Book Review: 'An Uncertain Glory' by Jean Drèze and Amartya Sen , 'Transforming India' by Sumantra Bose, The Wall Street Journal, December 13, 2013

Indian reformers did not sell their liberal reforms to the people, who concluded the free market helps the rich alone.

Two and a half years ago India was the envy of the world. It had survived the global financial crisis, and its economy was growing at a rate of 9% a year, creating masses of jobs and lifting millions out of poverty. This happy situation was the reward of free-market reforms that began in 1991. As government reduced the regulatory shackles on business, dozens of innovative firms emerged that competed brutally at home and began to succeed on the global stage. India's governments after 1991 kept reforming, if slowly. Even slow reforms added up to make India the world's second fastest-growing economy.

But the present government, led by the Congress party, changed course, guided in part by the ideas of the eminent economist and Nobel laureate Amartya Sen. The starting point for achieving prosperity, Mr. Sen argues in "An Uncertain Glory: India and Its Contradictions"—written with Jean Drèze—is an immediate attack on illiteracy and ill health. Such an approach, he says, will produce a healthier and more literate workforce and lead to higher economic growth. Higher growth, in turn, will bring larger revenues for the state, allowing further attacks on illiteracy and ill health.

Under the influence of Mr. Sen's ideas,Sonia Gandhi, the leader of the Congress party, and her National Advisory Council—which includes Mr. Drèze—have concluded that India's free-market reforms weren't helping the poor. Asserting a trade-off between growth and equality, the council advised changing the government's focus to spending on welfare. Instead of building roads, for example, it preferred to give away cheap food and energy and waive loans to farmers. Its flagship program was a guarantee of 100 days employment to everyone in rural areas. Approvals to industry for new projects came to a virtual halt, mostly on environmental grounds. As a result, investors lost confidence, and inflation shot up. India's economic growth has now plummeted to a rate below 5%.

Part of what led to this change of course in India was that reformers didn't sell the country's liberal reforms to the people themselves, as Margaret Thatcher did in the U.K. in the 1980s, for example. Hence the broad population got the impression that the free market helps the rich alone and not the common man. India ended up reforming in a furtive or incomplete way because no political party had bothered to explain the difference between being "pro-market" and "pro-business." To be pro-market is to believe in competition, which helps keep prices low, raises the quality of products, and leads to a "rules-based capitalism" and economic growth, a state of affairs that helps everyone, not just the rich. (This lesson and others were brilliantly explained by Jagdish Bhagwati and Arvind Panagariya in "Why Growth Matters: How Economic Growth in India Reduced Poverty and the Lessons for Other Developing Countries," published earlier this year.) To be merely pro-business, by contrast, means leaving the control of economic decisions with politicians and officials, an arrangement that easily leads to "crony capitalism."

In the midst of India's worst economic crisis since 1991, the country's current left-of-center government has just enacted a food-security law, with enthusiastic support from Messrs. Sen and Drèze: It will distribute grains to two-thirds of India at roughly 10% of the market price. This policy has shocked many people because official surveys show that only 2% of Indians claim to be hungry. In any case, past experience shows that less than half the food from such programs reaches the intended beneficiaries; the rest is lost in inefficiency and corruption. A month ago Ms. Gandhi told Parliament that if there was no money for her food-security law, it would just have to be found. And if the public-distribution system was broken, she added, it would have to be fixed. How she did not say. The opposition protested that such policies were a blatant bribe to win votes before elections, but it didn't try to stop them for fear of appearing hostile to the poor.

The obstacles to India's long-term prosperity remain political, but Sumantra Bose's "Transforming India: Challenges to the World's Largest Democracy," though offering a well-researched chronicle of India's recent political history, doesn't provide answers either. The book tells the story of democracy's evolution in India from the 1950s and makes the excellent point that, over the past two decades, India has changed from a country dominated by a single nationwide party into a robust multiparty, federal union. The regionalization of the nation's political landscape has decentralized power, given communities a distinct voice and deepened India's democracy. The running of India, as Mr. Bose notes, is now in the hands of the states and the regional parties.

With power shifting to the states, strong and decisive regional leaders have emerged in recent years. Many have delivered good governance and attracted investments and jobs. The rise of the regions is spreading the economic boom to distant corners of the land as new consumer subcultures thrive. But it hasn't resulted in local, homegrown voices in support of liberal reforms at the regional level. Instead, crony capitalism has become even more embedded in India's economy.

In the end, India's story is one of private success and public failure. Prosperity is indeed spreading, but it is happening amid appalling governance. Indians despair over the delivery of the simplest public services. Where the state is desperately needed—in providing law and order, education, health and drinking water—it performs poorly. Where it is not needed, it is hyperactive, tying people in miles of red tape.

While they recognize India's many problems, neither Messrs. Sen and Drèze nor Mr. Bose provides a satisfactory solution. It seems elementary that in such a situation either you must enhance state capacity or limit your ambition; thus it is difficult to understand why Messrs. Sen and Drèze in particular insist that only the state directly deliver food and employment through its bureaucratic machinery; they are even skeptical of cash transfers to the poor that would, at least, not damage labor and food markets. Instead of "make work" schemes, why not create sustainable opportunities for employment creation by eliminating regulation and other impediments?

More than even economic reforms India needs reforms for the institutions of the state—the bureaucracy, the judiciary, the police. It needs to become a strong liberal state with the ability to take quick, decisive action, uphold the rule of law and punish the corrupt, and of course make itself accountable to the people. India's hope may well lie with its aspiring young, those who have just entered the middle class or who are about to reach it. They are about a third of the country now and will be half in a decade. They are puzzled as to why their tolerant nation offers astonishing religious and political freedom but fails to provide economic freedom.

In a country where two out of five people are self-employed, it takes, on average, 42 days to start a business; the entrepreneur is a victim of red tape and corrupt inspectors. No wonder India ranks 119 on the global "freedom index" (from the Heritage Foundation) and 134 on the World Bank's global measure of "ease of doing business." Two decades after the 1991 reforms, India has still not become a manufacturing powerhouse like China, and its economy is driven by services. How can India hope to provide jobs for the millions of young people on its farms? Sadly, the vast majority of Indians still work in the informal economy, not in legally established companies.

The secular, political space at the right-of-center is empty, and none of the existing Indian parties is likely fill it. The answer may well be a new liberal party that trusts markets rather than officials for economic outcomes and focuses on reforming the institutions of governance. Such a party may not win votes quickly, but it would create a demand for reforms. It would also show voters that open markets and rules-based government are the only civilized ways to lift living standards and achieve shared prosperity.

—Mr. Das's most recent book is "India Grows at Night: A Liberal Case for a Strong State."

Desire or dharma: Dilemma that is as old as the vedas

Over the past few weeks we have been mesmerized by the tragic story of Tarun Tejpal. He was a moral voice to a whole generation, looked up to for courageous and uncompromising journalism. The evidence of sexual assault against the founder editor of Tehelka suggests that he not only failed a young colleague but collectively all journalists, workingwomen, and his legion of admirers. Millions of words have been written on this story but no one has explained why men in positions of power behave badly. We need to try and understand the nature of human desire in a patriarchic society where male narcissism is an ever-present reality and men believe they are more attractive than they really are.

Desire is instinctual energy deriving from primal biological urges. The Rigveda says, “The cosmos emerged from the seed of kama, ‘desire’, in the mind of the One”. A primordial sexual act of incest populated the earth, according to the Aitareya Brahmana when Prajapati, the primeval creator, desired his daughter. She ran away and took the form of a doe. He turned into a stag, copulated with her, and deer were created. Then she turned into a cow, he became a bull, and cows come into being… and so on. The gods said, “Prajapati is doing what is not done”. A serial act of rape, sinful and violent, was the “origin of species”—a somewhat more colourful version than Darwin’s.

Human beings are not only governed by instinct. Desire travels from our senses to our imagination, and often gets focused onto a specific person. Society exploited this idea by creating the institution of marriage for the purpose of social harmony. Hence, the Dharmashastras insist that sex is only for procreation. But men and women found a way to communicate their fantasies, and this gave rise to romantic love and the art of seduction. By the Epic period when the first kingdoms were formed, kama also meant ‘pleasure’ and in fact became a trivarga, one of the three aims of life, along with artha and dharma. The elite embraced the courtly ideal of the nagaraka, ‘man-about-town’. Kamasutra taught us the sixty-four arts, wherein Vatsyayana instructs, “If you are kissed, kiss back!” Patriarchy ruled, however, and Draupadi’s disrobing in the Mahabharata is the most celebrated display of male power, and it led to a ghastly war.

Sexual desire did not sit well with the ascetic, however. In the earlier Upanishadic period, our society’s idea of the good life was challenged by the “renouncer”. Rishis like Agastya suffered sexual anxiety over losing hard earned spiritual energy through tapas, which is reflected in the many myths of tempting apsaras who bring about the involuntary ejaculation of semen. The renouncer countered by speaking adeptly of the loathsome nature of a woman’s body. The object of desire becomes an object of revulsion in the Buddhacharita, for example, which demonizes the feminine ‘other’. The tension between the householder’s act of desire and the ascetic’s conquest of desire reflects the dual nature of human beings—the erotic and the ascetic in all of us—but it did not disturb the unhappy male domination of society.

To try and understand Tarun Tejpal’s actions in the historical context of male power in society is not to excuse his wrongdoing. In a patriarchal society men want to control the reproductive body of women. The man’s viewpoint pervades the Vedas, the epics, and Sanskrit love poetry.  But all our texts also warn against the dangerous nature of human desire and remind us of boundaries. Even Vatsayana cautions in the Kamasutra that kama must be governed by dharma.

Sexual assault is a crime and it has less to do with sex than with power and male domination. All societies have been patriarchal and it is a tribute to the global women’s movement that the world has begun to change its old paradigm. Governments around the world are instituting legal changes. In India, the new anti-rape law and the Vishakha guidelines on sexual harassment at the workplace are part of this global trend. They must be quickly implemented and we must keep trying to make relations between men and women more equal and less hierarchical. The prize too is a big one—a safer and more civilized India.

Our bullion-dollar troubles can end if India goes for gold

It was a subdued Diwali this year. Gold trading on Dhanteras was down by 50%. Traders blamed it on mostly on the lack of gold supply which was 83% lower than last year. But policy makers cheered. Their draconian policy of restricting gold imports was working. India’s trade deficit had declined and the rupee had calmed. But it is a temporary victory. Gold smuggling is on the rise and will eventually triumph, undermining a great victory of the 1991 reforms, which was to kill the havala market. There is breathing room, however, as gold forecasters expect world prices to fall. Western and Chinese investors are losing interest in gold as their economies pick up, which should also dampen Indian investor interest.

India absorbs about a quarter of the world’s gold, and the finance minister is quite right in wanting to limit its import. A recurring theme of world history is the constant loss of Western gold and silver to India. Two thousand years ago Roman senators grumbled that their women used too many Indian spices, silks and fine cottons, and India was draining the Roman empire of bullion. Pliny the Elder called India the ‘sink of the world’s precious metal’ when he heard that a Roman ship touched an Indian port daily.

The Portuguese similarly complained in the 16th century that their hard won gold and silver from South America was being lost to India. The British Parliament echoed this refrain in the 17th century. But India kept sucking Western bullion because Western consumers hankered after Indian luxuries and Indians were not interested in Western goods. As books had to be balanced, they were balanced with bullion. Only Britain’s Industrial Revolution reversed the flow in the 19th century when Indians finally found something they wanted from the West—cheap, durable cottons from the mills of Lancashire — as handlooms worldwide gave way to machine-made cloth.

Soon after Independence, India’s leaders forgot their grand trading heritage and closed our economy in the mistaken belief that trade had impoverished India. Touting the false mantra of ‘self-reliance’, they adopted an import-substituting path, and India lost out in the great trading boom after World War II. India’s share of world trade declined from 2.2% in 1947 to 0.5% in 1990. It was only after 1991 that India regained its historic pre-eminence in the world economy.

Given the one-way flow of gold over the centuries, a staggering amount has accumulated in India. The World Gold Council estimates it to be over 20,000 tonnes, worth $1.1 trillion or half of India’s GDP. For years economists have wanted to use this unproductive asset for productive investment. And happily, the process has begun. Gold loans, bonds, and deposit schemes are all steps in the right direction. In these schemes owners of gold earn interest by depositing it with banks, which in turn releases part of it in the market, thus reducing India’s demand for imported gold.

The bigger prize is to convince temples to do the right thing and deposit their vast gold stocks in banks and earn interest. Jamal Mecklai, the currency expert, had suggested earlier this year that if Tirupati temple were to deposit a third of its holdings at two per cent interest, it could earn Rs 3,000 crore a year. Tirupati did just that in May, beginning with a 2,250-kg deposit with the State Bank of India. This is a triumph! If major temples follow suit, gold will soon flood the domestic market, imports will stop, the global gold price will fall and the rupee will strengthen.

But this government is shy to go for an all out public campaign. It worries about people’s sentiments and of the opposition playing the religious card. Gold is, after all stridhana, ‘woman’s wealth’. Although a daughter now legally inherits her share of family property, families still insist on giving her inheritance at marriage as gold jewellery. But young Indians today are sensible and they will buy the idea that an inflation-proof gold linked certificate exchangeable for gold is the hip thing to receive at marriage rather than a bunch of clunky sets. So go for it, Reserve Bank. The road to India’s economic future may well be paved with gold.

Secularism or development: Making the right choice

At long last India’s democracy is moving in the right direction in offering voters genuine choices in the upcoming general elections. One of these is a choice between “left of centre” and “right of centre”economic policies — a polarization that exists in many democracies and ends in educating citizens about two distinct paths to prosperity. The two main parties, Congress and the BJP (after Narendra Modi became its official candidate) now reflect this polarity.

The Congress party’s starting point is an immediate and massive attack on poverty. It focuses on spending on social welfare and on subsidies to the poor. Its assumption is that a better-fed population will be more productive, and this will lead to more inclusive growth. Modi’s BJP, on the other hand, believes in direct measures to induce growth. Some of these are investment in power, roads and ports, cutting red tape, and encouraging entrepreneurs to invest. The resulting investment creates jobs, raises peoples’ incomes, and brings in higher taxes for the state. The higher taxes, in turn, provide the resources to attack poverty, illiteracy and ill health.

Obviously, a successful nation needs both growth and equity in the end but resources are limited and governments are forced to prioritize. The right of centre Modi-led BJP gives priority to economic growth whereas the left of centre Congress gives priority to equity and redistribution of growth. This choice was underlined recently in the much-publicized dispute between India’s two global superstar economists, Amartya Sen and Jagdish Bhagwati.

A second choice before voters is between competing styles of leadership. Modi is a strong, determined leader, who leads from the front while Rahul is shy, reticent, and leads from behind. Rahul is more likeable and compassionate; Modi is dictatorial but with his obsession with implementation, he is more likely to get the job done. Both are reasonably intelligent, but we make a mistake in overvaluing intelligence. Our current prime minister is hugely intelligent but he has failed to deliver results because he lacks determination, which in the end is more important in delivering results. Modi, on the other hand, has shown willpower and purposiveness in trying to root out corruption in Gujarat. Incidentally, business leaders make the same mistake in over-valuing intelligence when they recruit new employees. It is always better to hire for attitude and train employees in skills.

In the past two weeks, both leaders have made welcome moves to overcome their personality deficits. Rahul showed determination in overturning the Congress’ immoral ordinance on criminals in politics; Modi showed concern for the poor and a secular mind-set when he declared “shauchalya before devalya”, toilets before temples.

A third choice before the voter concerns the important issues of secularism and corruption. The BJP is a Hindu nationalist party and is inclined to see the world through majoritarian eyes. The Congress professes to be secular but its secularism often amounts to appeasing minorities in order to win votes. Still, a voter deeply wedded to secularism, will choose Congress over the BJP. When it comes to corruption, the Congress has broken all records and is seen by many to be profoundly corrupt. The BJP too has skeletons in its closet but the voter is likely to be influenced by Modi’s cleaner record against corruption in Gujarat. Thus, there is a third polarization — does one vote for a nonsecular BJP or a corrupt Congress party?

Sharp choices bring clarity to decision making for the confused, middle of the road voter, someone like me. Ultimately it amounts to this: Should one risk India’s precious secular and collaborative traditions for the sake of good governance and prosperity? But by choosing secularism over development, one might deprive millions of young Indians a chance to realise their capabilities, to rise above their lot into the middle class, and the nation a demographic dividend. It is an unappetising choice. It would be easier if Modi were more secular and compassionate, or if Rahul Gandhi showed more determination, gave more priority to growth, and was less tolerant of corruption.

Alas, it is not a perfect world and the best one can hope is to choose the less worse of the two candidates and call it a “wise choice”.

Long-term prosperity vs short-term populism

“Life can only be understood backwards but it must be lived forwards,” says an epitaph from the philosopher, Soren Kierkegaard. It rightly belongs on the grave of this dying UPA government that has destroyed our economy, with the traumatic collapse of the rupee its latest achievement. The epitaph reminds us that we must not ignore history if we want to lead a reasonably predictable life in the future.

One of the greatest lessons of history is that only an industrial revolution can make a poor nation prosperous. Every country has done it this way. Only thus can a nation hope to provide jobs for the millions of young people on the farms. But after two decades of reform, India’s economy is driven not by manufacturing but services.

Tragically, 90% of Indians work in the informal economy and even Ganesh idols are sourced from China. Our prime minister knew about this structural weakness when UPA came to power, and his government should have focused on making India a great manufacturing nation — by reforming rigid labour laws, investing in power, roads and ports, cutting red tape, and removing “inspector raj”— so that India does not rank 134th in the ease of doing business.

Instead, this government turned against industry. It brought retrospective changes in taxes, stopped hundreds of projects through red and green tape, imposed arbitrary penalties on companies and placed silly conditions when inviting foreign investment. Given this very unwelcoming and unpredictable climate, honest business people lost all faith in the system. Only crony capitalists remained faithful. And now, in the midst of one of the worst crises faced by our country, this government has championed two disastrous pieces of legislation.

It has proposed a new law based on the dreadful premise that acquiring agricultural land for industry is inherently coercive and bad. Under the new law, it will now take years to acquire land, as the land acquisition proposal even for small projects will have to pass through a hundred hands. This will ensure that India remains disadvantaged against its competitor nations and does not experience an industrial revolution.

Secondly, it has enacted a law on the ridiculous assumption that two thirds of Indians go hungry to bed. Hence, the state will now have to provide 80 crore Indians with grain at 10% of the market price when less than 2% of Indians claim to be hungry according to official surveys. Where will the colossal money come from when the nation is teetering on bankruptcy with its rating about to be downgraded to junk status? Two weeks ago Sonia Gandhi told Parliament that if there is no money for the food security bill, it would just have to be found. And if the public distribution system is broken, she said, it would have to be fixed. But how, she did not say.

We used to believe that even if India reformed slowly, it was reforming surely and there was no going back. Under this premise businessmen made huge investments after 1991 and this unleashed the gift of high growth, gradually making India the world’s second fastest growing economy. But this government sneered at this gift and has even undone some reforms. Despite some excellent moves by the finance minister in the past year, there is uncertainty and confidence remains low.

The coming of Raghuram Rajan at RBI has stemmed the rot somewhat. But it will take time to rebuild confidence that has been recently shaken by the fall of the rupee which brought huge collateral damage to the bond and equity markets. India can still create an industrial revolution if it remembers Kierkegaard’s epitaph. The rupee’s devaluation has once again presented an opportunity for export driven manufacturing growth. But it will require a deep commitment from the next government to create reliable infrastructure and transparent rules.

Meanwhile, the best that this government can do is to call early elections and put an end to some of our misery. Let people decide if they want to take the path of long-term prosperity or the path of short-term populist giveaways. One can never be sure in a democracy about the next government but it is in the nature of the human heart to hope for a better tomorrow.

Just one hour a week is the answer to our political discontent

Democracy is as depressing in practice as it is uplifting in theory. There have been so many corruption scandals in the past few years but political parties refuse to learn. In Uttar Pradesh, which always leads the country in bad behaviour, workers of the Samajwadi Party are back to their crooked old ways while they settle scores against Dalits. At the centre, the UPA has pushed through a dreadful food security law via an ordinance in a desperate move to shore up its popularity before the coming elections, knowing full well its potential for fraud and waste.

The new food law comes at a gigantic cost to a nation that cannot afford it. It will not solve the problem, which is malnutrition and not hunger. But it will undoubtedly result in a colossal scam when a large part of the grain mountain is diverted into the black market. Instead of improving delivery of the current PDS system, we have burdened a weak, corrupt institution with a massive new mandate. When institutions cannot implement existing laws, it is madness to create new ones. It only widens the gap between aspiration and performance, damages the nation’s moral character, and undermines the trust between rulers and the ruled.

Anna Hazare’s movement has proven that crowds may awaken people but they do not achieve the goal, and Arvind Kejriwal is discovering that it is not easy to turn a protest movement into a political party. What then is the answer to our democratic discontent? The key lies with decent individuals to move out of the dogged pursuit of material comfort and engage with politics. The right place to begin is one’s neighbourhood. When public spirited individuals engage in the community they help create new ‘habits of the heart’ in society. This was the great insight of Alexis de Tocqueville who wrote, Democracy in America, perhaps the best book on democracy. What impressed Tocqueville about Americans almost 200 years ago is that they were ‘joiners’ and engaged in volunteer activities for a few hours a week. By joining local clubs and social activities, they connected with neighbours. And when neighbours meet, what do they talk about? They discuss the condition of the roads, the schools, garbage collection and so on. Thus, civic life and ‘citizen’ are born.

Between 1947 and 1949 a diverse assembly of deeply principled men and women worked selflessly to create the concept of ‘citizen’ through a fine Constitution. It was one of the great moments in our history. India was blessed with an amazing first generation of leaders who thought of politics as the noblest of endeavours. In the Mahabharata, Bhishma returned from his deathbed to give the same message to Yudhishthira, who wanted to renounce the throne after the bloody war at Kurukshetra. Sixty five years after independence the nobility of politics has been replaced by criminality. The best spurn politics, leaving it to the worst. If decent men and women do not take the plunge, criminals will take over entirely.

What inhibits decent people from entering politics in India is black money and political dynasties. A talented, high minded person will not join a party without inner democracy where merit is not rewarded. Fortunately, a new generation of political leaders has begun to realize that a young India is waking up politically and it will not tolerate the old sycophantic politics of ‘rishwat’ and ‘sifarish’. Political parties will have to learn to value talent the way India’s companies’ do, and a party with inner democracy and meritocracy is bound to gain competitive advantage in the end. Dynasties are thus warned.

All of us struggle to give meaning to our lives. The standard Indian solution is to turn inwards and seek liberation from human bondage through meditation. But there also exists in our tradition the path of action, karma yoga, which means to leave the world a little better than we found it. The answer to our democratic discontent is thus to dive into one’s neighbourhood and assume the duties of a citizen. Don’t worry about the corruption of 2G, Commonwealth Games, or Coalgate. Act instead against the sleaze in our locality. Just one hour a week in the neighbourhood is the best way to reciprocate the compliment that our founding fathers paid us.

Waiting for inspiration, sirji!

The spot fixing scandal in the Indian Premier League of cricket is only the latest disgrace in the sickening, never ending saga of moral failure in our national life. We have got so used to blaming governance and the institutions of the law that we forget that our pathetic education system is also responsible. And yes, parents too are guilty, for the home is the crucible of the moral life. However, one inspiring teacher can make all the difference in moulding the values of young human beings. This is one of the findings of the 33-year-old Harvard economist, Raj Chetty, who recently won the prestigious Clarke Medal which is second only in status to the Nobel Prize.

Some of us were lucky to have had such a teacher when we were growing up. She incited and fed our curiosity and when we did wrong she gave a little nudge in the right direction. That course correction resulted in a new action, which when repeated became a habit, and the habit in time became our character. As we grew older we reaped the consequences of our character, which is another way of expressing the old idea of karma. The development of the intellect and moral character are related. Just as there is an order in nature and in the realm of numbers, so too is there a moral order that gives coherence to our lives. A good teacher is able to transmit this order, not by exhortation but by becoming a role model.

About 20% of India’s children today receive a decent education, but for the rest it is a depressing story. On the positive side, 97% of children do enter school. However, after a year only 43% can recognize letters. By class 5, half the children cannot read a class 2 textbook and three quarters cannot do simple division. By class 10, Indian children rank second last, aboveKyrgyzstan, in a test recently given by the Program for International Student Assessment in 74 countries. This is tragic! Our education establishment is, however, in denial and the Right to Education Act is totally silent on learning outcomes.

The weakest link in our appalling system is the tired and cynical teacher, who lost his spark decades ago if he ever had any. Too few teachers think of teaching as their dharma. How many wake up in the morning, look at the mirror and exclaim, “Today, I shall inspire one child in my class!” Yet not one of our political leaders has the guts to say bluntly what President Obama did on American television a few years ago: “Bad teachers should be fired”.

In this dismal scene, however, there are green shoots of hope. Teachers’ salaries have risen in recent years. This means that the right sort of persons will be attracted to the teaching profession. Technology also offers lots of possibilities. Children can now watch the world’s best teachers teach online, even on their mobile phone. The amazing ‘Teach for India’ programme, modelled after ‘Teach for America’, selects outstanding college graduates and offers them a chance to teach in poor schools where they soon become role models of change. Cities like Mumbai have begun to turn over failing municipal schools to NGOs who have quickly brought in the world’s best practices. Who knows, one day we may again produce legendary teachers, such as the one in Dharmapuri district in Tamilnadu, who bicycled 20 km in rain and shine to his village school for thirty years and produced a whole generation of great leaders.

Obviously, we cannot wait for an inspiring teacher to fall from heaven. Neither is there any point in complaining about corruption in high places. The moral foundation is laid at home and parents must take responsibility to teach moral reasoning to their kids. But parents must also get involved in the school. Studies show that where parents take an interest, the quality of the school improves. Even poor parents can make a difference. Although the Right to Education Act provides for parents’ involvement via school committees, this is not an easy task in a callous system of rapacious unions and uncaring bureaucrats. But it has to be done.

Narendra Modi: temptation of the middle class

The sudden ascent of stocky, 62 year old Narendra Modi as a serious contender for the nation’s leadership has taken people by surprise. The general election is still a year away but the average, open minded, middle-of- the-road Indian wonders how to think about the polarizing chief minister of Gujarat. Either you love him or hate him, which is precisely why one must not react with a knee-jerk but try and go beyond the shallow surface of a flawed but remarkable human being.

India today is discontented and troubled as a result of corruption scandals, high inflation, declining growth, and a government in denial. Sick of the drift and paralysis, people desperately seek a strong leader, and insistently ask if Narendra Modi might be the one. Clearly, he has proven the ability to build a vibrant economy and usher in corrupt free governance. Could he be India’s best chance to ungum the bureaucracy, tackle corruption and restore the economy to health? But Modi also has a clear downside: he is dictatorial with communal tendencies. Should one risk India’s precious secular and collaborative traditions for the sake of good governance and prosperity? It is a dreadful moral dilemma between equally important values--a classic dharma-sankat.

No Indian leader in recent times has spoken with such passion about ‘governance’ and ‘development’. His talk of ‘less government and more governance’ resonates with the aspiring young middle class. He has changed the language of politics with words like outcomes, accountability, and unbureaucratic service delivery. Visit a municipal office, he says, and you will only see clerks; but an urbanizing nation needs technical people to solve sanitation, transport and infrastructure problems; so, he hired engineer interns and gave them an opportunity to solve municipal problems in Gujarat. Implementation is his obsession and he compares two canals of equal size--the Sujalam Sufalam Yojana, which he completed in two years while the old Sardar Sarovar canal from Nehru's days is still incomplete.

Every country must protect its environment, he argues, but none stops 750 industrial projects and delays them for years. By covering Gujarat’s canals with solar panels, he is conserving water and has made Gujarat a model of solar power. India’s schools face a serious problem of quality, and the Right to Education Act refuses to measure outcomes; so, he plans to make Gujarat’s schools accountable through continuous, quality testing. He inspires young people, saying ‘IT + IT = IT’ (Indian Talent + Information Technology = India’s Tomorrow.) Not since Jawaharlal Nehru has a politician given people such a sense of possibilities. They see in Modi an underdog, a David challenging the Goliath of the Nehru-Gandhi dynasty.

But every temptation has a price. Modi is considered anti-Muslim and many cannot forgive him for the events in Gujarat in 2002. He may not have actively connived in the violence, they say, but why doesn’t  he show remorse? After all, it happened under his watch, and he is responsible. By polarizing the country, people fear he might alienate India's Muslims and this might enhance the risk of domestic terror. The temptation to vote for prosperity and good governance must be tempered by the imperative to keep the nation united and secular.

Those who dismiss the middle class’ impact on elections forget that a new generation of voters has joined the middle class after 1991, and it is in a rage over violence against women and children and longs for a leader who is tough against crime. But it also does not want an Indira Gandhi who will subvert the institutions of democracy. Modi is not likeable--Rahul Gandhi is far more affable--but people today seek an effective, not a friendly leader. India's dilemma is that Modi is the most likely candidate to provide corrupt free governance and restore the economy to high growth, create masses of jobs and lift millions into the middle class. But his communal past is a threat. In the end, each voter will have to choose in 2014 between several imperfect candidates and make a trade-off. Those who think corrupt free governance and prosperity are more important will vote for Modi. Those who worry about communal harmony and domestic security, will not vote for him. It is an unhappy but unambiguous choice.

Food security bill: Corruption by another name

On the same day as the central cabinet approved the food security bill two weeks ago, Delhi’s chief minister, Sheila Dixit, stood up courageously to defend the rising price of electric power in the Delhi assembly. She explained patiently to the legislators that you cannot have something for nothing--electricity costs money and those who use it should pay for it. In the end she succeeded. By not raising the power subsidy, Delhi’s chief minister was able to increase investment for roads, public transport, education and health care in Delhi state’s annual budget.

The contrast between the two actions of the centre and the Delhi state could not have been more dramatic. Sheila Dixit’s actions will lead to productive jobs, better skills and long term prosperity of the people. The food security bill, on the other hand, will condemn India’s poor to perpetual poverty.

The proposed food security law plans to distribute grain to two thirds of India’s population at a 90% subsidy, which will cost the nation over Rs 100,000 crores.  Giving people virtually free food will keep them dependent on a ‘mai baap party’, trapping them into a permanent vote bank. It is a brilliant strategy of the Congress Party at the centre—both the voters and the party will thus have a vested interest in keeping people poor and dependent.

If the same Rs 100,000 crores were to be spent in providing public goods--roads, schools, power, and law and order--it would opportunities. It would encourage entrepreneurs to start businesses, which would create sustainable jobs and raise the state’s tax revenues. These taxes, in turn, would make it possible to invest in more public goods. Thus, a virtuous circle would be created and lift the society’s standard of living. But the Congress Party would lose out for people would move out of poverty and the party would lose its vote bank. The party needs for people to remain poor.

There are other serious risks associated with the food security bill. The fact is India just cannot afford this colossal spending. The latest budget of the central government shows how vulnerable are the nation’s finances. This new spending will increase India’s fiscal deficit and could well lead to a downgrade of the country’s sovereign rating to junk status. A downgrade of the rating will raise the cost of money available to India from the world market and also discourage foreign investment at a time when it is much needed.

Moreover, past experience shows that less than half the food in such programs reaches the intended beneficiaries. Hence, half of the 50 million tonnes of grain are likely to get diverted to the black market by this bill, and this could result in another scam which this scam tainted government cannot afford.

Worse, this bill will tempt people to lie about their financial status and weaken public morality even further. For example, 83% of Karnataka’s people call themselves poor based on BPL cards issued. But government records show that less than a quarter of the people in the state are, in fact, poor. West Bengal also discovered last year that forty percent of its BPL cards were fake. In Uttar Pradesh, the situation is much worse. A law that turns people into liars would have horrified our founding fathers. They had a profoundly moral vision of the Indian republic--so much so that they placed the wheel of dharma, the Ashok Chakra, in the nation’s flag. When a government forces its people to become dishonest, it wounds public dharma and undermines the trust between the rulers and the ruled.

When we were young our parents taught us the importance of honest and  hard work. We learned that if you did not work you did not eat. But when the government starts giving people something for nothing, it weakens the work ethic. It undermines the ethic of responsibility and dharma taught to us by our parents. When the government starts giving away to people subsidized food, diesel, cooking gas, NREGA jobs, it sends the wrong message. It teaches them that they can get something without working for it. This is another form of adharma.

The reforms of 1991 were based on an unwritten social contract which created a new basis of trust. The contract was that the government would stop running businesses and focus instead on governance and public goods. Entrepreneurs and markets would do a more efficient job of managing businesses and this would lift the economy’s growth rate. This has, indeed, been happening. As a result of high growth, almost two hundred million people have risen out of poverty and another two hundred million have joined the middle class in the past two decades.

 Thus, the private sector has done its job. But the government has not lived to its side of the bargain. It has done a very poor job of providing infrastructure. Instead of investing in roads, electricity, and other public goods, it has focused on giving ‘bribes for votes’ to the people. These bribes are subsidies on food, electric power, diesel, cooking gas, NREGA jobs etc. Unlike investment, subsidies do not result in production. When spending is not backed by production, it leads to inflation. Thus, ‘bribes for votes’ policy has contributed to inflation in our county

 Giving away virtually free food and power, waiving loans to farmers, creating ‘make work’ jobs, as the UPA government has been doing, has undermined the social contract. Markets meanwhile have helped to accelerate social change and re-shaped public character. A new class of citizens has risen who are now demanding a corruption-free state. They are angry over poor governance and corruption, and this has widened the gap between people’s aspirations and government’s performance.

The UPA’s campaign managers for the 2014 elections may think that India’s vast majority is untouched by the new dharma, but the recent protests against corruption and violence against women have shown otherwise. This cynical food security bill, instead of winning votes, may thus only add to the woes of the UPA, which will discover to its peril in 2014 that voters will think of the food security bill as amounting to corruption by a different name.

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A Budget speech you will never hear

It is Budget time again and next Thursday the finance minister will address  parliament with a speech which you will never hear except from my auto-wallah: 
  

            Madam Speaker, I rise to present the Union Budget for 2013-2014. This is a pre-election year and the people expect give-aways and bribes-for-votes. But this is not going to happen in this Budget. So, here is my advice to citizens. Go home; on the way, pick up the garbage that you threw out the window. Wash the street. Teach your children about their duties, not just their rights. Tell them to spend an hour each week on their neighbourhood, learning democratic ‘habits of the heart’.

 India does not owe you cheap diesel, cooking gas or subsidized food.  Nor does it owe free electricity, make-work jobs, loan waivers, or even reservations. The only thing the state owes is good governance. This begins with law and order, as Nirbhaya has reminded us. Btw, none of you stopped to help her on the road. We also owe you public goods--roads, clean drinking water and other infrastructure; plus, functioning schools and health care. After that, it is up to you to work hard, pull yourself up, pay your taxes and make India a great nation.

            A few years ago India was the envy of the world. We were growing rapidly, creating masses of jobs, and lifting millions out of poverty. All this happened because of our reforms. All governments after 1991 kept reforming, albeit slowly, but even the slow reforms added up to make us the world’s second fastest growing economy. The reforms stopped after the UPA came to power because we made a false trade-off between equity and growth. Instead of investing on growth we started spending on the poor. We also stopped approving new projects. This has led to high inflation, low growth, and an unsustainable fiscal deficit, which threatens our nation’s sovereign rating.

            Madame Speaker, our growth numbers hide real misery that has been inflicted upon the Indian people as growth has plunged from almost 9% to 5%. One percentage point of GDP growth means roughly 15 lakh jobs; each direct job creates three indirect jobs; and each job supports a family of five. If you do the arithmetic, Madam, you will find that a four percentage point drop in GDP has brought pain and suffering to around twelve crore Indians.

            Here are some examples of what went wrong. If we had continued the momentum in road building after we came to power, we might have been looking at a different India. A recent study by Ejaz Ghani and others for the World Bank shows that the highways built or upgraded by the Golden Quadrilateral have brought enormous gains in new manufacturing activity, jobs and productivity within ten km of the new highways. Land acquisition has been a problem. But we have made it worse now. To acquire an acre of land under the new Land Acquisition Bill will “take at least two years as the proposal would have to pass through about a hundred hands.. social assessment would be carried out and its report would be vetted by an Expert Group...there would be an R&R Committee and a National Monitoring Committee to pontificate over the reports of the junior committees...The bill is anti-farmer and anti-growth, but it is certainly pro-civil society,” says a respected member of the National Advisory Council.

            What keeps me awake at night is that many of our policies have corrupted the morals of our people. When we cancelled loans of Rs 60,000 crores in 2008, a farmer who had just repaid his loan, sadly said, ‘What is the use of being honest?’ Human society is based on trust. We learned as children to keep our promises and repay our debts. Tulsidas reminded us, ‘praan jaye par vachan na jaye’. Loan waivers wound our moral universe in the same way as ‘make-work’ jobs, adulteration of diesel with kerosene, and the vast theft of PDS food.

The economic rise of India has been the defining event of our lives. But we let it slip. Today I shall promise to push reforms and try to restore the old magic. With this, I hasten to conclude, Madame Speaker. 

An aspiring young India needs a new liberal party

India is a nation in ferment. People have taken to the streets because they no longer trust the existing political order. The old way of doing politics is under challenge but a new way has not yet been found. No one knows quite what the next eruption will bring. After Anna Hazare, Kejriwal, and Nirbhaya, there will be another outrage and another protest, and this will not stop until the political class learns to cope with the aspirations of a new, young, self confident nation. There were hints of this realization last week at Jaipur but no one had the courage to say so at the Congress conclave, not even Rahul Gandhi.

The aspiring young are about third of the country now, and in a decade or so they will be half. This is the new aam admi and it finds it has no one to vote for in 2014. The existing parties continue to view voters patronizingly as poor, ignorant, grieving masses. So, they resort at election time to the same tired populist formula of bribes and giveaways--free booze, loan waivers, free power and TV sets, caste reservations, subsidized food, NREGA jobs and now cash transfers. The giveaways benefit only a section of the people. But Nirbhaya’s lesson is that people want public goods which benefit all citizens. Everyone gains from efficient law and order, corruption free governance, good roads and schools, whereas only a section gains from reservations, free power, and PDS rice. Everyone benefits where the police quickly file an FIR and the judge gives quick justice.

The aspiring young cannot understand why their tolerant nation, which offers the most astonishing religious and political freedom, fails to give economic freedom. Why must amazingly free India rank 119 on the global freedom index? Why must it reform by stealth? In a country where three out of five people are self-employed, why should it take 42 days to start a business, and the entrepreneur is victim to endless red tape and corrupt inspectors?

India ends up reforming furtively because none of the political parties has explained to the people the difference between being ‘pro-market’ and ‘pro-business’. To be ‘pro-market’ is to believe in competition in the marketplace, which helps keep prices low, raises the quality of products, and leads to a ‘rules based capitalism’. To be ‘pro-business’ means to turn over the market’s authority to politicians and officials, and this leads to ‘crony capitalism’. Competition means that some businesses should be allowed to die because they are poorly managed such as Kingfisher Airlines and Air India, and should not be bailed out. Not making this distinction has led to the false impression that reforms make the rich richer when they actually help the poor. The aspiring young demand rules based capitalism, and to get there will mean shifting our politics away from populism towards the centre.

Protests awaken a people but do not solve the problem. Only the hard work of politics can do that in a democracy. It would be smart for one of the two major national parties to recognize this opportunity and come into tune with the new aspiring, secular aam admi. But that seems a hopeless prospect. The DNA of the BJP is not secular; the DNA of the Congress is statist, populist and socialist. Neither has shown the commitment to drive institutional reform needed for good governance. The regional parties lack a national vision and left parties do not believe in market-based outcomes. The Aam Admi Party could have filled this space but it has illiberal tendencies and does not endorse economic reforms. So, while the last thing India needs is a new party, it is the only alternative.  

A young aspiring, secular India needs a new liberal party of the 21^st century which trusts markets rather than officials for economic outcomes, and relentlessly focuses on the reform of the institutions of governance. Only thus, will the country begin to move away from crony capitalism and towards rules-based capitalism. It may not win votes quickly but it will bring governance reform to centre stage and gradually prove to voters that open markets and rules-based government are the only civilized ways to lift living standards and achieve shared prosperity.