Imagining India

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.