India’s turn

THE India story of the past quarter century, let us say from 1991, has attracted a great deal of attention from analysts and writers from within the country and outside. This is not surprising as major changes have been taking place in the economy, polity and society at large. However, most studies have dealt with these changes only partially, concentrating on the economic sphere, some on the political aspect, and so on. Those relating to the economy have tried to explain the implications of the shift from a primarily state-directed attempt to stimulate the economy to an essentially market-driven economic growth. In politics, there was a long period of coalition governments and just when it appeared to be the norm for the new century, a single party was voted to power at the Centre with an absolute majority. On the technology front, the country has been able to play a major role in a new and pioneering field with vast social ramifications.

How are these changes to be interlinked and interpreted so as to provide a coherent picture—a movie indeed—of social transformation and set it in a global context? This is what T.N. Ninan, the author of The Turn of the Tortoise and one of India’s leading business journalists, attempts to achieve and largely succeeds. The narrative is capturing and amply, but not boringly, documented.

One of the major achievements of the period being examined is that it changed the global perception of India as a vast, slow-moving country wherein dwelt the majority of the world’s poor to one of the biggest and rapidly growing economies of the world. Comparisons used to be made between India and China, two ancient civilisations which started their independent journeys about the same time. China was complimented for what it was doing on the economic sphere while India was praised for its success as a democratic polity. Soon the narrative changed. In the 1960s and 1970s, with the emergence of Japan, South Korea, Taiwan and Thailand as rapid-growth Asia, the comparison was between their phenomenal annual growth rates of over 7 per cent (which China also joined from the late 1970s) and India’s low and constant “Hindu” rate of growth of 3.5 per cent. India, the slow tortoise seemed to be losing the race with the Asian hares rapidly moving ahead. But now has India’s turn come? Yes, says the author. “India in 2014 had less than a sixth of the global average per capita income, at a level lower than that of Laos, Zambia and Sudan. It is the poorest large national economy, with the lowest per capita income among the forty large economies that account for 90 per cent of world GDP. …In 2025, India is almost certain to still be the poorest large economy in the world.” But, “a late starter can learn from other countries, use technologies that already exist to catch up. Thorstein Veblen had called this the ‘advantage of relative backwardness’. Rapid economic growth by a catch-up country means that many product and service markets can grow, in even the short space of a decade, in multiples, not just percentages.” So relative backwardness is our comparative advantage, especially as our main rival China appears to be heading for a run-out.

What are our main advantages? “People, markets and policy” as several business leaders from many parts of the globe testify. A well-educated middle class and related big market and the policy favouring the bringing together of the two provide an excellent opportunity to increase production creating such phenomenon as billion-strong markets for mobile phones. Other examples given are the aviation industry and diamond jewellery for which the domestic market is growing, providing opportunities for companies and their shareholders to prosper. Look at the figures. The combined market value of companies listed on India’s stock markets has gone up from $125 million in 2002 to $1.58 trillion in 2015. And this in spite of the constant complaints about difficulties of doing business in India. And, “a $2.3 trillion economy growing at 7 per cent annually would make the country the third largest contributor to world economic growth, and it could retain that position for the foreseeable future”.

The thrust of the policy reforms of 1991, of course, was to make these possible by opening up the country to international competition in the product markets and the flow of global capital into the country to do business here. In the second half of the 20th century, smaller countries starting out on their development course had to depend on and specialise in international trade. India’s big size made it possible not to worry about this aspect and to concentrate on the domestic market and to become “protectionist”. But an open economy with the active role of foreign capital must decide on what to produce at home and what to purchase from and sell to the outside world. It is this spirit of competition that the market enforces, and tries to sustain. It is not clear whether the author subscribes fully to Margaret Thatcher’s dictum (which he quotes) that the role of the government is to steer rather than to row. His version is: “Market forces have a logic that must invariably be respected, even as they are regulated.” And, “[The] anti-market mindset is an important part of the story of why India has underperformed. Many problems of governance, including overreach by governments, have been born out of the politician’s ever-ready willingness to interfere with the functioning of markets, supposedly in pursuit of the larger good. But price controls over products fed the black economy, and industrial controls corrupted the administrative and political system. Import controls created a flourishing smuggling business and to the birth of uncompetitive industries, while public sector enterprises functioning in suboptimal operating environments typically delivered returns that were lower than the cost of capital.” The reforms have made perceptible differences in these matters.

Cronyism and corruption

Here the author enters a caveat. Chapter 5 is entitled “Cronyism in an Arbitrary State” and deals with the unholy alliance between the state and business for private benefits to those directly involved. But India has gone beyond that setting. Politicians do not want briefcases full of cash but are eager to own businesses. In turn, businessmen have sought influence and power by joining political parties and entering Parliament. “This fusion of business and politics has given India its oligarchs who wield financial as well as political clout.” Soon the media also join the club. “The dense interlocking network of political, social and media relations results therefore in a smooth capture of the system.” However, the old spirit still lingers on. “In 2015, the biggest, if not the dominant, players in the key sectors of finance, transport and energy are government-owned enterprises.” And, “Patchy experiments have produced patchy results, and left loads of room for improvement”.

One of the main consequences of the patchy experiments, the author points out, has been an increase in corruption in which many big players are involved. The documented details can be found in Chapter 10. What is important to note is the explanation provided: “Don’t meddle with product prices and distort markets, because you create room for intermediaries to grant favours, usually in return for a quid pro quo, for price arbitrage in one form or another, and for sharing the take.” That is followed by another bit of advice: “Even as you allow markets to function freely, you need better regulation and supervision.” Something of a paradox here?

Not that the author is smug about some of the other changes that have characterised the period he deals with. While stating that the market-oriented reforms resulting in accelerated growth have considerably reduced poverty, he laments that it continues to be substantial and the country still has the largest number of the world’s poor. And why is this state of affairs tolerated because it takes only “a very affordable 1.43 per cent of GDP” to bring every one above the poverty line? He notes with some concern the sharp increase in the number of landless agricultural labourers as shown by Census 2011. He refers to “asset crisis” and “employment crisis” in the rural areas while pointing out that “the chief executives of the 100 largest firms earned an average of Rs.1.75 crore” and even the median figure was Rs.1.13 crore. He analyses the corporate asset boom. “The value of all listed companies was only 12 per cent of GDP in 1990. Once the reform process got under way, market capitalisation ranged between 20 per cent and 40 per cent of GDP before surging post-2004. By December 2014, the market capitalisation of all listed companies was 70 per cent of GDP” noting that the value created on the stock market was not by manufacturing firms. Further, by dividing the population of the country into four classes—“middle-class rich” (with a monthly expenditure of over Rs.28,500 a family), “aspiring neo-middle class’ (Rs.15,000 to 28,500)”, “vulnerable non-poor” (Rs.7,000 to 15,000) and “poor” (less than Rs.7,000)—he brings out some of the real-life situations that prevails 25 years after market-oriented reforms. Clubbing the third and fourth classes together, constituting 625 million people (more than half of the total population), and describing them as those “eking out a bare living on the edge of survivability”, he concedes that not all is well. I particularly commend Chapter 12 which has the title: “Aam Aadmi and a Universe of Realities”.

Is there then a disconnect between the “logic” of the market and the universe of realities? Not necessarily. It depends on the way that logic is viewed. Scholarly journals and textbooks that popularise them locate the logic of the market in the preferences of satisfaction—maximising consumers and profit—maximising producers to show that given a whole lot of assumptions, a set of market prices will emerge that are acceptable to both groups. It is an exercise to show what assumptions are necessary to arrive at a stated conclusion, one of them being that there are no external interferences, by the “state” for instance. A crucial assumption that is left out is what may be described as initial conditions of resource endowment.

A distinguished scholar who looked into this aspect reluctantly conceded that the logic of textbook market and the conclusions derived from it requires that all participants should be thought of as “self-sufficient farmers who do a little trading on the side”. Where such is not the case and gross disparities in “initial” endowments prevail, the very logic of the market provides an advantage to the rich to become richer. That is the phenomenon of increasing inequality that is seen practically all over the world today under the regime of global markets where incomes and wealth flow naturally to “the top 1 per cent” and even more so to the 1 per cent within that 1 per cent.

Silent on a crucial issue

The author seems to be oblivious to this distinction between abstract logic and real-life logic. Other examples can be cited. He favours international trade without hindrances even after acknowledging that “upwards of two-thirds of world trade now takes place within multinational companies or their suppliers”, and it is well known that these companies set their own prices and constantly strive to eliminate competition through mergers and acquisitions (emphasis added). Even more pronounced is that though there is an initial endorsement of “the vital ingredient of equality” in rapid-growth Asian countries, “sweeping changes in land ownership and agrarian reforms—in Communist China, U.S.-administered Japan, South Korea, Taiwan and elsewhere”—it is silent about this crucial issue as far as India is concerned. Were these changes in traditional land ownership required only for the hares with a hidden hope that the tortoise could somehow find a way to circumvent them? These comments are not meant to deflect attention from the high empirical quality of the book and its comprehensive coverage.

From this perspective, one of the finest chapters is Chapter 14, which deals with the environmental aspects of development, setting it, rightly, in global perspective. India is considered to be among the high polluters of the world. It is true that it has about the worst index for air quality and it accounts for 13 of the world’s most polluted cities, with New Delhi known as the most polluted capital city of the world. However, if pollution levels are calculated per capita, there is a totally different picture, greatly favouring India. Or, if the States of India were independent countries (like the countries of the European Union) again the reckoning would be different. While global environmental issues are largely in terms of carbon emission, a critical environmental problem for the country is that of water security and sanitation facilities where the major burden falls on the poor. These are grim issues of development. The author concludes: “Anyone who pretends that environmental concerns can be pushed into the background while economic growth is made the primary focus is asking for trouble, especially for the poor.”

The economic changes in the country have been finding expression in the political sphere, in the 1990s in the emergence of a large number of political parties in different parts of the country. But a major shift was to come, which saw its formal recognition in the Congress’ Chintan Shivir in January 2013 in preparation for the general election of 2014 as a move away from garibi (poverty), even aam aadmi (common man) to the “aspirational class”, the younger, more impatient and better-educated generation, particularly evident in the urban areas. This new neo-middle class, which had been largely apolitical, came out initially as an anti-corruption movement but played a significant political role subsequently. It was this constituency that Narendra Modi mobilised to register the emphatic victory of the BJP in May 2014 by promising good governance and development. Modi has been trying a new international thrust to ensure a steady flow of foreign capital and a revival of national pride, which has the potential danger of being turned into Hindu nationalism.

How will the rest of the world view the resurgent India? For long India as a big country and the largest democracy has been trying, so far without success, for a place at the high table in the U.N. It has been seeking new alignments such as BRICS (Brazil, Russia, India, China and South Africa) but faces the problem that even within that small group it is the poorest with a per capita income less than half of China’s, which stands fourth. In a shrinking globe where power and might are still recognised as supreme, will India continue to be reckoned as a “premature superpower”? The author opens up these and many more topics that are being discussed within and outside the country. The book is valuable for the questions it raises, the factual material it offers and the analysis it provides. You may disagree with some of the author’s premises and arguments, but you are sure to be informed and enlightened.