Through its inaction and bumbling, this government has managed to delegitimise economic reform
When India became independent, its institutional inheritance included the British Indian army, at the time one of the best-organised armies in the world, and which had proved its mettle in numerous campaigns in the preceding decades. Yet, within 15 years, that same army was humiliated and Nehru’s reputation was shattered. The inevitable hand-wringing and finger-pointing that ensued did not, however, squarely address the basic question: No matter what the causes of that war, when it did occur, why did an army that was one of the world’s finest just a few years before perform so abjectly?
While there is much to commend in Nehru’s role in building the institutions of independent India, on this score his responsibility has been underplayed. In those 15 years, the institution of the Indian army was severely undermined — and, if we believe Napoleon Bonaparte’s dictum that “there are no bad soldiers, only bad officers”, Nehru bears much responsibility.
If 15 years were enough to undermine a well-organised institution – and shatter Nehru’s towering reputation – two decades after he launched India’s economic reforms, the prime minister appears to be doing the same to the market and capitalism. From a force that unleashed India’s creative energies, markets are increasingly seen as an institution that seems emblematic of homo homini lupus – man is wolf to man – and capitalism’s genius of “creative destruction” appears in popular discourse as a force that is more destructive and less creative.
The policy paralysis in the country comes at a critical juncture. Internationally, the political ramifications of China’s spectacular rise, and the growing cost pressures in that country due to wage increases and exchange rate appreciation, have led global manufacturing companies to look for alternatives. If India had its act together, it would have been a logical place to relocate global supply chains. Domestically, the huge numbers of young people entering the Indian labour force have much higher aspirations at a time when traditional authority systems are under stress, be it the family or community institutions, and there is little respect for the authority emanating from public institutions.
The uncertainties are magnified by the unleashing of the media genie and, no matter how strident the King Canute-like grandstanding of the likes of Kapil Sibal, this genie will not go back in the bottle. Social groups that were once pliant are now sceptical of, if not actively resistant to, the old forms of order. If rapid changes in the international system represent the promise of manifold opportunities, that realisation is only possible if India can address the looming domestic challenges arising from the mismatch between rising aspirations and opportunities — and rebuilding alternative and more inclusive authority systems.
Instead, the government has lurched from one crisis to another, with the most recent fiasco on changes in retail polices symptomatic, perhaps more than anything else, of a lack of any understanding of statecraft. If the government really was convinced that this was good for the country, did it really believe that the Bharatiya Janata Party would sit still given that traders are one of its principal constituencies? Or that the Left, reeling from its defeats, would not attempt to seize another moral molehill claiming it was acting on behalf of the poor? Of the key constituencies likely to gain – consumers and farmers – the former are too scattered to engage in collective action. The latter, at least the ones large enough to have enough surplus output to sell to the market, are, however, politically critical. The bete noire of Indian intellectuals has been the “middleman” who squeezes farmers and consumers alike, pocketing the surplus; the government needed to build support leveraging that idea. At the very least, the government should have first mobilised the farmer constituency to create a policy demand. Then, in response to farmer rallies, with farmers railing against middlemen, it could have presented itself as a responsible government riding to the rescue with a policy package in which retail foreign direct investment (FDI) was one additional arrow in the policy quiver, but by no means the only one. Because the reality is that of the numerous policy challenges facing India, retail sector liberalisation is hardly the most pressing.
But perhaps the intention was very different. With India’s global reputation slipping badly (which takes some effort given how poorly so many other countries are doing), the prime minister and his advisers perhaps thought that they needed to signal the country’s commitment to reform with a bold move. The initial foreign press coverage seemed to confirm that wisdom. But if there is one lesson in policy reform worldwide, it is that if a country’s leadership does not first address the policy needs of its own citizens and instead caters to the wants of the outside world, it should either be very well-prepared, or expect swift political retribution. To be sure, the government’s problems have been amplified by the Opposition’s craven, scorched-earth tactics and blackmailing by allies. But the prime minister has only himself to blame. If you absent yourself from the table, do not be surprised if you end up on the menu.
And if restoring India’s reputation was the main reason behind the policy measure, why did the government think that FDI in retail was more important than, say, addressing the continuing widespread perceptions of impropriety in key ministries? This, after India has become a byword in corruption amongst major economies.
It is surprising that Manmohan Singh learnt so little from the person who helped make his reputation. Despite managing a minority government, Narasimha Rao managed to push reforms to a much greater degree, because he possessed that most subtle and uncommon of gifts in politics: statecraft. He ensured that he kept control of the Ministry of Personnel and the appointments and transfers of all senior bureaucrats, especially in the case of ministers known to have their fingers in the till. If one can know a person by the company he keeps, in India you can know a minister by the senior officials in his ministry — who he’s trying to get rid of, and who he’s trying to bring in.
Machiavelli put it well: “The first method for estimating the intelligence of a ruler is to look at the men he has around him.” By choosing not to do so, the man whose actions personified market reforms in India may well go down in history as the person whose inactions most delegitimised them.
The writer is director of the Centre for Advanced Study of India at the University of Pennsylvania
In spite of the RBI's rate cut and the Centre's reforms, any recovery will only be half-hearted