By Prof. Jagdish Bhagwati
For decades, India was unique in her democracy among the post-colonial countries that had gained Independence. Today that uniqueness has thankfully disappeared as several countries around the world have followed in India’s footsteps and transited from authoritarianism, even military dictatorships, to democratic forms of governance. The embrace of our democracy from the outset does, however, set us apart from China whose egregious denial of democratic and other human rights detracts hugely from admiration for its stellar economic performance.
India has not just the Lok Sabha and elections; it also has all the elements of what we now call a “liberal democracy”. We have an independent judiciary that has also advanced the cause of our poor and the underprivileged with Public Interest Litigation. We have a free and lively press. Most of all, we have innumerable and growing number of non-governmental organizations, the social action groups, that make up our civil society. We have therefore what Naipaul called a multitude of mutinies.
Several years ago, when I met with Prime Minister Lee Yuan Kew of Singapore, where political freedoms are more muted, he contrasted Singapore’s orderly regime favourably with our chaotic, undisciplined one. I remarked: Mr. Prime Minister, what you call the noise of democracy is in fact its music.
And we now increasingly realize how wisely our leaders managed to use democracy and its accommodating ways to hold a multi-religious, multi-lingual, multi-ethnic country together, creating unity without denying diversity. When Prime Minister Jawaharlal Nehru wished to turn Bombay into a city state like Delhi, denying it to Maharashtra, he soon yielded to democratic agitation that could have been long suppressed by a dictatorship. It is no secret that reorganization of states along linguistic lines was considered unwise in New Delhi; yet this was allowed in the end since democracy requires that voices from below must be heard at the top. Minorities were given representation in public life: in the judiciary, in the legislatures, in the executive, even in the Foreign Service, thus giving them a sense of belonging. Our leaders had the wisdom to choose Muslim and Dalit Presidents long before the United States elected an African-American, Barack Obama, as its head of state.
I have long argued that economic betterment, in a country with an immense backlog of poverty, inevitably takes time. On the other hand, democracy gives the poor and the underprivileged instant affirmation of what Americans call their “personhood”, a sense of equality with the castes and classes above you in a strongly hierarchical society. The elections are preceded by the elite politicians courting your vote and not ordering you around; and the election day is when you have the sense that you can turn the bums out.
I wrote about this when Prime Minister Indira Gandhi returned to power in 1980; after the Emergency in 1975 and the electoral disaster that tuned her out in 1977. I did not have the vote as Indians abroad could not vote. But I nonetheless went with our family cook, who was from the Hills, to the election booth to observe what was going on. I was pleasantly surprised that, normally deferential, he stood in front of me in the line, not behind, and when I asked him if he was going to vote for Mrs. Gandhi, he said that he did not have to tell me. That was his day. So I reflected on this and wrote at the time that democracy matters more to the poor than to the rich: a proposition that the celebrated political scientist Stepan endorses and calls the “Bhagwati Law”!
But permit me to turn now to the central question that I wish to address today: the question of economic reforms, what they have accomplished, and where we are and should be headed. On what we have accomplished so far, what I call the Reforms Yesterday; there are two conflicting “narratives” that we find currently, one adoringly celebratory and the other hypercritical and condemning.
Perhaps the most dramatic, optimistic view of India has come from the once sceptical magazine, The Economist, which famously wrote nearly 20- years ago that India was a tiger that was crouched for long but unable to leap. But the magazine wrote a raving cover page story on September 10th 2010, abandoning its reservations and arguing that India’s steadily accelerating growth rate since the 1991 pro-market, liberal (or “neo-liberal” if you wish to make them sound sinister) reforms was not a flash in the pan. Apparently throwing caution to the wind, it speculated that India’s growth rate “could overtake China’s by 2013, if not before”.
But then, the naysayers, among them the socialists in the currently ruling Congress Party, have rejected the “miracle” produced by the reforms by asserting darkly that the growth “lacks a human face”. Perhaps the most articulate critics are the “progressive” novelists of India, chief among them Pankaj Mishra whom the op-ed page editors of The New York Times regularly and almost exclusively invite to write about the Indian economy, a privilege they do not seem to extend symmetrically to American novelists to give us their profound thoughts on the US economy!
Mishra’s latest Times op-ed on 2nd October 2010, writes of the “alarmingly deep and growing inequalities of income and resources in India”, “the waves of suicides of tens of thousands of overburdened farmers over the last two decades”, “a full-blown insurgency …in central India” to defend tribals against depredations by multinationals, “the pitiless exploitations of the new business-minded India”, and much else that is allegedly wrong with India!
While economic analysis can often produce a yawning indifference, and Mishra’s narrative is by contrast eloquent and captivating, the latter is really fiction masquerading as non-fiction. The fact is that several analysis show that the enhanced growth rate has been good for reducing poverty while it has not increased inequality measured meaningfully, and that large majorities of virtually all underprivileged groups polled say that their financial situation has not worsened and significant numbers say that it has improved.
The enhanced, and increasing, growth rate since the reforms follow a period of abysmal growth rates in the range of 3.5 to 4.00 per cent annually for over a quarter of a century, starting in the 1960s. The cause had to deal with the fact that we got very little out of the investment we undertook. The reason was that we had a counterproductive policy framework whose principal elements were:
1) Knee-jerk intervention by the government through a maze of Kafkaesque licensing and regulations concerning investment, production and imports, prompting the witticism that Adam Smith’s Invisible Hand was nowhere to be seen;
2) Massive expansion of the public sector into many areas other than utilities, with occasional monopoly granted to public enterprises by excluding entry by the private sector, with predictable inefficiencies that multiplied through the economy; and
3) Autarky in trade and inflow of equity investment which was so extreme that the Indian share of trade to GNP had fallen, while it had increased in most countries, whereas the inward flow of equity investment had been reduced to minuscule levels.
It is often suggested that the Indian policy changes were imposed from outside, reflecting what has come to be known by ill-informed observers as the Washington Consensus in favour of liberal reforms at the Bretton Woods institutions. But that is no truer than to argue that the Soviet perestroika under president Gorbachev and the Chinese economic reforms starting in the late 1970s were imposed by Washington. In all three cases, the driving force was endogenous, a realization by the leadership that the old, counterproductive policy model had run their economies into the ground and that a change of course had to be undertaken. INAV