The Great Indian Reform Trick

Full text of the talk Letter from India broadcast on the BBC on July 17 and 18.

A couple of weeks before the May general election, an enterprising TV crew got hold of a farmer snoozing inrural central India. "What have reforms meant for your life?" asked the reporter. "Reforms? Whatreforms? What are your talking about? Don’t waste my time," he shouted back. It was a moment of purebroadcasting magic - authentic, unscripted, totally direct and 100 per cent honest. Meanwhile, 300 kilometresaway in the national capital, reforms were raising much heat and dust. The Indian political class was at warover them. In fact, in India 2004 reform has become possibly the most controversial word in the country’spolitical vocabulary. I know two economists who no longer speak to each other because of differences overreforms. Their wives have fallen out too.

Political parties are sought to be divided into pro-reform and anti-reform, and Indian economists are nolonger using their favourite phrase, "on the other hand…." In fact, in India there seems to be no "thirdway", the economic philosophy favoured, among others, by British prime minister Tony Blair. You are eitherpro-reform or anti-reform.

For some, reform has become a mantra, a panacea to make India an ‘Economic Superpower’. For others,reform means classical not compassionate capitalism. If you are pro-reform in India, you are seen as asupporter of the World Bank, the IMF, globalisation and free markets. If you are anti-reform, you are seen asa pro-poor, pro-nationalisation, pro-redistribution of wealth. Indeed, the anti-reformists have coined a newand rather neat expression -- reform with a human face.

Recently, I was having dinner with one of India’s most distinguished economists. He has impeccablepro-reform credentials. He was going crazy with rage. "What is this nonsense you call reforms with a humanface? What does it mean? How can reforms have a face?" he asked. He was full of contempt for liberals,left-wingers, centre-left thinkers who maintain that reforms in India till now have made the rich richer andthe poor poorer. Why this somewhat rarefied debate resonates so powerfully in the country is because theVajpayee-led government is widely perceived to have been voted out of power because it neglected the poor andpampered the rich.

Dr Manmohan Singh’s new government, which tabled its first budget 10 days ago, has dramatically shiftedgear and is publicly committed to ensuring that the benefits of reforms quickly trickle down to the poor. Bigmoney has been allocated to alleviate rural poverty. Interestingly, the history of reforms in India is closelylinked to Dr Manmohan Singh. As finance minister in 1991, he began the historic opening up of the economy byrapidly dismantling what was popularly known as the licence-quota-raj. Before 1991, the Indian state did notjust control the commanding heights of the economy, it was also in the business of making bread and runningrestaurants. Of course, the bread they made and the food they served was awful. The internationally renownedconductor Zubin Mehta discovered a cockroach in his soup at a government-run hotel. When he protested themanager told him, "These things happen here."

Pre-1991 when an Indian travelled abroad, he returned not just with Scotch whisky and Swiss chocolates. Hebrought back shampoos, perfumes, cheeses, baked beans, Hush Puppies. Airport duty free shops all over theworld were crowded with eager and frantic Indians. Today, shops, supermarkets and malls are groaning under theweight of imported goods. Everything from the latest model of Mercedes to Cuban cigars to French champagne isavailable off-the-shelf.

India’s middle-class has at once grown fat and rich. It is estimated to number around 250 million - andcounting. Conspicuous consumption is conspicuous. Serving caviar is considered a must at dinner parties,lounge bars and exotic Mexican cuisine are all the rage, a modest meal for two at a posh restaurant can cost150 US dollars. For the Indian middle-class it is one big party. Unfortunately, not everybody is invited.

Mr Vajpayee and his party the BJP, happily took exclusive credit for this changed lifestyle and christenedit "India Shining". They fought the May general election on this clever slogan. Today, top BJP leadersfreely concede they made a disastrous tactical error.

They forgot about the existence of another India - the India which is not shining. The numbers are fiercelyfought over, but at a conservative estimate 350 million Indians live in something close to absolute poverty.They live on less than one dollar a day. Since India is the world’s largest democracy and since the poortake voting at elections very seriously, these 350 million deprived citizens constitute a hefty and mercilessconglomerate. They have a distinct propensity to throw out their rulers. "I see the face of my MP only whenhe comes begging for my vote. I will teach him a lesson," one angry rural voter told me just before the Mayelections.

The pitiful plight of the absolute poor in India is no state secret. They are not tucked away in sanitisedzones. Thanks to the media and pressure groups, television news and newspapers are full of malnutritiondeaths, reports of famine and gut-wrenching rural poverty. You have to be a very foolish and veryshort-sighted political party to ignore such a critical mass.

Nothing highlights such folly better than the fate of two chief ministers. Chandrababu Naidu ruled thestate of Andhra Pradesh for 10 years. S M Krishna ruled Karnataka, whose capital Bangalore is considered India’sSilicon Valley, for five years.

Messrs Naidu and Krishna were India’s best advertisement for reforms. Both were lionised by the WorldBank and IMF. Both were wined and dined by Bill Gates and the CEOs of General Electric and General Motors.Both were held up by the western media as "models". Mr Naidu was chosen by Time magazine as SouthAsian of the year in 1999 and the New York Times described Andhra Pradesh as an "international model".Both were booted out in the May election because they ignored marginal farmers in their states who werecommitting suicides by the hundreds because of abject poverty and mounting debts.

I met Mr Naidu last week in Hyderabad. Out of power in his cramped, slightly shabby office, he looked achastened man. Like all politicians he was certain the people of Andhra Pradesh would soon return him topower. "Do you think the farmers’ suicides brought you down?" I asked him. He replied he was notanti-farmer but that is the way he was unfortunately perceived. He blamed the media for projecting him aspro-rich.

It is no coincidence that in his first journey out of Delhi, the new Indian prime minister Dr ManmohanSingh, travelled to Andhra Pradesh to console the widows of the farmers who had committed suicide. He wentwith folded hands, cheques and promises of jobs for the bereaved family. His spin doctors made sure hisgenerosity was well covered by TV cameras.

The Prime Minister claims his mission is to "wipe every tear from every face" and while the 350 millionhave-nots will treat that promise of concern with scepticism, India’s deprived and destitute are no longer avoiceless, forgotten and timid minority. Despite the fact that they are largely leaderless, despite the factthat their political representation in Parliament is minuscule, despite the fact that they are divided bycaste, ethnicity and religion, they are a huge and enormously powerful mass who need to be wooed and won overby any party seriously interested in winning a national election.

Because of my job as a magazine editor, I have had the opportunity to observe the duplicity of Indianpoliticians for nearly three decades. There is not a single political party which does not swear complete andunswerving commitment to uplifting the downtrodden. In reality, the poor of India are very far away from theconcerns of politicians. In the past, their vote could always be bought. Not now. Election 2004 has seen amajor shift. The poor of India are no longer for sale.

This being India, nothing is what it seems. As if the squabbling over reforms was not enough, anotherdispute has opened up. How, it is asked, can the government ensure that the money allocated from New Delhitrickles down to the villages? The late prime minister, Rajiv Gandhi, once declared that out of the billionsof rupees the state spends on poverty alleviation, only a fraction reaches those it was intended for. Indeed,he put a figure on the fraction. He believed only 15 per cent trickled down, 85 per cent was siphoned off bycorrupt officials along the way.

Not surprisingly, the buzz word in the capital today is "delivery systems". There is no use throwingmoney at the poor if it does not reach them. "Fixing the delivery system should be one of the central planksof reforms," notes one community leader. Our snoozing farmer whose life has remained untouched by reformswould be glad to hear that.

Many believe this second debate touches the heart of the problem. India’s new Finance Minister, PChidambarm, acknowledged last week that much of the extra money his ministry had sanctioned would never reachthe poor. Nevertheless, he maintained that along with improving delivery systems, his government had no optionbut to make India’s forgotten 350 million a special attention group. "I cannot say because some of themoney disappears along the way, I won’t give any money," said Chidambaram in a press interview.

Gurcharan Das, a former CEO of Procter and Gamble, whose best selling book India Unbound makes apassionate case for more and deeper reforms, wroterecently: "Businessmen have repeatedly expressed the view that they would happily pay for the uplift ofthe poor if they had the slightest faith that the money would reach the poor. In the end, the problem of India’spoor will not be solved by ideology but by good implementation."

Except for the Communists, no political party is hostile to reforms. However, there is an emergingconsensus that the state will have to find new and innovative ways to ensure that 85 per cent of the funds arenot stolen. No one yet has come up with a blueprint of how this theft can be stopped, but for the first timeserious thought is being given to the mechanics of implementation.

Humanising capitalism has been tried elsewhere without much success. So what chance that broke,over-populated India can show the rest of the world how to spend public money on public schemes efficiently?

I believe we have a 50-50 chance because being a nation of pragmatists we have set ourselves realisticgoals. As India’s finance minister observed: "Even if 20 per cent reaches the poor I would be happy."So, you see, the great Indian trick is to accept partial but not full corruption.