Reforms reach a dead end

Manmohan Singh's handsome reelection win in 2009 was seen as a chance to recreate the reforms momentum of the 1990s when he had been finance minister. More banner headlines greeted Prime Minister Narendra Modi as India's Margaret Thatcher or Shinzo Abe when Modi received an absolute majority in 2014, but neither made progress substantially revising labour laws, for instance. Ikea and Coke announced billion-dollar bets on India in the summer of 2012. But some time in 2012, Rahul Gandhi told NDTV a week ago, Congress' leadership, including Singh, decided liberalization had run its course. Now, Gandhi feels India needs to find a "new model" that doesn’t enrich just the top 2% to 3%. He wouldn't let on whether this meant, say, a marginal tax rate of 70%. Gandhi's English is enigmatic and his Hindi unidiomatic. 

Elaborating, he sounded like Robin Hood played by Ajit, the movie star of yesteryear: "Past se future ko jodhna padhega."

It was a stark repudiation of Congress' most notable achievement in the past three decades. The manifestoes of the Bharatiya Janata Party and Congress' are dispiriting if you are foolishly hoping that privatization would be included even just for discussion. The headlines about widespread unemployment should have prompted -- in a country more honest with itself -- to proposals to make it easier for companies to hire and fire workers “What I don’t understand is the mindset that leads to the perpetuation of resistance to labour law reform,” observes Pronab Sen, India’s former chief statistician.

Both parties aspire to building India into an export powerhouse – never mind that data released Thursday showed export growth in April slid to 0.64 per cent, compared with a year ago, as many labour-intensive sectors continue to face liquidity issues. Congress may call it ‘Make for the world’ and the BJP ‘Make in India’, but neither has a clue about what it will take to embed India into mobile phone or athletic shoe supply chains. The Reserve Bank of India’s industry credit data for the year ended March 2019 shows that many sectors that are typically labour intensive such as leather, textiles, and gems and jewelry saw gross bank credit decline. Both manifestoes read like a wishlist for Santa: Congress would raise expenditure on education to 6% of GDP while the BJP thinks a global yoga industry is a springboard to becoming the third largest economy in the world.  

Even before this campaign of nonstop abuse and majoritarian flag-waving, Indian elections scarcely ever mentioned reforms. The poor are infinitely more numerous than the middle class, and voter turnout in poor rural areas much higher than in Mumbai or Bengaluru, even more so this year. Long before our age of TV interviews about prime ministerial poetry and mango-eating preferences, even ‘lion’-hearted P.V. Narasimha Rao hardly ever made a table-thumping speech about the bold reforms his government enacted. We may have a mixed up economy – alternately socialist/feudalistic, topped up with crony capitalism-- but our lingua franca is socialism. Milton Friedman’s 1955 critique of the Mahalanobis Five Year plans broadly applies to 2019’s manifestoes – they are obsessed with (ill-defined) targets and expand too little on what remains India’s fundamental problem: its human capital.

More than a quarter of a century ago, a massive World Bank study sought to identify what had created the East Asian economic miracle that stretched from China Korea and Taiwan to city-states such as Hong Kong and Singapore. It could only identify two common planks: openness to trade and widespread, good quality primary education.  In any case, it’s too late now. Even with the US-China trade war forcing multinationals to relocate production bases, I would bet Vietnam, Bangladesh and even Ethiopia will be beneficiaries rather than India. We have wasted decades playing petty politics, our only Olympian gold-medal sport. Now, India’s fate is to oscillate between  what Rathin Roy aptly described as the “compensatory state” where, in effect, the state must pay people reparations for its many failures and the Modi-Shah axis of blunt minority-bashing vividly on display in 2019 to offset the effects of its Stalinist impulses such as demonetization and anti-profiteering agencies.

Regardless of who wins next week, we can only look to the future with fear. Trade is slowing; our ports, our poorly trained labor, and our over-valued exchange rate hobble our chances to get at a diminishing global factory jobs pie. Our non-bank financial companies’ crisis is apparent in the collapse of auto sales in April. The recent financial results of consumer goods companies suggest India’s middle class is no longer growing. The existing members of this exalted cohort are curbing their spending as savings rates slide. Our environment, from the hollowed-out hillsides of the northeast to the coming water crisis in Bengaluru to the polluted gas chambers of north Indian cities, is nearing the tipping point of Malthusian collapse. It will be the 55th anniversary of Jawaharlal Nehru’s death on May 27. The sentimentalists among us can only hope the new government of whatever description will not be sworn in on that date. It is at least a comfort Nehru did not believe in an after-life.