Financial Times

INSIDE TRACK: Wisdom along the road to reform

By John Thornhill

Published on: Aug 21, 2002

Unbounded enthusiasm about India has been in short supply of late. The horrific communal riots in Gujarat have reminded the world of India's volatility. The military stand-off with Pakistan has highlighted south Asia's diplomatic instability.

Nevertheless, Gurcharan Das, a former business executive turned author, is enthusiastic about India's prospects. While India may never roar ahead like the Asian tigers, he argues, it can at least advance like a wise elephant, moving steadily and surely, pausing occasionally to reflect on its past and to enjoy the journey.

The revised edition of Mr Das's book, India Unbound*, is at the top of the country's best-seller list for non-fiction, tapping into a vein of renewed self-confidence and national pride that is itself a central theme of his study. Part memoir, part history, part travelogue, part polemic, India Unbounddissects the failures of the country's Nehruvian socialist experiment and vividly describes the changes that are transforming the daily lives and outlooks of the country's 1bn people.

Mr Das's central argument is that India's market reforms, which began in 1991, are proving as revolutionary as Deng Xiaoping's embrace of capitalism in China in 1979 - it is just that they are occurring more slowly and have so far failed to generate as much outside interest.

In fits and starts, he argues, India's liberalising reforms are slowly unleashing the country's "animal spirits" and will eventually lead to its emergence as one of the world's great economic powers. By 2025, he predicts, India could have increased its share of global output from 6 per cent to 13 per cent, making it the third largest economy in the world.

An irrepressible enthusiast, who helped turn Vicks VapoRub into an improbable success story in India during his days as a manager for Procter & Gamble, Mr Das cites many reasons for optimism.

First, the dead hand of India's socialist economy - the so-called "Licence Raj" - is steadily being removed. This puts business executives, bankers, consumers and investors - rather than corrupt, licence-issuing bureaucrats - in charge of the economy, leading to the more efficient use of resources.

Second, political power is devolving from New Delhi to India's outlying states, encouraging competitive, local democracy and self-government. Better education and increasing literacy rates are drawing more of the lower castes and women into the political system, slowly improving the appalling levels of governance.

Third, a younger generation of Indians has cast off the colonial-era way of thinking and is embracing the opportunities offered by globalisation. While Indians of Mr Das's generation wanted to emulate Jawaharlal Nehru, post-colonial India's first prime minister, today's cult hero is more likely to be Bill Gates, Microsoft's founder. India's remarkable information technology revolution has helped create an elite cadre of business leaders that is now determined to drive further economic reform.

Mr Das argues that these changes have ensured that India's "Hindu rate of growth" - which condemned the economy to expand at an average rate of 3.5 per cent a year, from 1950 to 1980, scarcely more than the country's population growth - is now a thing of the past. In the 1990s, India's gross domestic product expanded at an annual rate of 6.3 per cent - and Mr Das predicts the economy has the potential to accelerate even more.

In an interview, Mr Das suggests that to do so, India's leadership needs to shed its damaging obsession with neighbouring Pakistan and learn more lessons from China's capitalist experiments.

"Ignore Pakistan, heed China," Mr Das says. "Pakistan pulls us down. China pulls us up. The best use of public money would be to take our legislators and show them what is happening in China.

"Mr Das argues that India's "curious historical inversion" - which resulted in it becoming a fully fledged democracy before it became a free-market economy - will always temper the country's economic expansion. But, he suggests, this is no bad thing: it will also help preserve social stability and the more fragile facets of India's unique civilisation.

"I would rather that we had a negotiated entry into the modern world with all our multifarious voices being heard than an autarchic system in which all voices are snuffed out," he says. "I would rather have 7 per cent [growth] with democracy than 8 per cent with autocracy.

"The central arguments of Mr Das's book certainly provoked a lively debate when they were discussed by a panel of distinguished economists in London earlier this year. Some speakers doubted whether the motor of India's IT industry would be strong enough to drive the economy uphill in the absence of a wide-scale, efficient and labour-intensive manufacturing industry, such as in China. It would be difficult to skip from an agricultural revolution to an IT revolution - as Mr Das suggested was possible - without passing through an industrial revolution.

Others questioned whether India's consolidated fiscal deficit of 10 per cent of GDP would not strangle private sector investment and hold back economic growth. The state retains a central role in India's economy and its functionaries would not easily yield their place.

But Amartya Sen, the Nobel prize-winning economist and master of Trinity College at the University of Cambridge, perhaps made the most telling critique, arguing that the deformations of India's democratic system would continue to bind the country, hampering economic reforms that still desperately needed to be pursued.

The "fascist elements" in the ruling Hindu revivalist Bharatiya Janata party (BJP) were dangerous proponents of reform, he said, favouring sectional over national interests. India lacked a secular rightwing party to champion liberal economic policies while the left was more divided by regional and caste loyalties than it was united by class interests.

This point was echoed by Lord Desai, a professor at the London School of Economics, who argued that it was India's balance of payments crisis in 1991 that drove market reform rather than any real ideological conviction among the political leadership.

"It is in no one's political interest to reform and the elite is so clever it can always give good reasons not to do so," he said. "India has a very unpleasant choice between secularists who do not want further liberalisation against non-secularists who are mildly reformist.

"Mr Das may be right that India has done well to jettison Nehruvian socialism, but his critics argue that the country's very future could be jeopardised by the BJP's seeming determination to overturn Nehruvian secularism as well.

* IndiaUnbound: From Independence to the Global Information Age, Gurcharan Das, Profile Books, £9.99 paperback

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