Threats to the realization of India's potential

To paraphrase Winston Churchill, has India gone from the inherent virtue of socialism as the equal sharing of miseries to the inherent vice of capitalism as the unequal sharing of blessings?

It has the world's largest pool of poor, sick, starving and illiterate. Access to safe water and sanitation remains a pipe dream for most, disease is endemic, and life is nasty, brutish and short for far too many.

A 300 million-strong middle class leaves 750 million poor. On present trends, in 2020 India will still have half a billion poor people. Worldwide, India ranks 134 on ease of doing business indicators, 119 on human development, 122 on gender equality, and 87 on corruption.

The first-generation economic reforms of border liberalization of trade and foreign investment have been tackled, but not the followup reforms of the more complex, politically sensitive maze of regulations to cut business costs, increase consumer choice, promote competition and boost productivity. The public sector is too large and parasitical, public debt too high and the labor market too rigid. India's economic nationalists are fiercely opposed to foreign investment — which brings capital, technology and management expertise — for fear of erosion of policy autonomy.

China sees foreign capital entry as essential for buttressing and augmenting national sovereignty and embraced the World Trade Organization as a key tool in imposing an external discipline for achieving the necessary domestic policy reforms. India joined the WTO grudgingly, not out of conviction but because there was little choice left.

Political and bureaucratic hurdles are many, labyrinthine and substantial; bribery is rampant at multiple levels in the chain of decision-making required to get government approval; markets are split from suppliers, with transportation networks that are far too inadequate and antiquated for linking them effectively; communications and electricity are risible for a country that claims to be an IT powerhouse; and the debilitating twin cultures of entitlements and subsidies constrain rewards for enterprise and merit, on the one hand, and the operation of the price mechanism on the other.

Economic growth has yet to translate into significantly rising employment. A telling human cost of those left behind: in the 1997-2009 period, 216,500 farmers committed suicide, for an average of 16,654 people per year for 13 years running.
In 2010, India's road death toll was around 150,000 — thrice as many as the U.S. or, on a per vehicle basis, almost 20 times the U.S. Most of those killed in India's traffic accidents are pedestrians, cyclists, motorcyclists and pillion riders — that is, those from the poorer end of society, not the more affluent car drivers and passengers.

Even this statistic is a proxy for several ailments, including inadequate infrastructure that adds to road risks and public corruption that ensures weak compliance with driving skills and safety regulations, etc.

India will need a minimum infusion of $500 billion investment in its infrastructure sector over five years.

Reservations for the scheduled castes and tribes were written into the constitution in 1950. Had they worked, they would have fallen into desuetude by now. Instead they keep multiplying and expanding, which in itself is proof of their failure. The pathology of caste quotas includes many pernicious and perverse consequences in addition to compromising merit and ability- based recruitment and promotion, which inevitably has an economic efficiency cost. Indians today are more caste-conscious than they were at independence.

Corruption distorts markets and encourages inefficiency. The biggest cost is political. It would be difficult to exaggerate the revulsion of ordinary people to the ubiquitous and institutionalized venality of public life. Petty corruption is especially endemic at the lower, clerical levels of administration — precisely the point at which the ordinary citizen comes into daily contact with officialdom.
Hence the mass support for the Ana Hazare movement that seems to have thrown the government off balance.

Since 1989, the federal government has been either a minority or coalition government, dependent for continuance on the support of a number of minor parties whose political base rarely extends beyond one province. Some months ago India's editors were called for an extraordinary conversation in which Prime Minister Manmohan Singh confessed to helplessness in tackling corruption because of the compulsions of coalition politics.

The volatility of democratic governance makes it difficult to make decisions that are timely, final and forceful. So many different constituencies and interests must be appeased, so much time devoted to getting "consensus," that what is necessary for national advancement gets progressively whittled down to what is possible for political survival in a fractious coalition.

The legitimacy of India's political democracy is also being corroded with the criminalization of politics and dynastic parliamentary representation. Around one-third of members of Parliament face serious criminal charges. Not just the leadership of the Congress and some other political parties, but even many ordinary MPs inherit seats as family patrimonies.

Calculations done by Patrick French show that 29 percent of India's MPs inherited a "family" seat. For Congress Party MPs, the figure is 38 percent. Most worryingly, 70 percent of women MPs and more than two-thirds of the 66 MPs under 40 in India's parliament are hereditary MPs. No wonder the people feel disenchanted!

The weak economic institutions — stifling regulatory norms, barriers to starting and closing businesses, tardy and costly enforcement of property rights, complex and time-consuming dispute resolution procedures — are matched by poor quality of governance in the legal and political institutions.

The instruments of state are still used far too much to serve the interests of the rulers at the expense of the welfare of citizens.

The Singh government has been palpably adrift, in part owing to coalition complications, in part to power lying in Sonia Gandhi's hands while Singh is prime minister, and in part to the anticipated but protracted and uncertain transition from Singh to Rahul Gandhi as prime minister.

Still, the good thing is that Indians themselves debate their shortcomings and merits openly and vigorously. Many members of the chattering class, mired in nostalgia for a golden age that never was, oppose the very reforms that have brought hope and improvement for the poor. Many more behave as if the promise of economic development is already reality.

Hubris and complacency might prove to be the biggest threat to the promise being realized.