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Thursday, 10 April 2014

Why I Lost Faith in Arvind Kejriwal

Why I Lost Faith in Arvind Kejriwal

Written by Dr. Seshadri Kumar, 10 April, 2014

Copyright © Dr. Seshadri Kumar.  All Rights Reserved.

For other articles by Dr. Seshadri Kumar, please visit http://www.leftbrainwave.com

Disclaimer: All the opinions expressed in this article are the opinions of Dr. Seshadri Kumar alone and should not be construed to mean the opinions of any other person or organization, unless explicitly stated otherwise in the article.

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The Anna Hazare Movement – A Turning Point

I started this blog in August 2011.  I owe my political consciousness today to Anna Hazare’s anti-corruption movement of August 2011.  Until then, I was a mobile vegetable like most other Indians, content to go to my office, do my work, get my salary, watch cricket matches on TV, and see Bollywood movies, but never motivated enough to use the brain I had to think in detail about the kind of society we live in. 

Like most Indians, I had a “chalta hai” attitude.  I used to see the news about some economic policy or other, or some political development, and then drop the paper after a little while and go back to being self-absorbed.  If I had to deal with a government office, some friend would guide me on whom to talk to so that I could get the necessary work done with the appropriate amount of grease money; I never thought much about it except that this is the way it is in India.

I had no real interest in analyzing the conflicting claims of different candidates and different parties; I had never thought much about whether capitalism was better or socialism was, beyond the sound bites I used to hear.  One day one commentator seemed to make sense; another day a different commentator made sense; and, in any case, it was more important to know if India could win the match and to know how many runs were left for us to clinch a victory, so I would change the channel.  I knew little about article 370, and vaguely remembered details of the Shah Bano case from my growing-up years.  

I had lived in the US too, and while I used to follow presidential debates and political analysis on TV channels there, my mind rarely rose to examine things in a serious way.  As with most ordinary folk, the simplest explanations made the most sense to me then, with the result that I thought all the policies of the Democratic party were correct as they seemed to care for the guy on the street (the “aam aadmi”of America.)

The Anna Hazare-led India Against Corruption movement changed all that.  I was transfixed by the sight of an septuagenerian going on a hunger strike to protest against corruption in India.  Like most people in India, I was energized.  I was living in Pune at the time, and even participated in a rally in support of the Jan Lokpal bill.

Starting Leftbrainwave and Songs on Youtube

I wanted the movement to succeed; but I knew that my strengths were not in organizing political movements on the ground.  I could write, though, and so I thought my contribution to the success of the movement would be to write about it. 

So I started this blog; and in a series of articles, I supported the IAC movement.  I first wrote an article talking about how criticism of Anna’s movement as “unconstitutional,” claims that it was tantamount to “blackmailing the government,” and accusations that he was being disrespectful of the constitution, and so on, were baseless; wrote about my feelings on the day Anna was released from jail, which were simply a reflection of what most Indians were feeling that day; talked about the biased coverage of the movement in Indian cable channels; discussed the nature of the opposition to Anna Hazare’s movement among intellectuals, more than once; compiled information on the support for Anna Hazare in protest marches throughout India to counter the propaganda that this was a movement limited to urban middle-class people; criticized an article in the Wall Street Journal which claimed that the Anna Hazare movement could not be compared to the Arab Spring; wrote articles in support of the movement when it was criticized for being disrespectful to parliamentarians; wrote articles in support of Kiran Bedi and Om Puri when they were threatened with privilege motions by members of Parliament for criticizing the government; and even wrote a celebratory article when parliament agreed to a “sense of the House” resolution agreeing to Anna Hazare’s three main demands.

I was even energized enough to compose a song in support of the Jan Lokpal movement and sing the song, which I wrote originally in Hindi (based on the Golmaal title song featuring Amol Palekar), and then translated into Tamil and Telugu as well.  And I was not even part of the India Against Corruption organization!  I was simply doing this on my own initiative, because I liked what they were doing.  (Just to clarify: I have never been part of the AAP either; all my support for either IAC or AAP has been from the outside.)

But today, I am writing to tell you that I do not support Arvind Kejriwal or the Aam Aadmi Party.  I will not vote for them.

What has changed in my view?  Why did a person, who has spent so much energy and passion supporting Anna Hazare, as well as Arvind Kejriwal and the others who formed the core of IAC and went on to form the AAP, decide they were not good for India’s future?  Read on to understand the reasons.

“Anti-Corruption” Does Not Make a Party

About a year after their highly-successful and visible anti-corruption campaign in August 2011, Team Anna completely disintegrated.  I have written in detail on how and why this disintegration happened in a summary article a year after the August 2011 protests.  Essentially, by this point, one year after their great success, the Anna movement had lost all steam, was unable to draw any crowds in their rallies; and their repeated fasts were losing their sheen, so much so that those involved in the fasts had to give excuses to terminate the fasts so as not to die an ignoble death.

While people were writing off the IAC as a footnote in India’s political history, Arvind Kejriwal sought to reinvent himself by transforming IAC into a political party, the Aam Aadmi Party.  I was not delighted by this development, as I felt they should focus on their core competency, which was to be a pressure group to achieve an objective, not a political party which required core competencies in several areas, for which they were not equipped.  As I wrote in my summary article on the IAC movement,

A movement can be based on a single issue; a political party cannot.  A political party HAS to have a position on every major issue facing the nation: foreign policy – whether to align with the US, with Russia, or China on any issue; what to do about our nuclear capability; whether to further implement the US-India nuclear agreement; whether to allow FDI in multi-brand retail; whether to take any action against the Sri Lankan government for attacking Tamil fishermen; whether to build roads in Arunachal Pradesh to match the Chinese level of development on the border; whether to implement more or less reservation in education and jobs; how to accelerate the pace of infrastructure building in the country; what kind of economic liberalization measures needs to be undertaken in the country; how to make Indian education more effective, and to create students who not only finish school, but actually possess skills in reading, writing, and arithmetic; how to effectively realize the benefits of India’s demographic dividend; how to eliminate the corrosive effects of casteism in India and to truly raise the living conditions of the poorest of the poor; how to resolve the border conflicts with Pakistan and China; and a hundred other such crucial and pressing issues.

Team Anna neither has the experience nor the ability to deal with most of these issues.  The key attribute of most of their principals, as has already been highlighted above, was an unassailable integrity.  While they were great leaders in a campaign for probity in public life, it would be too much to expect them to have answers to all these questions.

Inflexibility and an Inability to Achieve Consensus

Another reality about the IAC/AAP people that I had begun to notice after a year of following them was that they were not willing to accommodate diversity of opinion.  This had been pointed out quite early in the movement’s history, as far back as August 2011, by commentators, but I was too taken in by the movement’s dynamism to take those criticisms seriously.  In fact, I wrote a rebuttal to it in my very first blog article, on the “misinformation in the media about the Anna Hazare movement”:

Anna's proposed Jan lokpal bill has been out in the open for 8 months.  The reasoning behind the bill has been publicly explained by them and debated all this time.  The bill has received intense scrutiny and discussion in the media over this time and the team has received 1300 suggestions from various people that they have incorporated into it, according to Arvind Kejriwal who stated this in an interview on TV with Karan Thapar.  The current version of their jan lokpal bill, according to Arvind Kejriwal, is the 13th.  In contrast, how open has the govt's bill been?  Did they consult anyone except themselves?  It is clear to everyone except those who do not wish to see that Anna Hazare's people are open to valid criticism of their bill and are willing to change the draft if a valid objection to it is raised.

Arvind Kejriwal and Prashant Bhushan have made it clear in interviews on several TV channels that they are open to modifying the draft.  A debate in parliament, if conducted in good faith, taking Anna's bill as a base, and then modifying it suitably, will, I am sure, not be objectionable to anyone in the Anna camp.

Anna's public stubbornness should be seen for what it really is: a negotiating tactic.  I am sure he is willing to negotiate with the govt., but do you really expect him to announce that on national TV and reveal his hand when the govt has not made any conciliatory overtures?  But his team has made it clear that while they are willing to negotiate, the negotiation is about issues like implementation, etc., not about corruption or about leaving some people out of the ambit of the bill.  I think this should be viewed as reasonable; the aim of the lokpal is to eliminate corruption; how can you negotiate on corruption?  The govt. continues to be stubborn and sound like a stuck record; but I don't see commentators talking about how the govt. is behaving in a high-handed and dictatorial manner, and how it completely is ignoring the wishes of the people!

Sadly, I was wrong and the commentators I was rebutting were right.  Anna Hazare, Arvind Kejriwal, and the rest of the team made it clear, time and again, that they would accept ONLY their version of the Jan Lokpal; that any additions, omissions, or modifications suggested even by prominent social activists like Aruna Roy and Jayaprakash Narayan would not be acceptable to them.  I had high hopes that they would conduct a national debate on the Lokpal Bill and, in consultation with the other civic society members, present a unified bill that truly represented the views of the people in the interests of the people.  Anyone who raised an objection that the proposed Lokpal of the IAC might be too powerful for India’s good was immediately shot down as someone in cahoots with the corrupt politicians.

This same tendency carried over to the AAP that was born from the ashes of the IAC.  During the 49 days that Arvind Kejriwal was CM of Delhi, the party would not listen to any objection to any of its proposals.  It was always my way or the highway.

The Problem with the Basic Premise – the Genesis of Corruption

As I kept discussing these ideas with friends, reading more literature, and writing articles on the subject, one thing became clear to me – that first IAC, and then AAP, was mistaken in understanding the core issues of corruption and how it happens.  I realized that the Lokpal does not really address the root cause of corruption.  Let me explain this.

The root cause of corruption is discretionary power.  Politicians are able to demand bribes for decisions that they can take because they are entrusted with too much discretionary power.  The best way to remove corruption is to remove the discretionary power that lies with politicians.  

Asking for a Lokpal while allowing politicians to have discretionary power is akin to asking a wolf to guard sheep and then having a committee to punish the wolf after it has eaten a few sheep: you are asking to have a policeman to punish the erring wolf, but not solving the root problem, which is that you should never put a wolf in charge of guarding sheep.

In the same way, the resources of the nation should not be in the control of politicians.  Remove discretionary power, and the politicians cannot be corrupt even if they want to be.  As long as the government retains significant control of resources, they will continue to have discretion in how to use those resources.  The only way to remove their discretionary powers is to end their ownership of state resources.  In other words, privatize.

This will require large-scale disinvestment (at good market values) of most of India’s infrastructure, such as oil and gas, minerals and mining, ports, energy, railways, and the like.  Except for a few critical, national-security-related industries like defense, most industry needs to be privatized for government corruption to end.

In addition, even for things that need to be under the control of government, there are too many hoops for people to go through.  For a business to start in India, there are dozens of clearances that it has to obtain, and each clearance means a bribe to a different officer.  This maze of regulations needs to be greatly simplified – and a Lokpal will not solve it.

This does not mean that there should be no regulations.  There should be regulations, but they should pertain to performance, not permits; and they should be streamlined.  For example, if someone wishes to set up a power plant, they should not have to submit a proposal and hope for a subjective approval; instead, the guidelines for a power plant should be openly and clearly published on a website – what kind of environmental impacts are allowed, what kind of resources can be granted, and so on, and if an agency wishes to set up a power plant, all that should be needed is a check that they have fulfilled all the necessary requirements, which does not even need to be done by the government itself, but by a third party regulator – in the same way that the government itself does not scrutinize the balance sheets of companies – that job is done by independent auditors like KPMG or E&Y.  The role of government should be limited to setting the standards and nothing more.  This will eliminate government corruption in one fell swoop.

Further, the Lokpal will put a much greater strain on the already-overloaded judicial system of India, which has arrears of decades.  Indian courts are poorly staffed and even high-profile cases like the 1993 Mumbai blasts take 20 years to be decided – and that is a case where 350 people died.  So the demand for a Jan Lokpal is poorly thought through, and there are more effective remedies for corruption.

It certainly isn’t worth giving up elected office for.

Hit-and-Run Politics and U-Turns

Having formed the Aam Aadmi Party, Mr. Kejriwal, in an attempt to stay in the limelight, publicly proclaimed that he would expose the corruption of the major parties.  One week one heard that he had exposed the illegal land deals of Robert Vadra, the son-in-law of Congress President Sonia Gandhi, in Haryana and Rajasthan; another week one heard that he was exposing the illegal affairs of Nitin Gadkari, at the time the BJP President, in diverting water meant for poor farmers to rich industrialists; a third week he would talk about Union Minister Salman Khurshid embezzling funds from his trust where he supposedly donates free wheelchairs; and the fourth week one heard that he was exposing industrialist Mukesh Ambani for corruption in gas pricing.  In none of the cases did he stay the course long enough for an investigation to be completed and the accused to be proclaimed guilty.  For all the allegations, Mr. Kejriwal did not even press a single criminal case.  The popular perception was simply that he was doing all this to stay in the limelight.  The impression was firmly that of a dilettante rather than a serious politician.

In addition, Mr. Kejriwal, whose IAC had been on fairly friendly terms with the BJP when he was associated with Anna Hazare, suddenly developed a severe antipathy for the BJP when he had formed the AAP.  Although initially he stuck to the script and said that both national parties were corrupt, the anti-Congress talk quickly evaporated and all criticism was directed at the BJP.

As if this were not enough, the man who had made his political life on the basis of an anti-corruption campaign suddenly started claiming that corruption was now a secondary concern and that the primary focus of the AAP should be fighting communalism, a veiled reference to the BJP, whom he was accusing of being communal.

In line with this changed focus were several photo-ops, wherein Kejriwal was seen with fundamentalist Muslim clerics, praying at mosques, and circulating pamphlets exhorting the Muslim community in Delhi to vote for the AAP, for which Mr. Kejriwal was pulled up by the election commission for model code violations.

This sudden change in emphasis was extremely puzzling to most people and gave them the impression that Mr. Kejriwal was as opportunistic a politician as the ones he liked to criticize.

The Delhi Fiasco

Despite all these misgivings about the AAP and their central election plank, viz., the Jan Lokpal Bill, I was still optimistic when the AAP actually won 28 seats in the Delhi assembly polls and were offered the chance to form a government in Delhi.  Despite my understanding of their past inflexibility, as discussed above, I still had hope that they would see their mission as broader than just the Jan Lokpal bill; that they would understand why a state like Delhi could benefit greatly from people who are genuinely interested in doing good; and that Lokpal bill or not, here was a chance to demonstrate to the world how clean, good governance was achievable in India.  There was some drama about this, and I wrote with much concern at the time, urging the party to take up the reins of power in order to make a difference – with a warning that failure to do so would doom them to irrelevance, much as failure to take the best offer from the UPA government at the height of the IAC’s influence doomed it to irrelevance.

To my relief, the AAP agreed to take up governance in Delhi.  I was, by this time, not a big fan of the party, because of various pro-socialist statements from key people in their party – recall that I believe socialism is a pathway to corruption as it strengthens the discretionary powers of the state – but I still wanted them to succeed in Delhi to set an example for the entire country as to how a clean administration can deliver.

Unfortunately, the AAP disappointed again.  In their brief, 49-day government, the party preferred to court controversy rather than focus on serving the people.  Their manifesto talked about issues for which they needed support from the Congress and BJP parties, as well as issues over which they needed no support whatsoever.  Examples of the former were a demand to have the law-and-order framework entirely under the control of the Delhi state government and the passage of the Jan Lokpal bill.  Both of these required the central parliament to act in cooperation with the Delhi government, and the AAP government did not get the necessary cooperation.

But they knew that this was the case when they assumed power – that they could not expect a lot of cooperation from either of the national parties, especially on matters which needed to be settled in the Lok Sabha (powers of the Delhi state, for example.)  There were still a lot of issues on which a clean and sincere government could do much, and the AAP started a lot of initiatives, but was unable to complete anything because they ruled for so short a time.  For instance, an initiative they undertook was to try to make arrangements for homeless people to sleep in a makeshift shelter during the harsh Delhi winter.  This is a laudable initiative, and had the AAP government stayed its course, it might have well been able to deliver.

Another initiative floated by the AAP was to provide toilets in all public schools and to increase the number of schools.  A third initiative was to rationalize the price of water and electricity, for which they promised to conduct an audit of the utilities to determine if corruption had been occurring, and if so, what would be the correct pricing for these utilities.

While these were all worthy initiatives, and I wish the AAP had pursued a lot more of these, they quit within 49 days over the fact that they did not get cooperation in passing their pet Jan Lokpal bill.  Immediately after the bill was defeated, Kejriwal announced that he was quitting the government.  The same inflexibility they had shown earlier was continuing to dog them.

Mr. Kejriwal announced his party’s resignation from power without so much as a thought for the millions who had backed him.  In particular, he had exhorted people in Delhi to not pay electricity dues, arguing that the rates people were being charged were too high, and that when he came to power he would see to it that the rates were revised down with retroactive effect.  About 24,000 people defaulted on their bills as a result of his exhortation.  Well, he did come to power, and he did reduce the rates, which in itself was controversial, because it meant that only those who had supported him availed of the subsidy – clear nepotism and a violation of equality under the law – and attracted widespread criticism.  The move was also criticized as financially irresponsible because it was not based on any careful financial analysis but populism.  The final goof-up in this massive exercise in stupidity was that he did not make any provision for the Rs. 6 crore subsidy in Delhi’s budget, as a result of which the subsidy lapsed.

For me, personally, Kejriwal's resignation was the straw that broke the camel’s back.  Here was an opportunity to do so much for a city state like Delhi, and here were people who were willing to give up ALL this for one single issue.  That was what proved to me that this was an impractical bunch of people who could never achieve anything – never, at any rate, as long as Mr. Kejriwal was their leader.

Whenever I walk around Mumbai, or Pune, or Bangalore, or any other city I have either lived in or visited, I think of how much I could do to change the place if only I had the authority.  How, even if I had a portfolio generally considered “unimportant,” such as tourism, I could make a difference.  For instance, when I visited Delhi a few years ago, I had the chance to visit Humayun’s tomb, a world heritage site.  For all its billing, the site had very little help for the tourist.  There was very little signage telling you what you were looking at.  I remember how tourist sites in the west are so well-developed.  As I was standing in Humayun’s tomb, I was thinking of all the things I could do to make it a truly world-class tourist site.

And this is just about one small, fairly unimportant issue – but something that can have a huge domino effect.  Think of all the things one can do to make things better when one has control of an entire city-state – schools, public transport, water, electricity, food supply, hygiene, hospitals – the list is endless.  The AAP had that power and control.  They chose to throw away this opportunity on this single prestige issue.  That is what tells me these people – and especially their leader, Arvind Kejriwal – are not serious about providing good governance.  And I would never entrust such a party with the affairs of the entire country when they cannot manage to run a city.

Mr. Kejriwal seems more concerned about grandstanding and about winning seats in the Lok Sabha.  In a recent debate on facebook, one of their party volunteers proudly informed me that “quitting Delhi was a planned strategy and well-scripted.”  I asked him if they had told the people of Delhi about their plan to quit the administration within 2 months if elected.  Had they told them this truth, would they have gotten their 28 seats?  This shows that the AAP betrayed the people of Delhi; that they never had any intention to govern if elected, but were only using the Delhi election as a springboard to the national elections.

By acting in these ways, the AAP has proved that it doesn’t embody a different kind of politics, as they have been claiming all along.  They are (at least their leaders are) as cynical as the worst political party, and their so-called “sacrifice” of power in Delhi was simply a gambit to get more power at the national level.  Their leaders are as power-hungry as those from the worst political party, and the mask of righteousness has finally been torn off their face.

Concluding Thoughts

The citizen’s movement that started with Anna Hazare’s “Indian Monsoon” movement in August 2011 has run its full course.  The movement began well, and had the salutary effect of awakening the Indian citizen to the awareness that he or she needed to be actively engaged in the politics of the nation; that he or she could not blindly entrust the politics of the nation to its politicians and simply vote once in 5 years and expect things to be fine.  The citizen has to be an active participant in the politics of the nation.  This realization is certainly a strong positive outcome of the movement of Anna Hazare.

However, the party that has sprung from this movement, the Aam Aadmi Party, has failed the people.  The party has betrayed both the people of Delhi who elected it to power, as well as its own volunteers, many of whom left lucrative jobs in a spirit of service to do good for the nation.

I don’t believe, however, that the idea of the AAP is dead.  The idea that the common people of the country should get together to form honest parties that aim to do good for the country has now been established as a credible alternative reality.  Unfortunately, this particular incarnation of the idea has failed, due to flawed, egotistical, and obstinate leaders like Mr. Kejriwal who have put their own ego ahead of the well-being of the party.

There is no reason why a different incarnation of a people’s party, composed of ordinary Indians unconnected with political parties and big money, should not work.  We should be thankful to the AAP that it showed that one can win an election without being well-connected and well-funded, and can still win 29% vote share in an election such as the Delhi assembly.  They have broken new ground and shown people that this is possible.

However, two important requirements have been shown to be very essential by the experience of the AAP, and any future party should clarify these before engaging in a similar endeavour as the AAP. 

One of the major flaws of the AAP is that they were a single-issue party that was only concerned about corruption.  Any viable political party should have a detailed internal manifesto on all major issues that all party members must be in agreement on – religious affairs, economic direction, industrial policy, defence, urban development, natural resources, environment, and the like - else there will be conflict on the party direction.  The AAP’s brief history clearly illustrates the importance of such an internal manifesto.  Having such a manifesto would have prevented embarrassments like Prashant Bhushan shooting off his mouth on Kashmir.

The second requirement is the need for educated followers of a new party like the AAP to be independently aware – to study issues independently, and to form their own opinions.  One of the signal flaws that I noticed in the party was that most of the people were simply following the leader, viz., Kejriwal.  They had little independent thought, and were simply parroting their leader’s statements on facebook and twitter.  How different is this from the hundreds of illiterates who follow a Lalu Prasad Yadav or a Mayawati?  Most of the AAP volunteers are educated; but this education seems to have done little to awaken their own desire to be informed participants of a democracy and a democratic party.  Unless Indians start to think independently, the future is bleak.  It is time to get rid of your intellectual laziness; otherwise, just as your father’s generation was exploited by leaders like Lalu, Nitish, and Mayawati, your generation will be exploited by self-servers like Kejriwal.

It might seem to you that I am writing the obituary of the Aam Aadmi Party.  If so, you would not be mistaken.  I don’t expect this party to be viable for much longer after the general election.  But the death of the AAP might well be the start of a new beginning.  The countless volunteers who have supported this party and contributed to its growth will not quietly fade away.  Their desire for a better India will find a new, and hopefully a less egotistic and a more coherent voice for expression.  It is a vision one earnestly hopes does translate one day into a reality.

Sunday, 6 April 2014

The Case for Free Markets in India: Part 1. Introduction

The Case for Free Markets in India

Part 1. Introduction

Written by Dr. Seshadri Kumar, 06 April, 2014

Copyright © Dr. Seshadri Kumar.  All Rights Reserved.

For other articles by Dr. Seshadri Kumar, please visit http://www.leftbrainwave.com

Disclaimer: All the opinions expressed in this article are the opinions of Dr. Seshadri Kumar alone and should not be construed to mean the opinions of any other person or organization, unless explicitly stated otherwise in the article.

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Abstract

Socialism, India’s current economic system, has failed India in its 67 years of independent existence.  India must rapidly move towards free-market systems in every aspect of its economy to avoid sliding into a disastrous abyss.  I present the evidence for these assertions in the form of a 12-part series.

In this first part, that sets the stage, I discuss the economic choices followed by India since independence, and what they imply for the direction in which the economy is being shepherded in.  In subsequent parts I will discuss the real impact of this direction on different sectors of the economy and explain why this direction is injurious to the long-term prosperity of India.

Executive Summary

India is currently reeling from some of the worst economic shocks in recent years, and people are desperate for things to improve.  Things have not yet hit rock bottom, but there is every danger of that happening unless rapid course correction is made.  The economic policies of the last 67 years, and particularly of the last five years, have taken a huge toll on the country and its productive energies.

The 2014 Indian general elections are about to begin, and a new government will most likely take over after May 16th, when counting ends for the world’s largest democratic exercise.  The politicians who will govern India after May 2014 have some tough economic choices to make.

Do they want to go back to the socialism that kept India from growing for 50 years and still prevent it from reaching its true potential, or do they want to go with market-based, industry-friendly policy that can take India to double-digit growth and great prosperity?  People, and particularly leaders, need to understand that those are key issues facing India today. 

To change course, they must be convinced that the policies of the past are a mistake.  It is my hope that this document will help them see that and decide on better courses of action than have been taken in the past.

To realize this, Indians need to understand what their economic choices are.  Rather than present a theoretical exercise on whether market economics or socialism is better for India, I propose to deal with the results.  We have the results from 67 years of a socialist economy, and we can readily determine how that has worked out for us by looking at the results.  With a view to understanding the impact of socialism on the Indian economy, I analyze ten key sectors:

1.       Roads
2.      Hospitals
3.      Power Generation and Electric Supply
4.      Water Supply
5.      Telephones
6.      Railways
7.      Public Transport
8.     Defence
9.      Agriculture and Food Sufficiency
10.  Education

Each of these sectors is analyzed in detail, and the consequences of government mismanagement of these areas are shown, and suggestions are given as to how the state of affairs can be remedied.

The conclusion from analyzing these metrics is that India needs to move rapidly towards a system in which the government is either absent or is minimally present in each of these areas.

The analysis presented here is apolitical; the focus is on the economic systems that India must adopt.  Political parties are mentioned only in the context of their support for certain policies.  A certain criticism of the incumbent Congress Party is inevitable, as they have held power for most of India’s independent history since 1947, and therefore must necessarily shoulder most of the blame for the shortcomings of the economic models they have followed.

Introduction

India celebrated its 67’s birthday on August 15, 2013, with some rather sobering reminders: the Indian rupee was at its lowest-ever level with respect to the dollar; current foreign exchange reserves were only 6-7 months worth; foreign investment in India was fast drying up; corruption was all-pervasive after the last few years in which no sector has been spared, from mining to telecommunications to sports; Goldman Sachs had recently downgraded Indian stocks to underweight, joining Fitch and Standard and Poor in doing the same; foreign companies viewed the Indian government as arbitrary and unreliable after the Vodafone saga, where the government tried to change/interpret the law retroactively in order to make Vodafone liable for taxes payable to the Indian government in the Hutchinson Essar-Vodafone telecommunications deal; the country’s GDP growth rate had slipped from near 9% a few years ago to below 5%; India’s current account deficit was at a very high level, of nearly 5% of GDP; inflation was seemingly out of control, with onions selling at nearly Rs. 80 a kilogram; Indian industrial magnates had stopped new projects in India and were moving abroad for business expansion; and many high-profile industrial projects had been stopped dead in their tracks owing to problems in land acquisition and protests from villagers.

The government seemed rather stunned by the state of affairs, and was trying to fight fires by emergency measures.  Recognizing that such a low level of foreign exchange reserves is dangerous, the government tried to bar imports of gold (India is the largest importer of gold in the world) and tried to control spending of foreign exchange by individuals and corporates, a move that could backfire as it could further decelerate economic growth for Indian companies by denying them growth opportunities overseas after souring the economic climate within India.

The people of India, both lay and economist alike, were and are highly concerned with this state of affairs.  The government’s knee-jerk responses, such as restricting gold imports, or denying foreign exchange to individuals and corporates, not only will not solve the immediate problem (an indication of this is the fact that in spite of the government limiting the imports on gold, Indian people are buying even more gold, leading to a steep hike in the price of gold), but they miss the root of the problem, which is the economic system itself.  The fact is that India is still strongly wedded to an inefficient, leaky, and corrupt socialist system and, unless this is significantly dismantled and replaced by a true free-market system, prosperity will always remain an elusive dream for Indians.

Some of the woes I have listed above might be short-term, and the reader can be forgiven for thinking that I, too, am responding in a knee-jerk manner to macroeconomic fluctuations by condemning the entire economic system.  However, that is not my intention.  Therefore, condemn the current economic system of India I surely will, but not based on the woes that are currently afflicting the nation.  I view these woes as only symptomatic of a larger malaise affecting the nation.  To prove my hypothesis, I propose to look at the integrated effect of pursuing socialist policies for the last 67 years and show how those policies have ruined India and prevented it from rising to the ascendancy it richly qualifies for, when one considers the immense human capital present in this country.

The Socialist Economic Vision of the Congress Party

The ruling Congress party has strong socialist ties.  It was during the rule of the Congress party under Mrs. Indira Gandhi that the Indian Constitution was amended to describe India as a “socialist, secular republic.”  It was under Congress rule that India adopted what was popularly known as the “license Raj,” a term that connotes strong state control of all aspects of the economy.  The term “license Raj” arose from the fact that to conduct any economic activity, a large number of licenses and permits had to be obtained from a range of government offices and ministries; and even then, one could only produce what was allowed, where it was allowed, and how much was allowed by the government.  All this changed overnight when, at the point of a gun (metaphorically speaking), India was forced to liberalize its economy in 1992 under the prime ministership of PV Narasimha Rao of the Congress party.  However, the last 10 years of Congress rule have been marked by a strong move to return control of the economy to the state.

The alliance of the present Congress government and its allies, known as the United Progressive Alliance (UPA) that is governing the country today, is headed by Mrs. Sonia Gandhi.  Her son, Mr. Rahul Gandhi, is currently the second-most important person in the party and is the vice-president of the party.  It is instructive to understand the economic philosophy of the party by analyzing one of the rare instances that Mr. Gandhi spoke to a conference of business leaders, the Confederation of Indian Industry (CII), in April 2013.

I am reproducing below some extracts from this very important speech – a speech that gives clear insight into the thinking of Mr. Gandhi and the UPA (italics mine):

“What we have to do, what the government has to do, is: we have to improve the playing field and create an impartial, professional and rules-based governance system.  I’ve spoken to you about what we need to do to nurture this movement of people. I would also like to tell you about, what I feel, threatens this movement of people. What is it that we should worry about? What are the things that can go wrong? Lack of infrastructure is clearly one. Lack of knowledge infrastructure is another one. But for me the biggest danger is excluding of people. Excluding the poor, excluding the middle-class, excluding the tribals, the dalits and I’m going to tell you why.”

“Whenever we have not embraced the excluded – the poor, women, the minorities, the dalits, the tribals, we have fallen backwards.”

“What is the basic infrastructure? The basic infrastructure, as designed by the UPA, is the rights-based paradigm. Give everybody the basic minimum on a number of key ideas. Give them the basic minimum on the job front. Give them the basic minimum on the education front. Give them the basic minimum on information - which is what Nandan is doing. That is what we are trying to do with a rights-based approach.”

 “But the work our women do, the work millions of Indian women undertake every day, not poor ones, not rich ones, every single one of them. The work they do right now as we sitting here in this nice, AC hall: they are building not only our boats, they are the waves. And I for one will not speak of growth without speaking of them. Our economic vision must be about more than money. It must be about compassion. We must envision a future for India that leaves no man and no woman outside in the shadows.”

“Embracing the excluded is essential to the wealth of the nation. If we do not embrace them, we will all suffer. It’s very simple. In a democracy, the poor have a veto. And we have to carry the poor and the weak with us.”

Understanding the UPA’s Rights-Based Paradigm

What do all these words mean?  Let’s look at this carefully, understand the speech, and distil out its essence.  I have deliberately italicized important sentences in the extract above – let us focus on what those mean.

Rahul Gandhi (and the UPA he heads) believes in a rights-based paradigm.  The UPA does not want to leave anyone behind.  They understand that there are problems in the country – deficits, if you will – in infrastructure, education, nutrition, etc.  And how do they propose to solve these problems?  By using a “rights-based” approach.  What is this rights-based approach he is talking about?

Well, it is already in evidence in India.  Mr. Gandhi is talking about policies that the UPA has already implemented in UPA I & II and is continuing to implement. 

1.       One specific example is the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA), which is a “Right to Employment,” guaranteeing people in rural areas a right to an income, whether or not something productive is achieved with that income.  The point of the MNREGA (in practice) is not so much that useful work is done as it is to give a free handout to rural people in an attempt to directly alleviate poverty.  Given that poverty leads to immeasurable suffering, the aim is certainly noble.

2.      Another example of the “rights-based” approach is the Right to Education – the idea that every school should provide quality education to every child in the nation, so that no child is left behind.  Again, a noble idea and, in theory, what this should guarantee is a well-educated and literate population, which is highly desirable.

3.      A third example is the national mid-day meal scheme, which provides free, nutritious meals to children as an incentive for parents to send their children to school.  Again, a very good idea in principle.  The midday meal, ideally, saves money for the parents, compensates for the child not being used as a bread-winner, and provides a fundamental right – education – to children.

4.      Another, more recent example is the Food Security Bill, which is designed to provide free food to hundreds of millions (about 67% of the population) so that their basic nutritional needs can be met.  This seems like a highly desirable aim, considering that much of the country does not get proper nutrition.

Other rights-based schemes one could envision in a UPA-III would be

1.       The right to housing – after all, food, clothing, and shelter are defined as the necessities of life – in which each person of the republic is guaranteed free housing or housing at highly subsidized rates.  This would again be a noble endeavour – for who would want to see our fellow citizens suffer without a roof over their heads, whether in the monsoons, in the heat of Indian summers, or in the cold of North Indian winters?  (Note: when I wrote the draft of this article, this was just a hypothetical scheme I thought of by extrapolating the existing welfare schemes in operation.  However, I was surprised in February 2014 to see that the Congress party indeed has plans to implement exactly such as scheme if it comes to power again, which it calls the Right to Homestead Bill.)

2.      The right to free medical care.  Again, it is heart-breaking to see poor people suffer because they cannot afford medical care.  A government-funded program that would provide free medical care to all people below a certain income would guarantee that no one would suffer.  Of course, this is already present in large measure due to the existence of government hospitals, in which healthcare is practically free, but government hospitals are still too few and there are not enough of them for every Indian.  A tenfold expansion would be well-advised if no one is to be left behind.  (Note: Again, in the time that it has taken me to polish and finish this article, the Congress has, as in the case of the Homestead bill, promised to, in fact, enact a free healthcare bill if elected to power in 2014.)

3.      The right to free mobile telephony.  One can argue that in the modern age, being without a mobile telephone puts people at a serious disadvantage.  People may not be able to hail emergency services when a calamity occurs, or when a pregnancy is due, when a crime is committed, or when a serious health crisis such as a heart attack happens.  The resulting delay could mean the difference between life and death.  Providing everyone below a certain income (the richer people can, of course, afford to buy theirs with their own money) with a basic, no-frills mobile telephone will level the playing field for all Indians.

4.      The right to free computers and internet connections.  In this knowledge economy, not having a computer is being seriously crippled.  If someone has a school-going child at home and the child does not have a computer with an internet connection, he or she will be definitely backward compared to children from affluent families who have computers and internet connections.  The resulting disadvantage will put him or her in a backward state for his or her entire life and prevent him or her from ever raising his or her status in life. 
To a large extent, this is not a hypothetical scheme I am proposing – the government has already gone down this path with the development of the Akash tablet PC, which is to be distributed at very low prices to poor kids.  What would be a good idea to complement the distribution of Akash tablets would be free BSNL connections to all poor families so that their children could take advantage of the information superhighway.

One can go on and on, but I think you get the general idea of the rights-based paradigm.

What Could be Wrong with The UPA’s Vision?

On the surface of it, it is hard to come up with an objection to any one of these schemes.  After all, they speak to basic issues that we would all agree affect all of us.  None of us, except the most hard-hearted, would wish for someone to die because they had chest pains and did not have a mobile phone to call the ambulance; or want a pregnant mother to not get immediate medical care when she needed it; or see a brilliant child who might be the next Ramanujam end up washing dishes because he did not have access to a computer or textbooks; or want children to miss school because they couldn’t afford to feed themselves.
So why would I object to any of these ideas?

THEY DON’T WORK. 

And TODAY’S INDIA, 67 years after independence, is THE EVIDENCE.

The policies that the UPA is pursuing and is talking of continuing to pursue have been followed in India earlier.  In fact, ever since independence, India has followed these kinds of policies.  And their kind has a name.  It is called socialism. 

Our first prime minister, Jawaharlal Nehru, was enamoured of what he saw in the former Soviet Union before independence, and decided that he would commit India to similar policies as the USSR had implemented, so that India could also be a superpower like the USSR.  And thus began the cycle of five-year plans, a standard feature of socialist, planned economies.

Socialism did not work for India in the 45 years from 1947-1992.  In 1992, facing a balance of payments crisis, and under pressure from the IMF and World Bank, Prime Minister PV Narasimha Rao directed Finance Minister Manmohan Singh to liberalize the Indian economy.  Liberalization of the economy meant that the vise-like grip of the state on all aspects of the economy had to be loosened and the private sector was encouraged to play a larger role in the economy.  This led to a boom in the private sector in India. 

Figure 1 shows how the Gross Fixed Capital Formation (GFCF), a measure of new investment in the economy in the form of fixed assets, has varied over the years (measured as a percentage of GDP).  The graph shows two curves: one showing how much the total GFCF was as a percentage of GDP; and another showing how much the contribution of the private sector was.  This was obtained from World Bank data.  Clearly, both have risen over the years, which is to be expected as the economy has been growing.  There is a disturbing decrease in GFCF, both public and private, since 2007, that is a sign of a troubled economy.  More specifically, it is a sign of stagnation in an economy that still has a lot of room to develop.

Figure 1. Variation in Gross Fixed Capital Formation Over the Years

What is more illuminating is to see what percentage of the total GFCF is contributed by private investment, and Figure 2 shows this percentage. From a value of 60% in 1992, at the start of liberalization, this rose to nearly 76% by 2004.  Since then there has been no rise in the relative role of private investment.  For instance, in the 5 years of 1999-2004, the relative percentage of new fixed capital investment contributed by the private sector rose from 71.4% to 75.9%.  What this means is that 75.9% of all new fixed capital investment that happened in 2004 was contributed by the private sector, as opposed to only 60% in 1992.  This rise in the role of the private sector has led to remarkable increases in the standard of living of the ordinary Indian.  In the 8 years from 2004-2012, the private sector's percentage in the GFCF has actually dropped from 75.9% to 74.9%. 

Figure 2. Percentage of Private Gross Fixed Capital Formation Over the Years

It is important to understand that even though the GFCF tells us that 75% of all NEW fixed capital investment comes from the private sector, the 45 years of 1947-92 have left us with a huge base of government investment in industry.  India’s economy is still heavily dominated by the government.  To really significantly lower the role of government in the economy, two things need to be done: aggressive disinvestment of government assets, such as coal mines, ports, steel plants, oil refineries, and the like; and increasing the percentage of private GFCF much beyond even the current value of 75%.  However, for the past 10 years this has been stagnant, as can be seen in Figure 2.

The present UPA government (2004-2014) appears to have had a serious rethink on the role of the private industry.  Several of the initiatives discussed earlier seem to be targeted to increase the role of the state in the economy rather than decrease it.  For instance, the Food Security Bill that was passed in 2013 stipulates that 67% of all grain production will be purchased by the government at fixed prices, thus almost eliminating the role of the market.  Essentially, the focus appears to be to reverse the trend of privatization that was the hallmark of the economic policies of governments from 1992 to 2004, by now greatly enhancing the role of the government. 

How salutary is this proposed change to the Indian economy?  That is the question this series of articles attempts to answer.  To know the answer to this question, all we need to do is look at the present, and see what the net effect of big government in the economy from 1947 to the present has been on India’s economy.

To do this, I present, in a sequence of articles, detailed analyses for 10 different sectors that are vital to the health of the country and its prosperity, and show how socialism has adversely affected the state of each of these aspects of India’s economy:

1.       Roads
2.      Hospitals
3.      Power Generation and Electric Supply
4.      Water Supply
5.      Telephones
6.      Railways
7.      Public Transport
8.     Defence
9.      Agriculture and Food Sufficiency
10.  Education

And, finally, I sum up the ideas discussed in this series in a concluding article.