Rot stems from ill-conceived coal nationalization plan

By Swapan Dasgupta

Subhash Chakravarti, a legendary Chief of Bureau of Times of India, recently recounted an encounter between Prime Minister Jawaharlal Nehru and the West Bengal Congress supremo Atulya Ghosh in the early-1960s.  

“I have heard”, Nehru told Ghosh accusingly, “that you are a bit too friendly with Calcutta’s Marwari businessmen”. Never inclined to kowtow to someone he regarded as a poseur, Ghosh’s reply was characteristically blunt: “What you have heard is right. Our party needs money, not merely for Bengal but for UP and Bihar too. Who do you think funds us? Without that money you wouldn’t be wearing that rose on your lapel.”

Nehru was taken aback by this insolence and complained to his old friend Dr B.C. Roy who was Chief Minister of West Bengal. Dr Roy laughed it off but delighted in repeating the story to others. These probably included S.K. Patil, the Bombay Congress boss with a reputation for being pro-business and pro-US.  Patil used to rue that he was the target of unending radical derision except before elections and when it was time to lobby Washington for food aid.  

The tendency to look upon India’s corporate sector as the proverbial ‘kept’ woman who could only be visited stealthily and in the dead of night (I thank the late Pramod Mahajan for this imagery) has been an undesirable Nehruvian legacy. If Nehru shared the upper-class English socialist disdain for ‘trade’ and new money, Indira Gandhi was positively vengeful towards Indian business following her battle with the Syndicate, and Rajiv Gandhi was plain confused over how much elbow room should be given to the private sector. However, there was one common dynastic consensus: business must pick up the tab for political expenses. A highly regulated capitalism, it was decreed, must underwrite India’s experiments with socialism.

It was an expedient arrangement that allowed patrician socialists to serve the poor without being preoccupied with where the money was coming from. One Nehru sibling who enjoyed global fame was, for example, particularly forgetful about settling shopping and hotel bills.

When the private sector proved unable to deliver the full booty—and this began to happen as the license-permit raj began to be excessively suffocating for business—the necessary surplus was creamed off from state funds. A breed of politically loyal but parasitic contractor class was created by Indira Gandhi to offset the influence of old money. Additionally, exceptional discretionary favours were doled out to business houses which were considered ‘reliable’. Business, as Dhirbuhai Ambani famously said, became a matter of “managing the environment.”

What we are today witnessing are big cracks in a system whose principal objective was income generation for the ruling dispensation rather than the economic growth of the country. The CBI clearly erred if its reason for wishing to prosecute a former Coal Secretary and industrialist Kumaramangalam Birla was the fact that Hindalco ate into a coal allotment initially been made to a public sector unit. To treat the private sector as a poor cousin or, indeed, a predator, makes no sense. However, the real reason for widespread suspicion of influence-peddling and corruption is that the coal block allotments were governed by discretion, the Prime Minister’s Office having earlier rejected the more transparent process of auctions. It was this flawed selection system which resulted in a large chunk of India’s coal reserves being parcelled out to those who were either linked to the ruling party or were willing to pay a political cess for every ton of coal extracted.

However, it is reassuring that the CBI’s peremptoriness has generated a sense of outrage. In part the issue is all about a senior bureaucrat being punished for following a political order and an industrialist pulling strings to further his very legitimate business interests—there was no other option. But the real rot stemmed from an ill-conceived coal nationalisation that has proved an unmitigated disaster and which has cost India dearly.

It is curious that the Hindalco chairman was named after Mohan Kumaramangalam, the charismatic Communist-turned-Congressman who presided over coal nationalisation and other socialist excesses. Today, to take liberties with Karl Marx, the fawning of an earlier generation must be weighing “like a nightmare on the brains of the living.” 

Sunday Times of India, October 20, 2013

SLEEP WALKING - Economic reform is meaningless without intellectual revolution

By Swapan Dasgupta

P.V. Narasimha Rao, 1992

In these troubled times for the global economy, it may be worth narrating a story about the mentality of Indian politicians.

When the Congress returned to power in the summer of 1991 after the Janata Dal interregnum, the cabinet of Prime Minister P.V. Narasimha Rao was presented a note by the ministry of finance advocating dramatic reforms that included the deregulation of the economy. The note was greeted with predictable scepticism, if not outright hostility by the cabinet.

Looking for a way out of the logjam, Rao despatched a young aide to one of Indira Gandhi’s trusted confidants for advice. The hard-nosed veteran read the finance ministry note and then offered his suggestion. Wouldn’t it be more advisable, he asked, to preface the document with appropriate passages from Jawaharlal Nehru, Indira Gandhi and Rajiv Gandhi? It would, he suggested, definitely enhance the comfort level of the cabinet to know that the proposed measures were in conformity with the scriptures.

The wily Rao didn’t hesitate to accept the sage advice. A reworked cabinet note was circulated and this time, the opposition melted away, giving the prime minister the mandate to pursue liberalization as the highest stage of Nehru and Indira’s socialism.

This delightful story may well be true, partially true or plain apocryphal. What is remarkable, however, is not the revelation that the Congress party is made up of dinosaurs, but the extent to which orthodoxy takes hold of the political imagination to resist change. This is, of course, true of India but it is also a global phenomenon.

In her autobiography, The Path to Power, Margaret Thatcher spelt out the insidious hold of the post-War consensus on the British political imagination: “By 1964 British society had entered a sick phase of liberal conformism passing as individual self-expression. Only progressive ideas and people were worthy of respect by an increasingly self-conscious and self-confident media class.” Thatcher may well have been talking of India.

Nominally, India may have travelled a long way from the days when inefficiency and sloth were regarded as economic virtues and when personal rates of taxation for the highest slab touched 97 per cent. What is significant, however, about the massive economic shifts that were first brought in by Manmohan Singh’s 1991 budget is the remarkable extent to which change has been ushered without fanfare and, more often than not, by stealth.

It required the 1991 balance of payments crisis and the emotional trauma of the physical mortgaging of some of India’s gold reserves to begin the assault on the licence-permit-quota raj. Likewise, it required the Western sanctions against India in the aftermath of the 1998 Pokhran-II blasts to lift many of the curbs on foreign capital and rid Atal Bihari Vajpayee of his party’s accumulated swadeshi baggage.

As 2011 draws to a close, India is at a similar crossroads. The economic downturn in the United States of America and the Eurozone crisis has left no economy untouched. Complemented by what is called the ‘governance deficit’, India’s economic indicators have moved southwards. The gross domestic product projections are down from nine per cent to seven per cent; the already-large fiscal deficit is expected to breach the budgeted five per cent level and touch more than six per cent of the GDP; inflation has been hovering around 10 per cent for nearly a year and shows little sign of coming down despite 13 interest rate hikes since March 2009; the sensex has lost 22 per cent since January and foreign direct investment inflows have virtually ceased after touching a record $29 billion in 2010; in the preceding quarter, the profitability of Indian companies fell by an average of 30 per cent; and the Indian rupee, now blessed with a distinctive symbol, has lost some 15 per cent of its value in barely three months, thereby making imports prohibitive and adding to the inflationary spiral.

Middle India’s overall comfort level with Prime Minister Manmohan Singh rested on two beliefs: first, that he was a man of integrity and innate decency and, second, that he had the requisite skills to manage the economy. On both these counts, Singh’s reputation is in tatters. No one accuses the prime minister of being personally dishonest, but the sheer scale of the corruption charges before the courts have put question marks on his ability and willingness to tame his roguish colleagues. Worse still, there is complete consternation at the prime minister’s inability to ‘fix’ the economy. That he doesn’t possess the proverbial ‘magic wand’ is conceded by all reasonable Indians. What strikes them as odd is that the senses of urgency and purpose that should have accompanied the economic slide are missing. The government appears to have simply given up. Particularly disturbing is the extent to which a beleaguered political class seems ready to fall back on the ideological shibboleths that many imagined had been steadily discarded since 1991. The approach to the fiscal deficit is a classic example of a government that seems unconcerned.

There is a stalemate in the US over the failure of the White House and the Republican-controlled senate to agree on measures to reduce a trillion dollar deficit, and in both Britain and the Eurozone, the deficit is at the root of a political and diplomatic stand-off. Yet in India, fiscal consolidation has been deleted from the vocabulary of the ruling party and its allies. The hugely expensive and inefficient Centre-sponsored welfare schemes are not merely regarded as holy cows but there are moves to expand the net. So whimsical is the sop culture that last week the commerce ministry announced a Rs 3,844 crore ‘package’ for weavers in eastern Uttar Pradesh because Rahul Gandhi demanded it. No wonder Mamata Banerjee believes that handouts are her birthright too. In Europe, it is said that ‘austerity is the new normal’. In an economically fragile India, fiscal profligacy is the norm — the preferred Rahul alternative to beggary. India is living beyond its means but no one seems to care.

In most of the countries gripped by the downturn, the trend is towards removing as many obstacles to growth as possible. In Britain, for example, stringent planning norms have been relaxed to facilitate a growth in housing. In Italy, the new ‘technocrat’ prime minister has announced a series of measures that include fiscal prudence, welfare cuts and the dismantling of restrictive practices. In India on the other hand, there are moves to add a statutory premium on land acquisition for housing, industry and public utilities. Additionally, limited progress has been made in enlarging the scope of foreign investment in insurance and retail because of the government’s failure to secure agreement within the ruling coalition.

India, it would seem, is sleepwalking its way into an economic disaster zone. Yet, there are two remarkable features of this death march. First, there is no widespread realization that the troubles aren’t confined to inflation and price rise but affect the nerve centres of economic growth. Second, there is the presumption that statist intervention and a more rigid regulatory regime (that deters private sector corruption) is the way out.

Nehru, it must be said, did a remarkably good job in turning progressivism into common sense. Even two decades after liberalization transformed India and heralded far wider levels of prosperity, India has not yet turned its back on the belief structures of the bad old days. Economic reforms, it would seem, become meaningful only when accompanied by an intellectual revolution.

The Telegraph, November 25, 2011

Age of the socialist elite

Book Review

Of A Certain Age: Twenty Life Sketches by Gopalkrishna Gandhi (Penguin/Viking, 234 pages, Rs 499)

As a grandson of Mahatma Gandhi and C. Rajagopalachari, Gopal Gandhi could well have joined the ranks of those Indians who are famous for being famous. Pedigree, however, is the least of his accomplishments. A distinguished public servant, diplomat and man of letters, he brought to the various posts he held a great measure of old world charm, civility and erudition—commodities in woeful short supply in a country that measures achievement by the individual’s ability to be sharp-elbowed.

A professional life as interesting as Gandhi’s merits a detailed narration—and I hope he takes the hint and starts work on his memoirs. For the moment, however, he has been content with a short book of pen portraits of 20 individuals he got to know well, both socially and professionally. Given his way with words, it is a compelling and easy read—highly recommended for a lazy Sunday or a trans-continental flight.

The life sketches were initially written for newspapers and, consequently, suffer from an excess of brevity. Just when the subject starts to enthral, the word limit forces a premature conclusion leaving umpteen question marks in the mind of the reader. This is unfortunate because many of the fascinating lives encountered in the book are completely unknown to a generation that was born after the 1970s.

As a schoolboy in Calcutta, I grew up reading M.Krishnan’s fortnightly ‘Country Notebook’ in the pages of the Sunday Statesman. Subsequently, one of my earliest responsibilities as a journalist was to proof-read Krishnan before the galleys were sent to the press.  Yet, how many people not ‘of a certain age’ will be able to grasp the contribution of that unassuming nature lover in just 1,200 words or so? Without minimising the sheer pleasure this book has given me, Gandhi would have done well to flesh out his sketches for the benefit of an uninitiated generation.

Of course, there are two distinct ways to approach the book. It is possible to read the 20 potted assessments in isolation—a sort of great-men-I-have-known exercise the author charmingly describes as “that inchoate bonding which, like a slow log fire in a hill station, warms those who are of a certain age.”

More rewarding, however, is to take the cue from the author and view the life sketches as a backdrop of an age—what Gandhi calls the ‘Gandhi-Nehru age’. I disagree profoundly, but only on a chronological detail. Apart from Mahatma Gandhi, Harilal Gandhi, Abdul Ghaffar Khan and, to a lesser extent, Jayaprakash Narayan and Acharya J.B. Kriplani who straddled the ages, the other 15 defined another era: the Nehru-Gandhi age. Except that this Gandhi was Indira Gandhi.

Gandhi’s collection of truncated biographies is also a wonderful commentary on the conviviality that bound the politico-bureaucratic and cultural elite from Independence till the dawn of coalition politics in 1989. Of course, Nehru was the symbol of this association of shared assumptions but despite the rough edges of her confrontational style, even Indira chipped in with her contribution.

The most striking feature of this consensus was an almost blind worship of a seemingly progressive state and, by implication, progressive politics which separated the ‘enlightened’ from the cretin. What bound the refined bhadralok sensibilities of a Jyoti Basu and Hiren Mukherjee (both cardholding Communists) with the Fabianism of K.R. Narayanan and the public service Brahminism of R.Venkatraman and J.N. Dixit was the common reverence for an activist state. This faith in an enlightened despotism, legitimised through the ballot box, was based on noble intentions and a shared disdain of vulgarian capitalism, particularly of the Yankee variety. This is where aesthetes such as Pupul Jayakar and Kamaladevi Chattopadhyay stepped in with their devotion to indigenous crafts and handlooms. They ensured that India’s socialist elite weren’t infected by the grim and grey realism of Stalin’s Soviet Union.

But, at the same time, ‘progressive’ also meant being a committed friend of the Soviet Union which all these worthies were. It meant that when the Berlin Wall collapsed in 1989, a part of what they had lived for was lost. President Narayanan wasn’t being churlish when he gracefully questioned the unipolar world to a visiting President Clinton: he was echoing his own anguish.

What Gandhi’s book misses out is that this consensus produced its dissenters. The awkward elements weren’t packed off to a Gulag, but they were ruthlessly ostracised from an Establishment that drew its sustenance from the conviviality of the like-minded. Kriplani, for example, was barely tolerated by the ‘progressives’ and they barely protested when JP was dubbed a fascist.

The omission is striking because one of the most prominent heretics of that age happened to be Rajaji, his maternal grandfather. I would have loved to have read Gandhi’s take on the man who questioned the fundamentals of Nehruvian existence—and was vindicated by history.

I would have also loved to know why Gandhi’s roll of honour didn’t include anyone in business or involved in the generation of wealth. It might explain why this charming collection often reads like an elegy to an India that, hopefully, is history. 

Business Standard, October 21, 2011

Everyone loves a good poverty business

It is bad form to see the farcical side of an issue as grave and distressing as India’s poverty line: the grim Jacobins of the National Advisory Council would promptly call for the tumbril. Yet, there are two inescapable conclusions from last week’s angry debate over the Planning Commission’s affidavit identifying the poverty line as a spending capacity of Rs 26 and Rs 32 for rural and urban India respectively.

The first, which is likely to be seen as absolutely heretical for a country that has become the world’s foremost supplier of economists, should be obvious: managing the economy is too serious a matter to be left to economists.

It certainly didn’t need a familiarity with complex econometric models and either Keynes or Hayek to realise that the Planning Commission’s extrapolation from the Suresh Tendulkar method of poverty measurement was just another example of economists living in a make-believe wonderland. The wise men of Yojana Bhavan had once again demonstrated to the public’s satisfaction that after lies and damned lies comes statistics.

The second conclusion is one that should, ironically, give enormous satisfaction to the beleaguered Montek Singh Ahluwalia who has been charged by irate NAC members with harbouring notions of the infallibility of World Bank economics. Why, it needs to be asked, does India need a Planning Commission? The question is not necessarily related to the obvious redundancy of an institution that was empowered to implement India’s transition from colonial backwardness to a ‘socialistic’ pattern of society. This becomes more relevant in the context of tell-tale evidence that the empirical basis of planning is horribly flawed.

Many years ago, Professor Jagdish Bhagwati—a refugee from the stifling left-wing consensus in the economics departments of Indian universities—had argued that “any elementary mistake in economics can be turned into a profound truth by ingenuously making the right assumptions to deduce what you want.” India, he went on to suggest, “suffered the tyranny of anticipated consequences from the wrong premises.”  In plain English this meant that India was practising voodoo economics.  

Those with long memories may recall the curious debate that preceded the introduction of colour TV to coincide with the 1982 Asian Games. The Planning Commission questioned the wisdom of apportioning Rs 300 crore to a “low priority” scheme. The scepticism was based on the assumption that the initial demand for colour TV sets would not exceed 10,000. However, Yojana Bhavan underestimated the initial demand by more than 1,000 per cent—a testimony of its understanding of popular aspirations.  

What the country has been witnessing over the past week is an elaborate ideological game aimed at putting brakes on the growth of a market economy. Never mind the patent absurdity of the Planning Commission’s poverty line, what is equally unseemly is the competitive poverty hunt involving economists, NGOs and politicians. Concern for India, it would seem, is being measured by a grotesque head count of the “poor and vulnerable”. The more you count, the better for the soul.

Subscribing to the Planning Commission’s 26-32 measure is, of course, the ultimate proof of heartlessness, since it assumes that poverty has actually been declining, from 48 per cent in 1990 to 32 per cent in 2011. At the midway point of the index of radicalism is the estimate by a committee headed by NAC member N.C. Saxena that suggests 50 per cent of India lives below the poverty line. Finally, for those completely unreconciled to the dismantling of the pre-1991 regime of controls, there is the report by the late Arjun Sengupta, a Congress econocrat of the socialist variety, that damns the retreat from the licence-permit raj by putting the numbers of the “poor and vulnerable” at a whopping 77 per cent.

It is a commentary on the claims of economics to be a “social science” that estimates of the poor in India range from 32 per cent to 77 per cent. The scale of inexactitude isn’t surprising and can be explained by the social entrepreneurship potential of the poverty business. It is soul destroying to be poor but it is criminal to keep people in poverty because it suits the permanently aggrieved. 


Sunday Times of India, October 9, 2011