic, squeezing sugar cane juice for pennies a glass, or hauling TVs.”6 So India—a country with a tradition of trading dating back over thousands of years, an established financial network and a population of notoriously hardworking citizens—backed away from buying and selling in the world economy, preferring to try to become self-sufficient. Trade, the ancient and natural link between nations, was replaced with imposed, state-sponsored cultural interchange; Bharatanatyam dancers were sent to Uzbekistan, and Russian circuses arrived in Delhi. The economist Meghnad Desai suggested the “drain theory” expanded and developed into “a general theory of nationalist economic critique … The most blatant case of this thinking was in the case of Bangladesh, whose leaders argued when it was East Pakistan that it was being kept in poverty because of a drain to West Pakistan. Since independence, one has failed to locate this surplus.”7

  Writing a year before Nehru’s death, Manmohan Singh began tentatively to suggest the policy on trade should be changed. His postgraduate thesis, which became a book, India’s Export Trends and the Prospects for Self-Sustained Growth, was the first complete analysis of the causes of this problem. He argued that policymakers were acting as if “the stagnation of India’s export earnings was an inescapable phenomenon,” and that unless it changed, the country could not sustain itself “in the sense that the economy ought to be able to balance its foreign exchange budget without resorting to external aid.”8 What he meant, essentially, was that unless Indians gained money by selling things abroad, they would have no foreign currency with which to buy essential imports from other countries. Unless export earnings rose substantially by 1970, the predictions for self-sustained growth in the Third Five Year Plan would fail, and India would have to depend on begging from the Soviets or the Americans.

  Much of his book was a meticulous, case-by-case study of the trade in jute, tea, textiles, oilseeds, minerals, tobacco and coffee. His worry was that these commodities were insu
fficient for growth, and that India should start manufacturing for export and sell things like iron, steel, chemicals and drugs. In the short term, it should boost bilateral trade with countries in the Soviet bloc. He was aware that the rapid disappearance of the sterling balances had left the nation in an impossible position, with a looming balance-of-payments problem. “The foreign exchange reserves of the country having been nearly exhausted the Indian economy now faces a dismal prospect: even a minor dip in export earnings or a shortfall in the expected amount of foreign aid can induce a magnified cut in industrial production and employment.”9 He had little sympathy for “responsible economists” who were claiming “that import substitution, whatever it meant, would by itself be able to solve India’s balance of payments difficulties.”10 Singh was referring here to the popular idea that by making imitation goods across every sector, the difficulty would be cured. (It was this philosophy that meant TVS could not import bearings.) He suggested that export controls and import licences needed to be urgently reviewed—and looking at the list of regulations in his footnotes, it is not hard to see why: typewriter ribbons, pearl barley, biscuits, paper-lined hessian bags, cashews and hurricane lanterns had all had their import status specified by the civil servants of the permit raj, some of whom were making money out of these controls.

  India’s Export Trends, like most books, was widely ignored and has never been reprinted. Manmohan Singh went on to academic posts in Chandigarh and Delhi, combining teaching economics with assignments in the civil service, and in his fifties became governor of the Reserve Bank of India and later deputy chairman of the Planning Commission. He had a reputation for being reticent, modest and incorruptible. A stint in Geneva at the end of the 1980s confirmed his feeling that conditions in India needed to change urgently. His more dynamic contemporaries in academia saw him as a time-server, a perfect bureaucrat. One of them said: “He was a solid applied economist. None of us rated him very highly as an economist, I can tell you that—though he’s a very nice man.”11 This was the brilliance of Manmohan Singh: he was never going to do the breathtaking research, or create a differential equation for pricing derivatives, or concoct a “Singh Model” of inputs and outputs. Rather, he took a simple idea and ran with it when he got the chance.

  A series of disconnected events catapulted Manmohan Singh into history, enabling him to turn a calamity into an opportunity. At the end of 1989 the Berlin Wall came down, followed by the wobbling and ultimate collapse of the Soviet Union, which had long been one of India’s main trading partners. In August 1990, Saddam Hussein invaded Kuwait and hundreds of thousands of Indian workers were displaced across the Gulf, leading to the loss of their remittances home. More significantly, the price of oil spiked and the cost of India’s petroleum imports tripled, creating the prospect of a fatal balance-of-payments crisis. In 1991 Rajiv Gandhi was assassinated, and in the aftermath a Congress minority government was elected with Narasimha Rao as prime minister. India was close to bankruptcy.12

  Since the economic disasters of the 1970s, much of the political class in India had wanted reform, although in public they had to utter the prevailing platitudes. In some cases the impetus for change came from their own children, who had studied abroad using dubious funds, and imbibed fresh ideas. The growth of the East Asian economies was another surprise: Lee Kuan Yew in Singapore had created a sensation. As Lee boasted to the PBS series Commanding Heights, “The countries that make themselves relevant become better off. Their people become better off. Those who opt out suffer … Our external trade is about three times our GDP. Three times our GDP.”13 In 1991, India’s exports as a proportion of GDP amounted to 8 percent; three decades earlier, when Manmohan Singh wrote his thesis, they amounted to 4 percent.14 So some progress had been made, but it was feeble progress. As Singh was fond of observing, India and South Korea had nearly identical per capita income back in 1960. China’s rapid economic liberalization seemed to offer another lesson, in particular Deng Xiaoping’s dictum that it did not matter whether a cat was black or white providing it caught mice—meaning results were more important than theories. In the 1980s, even as India’s economy started doing better, the public finances had been managed imprudently. By the time of the 1991 crisis, government expenditure exceeded income by nearly 10 percent, causing prices to rise, and India was dependent on borrowing from the IMF and commercial institutions.

  Whether economic liberalization was possible on a scale that would transform “the Hindu rate of growth” seemed unlikely: India was too democratic, and had too many interest groups that needed to be satisfied, and too many politicians who could raise obstacles to the various possible reforms across different sectors.

  Manmohan Singh received a telephone call on the morning of the summer solstice of 1991, inviting him to become India’s finance minister. He was amazed, and admitted later that he had hesitated to enter the venal political world: “When I asked some friends of mine they said, ‘You’re going to become the scapegoat. You’re going to fail and maybe within six months you will be out.’ And I said I was the Fagin of my peers. I’d held all the top civil service jobs, but here was an opportunity to play a political role, and there was an odd chance that we would make a success of it, in which case I would have a footnote in India’s history. If I fail, that’s of no great consequence. And who fails if India wins?” The reforms he introduced went much further than dealing with the immediate liquidity crisis. Asked what key changes he had made in his new, unlikely position, he said, “We got government off the backs of the people of India, particularly off the backs of India’s entrepreneurs … We tried to create an environment conducive to the growth of business.”15

  Singh’s advantage was that his calm, technocratic manner meant no one perceived him as a political threat. He was an antidote to the comedic stereotype of the brash and irate Sikh. Some people even assumed, having known him in different incarnations, that he was a believer in the old socialist consensus. With his professorial manner—he had never learned how to drive a car—he was as far as it was possible to be from the classic, bombastic Indian politician. This did not mean he was weak. In the words of his colleague P. Chidambaram, a lawyer and former trade union leader from Tamil Nadu born a couple of years before independence: “He came with no political baggage at all. Few knew him except as an economic administrator, few thought that he had any sharp political views, he was acceptable to everybody. From day one Dr. Manmohan Singh simply took charge and said, ‘These things have to be done.’ ”16

  The economic moves he proposed came very close to failing. He made it clear to the prime minister immediately that big structural changes were needed. He told the press in his quiet voice that he could offer nothing but blood, sweat and tears for three years. The deficit was so large that lenders were pulling out and India’s foreign exchange reserves had dipped below $1bn, which would cover around two weeks of essential imports like petroleum, without which the country would come to a halt. As the new government tried to put together a temporary solution, they were obliged to mortgage some of India’s gold reserves to the Bank of England, and even to physically transfer gold to other countries for sale. A Chinese businessman flew in to New Delhi and offered to extend a substantial loan, but his credentials were dubious and this was rejected.17 An emergency rescheduling deal was requested from the IMF and discussed in shuttle negotiations between London and Washington, which came near to collapse. A Western official involved in the talks told me later: “I really thought it might not come through, and India would default and join the basket cases of the world. It was a very tense time.”18 The deal was secured, although the IMF’s demands for reform were weaker than the changes Manmohan Singh finally made: within weeks he had devalued the rupee and moved to allow new foreign investment, cut tariffs and eliminate licences for small industries. He presented an emergency budget to Parliament, telling MPs that India could not continue to live beyond her means, and had the ability to emerge as a global economic power. Quoting
Victor Hugo, he said that no power on earth can stop an idea whose time has come.

  Singh presented a second budget, entrenching more serious reform, saying the nation would build “an India worthy of the dreams of the founding fathers of our republic. We shall pay any price, bear any burden, make any sacrifice to realize those dreams. India is on the move again.” Responding to the speech, the constitutional lawyer Nani Palkhivala said the budget marked “a new chapter in India’s economic history. It was our ideological socialism which had been responsible for India remaining the twentieth poorest nation on earth … We must get rid of the illusion that we are still fighting the East India Company.” Somnath Chatterjee of the CPI(M), or Communist Party of India (Marxist), was having none of it: the Congress government would “go down in history as the one which has mortgaged our country to the imperialist financial marauders for some tainted lucre”—Indians were now slaves to “those agencies whose imperialist and capitalist design so far as the Third World countries are concerned is very well known … Pandit Jawaharlal Nehru has been given an indecent burial.”19