India at crossroads: Will its politics allow it to fulfill its promise?

Sadanand Dhume is an Indian writer and journalist based in Washington, D.C. who writes on Asian affairs and also a South Asia columnist for the Wall Street Journal. He has worked as a foreign correspondent for the Far Eastern Economic Review in India and Indonesia. Sadanand Dhume’s My Friend the Fanatic: Travels with a Radical Islamist, about the rise of radical Islam in Indonesia, has been published in four countries. On Monday 5 November 2013, Sadanand Dhume addressed The Sydney Institute to discuss challenges facing Indian politics and the important role India’s middle class must play in a successful future. Sadanand Dhume’s visit to Australia was sponsored by the Australian/Israel & Jewish Affairs Council.

INDIA AT A CROSSROADS: WILL ITS POLITICS ALLOW IT TO FULFIL ITS PROMISE?

SADANAND DHUME

Thank you very much Gerard and thank you to The Sydney Institute for having me here. I also want to thank AJAC for having me in Australia.

I’ll start by giving you a broad overview of what my comments are going to cover. The question to ask is whether India’s politics allow it to deliver prosperity? So I’ll give you a broad overview of the so-called rise of India, assuming that we have a mix of people who know a lot about India and some who don’t know a lot about India but are interested.

I shall ask a few big questions about the state of Indian politics, and lay out what I think are the four key problems or political challenges that India will need to overcome if it is to fulfil its promise. Finally, I shall talk a little bit about the Indian middle class, its drawbacks and why I think it does, nonetheless, hold the key to a more optimistic future.

Just the other day, it seemed as though India could hardly put a foot wrong. Annual economic growth averaged above 8 per cent between 2003 and 2008. India was one of the world’s few major economies to escape more or less unscathed from the Global Financial Crisis.

In November 2010, Barack Obama made the longest foreign visit of his presidency to India and there, in an arousing address to parliament, Obama declared that “India has emerged”. By then, authors and analysts had already churned out a small rainforest worth of books and articles asserting that the twenty-first century belonged to Asia’s two giants – China and India.

Two years later, however, India’s rise does not look quite as certain. The IMF predicts that the Indian economy will grow this year at 4.9 per cent, that’s exactly half of the 9.8 per cent it achieved in 2007 at its peak. For a country still at an early stage of development – in dollar terms – the average Indian earns about as much as the average Chinese did in 2004. This is worrying. Most economists believe that India needs to grow by at least 7 per cent a year, merely to keep pace with the 13 million new entrants into the job market each year.

Flagging growth isn’t the only cause for concern. Foreign direct investment has plummeted 67 per cent in the first quarter of the current year to $4.4 billion. The rupee has spent much of 2012 touching historic new lows – by mid-September it had lost 20 per cent against the dollar over the previous year. Though this was a one-off event that saw a massive power outage in July that left 600 million people without electricity, and dramatised to the world the parlous state of Indian infrastructure.

In September, after a long hiatus, the government decided to embark on a new burst of economic reforms. It raised the price of diesel fuel, it announced a rash of long awaited reforms in retail, aviation and power and, yesterday, the ruling Congress Party conducted a massive rally in Delhi, which is quite unusual, essentially extolling the benefits of foreign direct investment and reform. However, there has been a tremendous backlash to these limited and belated reforms. Protesters have taken to the streets; a major coalition partner has left the government so it’s now technically in a minority.

Parliament has been paralysed by a series of high profile corruption scandals going back before the reforms. There’s been violence between Muslims and Indigenous people in the North-Eastern Indian State of Assam and between Muslims and Hindus in the Hindi heartland state of Uttar Pradesh. In August, some 50,000 migrants from the north-east who had come to western and southern cities, such as Pune, Hyderabad, Bangalore and Chennai, abruptly fled homeward fearing retaliation for anti-Muslim violencethat had broken out in the North-Eastern State of Assam. In a panic, India’s government blocked more than 300 web pages – only a handful of which would have been considered inflammatory in most democracies – and this action, along with the ham fisted attempt to shackle social media, such as twitter and Facebook, raised questions in the international community about India’s continued commitment to free speech.

I raise this catalogue of setbacks because it highlights the unpredictability of Indian democracy and foreshadows a chaotic alternative to the smooth arc of progress assumed by many. Are India’s ruling elites up to the task of piloting a staggeringly diverse nation of 1.2 billion people, half of them under the age of 25, out of poverty into prosperity? Can economic reforms be pushed through in an era of dynastic politics, staggering corruption, fragile coalitions and powerful regional Satraps. Can India’s institutions reign in resource grabbing of the sort once associated with Post-Communist Russia or Suharto’s crony ridden Indonesia? Can politicians rise above the discourse of caste, religion and language and begin to debate India’s future in terms of ideas and policies? In short, will politics in the broader sense of the word enable India to achieve its potential or choke it?

I’m giving a sense of the glass half empty but let’s just look at the glass half full to give you some balance in this overview that I’m painting before launching into the larger political questions that I outlined.

It’s far too early to write off India. For one, it has confounded naysayers many times before. As far back as 1960, the American journalist Selig Harrison had famously predicted that India would likely fragment or take an authoritarian turn. Except for a 21 month interregnum in the 1970s when Indira Gandhi halted elections and suspended civil liberties, India has not taken an authoritarian turn and it remains very much together as one country. Similarly, before India’s Green revolution in the 1960s and the 1970s, some had doubted that country would be able to feed its burgeoning population. Today, India grapples with the problem of surplus grain, rotting in storehouses.

One year of slower growth hardly alters the broader fact that, since the advent of economic reforms in 1991, things have been getting better, faster than at any other time in Indian history. In this period, India has pulled more than 200 million people out of poverty. According to the World Bank, the share of the population living below the poverty line has declined from almost half to less than a third. After the poverty eradication efforts of China, this would be – just in terms of sheer numbers – the second largest such successful effort in the world.

Moreover, many elements of India’s relative success story since 1991 remain in place. The middle class, about which we will hear more later (which is estimated to number between 60 million and 300 million people depending on who’s counting), provides a vast consumer market.

Unlike most developing countries, India is home to a clutch of ambitious companies with global reach. This year, 48 Indians made Forbes magazine’s list of the world’s billionaires.

Unlike most developing countries, India is home to a clutch of ambitious companies with global reach. This year, 48 Indians made Forbes magazine’s list of the world’s billionaires. Mumbai-headquartered Tata Motors has defied sceptics and turned around the fortunes of Jaguar Land Rover after buying it four years ago. Anil Ambani’s Reliance ADA Group owns a 50 per cent stake in the Hollywood studio DreamWorks. In 2010, Mahindra and Mahindra took over South Korea’s Ssangyong Motor Company and so on and so forth. Unlike most developing countries, India houses deep domestic financial markets that allow businesses ready access to capital for productive use.

Though India’s savings rate has declined somewhat over the past three years, at 31 per

cent it remains higher than it was in the 1990s and not much below the rates that powered the economic miracles of East Asia’s “tigers” in the 1970s and 1980s. And while company executives often gripe about education standards, only China churns out comparable numbers of engineers and management graduates each year.

As for India’s rickety democracy, on the positive side, a few relatively well-governed states such as Gujarat and Tamil Nadu have discovered the benefits of running business-friendly administrations.More competition among the country’s 28 states could lead to better governance over time. Last, but not least, for all its flaws it’s important to remember that India’s democracy does provide the country with great structural stability. Unlike their counterparts in many countries at a comparable level of development, Indians can take the peaceful transfer of power by the ballot for granted at all levels of government. This is, of course, no small thing. So those are my caveats.

Nonetheless, no country is immune to dysfunctional politics. Looked at dispassionately, the odds are not necessarily stacked in India’s favor. As Brown University political scientist Ashutosh Varshney notes, “India is attempting a transformation few nations in modern history have successfully managed: liberalising the economy within an established democratic order.” In other words, India embraced universal suffrage (at independence in 1947) at a much earlier stage of economic development than the most successful Asian economies – Japan, South Korea, and Taiwan. And, although India’s democratic experiment has worked remarkably well in many ways, not least by empowering those at the bottom of the social pyramid, the system also makes it extremely difficult to carry out important but unpopular reforms, such as slashing fertilizer subsidies or ensuring that farmers pay market rates for electricity.

But, there are four real, big problems. The first one is the quality of India’s politicians. It’s hard to argue that, on average, Indian politicians are fully equipped for the challenges that the country faces. Sixty-five years after independence, India’s democracy appears to reward educational merit less than it did during the final years of the British Raj. I’ll give you an example. At Independence, India’s ruling class was arguably the best educated in the developing world. The father of the nation, Mohandas Gandhi, was a lawyer educated at London’s Inner Temple. The first Prime Minister, Jawaharlal Nehru, studied at Cambridge; the chief drafter of the constitution, B R Ambedkar, had a Ph D from Columbia University in New York.

Simply put, both in erudition and probity, India’s founders were on average several notches above their present-day successors. Today, 31 per cent of India’s legislators – central and state – face criminal charges. Some of these are quite serious; they include murder, kidnapping and  extortion. Some are vexatious charges. It’s a staggering figure for people in elected office to be facing some kind of criminal charge.

Over time, the odds of an idealistic young man or woman acquiring a world-class education and aspiring to public life in India have become increasingly diminished. Many of the most talented look instead to the private sector or emigrate to the West. Indian elections are usually decided by an electorate that votes primarily on the basis of identity, which means caste or religion.

Then there’s the issue of dynastic politics. Essentially, there is not a single member of parliament in India under the age of 30 who does not come from a political family and nearly 90 per cent of members of parliament under 40 come from political families. Effectively what’s happening is that you have dynastic politics that started, of course, with the Congress Party and has spread across the country. Just 50 or 60 families run the politics of India. This is a country of 1.2 billion people. Moreover, many of these parties have morphed into family fiefdoms, handed down from parent to child like an inheritance. In many ways, such parties resemble personality cults more than organisations of individuals motivated by similar ideals and policy prescriptions.

The best known of these families, of course, is the Nehru-Gandhi dynasty, rivaled in longevity only by North Korea’s Kims or Saudi Arabia’s House of Saud. Sonia Gandhi, the daughter-in-law of Indira Gandhi, is president of the ruling Congress Party and is India’s most powerful politician. Manmohan Singh, her mild-mannered and technocratic prime minister, is widely seen as a seat warmer for Gandhi’s 42-year-old son, Rahul Gandhi. Should he become prime minister, Rahul Gandhi will follow in the footsteps of his father, grandmother, and great-grandfather. Should he fail to ascend to the top post, the party, conditioned by decades of loyalty to bloodline rather than ideas, will almost certainly turn to his 40-year-old sister, Priyanka.

But why focus on Congress alone? A similar pattern repeats itself in state after state. In Uttar Pradesh, in Uttarakhan, in Punjab, in Tamil Nadu, sons of former chief ministers right now run Orissa and Jammu and Kashmir.Another one ran Maharashtra until 2010. This is, in short, a nationwide phenomenon that started in the Congress Party, and is most starkly visible in the Congress Party, but is not a phenomenon that’s confined to the Congress Party.

Parliament is no exception to the nepotism norm. Seven in 10 women in parliament, notes Patrick French, owe their entry into politics to family ties. The situation is a little bit better in the two ideological parties. On the left, the Communists and the BJP or the Hindu Nationalists; on the right because they’ve traditionally been more about ideas than about families. But even the BJP has in recent decades begun to look more and more like other parties. The most prominent young BJP MPs, similar to the young Congress MPs, all come from political families.

Arguably, this system fosters corruption. Lacking a culture of transparency, virtually all parties use slush funds for campaigns, which in many parts of the country consist of promising voters free kitchen appliances or laptops, or delivering cash-filled envelopes to them the night before voting. In the absence of intraparty competition, the party leader effectively controls both campaign cash and, when in power, the state’s goody bag of handouts.

It’s hardly a surprise, then, that politicians have developed a symbiotic relationship with crony capitalists in mining and real estate, fields in which access to decision makers is the single most important element of business success. In some cases – as in the ongoing “coalgate” scandal, in which government auditors claim that the national exchequer lost $34 billion by selling valuable coal reserves at throwaway prices – the politician and the crony businessman are often the same person.

That said, neither dynastic politics nor corruption is a uniquely Indian phenomenon. The former hasn’t appreciably hindered Singapore’s progress, nor did the latter appreciably hinder South Korea’s. But India also bears the harmful legacy of past mistakes that have not been fully acknowledged, and therefore not fully repudiated. This is what I call the absence of India’s Berlin Wall moment. So, in 1991 when India started reforming, it certainly changed its policies quite dramatically both in terms of economic policy and foreign policy. But it hasn’t had a real reckoning with the past where the country looked back and came to terms with the fact that the policies followed by socialist India, by Nehruvian India, between 1947 and 1991 were essentially a disaster. That sort of reckoning has not taken place. As a result, many of the parties of Indian politics remain in place.

By way of background, India’s first Prime Minister, Jawaharlal Nehru, was a Fabian socialist who was contemptuous of markets and enamored of state planning. His daughter, Indira Gandhi, raised rabble-rousing to an art form and turned the crude licence-permit system she inherited from her father into a refined instrument of economic torture. In her time, the marginal tax rate rose to 97 per cent and, under the licence system, even the most routine economic decisions, such as where a business could build a factory or how much it could produce, what price it could sell, what it produced, all these decisions were made by bureaucrats.

Under Indira Gandhi’s rule, which spanned most of two decades until her assassination in 1984, India fell steadily behind its East Asian peers on measures such as the growth of per capita income and virtually every measure of human development. Between them, Nehru and Indira Gandhi ruled India for all but four of its first 37 years of independence. They created a political discourse centered on government intervention and largesse that persists to this day.

So pervasive is this discourse that even the opposition BJP, ostensibly a party of the Right, often espouses economic views that are indistinguishable from those of India’s Marxists. Though it pushed reforms when it was in power between 1998 and 2004, in opposition the BJP has led the charge against fuel price rationalisation, opposed foreign investment in retail, and stalled the implementation of a modern goods-and-services tax to replace an inefficient patchwork of state levies.

Thanks to this legacy of mistrusting markets, no Congress-led government, including the one that was compelled to launch reforms in 1991 against the backdrop of a balance-of-payments crisis, has treated liberalisation as something to celebrate or explain to the masses. Most seem to view it as bitter medicine to be taken in the depths of a crisis – as with the most recent batch of reforms in September. For others, it’s a somewhat distasteful means to acquire the resources to fund welfare programs that guarantee subsidised grains or government jobs for villagers. No wonder that the handful of reformers in government usually operate by stealth, preferring to tweak policies on the margins rather than to make a full-throated case for privatising money-losing companies or streamlining subsidies.

In economic terms, this may put India on a fiscally unsustainable path. But in political terms it makes perfect sense. Indeed, the current Congress-led coalition came to power in 2004 on the strength of a factually incorrect but electorally appealing argument: that liberalisation had not helped India’s poor. Not surprisingly, it interpreted its mandate as an excuse to boost often wasteful welfare spending and put the brakes on reforms such as the privatisation of loss-making state-owned enterprises. The party’s re-election in 2009 with a larger mandate cemented the widely held belief in Indian politics that only handouts guarantee electoral success.

Only the economic slowdown, and perhaps the threat to Manmohan Singh’s international image as international reformer, earned as finance minister in the 1990s, has recently forced the government to partially change course after eight years in office. None of these costs of democracy are unique to India. Together, they add up to a disquieting possibility – that there’s a fundamental mismatch between the country’s economic aspirations and its political culture.

On the surface, India may be a democracy like any other – with an elected government, a professional civil service, and a legal system inherited from the British. But, unlike its counterparts in almost any advanced democracy, much of India’s political class represents values at odds with those of the most productive elements of its society: the educated middle class. So, for example, the middle class seeks order; the political class thrives on chaos. The middle class embraces hard work and thrift; the political class has become synonymous with theatrics and public theft. The middle-class dream rests on a sound education; a career in politics usually takes flight on a famous last name.

This dysfunctional polity accurately reflects the current Indian electorate. Higher-end estimates of the size of India’s middle class (as many as 300 million people) are based on, say, a person’s capacity to afford basic consumer goods such as a cell phone, a television, or a motorcycle. But while 300 million consumers may mean a lot to Samsung or Honda or Nike, they still represent only a quarter of India’s population. Moreover, it’s not clear how many of them oppose the status quo. Bluntly put, you may have a cell phone in your pocket and sneakers on your feet, and still think of burning a bus as a legitimate form of political protest or some form of Nehruvian socialism as the ideal economic system.

About 60 million Indians (300 million would be middle class by a generous definition), are middle class by global standards, not merely Indian ones. This is what I want to focus on for the remainder of my talk. With rising incomes and greater awareness of the outside world -spurred in part by television news, social media, and foreign travel – this cohort is most likely to begin to question the peculiar honour code of Indian politics, under which a party stands to lose face, and influence, if it can’t marshal the street muscle to bring ordinary life to a halt. And, in fact, those of you who have been following India may have seen the first signs of this in the so-called Anna Hazare movement, anti-corruption movement, that has been dominating the headlines in India over the past 18 months.

But even this group, roughly the well educated and the professional class, faces formidable challenges. Already hobbled by relatively meager numbers, they are also shut out by the dynastic nature of most political parties. A culture that equates dissent with disloyalty precludes competitive internal party elections of the sort that are commonplace in the industrialised world. It’s true that with the right combination of backroom maneuvering and administrative skill, a talented lawyer, doctor or journalist may yet ascend the greasy pole of power. But this will demand a willingness to wade into the muck of a notoriously corrupt system, and to play permanent second fiddle to a party’s chosen princeling. Not surprisingly, the most ethical, talented, and ambitious prefer to make their mark elsewhere. Needless to say, there are exceptions to this rule. I’m generalising but it’s more true than untrue.

Nonetheless, I believe that those locked out of the political process also have themselves to blame. With their resources, capacity for organisation, and access to the media, India’s middle class people ought to punch above their weight; in fact they punch below it. Unlike in America, in India the richer you are, the less likely you are to vote. In the richer neighborhoods in Delhi, Mumbai, and Bangalore, and in the gated apartment complexes springing up in satellite towns such as Gurgaon outside Delhi, people have chosen to secede from Indian democracy rather than to fix it. On-site generators provide power. Private guards take care of security. The kids study in private schools and visit private doctors. For the most part, politics belongs to a distant world, glimpsed on television news, gossiped about at parties and, at best, participated in only when national elections come, once in five years.

For the most part, politics belongs to a distant world, glimpsed on television news, gossiped about at parties and, at best, participated in only when national elections come, once in five years.

In the long run, however, this apathy is untenable. For India to get the leadership it deserves, the educated must not only vote in larger numbers but also seek a way to enter active politics. The quixotic attempt by Meera Sanyal, a senior banker with the Dutch multinational ABN Amro, to run for a seat in parliament from South Mumbai in 2009, ought to serve as a symbol of inspiration rather than a cause for derision. Sanyal, by the way won only 10,000 votes out of 640,000 cast. There are exceptions such as Jay Panda an articulate politician from the eastern state of Orissa, but this remains the rule.

In the long run, however, to end on an optimistic note, time may be on the outsider’s side. Should the economy pick up again, the numbers of those with a regular job, a home loan, and a sense of professional purpose will continue to swell as India urbanises and it’s urbanising rapidly. For the first time since 1947, it will get an electorally significant middle class vote. According to the consulting firm McKinsey & Company, by 2025 India’s middle class will expand roughly tenfold, to 583 million people, or more than 40 per cent of the population. At that time, presumably, politicians will no longer find it necessary to whip up mobs against big-box stores or bring traffic to a halt in the national capital over the price of fuel.

If more politicians could think beyond the inherited template of identity politics and government handouts, they would see the enormous potential to tap into this new, emerging middle class – both for their parties and for the country. In a properly functioning democracy, political arguments are won in newspapers and on television, and through orderly grassroots expressions of dissent.

To sum up. For India to join the developed world, it needs to drag its politicians into the twenty-first century. The people who are most likely to do that dragging are the educated middle class whose numbers remain small now but are likely to grow rapidly in the decades to come. Either India’s middle class is going to drag its politicians into the twenty-first century or else, India’s politicians are going to drag India down with themselves instead.