As usual, The Economist has encapsulated India’s dilemma superbly. India is at a crossroads between a welfare oriented approach that has not really worked for 60+ years and a growth driven approach that has been of great service to China for the past two decades. But are Indians ready to make a paradigm shift? Only future history will tell.
The Economist: “When India won independence 65 years ago, its leaders had a vision for the country’s future. In part, their dream was admirable and rare for Asia: liberal democracy. Thanks to them, Indians mostly enjoy the freedom to protest, speak up, vote, travel and pray however and wherever they want to; and those liberties have ensured that elected civilians, not generals, spies, religious leaders or self-selecting partymen, are in charge. If only their counterparts in China, Russia, Pakistan and beyond could say the same.
But the economic part of the vision was a failure. Mahatma Gandhi, leader of the independence movement, Jawaharlal Nehru, India’s first prime minister, and his daughter, Indira Gandhi, left the country with a reverence for poverty, a belief in self-reliance and an overweening state that together condemned the country to a dismal 3-4% increase in annual GDP—known as the “Hindu rate of growth”—for the best part of half a century.
That led to a balance-of-payments crisis 21 years ago which forced India to change. Guided by Manmohan Singh, then finance minister, the government liberalised the economy, scrapping licensing and opening up to traders and investors. The results, in time, were spectacular. A flourishing services industry spawned world-class companies. The economy boomed. Wealth and social gains followed, literacy soared, life-expectancy and incomes rose, and gradually Indians started decamping from villages to towns.
But reforms have not gone far enough (see our special report). Indian policy still discourages foreign investment and discriminates in favour of small, inefficient firms and against large, efficient ones. The state controls too much of the economy and subsidies distort prices. The damage is felt in both the private and the public sectors. Although India’s service industries employ millions of skilled people, the country has failed to create the vast manufacturing base that in China has drawn unskilled workers into the productive economy. Corruption in the public sector acts as a drag on business, while the state fails to fulfil basic functions in health and education. Many more people are therefore condemned to poverty in India than in China, and their prospects are deteriorating with India’s economic outlook. Growth is falling and inflation and the government’s deficit are rising.
Modest changes, big fuss
To ease the immediate problems and to raise the country’s growth rate, more reforms are needed. Labour laws that help make Indian workers as costly to employers as much better-paid Chinese ones need to be scrapped. Foreign-investment rules need to be loosened to raise standards in finance, higher education and infrastructure. The state’s role in power, coal, railways and air travel needs to shrink. Archaic, British-era rules on buying land need to be changed.
Among economists, there is a widespread consensus about the necessary policy measures. Among politicians, there is great resistance to them. Look at the storm that erupted over welcome but modest reformist tinkering earlier this month. Mr Singh’s government lost its biggest coalition ally for daring to lift the price of subsidised diesel and to let in foreign supermarkets, under tight conditions.
Democracy, some say, is the problem, because governments that risk being tipped out of power are especially unwilling to impose pain on their people. That’s not so. Plenty of democracies—from Brazil through Sweden to Poland—have pushed through difficult reforms. The fault lies, rather, with India’s political elite. If the country’s voters are not sold on the idea of reform, it is because its politicians have presented it to them as unpleasant medicine necessary to fend off economic illness rather than as a means of fulfilling a dream.
Another time, another place
In many ways, India looks strikingly like America in the late 19th century. It is huge, diverse, secular (though its people are religious), materialistic, largely tolerant and proudly democratic. Its constitution balances the central government’s authority with considerable state-level powers. Rapid social change is coming with urban growth, more education and the rise of big companies. Robber barons with immense riches and poor taste may be shamed into becoming legitimate political donors, philanthropists and promoters of education. As the country’s wealth grows, so does its influence abroad.
For India to fulfil its promise, it needs its own version of America’s dream. It must commit itself not just to political and civic freedoms, but also to the economic liberalism that will allow it to build a productive, competitive and open economy, and give every Indian a greater chance of prosperity. That does not mean shrinking government everywhere, but it does mean that the state should pull out of sectors it has no business to be in. And where it is needed—to organise investment in infrastructure, for instance, and to regulate markets—it needs to become more open in its dealings.
India’s politicians need to espouse this vision and articulate it to the voters. Mr Singh has done his best; but he turned 80 on September 26th, and is anyway a bureaucrat at heart, not a leader. The remnants of the Nehru-Gandhi dynasty, to whom many Indians still naturally turn, are providing no leadership either— maybe because they do not have it in them, maybe because they have too much at stake to abandon the old, failed vision. Sonia Gandhi, Nehru’s grand-daughter-in-law and Congress’s shadowy president, shows enthusiasm for welfare schemes, usually named after a relative, but not for job-creating reforms. If her son Rahul, the heir apparent to lead Congress, understands the need for a dynamic economy, there’s no way of knowing it, for he never says anything much.
These people are hindering India’s progress, not helping it. It is time to shake off the past and dump them. The country needs politicians who see the direction it should take, understand the difficult steps required, and can persuade their countrymen that the journey is worthwhile. If it finds such leaders, there is no limit to how far India might go.”
From: http://www.economist.com/node/21563720
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