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Can India grow during the day when the govt is looking?

Submitted by admin on Mon, 09/30/2019 - 19:51

Gurgaon was a sleepy backwater with no local government, no industry, no railway line, and impoverished farmers, but in 2012, it has become the epitome of India's rise. Photo: Pradeep Gaur/Mint

Last year in April, Gurcharan Das visited Cairo and addressed a large demonstration against the rule of the military at Tahrir Square, where he talked about the rule of law, peace and democracy. The experience of seeing a nation in revolutionary turmoil made Das rethink the drivers of India's economic take-off, its limitations and its prospects in a recent book, India Grows at Night: The Quest for a Strong Liberal State (Penguin India, September 2012).

Gurcharan Das needs no introduction. Born into a Punjabi Hindu family in present-day Pakistan, he studied at Harvard under John Rawls. He was then offered a place at Oxford to do a D.Phil. (Ph.D.) under the supervision of Isaiah Berlin. He declined, and instead pursued a stellar career in business. He later became the CEO of Procter and Gamble India, and has been affiliated with numerous other corporations. In 1995, he left the high-flying world of business to become an author and a public intellectual. Since then, he has authored two international bestsellers—India Unbound, which was also made into a BBC documentary, and The Difficulty of Being Good, a subtle discussion of the practical ethics implied in the old epic of Mahabharata.

India's economic miracle, Das argues, has occurred with no government support—and very often in spite of the state. Yet, in order to bring India's economy to the next level, it will be necessary for the government to be more than just a nuisance.

Das is fond of saying that "India—unlike China—has traditionally had a weak state and a strong society". Throughout Indian history, its social structures have proved to be remarkably resilient. In contrast, even the most powerful of its empires—the Maurya, the Gupta and the Mughal—were no match to the Chinese Empire. When he visited Cairo, Egyptians asked him repeatedly about his own country: "How did you keep the generals out of power?" Das says that such a question would never occur to an Indian. "It's simply not in our nature."

At an event earlier this year in London, Das raised the example of two towns on the outskirts of Delhi—Faridabad and Gurgaon, which illustrate perfectly the bottom-up character of Indian economic growth. Thirty years ago, Faridabad had an active municipal government, a railway connection to the capital, booming agriculture and a variety of industries. Gurgaon, in contrast, was a sleepy backwater with no local government, no industry, no railway line, and impoverished farmers.

In 2012, Gurgaon has become the epitome of India's rise. It has 26 shopping malls, seven golf courses, and dozens of skyscrapers. In contrast, Faridabad has not changed much since 1979. It remains poor and suffers under a heavy-handed and corrupt local government. During India's economic take-off, Gurgaon's effective statelessness has served the town well. Instead of dealing with corrupt local authorities, residents and companies have invested heavily into building local sewage treatment plants, started using couriers instead of relying on the post office and hired security guards instead of relying on the police. In other words, Gurgaon—as Das puts it—has "grown at night", when the government was asleep.

True, there are limits to what bottom-up, stateless growth can accomplish. Das recognizes readily that India finds itself today in a crisis of the rule of law, due to a dysfunctional justice system and an ineffective and corrupt executive.

The British left India with a small but relatively well-functioning government. It was only Jawaharlal Nehru's overreach and the delusion of central planning, which turned modern India into what Swedish economist and Nobel Laureate Gunnar Myrdal called a "soft state", spread thin and unable to make its voice heard.

If Das's account of India's prospects is correct, the country's future hinges on whether it will also be able to start "growing at day". Or, to use a popular term, it depends on the success of the "second-generation reforms"' which would improve government effectiveness and accountability, reduce corruption, cronyism and unnecessary red tape, and turn the government into an efficient and nimble provider of public goods and services.

Alas, it is not clear how that desirable state of affairs is to be achieved. No doubt, Indians would be better off with a well-functioning government and solid institutions. But there may be good reasons why those are lacking in India—namely that entrenched interest groups benefit from the status quo. And gridlocked coalition politics does not help either—although in his last months before the election prime minister ManmohanSingh has apparently ceased to be Mr. nice guy.

The unpleasant truth is that a prospective reformer cannot just assume away the messy reality of Indian political life, but has to operate within its constraints. However, there is a silver lining to India's problem. Namely, Indian middle classes are on the rise, and are increasingly becoming an interest group in their own right. As they grow in size, wealth and respectability, they will have a greater say in Indian politics and hopefully push for reforms improving government effectiveness and accountability.

Overall, it is hard to disagree with Das's bullish take on the future of the subcontinent: "Time and again, India has successfully borrowed new ideas and made them its own." And although a deep governance reform could go against its historical heritage of weak, thinly spread government, it can be done if the right ideas prevail among the Indian middle classes.

Dalibor Rohac is an economist at the Legatum Institute in London.