WSJ Pieces

India’s New Role Models

This piece of mine was published today in the Wall Street Journal Asia.

Twenty years ago, no one could have imagined that four of the 10 richest chief executives in the world could be Indian. But Forbes recently released a top-10 list showing how much India has changed. Lakshmi Mittal, the steel tycoon, was ranked second, followed by Mukesh Ambani (sixth), Anil Ambani (seventh) and Azim Premji (ninth); Warren Buffett came in first.

One can quibble with how the list was compiled, but there is no doubt that India has become a force in the world of business. The leading bidders for Jaguar and Land Rover are the Indian automobile companies Tata Motors on one hand, and Mahindra and Mahindra on the other. In 2006, Mr. Mittal brought the European steel behemoth, Arcelor, into his empire. Last year, the Tata Group took over Britain’s Corus, another large producer of steel.

Just as significant as the success of Indian businessmen abroad is a shift in the way they are viewed at home: The biggest names in Indian business are among the biggest heroes of India. The society pages of newspapers show them at parties, the gossip columns feature them, and young men and women name them as their icons, even as those youths prepare for their own MBA entrance exams.

It wasn’t always like this. In the early decades of our independence, businessmen were not looked upon highly. Jawaharlal Nehru, India’s first prime minister, famously once told the business tycoon J.R.D. Tata that “profit” was “a dirty word.” Indian films routinely portrayed businessmen as evil capitalists out to exploit the poor. Ironically for a country that was so poor, the pursuit of wealth was looked upon with suspicion.

Mr. Mittal had to leave India to build his empire. Dhirubhai Ambani, Mukesh and Anil’s father, built his business by manipulating the system in the finest traditions of cronyism. The businesses that did exist were protected from competition by the high entry barriers placed by the government, at the cost of consumers.

All this changed when India liberalized in 1991. As India opened up to the world, its entrepreneurs sprang into action. The middle class grew, the quality of life in cities improved, and tens of thousands of young men and women went abroad as the software industry boomed. Indians realized that free enterprise was providing them with the opportunities they had lacked in the socialist years.

Consider that earlier this year, Ratan Tata, the successor to J.R.D. Tata’s empire and the chief of Tata Motors, unveiled the Nano—a car expected to retail for approximately $2,500. Some complained about the increase in pollution that it might cause, and other worried that it would add to traffic congestion in big cities. But most of India applauded.

Mr. Tata’s ingenuity and vision will bring vehicle ownership within reach of millions of people who could otherwise have never dreamed of it, and it demonstrates what business does best—improve the lives of people, and help them fulfill their dreams, all in the quest of that “dirty word,” profit.

The heroes of the old India were film stars, cricket players and, perhaps, freedom fighters and politicians. The heroes of the new India include businessmen. In 2003, when MTV India held a poll among its predominantly young viewers to pick the Icon of the Year, Anil Ambani won. The people he beat included filmstar Shah Rukh Khan and cricket hero Sachin Tendulkar.

India’s successful businessmen, even as they enter lists such as the one compiled by Forbes, embody the hopes of their country more than their elected government possibly can. India is finally beginning to give them their due.

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For more such pieces by me, check out my Essays and Op-Eds archive.

How Not to Help India’s Rural Poor

This Op-Ed of mine was published in the Wall Street Journal Asia today.

Politics is often about grand gestures, and the Congress Party’s 37-year-old new general secretary, Rahul Gandhi, understands this perfectly. Shortly after landing his position last month, Mr. Gandhi demanded that Prime Minister Manmohan Singh extend a massive cash redistribution scheme, the National Rural Employment Guarantee Act (NREGA), to all 593 districts of the country. Mr. Singh duly assented.

If this is an indication of Mr. Gandhi’s power—and how he might use it in future—it’s not encouraging. The NREGA was enacted early last year by the Congress-led coalition. The act guarantees the government will provide 100 days of work every year to every rural household in India—there are no reliable figures on exactly how many of these there are—at an estimated total cost of $3 billion before the newly announced expansion. First launched in 200 districts, it was expanded to another 130 in the last fiscal year.

As expected, NREGA has proved little more than a siphon for corrupt bureaucrats, not a boon to the poor. And now, there are numbers to back up that assertion.

Last month, the Delhi-based Society for Participatory Research in Asia, a non-profit organization, released a preliminary study on NREGA’s governance. The results are shocking. In the financial year beginning in April 2006, only 6% of the households registered under the scheme actually received their 100 days of employment. PRIA’s study also cited shoddy implementation practices across 14 of India’s 28 states. In the surveyed villages, only 45% of registered households had even applied for work under the scheme. And of those households that had applied for a job, only 44% had received one within the required 15 days.

PRIA’s results mirror the findings of another study carried out by the Centre of Environment and Food Security earlier this year. The CEFS study focused on the state of Orissa, and found that about 75% of the funds spent in Orissa had been “siphoned and pocketed by the government officials.” “We could not find a single case where entries in the job cards are correct and match with the actual number of workdays physically verified with the villagers,” the study noted. Out of a total $187 million in public monies spent in the state during the 2006-2007 fiscal year, around $127 million was effectively stolen.

This kind of wastage shouldn’t come as a great surprise. India’s bureaucrats hold effectively tenured positions, and are often unaccountable to the public they serve. Their incentives are tailored only toward increasing their power and their budgets. Government is not transparent, and most common citizens do not contemplate legal recourse against it, as the legal system is dysfunctional and the rule of law is weak.

Instead of promising government jobs to agricultural workers, India’s government could do far greater good by stimulating competition—and investment—in rural India. As it is, government too often gets in the way. For example, one law limits the geographic area in which farmers can sell their produce, and some states require farmers to sell to monopolist distributors. Another law restricts produce shipments across state lines. Topping it all off, India is one of the biggest defenders of market-distorting agricultural tariffs in the World Trade Organization’s Doha Round negotiations.

The National Rural Employment Guarantee Act is symbolic of everything that’s wrong with India’s approach to economic reform. What’s needed is not grand gestures and more handouts, but a comprehensive review of how to stimulate private investment and entrepreneurship. Mr. Gandhi should understand that there is no better guarantee of employment than economic growth.

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Also read: My Op-Ed in WSJ two years ago about the NREGA, Good Intentions, Bad Ideas.

Indian Idolatry

This piece of mine has been published today in the Wall Street Journal Asia. (Subscription link.) It was written on Monday, before Sanjaya Malakar got voted off American Idol.

By the time you read this, Sanjaya Malakar might well have been voted off of American Idol. If so, you won’t hear many groans of disappointment from India. Mr. Malakar, a 17-year-old of Indian and Italian descent, has mostly slipped below the radar here. But if he continues to capture the attention of millions of Americans the Indian media will change its tune, and not out of a newfound appreciation of Mr. Malakar’s singing ability. More likely, the local press will celebrate him as an Indian talent applauded by the West.

Hardly anyone here watches the American Idol singing competion, which is telecast on Star World, an English-language channel that, in India at least, caters to the elite. The domestic media have mentioned Mr. Malakar, now a finalist in the competition, just a handful of times, and that too in the context of the derision he has received in America. The dearth of media chatter here almost certainly results from the fact that the American press doesn’t have too many good things to say about him.

Of course, India has plenty of its own celebrities to gush over, some of them even less talented than the young Sanjaya. India produces more films than any other country in the world. Products from Bollywood (the Hindi film industry), Kollywood (the Tamil film industry) and Tollywood (the Telugu and Bengali film industries both claim that title) have audiences many orders of magnitude larger than those of the few Hollywood films that actually get released here. Successful music albums in local languages, mainly film soundtracks, sell in the millions, while the best a Western album can achieve is a few thousand. Indian Idol, the local version of the American show (which is itself an import to the U.S. from the U.K.), inspires national debate and heartbreak, while most people have probably not seen American Idol even once.

But even with this flourishing pop culture, many Indians still crave validation from the West. We see this every year before the Oscars, when a national soap opera unfolds surrounding which film will be chosen to be India’s entry for the foreign-language film category. (Only three Indian entries have ever been nominated, and none has won.)

The media celebrated when an Indian was chosen to umpire at Wimbledon. Indian writers become celebrities for life when they get big advances abroad, or win British or American literary awards. News of Madonna practising Yoga or pictures of Gwen Stefani with a bindi on her head are treated by the media as tributes to Indian culture.

When Indian actress Shilpa Shetty participated in the British TV show Celebrity Big Brother, her progress in the show received extensive coverage in the local media. Racist remarks directed at Ms. Shetty by a couple of participants on the show sparked outrage across India. When Richard Gere kissed her at a recent AIDS-awareness event, one local report began triumphantly, “We’ve always known Shilpa Shetty is a pretty woman, but now we have an official endorsement from a visibly smitten Richard Gere.”

This sensitivity to India’s reception in the West cuts both both ways, of course. As news of Mr. Gere kissing Ms. Shetty spread, protests were held across the country, effigies of the actor were burned, and one protestor even gave sound-bytes about how the kiss had “blemished the rich Indian culture.” When designer Anand Jon was arrested in Los Angeles for alleged rape and sexual assault, much of the Indian press wrote up the story as if he had been framed. And so on.

This all raises the question: Why does India care so much about what the West thinks of it? Perhaps it is a legacy of colonialism, or just the inferiority complex of a developing country whose economic progress has not yet been matched by cultural self-confidence.

Whatever the reasons, this preoccupation with the West is needless. The films coming out of India’s booming industry, for example, hardly need the approval of foreign audiences. Shekhar Kapur, one of the few Indian filmmakers to have worked in Hollywood, often criticises the use of the label “Bollywood” to describe Mumbai’s film industry. His point is that Indian films function in a space of their own, and draw large audiences that prefer it to any other cinema. The industry hardly needs to pay homage to Hollywood, and India doesn’t need to look West in order to appreciate its own culture.

Indian attitudes toward Mr. Malakar are likely to be shaped by how he is received in the United States. Mr. Malakar may be more American than Indian, and he may be singing American pop that hardly sells here, but if Americans choose him as their idol he will become a source of national pride. That is all good for Mr. Malakar—but what does it say about India?

Bollywood hails the free market

A version of my piece below was published on January 19, 2007 in the Wall Street Journal as “Bollywood’s New Capitalist Hero.” (Subscription link.) It was also posted on India Uncut. It isn’t meant to be a review of “Guru”, towards which I have mixed feelings, but a comment on one aspect of it.

Who would ever have thought that one of the villains of a Bollywood film could be import duty? “Guru”, the latest Bollywood blockbuster by the respected director Mani Ratnam, is that rare film—perhaps Bollywood’s first—in which free markets are lauded as a force for good. Aliens emerging from the Taj Mahal would be less surprising.

“Guru” stars Abhishek Bachchan as Gurukant Desai, a character inspired by Dhirubhai Ambani. Ambani was that rare tycoon who went from rags to riches during the worst years of India’s license raj, building Reliance Industries, which today is India’s largest private sector company. In the era in which Ambani flourished, the state throttled private enterprise with licenses, regulations and sundry restrictions that had at their core Jawaharlal Nehru’s pithy sentiment: “Profit is a dirty word.” Ambani built an empire in spite of this system, enriching millions of middle-class shareholders in the process, for whom he became a folk hero well before his death in 2002.

Ambani’s means were sometimes controversial, and the film reflects this. Towards the end,  Desai is on trial for economic offences that have much to do with import duty and the like. He stands up to make his final statement, and is asked if he is going to speak standing up. In a memorable moment, he thunders, “Do I need a license to stand?”

Desai then evokes the name of Mahatma Gandhi, and implicitly compares Gandhi’s freedom struggle against imperialism to his own struggle with the forces of economic oppression. It is an apt comparison, stated with all the drama and flourish that Bollywood is famous for, but it is almost unbelievable that it is being made in a Hindi film.

In Bollywood, over the ages, one of the template villains has been the businessman. He will look suitably sinister, will alienate his own children, and will either deal in drugs or arms on the side, or spend his time evicting slum dwellers. Anything for profit, especially murder and rape. Most Bollywood businessman villains were classic caricatures of “the evil capitalist,” exploiting the workers and growing rich on their blood and toil. They often freelanced as mafia dons or were crony capitalists, but when the hero raged against their greed, this distinction was lost: business—and the profit motive—were itself painted as twisted, and the rare benevolent businessman stood out starkly as an exception to the rule.

Indeed, Abhishek Bachchan’s father, the screen legend Amitabh Bachchan, himself acted in many films as the angry young man who speaks up for the poor against big business. The senior Bachchan’s best years were in the 1970s, when the Soviets were idolized and America and free enterprise were reviled. Times have changed, and for the first time, Bollywood has acknowledged that change.

Why India needs school vouchers

This piece of mine was published on January 15, 2007 as an Op-Ed in the Wall Street Journal Asia. (Subscriber link.) It was also posted on India Uncut.

On India’s Republic Day, January 26, the New Delhi-based Centre for Civil Society will launch a campaign for school choice. It’s an apt day for the event. While India’s constitution guarantees universal and free education, the government has utterly failed that mission. It’s time to encourage the private sector to step in.

Public primary education in India is in dire straits. According to a 2006 study by Pratham, a nongovernmental organization, more than half the children who join school in the first grade drop out before reaching eighth grade. A study conducted the prior year by the same organization found that 35% of school-going children surveyed between the ages of seven to 14 failed a reading test involving a simple paragraph; 41% of them couldn’t subtract or divide properly.

Little wonder that private schools are sprouting up like wildfire to fill the gap. Often illegal, these schools don’t just serve the rich and middle classes, but the poor as well. And the quality of education these schools provide is often higher than in their public counterparts. A 1999 government report titled the “Public Report on Basic Education in India” found that private schools across rural parts of North India were vastly superior to public schools in terms of facilities and learning environment. On surprise visits during school days, the researchers found only 53% of the accredited public schools actively engaged in teaching.

The Centre for Civil Society’s campaign aims to enable more parents to send their children to private schools by promoting school vouchers. (Currently, India doesn’t boast any school voucher schemes, though a few are in the works.) Inspired by Milton Friedman, vouchers enable parents to enroll their child in a school of their choice. Variations on the idea include tuition reimbursement and direct cash transfers. In each scheme, the principle is the same: empowering parents with choice to increase competition among educational institutes and engender better quality education.

Much more could be done. Currently, India’s private sector is actively discouraged from setting up educational institutes. To offer state-approved degrees, a school must meet a number of parameters, including government-trained teachers, large playgrounds, and other onerous requirements. Above all — inanely — private schools cannot operate for a profit. Entrepreneurs evade these hurdles through innovative financial structures such as trusts, but the necessity of this kind of manipulation scares away many would-be entrepreneurs. According to a 2001 CCS study, it takes 14 different licenses from four different authorities to open a private school in New Delhi – a task that, if done legally, could take years.

India’s parents aren’t waiting for a government fix. A 2005 study by education specialists James Tooley and Pauline Dixon showed that 65% of schoolchildren in Hyderabad’s slums attend private unaided schools—for which their parents had to pay—rather than a free government alternative. In a similar finding, an October 2006 survey by CCS showed that 14% of households in Delhi earning less than 5,000 rupees ($113) per month opted to send their children to a private school.

It is a common canard that the cost of education is higher in private schools than in public schools. Numerous studies have shown that private schools use capital as much as twice as efficiently as their public sector peers. Why? When competition is absent, waste ensues. Voucher schemes, put simply, allow public money to be put to better use.

As in any society, education is the foundation of future economic success. The Centre for Civil Society’s campaign for school choice may be a nascent effort, but it’s of critical importance to the India of today — and of tomorrow.

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Further resources: Do check out Pratham’s comprehensive reports, ASER 2005 and ASER 2006. Tooley and Dixon’s landmark report is summarised and available in full here. Andrew Coulson’s paper, How Markets Affect Quality  (pdf link), is an excellent resource on the subject. You can read about the PROBE Report here, and buy it here and here. Mayank Wadhwa’s CCS paper on the licenses required to start a private school in Delhi is here, and the findings of the latest CCS survey are summarised here.

My thanks to Gautam Bastian and Shruti Rajagopalan for sharing their valuable insights with me on school choice, and directing me to many useful resources. Gargantuan gratitude grunts gregariously.

Fighting against censorship

A version of this piece by me was published on October 3, 2006 in the Wall Street Journal as “India’s Censorship Craze.” (Subscription link.) It was also posted on India Uncut.

American pop icon Paris Hilton corrupts Indian minds. That, at least, is the fear held by mandarins of Indian culture. So they’ve barred television channels in India from airing Ms. Hilton’s new music video, “Stars Are Blind,” in yet another example of the censorship fever sweeping the country.

Movie channels in Mumbai were recently blocked because they purportedly showed adult content. That’s despite the fact these channels routinely edit out all nudity and sex. And it’s only a few months since the film version of “The Da Vinci Code” was banned in several states after Christian groups protested.

In such a climate, nothing is too trivial to escape the target of aspiring censors. One Mumbai-based crusader for tighter controls on Indian television, Pratibha Naithani, has even called for an investigation into “violence on cartoon channels.” Why stop at violence? Perhaps Ms. Naithani hasn’t noticed yet, but in addition to routinely knocking things over, Tom and Jerry also frolic in the nude.

Such extreme examples are a reaction to the foreign cultural influences that have flooded in since India began opening up its previously closed economy to the outside world in 1991. That produced a predictable backlash from traditionalists whose sense of identity, and even their political base, is threatened by foreign influence. They seek refuge in arguing that India’s religion, culture and traditions need protecting from the forces of globalization.

Unlike the U.S., the Indian constitution provides little protection against censorship. Although it professes to give all citizens “the right to freedom of speech and expression,” that is qualified by so many exceptions as to make any protection almost meaningless. These include “the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality, or in relation to contempt of court, defamation or incitement to an offence.”

Naturally, it falls upon government bureaucrats to decide what falls within these exceptions. And the problem is that India has long had a climate where it’s considered perfectly acceptable for the state to meddle in what its citizens can watch, and listen to. In 1968, for instance, “abbreviated skirts” and scenes “suggestive of soliciting” were enough to send “A Tale of Four Cities,” a documentary by KA Abbas partly set in Mumbai’s red-light districts, all the way to the Supreme Court. India’s top judicial body duly upheld its ban , setting a precedent for censorship that is still cited today. It ruled that films had to be scrutinized more carefully than other media because “a person reading a book or other writing [or] hearing a speech or viewing a painting or sculpture is not so deeply stirred as by seeing a motion picture.” In the view of the court, thus,  Indians were like putty in the hands of these powerful media, incapable of making their own decisions or using their own discretion.

Such paternalism was quite in synch with the Fabian Socialism that India had adopted. The state was supreme in all matters, and whatever freedom it allowed its citizens—“subjects” would be as apt a term—was at its discretion. In India, we call it a mai-baap sarkar, which literally means “mother-father government,” indicating the all-encompassing authority of the state. Initially, most Indians took this for granted, and did not protest too much. The freedom that mattered to them in the early years of independence was political freedom, which was their source of national pride.

But, in recent years, things have begun to change. The economic growth triggered by India’s opening up has created a much larger middle class. And the intellectual influences that have poured in from elsewhere in the world have made this middle class more alive to the need to fight for freedom of expression.

That means the recent trend toward increased censorship has not gone without a fight. Where once censorship was taken for granted, it is now debated, and the army of news channels that have recently opened shop regularly feature debates on the subject. Online petitions protesting censorship are common, an early example being one four years ago in support of “War and Peace,” a documentary by Anand Patwardhan that was initially banned for criticizing India’s 1998 nuclear tests. Earlier this year, government instructions to ban a handful of (mostly innocuous) Web sites without giving any reasons provoked widespread outrage, especially after local Internet providers overreacted and mistakenly extended the ban to cover a large number of other sites. Bloggers across India filed applications under the Right to Information Act in an effort to discover the reasons for the ban, and some now plan to go to court to continue the battle for freedom of speech.

Such voices are still few, and these protests not yet loud enough to counter the regressive forces that routinely stifle freedom of expression in India. But they are growing, and offer hope for India’s future.

You can check out Article 19 of the Indian Constitution, which deals with freedom of speech, here. Article 19 (1) (a) states the principle of freedom of speech, but Article 19 (2) lays out the caveats to it. The history of how 19 (2) came about after 19 (1) (a) was written is quite fascinating, and was covered in an essay by Vikram Raghavan in a book titled “Reflections on Free Speech and Broadcasting in India” (OUP 2006; I don’t have the book, but Vikram was kind enough to email me his essay a year ago). Raghavan wrote about the KA Abbas case in his piece as well, and Anand Krishnamoorthi also had an excellent post on that subject.

Empowerment, not slavery

A version of this piece by me was first published on November 8, 2005 in the Wall Street Journal as “Self-Delusion.” (Subscription link.) It was also posted on India Uncut and the Indian Economy Blog.

Organized slavery ended decades ago, but to go by the criticism of some leftist commentators in India, one would imagine that it is alive and flourishing in the world’s largest democracy.

Recently it has become especially fashionable to hit out at call centers, or business processing outsourcing (BPO) units as they are officially known. A study published by an institute that comes under India’s Labor Ministry compared conditions in Indian BPO outfits with those of “Roman slave ships.” Chetan Bhagat, the author of a new book set in one such unit, “One Night @ The Call Center,” recently claimed that call centers are “corroding a generation.” It is common, almost clichéd, to hear call-center workers referred to as “cyber-coolies.”

All this criticism is terribly misguided. Contrary to being a form of economic imperialism, as its critics claim, India’s BPO industry is an indication of what is possible for a country to achieve with free markets. India’s call centers make use of one of its comparative advantages—cheap, English-speaking labor. More importantly, it empowers the estimated 350,000 people who work in this industry, instead of “stripping them of their dignity,” as a common canard goes.

The people who work in these call centers—indeed, in any company in India—do so out of choice, not coercion. They make that choice on the basis of the options available to them, options which are now far wider than they were a decade ago. When this writer was in college in the early 1990s, it was next to impossible for a young graduate to get a job on the basis of his degree alone.

Today, a working knowledge of English suffices. In the socialist decades after independence a middle-class man could save up enough to buy a house and a car only when he was in his 30s, or even 40s. Today, young people in their 20s can do so. Many of them use their time in the BPO industry to better their lives substantially. Some support families, others save up to go abroad for further education. Some simply make money, a goal apparently anathema to grizzled socialists.

Why, then, the criticism? One of the natural consequences of socialism is that a few stand in judgment of many, and make their choices for them. As India has moved away from the Fabian socialism it embraced on achieving independence in 1947, more and more people have been empowered by an ever-widening array of choices. Socialists in India have seen the Soviet Union collapse, the Berlin Wall fall, and India begin to liberalize. Their beliefs have traditionally been strengthened by what behavioral psychologists call the confirmation bias – accepting only the evidence that seems to support their worldview. Alas, such evidence has been vastly diminished in the last two decades. So they resort to reflexively lashing out at anything related to free markets.

India’s leftist “intellectuals,” and those who aspire to fill their shoes, view the world through a utopia-tinted lens, a utopia that is entirely their own construction. When they examine their own policies, they do so on the basis of the ideal world they are meant to result in, and not the mess they create in the real world. And when they criticize the choices people make in the real world, they do so on the basis of the choices they would have in this utopian socialist paradise.

These “intellectuals” do not condescend just to BPO workers, but to all those Indians whose aspirations are not aligned with theirs and who, typically, have more choices available to them because of free markets. To them, shopping malls are bad because they turn people into consumerist buying machines. They disparage the large number of television channels as being filled with Western junk, ludicrously proclaiming that the one state-owned channel India had two decades ago was better. They do not accept that increased choices are a sign of progress, and condemn the way other people choose to live their lives, insulting them by denigrating their choices.

But times are changing, and such self-righteousness is increasingly being exposed for the self-delusion that it is.

The kidnapping of India

A version of my piece below was first published onOctober 5, 2005, in the Asian Wall Street Journal (subscription link). It was also posted on India Uncut and the Indian Economy Blog

Imagine this scenario: someone kidnaps a child and, for decades, maims and exploits him. Then, in a sudden revelation, we learn that the kidnapper was once under the pay of a branch of the mafia that is now defunct. There is instant outrage, and everyone condemns the crime. “How could you have taken money from the mafia?” they ask.

This is, more or less, what happened this weekend when LK Advani, the leader of India’s opposition, demanded a “public enquiry” into “the biggest scandal of independent India.” He was referring to the recent revelations, in a newly released biography by a well-known former KGB operative, that much of the Indian government had been bought by the KGB in the 1970s.

“The Mitrokhin Archive II: The KGB and the World”, by former KGB archivist Vasili Mitrokhin, details an institutionalized corruption in India that the agency used to its advantage superbly. The book describes how the KGB paid bribes and retainers to members of India’s Left parties, as well as the ruling Congress party.

According to the book, politicians were by no means the only ones on the take, and the KGB had a number of newspapers and a press agency on its payroll in the early 1970s. But of course, it is the details about senior government officials that titillate. Many ministers in the government of Indira Gandhi, who ruled from 1966 to 1984, were under its pay, and suitcases full of banknotes would be sent to Mrs. Gandhi’s house to fund the Congress. The entire Indian establishment, it would seem, was up for sale.

The Left parties, predictably and amusingly, have denounced the book as a CIA conspiracy, while the Congress has maintained what Mr. Advani terms a “guilty silence.” Mr. Advani’s outrage, though, is misdirected. “The biggest scandal of independent India” is not the money that the Indian establishment under. Mrs. Gandhi may have taken from the KGB, but the inspiration it took from the Soviet way of doing things, and the pernicious ideas it borrowed, which condemned millions of Indians to a poverty that still persists, and vastly increased the powers of an already oppressive state.

Many of those policies are still in place – indeed, remained in place even when Mr. Advani’s party was in power – and India, like the kidnap victim of our earlier analogy, is still struggling to break free.

The Fabian Socialism that India embraced under Jawaharlal Nehru, India’s first prime minister and Mrs. Gandhi’s father, and the statist direction he took the country in could be put down to an ideological mistake that many of his generation made. But under his daughter the state became a conscious tool of oppression. Her government used ideology merely as rhetoric, and concentrated solely on accumulating power at the expense of the freedom of citizens.

Economic freedom was the first casualty. In 1969, Mrs. Gandhi nationalized all the big banks in the country. Gradually, this was followed by a series of draconian bills designed to suffocate private enterprise. The Foreign Exchange Regulation Act (1973) restricted foreign investment and imposed currency controls. The Industrial Disputes Act (amended by Mrs. Gandhi in 1976 and 1982) prevented companies with more than 100 workers from laying them off without government permission, thus distorting labor markets and providing a disincentive to industrial expansion.

The Urban Land Ceiling Act (1976) distorted land markets in urban areas, exacerbating the growth of slums. Mrs. Gandhi also reserved certain industries for small-scale companies, denying larger companies from benefiting from economies of scale, and pegging back labor-intensive manufacturing and preventing an export boom.

Mrs. Gandhi admired not just the economic policies of the Soviet Union, but clearly shared that empire’s disdain for democracy and political freedom. In 1975, after a judge found her guilty of election fraud in 1971 and ruled that she give up her seat in parliament, she declared a “state of emergency.” Articles 352 to 360 of the Indian constitution specify that when the country is faced with external or internal threats, the government can impose a state of emergency and assume what are, in effect, totalitarian powers.

The Emergency, as it is popularly known, lasted 19 months. Civil rights effectively ceased to exist, and people who opposed Mrs. Gandhi, including politicians and journalists, were summarily thrown into jail. It was a Stalinesque era. Mrs. Gandhi’s younger son, Sanjay, became notorious for his rampant behavior, bordering on the criminal and similar to that displayed years later by Saddam Hussein’s elder son, Uday. Among Mr. Gandhi’s pet schemes was a misguided family planning program under which thousands of young men were forcibly made to undergo vasectomies.

Mrs. Gandhi revoked the emergency in 1977, called for general elections, and was voted out of power. That was a tactical error, not a change of heart, and it came about partly because of self-deception. She truly believed that she enjoyed popular support, a perception partly based on the reports of intelligence agencies, who naturally told her what she wanted to hear. But the people of India have a short memory and little in terms of choice (and, some would argue, discretion). Mrs. Gandhi did come back to power in the next elections in 1979, using the ironic slogan, “Elect a Government that Works.”

It is tragic that Mrs. Gandhi is still evoked as a hero by members of her own party, and that her policies, which continue to cripple India, still find support. The liberalization of 1991, forced as it was by a balance-of-payments crisis, was partial and half-hearted. The License Raj that Mrs. Gandhi expanded with such autocratic zeal remains largely in place, as do most of the parliamentary Acts that shackled enterprise. Indeed, it is ironic that Sonia Gandhi, her daughter-in-law and heir to the Congress – not so much a party any more as a family heirloom – is commonly lauded as resembling Mrs. Gandhi. This is praise?

The strenuous denials of the KGB payouts and the furor over them repeat the same mistake that the Indian people have made for half a century now – of giving importance to intent over outcome. It makes no earthly difference now whether or not the KGB paid off the establishment in those terrible years. What matters is what the government of the time did, not why it did those things, and the molehill of intent is irrelevant besides the mountain of action. That mountain is in the public domain: the gradual stripping down, layer by layer, of personal and economic freedom. Most of that freedom has still not been restored, and the people of India just don’t seem to care. Even when it affects their own lives so intimately, economics is boring, a spy thriller is much more fun.

Good intentions, bad ideas

A version of my piece below was first published on September 15, 2005 in the Asian Wall Street Journal (subscription link). It was also posted on India Uncut and the Indian Economy Blog.

The road to hell is paved with good intentions—and nobody knows that better than India’s poor. There can be no better intention than removing poverty but, for more than half a century, a well-intentioned and bloated state has only perpetuated it with misguided policies and regulations. And New Delhi still hasn’t learned from these mistakes. The Indian government is soon to embark on perhaps the grandest waste of taxpayers’ money yet: the Rural Employment Guarantee Bill.

The REGB, recently passed in parliament with unanimous support across political parties, is supposed to provide 100 days of work in a year to every rural household across the country that wants it. This is expected to cost Rs. 40,000 crore (around US$ 9.1 billion), which amounts to 1.3% of GDP. And by some estimates, costs may reach four times that figure. The bill is in line with the rhetoric of the Congress-led coalition government, which came into power last year disdaining the liberalization policies of the preceding BJP government, and promising to introduce “reforms with a human face.”

The problem is that there is no evidence that the Indian Government is capable of properly implementing any social welfare plan. Former Prime Minister Rajiv Gandhi remarked in 1987 that only 15% of the money spent by the government actually reached its rightful recipient. The rest was wastage. Similar distribution schemes—such as the Public Distribution System and the 1976 Employment Guarantee Scheme in the state of Maharashtra—fell victim to inefficiency and corruption, and have all failed to achieve their stated objectives.

These failures have much to do with the the vast Indian bureaucracy, which is designed in such a way that inefficiency is inevitable, and corruption likely. Bimal Jalan, a former governor of India’s central bank, put it succinctly recently when he pointed out that “the most important problem in governance and administration of projects or schemes launched with great hopes is the involvement of a large number of agencies and ministries in decision-making and implementation. It is also common experience that these multiple agencies do not work in unison to resolve any administrative issue.”

Whatever money does make it through all the confused bureaucracy is prone to being siphoned away at the end of the line, where local distribution is meant to take place. The recently passed Right to Information Act, a welcome move that is supposed to increase transparency by forcing the government to make its paperwork available to anyone who wants to see it, can only be of limited help. Most of the country does not even know about it, or would not dare to use it against an oppressive local government.

The REGB will also have economic consequences. Labor markets could be distorted at local levels if the wages paid by the scheme are more than the local rate decided by the market. If the government runs short of funds and makes drafts on private savings held by banks, interest rates could go up. Then there’s the obvious fact that the money spent on this scheme could certainly be put to better use somewhere else. New Delhi could use it to build much-needed infrastructure like roads, ports and power installations, enabling greater participation in the economy and generating more sustainable employment.

The key to generating employment lies in less government intervention, not more. The government needs to reform India’s archaic labor laws, whose inflexibility hampers industrial growth as well as employment. In a variety of repressive ways, firms are not allowed to enter into free contracting, and cannot manage their workforces according to market conditions. In theory, labor laws are supposed to protect workers from being fired, but in practice such laws discourage industrial units from being set up, and hamper entrepreneurship and industrial expansion. The effect is that employment is far lower than it would have been in a free market.

India also needs to shut down its “License Raj,”—the oppressive web of regulations that acts as a massive disincentive to entrepreneurs and businessmen. It is no coincidence that India ranks 118th on the Heritage Foundation Economic Freedom Index, and 127th on the UNDP Human Development Index. Economic freedom and development go hand in hand, and India could have done as well in manufacturing as it has in services had its entrepreneurs been given the freedom to set up businesses without having to apply for myriad licenses, bribe numerous officials, and sometimes spend years in the process. Increased entrepreneurship and industrial growth would have been far more effective than the REGB in generating long-lasting employment.

India’s 58 years since independence have been ones of lost opportunity, with a waste of human capital and millions of lives lost to needless poverty. Successive Indian governments have made all the right noises about reducing poverty, and then followed all the wrong policies. Sadly, the REGB looks like more of the same.

When it pours

A shorter version of my piece below was published on August 5, 2005, in the Asian Wall Street Journal. It was also posted on India Uncut.

One moment you are connected to the world in a global hub of the worldwide village; the next, the lights go off, the phone networks cease to function, and the water rises outside, creeping up on cars and first-floor apartments like an insidious idea. What does it take to shut down South Asia’s financial capital, Bombay? A few hours of rain, that’s all.

On July 26, Bombay received 944 millimeters of rainfall, the highest ever-recorded in India, and more than the average for a season in the city. (London gets less in a year.) The city ceased to function. Power and telecommunications went dead in parts of the city, the airport shut down and trains stopped running. Traffic came to a halt, as if the vehicles on the street were stuck to it. The water rose as high as 15 feet in some suburbs, and the highways looked like rivers from where the poor wet crow flies. People across the city were rendered immobile and incommunicado, as a modern city was shut down by an ancient element: water.

Water is to Bombay what Kryptonite is to Superman. Normally this is a city where nothing stops. It swirls with movement, seemingly chaotic but always purposeful, and even in the late hours of the night, when the rest of Indian sleeps, Bombay buzzes with activity, connected to the rest of the world, bearing the fortunes of India. Unless it rains heavily.

Every year Bombay is badly hit on at least a couple of days during the monsoons, as the city shuts down because of too much rain. Weather forecasts rarely give enough notice, and a more accurate warning is the crying of street dogs. As rain lashes down and the water level rises, they keep moving along the streets in search of higher ground. When there is none to be found, and they cannot escape the water, they start crying. They do not do this in packs, mostly, and it is not as conspicuous as wolves wailing at the wind. So it is often lost amid the many other noises of a busy city.

Then, across the city, as if souls are leaving bodies at the scene of a mass suicide, drivers abandon their cars. The water is often knee-deep by now, and traffic has stopped moving. Trains stop plying, buses empty out, and commuters across the city begin wading through water to get home.

It is no picnic. The water is dark-brown and muddy, straight from the sewer. It is effectively Bombay’s drainage system come overground. Bits of garbage float on the water, as do plastic bags of all colors: red, green, yellow, pink. Even India’s debris is colorful. And the water swirls sometimes, enough to whip the sandals of your feet so that you are forced to walk barefoot. You could roll your pants up, but the water can reach your armpits, and there’s only so far that a trouser can go.

Many people remain where they are. In their schools or offices, where they might spend a hungry night, with restaurants either partly submerged or unable, for obvious reasons, to deliver. Expecting mothers who need to deliver are unable to reach nursing homes, or if they are already there, their husbands cannot make it. Some commuters stay in their cars, hungry and, as the water rises around them, thirsty. (This year some people died like this as their autolock systems prevented them from leaving their cars, and they suffocated in their underwater vehicles.) Waiting can be dangerous, and that is what drives so many to walk.

A walk home could mean 30 kilometers of trudging through the dirtiest obstacle course on the planet. Some of my friends once walked from the southern edge of the city to a northern suburb, a trek that took them more than eight hours. At one place, the water was chest high, and one of them needed to relieve himself. He did not bother to unzip. “What would have been the point of that?” he asked me later.

The conditions can be brutal, but the people are not. Bombay is a city known for its relentless pace, but if you slow down to take it in, you find that people can be very kind to you. Like the autorickshaw-driver who dropped a schoolgirl home after she spent 11 hours in his vehicle, and refused to take money for his efforts. Like the people everywhere who allow you to use their mobile phones to call home, or to take a sip of their water, even though it is now an incredibly precious commodity in this time of its excess. Like the men who pulled me out of a manhole that almost sucked me in when I was wading through thigh-deep water. Indeed, like all the people who stand around manholes in waist-deep water so that no one steps into them accidentally, and the families that cook food all day and then wade out to distribute it.

A combination of factors combined to make this year worse than most other years. To begin with, it rained much more: so much more that buildings across the street looked like ghostly images, and one could not be certain if they really were there. Secondly, the sea was at high tide. When that is so, it rushes into those parts of the drainage system that have an outlet into the sea, and the rainwater doesn’t seep away fast enough. And the water down below mixes with the water on top.

But partly to blame was Bombay itself. The garbage disposal systems of the city are inadequate. Construction is growing in the northern suburbs of the city faster than the infrastructure can keep up. Environmentalists claimed that the reclamation of parts of the Mithi river, near some of the worst-affected suburbs, caused it to overflow when the cloudburst took place. And, most importantly, there was clearly no disaster management plan in place for such a situation.

The result was that more than 150,000 people were trapped in the railway stations alone, as the metallic monsters that bear six million people every day lay inertly on the water like dead, floating earthworms. Slums and shanty townships were also badly affected, with some houses simply being washed away – addresses wiped out – and others being submerged. There was a landslide in parts of Mumbai, and many people died in a stampede caused by rumors of a tsunami.

Television channels showed pictures of the city from above, cityscapes turning into seascapes, with rescue workers on inflatable boats picking up lone swimmers. They ran scrolls at the bottom of the screen with messages like “Ramesh Shah, call home soon, parents worried,” as if Ramesh Shah was anywhere near a television set or a phone that worked.

The rain ceased, temporarily, after a day, but began again last weekend. Some suburbs remained flooded in the interim, and did not get power and water supply for a week. Where the water receded, the streets piled up with massive amounts of rotting garbage, onto which crows descended and stray dogs lingered. I came across the carcass of a buffalo lying in the middle of the road, which for some mysterious reason was wearing a helmet. As many as 1,500 dead cattle punctuated the streets of Bombay, and the city government refused to clear them up, saying that it was the owners’ responsibility.

It would all take time to clear up, but eventually the city would function again, and everyone would feel proud of living in such an important city. And the dogs, those that were left and were now dry, would stop crying. Until next year