Implosion: India’s Tryst with Reality
Page 9
The metro is now a huge success, running – profitably – for 190 km on six lines with 142 stations, and carrying two million people a day. Extensions are on the way to bring the total to 330 km by 2016. It has been modelled on the Hong Kong Mass Transit Railway (MTR) metro and the rolling stock has the same style and feel, with open carriages stretching the length of a train. The only downside is poor construction maintenance at many stations, plus an Airport Railway that was run unsuccessfully as a public–private partnership (PPP) by the Reliance Group controlled by Anil Ambani till it was taken over by the metro corporation.
Overall, the metro has done more to develop Delhi than any other initiative, opening up new areas and changing society and working patterns. It has improved lifestyles and boosted aspirations for people living in the crowded alleyways of old Delhi, the comfortable colonies of central areas, and new multistorey flat developments in the suburbs, including Gurgaon and Noida,17 as it extends into neighbouring areas. Sreedharan’s success story has also led about ten other Indian cities to plan and build networks, some with him appropriately as the adviser.
Nilekani’s Aadhaar
Another project which shows the importance of strong political support is the Unique Identification Authority of India (UIDAI), whose chairman is Nandan Nilekani. The task is to set up a countrywide personal biometric database and issue hundreds of millions of people with a 12-digit unique identification number called an aadhaar (foundation stone). Estimates have for years suggested that 70 per cent or more of such aid is lost on its way down to rural recipients. By early 2013, the system was beginning to be used for a direct cash transfer scheme to deliver aid money via Aadhaarvalidated bank accounts.
There were, inevitably, technical glitches when the scheme was being rolled out, but Nilekani’s ambitious aim is to have enrolled more than 50 per cent of the population by 2014. He was appointed by Manmohan Singh with the rank of a central cabinet minister in 2009 to set up and run the UIDAI. That provided him with the status he needed to be effective, but his strength in cutting through political and bureaucratic blockages has stemmed from the backing of Sonia and Rahul Gandhi. P. Chidambaram, the finance minister, has called the identification number a ‘game changer’ in the delivery of corruption-prone aid money and a ‘massive re-engineering of the system’. Pranab Mukherjee and Montek Singh Ahluwalia were also supporters, but the Gandhis’ backing was crucial in the project’s early days when Chidambaram was home minister (2008–2012) and favoured his ministry’s rival scheme that was focused more on catching illegal immigrants.
Nilekani, a politically savvy and cautiously media-friendly technocrat, says he was looking for a public role where he could make a difference with his technology knowledge when he was invited by Manmohan Singh to lead the UIDAI.18 He was attracted to the challenge and simple definition of success – to build the biometric database and enrol hundreds of millions of people. Aadhaar is intended to include the poor in India’s growth by giving them an identity and easier access to opening bank accounts, obtaining mobile phones and gas connections and, most importantly, protecting the delivery of their aid funds. ‘This enhances access of the common man to public services while reducing the hassle he or she faces in accessing the service,’ says Nilekani.19
Nilekani sees this as a first step in a continuing programme to bring know-how metaphorically from his old base of Bengaluru to Delhi, using information technology to streamline and improve government operations ranging from national information programmes to taxation. ‘Needless to say, active political support and civil society engagement is a sine qua non for this to happen’, he says.20 He envisages combining technology with regulatory and institutional reform to change the way the government relates with the private sector as a buyer on defence and other equipment and services, as a seller such as on licences for natural resources, and as a regulator in areas such as telecoms.21 He has been advising the government on the formation of a not-for-profit company called Goods and Services Tax Network (GSTN), jointly owned by central and state governments, with additional private sector equity, that could provide a countrywide technology infrastructure for the new tax.
Notes
1. Interview with JE, June 2013
2. http://ridingtheelephant.wordpress.com/2013/10/14/odishas-cyclone-shows-india-can-handle-disasters-but-longer-term-action-is-needed/
3. ‘Harvard to get Kumbh lesson from Akhilesh’, Indian Express, 13 April 2013, http://m.indianexpress.com/news/harvard-to-get-kumbh-lesson-from-akhilesh/1101841
4. In conversation with JE, May 2013
5. Rahul Mehotra’s architecture firm website http://rmaarchitects.com/
6. ‘Lessons of a temporary city – Researchers from across Harvard share findings from India’s Kumbh Mela festival’, Harvard Gazette, 4 April 2013, http://news.harvard.edu/gazette/story/2013/04/lessons-of-a-temporary-city/
7. Speaking at the British Council in Delhi, May 2013
8. ‘“Direct cash transfer facility for UID cardholders”: Nandan Nilekani’, PTI, 26 November 2012, http://articles.economictimes.indiatimes.com/2012-11-26/news/35364892_1_uid-project-uid-numbers-nandan-nilekani
9. JE, ‘On the Road to Repair’, Fortune magazine, 31 October 2005
10. http://ridingtheelephant.wordpress.com/2007/07/19/hastening-slowly-on-india%E2%80%99s-highways/
11. http://ridingtheelephant.wordpress.com/2009/06/02/nath-inherits-a-muddy-murky-highways-programme/
12. Clive Bell and Susanne van Dillen, ‘How Does India’s Rural Roads Program Affect the Grassroots? Findings from a Survey in Orissa’, World Bank, August 2012, http://elibrary.worldbank.org/docserver/download/6167.pdf?expires=1379402806&id=id&accname=guest&checksum=AEDB7F1E5FDEB9CFF94647C0E6D0F2C9
13. https://ridingtheelephant.wordpress.com/2009/01/02/sheila-dikshit-gets-it-wrong-and-now-plans-a-%E2%80%9Cflexi-brt%E2%80%9D-muddle/
14. ‘E. Sreedharan: More Than the Metro Man’, Forbes India, 5 October 2012, http://forbesindia.com/article/leaderhip-award-2012/e-sreedharan-more-than-the-metro-man/33847/1#ixzz2OjIjaBOF
15. JE, ‘Delhi’s Delight’, Fortune magazine, 31 October 2005
16. Anuj Dayal, 35 Management Strategies for Delhi Metro’s Success: The Sreedharan Way, published by Delhi Metro Rail Corporation, Delhi, 2012
17. A series of articles on the Wall Street Journal’s ‘India RealTime’ blog reported in 2012 on the impact of the Delhi Metro: http://blogs.wsj.com/indiarealtime/2012/05/30/metrocity-journal-delhis-changing-landscape/, http://blogs.wsj.com/indiarealtime/2012/05/31/metrocity-journal-the-new-trade-routes/, http://blogs.wsj.com/indiarealtime/2012/u06/01/metrocity-journal-public-vs-private-space/?mod=WSJBlog&mod=irt, http://blogs.wsj.com/indiarealtime/2012/06/02/metrocity-journal-up-up-and-away/
18. Conversations with JE, 2012
19. Nandan Nilekani, ‘Tackling Corruption: Some Alternative Approaches’, The 19th Lovraj Kumar Memorial Lecture, 1st November 2012, http://uidai.gov.in/images/tackling_corruption_01112012.pdf
20. Ibid.
21. Nandan Nilekani, ‘Passing a law can’t solve the corruption problem’, CNN-IBN, 22 October 2012; video trailer of interview: http://ibnlive.in.com/news/nilekani-slams-kejriwal-says-passing-a-law-cant-solve-the-corruption-problem/301655-37-64.html and http://ridingtheelephant.wordpress.com/2012/10/23/corruption-tamashas-and-gossip-flood-india-but-change-will-be-very-slow/
II
OPENING UP
6
Clearing the Cobwebs
‘We have got to get rid of the cobwebs,’ Prime Minister Narasimha Rao told top officials on 21 June 1991, the day he formed his new Congress government. Go away to your office, he said to Manmohan Singh, and work out some details. Thus was born, with a classic understatement, India’s biggest burst of economic liberalization that, over the past 25 years, has touched almost every corner of this vast country and affected the lives of virtually everyone in the billion-plus population. Chalta hai had been pushed aside by a dire financial crisis, but none of the officials in
Rao’s office that morning could have dreamed of the long-term effects of the measures they would be launching, and nor could he. They knew they were about to remove industrial, trade and financial controls that would help to solve the crisis by freeing up economic activity and generating international trade.
What happened, however, was far more dramatic. The moves they initiated gradually unleashed previously repressed entrepreneurial drive, skills and aspirations. This was accelerated by unpredictably rapid expansion of information technology and the internet, plus India’s growing involvement in international business and trade.
Manmohan Singh was at the meeting because he was about to be named finance minister – he was sworn in later in the day with the rest of the cabinet. The country’s financial plight was desperate. A collapse of international confidence in the rupee had caused capital flows to dry up. Foreign exchange reserves had plunged so far that they only covered two weeks of imports, which was not viable. Talks were in progress with the International Monetary Fund for a rescue package. The rupee was devalued in two 10 per cent tranches a few days later on 1 and 3 July, and dramatic trade reforms were quickly introduced to coincide with the second devaluation. Two weeks after that, 47 tonnes of gold were ignominiously flown to the capital of India’s former colonial ruler and deposited in the vaults of the Bank of England to cover a desperately needed bridging loan. Major reforms were announced in a ‘New Industrial Policy’ on the same day as Singh’s first budget speech on 21 July, which made it clear that real and not cosmetic change was happening.1
The Beginnings
The ground for all this had been well prepared, and there were plenty of ideas ready for Singh to pick up. Plans for reform had emerged in various debates and policy papers over several years, notably in the 1980s when Rajiv Gandhi was prime minister, and then during two years of unstable coalition rule between his defeat in a 1989 general election and the formation of Rao’s government.
The reforms really began at the start of the 1980s after Indira Gandhi was returned (in 1980) as prime minister, having recovered politically from a controversial two-year state of Emergency that she had declared in 1975. She had a new approach on economic policy, as L.K. Jha, her top adviser and a veteran bureaucrat, used to explain to me, sitting in the study of his home at the 10 Janpath bungalow in New Delhi where Sonia Gandhi now lives.2 His task, he said, was to begin to reverse some of the state controls and protectionist policies that Indira Gandhi (and he) had introduced and extended in the 1960s and 1970s, building on the centralist economic doctrine of her father, Jawaharlal Nehru.
It was her initiatives and Jha’s work, not the 1991 reforms, that marked the turning point in the history of India’s two phases of development since independence, as Arvind Virmani, a former chief economic adviser to the Indian government, has explained.3 The 30 years from 1950 to 1980 saw India’s version of socialism, which aimed to block imports and force the purchase of India-made goods (known as import substitution). The freedom of the private sector to compete was restricted in many industries, and government ownership and controls were extended into as many areas as possible. The second phase, which started in the early 1980s and was boosted in 1991, still continues. Virmani calls this the phase of ‘market experimentation’, in which the oppressive control regime set up during the first phase was gradually modified and removed. (Many controls however still remain, enabling companies involved with natural resources, land and infrastructure to impede development and encourage corruption.)
One of Indira Gandhi’s first initiatives, in February 1982, was to begin to remove controls on the cement industry (in response to a corruption scandal involving the exploitation of cement shortages by, among others, a leading Congress politician).4 I was on my first visit to India at the time, writing articles for a Financial Times country survey on India, and remember meeting my colleagues, Alain Cass and K.K. Sharma, on the terrace of the Taj Mahal Hotel in Mumbai. Cass, who was the Asia editor, asked Sharma, then our India correspondent, if this heralded real change and how we should reflect that in the overall approach of the survey. Little did we realize the significance of the question.
Gandhi had by this time lost some of her antipathy for the private sector and had also developed an unexpected enthusiasm for importing foreign technology. Alcatel of France had just started work on modernizing parts of India’s telephone system, which was so antiquated that Plessey of the UK donated two electronic exchanges in 1983 for use by a Commonwealth heads of government meeting in Goa.5 (Critics suggested that Gandhi had been influenced by Dhirubhai Ambani, founder of the rapidly growing Reliance Industries, who had a close political connection with her government, to swing in favour of the private sector. The acceptance of foreign technology controversially led to the award of fertiliser projects to Snamprogetti of Italy. Ottavio Quattrocchi, the company’s Delhi representative, and his wife had become friends of Italian-born Sonia Gandhi and Rajiv, and he was later embroiled in a notorious 1980s corruption scandal over a Bofors gun contract.)
More significant initiatives were taken by Rajiv Gandhi when he became prime minister after his mother was assassinated in October 1984. He opened India’s eyes to a modern world beyond the frugality, shortages and controls of the Nehru and Indira Gandhi years, and also beyond the khadi, home-spun traditions of Mahatma Gandhi. He started a debate between 1985 and 1988 about dismantling controls, forcing virtually every government department to examine how they could reduce restrictions on economic and business plans. In practical terms, his government rationalized and reduced taxation levels in various areas, produced a long-term fiscal policy, and pushed through tentative relaxations in the country’s tortuous industrial licensing system. He instigated significant activity in India’s electronics and associated industries, allowing imports and foreign joint ventures that helped to pave the way for India’s software successes in the information technology revolution of the 1990s and 2000s. The stock markets came to life for the first time in decades with a series of share issues that resulted in what was recognized abroad as well as in India as the launch of an ‘equity culture’.6
Unfortunately, India was not ready for such a vision of the twenty-first century, driven by ‘sunrise’ industries, modern cars, computers and electronics, and Rajiv Gandhi did not have enough time to learn how to politicize and implement his enthusiasm and drive.7 Consequently, he was not able to achieve as much as he had hoped, and what he did do remained under-recognized as his government floundered with corruption and other crises. Referring to vested interests and his political opponents, he told a bureaucrat in 1988 that he was not pushing reforms in foreign direct investment because ‘after Bofors they’d accuse me of selling out to foreigners’.8 Nevertheless, he did point to a more sensible way of managing the economy and he inspired reformers, who continue to have influence today, as well as a young generation of entrepreneurs and managers who still talk about how he made business a respectable occupation.
The ‘M’ Document
The 1991 reforms first appeared publicly on 11 July 1990 as an unsigned article headed ‘Towards a restructuring of industrial, trade & fiscal policies’ that was spread across a page and a half of the Financial Express newspaper. A note by the editor (A.M. Khusro) said that there had been ‘some controversy’ over a government policy paper that was being considered by a committee of secretaries, so the Express was publishing it ‘to generate a public debate on matters raised in the document’.
No one knew for sure who wrote the document, but Montek Singh Ahluwalia, one of India’s leading economic policy makers who now runs the Planning Commission as deputy chairman, has revealed to me that he was the author.9 Who leaked what was later dubbed the ‘M’ document – with the title page removed to hide its source – remains a mystery. Maybe it was Ahluwalia himself! I tracked down the article because I was convinced that Manmohan Singh was not the architect of the reforms and had heard that Ahluwalia was said to have written something called ‘What’s left to
be done’ at the end of Rajiv Gandhi’s 1984–89 government. I followed the trail till Ahluwalia told me in June 2013 about the ‘M’ document and admitted authorship, though he did not have a copy. The Indian Express then searched its Chandigarh archives and later in the year found it and I passed a photostat to Ahluwalia, who said, ‘it takes me really down memory lane’.10
Ahluwalia confirmed that he initially wrote the ideas as an overview of ‘what needed to be done’ late in Gandhi’s government when he was an economic adviser in the prime minister’s office. He then turned the ideas into a presentation for V.P. Singh, formerly the finance minister, who became prime minister of a minority eleven-month National Front government in December 1989 (after breaking away from the Congress party). The ideas were discussed by a high-level committee of secretaries (the top level of the civil service) and that became the Financial Express leak. ‘The note he [Ahluwalia] wrote for the prime minister in 1990 contained most of the ideas which were subsequently implemented. He was, thus, a pioneer as far as economic reforms are concerned,’ says C. Rangarajan, who was deputy governor of the RBI at the time11 and later became the governor and top economic adviser to the prime minister from 2004.