India Undermined by Lack of Long-Term Vision
By SAMANTH SUBRAMANIAN
NEW DELHI — Six years ago, the official Indian delegation to the World Economic Forum
put together “India Everywhere,” a blizzard of promotions designed to
lure foreign investment to the country. Guests to Davos were given free
iPods loaded with Indian music and pashmina shawls “from the Himalayas
to keep you warm in the Alps.”
The Web site for India Everywhere is still online,
but — perhaps symbolically — it is riddled with broken links. Only the
home page remains, cheerleading for “the world’s fastest growing free
market democracy” and its imminent arrival “centre stage in the global
economy.”
In 2013, the world economy is still waiting for India to live up to its
billing. Foreign investment in India has continued to rise, reaching a
record $46.8 billion in the country’s most recent fiscal year. But
economic growth has slowed significantly. After flirting with the 10
percent mark in 2006, it cooled to an annual rate of 5.3 percent in the
third quarter of 2012, the most recent period for which data have been
released.
Admittedly, the past few years have not exactly been warm and nourishing
for many national economies. But beyond the effects of the global
slowdown, India’s economic progress has been undermined by the country’s
internal politics — politics not as a grand ideological tussle, but
politics as the more basic, spit-and-sawdust business of winning
elections and retaining power.
The symptoms of this political malaise can be seen in the ways in which
policy making has gone awry in India. The government, for example, tends
to place populist projects ahead of more fundamental economic
overhauls. It enacts legislation to guarantee poor people 100 days of
employment every year, at a daily wage of 130 rupees, or $2.38, for
example, but it does not equip these beneficiaries with the skills to
break out of the cycle of poverty.
It decides to start delivering pension and scholarship payments via bank
tranfers, instead of through government intermediaries, but it does not
address the problems of corruption and bribery that made the change
necessary to begin with.
Parties in power, as well as in the opposition, seem mainly to strive to
be seen as champion of the common man. Last year, when the minister in
charge of the money-bleeding Indian Railways announced fare increases
amounting at most to 0.30 rupees (less than one cent) per kilometer of
travel, the opposition and even his own party decried the move as
anti-poor. The government recanted and rolled back the increases, and
the minister was forced to resign.
The central government, headed by the Indian National Congress party,
has also been hobbled by levels of disclosed and alleged political
corruption startling even by Indian standards. Officials managing the
2010 Commonwealth Games in New Delhi were formally charged with awarding
inflated contracts to close associates; memorably, rolls of toilet
paper were invoiced at $80 apiece.
A former telecommunications minister was briefly sent to prison, and his
trial is still going on, for selling radio frequency for mobile
telecommunications at below-market prices, costing the exchequer $38
billion, according to India’s national auditor. Another official audit
estimated that the allocation of coal-mining rights without a
transparent auction process set the government back by $33 billion.
At the forum in Davos last year, Montek Singh Ahluwalia, the deputy
chairman of India’s Planning Commission, brushed off the thought that
these scandals had soiled the country’s image as an investment
destination. “People will judge us on how we react with the
investigation into the corruption,” he told the BBC.
The judgment does not look favorable at the moment.
Moreover, the exposure of corruption has frozen policy making even
further. No government that is trying to make over its image in time for
elections in 2014 will initiate changes like cutting fuel subsidies or
opening sectors like retailing to foreign investment — moves that, for
all their merit, are still contested fiercely in India.
Finally, the debate over overhauls and policy is muddied by mainstream
political parties that have no clear economic vision. Instead, every
party prefers to take stances that are inconsistent but that are
perceived to serve it well in the short term.
In 1991, the finance minister Manmohan Singh opened up the Indian
economy by relaxing many import and foreign investment restrictions and
simplifying a byzantine licensing regime. But as prime minister since
2004, he has been far more timid in pushing through a second major round
of policy changes.
Meanwhile, the Bharatiya Janata Party, which headed India’s coalition
government from 1999 to 2004, used to pitch strongly for economic
liberalization, promising to, for example, allow greater foreign
investment in India’s retailing sector. Now that it is in the
opposition, however, the party has resisted the passage of that very
same measure for retailing — resisted it so strongly, in fact, that it
refused to let Parliament function for days on end, claiming that
big-box retailing chains would hurt small shopkeepers.
“There may have been some rationale for it in 2004,” Arun Jaitley, a
leader of the Bharatiya Janata Party, said vaguely by way of not quite
clarifying his party’s reversal on the policy.
Such policy reversals have drawn sharp criticism from both foreign and
domestic analysts and investors. In 2006, the Goldman Sachs economist
Jim O’Neill ranked India a lowly 97th in the world by potential risks to
growth, below Brazil and the Philippines. In his 2011 book “Growth
Map,” Mr. O’Neill said that the country’s problems boiled down to a lack
of leadership.
Last April the steel baron Lakshmi Mittal said that India was “low on the investment priority list of countries.”
Ratan Tata, who recently stepped down as chairman of the Tata Sons
empire, told The Financial Times in an interview that even though he was
“bullish about India’s potential,” Indian companies could not help but
look overseas, where “you wouldn’t have an eight-year or seven-year wait
to get all the clearances for a steel plant.”
Late last year, in a rare moment of plain speaking, Mr. Singh, the prime
minister, acknowledged that his government needed “courage and some
risks” to see India through the policy logjam.
Pashmina shawls and loaded iPods will not do the trick any more.
Samanth Subramanian is the India correspondent for The National. He is working on a book about the Sri Lankan civil war.
