Straining at Central leash

In the past few months, West Bengal chief minister Mamata Banerjee has emerged as the juju woman of Indian politics. When, after a spell of opposition from within, she finally walked out of the UPA-2 government last month, there was both a sense of relief and anxiety. There was relief because her exit gave Prime Minister Manmohan Singh a political space to push through overdue reforms in the economy. At the same time, optimism was laced with the fear that a resurgent Mamata, unflinchingly committed to populist politics, would now give an impetus to revanchist tendencies that may come into play if the next general election produces a hung Lok Sabha.

The looming threat of political chaos is giving sleepless nights to all those who have a stake in India's future. It is one thing for the Centre to alternate between a Congress-led UPA and a BJP-led NDA, but what would happen if there is a government comprising six or more regional parties incapable of distinguishing the national from the local? Will it signal the end of the India story?

Present trends indicate that both the Congress and the BJP, the two poles of politics, are undergoing a geographical shrinkage. Opinion polls indicate that the two parties between them will barely occupy half the Lok Sabha seats. This implies that the strategic hold of the regional parties will be greater than ever before. Of course things may change in the coming months. But assuming today's snapshot of a precarious future becomes tomorrow's reality, is there any ray of hope? Must political fragmentation involve administrative disarray?

Paradoxically, interactions with chief ministers and regional leaders indicate that there is an unexpected convergence of thought on the parameters of governance. On the face of it, there is nothing to bind Bihar's Nitish Kumar and Gujarat's Narendra Modi. Yet, a closer look at the Bihar chief minister's adhikar yatra seeking a special status for Bihar and Modi's repeated declamations against a "Delhi Sultanate" which is dismissive of Gujarati aspirations suggest a common link: exasperation with the present role of the Centre.

The dissatisfaction runs deep. The states of eastern India rue the systematic manner in which their locational advantages were negated by the steel and freight equalisation scheme which ran till 1991. Jharkhand and Orissa complain that the stupendous gains from the global minerals boom have not accrued to the states. Orissa is miffed that a partisan Centre has either delayed or derailed important steel and bauxite projects in backward areas. And many states feel that centrally-funded measures such as the rural employment guarantee scheme was designed by people who don't realise that one size just cannot fit all India.

If the poorer states are unhappy, the states which are driving India's GDP growth are equally resentful. Gujarat, Tamil Nadu and even Goa rue the fact that very little of what they contribute to the national exchequer is ploughed back into their states. Gujarat resented the whimsical ban on cotton exports by the Centre. Goa, which has contributed so much to tourism, is miffed over having to do with a thoroughly inadequate airport. And Mumbai keeps wondering what happened to the PM's "second Shanghai" promise.

For the states, there are two concerns. First, there is mounting anger over the arbitrariness of centrally-funded schemes. Development projects, they feel, should be determined, designed and executed at the state level. Above all, they seek an end to the politically-inspired, discretionary use of national resources. Secondly, the states want the proportion of revenues disbursed by the Finance Commission (which are non-discretionary ) to be considerably enlarged, if necessary by whittling down the Planning Commission's role. In short, the states are pressing for a drastic revision of the federal relationship.

Undertaking the shift from a centralised system to a more federal system necessitates action at the Centre. There is a wide-open political space for different parties (even those which are politically antagonistic) to agree to a common minimum programme of federal restructuring that will bind any formation that assumes charge after the next poll. If the Centre proves fragile, it would be prudent to put the onus of progress on the states by giving them a greater stake.

Sunday Times of India, September 7, 2012

Rousing a sleeping giant without moral authority

By Swapan Dasgupta

Reflecting on the spread of the British Empire to which he was passionately committed, Lord Curzon once remarked that “We have often blundered into many of our greatest triumphs.” Many Indians who cherish a vision of a vibrant India but were nevertheless disappointed by the prolonged drift in public policy could well be wishing that what Curzon held to be true for the Empire will also turn out to accurate for the Indian Republic.

Contemporary India has rarely conducted itself with a sense of mission. The economic deregulation initiated by P.V. Narasimha Rao and Manmohan Singh in 1991didn’t happen because the two were conviction politicians made by the same firm that created Lee Kwan Yew and Margaret Thatcher. India turned its back on an inefficient socialistic path at gunpoint. Likewise, the second wave of liberalisation was prompted by the NDA Government’s desire to offset the possible adverse consequences of the sanctions imposed on India by the West after the nuclear tests of 1998.

If Prime Minister Singh was indeed the great reformer he is portrayed to be, he would have unleashed India’s “animal instincts” immediately after his May 2009 victory when he had little to fear but fear itself. Instead, he waited till GDP growth had fallen below 6 per cent, the rupee was fragile, inflation soaring, the fiscal deficit out of control, politics vitiated by corruption scandals and business confidence at an all-time low. What would have been bold initiatives in 2009, grudgingly digested by a dispirited opposition and accepted by a people anxious for more of the good times, has become a last-ditch, cynical gamble three years later.

The public discourse in India cherishes boldness and decisiveness. To the extent that the Government has been propelled into a burst of activity, there is critical appreciation of the fact that there is more to the Prime Minister than the ridicule that was heaped on him for the past year. Industry bodies have rallied enthusiastically to his support, stock market speculators have given their thumbs-up, the editorial classes are awe struck and even a demoralised Congress appear to have convinced itself that it is better to have fought and lost than not to have fought at all. On the face of it, a sleeping and indolent giant appears to have been aroused.

However, as the old colonials used to remark, for everything that is true of India the opposite is also true. For the past 20 years, market economics has become the new consensus. With the exception of dinosaurs in West Bengal and Kerala and ideologues who nurture a visceral hatred of what they call ‘neo-liberal’ economics, mainstream India is committed to the idea of reform. However, like vocational education which is always good for the neighbour’s child, reform is also expected to be detached and morally uplifting at the same time. In the 1990s, reforms implied dismantling controls and opening up large chunks of a fortified economy to the private sector and global forces. This liberation from Nehruvian dogma unleashed entrepreneurship and put an end to the shortage economy. Some people got very rich but a larger number of Indians moved into the middle class and ceased to be impoverished. It was win-win situation.

Today, the situation is different. The Government is asking people to lower expectations, make sacrifices, to reconcile themselves to the erosion of subsidies and to tighten their belts—all for a larger cause. Unfortunately, for the past few years this larger cause has become both hideous and blurred. After repeated scandals, some involving unimaginable sums, the earlier mood of expectancy has turned to cynicism and disgust. The Government stands discredited; the political class is equated with venality and brazenness; and India Inc. is increasingly being seen as the nesting ground of cronyism and dodgy practices. Almost all the institutions associated with public policy have become objects of disrepute.

In an India overwhelmed by disgust and despondency, the Government’s plea for a sense of national purpose may well end up being viewed as a cruel joke. It has become necessary to refurbish the moral authority of the economic order first. Unfortunately, that is beyond the scope of economists.

Sunday Times of India, September 23, 2012

A matter of choice

By Swapan Dasgupta

One thing that unites both the proponents of foreign investment in multi-brand retailing and their disparate opponents is the conviction that foreign capital will introduce a spectacular degree of efficiency in a largely chaotic sector. It is recognized, and has been recognized since the NDA was first excited by the idea, that bulk buying and a streamlined distribution channel will help lessen the huge 'farm to fork' differential. That a transformation of retail into a part of the modern, organized sector will have a multiplier effect is also not seriously disputed.

But that's where the convergence ends. For the past week, Parliament has been disrupted, the Lokpal Bill and Anna Hazare put on hold and the government confronted with the most serious internal challenge since the Left withdrew support over the nuclear deal in 2008. Most MPs and a majority of chief ministers have chosen to mount a robust defence of inefficiency and opposed the likelihood of discounted grocery bills for three reasons.

First, even after 150 years of its liquidation, India hasn't got over its mental fear of the East India Company. In the language of socialism-which we still carefully preserve in the preamble to the Constitution-all foreign trade is suspect and calculated to puncture our national sovereignty and independence. Last week, a senior BJP leader who was feted as a great champion of economic reforms in his time as minister, was actually heard cautioning about the "strategic" consequences of foreign players in the retail sector. It was reminiscent of the time India was warned that WTO membership would involve a ban on chewing neem twigs.

Second, when it comes to shopping at home, we would rather buy from a Haldiram rather than a Heineman. It is a different matter that no trip to London is complete without the mandatory shopping at TESCO-a great British company which, some people deem, must never travel to India. It is a bit like Jawaharlal Nehru who preached austere self-sufficiency at home but let it be discreetly known that he wasn't averse to a decent bottle of Burgundy, preferably Grands Echezeaux, during his European tours. Nehru had good taste, as did Indira Gandhi, but they were clear about one thing: what was good enough for the first family wasn't appropriate for the rest of us. That was the essence of India's socialism.

Finally, each side has its own reasons to explain where they stand. The Prime Minister is anxious to refurbish his reformist credentials and, if possible, ensure that the outflow of money from India is reversed. The swadeshi types smell a great opportunity to embarrass the government and, maybe, even engineer its fall. They claim to be speaking for both the middlemen and the petty retailers-groups genuinely apprehensive of the impact of supermarkets on their livelihood. But in all this high economics, low politics and appeasement of special interest groups, one group is missing from the debate: the consumer.

In an erudite article in Economic Times, opposition leader Arun Jaitley made a curious observation: "Domestic retailers source domestically. International retailers operate on the principle of buying internationally at the cheapest cost." The assertion is dubious since the city corner shop today stocks everything for the price-conscious consumer. These include Italian spaghetti, Chinese light bulbs and South African peaches. But that is beside the point. What Jaitley is fearful is that the consumer's buying decision will be dictated by her budget rather than the 'Made in India' label.

The consumer may well be charged with being innately unpatriotic. But, is nationalism, by definition, high cost? What does it say about Indian manufactures if shoes made in Vietnam turn out to be cheaper and more durable than one made in Aligarh? Should the consumer be compelled to buy an inferior, expensive item on swadeshi principles, as used to happen in the past?

International competition can have two possible reactions. It can either generate lethargy or it can spur India to take those measures needed to make the economy truly competitive. The retail reforms could make India shake off its complacency. Or, the nation could wallow in the sense of entitlement that high-cost inefficiency brings. At least we now have a choice.

Sunday Times of India, December 4, 2011