Back to the drawing board as ‘shining’ India stumbles

Indians celebrate the festival of Ganesha. But is the Indian “economic” miracle over? EPA/Divyakant Solanki

The news of “shining” India spiralling downward is everywhere. With estimated growth rates halved from the highs of 9% on average in the last decade, and the rupee tumbling, the luster of the “new” India seems to be a maya, an illusion.

Worse, the economic “miracle” no longer seems to work. The Indian “dream” has become distant for the stirring, aspiring middle class households, given the paucity of employment opportunities, made worse by the lack of relevant skills for the twenty-first century.

For many long-time India observers, including myself, there was no miracle, if by that we mean something unexplainable or the handiwork of the divine. India as a society and as a nation was on the go well before the vaunted economic reforms of 1991.

State intervention, notwithstanding its limited effectiveness, did alter the structure of the Indian economy. From an import-dependent, impoverished, peripheral colonial economy, India has come far; but on some comparative social benchmarks, not far enough at all.

It has virtually all the sectors that form the backbone of a modern economy. It has even been able to create new ones such as the IT and the software industry consonant with changes in the world economy. India boasts nearly US$70 billion in IT services exports, representing approximately a quarter of total exports. No other country has such a profile at such low per capita incomes.

The role of the state was important in establishing technical education infrastructure for basic industries in the 1950s and 1960s and IT infrastructure for exports in the 1980s and 1990s.

Similarly, India’s pre-World Trade Organisation (WTO) patent laws that recognised process but not product patents contributed to India’s standing as a globally competitive generic drugs producer. The Indian Election Commissioner can mobilise more than four million people to tackle an electorate of 700 million, and nearly 400 million actual voters.

Clearly, organisational acumen does not seem to be lacking given that Indian elections by and large are transparent and clean. Indian businesses, workers, bureaucrats, and even politicians – that veritable category that is rarely looked up to anywhere – have matured through learning by doing.

A Congress party supporter on election day in 2009. India is the world’s largest democracy. EPA/Jaipal Singh

The state, by freeing up economic space through deregulation and liberalisation, allowed businesses and households to tap into new opportunities and pursue their economic and other interests. In this sense there was no Indian miracle. There was a pre-existing foundation, which helped squeeze out economic dynamism from the reforms.

India’s current woes rest on the usual macroeconomic reasons as well as structural social and economic ones, which are juxtaposed by Indian politics. The business press has covered the macroeconomic challenges extensively so only a passing note might be in order.

India’s dependency on imported oil and Indians’ appetite for gold are the bane of the current account crisis. The Indian government should take steps to dampen imports of both, through policy shifts to use domestic and alternative sources of energy, and promote mass transit rather than automobiles and put a surcharge on gold.

The more basic challenges are the longstanding structural issues, which deserve greater attention. The Indian state, despite its good intentions, has been effectively captured by the political juggernaut in ways that Lord Jagannath, a Hindu deity, would find baffling.

Ruling family dynasties, cultist political party leaders, upper caste domination, semi-feudal social relations, and deep-rooted and opportunistic pursuit of status at every social level are the drivers of India’s dynamism. They are not new but some of them have gotten worse with reform-led free for all raw capitalism. Witness mining scandals where “entrepreneurs,” with the help of local politicians, capture public property for private gain.

Think of the atrocities committed by upper castes on the so-called untouchables in many parts of rural India and by men on women. And where does the Indian elite stand? It has virtually checked out of India, preoccupied by its pursuit of the good life made possible by the reforms. The societal disorientation is palpable, the promise of a bright future is held back by a lingering past and the present is a constant struggle for the vast majority.

The global economy is both a help and hindrance, in part because the structural problems of poverty, caste, mistrust, and inequality have never been adequately addressed; they get shoved behind the lustrous curtains of “new” India.

A model with a self-defence ring containing a spike and pain inducing chemical. Endemic sexual violence against women is key issue for India. EPA/Jagadeesh NV

As a sampling, the errors of heavy industrialization unwittingly neglected labor-absorbing manufacturing activities; upper caste demands for tertiary technical education detracted from the more basic, fundamental universal mass education; women’s oppression - despite lip service - ignored with impunity in a patriarchal society; and caste hierarchies shut the door to education and career for Dalits and other subordinate minorities.

Rural India too got lost in the shuffle with little investment and thus poor agricultural productivity, rising landlessness, malnutrition, and local state capture by powerful landowners. The rural dispossessed and destitute continue to join an already bloated army of urban informal workers, whose casual, insecure, often inhuman conditions of work may be only marginally better than what they left behind.

The global economy works for tertiary-trained youth but does not work for the unschooled, unkempt, and unskilled since increasingly Indian big business serves high-income markets either at home or abroad. To maintain competitiveness businesses must invest in capital equipment and technology, generating very little employment. India’s public and private corporate sector employs less than 30 million out of a workforce of nearly 460 million, or just about 7% of workers.

The structural challenges are daunting: endemic poverty, millions of young people looking for work, with more than ten million added each year to the workforce, and the shortage of suitably trained employees. Meeting these challenges will require going back to the drawing board and creating a new foundation that targets overall social empowerment and breaking the structures of power.

First is administrative reform to simplify rules, decentralise, and flatten the bureaucracy. Second is retraining of civil servants, the police force, and teachers. Third there must be massive investments in basic education and vocational training. Fourth, small and medium-size enterprises where employment is created must be modernised. Fifth, universities need to encourage independent critical thinking and persuade the youth to make and innovate rather than just push papers. Sixth, managers everywhere need to be sensitised to treat their employees fairly and institute profit-sharing arrangements.

Without these basic reforms and measures, among others, India’s economic shine will always remain ephemeral.