Twenty years ago this weekend, three top Indian officials burned the midnight oil tearing up old import controls and preparing a package of economic reforms that would slowly lead to the booming India that is widely admired today, with growth of 8-9%, 300-350m people enjoying the benefits of a consumer economy, and businessmen operating internationally. But India seems to be in no mood to celebrate that momentous event, just as it wasn’t at India’s 50th anniversary of independence in 1997 when the feeling was downbeat.
People then were unsure of what to celebrate, since so little had been achieved in terms of economic development, care for the poor, and industrial efficiency since the British left in 1947. Ten years later, that had changed because of the economic boom of the intervening years. But the 1997 mood is now back again. People are aware that, despite all the economic and business successes, 800m people are still desperately poor and under-nourished, with poor access to clean water and health and education services.
Public infrastructure and services are crumbling, national security and defence preparedness is woefully inadequate, and governance is sliding into a greedy, corrupt and inefficient abyss with no bottom in sight. Popular contrasts of India’s elephant and China’s tiger economies are being trotted out in various articles and studies, as they have been for 20 years. But the contrast is simplistic because India has its tiger industries such as information technology (IT), autos, pharma, and mobile telecoms that have been spurred by entrepreneurial drive and technological change.
There are also rapidly industrializing states – notably Gujarat and Tamil Nadu (despite its political corruption). These are taking the place of India’s earlier internationally lauded cities, Bangalore and Hyderabad, the capitals of Karnataka and Andhra Pradesh that have been swamped by the greed and corruption of politicians and businessmen in areas such as land acquisition, mining and real estate. (The Karnataka chief minister is this week accused of facilitating multi-million dollar illegal mining).
India’s blundering elephant is the government establishment that has refused over the past 20 years to change the way that the country is run. The 1991 whittling-down of the government’s role has not been followed through. The government still controls the mostly unreformed banking and defence sectors as well as the vast array of public sector industries and, in various ways, land useage and licensing, especially in the corrupt telecom sector. Such government controls skew development.
When the current United Progressive Alliance (UPA) came to power in 2004, led by Sonia Gandhi and Manmohan Singh, reforms were initially held back by Communist-led Left Front that supported the government. Since the 2009 general election, reforms have been blocked by the disproportionate power of other coalition partners that have 20 or fewer MPs out of the coalition’s total of 262. The main problem however is that Sonia Gandhi, who heads the Congress Party, is not a firm enough believer in reforms to push Singh and his government into a tougher line, and Singh is too cautious.
Consequently, a raft of reforms have been delayed including divestments of stakes in public sector businesses, increasing FDI in various sector such as defence, insurance and retail, and – most important of all – curbing subsidies. Montek Ahluwalia, whose Planning Commission is currently finalising a new five-year plan, argues that the future focus should be on three more urgent areas that would otherwise block economic progress – the use of energy and water, and urbanisation.
These areas need changes of action by the central government, and even more by state governments, that has eluded India for the past 20 years. It is hard to see how India can tackle these issues, given that failure since 1991. People who are well off will of course do better, and the 300-350m people now enjoying varying levels of consumerism will increase in number and satisfaction. Companies will become more profitable and will become more internationally active. But social tensions will increase, with growing battles over the use of land and other scarce resources.
Major reforms will be needed to reverse the trend of bad governance and corruption. It is an irony that, though the past 20 years began and now end with Manmohan Singh, he was neither in charge at the beginning, nor is he at the end. That is not a criticism, but in the early 1990s he could only do what he did courtesy of Narasimha Rao, and now he cannot do what he doesn’t do courtesy of Sonia Gandhi and the UPA’s coalition partners. Something surely needs to change.