To be a technocrat is to wear an invisibility cloak. Despite his apolitical background (not being an elected Lok Sabha MP, he had to make do with the Rajya Sabha), Manmohan Singh was to emerge as a canny political operator. In 1998 he would negotiate an unlikely electoral alliance for Congress with the notoriously abrasive Kanshi Ram of the BSP.20 His unassuming manner and ability to defuse tension, and above all his reputation for being “clean,” enabled him to do things no other leader could have done. Together with Chidambaram in the commerce ministry, he reworked fiscal, economic and trade policy. When Congress MPs and even the prime minister, Rao, expressed doubt, he cleverly harnessed the legacy of the late, apotheosized Rajiv Gandhi, saying that reform was Rajivji’s wish. It was true that economic reforms had been included in the election manifesto in 1991, but very doubtful Rajiv Gandhi would have implemented them on this scale.
At first government revenues fell, but the reforms delivered growth, a 5–7 percent annual GDP rate, growing to 7–9 percent during the following decade. As the market deregulated, carefully positioned businesses managed to make huge sums of money, with much of it evading the tax system. Government borrowing remained high, and inflation rose to unexpected levels. Singh’s calculation was that although in the short term the benefits of growth were dangerously uneven, without them India would have no chance of raising the overall standard of living and be left in the position it had been in before, of redistributing poverty rather than redistributing wealth. Further reforms were needed but seemed politically impossible: the removal of unproductive subsidies in the power and agricultural sectors, a widening of the tax base, a culling of further unnecessary business regulation, a simplification of foreign direct investment and a change in the law on industrial disputes, which prevented large companies from making anyone redundant without government authorization.
Manmohan Singh’s hopes in India’s Export Trends for a boom in the export of goods and services took time. India’s share of world exports grew, though slowly by comparison with China. New markets for textiles, jewellery, manufactured products, computer software and pharmaceuticals opened up, but it was not until his return to office in 2004, this time as prime minister, that trade really took off. Through the 1950s and 1960s, India’s export earnings had hovered between $1bn and $2bn a year; by the time of the economic reforms of 1991 they stood at $18bn; a decade later they had reached $45bn, and a decade after that they were heading for $200bn.21 In a Pew global-attitudes survey in 2009, 96 percent of Indians responded positively to the question: “What do you think about the growing trade and business ties between your country and other countries?”—the highest figure for any nation surveyed.22 India could sell to the world, even if the progress was gradual.
When Manmohan Singh became prime minister at Sonia Gandhi’s behest in 2004, his government’s lack of a majority limited his opportunity to make further reforms. The communist parties on whom he depended for votes would not back further liberalization, while L. K. Advani of the BJP said he was in power but not in authority, a puppet of the Gandhi family. This was to misunderstand the quality of his relationship with Sonia Gandhi. She might not know an endogenous growth model from a fiscal deficit, but she had strong intuition and accurate political instincts, keeping command of electoral manoeuvring while he got on with being prime minister, with Chidambaram as his reliable finance minister and Montek Singh Ahluwalia, a Sikh economist who had previously worked at the World Bank, running the Planning Commission.
India’s export trends, $bn
It was a careful, understated two-step, with Mrs. Gandhi always calling on the prime minister rather than the other way round, a reverse of the symbolic arrangement by which Congress leaders were required to pay obeisance at her residence, 10 Janpath. His style did not change when he took the premiership—to the consternation of officials, he continued to go home for lunch with his wife each day—but he moved rapidly to encourage growth and push forward infrastructure and rural development projects.
Spotting the global economic crisis some way off, Manmohan Singh raised spending in advance of a dip in an attempt to boost the economy during 2008–9. Working with the Reserve Bank of India, he made sure the Indian banking system was not exposed compared to that of other countries where banks were less strictly capitalized and regulated—a residual benefit of the controlled economy. His thinking on the stimulus was explicitly Keynesian, spending in advance to avoid greater calamity. Sanjaya Baru, his media adviser, recalled a flight to Mumbai with the prime minister in 2006, when he presented him with a draft speech. Singh glanced through it and wrote an extra paragraph: “If the rich had spent their new wealth on their own enjoyments, the world would long ago have found such a regime intolerable. But like bees they saved and accumulated, not less to the advantage of the whole community … the capitalist classes were allowed to call the best part of the cake theirs and were theoretically free to consume it, on the tacit underlying condition that they consumed very little of it in practice. The duty of ‘saving’ became nine-tenths of virtue and the growth of the cake the object of true religion.” This was a quote from Keynes’s The Economic Consequences of the Peace, perfectly remembered.23
Manmohan Singh preferred saving to consumption, and in the years after his 1991 reforms, India’s private savings had indeed grown along East Asian rather than American lines, with money stored for the future. At the close of 2009, the Reserve Bank of India bought 200 metric tonnes of gold from the IMF to diversify its assets. One financial analyst described this as “the biggest single central bank purchase that we know about for at least 30 years.”24 Like the Chinese, the Indians did not want to rely only on U.S. dollars or U.S. Treasury bonds at a time of economic flux. It was a dramatic turnaround from the anxious days of 1991, when gold bars had been sent from Bombay to Switzerland in a desperate move to raise $600m. India’s foreign exchange reserves were now approaching $300bn.
Politics in India tends to be seen only in close focus. An outsider watching a television debate, with its cheerful shouting, cross-talking, references to “the creamy layer” (privileged people from minority communities who benefit from affirmative action) and frequent acronyms, might be left unaware what subject is under discussion. Indian politicians love intrigue and detail, and like to turn debates about policy into philosophical discussions, but they tend to avoid drawing back from the close focus to look at the wider picture. This is a problem around the world, but in India it can be acute. Like Nehru, Manmohan Singh had the ability to take a long view, and in 2005 he pursued a contentious nuclear deal with the United States, realizing it offered India an extraordinary and possibly unique opportunity. With Sonia Gandhi’s backing, he risked bringing down his government.
During the Cold War, U.S.–India relations had been tense, with the CIA running agents inside ministries in New Delhi to counter extensive Soviet infiltration, and Indian politicians busily attacking American hegemony.25 In 2000, Bill Clinton became the first U.S. president in more than twenty years to visit India. Except for a few minor politicians who engaged in a public fast at the Constitution Club, drinking only water and fruit juice while Uncle Sam was on Indian soil, the visit was a surprising popular and political success, with Clinton taking the chance to join in with a group of iridescent dancing women in Rajasthan.
Five years later, President George W. Bush offered to accept India as a nuclear weapons state and to share technology, all without India signing the Nuclear Non-Proliferation Treaty. This move was a rare example of a neoconservative dream becoming a reality. The U.S. ambassador, Robert Blackwill, had arrived in New Delhi shortly before 9/11 with little prior knowledge of the country and deduced that, as a large, diverse and vibrant functioning democracy, India would be the perfect ally for the United States in the twenty-first century, especially since Pakistan was no longer stable. He convinced Bush there should be a strategic shift, and that by building up India against China, Asia would not in the future be dominated by any single power. Both
the U.S. Congress and Indian political leaders had understandable doubts about the proposal.
In a parliamentary debate in 2008 that was disrupted by MPs waving wads of cash which they claimed had been given to them to abstain from voting on a confidence motion, Manmohan Singh explained his belief that India needed energy security, and slapped down the opposition BJP for their cynical refusal to back the deal, despite having done much to engineer a rapprochement with America when they were in government. Standing before Parliament, with his calm voice, trained white beard and pale blue turban, Singh told the MPs: “The nuclear agreement that we wish to negotiate will end India’s nuclear isolation, nuclear apartheid and enable us to take advantage of international trade in nuclear materials, technologies and equipment … Every day that I have been Prime Minister of India I have tried to remember that the first ten years of my life were spent in a village with no drinking water supply, no electricity, no hospital, no roads and nothing that we today associate with modern living. I had to walk miles to school, I had to study in the dim light of a kerosene oil lamp … my conscience is clear that on every day that I have occupied this high office, I have tried to fulfil the dream of that young boy from that distant village.”26
Through all these reforms, it was not hard to find people who condemned Manmohan Singh and his works. He was, one commentator said, “the harbinger of the neoliberal economic policies of liberalization-privatization-globalization” that made India “the junior military ally of the U.S. and Israel” and “demolished the image of India as the peace-loving, sovereign supporter of the people of the Third World, and made it the target of Islamic fundamentalists.”27 The benefits of the system Singh developed were questioned, especially after the global credit crisis of 2008, as if the meltdown was evidence that capitalism was a flawed operating system. If things had gone so wrong, how could economic liberalization be good for India? Surely it would be better to return to a command economy? In the words of the leader of the Communist Party of India (Marxist), Prakash Karat: “We, communists, have had no illusions about the nature of globalized finance capital and imperialist globalization. We have doggedly fought the neoliberal policies being imposed in India … We should continue the fight against the military collaboration agreement with the United States.”28
Was the global financial crisis caused by capitalism? In the U.S., a poor person would be offered a loan to buy a house. Sometimes the loan would come to more than the cost of the property. If the value of the house rose and the person paid the mortgage, all might be well. Some of these mortgages—debts—were rolled up into bonds. By 2005, $507bn of high-risk, subprime loans had been repackaged as mortgage bonds.29 Spinning around inside the global financial system were securities worth more than $500bn which were in fact questionable loans, loans made to part-time maids in Indiana and air-conditioning-unit maintenance men in Florida. The bonds were sliced up, depending on how likely the mortgages were to be repaid, and the weaker tranche repackaged and given a new credit rating and sold on to investors. Once U.S. property prices flattened, the house of cards fell and the effects cascaded around the world. The crisis had many causes—greed and incompetence, the collusion of credit rating agencies, America’s failure to control the high-risk lending of its banks, financial instruments few people even in the institutions themselves understood—but at root it was an enormous pyramid scheme, not capitalism exactly. The problem was human nature: if people are encouraged to cheat, they will. India, with its more strictly regulated banks and its deep tradition of saving, was to an extent protected from the worst effects of the global credit crunch.
Socialism, or the principle of equality, did not come naturally to the subcontinent. In a society with a system of gradation in the form of caste which extended across communities and to every aspect of life, it would have been impossible for any ruler to expect uniformity, even if the ruler had been a great deal more coercive than Jawaharlal Nehru or Indira Gandhi. Nor did Indians have any hesitation or embarrassment about wanting money, even if they were abstemious and interested only in saving. There was no suggestion it was easier for a camel to pass through the eye of a needle than for a rich man to enter the kingdom of heaven; materialism and religion were united. For Hindus, the worship of the goddess of wealth and prosperity, Lakshmi, was assumed, and in some cases emulated by other religions. At the festival of Diwali, you seek the blessings of Lakshmi, and at any Hindu temple it is usual to see gods and banknotes intermixed.
When I visited India for the first time, in 1986 as a teenage student, hoping to see the world, I brought with me a selection of electronic goods to sell. I had been told this would be a good way to fund the trip, so I left China through Hong Kong and stocked up on calculators, digital watches, digital games and even a few bottles of branded whisky—the sort of things that were difficult to obtain in India at that time. Bringing them into the country turned out to be straightforward, since the customs officers at the sparse airport were all off duty that night, and on the streets of Delhi these rare goods were snapped up with no trouble, with taxi and rickshaw drivers being the conduit to the Punjabi dealers in such low-level foreign desirables. In those grey, Soviet-style days, everyone wanted shiny goods from overseas and enjoyed the idea of something new which said: “Made in Hong Kong” or “Made in Taiwan.”
Apart from the government stores selling handicrafts and finely made hand-woven cotton items, little was available to buy except on the semilegal street stalls. Bookshops offered cheaply priced Russian novels translated into English, which seemed to have quite a following. I was able, by braving the touts in underground shops on the fringes of Connaught Place (looking back, it seems strange that I risked being robbed for a few thousand extra rupees), to secure a dollar exchange rate about 20 percent higher than the official rate, since the rupee was not a freely convertible currency.
I had travelled previously in Poland, where the communist system left the shops even emptier, but the surprise in India was that nobody appeared cowed by the system. Rather, they worked around it, using ingenuity to manipulate regulations. The restrictions of the state seemed if anything to make people more entrepreneurial and self-reliant, so that the permit raj was like a stagnant obstacle rather than a threat. The tendency in India was to call the choked bureaucracy a legacy of the colonial period, but British form-filling was less pervasive and the state’s direct interference in business was lighter before independence. This seemed more of an indigenous development, something that had evolved in the way that further sites of devotion spring up around an existing shrine. The economist Kaushik Basu suggested in 1992 that the market economy in India worked in the wrong way, since:
its freedom is in the wrong domains. In some parts of India you can buy university degrees; in most parts of India you can bribe to get a driving licence and you can buy your way out if caught for a traffic offence. In these domains our problem is that of excessive marketization: there is a price at which everything can be had.30
Many of the regulations—for example, the law requiring a bureaucrat’s permission to sack people if you had more than fifty employees—would have been positive in intent, but in their implementation they became a source of corrupt money and did more to protect poverty than to protect the poor.31 The restrictions on choice were in some ways attractive, with the ban on Coke and Pepsi creating odd local fizzy drinks like Campa Cola, Limca and Thums Up, with its missing “b.” The system looked stuck; in the pre-reform era, politicians took pleasure in making it impossible for foreign corporations to do business in India. A senior Western ambassador in New Delhi told me he was informed by an official from the Ministry of External Affairs in the course of a difficult negotiation during the 1980s: “All foreigners are basically spies.”32
Indians did things their way, and outsiders had to adjust. Even in more recent times, when a minister kept nearly a hundred international delegates waiting for more than three hours, including assorted high commissioners and ambassadors, he saw no need
to apologize: “Slowly, they will also get used to living like this in India.”33 A vigorous opponent of this national tendency was P. Chidambaram, who in 2009 outraged the officials in the home ministry by introducing fingerprint scans to ensure everyone reached their office by 9 a.m. and only left at 5:30 p.m. Bureaucrats at “the joint secretary level and above” had mistakenly assumed these new regulations would not apply to them.34
In the era before liberalization, India was known around the world for its poverty and its mysticism. Comprehending the country was a specialist interest, rather than a necessity, as it is today. It could be a playground for foreign visitors, a place where backpackers might pretend to be hippies or sadhus for months at a time and survive on a few dollars a day in Pushkar or Goa, and still feel superior to the general dereliction. The unspoken assumption behind the Western view of India at this time—all disease, dirt and deities, stemming from Mohandas Gandhi’s exaltation of village poverty and the romantic attitude taken by anti-colonial writers like E. M. Forster—was that it would always be like this: India was exotic, eternal, to be admired and patronized, but incapable of helping itself. It needed the pump-priming charity of outsiders and was certainly not a competitor, not a country that might take off and revitalize itself. Had Bob Geldof been less busy organizing Live Aid, he would perhaps have gone there to plead for an urgent increase in foreign aid.
Yet at the very time that Westerners were travelling to India in search of suffering and spirituality, and writing replica accounts of it, a more interesting shift was taking place. Indians, and in particular those who came from extended business families, were migrating to North America and Western Europe in search of modern opportunities. They moved into a range of businesses: import-export, shopkeeping, automobile parts, fuel dealerships, steel, catering, jewellery, construction, computers, hotels, motels and potels. (A potel is a motel run by someone from the Gujarati community of Patels; Indians now control around half of all U.S. lodging properties, and the officers of the Asian American Hotel Owners Association are Hemant D. “Henry” Patel, Tarun S. Patel, Chandrakant I. “C.K.” Patel, Ashwin “Ash” Patel, Alkesh R. “Al” Patel and Fred Schwartz.)35 Across the cities of America and Europe, neatly dressed professionals from the subcontinent can be spotted playing their part in a global success story, shifting formally and securely back and forth between cultures. With its annual output of dedicated software, medicine and engineering graduates, India was seen as the natural home for any business process that could be outsourced. Yet through all this, poverty and affluence have grown side by side, and many foreigners still find it nearly impossible to work out how to do business in India.
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