Sentiments are fragile and often irrational, but they do matter. Entrepreneurs invest when they are feeling good, and stop investing when doubts creep in. This is what has happened in India. Doubts have crept in, and the self-confidence that had fuelled investment during the past nine months has largely evaporated. Both Indian and foreign investors have once again begun to have doubts about India as a worthy destination for investment. Thus P. Chidambaram faces a heroic task. For no matter how much you tell investors that the fundamentals of the economy have not changed—that it is still the same sound economy as it was two months ago—market sentiments have a life of their own, and they do not always listen to reason.
Although the Left tends to dismiss it, national confidence is a good thing. Ask any CEO and he will tell you that a sustained positive feeling among employees often separates success from failure. Ask a historian of Rome, and he will testify to its amazing power. Or of 19th century Britain, or Japan between 1960 and 1990, or even current day China—they will all bear witness to the clout of self-belief, which makes ordinary people do extraordinary things. This confidence has been jolted by this election.
Before relegating ‘India Shining’ to history’s dustbin, it’s well to remember that it did succeed in one space, and succeeded spectacularly. The business class both in India and abroad bought the idea that India had become a serious player in the world economy, and was poised to make a leap forward. This had generated tremendous excitement in the corporate world, both here and abroad, and for almost a year I could feel a palpable optimism in my interactions with investors and business people. The offshoring controversy in America too may have fuelled it, and the foreign press certainly reinforced it. From a land of snake-charmers, India suddenly became a serious competitor for the white-collar jobs of the developed world. I was abroad in February and March this year; never have I seen such a spate of positive views expressed by foreign commentators on India.
Right through the ’90s, China had been the big success story. Quietly over the past couple of years, however, India had somehow crept onto the radar of global media. Hence, during the past year every time China was mentioned, India’s name was attached to it. Earlier this year, the New York Times in a front-page story wrote that China and India were going to write the script for the 21st century. But the more cautious rendition was usually "China and to lesser extent, India" as the Economist put it. This positive perception of India has diminished, if not ceased entirely, ever since the stockmarket crash. The Indian Left may have contempt for markets, but investors watch markets, and since we are part of the global economy, investor sentiment will determine investment, growth, and jobs.
I ask myself, why has this sentiment suddenly changed when the fundamentals about our economy are the same? In part, I think it is because the ‘India whining’ story has also affected the business community, which has concluded that India’s economic prospects were perhaps never as rosy as they had been led to believe. And the BJP’s defeat has reinforced this perception. In the process of trashing the BJP’s tall claims, the Opposition unintentionally ended up trashing India, the country. Investors began to wonder if the story of India’s prospects was a bunch of tall claims, when the reality may have been that it was still the same "under-achiever" the Economist has been portraying for years. I don’t think the Congress meant to trash the country, but this is how it ended, and India became the victim of competitive democratic politics. Self-confidence has always been lacking in our society, especially in the business community. I don’t know what and how long it will take to rebuild it. We certainly have an outstanding economic team in place today, but as I said before, sentiment is irrational and elusive.
The well-intentioned Common Minimum Programme of the new government probably did more to kill this spirit than anything else. The idea of reservations in the private sector, when the prospect of labour reform had died, frightened managers who were engaged in the hard day-to-day work of running a company. As it is, they have to put up with a sub-optimal work culture with endemic absenteeism, and now this burden of reservations.
Businessmen have repeatedly expressed the view that they would happily pay for the uplift of the poor if they had the slightest faith that the money would reach the poor. They agreed that the best way to uplift the poor was through good primary schools and primary healthcare. Hence, they did not mind the proposed education cess. But they worried about the condition of our municipal schools: 93 per cent of Bengali primary schoolchildren can’t write their names in Bangla; 30 per cent of teachers are absent in Bimaru states, 50 per cent don’t teach and most beat their pupils. Unless we first reform our schools (by giving parents’ associations a voice, for example, in the teachers’ pay), we would only be wasting the nation’s hard-earned money. As it is, India spends around Rs 1 lakh crore on education (higher than most countries as a per cent of GDP), but because of teacher absence and other inefficiencies, a third is perhaps wasted. That is a waste of Rs 30,000 crore!
‘India Shining’ is a nice expression and it’s a pity it got mixed up with politics. Since it is synonymous with India’s economic success, not surprisingly both the BJP and the Congress wanted to take the credit. The BJP claimed that its policies were responsible for the past year’s fine performance and the changed mood; the Congress argued that the economy grew faster under Narasimha Rao. Both were right (and wrong). The truth is that India’s economy has been shining for two decades, growing around 6 per cent a year, making it the fifth fastest major economy in the world.
After stagnating for centuries, our economy did finally pick up after Independence. It grew 3.5 per cent a year between 1950 and 1980; but our population also grew 2.2 per cent; hence the net effect was 1.3 per cent per capita income growth—this is what we mournfully called "the Hindu rate of growth". Things began to change with modest liberalisation in the ’80s when annual GDP growth rose to 5.8 per cent while population growth remained at 2.1 per cent; thus, income per capita moved up to a more respectable 3.7 per cent. This happy trend continued in the reforms decade of the ’90s when growth averaged 6.2 per cent a year, and population, in fact, slowed to 1.8 per cent average; thus, per capita income rose by a decent 4.4 per cent a year.
What these numbers mean is that if our per capita GDP had continued growing at the pre-1980 level, then Indian incomes would have reached American per capita income levels only by 2250. But if our economy continues to grow at the current 6 per cent rate, and if population grows at 1.5 per cent, then we will reach American income levels by 2066. This is a gain of 216 years, and this is what ‘India Shining’ really means. And it is worth dying for! It means that it is finally possible to believe that we shall soon be able to conquer India’s age-old worry over want and hunger.
It’s easier to explain why India was shining in the ’90s. The brave reforms of Narasimha Rao’s government opened our economy, dismantled controls, lowered tariffs and taxes, and broke public sector monopolies. And the economy responded magnificently. But how does one explain the pick-up in the ’80s? Here I think we don’t give enough credit to Rajiv Gandhi. He too opened the economy, albeit reticently and modestly—lowering marginal taxes and tariffs, removing the most irritating import restrictions, and liberalised industrial licensing through "broadbanding". Though modest, these efforts seem to have had a bigger impact that even the sweeping reforms of the ’90s. American economist Bradford Delong wrestles with this puzzle in In Search of Prosperity: Analytic Narratives on Economic Growth, edited by Dani Rodrik of Harvard. The real miracle is that all the governments after Rao continued the reforms, albeit frustratingly slowly. Yet this elephant-like pace has made India one of the fastest-growing major economies in the world. So, if you consistently reform in one direction in a democracy, it adds up. Since we haven’t had strong reformers at the top, like Thatcher or Deng, is it possible that the reform process has become institutionalised?
This "adding up" over time has enhanced our national confidence, which to my mind is central to the notion of ‘India Shining’. Thus, it is the Indian people who are shining as they have overcome all the obstacles put in their way by self-serving bureaucrats, politicians, monopolistic industrialists, Left intellectuals and labour leaders—in short, all the vested interests of the Licence Raj. But for all Indians to shine, we must begin to seriously reform agriculture and education. This ought to be the agenda of this government.
This election has reminded us that the Left’s historic role is to make the Right sensitive to the needs of the poor and to humanise capitalism in the process. Sadly, our Left is bankrupt of ideas, and thinks that throwing good money at old problems will solve them. Moreover, it has not ditched its naive faith in state control when our nation is groaning under the weight of red tape. This statism makes the Left look stupid. In the end, the problems of India’s poor will not be solved by ideology but by good implementation. This needs mental application. We have to focus on the ‘how’, not the ‘what’. It’s easier to abuse India’s bourgeoisie, but more difficult to come up with real answers to real problems.
(Gurcharan Das is the author of India Unbound and former CEO of Procter & Gamble India.)
