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Reforms | March of the elephant

Reforms | March of the elephant
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First Published: Fri, Aug 12 2011. 08 25 PM IST

The numbers game: A cumulative result of economic reforms was the Sensex reaching 10,000 points for the first time within 20 years of its launch. Abhijit Bhatlekar/Mint
The numbers game: A cumulative result of economic reforms was the Sensex reaching 10,000 points for the first time within 20 years of its launch. Abhijit Bhatlekar/Mint
Updated: Fri, Aug 12 2011. 08 25 PM IST
On an unusually hot day in August 1990 in Al Ruweishid, I stood at the border crossing between Iraq and Jordan, where officials ignored trucks carrying goods to Iraq defying UN sanctions, paying close attention to the flow of poor Indians, Pakistanis, Palestinians and Egyptians entering Jordan. By law Jordan had to accept the men as refugees, but the officers were worried that these men would remain in Jordan, rather than return home.
That was India’s fate then. Indians would consider any country—even Jordan, with its vast stretches where nothing grew. Mother India simply could not feed everyone or create jobs for everyone. The good life was accessible to those who were born in the right family, became babus and accepted corrupt ways, secured permits, licences and prevented others from getting there, or became professionals. India was not where you hoped to prosper, but which many chose to leave. Parents scoured matrimonial ads looking for green card-holding suitable boys and girls. Everything was scarce—jobs, gas connections, foreign exchange, and telephone lines. Shopping lists Indians gave to their relatives returning from abroad included Toblerone chocolates, Pampers, sanitary napkins, and Marks & Spencer’s lingerie.
Businesses needed permission for everything and the state planned everything: how many safety pins can be made, who could make them, how large could that company grow, could it borrow, at what rate, and how many workers it could hire— firing them was out of question.
The numbers game: A cumulative result of economic reforms was the Sensex reaching 10,000 points for the first time within 20 years of its launch. Abhijit Bhatlekar/Mint
Meanwhile, the world changed. The fall of the Berlin Wall meant the market India took for granted—the Soviet bloc—ceased to exist.
Iraq’s invasion of Kuwait led to a sudden increase in oil prices, throwing India’s balance of payments in utter disarray. India had to pledge some of its gold reserves to the Bank of England to remain liquid. Such was the context in which Indian officials loosened controls and expanded economic freedoms. As a foreign correspondent in Singapore, I witnessed India’s sometimes charming, often clumsy, at times sincere, but also partly reluctant efforts to liberalize the economy. When elephants learn to dance, it isn’t always pretty; if it takes two to tango, in the early 1990s, investors wanted to know how sincere India was.
In 1993, at the end of a reception for India’s original reformer, prime minister P.V. Narasimha Rao, at the home of the Indian high commissioner in Singapore, some of us reporters were talking to some of India’s leading businessmen. Between them, they ran large businesses in cement, tractors, shipping, power transmission lines, and financial services. But instead of getting to meet the heads of Singapore’s leading companies— Keppel, Sembawang or Temasek Holdings—they were introduced to prominent traders from the local Indian chamber of commerce, with local businesses like Scotts Holdings, which was at that time Indian-owned, hosting receptions (a dozen years later, in Davos, the story was different: I saw some of the same executives mingling with the heads of the world’s largest corporations, who were queueing up to shake hands with Palaniappan Chidambaram, then the finance minister).
In 1992 in Singapore, the flavour of the month was Vietnam, whose reforms, called doi moi, had excited investors. Overseas Chinese businessmen put money in China, in spite of 1989’s Tiananmen Square massacre. A leading Singaporean-Indian businessman even called himself “a chocolate Chinaman”, lest he be mistaken for an Indophile. It was in such an environment that Indian businesses sought investors’ attention. India was unpredictable; it was stodgy and bureaucratic. N. Vittal, at that time India’s secretary in the department of electronics, told investors: “We used to tie you up with red tape; now we are rolling out the red carpet.” He encouraged Singaporean companies and Singapore-based multinationals to hire more Indians, saying: “Brain drain is better than brain in the drain.”
Visiting Indian executives had to measure every penny before spending it. Once, two executives from a leading Indian company were forced to share a hotel room because unexpectedly they had to foot a steep bill for dinner with a client, and they ran short of foreign exchange, and their credit cards were valid only in India and Nepal. To that, add memories of Coca-Cola and IBM leaving India in 1977, Swadeshi Jagran Manch’s attacks on foreign investment (“India is a country, not a market”). Had India really changed? Was India a reluctant bride?
But the reforms Rao and his finance minister Manmohan Singh initiated, uncaged the tiger. Unleashed, the economy’s dynamism changed old rules. The pecking order of India’s leading companies changed. In 1993, when I did a story on Indian companies in Bangalore to watch out for, I had mentioned Biocon and Infosys, neither of which was even a $10 million (around Rs 44 crore now) company. Over that decade, Indians moved from being code maintainers, Y2K fixers, and phone conversationalists at outsourcing centres, to devising information technology strategy; executives at multinationals stepped up from being vice-presidents to chief executive officers. Jobs that never existed opened up, like Indian teachers tutoring American children online, Indian medic assistants making medical transcripts. And Indian companies expanded abroad. Stephen Roach of Morgan Stanley would observe that unlike in China, Indian malls had consumers, not gawkers, and the consumers were Indians, not foreigners.
While that boom was real, what about the tribals in Chhattisgarh, and the Vidarbha farmers? Weren’t they being left behind? Indeed, many were—but it was not a consequence of reforms; reforms were bypassing them. Confusing coincidence, or correlation for causality, some critics said their real plight was because of liberalization. But India had always dispossessed and ignored tribals who were bullied by the state.
Did inequality worsen? But it would: Simon Kuznets’ seminal curve shows how income inequality worsens initially as a country grows, but over time inequality decreases. Inequality is bad when it is the result of imbalances designed to deny opportunity to those who lack them. While the Gini coefficient, which measures inequality, worsened between 1993 and 2005, the difference—from 0.30 to 0.32 overall, and from 0.28 to 0.29 in rural India (from 0.34 to 0.37 in urban India)—suggests that the impact was less severe than what critics made out.
The great development challenge is to extend the dynamism of liberalization to those denied access and equal opportunity. That does not make accounts of horrendous poverty suspect, nor does it make the suicides of farmers any less tragic. But think of this: In 1991, 35.8% of India’s 846 million people, or about 300 million people, lived on less than one dollar a day, the measure economists use to define absolute poverty. Ten years later, the figure dropped to 27.5%. By 2006, with India’s population at 1.02 billion people, it meant there were 270 million people living in absolute poverty. In the intervening years, when India added 156 million people, those living in absolute poverty fell by 30 million. Had the poverty rate remained 35.8%, there would have been 365 million poor. The economy lifted 95 million people out of absolute poverty.
Stocks rose higher. The Sensex reached 10,000 for the first time within 20 years of its launch—perhaps the fastest such growth for any major index worldwide. With exports, foreign reserves rose, making it easier for Indian businesses to borrow hard currency and acquire businesses abroad. Ranbaxy’s early investments were followed by Tata, Mahindra, and Bharti Airtel, and Tata’s British assets now include Tetley Tea, Jaguar Land Rover, and Corus Steel. Earlier this year, Ratan Tata shocked the delicate sensibilities of British establishment by complaining about the lazy work culture of British middle management.
India’s rise will bother many. When Lakshmi Mittal wanted to buy Arcelor, its then chief executive Guy Dolle ridiculed Mittal’s aspiration, saying that Arcelor made perfume, but Mittal only offered cheap eau de cologne. A few weeks later Mittal owned Arcelor.
As India tries to reclaim its erstwhile predominant position in the global economy, it has the opportunity to show that economic and political freedoms can go hand-in-hand; that to grow you don’t have to be authoritarian, and democracy doesn’t hinder wealth. That might sound false to those still in awe of China. But India is not China, and that’s worth celebrating.
Write to lounge@livemint.com
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First Published: Fri, Aug 12 2011. 08 25 PM IST
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