Imagining India

Simon Johnson, the former chief economist at the IMF, has penned a marvellous article, The Quiet Coup, that is now making the rounds among policy makers and analysts. It discusses the crony capitalism that lies behind most nations’ financial crises  (mainly in emerging markets and now in the US), and the difficulties in solving them. For us in India, it is a cautionary tale.

The Third Front certainly can’t complain about a lack of press. The other parties have commented on it - there’s Sonia Gandhi poking fun, Sheila Dikshit calling it non-serious. And yet some editorials have acknowledged that it poses some threat to the chances of the BJP and the Congress.

I’m not going to take guesses on how many seats such a third option would end up with, IF it becomes a reality. Making political predictions is a dangerous game in India, one likely to end with egg on the face (I remember all too well how most of the media predicted victory for the NDA in 2004).

But its disappointing that this so-called new alternative is not really one. Its filled with old faces, consisting of various existing regional political parties and breakaway allies of the UPA.  And can we depend on the old guard - in the Congress, BJP, the TF - for better policy? We are running out of time. Too many reforms are pending, and too many issues of inequality, education, and access are losing ground.

Today is the day of the ‘people’s car’ launch, and its no exaggeration to say that this car is likely to transform the face of India’s traffic, both for better and for worse. The good: If creating widespread access to better services and products is the aim of free markets, then the Nano car is a triumph. It has made the dream of owning an automobile attainable for millions in India. The bad: The car will probably increase overcrowding on roads and pollution. But as long as our cities lack viable mass transit systems, people have no choice but to resort to private vehicles, and poorer Indians should not be denied a choice that the middle and upper classes have had for so long. 

For Indian companies, the Nano is only the most recent success when it comes to making products and services suited to the Indian market.  C. K. Prahalad has written about these low-cost approaches many Indian companies have adopted in his book The fortune at the bottom of the pyramid  - of companies targeting the poorest citizens and turning them into consumers, by selling them two rupee sachets of detergent and shampoo, bringing them internet access through community kiosks, providing loans through Self Help Groups and even providing low-cost health care, such as Arvind Eye Hospital. 

And as we weather the global recession, I think this approach is only going to gain steam - India’s countryside has not been as affected by the recession, and rural India is even showing signs of above-average growth. Hopefully, this will draw our markets into the villages,  help address our long-lamented ‘urban rural divide,’ and do its bit in empowering our rural poor.  

Photo credit: Balaji Shankar

Universal appeal is a tricky thing. India’s central governments, up until the late 1970s, had one thing they shared (besides of course, the fact that they were all Congress Party governments): they viewed themselves as a father and mother figure rolled into one, the mai-baap, and also as an authority that didn’t discriminate or favour any one group of citizens over another. 

Since the 1980s, as regional parties have gained power, governments have become far more focused on their particular ethnic identities and groups, and this has sometimes come with open hostility to groups that they don’t represent. So we saw Mayawati in UP call the Brahmin and Bania castes ‘chor’ in her early campaigns, and the Shiv Sena in Maharashtra throw vitriol at non-Marathi residents in the state. And let’s not forget Gujarat’s Chief Minister Narendra Modi - the BJP since the NDA government has been a much more moderate religious force compared to its past, but its most promising young leader is by no means a uniter. (Here is an excellent piece on Modi in the Atlantic Monthly). 

These leaders arouse high emotion, both among their followers and their dissenters. They do not feel accessible outside the caste/religious groups they represent. I find their lack of broader appeal worrying. Political leaders with limited reach, and those who inspire fear in some citizens and passion in others cannot effectively lead a country as diverse as India.

And while we have so far managed reasonably well with coalition governments that cobble together a variety of religious and regional views, the Prime Ministers that headed them were always determinedly moderate figures.  If this changes in the coming years, it will mean an unfortunate turn in our politics.

Photo credit: Carol Mitchell

The smell of elections is in the air. Both our newspapers and TV are inundated with extravagant promises from our politicians, and accusations and counter-accusations are flying over which party is the most corrupt, who is the most unconcerned about terrorism, who the most callous about poverty, and interestingly, who is allowed to play the current catchy movie tune.  

My area’s polling station is walking distance from my house, so casting my vote means just a short stroll in the morning. The queue is not very long, and I don’t find it a hassle. Many people I know however feel differently about voting, especially in the younger age-group. They tell me that they don’t bother to vote - ‘It doesn’t make a difference’, ‘I don’t support any among the field of candidates,’ are the usual answers I get. 

I had written earlier on this blog about Jaago re, and whether shifts in voting make a difference in the governance we get. Many of our problems are deeply rooted, especially in terms of corruption and interest groups, and it will take much more than small voting shifts to change that. But what can change to some extent with the literacy of the average voter is the transparency people demand from governance, and better answers on policy (more educated voters for example, demand to know where the money for government handouts and loan waivers is coming from). 

And only more informed voters can force political parties to shift to a higher standards in the quality and qualifications of their candidates. We are not in a pleasant place with regard to this. However much we boast about how educated our present Prime Minister Manmohan Singh is, its telling that he has never won a popular election.

How much of such reform is possible right now, if for instance, more of the middle class participate? The conventional wisdom has long been that this group lacks the numbers to make an impact. But these last few years tell us otherwise. The numbers in our middle class have ballooned in the last half-decade, even though we still feel like our effect on politics is that of a tiny minority. The Delimitation Commission’s recent reforms have also given the urban vote more power: for instance in Karnataka, Bangalore’s share of seats has now gone up from 11 to 28 - that is one tenth of the strength of the Assembly, which means that Bangalore (and Mumbai, Chennai, Calcutta, Hyderabad) now matters a great deal as a swing vote. With urbanisation only speeding up, and voters in urban areas skewing educated and informed, this is not good news for the unvarnished populists among our politicians. 

Is a tipping point emerging? And is a 300 million strong middle class enough to trigger a change in our standards?

Photo Credit: Manjeet Bawa

When it comes to a key sign of our interest in community - the amount we give in charity - we Indians are among the most tightfisted in the world. The US has long been the most generous in terms of per capita donations and charity work; our giving on the other hand, pales next to Indonesia, Thailand, and most other Asian countries. 

Its not just our poverty that constrains us - its also our attitudes towards giving. “We don’t see as much concern among Indians for their broader community,” Rama Bijapurkar, my friend, colleague and market researcher told me, “What people say when we survey them is, ‘I’ll give money to my family if they need it, maybe my maid, but why should I give my money to someone I don’t even know?’” The exception is when calamity strikes - like the tsunami.

Its probably no surprise that  we lack a sense of responsibility beyond our circles of family and acquaintances. We only have to look at the lack of outrage in our collapsing public infrastructure, schools and cities - rather than confront these problems, we have retreated into gated communities, private schools and even private security. 

But people also respond to their environment, and much of our apathy comes because the state is itself apathetic. When governments are indifferent about the poor and about public welfare, citizens feel that there is little difference they can make on a personal level. Corrupt and indifferent bureaucracies and governments are difficult for citizens to change - its easier to retreat.

Are there signs that this is changing? One hope I see is in the rise of NGOs and civil activists who have in the past decade and a half, actually managed to jolt public policy awake in areas such as transparency of government, education and infrastructure. Madhav Chavan, the founder of Pratham comes to mind, as does Trilochan Sastry, who has helped make disclosures by legislators on their criminal records and finances much more transparent, and Shailesh Gandhi, the RTI activist who has recently been appointed the Central Information Commissioner.

Another trigger ( I hope) for growing community and social interest is the Indian government’s rising dependence on direct taxes for its revenues - income taxes paid by individuals. India’s revenues became more than 50% direct taxes (rather than indirect collections) for the first time ever in 2007-08. With the amount each of us contributes to the government kitty growing, we may become more conscious about where and how this money is being spent, and demand more accountability from the state. And we might start having a greater voice, and also concern, for public programs and the public sphere.

Indians have long admired China’s growth from afar, envying the highways, mass transit systems, airports and entire new metropolises that they manage to build in the time it takes us to get a few flyovers going. 

However, China’s growth does point to many untapped possibilities. In terms of the environment, China has done little more than follow the carbon-intensive growth pattern of the West, one that India has also referred. The consequences of this in a population-heavy country is already apparent in China, since they are ahead of us in the development curve: its cities suffer massive air pollution, such that the sun frequently disappears behind the smog; an entire village vanishes under sludge; the country is facing intense water shortages, and has seen development projects like the Three Gorges Dam turn into environmental catastrophes.

India - another populous country - ought to take our lessons from this. Besides an ‘environment-inclusive’ approach to growth brings with it both advantage and opportunity.  Its undeniable that putting a cost on the environment would have short-term negative effects on the economy, since we would be pricing something that was once free. When policy makers talk about pricing the environment, they usually mean pricing carbon, since carbon is present in the entire cycle - air, water (which absorbs carbon), soil (which can both absorb carbon, and release it when degraded), forests (which absorb carbon in their growth phase).  With carbon prices to consider, industries would have to budget for their factory emissions, for any pollutants that contaminate water, and  degrade land and forests. This would bring down revenues and profits, and slow industry growth. 

But in the longer term, I believe the benefits to GDP growth would be immense, simply because we would be using all of our resources more efficiently. Waste would be managed better, and whole industries will emerge around waste management, recycling and alternative energy use.

Besides, we are already paying for polluting our natural resources - except the cost is being disproportionately paid by the people who have lived closest to nature - the poor, the forest tribals, the farmers. Our farmers struggle with droughts and floods, and falling groundwater tables as well as degraded soil are bringing down harvest yields and income. Declining forests have hurt the livelihoods of the villages and tribes that depend on them. When common water sources are contaminated, its a select few who are able to pay for access to clean water.  Pricing the environment would mean sharing the burden of such pollution more equitably. It would be a shift to a fairer economy, and one with greater accountability. 

Photo credit: Daniel Bachhuber

There is a new change of tone in the already tense negotiations on climate change, if we look at the recent comments the European Commission has directed at India and China. The EC is now pitching for emission caps for both these countries. This is an approach that the Indian government has long said is off the table. Chidambaram has spoken before of India’s ‘right to development’ - that since India is still a developing country and has to address the critical issues of poverty and growth, it has to postpone any commitments to reduce emissions. 

Whether the EC’s tone gets sharper or not, depends on the US position on developing country emissions. I believe though, that India has a chance to set the tone of the emissions debate. So far, we have been backbenchers when it comes to global negotiations on climate change, responding only when we are forced to. But India as an emerging economy, has some precious flexibility when it comes to growth and emissions that both the US and Europe lack. 

As developed nations, both the US and Europe have high emission infrastructure in place as well as ‘high-emission habits’ - in terms of car ownership, consumption, polluting industries and agriculture approaches  - that will be difficult to break or change. India on the other hand, still does not have its infrastructure fully in place. Car ownership is still extremely low, and the high consumption economy is still not in place here. We consequently have a chance to carve a development path that is environmentally safer than the ones that developed nations have pursued. Such an approach ought to be pursued for its own sake, rather than because of external pressures. 

The big mistake of the developed world was in ignoring the impact on the environment during their high growth phase. For writers such as Charles Dickens, the smog of 19th century London- created by coal-burning in the city - was a consant theme in his novels about urban decay. Much of the West never considered that use of the environment ought to be ‘priced’ the same way other resources are. This however, was something that Indian environmentalists such as Anil Agarwal suggested as early as the 1980s, when they noted that GNP ought to be about ‘gross natural product’ rather than ‘gross national product’. With an approach that prices environmental resources, industries would have to pay for dumping untreated waste into our rivers; open coal mines could no longer pollute the surrounding land, turning our soil into unusable sludge. Razing down forests and building a coal-fired plant would have to be ‘compensated’ for, by funding a green project elsewhere. 

Who could such an approach benefit? And how much would it hurt us in our growth numbers? I have some thoughts on this, that I’ll follow up on in a second post.

Photo credit: Liz Jones

I came back from Davos with a fresh appreciation of the challenges that face India with the global downturn. As the US economy continues to falter, India will have to look inward for growth. But in doing that, we do have quite an opportunity before us. We are after all a developing country with a growing middle class and a vast, still-untapped domestic market. We’ve barely skimmed the surface when it comes to what we are capable of.

But then, opportunity has long been knocking on our door, and we have found ourselves locked in from the inside  - we have too many interest groups within the country limiting our chance to take advantage.

Recently, there’s been a Tata Tea ad airing on television with the slogan, ‘Jaago re’. It admonishes non-voters, and seems to be a message to the youth to wake up and vote for the ‘change’ they want. The message is certainly laudable. But what about the effectiveness of such voting in India? We seem to have a vast number of choices in political parties at our disposal.  But regardless of who wins our elections, how free is even the most well-intentioned goverment to pass reformist policies? How beholden is it to the pressures of our interest groups? 

The economist Mancur Olsen (whose ideas also came up in a recent, incredibly insightful article on the US economy) noted that as countries developed, the way their markets functioned slowly corroded. This happened as some groups gained more influence than others - in our case, that would be very large entrepreneurs, rich farmers, labour and teacher unions, and key caste groups. These groups demand policies that protect them at the expense of others - caste quotas trump open access and effective education policy (the Congress party has now included reservation in the private sector in its draft manifesto),  public schools limp along as teachers fail to turn up and students drop out, labour unions block reforms that would create more jobs, and loan writeoffs, like the kind Chidambaram offered in last year’s budget, primarily benefit the landed farmers. Olsen called the buildup of such preferential policies the ’silting up of the channels of economic progress’ - as access for all slowly gets cut-off in favour of access for a few groups.

The idea of quotas and favours for key interest groups has only caught on more strongly in past years, as we choose quotas, subsidies and tax holidays over better policy. And if this approach continues to replace our reforms, we are set to throttle our growth before it has properly begun.

Photo credit: Christof Sonderegger / World Economic Forum

As I make my way this week to Davos via Riyadh and Zurich, it becomes clear that the chill in the global economy has reached the deserts of Saudi Arabia. I attend a panel at the Saudi Global Competitiveness Forum where each speaker outdoes the next in headlining the many risks of the current downturn and predicting the gravest of consequences. ‘Godzilla’ seems to have replaced ‘Goldilocks’ as the defining metaphor for our world markets.

At first, it seems to me that the town of Davos itself is cocooned from the panic. I am staying in the same room at the same hotel, and the same cheery concierge rushes forward to lug up my bag. It is only when I see the glum faces and conspiratorial whispers of the CEO execs  milling around that I realize that this year at least, the celebration  and paeans to the ‘animal spirit’ will be missing.

But even as we deplore the office refurbishments, the private jets and the lavish  parties of what seems to already be a long past, gilded age, it is instructive to note that businesses were not alone in taking a deep and heady drink from the punchbowl. Nations were also afflicted by the same malaise of overconfidence and a relentless focus on the short-term.

The global bubble was an era when the American spent too much and saved too little, while the Chinese saved too much and spent too little. Resource-rich countries invested the windfall profits from high commodity prices into sovereign wealth funds rather than investing in human capital and social development.

The Europeans were secure in their belief that they had a better form of capitalism even as the bottom fell out of their banks. And in India, years of bubble- induced growth allowed the country to take the eye off the ball when it came to desperately needed reforms and social investment.

We were all in it together - businessman and politicians, corporations and nations. So I do hope the Davos Annual Meeting 2009 becomes a place where we focus on what to do for the future rather than finger pointing for the past. One thing has become quickly apparent in my many conversations here - the bursting of the global bubble is forcing countries to address hard questions and realities. Countries will have to tend to basic ‘housekeeping’ concerns, from the health of their domestic markets and rising income inequalities, to the state of their social security nets and the size of their deficits. And to do any of this successfully, our discussions will have to be more about finding solutions than scapegoats.