Cautionary Tale

  • Faheem Jeelani
  • Publish Date: Apr 9 2018 1:51AM
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  • Updated Date: Apr 9 2018 1:51AM
Cautionary Tale

India’s once booming economy is faltering. What went wrong?



There are two books that have left an indelible impression on me and furthered my fascination with India – Sarah MacDonald’s Holy Cow and Arvind Adiga’s White Tiger. In the latter, a common Indian is compared to innocent roosters stuffed in wire cages in Old Delhi, that know they are going to be killed soon but never rebel. In Morgan Freeman’s godly voice from Shawshank Redemption, they would be described as being “institutionalised”.

My fascination with India began in Hampi. It had begun as an aimless travel – I was backpacking through there in my early 20s – but turned into a spiritual inward journey. Something happened on that trip that changed me forever. It turned out to be like a sacred pilgrimage, after which everything I did and felt was entirely different. It is thus sad to see India making news for all wrong reasons. A multi-crore bank fraud has exposed the depths of the ugliness that crony capitalism has sunk the country in.

India has a vast population, abundant natural resources and an ancient culture, yet there is a feeling that it has failed to make the best of these gifts. The economy is in decline, infrastructure is poor, non-existent or crumbling, corruption is endemic. Indeed, distressingly, India is being talked of as another potential South Asian failure.

The country took a giant leap when it liberalised its economy in 1991. By dismantling the centralised socialist economic architecture in place since Independence – and the attendant Licence Raj – India believed it was ushering in an economic revolution that would change the lot of all its people. It hasn’t turned out quite so: crony capitalism has flourished and economic benefits have largely gone to the rich. Inequality is rising, and fast. India is far from being a dominant economic power it dreamt of being as recently as at the turn of the century. 

In hindsight, India was probably a decade or two late in opening up its economy, not least because this allowed China, which liberalised its economy in 1979, a big headstart. So, while China clocked 10% GDP growth for much of the past two decades, India has struggled to get around 8%. 

There are a number of reasons for this. In his book Fault Lines, Raghuram Rajan, former governor of the Reserve Bank of India, suggests that the pre-1991 Licence Raj had allowed well-connected business houses to grab licences and squeeze out competitors, and given way to the “raj of the land mafia”. Not much appears to have changed for the common man post-1991.

Still, by the early 2000s, the air of despair was lifting as the Atal Bihari Vajpayee government was riding high on the “India Shining” campaign. In South India, where I was studying then, I remember night discos and three-storey music stores engendering a feeling that India was being modernised. The IT revolution and the outsourcing boom had increased the purchasing power of the middle class. Where a typical middle class family owned a scooter pre-1991, better incomes now allowed it to own a car and take vacations. In 2006, I made friends with a group of Scottish backpackers in Goa; they were surprised to see students owning fancy mobile phones. They said in their country they wouldn’t be able to afford such phones. The image that India carried seemed to be changing. There was a general feeling of prosperity. In the aviation sector, for instance, airlines mushroomed, reducing travel costs by a big margin. Indians, it seemed, were leading more comfortable lives.

The bubble burst soon enough. For any economy to grow steadily, there must put be proper infrastructure in place. India was founding lacking in this. Because the Indian government didn’t have a clear socio-legal plan that did not foul of democratic processes – authoritarian China did not have such constraints – infrastructure projects stalled or slowed down, such as highway projects. India also lagged in manufacturing and research and development. While much noise was made about IT sector’s progress, India was merely a workhorse which developed countries hired on the cheap to do their work. Indeed, there is negligible research and development in the IT sector in India. The figures prove the point: India spends just 0.7% of its GDP on R&D, where as China spends 2%, US 2.8% and Israel 4.3%.   

Rapid urbanisation that liberalisation ushered in demanded sprawling new cities. But visit Gurgaon, the modern satellite town of the national capital Delhi, and you see what ails India. Plush office campuses, worldclass malls and highrise residential buildings give it the feel of a developed city, but buccaneering is evident. There is barely any waste management, and the sewage and drainage systems are poor. Entire neighbourhoods reek of open drains. A little more effort could have made a place like Gurgaon world class. 

Indeed, India as a whole can do much better. It certainly has the means to consistently achieve a GDP growth of 10% and above. If that were to happen, India would be a world beater. Today, the path to a more open, decentralised, efficient economy looks quite difficult. But there is lot of hanging fruit to be plucked from the big banyan tree that is India.