Silver Jubilee of “Pricing, Planning & Politics: A Study of Economic Distortions in India”

May 29 2009:

It is a quarter century precisely today since my monograph Pricing, Planning and Politics: A Study of Economic Distortions in India was first published in London by the Institute of Economic Affairs.

ppp1984

Its text is now available (in slightly rough form) at this site here.

Now in May 1984, Indira Gandhi ruled in Delhi, and the ghost of Brezhnev was still fresh in Moscow.   The era of Margaret Thatcher in Britain and Ronald Reagan in America was at its height.   Pricing, Planning & Politics emerged from my 1976-1982 doctoral thesis at Cambridge though it came to be written in Blacksburg and Ithaca in 1982-1983.   It was the first critique after BR Shenoy of India’s Sovietesque economics since Jawaharlal Nehru’s time.

The Times, London’s most eminent paper at the time, wrote its lead editorial comment about it on the day it was published, May 29 1984.

londonti

It used to take several days for the library at Virginia Tech in Blacksburg to receive its copy of The Times of London and other British newspapers.    I had not been told of the date of publication and did not know of what had happened in London on May 29 until perhaps June 2 — when a friend, Vasant Dave of a children’s charity, who was on campus, phoned me and congratulated me for being featured in The Times which he had just read in the University Library.  “You mean they’ve reviewed it?”  I asked him, “No, it’s the lead editorial.” “What?” I exclaimed.  There was worse.  Vasant was very soft-spoken and said “Yes, it’s titled ‘India’s Bad Example'” — which I misheard on the phone as “India’s Mad Example”  😀

Drat! I thought (or words to that effect), they must have lambasted me, as I rushed down to the Library to take a look.

The Times had said

“When Mr. Dennis Healey in the Commons recently stated that Hongkong, with one per cent of the population of India has twice India’s trade, he was making an important point about Hongkong but an equally important point about India.   If Hongkong with one per cent of its population and less than 0.03 per cert of India’s land area (without even water as a natural resource) can so outpace India, there must be something terribly wrong with the way Indian governments have managed their affairs, and there is.   A paper by an Indian economist published today (Pricing, Planning and Politics: A Study of Economic Distortions in India by Subroto Roy, IEA £1.80) shows how Asia’s largest democracy is gradually being stifled by the imposition of economic policies whose woeful effect and rhetorical unreality find their echo all over the Third World.   As with many of Britain’s former imperial possessions, the rot set in long before independence.  But as with most of the other former dependencies, the instrument of economic regulation and bureaucratic control set up by the British has been used decisively and expansively to consolidate a statist regime which inhibits free enterprise, minimizes economic success and consolidates the power of government in all spheres of the economy.  We hear little of this side of things when India rattles the borrowing bowl or denigrates her creditors for want of further munificence.  How could Indian officials explain their poor performance relative to Hongkong?  Dr Roy has the answers for them.   He lists the causes as a large and heavily subsidized public sector, labyrinthine control over private enterprise, forcibly depressed agricultural prices, massive import substitution, government monopoly of foreign exchange transactions, artificially overvalued currency and the extensive politicization of the labour market, not to mention the corruption which is an inevitable side effect of an economy which depends on the arbitrament of bureaucrats.  The first Indian government under Nehru took its cue from Nehru’s admiration of the Soviet economy, which led him to believe that the only policy for India was socialism in which there would be “no private property except in a restricted sense and the replacement of the private profit system by a higher ideal of cooperative service.”  Consequently, the Indian government has now either a full monopoly or is one of a few oligipolists in banking, insurance, railways, airlines, cement, steel, chemicals, fertilizers, ship-building, breweries, telephones and wrist-watches.   No businessman can expand his operation while there is any surplus capacity anywhere in that sector.  He needs government approval to modernize, alter his price-structure, or change his labour shift.  It is not surprising that a recent study of those developing countries which account for most manufactured exports from the Third World shows that India’s share fell from 65 percent in 1953 to 10 per cent in 1973; nor, with the numerous restrictions on inter-state movement of grains, that India has over the years suffered more from an inability to cope with famine than during the Raj when famine drill was centrally organized and skillfully executed without restriction. Nehru’s attraction for the Soviet model has been inherited by his daughter, Mrs. Gandhi.  Her policies have clearly positioned India more towards the Soviet Union than the West.  The consequences of this, as Dr Roy states, is that a bias can be seen in “the antipathy and pessimism towards market institutions found among the urban public, and sympathy and optimism to be found for collectivist or statist ones.”  All that India has to show for it is the delivery of thousands of tanks in exchange for bartered goods, and the erection of steel mills and other heavy industry which help to perpetuate the unfortunate obsession with industrial performance at the expense of agricultural growth and the relief of rural poverty.”…..

I felt this may have been intended to be laudatory but it was also inaccurate and had to be corrected.  I replied dated June 4 which The Times published in their edition of  June 16 1984:

timesletter-11

I was 29 when Pricing, Planning and Politics was published, I am 54 now. I do not agree with everything I said in it and find the tone a little puffed up as young men tend to be; it was also five years before my main “theoretical” work Philosophy of Economics would be published. My experience of life in the years since has also made me far less sanguine both about human nature and about America than I was then. But I am glad to find I am not embarrassed by what I said then, indeed I am pleased I said what I did in favour of classical liberalism and against statism and totalitarianism well before it became popular to do so after the Berlin Wall fell. (In India as elsewhere, former communist apparatchiks and fellow-travellers became pseudo-liberals overnight.)

The editorial itself may have been due to a conversation between Peter Bauer and William Rees-Mogg, so I later heard. The work sold 700 copies in its first month, a record for the publisher. The wife of one prominent Indian bureaucrat told me in Delhi in December 1988 it had affected her husband’s thinking drastically. A senior public finance economist told me he had been deputed at the Finance Ministry when the editorial appeared, and the Indian High Commission in London had urgently sent a copy of the editorial to the Ministry where it caused a stir. An IMF official told me years later that he saw the editorial on board a flight to India from the USA on the same day, and stopped in London to make a trip to the LSE’s bookshop to purchase a copy. Professor Jagdish Bhagwati of Columbia University had been a critic of aspects of Indian policy; he received a copy  in draft just before it was published and was kind enough to write I had “done an excellent job of setting out the problems afflicting our economic policies, unfortunately government-made problems!”

Siddhartha Shankar Ray told me when  we first met that he had been in London when the editorial appeared and had seen it there; it affected his decision to introduce me to Rajiv Gandhi as warmly as he came to do a half dozen years later.

Within a few months though, by the Fall of 1984, I was under attack by the “gang of inert game theorists”  who had come to  Blacksburg following the departure of James Buchanan.  By mid 1985 I had moved to Provo, Utah, really rather wishing, as I recall,  to have left my India-work behind me.  But by late 1986, I was at the University of Hawaii, Manoa, where the perestroika-for-India and Pakistan projects that I and WE James led, had come to be sponsored by the University and the East West Center.

The unpublished results of the India-project reached Rajiv Gandhi by my hand on September 18 1990 as has been told elsewhere.  A week later, on September 25 1990,  Rajiv appointed a small group that included myself, to advise him.  It was that encounter with Rajiv Gandhi that sparked the origins of the 1991 economic reform.  Yet in 2007 one member of the group, declaring himself close to Sonia Gandhi, brazenly lied in public saying it was Manmohan Singh and not I who had been part of the group — a group of which I had been in fact the first member!  Manmohan Singh himself has never claimed to have been present and in fact was not even in India at the time it was formed.

I have explained elsewhere here why I believe this specific  lie  came to be told by this specific liar who shared membership with me in the group that Rajiv had formed:  because I had also pleaded with  many and especially within this group that Rajiv had seemed, to my layman’s eyes, very vulnerable to assassination, and none of them had lifted a finger to  do anything about it!  Such is how duplicity, envy and greed for power make people mendacious and venal in politics!

As for Pricing, Planning and Politics, Dr Manmohan Singh received a personal copy from my father whom he had long known through the Kaul brothers, Brahma and Madan, both of whom were dear friends of my father since the War and Independence.   From a letter Dr Singh wrote to my father,  he would have received his copy in late 1986 when he was heading the Planning Commission in his penultimate appointment before retirement from the bureaucracy.

Readers of Pricing, Planning and Politics today, 25 years after it was published, may judge for themselves what if any  part of it may be still relevant to the new government that Dr Singh is now prime minister of.   The work was mostly one of applied microeconomics or the theory of value; in recent years I have written much also of applied macroeconomics or the theory of money as it relates to India.  My great professor at Cambridge, Frank Hahn, was kind enough to say in 1985 that he thought my “critique of Development Economics was powerful not only on methodological but also on economic theory grounds”; that to me has been a special source of delight.

Subroto Roy

Thoughts on Indian Governance

Subroto Roy believes the great optimism about the Indian Republic that he had felt as a 7-year old boy upon meeting Jawaharlal Nehru at Colombo Airport on Oct 13 1962 (the first days of the surprise Communist Chinese attack on India), has now dissipated, and apart from Nehru’s immediate successor (Lal Bahadur Shastri) all Indian Prime Ministers since then have been gravely, perhaps catastrophically, disappointing.

Subroto Roy thinks President Obama’s informed lawyerly academic approach to the Afghanistan decision, whether or not it has its intended good consequences, has a positive demonstration effect for other capital cities, e.g. New Delhi, where public policy decisions are too often made to appease special interest groups inside a cloud of meaningless rhetoric.

Subroto Roy says of India and China in summary discussion at Edward Hugh’s Wall: “Well, both have massive and energetic populations, each with relatively little capital per head; raising the capital per head with new production and exchange processes leads to growth. (But the nominal economies are weak, public finances are absymal and paper money is out of control.)”

Subroto Roy recalls again Pericles of Athens: “Here each individual is interested not only in his own affairs but in the affairs of the state as well; even those who are mostly occupied with their own business are extremely well-informed on general politics- this is a peculiarity of ours:we do not say that a man who takes no inter…est in politics is a man who minds his own business;we say that he has no business here at all.”

Is Dr Manmohan Singh the “aam admi” that the Congress Party means?

Dr Manmohan Singh has in a televised meeting with children said about himself:

“I am an aam admi“.

I am afraid this caused me to say at Facebook today:

Subroto Roy  finds disconcerting Prime Minister Manmohan Singh’s claim of being himself  “a common man”.

In “Rajiv Gandhi and the Origins of India’s 1991 Economic Reform”, I wrote about my encounter with Rajiv:

“I said the public sector’s wastefulness had drained scarce resources that should have gone instead to provide public goods. Since the public sector was owned by the public, it could be privatised by giving away its shares to the public, preferably to panchayats of the poorest villages. The shares would become tradable, drawing out black money, and inducing a historic redistribution of wealth while at the same time achieving greater efficiency by transferring the public sector to private hands. Rajiv seemed to like that idea too, and said he tried to follow a maxim of Indira Gandhi’s that every policy should be seen in terms of how it affected the common man. I wryly said the common man often spent away his money on alcohol, to which he said at once it might be better to think of the common woman instead. (This remark of Rajiv’s may have influenced the “aam admi” slogan of the 2004 election, as all Congress Lok Sabha MPs of the previous Parliament came to receive a previous version of the present narrative.)”

I am afraid I do not think Dr Singh was whom Rajiv or Indira had in mind in speaking of the common man.

Subroto Roy

Kolkata

Indira Gandhi’s assassination: condolences in Blacksburg

From Facebook:

Subroto Roy  recalls holding a condolence service on the Va Tech campus in Blacksburg following the assassination of Indira Gandhi by her own bodyguards 25 years ago today. She was a complicated and enigmatic leader with faults and virtues perhaps equally matched.

Finally, a dozen years late, the Sonia-Manmohan Congress takes a small Rajivist step: Yes Prime Minister, our Judiciary is indeed a premier public good (or example of “infrastructure” to use that dreadful bureaucratic term)

I was very harsh and did not beat about the bush in my Sep 23-24 2007 article  in The Statesman “Against Quackery” when I said in its subtitle

“Manmohan and Sonia have violated Rajiv Gandhi’s intended reforms”.

I said inter alia

“WASTE, fraud and abuse are inevitable in the use and allocation of public property and resources in India as elsewhere, but Government is supposed to fight and resist such tendencies. The Sonia-Manmohan Government have done the opposite, aiding and abetting a wasteful anti-economics ~ i.e., an economic quackery. Vajpayee-Advani and other Governments, including Narasimha-Manmohan in 1991-1996, were just as complicit in the perverse policy-making. So have been State Governments of all regional parties like the CPI-M in West Bengal, DMK/ AIADMK in Tamil Nadu, Congress/NCP/ BJP/Sena in Maharashtra, TDP /Congress in Andhra Pradesh, SP/BJP/BSP in Uttar Pradesh etc. Our dismal politics merely has the pot calling the kettle black while national self-delusion and superstition reign in the absence of reason. The general pattern is one of well-informed, moneyed, mostly city-based special interest groups (especially including organised capital and organised labour) dominating government agendas at the cost of ill-informed, diffused anonymous individual citizens ~ peasants, small businessmen, non-unionized workers, old people, housewives, medical students etc….Rajiv Gandhi had a sense of noblesse oblige out of remembrance of his father and maternal grandfather. After his assassination, the comprador business press credited Narasimha Rao and Manmohan Singh with having originated the 1991 economic reform. In May 2002, however, the Congress Party itself passed a resolution proposed by Digvijay Singh explicitly stating Rajiv and not either of them was to be so credited. The resolution was intended to flatter Sonia Gandhi but there was truth in it too. Rajiv, a pilot who knew no political economy, was a quick learner with intelligence to know a good idea when he saw one and enough grace to acknowledge it. …Rajiv was entirely convinced when the suggestion was made to him in September 1990 that an enormous infusion of public resources was needed into the judicial system for promotion and improvement of the Rule of Law in the country, a pre-requisite almost for a new market orientation. Capitalism without the Rule of Law can quickly degenerate into an illiberal hell of cronyism and anarchy which is what has tended to happen since 1991. The resources put since Independence to the proper working of our judiciary from the Supreme Court and High Courts downwards have been abysmal, while the state of prisons, borstals, mental asylums and other institutions of involuntary detention is nothing short of pathetic. Only police forces, like the military, paramilitary and bureaucracies, have bloated in size….Neither Sonia-Manmohan nor the BJP or Communists have thought promotion of the Rule of Law in India to be worth much serious thought ~ certainly less important than attending bogus international conclaves and summits to sign expensive deals for arms, aircraft, reactors etc. Yet Rajiv Gandhi, at a 10 Janpath meeting on 23 March 1991 when he received the liberalisation proposals he had authorized, explicitly avowed the importance of greater resources towards the Judiciary. Dr Singh and his acolytes were not in that loop, indeed they precisely represented the bureaucratic ancien regime intended to be changed, and hence have seemed quite uncomprehending of the roots of the intended reforms ever since 1991.”

Days after the article appeared there were press reports Dr Singh was murmuring about quitting, and then came a fierce speech in Hindi from the Congress President saying “enemies” would receive their dues or whatever – only to be retracted a few days later saying that no more had been meant than a local critique of the BJP in Haryana politics!  (Phew! I said to myself in relief…)

Today I am very happy to learn that Dr Manmohan Singh spoke on Sunday of the importance of the Rule of Law and an effective and efficient judiciary. The new Law Minister in the second Sonia-Manmohan Government has been eagerly saying the same.

All this is constructive and positive, late as it is since Sonia Gandhi and Manmohan Singh both became heavy-duty Congress Party politicians for the first time a dozen years ago.

I was privileged to advise a previous Congress President in his last months from September 1990 as has been told elsewhere. And six years before that I had  said:

“….….The most serious examples of the malfunctioning of civil government in India are probably the failure to take feasible public precautions against the monsoons and the disarray of the judicial system. …The Statesman lamented in July 1980:`The simplest matter takes an inordinate amount of time, remedies seldom being available to those without means or influence. Of the more than 16,000 cases pending in the Supreme Court, about 5,000 were introduced more than five years ago; while nearly 16,000 of the backlog of more than 600,000 cases in our high courts have been hanging fire for over a decade. Allahabad is the worst offender but there are about 75,000 uncleared cases in the Calcutta High Court in addition to well over a million in West Bengal’s lower courts.” Such a state of affairs has been caused not only by lazy and corrupt policemen, court clerks and lawyers, but also by the paucity of judges and magistrates. . . . a vast volume of laws provokes endless litigation as much because of poor drafting which leads to disputes over interpretation as because they appear to violate particular rights and privileges…. When governments determinedly do what they need not or should not do, it may be expected that they will fail to do what civil government positively should be doing.” A few months ago was the 25th anniversary of this statement… ! 🙂

Yes Prime Minister, having an effective and efficient judiciary is indeed a premier public good and one that has failed to be provided to India’s people from Nehru’s time and through Indira’s. I managed to persuade Rajiv about it completely. Might I next be so bold as to draw attention as well to the paragraphs of the 2007 article that followed?

“Similarly, Rajiv comprehended when it was said to him that the primary fiscal problem faced by India is the vast and uncontrolled public debt, interest payments on which suck dry all public budgets leaving no room for provision of public goods.  Government accounts: Government has been routinely “rolling over” its domestic debt in the asset-portfolios of the nationalised banks while displaying and highlighting only its new additional borrowing in a year as the “Fiscal Deficit”. More than two dozen States have been doing the same and their liabilities ultimately accrue to the Union too. The stock of public debt in India is Rs 30 trillion (Rs 30 lakh crore) at least, and portends a hyperinflation in the future. There has been no serious recognition of this since it is political and bureaucratic actions that have been causing the problem. Proper recognition would entail systematically cleaning up the budgets and accounts of every single governmental entity in the country: the Union, every State, every district and municipality, every publicly funded entity or organisation, and at the same time improving public decision-making capacity so that once budgets and accounts recover from grave sickness over decades, functioning institutions exist for their proper future management. All this would also stop corruption in its tracks, and release resources for valuable public goods and services like the Judiciary, School Education and Basic Health. Institutions for improved political and administrative decision-making are needed throughout the country if public preferences with respect to raising and allocating common resources are to be elicited and then translated into actual delivery of public goods and services. Our dysfunctional legislatures will have to do at least a little of what they are supposed to. When public budgets and accounts are healthy and we have functioning public goods and services, macroeconomic conditions would have been created for the paper-rupee to once more become a money as good as gold ~ a convertible world currency for all of India’s people, not merely the metropolitan special interest groups that have been controlling our governments and their agendas.”

Subroto Roy

Kolkata


Schoolboys exchanging fisticuffs in a school playground or elderly men battling over power and policy? Why did Manmohan Singh and LK Advani apologize to one another? Is Indian politics essentially collusive, not competitive, aiming only to preserve and promote the post-1947 Dilli Raj at the expense of the whole of India? We seem to have no Churchillian repartee (except perhaps from Bihar occasionally)

Yesterday the PM is reported to have been asked by someone travelling on his aeroplane from Moscow “whether he had forgiven Advani for calling him a ‘weak Prime Minister’”.

The question was absurd, almost ridiculous, typical of our docile ingratiating rather juvenile English-language press and media, as if any issue of forgiveness arises at all about what one politician says during an election campaign about another politician’s performance in office.

Dr Manmohan Singh’s answer was surprising too: “I was compelled to reply to what Advani said…On May 16 when (Advani) telephoned me, he told me that he was hurt by some of my statements. He said he was hurt and regretted his statements… I apologised to him if I have hurt him. I am looking forward to a close relationship with the Leader of the Opposition.”

So LK Advani appears to have apologised to Manmohan Singh and Manmohan Singh to LK Advani for what they said about each other during the recent general election campaign! What is going on? Were they schoolboys exchanging fisticuffs in a school playground or elderly men battling over power and policy in modern Indian politics?

What would we have done if there was a Churchill in Indian politics today – hurling sarcastic insults at domestic opponents and foreign leaders while guiding a nation on its right course during turbulent times?

Churchill once famously said his parents had not shown him “The Boneless Wonder” in PT Barnum’s circus because it was too horrible a sight but now he had finally seen such a “Boneless Wonder” in his opponent on the Treasury Benches, namely, Ramsay MacDonald. Of the same opponent he said later “He has the gift of compressing the largest number of words into the smallest amount of thought”.

When accused of being drunk by a woman MP he replied “And you are very ugly, but tomorrow I’ll be sober”. Today’s politically correct world would scream at far less. Field Marshall Montgomery told Churchill, “I neither drink nor smoke and am 100% fit,” to which Churchill replied, “I drink and smoke and I am 200% fit”. That too would be politically incorrect today.

Churchill described Prime Minister Clement Attlee as “a modest man with much to be modest about”; also about Attlee: “If any grub is fed on Royal Jelly it turns into a Queen Bee”. Yet Attlee had enough dignity and self-knowledge and self-confidence to brush it all off and instead respect and praise him. In the 1954 volume Winston Spencer Churchill Servant of Crown and Commonwealth Attlee added his own tribute to his great opponent: “I recall…the period when he was at odds with his own party and took a seat on the Bench below the Gangway on the Government side. Here he was well placed to fire on both parties. I remember describing him as a heavily armed tank cruising in No Man’s Land. Very impressive were the speeches he delivered as the international horizon grew darker. He became very unpopular with the predominant group in his own party, but he never minded fighting a lone battle.”

Stanley Baldwin, who as PM first appointed Churchill as Chancellor of the Exchequer, once said “There comes Winston with his hundred horsepower mind”. Yet Churchill was to later say harshly “I wish Stanley Baldwin no ill, but it would have been much better had he never lived.”

Of Lenin, Churchill said, he was “transported in a sealed truck like a plague bacillus from Switzerland into Russia”. Of Molotov: “I have never seen a human being who more perfectly represented the modern concept of a robot.” Of Hitler, “If [he] invaded hell I would at least make a favourable reference to the devil in the House of Commons”. Of De Gaulle, “He was a man without a country yet he acted as if he was head of state”.” Of John Foster Dulles, “[He] is the only bull who carries his china shop with him”. Of Stafford Cripps, British Ambassador to the USSR, “…a lunatic in a country of lunatics”; and also “There but for the Grace of God, goes God”.

Decades later, that great neo-Churchillian Margaret Thatcher was on the receiving end of a vast amount of sarcasm. “President Mitterrand once famously remarked that Thatcher had ‘the eyes of Caligula and the lips of Marilyn Monroe’. Rather less flatteringly, Dennis Healey described her as Attila the Hen. She probably took both descriptions as compliments.” (Malcolm Rifkind in Margaret Thatcher’s Revolution: How it Happened and What it Meant edited by Subroto Roy and John Clarke, 2005).

Politics is, and should be, grown up stuff because it deals with human lives and national destinies, and really, if you can’t take the heat please do not enter the kitchen. The slight Churchillian sarcasm that does arise within modern Indian politics comes very occasionally from Bihar but nowhere else, e.g. about the inevitability of aloo in samosas and of bhaloos in the jungle but no longer of Laloo being in the seat of power. In general, everyone seems frightfully sombre and self-important though may be in fact short of self-knowledge and hence self-confidence.

What had Manmohan Singh said about LK Advani that he felt he had to apologise for? That Advani had no substantial political achievement to his credit and did not deserve to be India’s PM. Manmohan was not alone in making the charge – Sonia Gandhi, Rahul Gandhi and numerous other spokesmen and representatives of their party said the same. Has Manmohan’s apology to Advani been one on behalf of the whole Congress Party itself?

Was Advani’s apology to Manmohan one on behalf of the whole BJP too?

What had the BJP charged Manmohan with that Advani felt he had to apologise for?  Being a “weak PM”.

Hmmm. Frankly, thinking about it, it is hard to count who has not been weak as a PM in India’s modern history.

Certainly Vallabhai Patel as a kind of co-PM was decisive and far from weak back in 1947-48.

Lal Bahadur Shastri was not weak when he told Pakistan that a Pakistani attack on Kashmir would result in an Indian attack on Pakistan.

Indira Gandhi was not weak when she resisted the Yahya Khan-Tikka Khan tyranny against Bangladesh.

Had he not been assassinated, Rajiv Gandhi in a second term would have been decisive and not weak in facing up to and tackling the powerful lobbies and special interest groups that have crippled our domestic economic policy for decades.

But the number of such examples may be counted by hand.  Perhaps VP Singh might count, riding in an open jeep to Amritsar, as might AB Vajpayee’s Pokhran II and travelling on a bus to Lahore. In general, the BJP’s charge that Manmohan was “weak” may have constructively led to serious discussion in the country about the whole nature of the Prime Ministership in modern India, which means raising a whole gamut of issues about Indian governance – about India being the softest of “soft states”, with the softest of “soft government budget constraints” (i.e., endless deficit finance and paper money creation) etc.

Instead, what we have had thus far is apologies being exchanged for no real political reason between the leaderships of the Government and the Opposition. If two or three sellers come to implicitly carve up a market between themselves they are said by economic theory to be colluding rather than being in competition. Indian politics may be revealing such implicit collusive behaviour. The goal of this political oligopoly would seem to be to preserve and promote the status quo of the post-1947 Dilli Raj with its special hereditary nomenclatura, at the expense of anonymous diffused teeming India.

Subroto Roy

Postscript July 15 2009: Churchill’s mature opinion of Baldwin was one of the fullest praise at the 20 May 1950 unveiling of a memorial to him.  See his In the Balance, edited by Randolph S Churchill, 1951, p. 281

Eleven days and counting after the 15th Lok Sabha was elected and still no Parliament of India! (But we do have 79 Ministers — might that be a world record?)

A lawyer friend tells me she thinks it a “technicality” that there is no Lok Sabha or Parliament in India today despite eleven long days and nights having passed since the 15th Lok Sabha came to be elected by the people of India.  “At least we did not get Advani and Modi to rule”, is how she sought to justify the current circumstance.   I am afraid I think she has produced a non sequitur, and also forgotten the constitutional law she would have read as a student.

The best argument that I think the Government of India shall be able to give justifying their legal error in not having the 15th Lok Sabha up and running yet 11 days after India’s people have spoken would run something like this:

(1) The President of India invites a Council of Ministers led by a PM to form the government and has done so.

(2) The President must be satisfied that the PM commands a majority in the Lok Sabha, and the President has been satisfied by the 322  “letters of support” that the PM produced.

(3) The Government of the day calls parliamentary sessions and does so at its discretion, and the Government of the day headed by this PM has announced when it shall call the 15th Lok Sabha which will be in a few days yet.

Any such argument, I am afraid, would be specious because it simply puts the cart before the horse.

Parliament is sovereign in India, to repeat what I have said several times before.

Parliament is sovereign in India — not even the President who is the symbol of that sovereignty.  We do not follow the British quite exactly in this because we are a republic and not a monarchy.  In Britain sovereignty rests with “The King in Parliament”.  With us, Parliament is sovereign and the President is the symbol of that sovereignty.  In all matters of state, our President must act in a manner that Parliament and parliamentary law says.

Parliament is sovereign in India — not the Executive Government, certainly not its largest political party or its leader.

Parliament is sovereign in India because the people of India have chosen it to be so within the Constitution of India.

Parliament is sovereign in India and the people of India have elected the 15th Lok Sabha which has still not been allowed to meet eleven days later.

To the contrary, as noted days ago, the purported “Cabinet” of the 14th Lok Sabha, a dead institution, met on May 18 2009, some 48 hours after the 15th Lok Sabha had already been declared!   The 14th Lok Sabha in fact stood automatically dissolved in law when General Elections came to be announced.

Is all this merely a “technicality” as my friend believes?  I think not.

Executive Government in India derives its political legitimacy from being elected  by Parliament,  i.e., from holding the confidence of Parliament, and that means the Lok Sabha.

The Government of the day might  for sake of convenience have a prerogative of calling sessions of the 15th Lok Sabha once it has been constituted but the Government of the day cannot logically constitute a Lok Sabha after a General Election because it itself receives legitimacy from such a Lok Sabha.

If the 15th Lok Sabha has not met, confidence in any Executive has yet to be recorded, and hence any such Government has yet to receive legitimacy.

Do “322 letters of support” suffice?  Hardly.  They are signed after all by persons who have yet to take their seats in the Lok Sabha!  (Let us leave aside the fact that the PM, not being a member of the Lok Sabha, is in this case unable to be one of those 322 himself!)

Yet we have 79 “Ministers” of this new “Government” holding press-conferences and giving out free-bees and favours etc already.  As I have said before, Ambedkar, Nehru and others of their generation, plus Indira and Rajiv too, would all have been appalled.

Because the incompetence of the fascists and communists in the Opposition may continue to  be expected, it will be up to ordinary citizens and voters of India to point out such  simple truths whenever the Emperor is found to be naked.  (Our docile juvenile ingratiating media may well remain mostly hopeless.)

Subroto Roy

Why has the Sonia Congress done something that the Congress under Nehru-Indira-Rajiv would not have done, namely, exaggerate the power of the Rajya Sabha and diminish the power of the Lok Sabha?

We in India did not invent the idea of Parliament, the British did.  Even the British did not invent the idea of a “Premier Ministre”, the French did that, though the British came to develop its meaning most.  Because these are not our own inventions, when something unusual happens in contemporary India to political entities and offices known as “Parliament”, “Prime Minister” etc, contrast and comparison is inevitable with standards and practices that have prevailed around the world in other parliamentary democracies.

Indeed we in India did not even fully invent the idea of our own Parliament though the national struggle led by the original Indian National Congress caused it to come to be invented.  The Lok Sabha is the outcome of a long and distinguished constitutional and political history from the Morley-Minto reforms a century ago to the Montagu-Chelmsford reforms and Government of India Act of 1919 to the Government of India Act of 1935 and the first general elections of British India in 1937 (when Jawaharlal Nehru briefly became PM for the first time) and in due course the 1946 Constituent Assembly.   Out of all this emerged the 1950 Constitution of India, drafted by that brilliant jurist BR Ambedkar as well as other sober intelligent well-educated and dedicated men and women of his time, and thence arose our first Lok Sabha following the 1951 General Elections.

About the Lok Sabha’s duties, I said in my March 30 2006 article “Logic of Democracy” in The Statesman

“What are Lok Sabha Members and State MLAs legitimately required to be doing in caring for their constituents? First of all, as a body as a whole, they need to elect the Government, i.e. the Executive Branch, and to hold it accountable in Parliament or Assembly. For example, the Comptroller and Auditor General submits his reports directly to the House, and it is the duty of individual legislators to put these to good use in controlling the Government’s waste, fraud or abuse of public resources.   Secondly, MPs and MLAs are obviously supposed to literally represent their individual constituencies in the House, i.e. to bring the Government and the House’s attention to specific problems or contingencies affecting their constituents as a whole, and call for the help, funds and sympathy of the whole community on their behalf.  Thirdly, MPs and MLAs are supposed to respond to pleas and petitions of individual constituents, who may need the influence associated with the dignity of their office to get things rightly done. For example, an impoverished orphan lad once needed surgery to remove a brain tumour; a family helping him was promised the free services of a top brain surgeon if a hospital bed and operating theatre could be arranged. It was only by turning to the local MLA that the family were able to get such arrangements made, and the lad had his tumour taken out at a public hospital. MPs and MLAs are supposed to vote for and create public goods and services, and to use their moral suasion to see that existing public services actually do get to reach the public.”

What about the Rajya Sabha?  I said in the same article:

“Rajya Sabha Members are a different species altogether. Most if not all State Legislative Councils have been abolished, and sadly the present nature of the Rajya Sabha causes similar doubts to arise about its utility. The very idea of a Rajya Sabha was first mooted in embryo form in an 1888 book A History of the Native States of India, Vol I. Gwalior, whose author also advocated popular constitutions for the “Indian India” of the “Native States” since “where there are no popular constitutions, the personal character of the ruler becomes a most important factor in the government… evils are inherent in every government where autocracy is not tempered by a free constitution.”  When Victoria was declared India’s “Empress” in 1877, a “Council of the Empire” was mooted but had remained a non-starter even until the 1887 Jubilee. An “Imperial Council” was now designed of the so-called “Native Princes”, which came to evolve into the “Chamber of Princes” which became the “Council of the States” and the Rajya Sabha.  It was patterned mostly on the British and not the American upper house except in being not liable to dissolution, and compelling periodic retirement of a third of members. The American upper house is an equal if not the senior partner of the lower house. Our Rajya Sabha follows the British upper house in being a chamber which is duty-bound to oversee any exuberance in the Lok Sabha but which must ultimately yield to it if there is any dispute.  Parliament in India’s democracy effectively means the Lok Sabha — where every member has contested and won a direct vote in his/her constituency. The British upper house used to have an aristocratic hereditary component which Tony Blair’s New Labour Government has now removed, so it has now been becoming more like what the Rajya Sabha was supposed to have been like.”

The Canadian upper house is similar to ours in intent: a place for “sober second thought” intended to curb the “democratic excesses” of the lower house.   In the Canadian, British, Australian, Irish and our own cases, the Prime Minister, as the chief executive of the lower house has immense indirect power over the upper house, whether in appointing members or even, in the Australian case, dissolving the entire upper house if he/she wishes.

Now yesterday apparently Shrimati Sonia Gandhi, as the duly elected leader of the largest political party in the 15th Lok Sabha, accompanied by Dr Manmohan Singh, as her party’s choice for the position of Prime Minister, went to see the President of India where the Hon’ble President apparently appointed Dr Singh to be the Prime Minister of India – meaning the Prime Minister of the 15th Lok Sabha, except that Dr Singh is not a member of the Lok Sabha and apparently has had no intent of becoming one.

In 2004 Shrimati Gandhi had declined to accept an invitation to become PM and instead effectively recommended Dr Singh to be PM despite his not being a member of the Lok Sabha nor intending to be so.   This exploited a constitutional loophole to the extent that the drafters of our 1950 Constitution happened not to have explicitly stated that the PM must be from the Lok Sabha.  But the reason the founders of our democratic polity such as BR Ambedkar and Jawaharlal Nehru did not specify that the PM must be from the Lok Sabha was quite simply that it was a matter of complete obviousness to them and to their entire generation that this must be so — it would have been  appalling to them and something beyond their wildest imagination that a later generation, namely our own, would exploit such a loophole and allow a PM to be appointed who is not a member of the Lok Sabha and intends not to be so.

Ambedkar, Nehru and all others of their time knew fully well that the history and intended purpose of the Lok Sabha was completely different from the history and intended purpose of the Rajya Sabha.  They knew too fully well that Lord Curzon had been explicitly denied the leadership of Britain’s Tory Party in 1922 because that would have made him a potential PM  when he was not prepared to be a member of the House of Commons.  That specific precedent culminated a centuries’-old  democratic trend of  political power flowing from monarchs to lords to commoners, and has governed all parliamentary democracies  worldwide ever since — until Dr Singh’s appointment in 2004.

When such an anomalous situation once arose in Britain, Lord Home resigned his membership of the House of Lords to contest a House of Commons seat as Sir Alec Douglas Home so that he could be PM in a manner consistent with parliamentary law.

Dr Singh instead for five years remained PM of India while not being a member of the Lok Sabha.  Even if reasons and exigencies of State could have been cited for such an anomalous situation during his first term, there was really no such reason for him not to contest the 2009 General Election if he wished to be the Congress Party’s prime ministerial candidate a second time.  Numerous Rajya Sabha members alongside him have contested Lok Sabha seats this time, and several have won.

As of today, Dr Singh is due to be sworn in tomorrow as Prime Minister for a second term while still having no declared intention of resigning from the Rajya Sabha and contesting a Lok Sabha seat instead.   What the present-day Congress has done is elect him the leader of the “Congress Parliamentary Party” and claim that it is in such a capacity that he received the invitation to be Prime Minister of India.   But surely if the question had been asked to the Congress Party under Nehru or Indira or Rajiv: “Can you foresee a circumstance ever in which the PM of India is not a member of the Lok Sabha?” their answer in each case would have been a categorical and resounding  “no”.

So the question does arise why the Congress under Sonia Gandhi has with deliberation allowed such an anomalous situation to develop.  Its effect is to completely distort the trends of relative political power between the Lok Sabha and Rajya Sabha.  On the one hand, the Lok Sabha’s power is deliberately made to diminish as the chief executive of the Government of India shall not be from the Lok Sabha but from “the other place” despite the Lok Sabha having greater political legitimacy by having been directly elected by India’s people.   This sets a precedent that  might  get repeated in India  in the future but which contradicts the worldwide trend in parliamentary democracies over decades and centuries in precisely the opposite direction –  of power flowing in the direction of the people not away from them.   On the other hand, the fact this anomalous idea has been pioneered by the elected leader of the largest political party in the Lok Sabha while her PM is in the Rajya Sabha causes a member of the lower house to have unexpected control over the upper house when the latter is supposed to be something of an independent check on the former!

It all really seems an unnecessary muddle and a jumbling up of normal constitutional law and parliamentary procedure.  The Sonia-Manmohan Government at the outset of its second term should hardly want to be seen by history as having set a poor precedent using brute force.  The situation can be corrected with the utmost ease by following the Alec Douglas Home example, with Dr Singh being given a relatively safe seat to contest as soon as possible, if necessary by some newly elected Congress MP resigning and allowing a bye-election to be called.

Subroto Roy

India is not a monarchy! We urgently need to universalize the French concept of “citoyen”! (2009)

Each of the two sons of Feroze and Indira Gandhi died tragically  in his prime, years ago, and it is unbecoming to see their family successors squabble today. Everyone may need to be constantly reminded that this handful of persons are in fact ordinary citizens in our democratic polity, deserving India’s attention principally in such a capacity.

What did, indeed, Feroze Gandhi, Jawaharlal Nehru, Sanjay Gandhi, Indira Gandhi and Rajiv Gandhi “live and die for”?  It was not any one identifiable thing or any set of common things, that seems certain.

Feroze Gandhi from all accounts stood for integrity in Indian politics and journalism; it is not impossible his premature death was related to  his wife’s negligence because she had returned to her father’s side instead.  Jawaharlal Nehru did not do well as a father to promote his daughter so blatantly as his assistant either before 1947

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or after.

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Nehru did not achieve political power until well into middle age; his catastrophic misjudgment of communist ideology and intentions, especially Chinese communist ideology and intentions, contributed to an Indian defeat at war, and led soon thereafter to his health collapsing and his death. He and Indira somewhat nonchalantly made a visit to Ceylon even as the Chinese attack was commencing; a high point of my own childhood was saying namaste on October 13 1962 at Colombo airport when they arrived.

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Feroze and Indira’s younger son evidently came to die in a self-inflicted aeronautical mishap of some sort.  What did Sanjay Gandhi “live for”?  The book Foundations of India’s Political Economy: Towards an Agenda for the 1990s created twenty years ago in America

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has a chapter titled “The State of Governance” by the political scientist James Manor which says:

“After 1973 or so, personal loyalty tended increasingly to become the main criterion for advancement in the Congress Party. People who appeared to be loyal often replaced skilled political managers who seemed too independent.  Many of these new arrivals did not worry, as an earlier generation of Congress officials  had done, that excessive private profiteering might earn the wrath of party leaders.  In 1975, Sanjay Gandhi suddenly became the second most powerful figure in Indian politics.  He saw that the parties of the left and right had strong organizations that could put large numbers of militants into the streets for demonstrations while Congress had no such capacity.  In the belief that Congress should also have this kind of muscle, he began recruiting elements from urban centres including the criminal underworld.  The problem of corruption was exacerbated by demands that State-level Congress leaders place large sums of money at the disposal not of the national party but of the persons who presided over it.  Congress chief ministers realized that a fulsome response to these demands went a long way toward insulating them from interference from New Delhi, and a monumental system of fund-raising sprang up.  When so many people were being drawn into semi-institutionalized malfeasance, which seemed to be condoned by higher authorities, it was inevitable many would skim off portions of the funds raised for personal benefit.  Corruption soared. The problem was compounded by the tendency for people to be dismissed from public and party offices abruptly, leading many Congress politicians to fear that their time in power might be quite short.”

I do not have reason to disagree with this  opinion  contained in the book  that I and WE James created  at the University of Hawaii twenty years ago.   If anything, Sanjay’s political model may have spread  itself across  other Indian  political parties in one way or another.

What does strike me as odd in light of current  political controversy is that  several  of Sanjay’s friends and colleagues  are now part-and-parcel of the   Sonia Congress – one must ask, were they such fair-weather  friends that they never  lent a hand or a shoulder to his young widow and her infant son especially against the cruelties Sanjay’s mother bestowed upon them?  Did they offer help or guidance to Sanjay’s son, have they tried to guide him away from becoming the bigoted young politician he seems to wish to be today?

Indira’s major faults included playing favourites among her bahus and her grandchildren with as much gusto as any mother-in-law portrayed on the tackiest TV-serial today.

What were her good deeds?  There was one, and it was an enormously large one, of paramount significance for the country and our subcontinent as a whole: her statesmanship before, during and to some extent after the war that created Bangladesh.  My father has preserved a classic photograph over the years of Indira’s finest period as an international stateswoman, when she visited Paris and other foreign capitals including Washington in the autumn of 1971.

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She tried to prevent the Yahya Khan/Tikka Khan  genocide in Bangladesh when many  Bangladeshis came to be sacrificed at the altar of the Nixon-Kissinger visits to Mao and Zhou.  She made a major diplomatic effort in world capitals to avert war with West Pakistan over its atrocities in East Pakistan. But war could not be averted, and within a few weeks, in December 1971, Bangladesh was born.

“Indira Gandhi’s one and paramount good deed as India’s leader and indeed as a world leader of her time was to have fought a war that was so rare in international law for having been unambiguously just. And she fought it flawlessly. The cause had been thrust upon her by an evil enemy’s behaviour against his own people, an enemy supported by the world’s strongest military power with pretensions to global leadership. Victims of the enemy’s wickedness were scores of millions of utterly defenceless, penniless human beings. Indira Gandhi did everything right. She practised patient but firm diplomacy on the world’s stage to avert war if it was at all possible to do. She chose her military generals well and took their professional judgment seriously as to when to go to war and how to win it. Finally, in victory she was magnanimous to the enemy that had been defeated. Children’s history-books in India should remember her as the stateswoman who freed a fraternal nation from tyranny, at great expense to our own people. As a war-leader, Indira Gandhi displayed extraordinary bravery, courage and good sense.” (From my review article of Inder Malhotra’s Indira Gandhi, first published in The Statesman May 7 2006.)

“She had indeed fought that rarest of things in international law: the just war. Supported by the world’s strongest military, an evil enemy had made victims of his own people. Indira tried patiently on the international stage to avert war, but also chose her military generals well and took their professional judgment seriously as to when to fight if it was inevitable and how to win. Finally she was magnanimous (to a fault) towards the enemy ~ who was not some stranger to us but our own estranged brother and cousin.  It seemed to be her and independent India’s finest hour. A fevered nation was thus ready to forgive and forget her catastrophic misdeeds until that time….” (From  “Unhealthy Delhi” first published in The Statesman June 11 2007).

What did Indira die for?  I have said it was “blowback” from domestic and/or international politics, similar to what happened to Rajiv Gandhi and Benazir Bhutto in later years.

“Indira Gandhi died in “blowback” from the unrest she and her younger son and others in their party had opportunistically fomented among Sikh fundamentalists and sectarians since the late 1970s.  Rajiv Gandhi died in “blowback” from an erroneous imperialistic foreign policy that he, as Prime Minister, had been induced to make by jingoistic Indian diplomats, a move that got India’s military needlessly involved in the then-nascent Sri Lankan civil war.  Benazir Bhutto similarly may be seen to have died in “blowback” from her own political activity as prime minister and opposition leader since the late 1980s, including her own encouragement of Muslim fundamentalist forces.  Certainly in all three cases, as in all assassinations, there were lapses of security too and imprudent political judgments made that contributed to the tragic outcomes.” From “An Indian Reply to President Zardari”.

And then there was Rajiv.  He did not know me except in his last eight months. It has now emerged that Dr Manmohan Singh’s first bypass operation was in 1990-1991, coinciding precisely with the time I gave Rajiv the results of the perestroika-for-India project that I had led at the University of Hawaii since 1986, an encounter that sparked the 1991 economic reform as has been told elsewhere. Dr Singh was simply not in that loop, nor has he himself ever claimed to have been in it — regardless of what innumerable flatterers, sycophants and other straightforwardly mendacious characters in Delhi’s high power circles have been making out over the years since.  Facts are rather stubborn things.

As a 35-year old newcomer to Delhi and a complete layman on security issues, I did what little I knew  how to try to reduce the vulnerability that I felt  Rajiv  faced from unknown lists of assassins.

“That night KR dropped me at Tughlak Road where I used to stay with friends. In the car I told him, as he was a military man with heavy security cover for himself as a former Governor of J&K, that it seemed to me Rajiv’s security was being unprofessionally handled, that he was vulnerable to a professional assassin. KR asked me if I had seen anything specific by way of vulnerability. With John Kennedy and De Gaulle in mind, I said I feared Rajiv was open to a long-distance sniper, especially when he was on his campaign trips around the country.  This was one of several attempts I made since October 1990 to convey my clear impression to whomever I thought might have an effect that Rajiv seemed to me extremely vulnerable. Rajiv had been on sadhbhavana journeys, back and forth into and out of Delhi. I had heard he was fed up with his security apparatus, and I was not surprised given it seemed at the time rather bureaucratized. It would not have been appropriate for me to tell him directly that he seemed to me to be vulnerable, since I was a newcomer and a complete amateur about security issues, and besides if he agreed he might seem to himself to be cowardly or have to get even closer to his security apparatus. Instead I pressed the subject relentlessly with whomever I could. I suggested specifically two things: (a) that the system in place at Rajiv’s residence and on his itineraries be tested, preferably by some internationally recognized specialists in counter-terrorism; (b) that Rajiv be encouraged to announce a shadow-cabinet. The first would increase the cost of terrorism, the second would reduce the potential political benefit expected by terrorists out to kill him. On the former, it was pleaded that security was a matter being run by the V. P. Singh and then Chandrashekhar Governments at the time. On the latter, it was said that appointing a shadow cabinet might give the appointees the wrong idea, and lead to a challenge to Rajiv’s leadership. This seemed to me wrong, as there was nothing to fear from healthy internal contests for power so long as they were conducted in a structured democratic framework. I pressed to know how public Rajiv’s itinerary was when he travelled. I was told it was known to everyone and that was the only way it could be since Rajiv wanted to be close to the people waiting to see him and had been criticized for being too aloof. This seemed to me totally wrong and I suggested that if Rajiv wanted to be seen as meeting the crowds waiting for him then that should be done by planning to make random stops on the road that his entourage would take. This would at least add some confusion to the planning of potential terrorists out to kill him. When I pressed relentlessly, it was said I should probably speak to “Madame”, i.e. to Mrs. Rajiv Gandhi. That seemed to me highly inappropriate, as I could not be said to be known to her and I should not want to unduly concern her in the event it was I who was completely wrong in my assessment of the danger. The response that it was not in Congress’s hands, that it was the responsibility of the V. P. Singh and later the Chandrashekhar Governments, seemed to me completely irrelevant since Congress in its own interests had a grave responsibility to protect Rajiv Gandhi irrespective of what the Government’s security people were doing or not doing. Rajiv was at the apex of the power structure of the party, and a key symbol of secularism and progress for the entire country. Losing him would be quite irreparable to the party and the country. It shocked me that the assumption was not being made that there were almost certainly professional killers actively out to kill Rajiv Gandhi — this loving family man and hapless pilot of India’s ship of state who did not seem to have wished to make enemies among India’s terrorists but whom the fates had conspired to make a target. The most bizarre and frustrating response I got from several respondents was that I should not mention the matter at all as otherwise the threat would become enlarged and the prospect made more likely! This I later realized was a primitive superstitious response of the same sort as wearing amulets and believing in Ptolemaic astrological charts that assume the Sun goes around the Earth — centuries after Kepler and Copernicus. Perhaps the entry of scientific causality and rationality is where we must begin in the reform of India’s governance and economy. What was especially repugnant after Rajiv’s assassination was to hear it said by his enemies that it marked an end to “dynastic” politics in India. This struck me as being devoid of all sense because the unanswerable reason for protecting Rajiv Gandhi was that we in India, if we are to have any pretensions at all to being a civilized and open democratic society, cannot tolerate terrorism and assassination as means of political change. Either we are constitutional democrats willing to fight for the privileges of a liberal social order, or ours is truly a primitive and savage anarchy concealed beneath a veneer of fake Westernization…..  the news suddenly said Rajiv Gandhi had been killed. All India wept. What killed him was not merely a singular act of criminal terrorism, but the system of humbug, incompetence and sycophancy that surrounds politics in India and elsewhere. I was numbed by rage and sorrow, and did not return to Delhi. Eleven years later, on 25 May 2002, press reports said “P. V. Narasimha Rao and Manmohan Singh lost their place in Congress history as architects of economic reforms as the Congress High command sponsored an amendment to a resolution that had laid credit at the duo’s door. The motion was moved by…. Digvijay Singh asserting that the reforms were a brainchild of the late Rajiv Gandhi and that the Rao-Singh combine had simply nudged the process forward.” Rajiv’s years in Government, like those of Indira Gandhi, were in fact marked by profligacy and the resource cost of poor macroeconomic policy since bank-nationalisation may be as high as Rs. 125 trillion measured in 1994 rupees. Certainly though it was Rajiv Gandhi as Leader of the Opposition in his last months who was the principal architect of the economic reform that came to begin after his passing.”

(I have had to say that I do not think the policies pursued by Dr Singh thus far have been consistent with the direction I believe Rajiv,  in a second term as PM, would have wished to take. See, for example, “India’s Macroeconomics”, “Fallacious Finance”, “Against Quackery”, “Mistaken Macroeconomics”, and other articles listed and linked at “Memo to Dr Kaushik Basu”.  See also https://independentindian.com/2006/05/21/the-politics-of-dr-singh/ https://independentindian.com/2008/04/25/assessing-manmohan-the-doctor-of-deficit-finance-should-realise-the-currency-is-at-stake/  https://independentindian.com/2013/08/23/did-jagdish-bhagwati-originate-pioneer-intellectually-father-indias-1991-economic-reform-did-manmohan-singh-or-did-i-through-my-encounter-with-rajiv-gandhi-just-as-siddhartha-shan/)

The treatment of Indira or Rajiv or Sanjay or their family successors as royalty of any kind whatsoever in India was, is, and remains absurd, reflecting stunted growth of Indian democracy.  I remember well the obsequiousness I witnessed on the part of old men in the presence of Rajiv Gandhi.

Tribal and mansabdari political cultures still dominate Northern and Western regions of the Indian subcontinent (descending from the Sikhs, Muslims, Rajputs, Mahrattas etc).

Nehru in his younger days was an exemplary democrat, and he had an outstanding democratically-minded young friend in Sheikh Mohammad Abdullah.

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But Nehru and Abdullah as Westernized political liberals were exceptions  in the autocratic/monarchical political cultures of north India (and Pakistan) which continue today and stunt the growth of any democratic mindset.

What we may urgently need is some French  Liberté, égalité, fraternité ! to create a simple ordinary citoyen universally in the country and the subcontinent as a whole!  May we please import a Marquis de Lafayette?

Bengal and parts of Dravidian India have long lost fondness for monarchy and autocracy —  Western political liberalism began to reach  Kolkata  almost two centuries ago after all (see e.g. Tapan Raychaudhuri’s  fine study Europe Reconsidered). Both Nepal and Pakistan have been undergoing radical transformation towards democracy in recent  months, as Bengali Pakistanis had done 40 years earlier under Sheikh Mujib.  I said last year and say again that there may be a dangerous  intellectual vacuum around the throne of Delhi.

Subroto Roy

An Indian Reply to President Zardari: Rewarding Pakistan for bad behaviour leads to schizophrenic relationships

An Indian Reply to President Zardari:

 

Rewarding Pakistan for bad behaviour leads to schizophrenic relationships

 

by

Subroto Roy

 

Pakistan President Asif Ali Zardari’s recent argument in the New York Times resembles closely the well-known publications of his ambassador to the United States, Mr Husain Haqqani.  Unfortunately, this Zardari-Haqqani thesis about Pakistan’s current predicament in the world and the world’s predicament with Pakistan is shot through with clear factual and logical errors. These  need to be aired because true or useful conclusions cannot be reached from mistaken premises or faulty reasoning.

1.  Origins of Pakistan, India, J&K, and their mutual problems

Mr Zardari makes the following seemingly innocuous statement:

“…. the two great nations of Pakistan and India, born together from the same revolution and mandate in 1947, must continue to move forward with the peace process.”

Now as a matter of simple historical fact, the current entities in the world system known as India and Pakistan were not “born together from the same revolution and mandate in 1947”.  It is palpably false to suppose they were and Pakistanis indulge in wishful thinking and self-deception about their own political history if they suppose this.

India’s Republic arose out of the British Dominion known as “India” which was the legal successor of the entity known previously in international law as “British India”.  British India had had secular governance and so has had the Indian Republic.

By contrast, the Islamic Republic of Pakistan arose out of a newly created state in international law known as the British Dominion of Pakistan, consisting of designated territory carved out of British India by a British decision and coming into existence one day before British India extinguished itself. (Another new state, Bangladesh, later seceded from Pakistan.)

The British decision to create territory designated “Pakistan” had nothing to do with any anti-British “revolution” or “mandate” supported by any Pakistani nationalism because there was none.  (Rahmat Ali’s anti-Hindu pamphleteering in London could be hardly considered Pakistani nationalism against British rule.  Khan Abdul Ghaffar Khan’s Pashtun patriots saw themselves as Indian, not Pakistani.)

To the contrary, the British decision had to do with a small number of elite Pakistanis — MA Jinnah foremost among them — demanding not to be part of the general Indian nationalist movement that had been demanding a British departure from power in the subcontinent.   Jinnah’s separatist party, the Muslim League, was trounced in the 1937 provincial elections in all the Muslim-majority areas of British India that would eventually become Pakistan.  Despite this, in September 1939, Britain, at war with Nazi Germany, chose to elevate the political power of Jinnah and his League to parity with the general Indian nationalist movement led by MK Gandhi.  (See, Francis Robinson, in William James and Subroto Roy (eds), Foundations of Pakistan’s Political Economy: Towards an Agenda for the 1990s.)  Britain needed India’s mostly Muslim infantry-divisions — the progenitors of the present-day Pakistan Army — and if that meant tilting towards a risky political idea of “Pakistan” in due course, so it would be.  The thesis that Pakistan arose from any kind of “revolution” or “mandate” in 1947 is  fantasy — the Muslim super-elite that invented and endorsed the Pakistan idea flew from Delhi to Karachi in chartered BOAC Dakotas, caring not a hoot about the vulnerability of ordinary Muslim masses to Sikh and Hindu majority wrath and retaliation on the ground.

Modern India succeeded to the rights and obligations of British India in international law, and has had a recognized existence as a state since at least the signing of the Armistice and Treaty of Versailles in 1918-1919.  India was a founding member of the United Nations, being a signatory of the 1945 San Francisco Declaration, and an original member of the Bretton Woods institutions.  An idea put forward by Argentina that as of 1947 India and Pakistan were both successor states of British India was rejected by the UN (Argentina withdrew its own suggestion), and it was universally acknowledged India was already a member of the UN while Pakistan would have to (and did) apply afresh for membership as a newly created state in the UN.  Pakistan’s entry into the UN had the enthusiastic backing of India and was opposed by only one existing UN member, Afghanistan, due to a conflict that continues to this day over the legitimacy of the Durand Line that bifurcated the Pashtun areas.

Such a review of elementary historical facts and the position in law of Pakistan and India is far from being of merely pedantic interest today.  Rather, it goes directly to the logical roots of the conflict over the erstwhile State of Jammu and Kashmir (J&K) — a state that itself originated as an entity in the world system a full century before Pakistan was to do so and more than half a century before British India did, but which would collapse into anarchy and civil war in 1947-1949.

Britain (or England) had been a major nation-state in the world system recognized since Grotius first outlined modern international law. On March 16 1846, Britain entered into a treaty, the Treaty of Amritsar, with one Gulab Singh, and the “State of Jammu & Kashmir” came to arise as a recognizable entity in international law for the first time. (See my “History of Jammu and Kashmir” published in The Statesman, Oct 29-30 2006, available elsewhere here.)

Jammu & Kashmir continued in orderly existence as a state until it crashed into legal and political anarchy and civil war a century later.  The new Pakistan had entered into a “Standstill Agreement” with the State of Jammu & Kashmir as of August 15 1947. On or about October 22 1947, Pakistan unilaterally ended that Standstill Agreement and instead caused military forces from its territory to attack the State of Jammu & Kashmir along the Mansehra Road towards Baramula and Srinagar, coinciding too with an Anglo-Pakistani coup d’etat in Gilgit and Baltistan (see my “Solving Kashmir”; “Law, Justice & J&K”; “Pakistan’s Allies”, all published in The Statesman in 2005-2006 and available elsewhere here).

The new Pakistan had chosen, in all deliberation, to forswear law, politics and diplomacy and to resort to force of arms instead in trying to acquire J&K for itself via a military decision.  It succeeded only partially.  Its forces took and then lost both Baramula and Kargil; they may have threatened Leh but did not attempt to take it; they did take and retain Muzaffarabad and Skardu; they were never near taking the summer capital, Srinagar, though might have threatened the winter capital, Jammu.

All in all, a Ceasefire Line came to be demarcated on the military positions as of February 1 1949.  After a war in 1971 that accompanied the secession of Bangladesh from Pakistan, that Ceasefire Line came to be renamed the “Line of Control” between Pakistan and India. An ownerless entity may be acquired by force of arms — the erstwhile State of Jammu & Kashmir in 1947-1949 had become an ownerless entity that had been dismembered and divided according to military decision following an armed conflict between Pakistan and India.  The entity in the world system known as the “State of Jammu & Kashmir” created on March 16 1846 by Gulab Singh’s treaty with the British ceased to exist as of October 22 1947.  Pakistan had started the fight over J&K but there is a general rule of conflicts that he who starts  a fight does not get to finish it.

 

Such is the simplest and most practical statement of the history of the current problem.  The British, through their own compulsions and imperial pretensions, raised all the talk about a “Lapse of Paramountcy” of the British Crown over the “Native Princes” of “Indian India”, and of how, the “Native Princes” were required to “accede” to either India or Pakistan.  This ignored Britain’s own constitutional law.  BR Ambedkar pointed out with unsurpassed clarity that no “Lapse of Paramountcy” was possible even for a single logical moment since “Paramountcy” over any “Native Princes” who had not joined India or Pakistan as of August 15 1947, automatically passed from British India to its legal successor, namely, the Dominion of India.   It followed that India’s acquiescence was required for any subsequent accession to Pakistan – an acquiescence granted in case of Chitral and denied in case of Junagadh.

 

What the Republic of India means by saying today that boundaries cannot be redrawn nor any populations forcibly transferred is quite simply that the division of erstwhile J&K territory is permanent, and that sovereignty over it is indivisible. What Pakistan has claimed is that India has been an occupier and that there are many people inhabiting the Indian area who may not wish to be Indian nationals and who are being compelled against their will to remain so ~  forgetting to add that precisely the same could be said likewise of the Pakistani-held area. The lawful solution I proposed in “Solving Kashmir, “Law, Justice and J&K” and other works has been that the Republic of India invite every person covered under its Article 370, citizen-by-citizen, under a condition of full information, to privately and without fear decide, if he/she has not done so already, between possible Indian, Iranian, Afghan or Pakistani nationalities ~ granting rights and obligations of permanent residents to any of those persons who may choose for whatever private reason not to remain Indian nationals. If Pakistan acted likewise, the problem of J&K would indeed come to be resolved. The Americans, as self-appointed mediators, have said they wish “the people of the region to have a voice” in a solution: there can be no better expression of such voice than allowing individuals to privately choose their own nationalities and their rights and responsibilities accordingly. The issue of territorial sovereignty is logically distinct from that of the choice of nationality by individual inhabitants.

 

 

2.  Benazir’s assassination falsely compared to the Mumbai massacres

Secondly, President Zardari draws a mistaken comparison between the assassination last year of his wife, Benazir Bhutto, and the Mumbai massacres a few weeks ago.  Ms Bhutto’s assassination may resemble more closely the assassinations in India of Indira Gandhi in 1984 and Rajiv Gandhi in 1991.

 

Indira Gandhi died in “blowback” from the unrest she and her younger son and others in their party had opportunistically fomented among Sikh fundamentalists and sectarians since the late 1970s.  Rajiv Gandhi died in “blowback” from an erroneous imperialistic foreign policy that he, as Prime Minister, had been induced to make by jingoistic Indian diplomats, a move that got India’s military needlessly involved in the then-nascent Sri Lankan civil war.  Benazir Bhutto similarly may be seen to have died in “blowback” from her own political activity as prime minister and opposition leader since the late 1980s, including her own encouragement of Muslim fundamentalist forces.  Certainly in all three cases, as in all assassinations, there were lapses of security too and imprudent political judgments made that contributed to the tragic outcomes.

 

Ms Bhutto’s assassination has next to nothing to do with the Mumbai massacres, besides the fact the perpetrators in both cases were Pakistani terrorists.  President Zardari saying he himself has lost his wife to terrorism is true but not relevant to the proper diagnosis of the Mumbai massacres or to Pakistan-India relations in general.  Rather, it  serves to deflect criticism and condemnation of the Pakistani state’s pampered handing of Pakistan’s terrorist masterminds, as well as the gross irresponsibility of Pakistan’s military scientists (not AQ Khan) who have been recently advocating a nuclear first strike against India in the event of war.

 

 

3.  Can any religious nation-state be viable in the modern world?

President Zardari’s article says:

 

“The world worked to exploit religion against the Soviet Union in Afghanistan by empowering the most fanatic extremists as an instrument of destruction of a superpower. The strategy worked, but its legacy was the creation of an extremist militia with its own dynamic.”

 

This may be overly simplistic.  As pointed out in my article “Pakistan’s Allies”,  Gregory Zinoviev himself  after the Bolshevik Revolution had declared that international communism “turns today to the peoples of the East and says to them, ‘Brothers, we summon you to a Holy War first of all against British imperialism!’ At this there were cries of Jehad! Jehad! And much brandishing of picturesque Oriental weapons.” (Treadgold, Twentieth Century Russia, 1990, p. 213).   For more than half of the 20th century, orthodox Muslims had been used by Soviet communists against British imperialism, then by the British and Americans (through Pakistan) against Soviet communism.  Touché! Blowback and counter-blowback!  The real question that arises from this today may be why orthodox Muslims have allowed themselves to be used either way by outside forces and have failed in developing a modern nation-state and political culture of their own.  Europe and America only settled down politically after their religious wars were over.  Perhaps no religious nation-state is viable in the modern world.

 

 

4.  Pakistan’s behaviour leads to schizophrenia in international relations

 

President Zardari pleads for, or perhaps demands, resources from the world:

“the best response to the Mumbai carnage is to coordinate in counteracting the scourge of terrorism. The world must act to strengthen Pakistan’s economy and democracy, help us build civil society and provide us with the law enforcement and counterterrorism capacities that will enable us to fight the terrorists effectively.”

Six million pounds from Mr Gordon Brown, so much from here or there etc —  President Zardari has apparently demanded 100 billion dollars from America and that is the price being talked about for Pakistan to dismantle its nuclear weapons and be brought under an American “nuclear umbrella” instead.

I have pointed out elsewhere that what Pakistan seems to have been doing in international relations for decades is send out “mixed messages” – i.e. contradictory signals,  whether in thought, word or deed.  Clinical psychologists following the work of Gregory Bateson would say this leads to confusion among Pakistan’s interlocutors (a “double bind”) and the symptoms arise of what may be found in schizophrenic relationships.  (See my article “Do President-elect Obama’s Pakistan specialists believe…”; on the “double bind” theory,  an article I chanced to publish in the Journal of Genetic Psychology, 1986, may be of interest).

Here are a typical set of “mixed messages” emanating from Pakistan’s government and opinion-makers:

“We have nuclear weapons
“We keep our nuclear weapons safe from any misuse or unauthorized use
“We are willing to use nuclear weapons in a first strike against India
“We do not comprehend the lessons of Hiroshima-Nagasaki
“We do not comprehend the destruction India will visit upon us if we strike them
“We are dangerous so we must not be threatened in any way
“We are peace-loving and want to live in peace with India and Afghanistan
“We love to play cricket with India and watch Bollywood movies
“We love our Pakistan Army as it is one public institution that works
“We know the Pakistan Army has backed armed militias against India in the past
“We know these militias have caused terrorist attacks
“We are not responsible for any terrorist attacks
“We do not harbour any terrorists
“We believe the world should pay us to not use or sell our nuclear weapons
“We believe the world should pay us to not encourage the terrorists in our country
“We believe the world should pay us to prevent terrorists from using our nuclear weapons
“We hate India and do not want to become like India
“We love India and want to become like India
“We are India and we are not India…”

Etc.

A mature rational responsible and self-confident Pakistan would have said instead:

“We apologise to India and other countries for the outrageous murders our nationals have committed in Mumbai and elsewhere
“We ask the world to watch how our professional army is deployed to disarm civilian and all “non-state” actors of unauthorized firearms and explosives
“We do not need and will not demand or accept a dollar in any sort of foreign aid, military or civilian, to solve our problems
“We realize our economic and political institutions are a mess and we must clean them up
“We will strive to build a society imbued with what Iqbal described as the spirit of modern times..”

As someone who created at great personal cost at an American university twenty years ago the book Foundations of Pakistan’s Political Economy: Towards an Agenda for the 1990s, I have a special interest in hoping that Pakistan shall find the path of wisdom.

Protected: Jawaharlal Nehru invites my father to the Mountbatten Farewell 20 June 1948

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Indira Gandhi in Paris, 1971

This is a photograph of Indira Gandhi emerging with Andre Malraux for a press-conference at the Embassy of India in Paris  in the Autumn of 1971.   (My father, pictured in the centre, had been posted to the Embassy  just a few weeks earlier in anticipation of the visit.  [My father recalls her asking him during or between one of these meetings, “Mr Roy, I am very hungry, can you please get me something to eat?”, and he went and grabbed a small hotel plate full of peanuts which she devoured…])  Indira was making the serious diplomatic effort that she did in world capitals to avert war with West Pakistan over its atrocities in East Pakistan.  War could not be averted and within a few weeks, in December 1971, Bangladesh was born.

 

“Indira Gandhi’s one and paramount good deed as India’s leader and indeed as a world leader of her time was to have fought a war that was so rare in international law for having been unambiguously just. And she fought it flawlessly. The cause had been thrust upon her by an evil enemy’s behaviour against his own people, an enemy supported by the world’s strongest military power with pretensions to global leadership. Victims of the enemy’s wickedness were scores of millions of utterly defenceless, penniless human beings. Indira Gandhi did everything right. She practised patient but firm diplomacy on the world’s stage to avert war if it was at all possible to do. She chose her military generals well and took their professional judgement seriously as to when to go to war and how to win it. Finally, in victory she was magnanimous to the enemy that had been defeated. Children’s history-books in India should remember her as the stateswoman who freed a fraternal nation from tyranny, at great expense to our own people. As a war-leader, Indira Gandhi displayed extraordinary bravery, courage and good sense.” (From my review article of Inder Malhotra’s Indira Gandhi, first published in The Statesman May 7 2006 and republished elsewhere here under “Revisionist Flattery”.)

 

“She had indeed fought that rarest of things in international law: the just war. Supported by the world’s strongest military, an evil enemy had made victims of his own people. Indira tried patiently on the international stage to avert war, but also chose her military generals well and took their professional judgement seriously as to when to fight if it was inevitable and how to win. Finally she was magnanimous (to a fault) towards the enemy ~ who was not some stranger to us but our own estranged brother and cousin.  It seemed to be her and independent India’s finest hour. A fevered nation was thus ready to forgive and forget her catastrophic misdeeds until that time….” (From  “Unhealthy Delhi” first published in The Statesman June 11 2007,  republished elsewhere here).

Leadership vacuum

First published in The Statesman, Editorial Page Special Article, June 7 2008, http://www.thestatesman.net

Leadership vacuum

Time & Tide Wait For No One In Politics: India Trails Pakistan & Nepal!

Subroto Roy

The Karnataka legislative elections, as well as to lesser extent the Bengal panchayat polls, have revealed the vacuum that exists across the leadership of India’s national-level politics today.

To start with the BJP: had India been a normal democratic country on the Western pattern, Mr Arun Jaitley would have rocketed to the top of his party’s leadership by now. Besides being articulate in both Hindi and English and in his fifties (the age-group of most leaders in democratic countries), Mr Jaitley’s political acumen and organisational skills have been acknowledged even by his Congress adversaries after the Karnataka result. He himself has been frank and expansive about his formula for winning in Karnataka, which was simply to focus on real issues, especially state-specific ones, as well as to project a single credible leader. Had the BJP been a normal political party in a normal country, Mr Jaitley would have been given the task of leading it to victory in the next General Election and, assuming he won a Lok Sabha seat, to become its prime ministerial candidate.

Dadagiri

Instead, the BJP chooses to remain backward, backward, backward in the majority of its thought-processes and behaviour-patterns ~ from its kneejerk anti-Muslim psychology via its hyperinflationary macroeconomics and protectionist trade to its embrace of astrology and bovine exclusiveness. The idea of uniting behind someone relatively modern-minded in his politics like Mr Jaitley would be simply unacceptable not merely to people in the party within his own age-cohort (including the present party president) but even more so to those in age-cohorts decades older (including the party’s present prime ministerial candidate).

The opposition of the first group would arise from, in a word, jealousy. The opposition of the second group would arise from, in a word, dadagiri, i.e. the gerontocratic idea that merely because one is older, one is owed respect, authority and the plums of office in precedence over someone who is younger. Jealousy is a universal emotion not something specific to Indian politics, but dadagiri and the lack of meritocracy in our political culture is one reason India remains an abnormal polity in the modern democratic world.

LK Advani, driven by his unfulfilled personal ambition, will likely lead the BJP in the next election and do so with Mr Jaitley’s explicit support; Mr Advani may lead it into defeat or even to a victory in which he, given his age, is not as successful a PM as a Jaitley might have been. Yet our sclerotic political culture is such that neither Mr Advani nor Mr Rajnath Singh will simply stand aside now and hand over the reins to a newer, more competent and progressive leadership.

The same idea of dadagiri pervades what passes for the official “Left” in India as exemplified by the CPI-M. Mr Jyoti Basu has in a recent letter to Harkishen Singh Surjeet reminisced of their times together, and in doing so remarked that he remained the Chief Minister of West Bengal for as many years as he did because the Party had instructed him to do so, and when he handed over power to Buddhadeb Bhattacharjee, he did so with the Party’s agreement.

Those who believe in India’s parliamentary democracy might have thought that what our system requires is for a Chief Minister to hold the confidence of the legislative assembly from the bottom up but clearly that is not so because what a CM or PM seems to need are Party instructions from the top down. When Mr Bhattacharjee was anointed the new CM, the present author had remarked to the then Editor of The Statesman that the transition seemed to take place even without a formal vote of confidence in the Assembly. Does anyone in fact recall the last confidence vote debated and passed in the West Bengal Assembly? Democratic legislatures the world over routinely begin their new sessions with a debate and vote of no confidence being brought by the Opposition against the Government-of-the-day.

Does that happen with us, purportedly the world’s largest democracy? Let aside State legislatures, even our Parliament sees only the rare vote of confidence, and LK Advani specifically as Leader of the Opposition seems to have introduced none. Oppositions that do not wish to properly oppose are of course complicit in a government’s misdeeds.

It is the dadagiri culture shared by the official Communists that has caused the generational handover of power from Mr Basu and Mr Surjeet to the JNU coterie of the Karats and Mr Sitaram Yechuri. The “Left” like the “Right” and everyone else in Indian politics, can only handle cherubic “known” faces at the top ~ genuine grassroots activists like Binayak Sen or Medha Patkar must languish in jail or starve on hunger-strike in seeking to represent the politically and economically powerless in India while the entrenched dadas of Indian politics continue with their dissimulation.

Puppet-masters

In case of the Congress, it is an even deeper aspect of the Indian joint family system than dadagiri that has dominated its political culture, namely, the question who is the karta of the family and, if the karta is or seems too young or naïve or inexperienced, who will act as Regent on the karta’s behalf? Indira Gandhi was successfully guided in international politics for several years by a coterie led by PN Haksar. Rajiv Gandhi was attempted to be guided by several different competing coteries of senior party dadas ~ one of whom first brought up the name of Manmohan Singh in Indian politics on 22 March 1991 in a challenge addressed to the present author on liberalisation plans that Rajiv had authorised.

It is almost true to say that Sonia Gandhi and Rahul Gandhi have been in recent years played by puppet-masters of whose personal interests and intrigues they remain clueless. As has been said before by this author, the most salubrious thing Sonia Gandhi could have done for the Congress Party was to remain steadfast in her decision to stay out of Indian politics, and to have organised a fair, tough intra-party contest among its putative senior leaders based on differences of political and economic ideology.

Instead there is now paralysis in decision-making induced by Sonia Gandhi and Manmohan Singh each mistakenly relying upon the other’s purported economic wisdom and political acumen. This confusion came to be most clearly illustrated in the choice of Head of State last year though that was something politically costless ~ the failures of which Karnataka is the current example may lead the Congress to lose what it, like other Indian parties, loves most of all, namely political power in Lutyens’ Delhi.

Indians should make no mistake: our good neighbours in Pakistan and Nepal (Muslim in Pakistan, Hindu and Buddhist and communist in Nepal) have been through healthy cathartic political experiences in recent months and years of a kind we have not. There continues to remain a dangerous intellectual vacuum around the throne of Delhi.

Nixon & Mao vs India: How American foreign policy did a U-turn about Communist China’s India aggression

Nixon & Mao vs India

How American foreign policy did a U-turn about Communist China’s India aggression. The Government of India should publish its official history of the 1962 war.

by

SUBROTO ROY

First published in The Sunday Statesman, Jan 6 2008, The Statesman Jan 7 2008

Editorial Page Special Article

THE 1972-74 conversations between Richard Nixon and Henry Kissinger on one hand and Mao Zedong, Zhou Enlai and Deng Xiaoping on the other, especially about India, Pakistan and Bangladesh, have been public for a few years now. They make disturbing reading for Indians and Bangladeshis, and for Pakistanis too who may be concerned about the political health of their country. Yahya Khan, Pakistan’s debauched military dictator, made the Nixon-Mao meeting possible and received much praise from Zhou and support from Nixon and Kissinger. Pakistan’s official assessment of Yahya following the 1971 military defeat and secession of Bangladesh was far more candid and truthful, giving the lie to the praise bestowed upon him by Nixon and Zhou in their conversation.

Nixon and Kissinger were decidedly second-rate intellects in political power who believed themselves first-rate ~ a dangerous circumstance. Their policy caused Chiang Kaishek’s Republic of China to be expelled from the UN, its veto-wielding seat taken by Mao’s People’s Republic. The Government of India, under influence of communist sympathisers like Krishna Menon, KM Pannikar, KPS Menon et al, had been pleading the same case at the UN since 1949/1950, rebuffed each time by American veto. Now Nixon and Kissinger yielded to the idea to the delight of Mao-Zhou, and ganged up with Pakistan’s military against democratic India and the new Bangladesh.

Nixon went to Beijing at a time the catastrophic American involvement in Vietnam had reached a peak ~ something that itself was an outcome of the Dulles-Nixon doctrine of a “domino effect” in South East Asia. The Americans failed to comprehend Vietnamese nationalism against France or recognise how that had been historically directed at imperial China. Nixon’s carpet-bombing of Cambodia in needless extension of the Vietnam conflict was to cause the rise to power of Pol Pot and his vicious Khmer Rouge (to remove whom Vietnam attacked, causing China to attack Vietnam in 1979).

Nixon was in Beijing in February 1972 ostensibly to seek Chinese cooperation in ending the Vietnam War, as well as opening an Eastern Front in the Cold War against the USSR. Nixon fancied himself a Metternich-like statesman whose wisdom and brilliance would redesign the international order for a century. What was plain to unsentimental observers was that his underlying purpose was greedy and hardly statesmanlike, namely, winning re-election in November 1972 by outflanking domestic left-wing criticism using photos of having been toasted by Mao himself. That Nixon was no Machiavelli, Metternich or Bismarck but more likely just delusional and paranoid came to be revealed in his subsequent political debacle over Watergate.

The US attitude towards China’s 1959-1962 aggression against India changed drastically because of Nixon’s Beijing visit. Tibet’s people and culture had not been attacked and brutalised by Chiang Kaishek’s Nationalist Army nor by India’s soldiers ~ the Mao-Zhou Communist war machine, fresh from their Korean adventures, did that. There would have been no border conflict between China and India today in 2008 if Communist China had not first invaded and occupied Tibet.

All such fundamental facts used to be perfectly clear to the Americans as to everyone else. India’s Defence Ministry’s excellent official history of the 1962 war acknowledges the vital aid sent by President Kennedy with the help of Ambassador Galbraith. Ten years later, in 1972, Nixon and Kissinger in Beijing changed all that completely and did a U-turn against India using the dubious book of a single journalist as cover for their dissimulation:

“ZHOU: …. Actually the five principles (of peaceful coexistence) were put forward by us, and Nehru agreed. But later on he didn’t implement them. In my previous discussions with Dr Kissinger, I mentioned a book by Neville Maxwell about the Indian war against us, which proves this.
NIXON: I read the book.
KISSINGER: I gave it to the President.
NIXON: I committed a faux pas ~ Dr Kissinger said it was ~ but I knew what I was doing. When Mrs Gandhi was in my office before going back, just before the outbreak of the (1971) war, I referred to that book and said it was a very interesting account of the beginning of the war between India and China. She didn’t react very favourably when I said that. (Zhou laughs)
ZHOU: Yes, but you spoke the truth. It wasn’t faux pas. Actually that event was instigated by Khrushchev. He encouraged them. In looking at 1962, the events actually began in 1959. Why did he go to Camp David? In June of that year, before he went to Camp David, he unilaterally tore up the nuclear agreements between China and the Soviet Union. And after that there were clashes between Chinese and Indian troops in the western part of Sinkiang, the Aksai Chin area. In that part of Sinkiang province there is a high plateau. The Indian-occupied territory was at the foot of the Karakorums, and the disputed territory was on the slope in between.
KISSINGER: It’s what they call Ladakh.
NIXON: They attacked up the mountains.
ZHOU: We fought them and beat them back, with many wounded. But the TASS Agency said that China had committed the aggression against India…..They just don’t want to listen to reason. Anyway, the TASS Agency account had the effect of encouraging India. And also Maxwell mentioned in the book that in 1962 the Indian Government believed what the Russians told them that we, China, would not retaliate against them. Of course we won’t send our troops outside our borders to fight against other people. We didn’t even try to expel Indian troops from the area south of the McMahon Line, which China doesn’t recognize, by force. But if (Indian) troops come up north of the McMahon Line, and come even further into Chinese territory, how is it possible for us to refrain from retaliating? We sent three open telegrams to Nehru asking him to make a public reply, but he refused. He was so discourteous; he wouldn’t even do us the courtesy of replying, so we had no choice but to drive him out. You know all the other events in the book, so I won’t describe them, but India was encouraged by the Soviet Union to attack.
NIXON: I would like to ask the Prime Minister a question with regard to Bangladesh recognition. We have delayed recognition though Britain and other countries have done so.
ZHOU: France has also recognised Bangladesh.
NIXON: Before we make a decision on that, we have tried to find the attitude of (Zulfikar Ali) Bhutto. And Bhutto indicated he does not object to recognition. In fact he could see that we would have some advantage in not leaving the field clear to the Soviet Union in that region. It is our understanding that India is supposed to withdraw all its forces from Bangladesh by the 24th of March. And based on what we have for consideration, we have for consideration the possibility of recognising Bangladesh about that time….”
“ZHOU: …. we truly wish to see (India) truly withdraw their troops in East Pakistan, now called Bangladesh. We wish to see them truly do this and not just with words. Of course they can only do that superficially, because if they get some Bengali forces to remain and join Mujibar Rahman, there would be no way to be sure because the Bengalis all look the same. But that would trouble to the future of India and Mrs Gandhi herself. The Indians said they have no territorial ambitions, but the development of events is that they have remained in their place and refused to withdraw. Once again we can only cite the events of Indian aggression in the 1962 war. At that time our troops pressed to the foothills quite close to Tezpur in Assam, and when they reached that place, Chairman Mao ordered that all troops should turn back. We turned back to the Indians ~ this is in Maxwell’s book ~ and we withdrew all troops back north of the so-called McMahon Line because one must show one can be trusted and must not wait for others to act…. India should withdraw its troops from the areas it is occupying in West Pakistan, and Pakistan should also withdraw from the lesser areas it occupies in India. Bhutto agrees. These two things, at least, the Indian side should abide by. If the US recognises Bangladesh after this situation is brought about, then we believe this would raise the prestige of the US in the United Nations.
After all, what you want is to bring about the withdrawal of all troops from Bangladesh and West Pakistan. Also, you will be able to encourage Mr Bhutto and give him some assistance. That is what they need. You said your actions should be parallel to ours, and we don’t mind that. We said this both to Yahya, the former President, and to the present President. Both of us owe something to Yahya, although he didn’t show much statesmanship in leading his country, for (bridging) the link between our two countries.
NIXON: He is a bridge.
ZHOU: We should not forget and we cannot forget, especially that Dr Kissinger was able through him to come secretly for talks here. And when a man makes a contribution to the world, we should remember him.
KISSINGER: Actually the President sent a message to Bhutto that he should treat Yahya well in retirement and we would not look favourably on any retribution. It was a personal message from Pakistan.
ZHOU: …. At the time of the ceasefire they (the Pakistanis) still had 80,000 troops in East Pakistan. It was not a situation in which they couldn’t keep fighting….. Yahya should have concentrated his troops to win a victory, and once the Indians had suffered a defeat they would have stopped because West Bengal was not very secure either. So at that time even our Vice Foreign Minister still believed they could win the war. Bhutto too…. .
KISSINGER: (Reading from a cable) Mr President, you were speaking of military shipments. We have information that the Soviet Union has shipped since November 150 tanks from Poland and 100 armored personnel carriers from Czechoslovakia. They were shipped in two ships each month in November and December. In January a third ship was to bring military equipment to India.
NIXON: To India?
KISSINGER: To India.
NIXON: The problem is to find some way that West Pakistan can find some military equipment and assistance. On our side, what we will do is to supply substantial amounts of economic assistance to West Pakistan. That would enable West Pakistan to ~ we would think in the interest of its defence ~ to acquire arms from other sources. As a matter of fact, that is the tragedy of our policy in India. We supplied almost 10 billion dollars in assistance to India in the last 20 years ~ very little was military assistance, it was economic ~ and that relieved India so it could purchase very substantial amounts of arms from the Soviet Union, and also manufacture arms. That was not our intent, but that’s what happened. With regard to our aid to India on this point ~ economic assistance ~ we are going to move in a very measured way. I am resisting considerable pressure from the public and the press to rush in and resume economic assistance at former levels. We are going to wait and see what India does with regard to the border problem and our relations generally.
ZHOU: And India actually is a bottomless hole. (Nixon laughs)
NIXON: When the Prime Minister referred to the problem India has with Bangladesh, as I look at India’s brief history, it has had enough trouble trying to digest West Bengal. If now it tries to digest East Bengal it may cause indigestion which could be massive.
ZHOU: That’s bound to be so. It is also a great pity that the daughter (Madame Gandhi) has also taken as her legacy the philosophy of her father embodied in the book Discovery of India (in English). Have you read it?
KISSINGER: He was thinking of a great India empire?
ZHOU: Yes, he was thinking of a great Indian empire ~ Malaysia, Ceylon, etc. He would probably also include our Tibet. When he was writing that book in a British prison, but one reserved for gentlemen in Darjeeling. Nehru told me himself that the prison was in Sikkim, facing the Himalayan mountains. At the time I hadn’t read the book, but my colleague Chen Yi had, and called it to my attention. He said it was precisely the spirit of India which was embodied in the book. Later on when I read it I had the same thought.
NIXON: …. Germany and Japan, received US aid…. why (they) have done so well, it is because they have qualities of drive and are willing to work hard, whereas some other countries we have helped do not have this quality. This brings me to the point: it is not the help that is provided a country that counts, it is whether the people of that country have the will to use this help. If they don’t have that, the money just goes down a rathole. A pretty good example is aid to India. (Zhou laughs)… India is not able to do much with aid because as compared with Japan, it does not have the drive, or the spirit of determination that the Japanese people have…..”

Genocide
Every Bangladeshi knows the causal role Z A Bhutto had in Pakistan’s civil war yet it is upon the word of such a man that Nixon’s recognition of their nation seemed based. The famous “Archer Blood telegram” by the American Consul-General in Dhaka reporting the genocidal Yahya-Tikka assault on East Pakistan starting March 25 1971 meant nothing to Nixon and Kissinger. Benazir retained her charm in Washington’s power circles because she was Bhutto’s daughter. Similarly, as recently as the 1999 Kargil conflict, Bill Clinton flatteringly referred to China for advice on how to deal with India and Pakistan.

Perversely enough, many in New Delhi, Kolkata etc express so much confused love for both China and the United States that they have accepted as their own the biased baseless opinions about India expressed by Nixon, Kissinger and the Communist Chinese. They would do well to read instead the Defence Ministry’s excellently researched historical account of the 1962 war, which the Government of India should not only publish properly at once but have translated into Mandarin as well.

Dr Manmohan Singh has as recently as 29 November 2007 expressed the opinion: “The type of leadership that China has produced since the days of Deng, I think, is the greatest asset that China has”. Dr Singh might have said, but did not, that China’s greatest asset has been in fact the preservation of Confucian values despite decades of communist tyranny and destruction. With such deep misapprehension about post-1949 China on the part of India’s present Head of Government, it may be unlikely that New Delhi or Kolkata acquires a realistic view of our neighbour or of a healthy China-India relationship in the 21st Century.

Against Quackery

Against Quackery

 

 

First published in two parts in The Sunday Statesman, September 23 2007, The Statesman September 24 2007

 

by

Subroto Roy

 

 

Manmohan and Sonia have violated Rajiv Gandhi’s intended reforms; the Communists have been appeased or bought; the BJP is incompetent

 

 

WASTE, fraud and abuse are inevitable in the use and allocation of public property and resources in India as elsewhere, but Government is supposed to fight and resist such tendencies. The Sonia-Manmohan Government have done the opposite, aiding and abetting a wasteful anti-economics ~ i.e., an economic quackery. Vajpayee-Advani and other Governments, including Narasimha-Manmohan in 1991-1996, were just as complicit in the perverse policy-making. So have been State Governments of all regional parties like the CPI-M in West Bengal, DMK/ AIADMK in Tamil Nadu, Congress/NCP/ BJP/Sena in Maharashtra, TDP /Congress in Andhra Pradesh, SP/BJP/BSP in Uttar Pradesh etc. Our dismal politics merely has the pot calling the kettle black while national self-delusion and superstition reign in the absence of reason.

 

 

The general pattern is one of well-informed, moneyed, mostly city-based special interest groups (especially including organised capital and organised labour) dominating government agendas at the cost of ill-informed, diffused anonymous individual citizens ~ peasants, small businessmen, non-unionized workers, old people, housewives, medical students etc. The extremely expensive “nuclear deal” with the USA is merely one example of such interest group politics.

 

 

Nuclear power is and shall always remain of tiny significance as a source of India’s electricity (compared to e.g. coal and hydro); hence the deal has practically nothing to do with the purported (and mendacious) aim of improving the country’s “energy security” in the long run. It has mostly to do with big business lobbies and senior bureaucrats and politicians making a grab, as they always have done, for India’s public purse, especially access to foreign currency assets. Some $300 million of India’s public money had to be paid to GE and Bechtel Corporation before any nuclear talks could begin in 2004-2005 ~ the reason was the Dabhol fiasco of the 1990s, a sheer waste for India’s ordinary people. Who was responsible for that loss? Pawar-Mahajan-Munde-Thackeray certainly but also India’s Finance Minister at the time, Manmohan Singh, and his top Finance Ministry bureaucrat, Montek Ahluwalia ~ who should never have let the fiasco get off the ground but instead actively promoted and approved it.

 

 

Cost-benefit analysis prior to any public project is textbook operating procedure for economists, and any half-competent economist would have accounted for the scenario of possible currency-depreciation which made Dabhol instantly unviable. Dr Singh and Mr Ahluwalia failed that test badly and it cost India dearly. The purchase of foreign nuclear reactors on a turnkey basis upon their recommendation now reflects similar financial dangers for the country on a vastly larger scale over decades.

 

 

Our Government seems to function most expeditiously in purchasing foreign arms, aircraft etc ~ not in improving the courts, prisons, police, public utilities, public debt. When the purchase of 43 Airbus aircraft surfaced, accusations of impropriety were made by Boeing ~ until the local Airbus representative said on TV that Boeing need not complain because they were going to be rewarded too and soon 68 aircraft were ordered from Boeing!

 

 

India imports all passenger and most military aircraft, besides spare parts and high-octane jet fuel. Domestic aviation generates near zero forex revenues and incurs large forex costs ~ a debit in India’s balance of payments. Domestic airline passengers act as importers subsidised by our meagre exporters of textiles, leather, handicrafts, tea, etc. What a managerially-minded PM and Aviation Minister needed to do before yielding to temptations of buying new aircraft was to get tough with the pampered managements and unions of the nationalized airlines and stand up on behalf of ordinary citizens and taxpayers, who, after all, are mostly rail or road-travellers not jet-setters.

 

 

The same pattern of negligent policy-behaviour led Finance Minister P. Chidambaram in an unprecedented step to mention in his 2007 Union Budget Speech the private American companies Blackstone and GE ~ endorsing the Ahluwalia/Deepak Parekh idea that India’s forex reserves may be made available to be lent out to favoured private businesses for purported “infrastructure” development. We may now see chunks of India’s foreign exchange reserves being “borrowed” and never returned ~ a monumental scam in front of the CBI’s noses.

 

 

The Reserve Bank’s highest echelons may have become complicit in all this, permitting and encouraging a large capital flight to take place among the few million Indians who read the English newspapers and have family-members abroad. Resident Indians have been officially permitted to open bank accounts of US $100,000 abroad, as well as transfer gifts of $50,000 per annum to their adult children already exported abroad ~ converting their largely untaxed paper rupees at an artificially favourable exchange-rate.

 

 

In particular, Mr Ratan Tata (under a misapprehension he may do whatever Lakshmi Mittal does) has been allowed to convert Indian rupees into some US$13,000,000,000 to make a cash purchase of a European steel company. The same has been allowed of the Birlas, Wipro, Dr Reddy’s and numerous other Indian corporations in the organised sector ~ three hundred million dollars here, five hundred million dollars there, etc. Western businessmen now know all they have to do is flatter the egos of Indian boxwallahs enough and they might have found a buyer for their otherwise bankrupt or sick local enterprise. Many newcomers to New York City have been sold the Brooklyn Bridge before. “There’s a sucker born every minute” is the classic saying of American capitalism.

 

 

The Sonia-Manmohan Government, instead of hobnobbing with business chambers, needed to get Indian corporations to improve their accounting, audit and governance, and reduce managerial pilfering and embezzlement, which is possible only if Government first set an example.

 

 

Why have Indian foreign currency reserves zoomed up in recent years? Not mainly because we are exporting more textiles, tea, software engineers, call centre services or new products to the world, but because Indian corporations have been allowed to borrow abroad, converting their hoards of paper rupees into foreign debt. Forex reserves are a residual in a country’s international balance of payments and are not like tax-resources available to be spent by Government; India’s reserves largely constitute foreign liabilities of Indian residents. This may bear endless repetition as the PM and his key acolytes seem impervious to normal postgraduate-level economics textbooks.

 

 

Other official fallacies include thinking India’s savings rate is near 32 per cent and that clever bureaucratic use of it can cause high growth. In fact, real growth arises not because of what politicians and bureaucrats do but because of spontaneous technological progress, improved productivity and learning-by-doing of the general population ~ mostly despite not because of an exploitative parasitic State. What has been mismeasured as high savings is actually expansion of bank-deposits in a fractional reserve banking system caused by runaway government deficit-spending.

 

 

Another fallacy has been that agriculture retards growth, leading to nationwide politically-backed attempts at land-grabbing by wily city industrialists and real estate developers. In a hyperinflation-prone economy with wild deficit-spending and runaway money-printing, cheating poor unorganised peasants of their land, when that land is an asset that is due to appreciate in value, has seemed like child’s play.

 

 

What of the Opposition? The BJP/RSS have no economists who are not quacks though opportunists were happy to say what pleased them to hear when they were in power; they also have much implicit support among organised business lobbies and the anti-Muslim senior bureaucracy. The official Communists have been appeased or bought, sometimes so cheaply as with a few airline tickets here and there. The nonsensical “Rural Employment Guarantee” is descending into the wasteland of corruption it was always going to be. The “Domestic Violence Act” as expected has started to destroy India’s families the way Western families have been destroyed. The Arjun-DMK OBC quota corrodes higher education further from its already dismal state. All these were schemes that Congress and Communist cabals created or wholeheartedly backed, and which the BJP were too scared or ignorant to resist.

 

 

And then came Singur and Nandigram ~ where the sheer greed driving the alliance between the Sonia-Manmohan-Pranab Congress and the CPI-M mask that is Buddhadeb, came to be exposed by a handful of brave women like Mamata and Medha.

 

 

A Fiscal U-Turn is Needed For India to Go in The Right Economic Direction

 

Rajiv Gandhi had a sense of noblesse oblige out of remembrance of his father and maternal grandfather. After his assassination, the comprador business press credited Narasimha Rao and Manmohan Singh with having originated the 1991 economic reform. In May 2002, however, the Congress Party itself passed a resolution proposed by Digvijay Singh explicitly stating Rajiv and not either of them was to be so credited. The resolution was intended to flatter Sonia Gandhi but there was truth in it too. Rajiv, a pilot who knew no political economy, was a quick learner with intelligence to know a good idea when he saw one and enough grace to acknowledge it.

 

 

Rule of Law

 

The first time Dr Manmohan Singh’s name arose in contemporary post-Indira politics was on 22 March 1991 when M K Rasgotra challenged the present author to answer how Dr Singh would respond to proposals being drafted for a planned economic liberalisation that had been authorised by Rajiv, as Congress President and Opposition Leader, since September 1990. It was replied that Dr Singh’s response was unknown and he had been heading the “South-South Commission” for Tanzania’s Julius Nyerere, while what needed to be done urgently was make a clear forceful statement to restore India’s credit-worthiness and the confidence of international markets, showing that the Congress at least knew its economics and was planning to take bold new steps in the direction of progress.

 

 

There is no evidence Dr Singh or his acolytes were committed to any economic liberalism prior to 1991 as that term is understood worldwide, and scant evidence they have originated liberal economic ideas for India afterwards. Precisely because they represented the decrepit old intellectual order of statist ”Ma-Bap Sarkari” policy-making, they were not asked in the mid-1980s to be part of a “perestroika-for-India” project done at a foreign university ~ the results of which were received, thanks to Siddhartha Shankar Ray, by Rajiv Gandhi in hand at 10 Janpath on 18 September 1990 and specifically sparked the change in the direction of his economic thinking.

 

 

India is a large, populous country with hundreds of millions of materially poor citizens, a weak tax-base, a vast internal and external public debt (i.e. debt owed by the Government to domestic and foreign creditors), massive annual fiscal deficits, an inconvertible currency, and runaway printing of paper-money. It is unsurprising Pakistan’s economy is similar, since it is born of the same land and people. Certainly there have been real political problems between India and Pakistan since the chaotic demobilisation and disintegration of the old British Indian Army caused the subcontinent to plunge into war-like or “cold peace” conditions for six decades beginning with a bloody Partition and civil war in J&K. High military expenditures have been necessitated due to mutual and foreign tensions, but this cannot be a permanent state if India and Pakistan wish for genuine mass economic well-being.

 

 

Even with the continuing mutual antagonism, there is vast scope for a critical review of Indian military expenditures towards greatly improving the “teeth-to-tail” ratio of its fighting forces. The abuse of public property and privilege by senior echelons of the armed forces (some of whom have been keen most of all to export their children preferably to America) is also no great secret.

 

 

On the domestic front, Rajiv was entirely convinced when the suggestion was made to him in September 1990 that an enormous infusion of public resources was needed into the judicial system for promotion and improvement of the Rule of Law in the country, a pre-requisite almost for a new market orientation. Capitalism without the Rule of Law can quickly degenerate into an illiberal hell of cronyism and anarchy which is what has tended to happen since 1991.

 

 

The Madhava Menon Committee on criminal justice policy in July proposed a Hong Kong model of “a single high-tech integrated Criminal Justice complex in every district headquarters which may be a multi-storied structure, devoting the ground floor for the police station including a video-installed interrogation room; the first floor for the police-lockups/sub-jail and the Magistrate’s Court; the second floor for the prosecutor’s office, witness rooms, crime laboratories and legal aid services; the third floor for the Sessions Court and the fourth for the administrative offices etc…. (Government of India) should take steps to evolve such an efficient model… and not only recommend it to the States but subsidize its construction…” The question arises: Why is this being proposed for the first time in 2007 after sixty years of Independence? Why was it not something designed and implemented starting in the 1950s?

 

 

The resources put since Independence to the proper working of our judiciary from the Supreme Court and High Courts downwards have been abysmal, while the state of prisons, borstals, mental asylums and other institutions of involuntary detention is nothing short of pathetic. Only police forces, like the military, paramilitary and bureaucracies, have bloated in size.

 

 

Neither Sonia-Manmohan nor the BJP or Communists have thought promotion of the Rule of Law in India to be worth much serious thought ~ certainly less important than attending bogus international conclaves and summits to sign expensive deals for arms, aircraft, reactors etc. Yet Rajiv Gandhi, at a 10 Janpath meeting on 23 March 1991 when he received the liberalisation proposals he had authorized, explicitly avowed the importance of greater resources towards the Judiciary. Dr Singh and his acolytes were not in that loop, indeed they precisely represented the bureaucratic ancien regime intended to be changed, and hence have seemed quite uncomprehending of the roots of the intended reforms ever since 1991.

 

 

Similarly, Rajiv comprehended when it was said to him that the primary fiscal problem faced by India is the vast and uncontrolled public debt, interest payments on which suck dry all public budgets leaving no room for provision of public goods.

 

 

 

Government accounts


Government has been routinely “rolling over” its domestic debt in the asset-portfolios of the nationalised banks while displaying and highlighting only its new additional borrowing in a year as the “Fiscal Deficit”. More than two dozen States have been doing the same and their liabilities ultimately accrue to the Union too. The stock of public debt in India is Rs 30 trillion (Rs 30 lakh crore) at least, and portends a hyperinflation in the future.

 

 

There has been no serious recognition of this since it is political and bureaucratic actions that have been causing the problem. Proper recognition would entail systematically cleaning up the budgets and accounts of every single governmental entity in the country: the Union, every State, every district and municipality, every publicly funded entity or organisation, and at the same time improving public decision-making capacity so that once budgets and accounts recover from grave sickness over decades, functioning institutions exist for their proper future management. All this would also stop corruption in its tracks, and release resources for valuable public goods and services like the Judiciary, School Education and Basic Health. Institutions for improved political and administrative decision-making are needed throughout the country if public preferences with respect to raising and allocating common resources are to be elicited and then translated into actual delivery of public goods and services. Our dysfunctional legislatures will have to do at least a little of what they are supposed to. When public budgets and accounts are healthy and we have functioning public goods and services, macroeconomic conditions would have been created for the paper-rupee to once more become a money as good as gold ~ a convertible world currency for all of India’s people, not merely the metropolitan special interest groups that have been controlling our governments and their agendas.

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Political Stonewalling

Political Stonewalling
Only Transparency Can Improve Institutions

By Subroto Roy

First published in The Statesman, July 20 2007, Editorial Page Special Article http://www.thestatesman.net


“Stonewalling” has come to mean being continually evasive and misleading in politics by, for example, parroting a party line against fair public inquiry or criticism. “I want you to stonewall it”, was Richard Nixon’s infamous instruction during Watergate. (The original meaning was not ignoble: General T. J. “Stonewall” Jackson, during the US Civil War stayed on his horse under constant fire, taking all the bullets “like a stonewall” until he was killed.)

Stonewalling is what we are likely ever to receive from Pratibha Patil and the present day Congress Party. It is not as if India and the world will not survive if she becomes our President. Rashtrapati Bhavan has had undistinguished occupants before, even ones with clouds of disreputable or nefarious public deeds hanging over their heads. All that will happen is that our political institutions shall retrogress for five years; a pity but not something catastrophic in view of our long history ~ Nadir Shah’s brief stay set the standard for catastrophic behaviour in Delhi.

“Individuals may form communities, but it is institutions alone that can create a nation”, said Disraeli. Nation-building would become that much harder, our pessimism and disillusionment about whether we will ever succeed would become that much greater.

Corrosion
The corrosion of our political, financial, academic and other public institutions over decades has been something in which all our official political parties and religious formations are hand-in-glove complicit. In the case of Pratibha Patil, it is the PM and UPA Chair who are directly responsible for the institutional corrosion taking place in full view of all with respect to the highest office of the land.

But then Dr Manmohan Singh, despite his sojourns as a young social scientist in Britain, has not cared a hoot that the Prime Minister in a parliamentary democracy must seek to be an elected member of the House of the People. Also, ever since 1991, he has permitted the flattering fiction to develop that he or any of his acolytes had something to do with the origins of the economic reform.  As for Sonia Gandhi, her list of naïve misjudgements only grows longer ~ cardinal among them being her having apparently retained as trusted advisers around her persons who had been warned about the vulnerability of her husband to assassination. Had Rajiv not been assassinated, Sonia would have been today merely a happy grandmother and not India’s purported ruler.

Stonewalling has become standard government practice in 21st century India across party-lines. The BJP stonewalled after the post-Godhra pogrom in 2002 and held none of its own responsible; the CPI-M has done precisely the same after the Nandigram pogrom a few months ago.

In October 2005, the Supreme Court ~ proving yet again that there are or can be institutions which do work in India ~ found the Union Government had behaved unconstitutionally. Lesson 101 of Constitutional Politics says: If you are uncertain whether a head of government commands confidence, ask him/her to prove his majority on the floor of the house. Instead the Sonia-Manmohan Government had launched a pre-emptive putsch against an aspirant for a democratic majority in a State assembly. What Sonia-Manmohan should have done in response to the Supreme Court’s finding was to recall or transfer the apparent culprit, and express regret to Parliament and the Court. That would have ended the matter and also engendered some moral growth in the polity. What they did instead was stonewall. Worse stonewalling was to follow from the whole of Parliament itself in the “office-for-profit” scandal.

Aristotle said politics was the supreme good because the ends of all other activities are subsumed in politics. This means that if the politics of a national society gets corroded, so does everything else. It is because India’s politics have become rotten, that our financial, academic and other institutions have followed.

The private American “equity group” Blackstone recently purchased Hilton Hotels for 26 thousand million American dollars cash. Why is that significant to Indians? Because India’s Finance Minister, P. Chidambaram, took the unprecedented step of naming Blackstone along with one private Indian citizen, Deepak Parekh in his February 2007 Budget Speech. He referred to a Government of India financial scheme by which favoured private businesses can “borrow” India’s foreign exchange reserves to pay for purchases of foreign assets. The same Reserve Bank of India which cracked down on Pratibha Patil’s dubious bank-dealings has now been bullied into allowing India’s foreign exchange reserves to be “borrowed” ~ and quite possibly never to be returned. Furthermore, foreign exchange reserves are not like tax-revenues but largely constitute already borrowed funds!
In academia, Mr Arjun Singh tyrannises defenceless medical students but presides (like his predecessor Dr Murli Manohar Joshi) over appointments at national institutes of full professors without postgraduate degrees or any experience of teaching or research. The Union Finance and Education Ministers report in the Government and their party to the PM and the UPA Chair. But neither Dr Singh nor Mrs Gandhi can have any effective control over the rot in India’s macroeconomic, financial, academic or other institutions when they are presiding over political rot themselves.

Shameless behaviour

Stonewalling is the political behavour of the shameless. Shame used to be a cultural means of political self-control in traditional societies. Modern politics makes a distinction between private and public domains, and says that transmuting valuable public property of any kind into private wealth or advantage constitutes nefarious corruption. It is possible our subcontinent has not wished to or has not yet entered the world of modern politics. Instead we remain feudal in our political behaviour ~ where large rival clans perpetually battle over what is the ill-defined common property of the realm. In Pakistan and Bangladesh, the militaries predominate and participate in this feuding. In India the feuds take place within a framework which outwardly seems democratic with institutions of a free society like a free press and official civilian control of the military. Our feuds are between three large rival clans: the Indira-Sonia Patriarchal Matriarchs, the Hindu Patriarchs, and the Communist Matriarchal Patriarchs. The Congress, BJP and Communists are yet to become modern parties, and unless and until they do, our politics shall remain in retrogression.


Lal Masjid ≠ Golden Temple

Lal Masjid ≠ Golden Temple

Wide differences are revealed between contemporary Pakistan and India by these two superficially similar military assaults on armed religious civilians

By SUBROTO ROY

First published in The Sunday Statesman, July 15 2007, ww.thestatesman.net, Editorial Page Special Article

There is a superficial similarity between what happened in Pakistan’s “Operation Silence/ Sunrise” at the Lal Masjid a few days ago and what happened in India’s “Operation Blue Star” at the Golden Temple in May-June 1984. In both cases, heavily armed religiously motivated civilians were holed up in a place of worship, and were laid siege to and then killed or arrested by an assault force sent by the national government.

That, however, is about as far as the similarity goes, and it would be a gross error to equate the two and suppose General Musharraf has been only doing something similar to what Indira Gandhi did twenty three years ago. In fact, revisiting the Golden Temple case allows a vivid contrast to be drawn between the very different kinds of national societies modern India and Pakistan have become.

Sant Jarnail Singh Bhindranwale was an unexceptional preacher who shot into prominence and fame after first being used by Sanjay Gandhi and Zail Singh in Punjab politics, and later causing the Akali Dal itself to become more communal in nature. Bhindranwale was initially set up by the Sanjay-Zail Congress Party in 1978 to oppose the heretic Nirankari sect, in an attempt to make the Congress gain local electoral support relative to the Akalis by seeming more chauvinistic and less secular in outlook. By July 1982, Bhindranwale, whose associates had been implicated by the police in a number of murders, was holed up in the Golden Temple complex and apparently never left again until he was killed in Operation Blue Star in early June 1984.

Officially, “minimum force” was to be applied in Blue Star: soldiers went in barefoot “with humility in our hearts and prayers on our lips” and sustained heavier casualties than they would have otherwise. Fierce fighting saw Vijayanta tanks and armoured cars being attacked by Chinese-made rocket-propelled grenades that had been smuggled in from the Afghan war. Innocent civilians and surrendered prisoners came to be killed (see Mark Tully and Satish Jacob, Amritsar: Mrs Gandhi’s Last Battle, 1985.)

Yet even so, India’s military had only an instrumental role to play in the Golden Temple siege and assault. The root causes that made the siege inevitable had nothing to do with India’s military itself but were a result of the myopic, ignorant and rather evil nature of our democratic politics during the Indira-Sanjay era ~ something which has continued in slightly milder form to this day throughout the country.

By contrast, the current Pakistani situation is one in which the assault was ordered by the retired head of the Pakistan Army, Pervez Musharraf, who has refused to quit office since being dismissed eight years ago by the last civilian Government headed by Nawaz Sharif. Instead he carried out a coup d’etat against Sharif, and has maintained himself in office claiming, like Ayub Khan, he will one day restore democratic institutions better than the nascent ones he has destroyed. To his credit, Pakistan’s press has been freer than before.

Pakistan’s generals and retired generals have seemed to occasionally grumble, especially when Nawab Bugti of Balochistan was killed, but not do more. This may be because Musharraf has made clear, most poignantly in his January 2002 speech, that any price would be paid by him, including succumbing entirely to American pressure on all matters, so long as the paramount goal of the Pakistan military was maintained, which has been, after all, that of trying by hook or crook to wrest Jammu & Kashmir from India.

J&K has remained the external objective of the Pakistan military as an institution even while, internally, officers have amassed vast personal fortunes over the decades and become major businessmen involved in innumerable foreign collaborations, especially with the Chinese. Musharraf, when asked by an Urdu TV channel not long ago what would happen if India did not relent on J&K, even murmured that war could then continue for a 100 years. Such has been the ostensible driving force of the Pakistan military and the raison d’etre of its domination of all aspects of the economy and society of the country.

At the same time, Pakistan’s military has constituted an Anglo-American reserve bastion for decades, and been a major destination of Western and Chinese armaments ~ paid for often by soft loans or grants from the Gulfs states and Saudi Arabia where thousands of Pakistani personnel serve to staff Arab militaries. Many commentators (e.g. Ayesha Jalal and WE James and myself in the late 1980s/early 1990s, Husain Haqqani and Ayesha Siddiqa today) have pointed to the smothering effect the military has had on all matters of modern Pakistan’s political economy.

The French diplomatic scholar Frédéric Grare has described the situation bluntly: “The fear of an Islamic threat has been the driving force behind most Western countries’ foreign policies toward Pakistan in recent years. The possibility that violent Islamists will kill President Pervez Musharraf, throw Pakistan into turmoil, take over the country and its nuclear weapons, and escalate regional terrorism has dominated the psychological and political landscape. Such fears have usually led to support of the Pakistani military as the only institution able to contain the danger. But the Islamist threat is neither as great nor as autonomous as many assume. True, Pakistan has experienced more than its share of religious violence, both sectarian and jihadi. But serious law-and-order problems do not mean the fate of the state is at stake. No Islamic organization has ever been in a position to politically or militarily challenge the role of the one and only centre of power in Pakistan: the army. On the contrary, the Pakistani Army has used Islamic organizations for its purposes, both at home and abroad. Islamist organizations balance the power of rival mainstream political parties, preserving the army’s role as national arbiter. The army has nurtured and sometimes deployed violent Islamists in Afghanistan (with US support at first), Kashmir, and other hot spots on the subcontinent.” Pakistan: The Myth of an Islamist Peril, Carnegie Endowment, February 2006. Pakistan’s Army may be effectively beyond anyone’s control other than itself. The fox has placed itself in charge of the hen-house.

Indeed, unlike the Indian case during the Bhindranwale period, where religious differences were attempted to be marked between Sikhs and Hindus to allay the perpetual Sikh fear of being reabsorbed into the Hindu fold, the present Pakistani case has had less to do with religious differences than it has to do with the concentration and dispensation of political power. By kidnapping Chinese masseuses in Islamabad, Lal Masjid protestors were hardly making a large religious point but rather one of political powerlessness and lack of voice or exit.

As for the people of J&K on both sides of the Line of Control, if they are objective in their assessment of the histories of India and Pakistan that they see before them, they may conclude once more as they did in the past that, all things considered, their political ancestors especially Sheikh Abdullah and Bakshi Ghulam Mohammad were prescient indeed back in 1947-1951 in pressing the future of J&K with the new secular democratic India and not a Pakistan that remains petulant and militarist. Pakistan’s military has expanded itself using J&K as the ostensible cause, yet the more unpleasant Pakistan’s political economy becomes because of that military, the less attractive modern Pakistan becomes to all the peoples of the subcontinent. As the present author said in these pages on 3 September 2006, “To be a man of destiny, Musharraf must transcend the military-business complex he rules over and reduce its role in Pakistani life, not increase it.”

Unhealthy Delhi

Unhealthy Delhi

When will normal political philosophy replace personality cults?

by Subroto Roy

First published in The Statesman, Editorial Page Special Article, June 11 2007,

A decade after Solzhenitsyn’s classic 1962 memoir One day in the life of Ivan Denisovitch, an ambitious young Delhi photographer published a hagiography called A life in the day of Indira Gandhi. Indira was shown gambolling with her little grandchildren, guiding her dutiful daughter-in-law, weeping for her father, greeting her loyal subjects from around India, reprimanding her ingratiating sycophants, imperiously silent during political meetings, smiling and scolding alternately at press conferences, and of course standing in victory at Shimla beside the defeated Bhutto. “Indira is India” the sycophantic slogan went, and the cult of her personality was one of showing her as omniscient and omnipotent in all earthly matters of Indian politics.

She had indeed fought that rarest of things in international law: the just war. Supported by the world’s strongest military, an evil enemy had made victims of his own people. Indira tried patiently on the international stage to avert war, but also chose her military generals well and took their professional judgement seriously as to when to fight if it was inevitable and how to win. Finally she was magnanimous (to a fault) towards the enemy ~ who was not some stranger to us but our own estranged brother and cousin.

It seemed to be her and independent India’s finest hour. A fevered nation was thus ready to forgive and forget her catastrophic misdeeds until that time, like bank-nationalization and the start of endless deficit-finance and unlimited money-printing, a possible cause of monetary collapse today four decades later under Manmohan Singh whose career as an economic bureaucrat began at that time.

Hitler, Stalin, Mao

Modern personality cults usually have had some basis in national heroism. In Indira’s case it was the 1971 war. Hitler, Stalin and Mao were seen or portrayed as war heroes too. Because there has been leadership in time of war or national crisis, nervous anxious masses extend their hopes and delusions to believe such a leader has answers to everything. The propaganda machinery available as part of modern state apparatus then takes over, and when it is met on behalf of the citizenry with no more than a compliant docile ingratiating mass media, the public image comes to be formed of a parental god-like figure who will protect and guide the community to its destiny.

Beneath this public image, the cunning play of self-interest by anonymous underlings in the allocation of public resources continues unabated, and so it is possible some truth attaches to the idea that an individual leader is not as responsible for evil misdeeds or depredations done by “the party” in his/her name.

In the Indian case, hero-worship and ancestor-worship are part of the culture of all our major religions. Hence we have parades of parliamentarians garlanding or throwing flowers and paying obeisance at this or that statue or oil-painting or photograph regularly ~ though as a people we have yet to produce rigorous intellectual biographies of any major figures of our own modern history, comparable to, say, Judith Brown’s work on Gandhi or Ayesha Jalal’s on Jinnah.

Indira continued to dominate our political culture until her assassination more than a decade later, but there was hardly a shred of political or economic good in what she left the country. Her elder son (leaving aside his blunders in Sri Lanka, J&K etc.) did have the sense to initiate fundamental change in his party’s economic thinking when he found a chance to do so in the months before his own assassination.

Rajiv was the son of Feroze Gandhi too and a happy family man; he seemed not to have psychological need for as much of the kind of personality cult his mother clearly loved to indulge in. It is not clear if his widow is today trying to follow his example or his mother’s ~ certainly, the party that goes by the name of Indian National Congress would like to relive for a second time the worst of the Indira personality cult around Sonia Gandhi. And Rahul Gandhi, instead of seeking to develop or display any talent as befits a young man, has shown disconcerting signs of longing for the days of his grandmother’s personality cult to return. He may have been more effective pursuing a normal career in the private sector.

The Congress’s perpetual tendency towards personality cults has extended by imitation to other political parties in New Delhi and the States. Atal Behari Vajpayee at his peak as PM did not find it at all uncomfortable to be portrayed by his sycophants as a wise, heroic and loving father-figure of the nation ~ an image shattered when, immediately after perfunctorily commiserating the Godhra and post-Godhra horrors, he was pictured fashionably on a Singapore golf-cart sporting designer sunglasses.

India’s organised communists make a great show of collective decision-making since they most intimately followed the details of Kruschev’s denunciation of Stalin’s personality cult. It has not stopped them routinely genuflecting to China’s communists. There also has been a communist tendency to deny individual merit and creativity at junior levels and instead appropriate all good things for the party bosses. New brilliant faces will never arise in the Left and we may be condemned to see the usual characters in perpetuity. If personality cults around Jyoti Basu or Buddhadeb Bhattacharya have failed to thrive it has not been through lack of trying on part of the publicly paid communist intelligentsia and their docile artists, but rather because of resistance from Bengal’s newspapers and a few clear-headed journalists and well known opposition politicians.

Tamil Nadu has seen grotesque rivalry between Karunanidhi and Jayalalitha as to whose personality cult can alternately outdo the other, supplanting all normal political economy or attempts at discovery of the public interest. In Andhra Pradesh, Maharashtra, J&K, Bihar and Uttar Pradesh (but not Gujarat or Rajasthan lately), two-party democratic politics has succeeded in limiting tendencies for personality cults to develop. The North Eastern States have had inadequate coverage by modern media, which, fortuitously, along with tribal traditions, may have restrained personality cults from developing.

Facts explode cults

Facts are the most reliable means by which to explode personality cults. It is not a coincidence that facts are also the source by which to develop modern political philosophies, whether conservative, classical liberal/ libertarian, or socialist. Facts have to be discovered, ferreted out, analysed, studied and reflected upon by those civil institutions that are supposed to be doing so, namely university social science, economics and related departments, as well as responsible newspapers, radio and other mass media. Julian Benda once titled a book The Treason of the Intellectuals. India will begin to have a normal political philosophy when the treason of its modern intellectual classes begins to be corrected.

It is not a treason in which the state has been betrayed to an enemy. Rather it is one in which the very purposes of public conversation, such as the discovery of the public interest, have been betrayed in the interests of immediate private gain. This may help to explain why there is so little coherent public discussion in India today, and certainly almost nothing on television, or in the business papers or what passes for academia.

India and Her Neighbours

We & Our Neighbours
Pakistanis And Bangladeshis Would Do Well To Learn From Sheikh Abdullah

by Subroto Roy

First published in The Statesman May 15 2007, Editorial Page Special Article, http://www.thestatesman.net

Pakistan and Bangladesh, unlike ourselves in India, have yet to properly establish elementary constitutional institutions. “Individuals may form communities, but it is institutions alone that can create a nation”, said Benjamin Disraeli. The continual political chaos on the streets of Pakistan and Bangladesh ~ not just in recent weeks but in recent years and decades ~ indicate such institutions are still lacking or stillborn there. Tear gas, water cannon and hordes of armed policemen to charge at enraged stone-throwing crowds are not part of any solution but part of the political problem itself.

One main purpose of constitutional institutions has to do with peaceful transfer of power from one political party to its adversary. Mulayam Singh Yadav has just transferred political power to Mayawati in Uttar Pradesh, an Indian State more populous than either Pakistan or Bangladesh. Not long ago Lalu Prasad Yadav did the same to Nitish Kumar in Bihar, and Atal Behari Vajpayee to an appointee of Sonia Gandhi for all India itself. Modern democratic institutions are precisely about such peaceful transfers of power after voters have acted periodically to try to “throw the rascals out”.

Honeymoon period
It would be foolish to suppose an incoming Government of UP, Bihar or all India itself will be very much better than the one it displaces. But certainly in its first few “honeymoon” months or weeks at least, it will not be any worse. The tail-end of any scheduled democratic government, whether in India, Britain, the USA or elsewhere, is quite a disgusting sight, as those in their last days of power grab whatever they can from office before departure without any pretence of shame or embarrassment. Serious decision-making in the public interest would have long ago ceased. Almost anything new would be better.

At the same time, among those coming into power there will be some earnest wish at least to make some small difference for the better ~ a wish that will surely disappear within weeks of entering office after which the old cynicism and corruption will take hold again, and it will be the same ugly business as usual. But certainly, voters can expect slightly fresh air for a brief time after they have thrown one party out of power and chosen to bring in another. That is as about as good as democracy gets in modern practice.

Of India’s dozen or more larger States, we have, in the sixth decade of our Constitution, quite a few in which bipartisan democratic processes have been taking shape. UP was not one of them, and it is to Mayawati’s credit that she has broken the pattern of hung assemblies and now heads a majority government. Bihar too had seemed in the monolithic grip of Lalu Yadav until Nitish Kumar broke it, though the latter’s honeymoon period is now long over and it is business quite as usual there. Madhya Pradesh, Punjab, Maharashtra, Rajasthan, Haryana, Andhra Pradesh, Karnataka, Kerala and even J&K each have a noticeable bipartisan nature developing with at least one “national” party present to be counted. Tamil Nadu has been bipartisan but in an unhealthy way based on the personality cults of antagonistic leaders rather than any political principles or class-interests ~ which is a pity as the old Madras once had seemed a source of some new rationality in Indian politics. West Bengal’s voters have been definitely bipartisan, the communist vote being no more than that of the Congress and Trinamul combined. But for decades the local Congress has been notoriously sold down the river to its communist adversary by the Congress “leadership” in Delhi, and that has allowed an entrenched and wholly corrupted communist cultural and political mindset to rule in Kolkata. The Basu-Bhattacharjee Government was palpably bewildered over the Singur and Nandigram events because of their self-induced delusion about the economic and political realities of the State.

Throughout India though, periodic elections have acquired enough legitimacy to be accepted as the means of peaceful change of government. And with bipartisan politics there is a tendency for the median voter to be wooed at election-time.

We have of course many other continuing problems in our political economy ~ most notorious of which is the rotten state of our public finances and the continuous massive deficit finance that has ruined our paper currency and banking system ever since Indira Gandhi’s rule, coinciding with the start of Manmohan Singh’s career as an economic bureaucrat and Pranab Mukherjee’s as a politician in the early 1970s. Our acceptance of the democratic way has to an extent depended on our notoriously irresponsible macroeconomic policies ~ since every State and Union Government entity has been allowed to face no effective binding financial budget-constraint, and all its perverse decision-making can flow eventually into the swamp that is our Public Debt which constitutes the asset-side of the domestic banking system. India’s cardinal problem then becomes one of how to improve our macroeconomics without losing our democracy ~ something the Sonia-Manmohan-Pranab Congress, the BJP/RSS and the Communists are all equally clueless about.

Across our borders, our Pakistani and Bangladeshi cousins were cut from the same constitutional cloth as ourselves, namely the 1935 Government of India Act and the Montague-Chelmsford reforms before that. But after Jinnah’s death they refused to admit this and instead embarked on trying to write and implement a Constitution for a new Caliphate. The initial demand was “That the sovereignty in Pakistan belongs to God Almighty alone and that the Government of Pakistan shall administer the country as His agent”. In Rashid Rida and Maulana Maududi’s words, Islam becomes “the very antithesis of secular Western democracy. The philosophical foundation of Western democracy is the sovereignty of the people. Lawmaking is their prerogative and legislation must correspond to the mood and temper of their opinion… Islam… altogether repudiates the philosophy of popular sovereignty and rears its polity on the foundations of the sovereignty of God and the viceregency (Khilafat) of man.” (Rosenthal, Islam & the Modern National State, Cambridge 1965). Pakistan’s constitutionalists thus have faced an impossible battle to overcome the ontological error of assuming that any mundane government can be in communication with God Almighty.

J&K’s Constitution
Now Sheikh Mohammad Abdullah was as pious a Muslim as any but was far more modern in his 5 November 1951 speech to J&K’s Constituent Assembly: “You are the sovereign authority in this State of Jammu & Kashmir; what you decide has the irrevocable force of law”. Referring to the American and French Constitutions, he said the “basic democratic principle” was of the “sovereignty of the nation”. “We should be clear about the responsibilities that this power invests us with. In front of us lie decisions of the highest national importance which we shall be called upon to take. Upon the correctness of our decisions depends not only the happiness of our land and people now, but the fate as well of generations to come.”

Can a modern conclave of Pervez Musharraf, Nawaz Sharif, Benazir Bhutto and Chaudhry Iftikhar Ahmed decide or declare any better for Pakistan today? Or one of Khaleda, Hasina and whichever cabal of generals and bureaucrats happens to head Bangladesh at present?

If Pakistan and Bangladesh each chose to restart with the modern-minded constitutional example Sheikh Abdullah set more than a half century ago in J&K, they may find their political problems less severe in due course. It is a long road ahead.

On Land-Grabbing

ON LAND-GRABBING

Dr Singh’s India, Buddhadeb’s Bengal, Modi’s Gujarat have notorious US, Soviet and Chinese examples to follow ~ distracting from the country’s real economic problems

By SUBROTO ROY

First published in The Sunday Statesman, Editorial Page Special Article, Jan 14 2007

AT a business meet on 12 January 2005, Dr Manmohan Singh showered fulsome praise on Buddhadeb Bhattacharjee as “dynamic”, “the Nation’s Best Chief Minister”, whose “wit and wisdom”, “qualities of head and heart”, “courage of conviction and passionate commitment to the cause of the working people of India” he admired, saying “with Buddhadeb Babu at the helm of affairs it appears Bengal is once again forging ahead… If today there is a meeting of minds between Delhi and Kolkata, it is because the ideas that I and Buddhadebji represent have captured the minds of the people of India. This is the idea of growth with equity and social justice, the idea that economic liberalization and modernization have to be mindful of the needs of the poor and the marginalized.”

With such support of a Congress Prime Minister (as well as proximity to Pranab Mukherjee), Mr Bhattacharjee could hardly have feared the local Congress and Trinamul would pose any threat in the 2006 Assembly Elections despite having more potential voters between them than the CPI-M.

Dr Singh returned to the “needs of the poor and the marginalized” at another business meet on 8 January 2007 promising to “unveil a new Rehabilitation Policy in three months to increase the pace of industrialisation” which would be “more progressive, humane and conducive to the long-term welfare of all stakeholders”, while his businessman host pointedly stated about Singur “land for industry must be made available to move the Indian manufacturing sector ahead”.

The “meeting of minds between Delhi and Kolkata” seems to be that agriculture allegedly has become a relatively backward slow-growing sector deserving to yield in the purported larger national interest to industry and services: what the PM means by “long-term welfare of all stakeholders” is the same as the new CPI-M party-line that the sons of farmers should not remain farmers (but become automobile technicians or IT workers or restaurant waiters instead).

It is a political viewpoint coinciding with interests of organised capital and industrial labour in India today, as represented by business lobbies like CII, FICCI and Assocham on one hand, and unions like CITU and INTUC on the other. Business Standard succinctly (and ominously) advocated this point of view in its lead editorial of 9 January as follows: “it has to be recognised that the world over capitalism has progressed only with the landed becoming landless and getting absorbed in the industrial/service sector labour force ~ indeed it is obvious that if people don’t get off the land, their incomes will rise only slowly”.

Land is the first and ultimate means of production, and the attack of the powerful on land-holdings or land-rights of the unorganised or powerless has been a worldwide phenomenon ~ across both capitalism and communism.

In the mid-19th Century, white North America decimated hundreds of thousands of natives in the most gargantuan land-grab of history. Defeated, Chief Red Cloud of the Sioux spoke in 1868 for the Apache, Navajo, Comanche, Cheyenne, Iroquois and hundreds of other tribes: “They made us many promises, more than I can remember, but they never kept any except one: they promised to take our land, and they took it.”

Half a century later, while the collapse of grain prices contributed to the Great Depression and pauperisation of thousands of small farmers in capitalist America in the same lands that had been taken from the native tribes, Stalin’s Russia embarked on the most infamous state-sponsored land-grab in modern history: “The mass collectivisation of Soviet agriculture (was) probably the most warlike operation ever conducted by a state against its own citizens…. Hundreds of thousands and finally millions of peasants… were deported… desperate revolts in the villages were bloodily suppressed by the army and police, and the country sank into chaos, starvation and misery… The object of destroying the peasants’ independence…was to create a population of slaves, the benefit of whose labour would accrue to industry. The immediate effect was to reduce Soviet agriculture to a state of decline from which it has not yet recovered… The destruction of the Soviet peasantry, who formed three quarters of the population, was not only an economic but a moral disaster for the entire country. Tens of millions were driven into semi-servitude, and millions more were employed as executants…” (Kolakowski, Main Currents of Marxism).

Why did Stalin destroy the peasants? Lenin’s wishful “alliance between the proletariat and the peasantry” in reality could lead only to the peasants being pauperised into proletarians. At least five million peasants died and (Stalin told Churchill at Yalta) another ten million in the resultant famine of 1932-1933. “Certainly it involved a struggle ~ but chiefly one between urban Communists and villagers… it enabled the regime to obtain much of the capital desired for industrialization from the defeated village… it was the decisive step in the building of Soviet totalitarianism, for it imposed on the majority of the people a subjection which only force could maintain” (Treadgold, 20th Century Russia).

Mr Bhattacharjee’s CPI-M is fond of extolling Chinese communism, and the current New Delhi establishment have made Beijing and Shanghai holiday destinations of choice. Dr Singh’s Government has been eager to create hundreds of “Special Economic Zones” run by organised capital and unionised labour, and economically privileged by the State. In fact, the Singur and Nandigram experiences of police sealing off villages where protests occur are modelled on creation of “Special Economic Zones” in China in recent years.

For example, Chinese police on 6 December 2005 cracked down on farmers and fishermen in the seaside village of Dongzhou, 125 miles North East of Hong Kong. Thousands of Dongzhou villagers clashed with troops and armed police protesting confiscation of their lands and corruption among officials. The police immediately sealed off the village and arrested protesters. China’s Public Security Ministry admitted the number of riots over land had risen sharply, reaching more than seventy thousand across China in 2004; police usually suppressed peasant riots without resort to firing but in Dongzhou, police firing killed 20 protesters. Such is the reality of the “emergence” of China, a totalitarian police-state since the Communist takeover in 1949, from its period of mad tyranny until Mao’s death in 1976, followed by its ideological confusion ever since.

Modern India’s political economy today remains in the tight grip of metropolitan “Big Business” and “Big Labour”. Ordinary anonymous individual citizens ~ whether housewife, consumer, student, peasant, non-union worker or small businessman ~ have no real voice or representation in Indian politics. We have no normal conservative, liberal or social democratic party in this country, as found in West European democracies where the era of land-grabbing has long-ceased. If our polity had been normal, it would have known that economic development does not require business or government to pauperise the peasantry but instead to define and secure individual property rights and the Rule of Law, and establish proper conditions for the market economy. The Congress and BJP in Delhi and CPI-M in Kolkata would not have been able to distract attention from their macroeconomic misdeeds over the decades ~ indicated, for example, by increasing interest-expenditure paid annually on Government debt as a fraction of tax revenues (see Table). This macroeconomic rot originated with the Indira Gandhi-PN Haksar capriciousness and mismanagement, which coincided with the start of Dr Singh’s career as India’s best known economic bureaucrat.

New Foreign Policy? (8-9 Oct 2006)

NEW FOREIGN POLICY? “Kiss Up, Kick Down”?

Seven phases of Indian foreign policy may be identifiable since Nehru; the current phase seems to involve subservience to the strong, jingoism otherwise

 

by Subroto Roy

 

First published in The Sunday Statesman 8 Oct 2006, The Statesman 9 Oct 2006 Editorial Page Special Article

 

 

The outlines of a new tri-partisan Indian foreign policy may be becoming discernible. That it is “new” or that it commands near unanimity among the Congress, BJP and “Left” and their respective friends in the Indian media and political classes, does not make it sound or robust in any way. In fact, its basis in the history, geography and economics of India is wholly inadequate, and it is also entirely divorced from any clearly enunciated new Indian political ethics for the modern world.

 

 

The new policy, which may be fairly dubbed the Jaswant-Manmohan policy after the BJP and Congress politicians who have been its putative authors and leading practitioners, is as likely as not to lead to an India that is no longer a free decision-maker in any meaningful way in world affairs by 2047, one hundred years after Independence. Our great grandchildren may well be taught that for some decades in Indian history a sovereign unitary republic actually existed which then came to be effectively lost.

 

 

Indeed the new policy may amount to being less a coherent new doctrine of India’s role in international relations than a mere change in attitude on the part of politicians, bureaucrats and their intelligentsia friends: from seeming universally arrogant in the world to becoming pliant and subservient towards those world powers perceived (accurately or inaccurately) as strong, combined with a vainglorious jingoism towards all others. It is an application to international diplomacy and politics of the classic bureaucratic principle of “kiss up, kick down” in an organisation, and may reflect the fact the two main institutions the Mughals and British used to run their empires were the bureaucracy and military ~ both of which have grown and continued to run New Delhi (and Islamabad) afterwards, co-opting whatever domestic political development that has arisen. There is plenty of wishful waffling too about India becoming a “great power” or being a “swing state in the global balance of power”, and about how well the economy is supposedly doing ~ as if what Government spokesmen say about the economy is to be believed at face-value. Indian Leftists and their fellow-travellers ~ as great lovers themselves of bureaucracy, collectivist groupthink and propaganda on the USSR or PRC pattern, and fearful or envious of all individual criticism, creativity and achievement – have taken to the same principle like fish to water.

 

 

The first phase of Indian foreign policy was Nehruvian in that it began with Nehru’s Fabian misperception of Stalin’s USSR, and ended with the military debacle he led the country into at the hands of Zhou’s “human wave” armies in the mountains of Ladakh and NEFA.

 

 

A second phase was Kashmir-centric, overlapping with the first insofar as it may be traced to Karan Singh’s iniquitous dismissal of Sheikh Abdullah’s first Government, but really beginning after Nehru’s death with the Ayub-Abdullah summit, and being marked by Ayub’s 1965 attack in J&K ~ Shastri’s riposte reaching the Ichogil Canal signalled that no longer would war over J&K be confined to J&K.

 

 

A third phase was forced on India by the Pakistani civil war that led to Bangladesh’s creation, and was marked by the Indira/ Haksar alliance with Brezhnev’s USSR, as well as by Pokhran-I.

 

 

A fourth phase of Indian foreign policy may be identified in the late 1970s and 1980s, marked by rebellion of the fundamentalist Sikhs whom Indira and Sanjay Gandhi had provoked, which led in due course to her assassination. The turmoil that followed in Punjab and North India was financed by anti-Indian Sikhs from Vancouver,California and Britain, with gleeful help from the Pakistanis, and Indian diplomats had their hands full in trying to counter that phenomenon. It was during this phase of domestic Indian turmoil that New Delhi wholly missed the seismic changes occurring in the USSR, East Europe and international relations generally, and completely failed to predict its consequences for India.

 

 

The phase came to end when the Narasimha Rao Government (upon advice of a well-known communist cabal in the IFS and JNU) instantly showered praise on the anti-Yeltsin coup in August 1991. When Yeltsin returned to power, the new anti-communist Russians took their revenge on New Delhi, exacting hard dollars for the soft rouble-trade of friendlier times.

 

 

A fifth phase may be seen in retrospect as one of relative success.The main plank of Indian foreign policy in the late 1980s and early 1990s was to get Pakistan designated a “terrorist state” in American eyes, as well as to warn of the dangers of a Pakistani nuclear bomb. It had been prompted by the end of American involvement in the Afghan war, which caused the ISI to shift the jihadis to J&K, and the Indian policy was destined not to succeed. No matter how hard Kanwal Sibal tried in 1992-1993 as Minister-Political in the Washington Embassy to tell the Americans that their Pakistani friends were dangerous, he was destined to fail as the MEA had entirely failed to realise how far ahead the Pakistanis were in their lobbying power in Washington ~ the Pakistani super-elite has been entrenched among the K-Street lobbyists and in expensive real-estate along the Potomac River for more than two generations. Yet after the 9/11 attacks several years later, the Indians were able to look back at that fifth phase and say to the Americans, “We told you so”.

 

 

In the late 1990s came a short-lived sixth phase of Pokhran-II and the Lahore bus-trip, which may be credited as Vajpayee successes, and also contained the Kargil War and Kandahar hijacking, which were more dubious. This overlapped with the last and currently continuing seventh phase of Indian foreign policy with Jaswant Singh breaking the ice with the Americans when they had recovered from the fact the CIA’s failures included not foreseeing Pokhran-II; it coincided too with Osama bin Laden’s declarations of jihad against the USA. The Americans enlisting themselves on the side of the Northern Alliance to defeat the Taliban after 9/11 was beneficial from an Indian standpoint since Afghanistan had been effectively lost to secular Indian influence for two decades, and the Taliban had shown themselves no friends of India during the Kandahar hijacking.

 

 

But the BJP’s anti-Muslim thought processes quickly took over, as did its proximity to organised business lobbies. When Iraq was attacked and occupied in 2003, there was hardly a whimper from the BJP leadership, and instead their businessmen friends started to fly to Amman hopeful of “reconstruction” contracts. The Sonia/ Manmohan Congress/Leftist combine has effectively continued and expanded that trend, though now the business lobbies have been much more muted and subtle, especially in their backroom dealings and payoffs with respect to the nuclear deal. There is also an occasional burst of anti-Americanism from leftists though it is hard of course to beg for American foreign investment in Marxist-run areas while also being sincere in quaint street demos or agitprop.

 

 

Running through the new foreign policy is a fiction that it is driven by a new economic motivation to improve development and mass well-being in India. The bizarre idea of creating hundreds of so-called “Special Economic Zones” (reminiscent of 17th and 18th Century colonial fortifications) illustrates this. India’s ordinary anonymous masses ~ certainly the 850 million people entirely outside the organised sector ~ have little or nothing to do with any of this. Benefits will accrue only to the ten million Indian nomenclatura controlling or having access to the gaping exit holes to the outside world in the new semi-closed economy with its endless deficit finance paid for by unlimited printing of an inconvertible domestic currency.

 

 

It is as fallacious to think private investment from foreign or domestic businessmen will support public “infrastructure” creation as it is to think foreign exchange reserves are like tax revenues in being available for Government expenditure on “infrastructure”. Such fallacies are intellectual products of either those who know no economics at all or those who have forgotten whatever little they might have been once mistaught in their youth. What serious economics does say is that Government should generally have nothing to do with any kind of private business, and instead should focus on properly providing public goods and services, encourage competition in all avenues of economic activity and prevent or regulate monopoly, and see to it all firms pay taxes they are due to pay.

 

 

That is it. It is as bad for Government to be pampering organised foreign or domestic business or organised labour with innumerable subsidies, as has been happening in India for decades, as it is to make enterprise difficult with red tape and hurdles. Businessmen are grown ups and should be allowed to freely risk their capital and make their profits or their losses without public intervention.

 

 

An economics-based policy would have single-mindedly sought to improve the financial condition of every governmental entity in the country, with the aim of improving the provision of public goods and services to all 1,000 million Indians. If and when budgets of all governmental entities become sound, foreign creditors would automatically line up before them with loans to sell, and ambitious development goals can be accomplished. As long as public budgets (and public accounts) remain in an outrageous shambles, nothing can be in fact achieved and only propaganda, corruption and paper-money creation results instead. Whatever economic growth does occur is due to new enterprise and normal technological progress, and is mostly despite and not because of New Delhi’s bureaucrats (see “The Dream Team: A Critique”, The Statesman 6-8 January 2006).

 

 

The first aspect of the new Indian foreign policy has been for Government to become wholly ingratiating towards any and all “First World” members visiting India who may deign to consider any kind of collaboration whatsoever. The long line of foreign businessmen and heads of government having photo-ops with the Indian PM began with Vajpayee and has continued with Manmohan, especially when there is a large weapons’ or commercial aircraft or other purchase to be signed. The flip-side has been ministerial and especially Prime Ministerial trips abroad ~ from Vajpayee’s to a Singapore golf-cart immediately after commiserating Gujarat, to Manmohan receiving foreign honorary doctorates while still holding public office.

 

 

Subservience to foreign business interests in the name of economic policy extends very easily to Indian naval, military or diplomatic assets being used to provide policing or support services for the great powers as and when they may ask for it. Hence, Indian naval forces may be asked by the Americans to help fight pirates in the Indian Ocean, or escort this vessel or that, or India may be asked to provide refuelling or base facilities, or India may be requested to vote against Iran, Venezuela or whomever here or there. But there would be absolutely no question of India’s role in international politics being anything greater than that of a subaltern or comprador whose response must be an instant “Ji, Huzoor”. The official backing of the Tharoor candidacy was as futile and ridiculous as the quest for UN veto-power or the willingness to attend G-8 summits as an observer.

 

 

While subservience towards the First World’s business and military interests is the “kiss up” aspect of the new foreign policy, an aggressive jingoism towards others is the “kick down” aspect. One influential voice among the media friends of the new foreign policy states it as follows: “The search for `equity oil’ has been the single most important new element of Indian economic diplomacy in recent years… Equity oil raises India’s stakes in the stability of regimes or even individuals who preside over these resources… the big question is how far would India go in defence of `regime stability’ elsewhere? And if it’s assets fall into hostile hands, would India be prepared to consider promoting `regime change’?” Just as surely as a pacifist Fabian socialist Nehru misperceived Stalin’s USSR, New Delhi’s new capitalistic jingoists have misperceived the Cheney-Rumsfeld grab for “equity oil” and have even defined Bush-Blair adventurism as being “the side of the angels”. How they must love to want to project Indian military force ~ paratroopers in the Maldives perhaps, though they need to recall what happened with the LTTE too!

 

 

Multiple Jallianwalla Bagh massacres may have been occurring in front of us in Iraq, Afghanistan and Balochistan, and there may soon be an attack on Iran too. New Delhi’s new “kiss up, kick down” attitude has rendered India’s once-dignified and sober voice silent, our eyes closed or our face turned away.

 

 

The obvious alternative to bureaucratic “kiss up, kick down” would be “kick up, kiss down” loved by all individualists and anti-bureaucrats. In other words, it would be for India to take each case and circumstance in international politics on its merits; be seen to stand up seriously to the powerful in world politics wherever and whenever necessary; seek to protect those who may be vulnerable to international or other brutality in world affairs, while getting on properly with the mundane business of ordinary government and commerce at all other times. That mundane business may call for a gradual withdrawal of India from all or most of the fancy, corrupt international bureaucracies in New York, Washington, Geneva etc, focussing calmly but determinedly instead on improved administration and governance at home. Such was what Rajiv Gandhi was advised in January 1991 (see “Memos to Rajiv,” The Statesman 31 July-2 August 1991; Freedom First October 2001), when for one futile moment he even formed a peaceful bridge between the Americans and Saddam during the first Gulf War. The New Delhi establishment may be too intoxicated with power and insecure intellectually to be able to reflect on such sober alternatives.

The Politics of Dr Singh

Preface April 25 2009:  This article of mine has become a victim of bowdlerization on the Internet by someone who seems to support Dr Singh’s political adversaries.  I should say, therefore, as I have said before that  there is nothing personal in my critical assessment of Dr Singh’s economics and politics.  To the contrary, he has been in decades past a friend or at least a colleague of my father’s, and in the autumn of 1973 visited our then-home in Paris at the request of my father to advise me, then aged 18, before I embarked on my undergraduate studies at the London School of Economics.   My assessments in recent years like “The Politics of Dr Singh” or “Assessing Manmohan” etc need to be seen along with my “Assessing Vajpayee: Hindutva True and False”, “The Hypocrisy of the CPI-M”, “Against Quackery”, “Our Dismal Politics”, “Political Paralysis” etc.   (Also “Mistaken Macroeconomics”, June 2009). Nothing personal is intended in any of these; the purpose at hand has been to contribute to a full and vigorous discussion of the public interest in India.

 

 

Postscript 2 Sep 2013: See especially Did Jagdish Bhagwati “originate”, “pioneer”, “intellectually father” India’s 1991 economic reform?  Did Manmohan Singh? Or did I, through my encounter with Rajiv Gandhi, just as Siddhartha Shankar Ray told Manmohan & his aides in Sep 1993 in Washington?  Judge the evidence for yourself.  And why has Amartya Sen misdescribed his work? India’s right path forward today remains what I said in my 3 Dec 2012 Delhi lecture!

also from 2014: https://independentindian.com/2014/08/07/haksar-manmohan-and-sonia/

 

 

 

 

THE POLITICS OF DR SINGH

by

Subroto Roy

 

First published in The Sunday Statesman Editorial Page Special Article, May 21 2006

 

 

 

Manmohan Singh matriculated during Partition, and earned bachelor’s and master’s degrees in economics from Punjab University in 1952 and 1954. He then went to Cambridge to read for the BA over two years. The pro-communist Joan Robinson and Nicholas Kaldor were dominant influences in Cambridge economics at the time. Mark Tully reports Dr Singh saying in 2005 he fell under their influence. “At university I first became conscious of the creative role of politics in shaping human affairs, and I owe that mostly to my teachers Joan Robinson and Nicholas Kaldor. Joan Robinson was a brilliant teacher, but she also sought to awaken the inner conscience of her students in a manner that very few others were able to achieve. She questioned me a great deal and made me think the unthinkable. She propounded the left wing interpretation of Keynes, maintaining that the state has to play more of a role if you really want to combine development with social equity. Kaldor influenced me even more; I found him pragmatic, scintillating, stimulating. Joan Robinson was a great admirer of what was going on in China, but Kaldor used the Keynesian analysis to demonstrate that capitalism could be made to work.”

 

 

Now, in fact, what was going on in China at that time was the notorious catastrophe caused by Mao Zedong known initially as the “Little Leap Forward” (with a Stalin-like collectivization of agriculture) and then as the “Great Leap Forward”. Mao later apologised to China’s people for his ignorance of microeconomic principles, admitting he “had not realised coal and steel do not move of their own accord but have to be transported”. If what Robinson was extolling to young Indians at Cambridge like Amartya Sen and Manmohan Singh in the mid 1950s was Mao’s China, it was manifest error.

 

 

As for Kaldor, the Canadian economist Harry Johnson independently reported that “being a man who rolls with the times fairly fast”, Kaldor “decided early on that capitalism actually was working. So for him the problem was, given that it works, it cannot possibly work because the theory of it is right. It must work for some quite unsuspected reason which only people as intelligent as himself can see.” Like Robinson, Kaldor made a handful of fine contributions to economic theory. But in policy-making he exemplified the worst leftist intellectual vanity and “technocratic” arrogance.

 

 

Returning to India, Manmohan Singh was required to spend three years at Chandigarh. In 1960, he left for Nuffield College to work for an Oxford DPhil on the subject of Indian exports. He returned to Chandigarh as required by government rules for another three years, and in 1966 left again until 1969, this time as a bureaucrat at the new UNCTAD in New York run by Raul Prebisch. A book deriving from his doctoral thesis was published by Clarendon Press in 1964.

 

 

In 1969, Dr Singh returned to India becoming Professor of International Trade at the Delhi School of Economics. A technical survey of mainstream Indian economic thinking done by his colleagues Jagdish Bhagwati and Sukhamoy Chakravarty published in the American Economic Review of 1969, made footnote references to his book in context of planning and protectionism, but not in the main discussion of Indian exports which at the time had to do with exchange-rate overvaluation.

 

 

After Indira Gandhi’s March 1971 election victory, Dr Singh came to the attention of Parameshwar Narain Haksar, who launched his career in bureaucracy after inviting him to write a political paper “What to do with the victory”. Haksar had been an Allahabad lawyer married into the Sapru family. In London as a student he was a protégé of R. Palme Dutt and Krishna Menon, and openly pro-USSR. He was close to the Nehrus, and Jawaharlal placed him in the new Foreign Service. He was four years older than Indira and later knew her husband Feroze Gandhi who died in 1960. By May 1967 Haksar was Indira’s adviser, and became “probably the most influential and powerful person in the Government” until 1974, when there was a conflict with her younger son. But Haksar’s influence continued well into the 1990s. His deeds include nationalization of India’s banks, the Congress split and creation of the Congress(I), and politicisation of the bureaucracy including the intelligence services. High quality independent civil servants became politically committed pro-USSR bureaucrats instead. Professionalism ended and the “courtier culture” and “durbar” politics began.

 

 

Haksar and T. N. Kaul were key figures negotiating the August 1971 “Treaty of Peace, Friendship and Cooperation” with the USSR, which was to run 25 years except the USSR collapsed before then. Indira had hosted Richard Nixon two years previously, and the Nixon-Kissinger attempt to get close to Zhou En Lai’s China using Pakistan’s Z. A. Bhutto and Yahya Khan (coinciding with Pakistan’s civil war) were undoubtedly factors contributing to India’s Soviet alliance.

 

 

As Haksar’s protégé, Dr Singh’s rise in the economic bureaucracy was meteoric. By 1972 he was Chief Economic Adviser and by 1976 Secretary in the Finance Ministry. The newly published history of the Reserve Bank shows him conveying the Ministry’s dictates to the RBI. In 1980-1982 he was at the Planning Commission, and in 1982-1985 he was Reserve Bank Governor (when Pranab Mukherjee was Finance Minister), followed by becoming Planning Commission head, until taking his final post before retirement heading the “South-South Commission” invented by Julius Nyerere of Tanzania, from August 1987 until November 1990 in Geneva.

 

 

Dr Singh joined Chandrashekhar’s Government on 10 December 1990, when Rajiv Gandhi was Leader of the Opposition yet supporting Chandrashekhar “from the outside”, and left when new elections were announced in March 1991. The first time his name arose in context of contemporary post-Indira Congress Party politics was on 22 March 1991 when M K Rasgotra challenged the present author to answer how Manmohan Singh would respond to proposals being drafted for a planned economic liberalisation of India by the Congress Party authorised by Rajiv since September 1990 (viz., “Memos to Rajiv” The Statesman 31 July-2 August 1991 republished here as “Three Memoranda to Rajiv Gandhi”; “The Dream Team: A Critique” The Statesman 6-8 January 2006 also republished here; see also “Rajiv Gandhi and the Origins of India’s 1991 Economic Reform” published elsewhere here, and in abbreviated form in Freedom First, October 2001).

 

 

Rajiv was assassinated on 21 May 1991, resulting in Narasimha Rao (who had been ill and due to retire) becoming PM in June 1991. Dr Singh told Tully: “On the day (Rao) was formulating his cabinet, he sent his Principal Secretary to me saying, `The PM would like you to become the Minister of Finance’. I didn’t take it seriously. He eventually tracked me down the next morning, rather angry, and demanded that I get dressed up and come to Rashtrapati Bhavan for the swearing in. So that’s how I started in politics”. In the same conversation, however, Dr Singh also said he learnt of “the creative role of politics” from Robinson, and hence he must have realised he actually became politically committed when he began to be mentored by Haksar — Indira Gandhi’s most powerful pro-communist bureaucrat. Before 1991, Dr Singh may be fairly described as a statist anti-liberal who travelled comfortably along with the tides of the pro-USSR New Delhi political and academic establishment, following every rule in the bureaucratic book and being obedient in face of arbitrary exercise of political and economic power. There is no evidence whatsoever of him having been a liberal economist before 1991, nor indeed of having originated any liberal economic idea afterwards. The Congress Party itself in May 2002 passed a resolution saying the ideas of India’s liberalisation had originated with neither him nor Narasimha Rao.

 

 

Indeed, the 1970s and 1980s saw onset of the worst macroeconomic policies with ruination and politicisation of India’s banking system, origins of the Rs 30 trillion (Rs 30 lakh crore) public debt we have today, and the start of exponential money supply growth and inflation. Along with Pranab Mukherjee, Dr Singh, as the exemplary Haksarian bureaucrat, must accept responsibility for having presided over much of that. If they are to do anything positive for India now, it has to be first of all to undo such grave macroeconomic damage. This would inevitably mean unravelling the post-Indira New Delhi structure of power and privilege by halting deficit finance and corruption, and enforcing clean accounting and audit methods in all government organisations and institutions. Even the BJP’s Vajpayee and Advani lacked courage and understanding to begin to know how to do this, allowing themselves to be nicely co-opted by the system instead. Rajiv might have done things in a second term; but his widow and her coalition government led by Dr Singh, who exemplified India’s political economy of the 1970s and 1980s, appear clueless as to the macroeconomic facts, and more likely to enhance rather than reverse unhealthy fiscal and monetary trends.

Revisionist Flattery of Indira Gandhi

Inder Malhotra’s Indira Gandhi : A Review Article
by Subroto Roy
First published in The Statesman May 7 2006

Indira Priyadarshini Nehru was fortunate to have been a handsome woman born to an eminent and indulgent father and grandfather. Despite her lack of higher education or significant worldly wisdom or experience, she acquired enough of an aura of being born to rule that she became Congress Party President in 1959 at age 41, and India’s most dramatic Prime Minister from 1966-1977 and again from 1980-1984 when she was assassinated. She was lucky too that the Zoroastrian man she married did not have one of the many long and colourful surnames Indian Zoroastrians can have, but coincidentally shared the same surname as modern India’s founder. Hence arose the iconic name and personage known as Indira Gandhi.

“The evil that men do lives after them, the good is often interred with their bones”, said Shakespeare. Indira Gandhi’s one and paramount good deed as India’s leader and indeed as a world leader of her time was to have fought a war that was so rare in international law for having been unambiguously just. And she fought it flawlessly. The cause had been thrust upon her by an evil enemy’s behaviour against his own people, an enemy supported by the world’s strongest military power with pretensions to global leadership. Victims of the enemy’s wickedness were scores of millions of utterly defenceless, penniless human beings. Indira Gandhi did everything right. She practised patient but firm diplomacy on the world’s stage to avert war if it was at all possible to do. She chose her military generals well and took their professional judgement seriously as to when to go to war and how to win it. Finally, in victory she was magnanimous to the enemy that had been defeated. Children’s history-books in India should remember her as the stateswoman who freed a fraternal nation from tyranny, at great expense to our own people. As a war-leader, Indira Gandhi displayed extraordinary bravery, courage and good sense.

Unfortunately, this was the only arena in which these virtues of hers came to be expressed. India’s serious history-books, beyond those written for or read by children, need to record that her sheer ignorance of the fundamentals of domestic statecraft as well as her caprice, arrogance and hubris caused permanent harm to India’s polity in innumerable dimensions from which we have yet long to recover. On advice first of her childhood acquaintance, the proto-communist P. N. Haksar, and later of her ruffian unprincipled younger son Sanjay, she single-handedly destroyed India’s nascent parliamentary traditions, federalism, the Rule of Law, and its most important political party; the integrity of the civil services, judiciary, police, intelligence services and other public institutions; as well as monetary and fiscal prudence Beside this, she and her younger son Sanjay contributed to destroying communal harmony and political stability in the Punjab, while she and later her older son Rajiv contributed to do the same in Kashmir. She exulted in the personality cult, courtier culture and durbar politics of her father and grandfather.

Many pertinent questions about the personal and political life of Indira Gandhi have remained to be answered by any serious modern biographer. Her relationships with her husband and his rival for her time and affections, her father, remain in darkness, as does, after their deaths, her relationship between 1967- 1974 with Haksar, her key adviser. Her capacity and her failures as a mother to two very different sons also remain unclear. Her own lack of education was transmitted to them and neither succeeded at what he studied to be, though at least Rajiv became a gentleman. Her father had been an indifferent husband to Kamala and she an indifferent wife to Feroze — the most important thing her sons may have done with their lives was to have married women she did not choose for them, and then to have become well-loved spouses themselves. As mother-in-law, her petulant bullying of the young Sikh widow of Sanjay, mother of an infant child at the time, remains to be contrasted with her apparent warmth and generosity towards her Italian-born elder daughter-in-law. All such questions would be ones of feminine gossip or TV-soap operas in case of any ordinary woman but assume political significance for Indians because of the inordinate impact she, her father, her sons and their widows have had on India’s modern history. Why all of India’s national-level politics have acquired a gossipy joint-family tone about them is because she projected onto them no high and universally known political principles whatsoever, but merely her own personal experiences and desire for popularity.

The book at hand provides almost no new fact or insight on any relevant extant personal or political question about Indira Gandhi at all. The one exception has to do with a brief discussion of her relationship with Lal Bahadur Shastri which reveals her naked ambition most clearly, though the author is too ingratiating to wish to draw such a conclusion himself. He meekly deflects blame for her faults onto exogenous random shocks like monsoon failures, the rise in petroleum prices or other uncontrollable international events, or the ill-will of others. The most fawning apologists and cultists are quoted with approval: Sanjay was merely “inept”, the Emergency was brought on by its victims and not such a bad thing really, the Shah Commission resembled “a Chinese people’s court”, Maneka was a “rebellious chit of a girl”, etc. Two decades later, we must expect the greatest detachment and calm objectivity in any serious treatment of this complex stateswoman’s life. What we have instead received — at a time when Rajiv’s widow is in power in Delhi and Haksar’s protégé is her PM, while The Mitrokhin Archives II are published — is a clear attempt at revisionist flattery, complete with Indira’s face smiling at us at the start of every chapter and old propaganda photos from the PIB. This is deeply unfortunate coming from the National Book Trust. Indeed, neither she nor her father deserve further inquiry and reflection today more than do their respective spouses, Feroze Gandhi and Kamala Nehru, both of whom died prematurely.

Indian Money and Banking

ON MONEY & BANKING

 

The deficit-finance of all public institutions flow like rivulets into the swamp that is our Public Debt, managed by the RBI

 

by

 

SUBROTO ROY

 

First published in The Sunday Statesman, Editorial Page, Special Article

April 23 2006

 

THE Reserve Bank of India, like all other public institutions, belongs to all of India’s people. There has been a tendency with every national institution, whether the ONGC or nationalised banks like SBI, or the IITs and IIMs or Air India and Indian Airlines or the Railways, Army, Navy, Air Force, IAS, IFS, Central Secretariat etc, even Parliament and State legislatures, to think that its assets, both tangible and intangible, are to serve the interests mainly of its employees, whether of Class 1, 2, 3, or 4. In fact, the assets of all such national institutions belong to all Indians: all one thousand million of us, from nameless street children and rural mendicants onwards. The body of our whole Indian citizenry own any and all such public institutions, and their employees are merely our “agents”, literally “public servants” who get paid salaries and perquisites out of public revenues. The task of managing and controlling these vast cohorts of public servants is a stupendous one of democratic politics and public administration. As a country we have never been very adept at it, indeed we often have been hopelessly incompetent. Without proper control and management, employees of national institutions have naturally tended to take over control of these assets, shifting liabilities onto the shoulders and budgets of the anonymous diffused body of citizenry who are supposed to be their masters. The public’s servants have tended to become the masters of the public’s assets and resources.

 

The RBI, as the nation’s Central Bank, has a unique position because its principal task is to establish and maintain the integrity of our money and banking system. The deficit-finance of all public institutions flow like rivulets into the swamp that is our Public Debt, managed by the RBI.

 

Money as such has no “intrinsic” worth. All the paper rupees, dollars, pounds, euros, yen in the world have less “intrinsic” usefulness than a hairpin or a button or a pair of shoelaces. Hairpins, buttons and shoelaces at least keep your hair, your shirt or your shoes together ~ the paper of paper money can be at best used to roll cigarettes perhaps. Yet paper money comes to be needed and is valued by everyone in every country ~ from street children upwards to Mr Premji, Mr Gates and Mr Mittal. Everyone accepts paper money as wages in exchange for his/her work, and then plans to use that same paper to buy food, shelter, clothing and other necessities with. I.e., we accept paper money for a short time believing we can use it to acquire useful things with. It has no intrinsic worth yet it is universally valued because everyone believes it will be accepted by everyone else in exchange for real goods and services which are in fact useful and conducive to life. The use of paper money depends on a fine and invisible web of collective trust permeating throughout the economy.

 

Banks arose due to the increasing complexity of modern economies in the last six hundred years. Paper currency was then supplemented in commerce by “deposits”, so that a transaction between two persons need not involve turnover of cash but can come to be accomplished by adjustment in their respective deposits with their banks. This vastly increased the quantum of trust ordinary people placed in the system of normal transactions, since they had to now believe not just in the exchangeability of paper money but also in the viability of the banks where they had placed their deposits. Currency plus Bank Deposits constitute what is called the “Money Supply”, and its controller is the RBI.

 

Our collective trust in money and banking is in and of itself something with economic value, which commercial banks are in a unique position to exploit. Banks can usually bet that all their customers will not demand their deposits at the same time, and so they are able to lend out as loans a very large fraction of what they have received as deposits from the public. Making such loans in turn causes the recipients of the loans to make new deposits (of what they have borrowed) in yet other banks, and this in turn acts as a signal to the receiving banks to make even more loans. Hence a process of “redeposit” or “deposit multiplication” occurs in any banking system where only a fraction of deposits is legally required to be kept as reserves by the bank. A Central Bank like the RBI then has the duty to see none of this gets out of hand: that while individual banks are acting to make profitable investments on the capital risked by a bank’s owners, they are, as a collective body, creating enough but not excessive credit to meet the needs of business.

 

In India, most banks came to be nationalised decades ago by Indira Gandhi on advice of P. N. Haksar, the mentor of Dr Manmohan Singh in his career as an economic bureaucrat. Whatever original capital they have had also arises from the public exchequer, and all their employees are effectively “public servants” under the Ministry of Finance. We have not been hearing from the RBI anything about the deleterious effects of this continuing state of affairs.

 

The RBI’s functions include managing the “Public Debt”, which stands today at perhaps Rs. 30 trillion (1 trillion= 1 lakh crore), on which interest of perhaps Rs 2-3 trillion must be paid by the Union and State Governments every year to those holding the debt (mostly the nationalised banking system under duress from the RBI). Why the stock-market has been doing so “well” is because it has been like an athlete on steroids. A stock market is supposed to be risky while a debt market is supposed to be safe. Our Government’s fiscal and monetary behaviour over decades has caused the formal debt market to yield negative returns, and so the stock-market has become relatively lucrative despite its risky nature.

 

It is also the RBI’s task to manage the country’s foreign exchange “reserves”, i.e. the residual balance left after all forex outgoings from purchases of imports (like petroleum or weapons) and payments of interest on or repayment of foreign loans have been subtracted from flows of incoming forex arising from export revenues, emigrants’ remittances, and new foreign loans and investments. These “reserves” do not belong to the Government or the nation in the same way tax-revenues belong to the Consolidated Fund of India. It was a shocking conceptual error of the Manmohan Singh Government’s most prominent economic bureaucrat to fail to see this and to suggest forex reserves could be used for “infrastructure” development. For the business press to get excited about forex reserves being at this or that level is also misleading, since high reserves may or may not indicate a better financial position just as a heavily indebted man may or may not be in a bad position depending on what kind of use he has made of his debts.

 

We have not been hearing of any of these matters from the RBI under Dr Y. V. Reddy. Instead, the one definite number we have received last week is that the RBI, under behest of its master, the Ministry of Finance, has been causing the Money Supply to grow at something like 15%. The Government’s apologists would like us to believe that this gets distributed between real economic growth in the region of 10% and inflation in the region of 5%. But for all that anybody really knows, it may be that real growth is at 5% and inflation is at 10%! Ask yourself if what you bought last year for Rs 1000 costs Rs 1050 or Rs. 1100 this year. Your guess may be as good as the Government’s.

Logic of Democracy

LOGIC OF DEMOCRACY

by

SUBROTO ROY

First published in The Statesman,

Editorial Page Special Article, March 30 2006

Parliament may unanimously vote for a bill on the “Office of Profit” issue but this will have to be consistent with the spirit and letter of the Constitution and with natural law if it is not to be struck down by the Supreme Court. It is thus important to get the logic right.

India is a representative and not a direct democracy. We the people constitute the Electorate who send our representatives periodically to legislative institutions at national, state and local levels. These representatives, namely, Lok Sabha and Legislative Assembly Members and municipal councilors, have a paid job to do on behalf of all their constituents, not merely those who voted for them. They are supposed to represent everyone including those who voted against them or did not vote at all.

In view of this, if the question is asked: “Was India’s interest served by Sonia Gandhi peremptorily resigning as the Lok Sabha Member from Rae Bareli and then immediately declaring she will fight a fresh election from there?”, the answer must be of course that it was not. Mrs Gandhi had been elected after an expensive process of voting and she had a duty to continue to represent all of Rae Bareli’s people (not just her party-supporters) for the duration of the 14th Lok Sabha. Instead she has given the impression that Rae Bareili is her personal fiefdom from where she must prove again how popular she is as its Maharani.

What needed to be done instead was to abolish the so-called “National Advisory Council” which, like the “Planning Commission” is yet another expensive extra-constitutional body populated by delusional self-styled New Delhi worthies. The NAC has been functioning as Mrs Gandhi’s personal Planning Commission, and she lacked the courage to scrap it altogether — just as Manmohan Singh lacks the courage to tell Montek Ahluwalia to close down the Planning Commission (and make it a minor R&D wing of the Ministry of Finance).

Lok Sabha’s duties

What are Lok Sabha Members and State MLAs legitimately required to be doing in caring for their constituents? First of all, as a body as a whole, they need to elect the Government, i.e. the Executive Branch, and to hold it accountable in Parliament or Assembly. For example, the Comptroller and Auditor General submits his reports directly to the House, and it is the duty of individual legislators to put these to good use in controlling the Government’s waste, fraud or abuse of public resources.

Secondly, MPs and MLAs are obviously supposed to literally represent their individual constituencies in the House, i.e. to bring the Government and the House’s attention to specific problems or contingencies affecting their constituents as a whole, and call for the help, funds and sympathy of the whole community on their behalf.

Thirdly, MPs and MLAs are supposed to respond to pleas and petitions of individual constituents, who may need the influence associated with the dignity of their office to get things rightly done. For example, an impoverished orphan lad once needed surgery to remove a brain tumour; a family helping him was promised the free services of a top brain surgeon if a hospital bed and operating theatre could be arranged. It was only by turning to the local MLA that the family were able to get such arrangements made, and the lad had his tumour taken out at a public hospital. MPs and MLAs are supposed to vote for and create public goods and services, and to use their moral suasion to see that existing public services actually do get to reach the public.

Rajya Sabha different species

Rajya Sabha Members are a different species altogether. Most if not all State Legislative Councils have been abolished, and sadly the present nature of the Rajya Sabha causes similar doubts to arise about its utility. The very idea of a Rajya Sabha was first mooted in embryo form in an 1888 book A History of the Native States of India, Vol I. Gwalior, whose author also advocated popular constitutions for the “Indian India” of the “Native States” since “where there are no popular constitutions, the personal character of the ruler becomes a most important factor in the government… evils are inherent in every government where autocracy is not tempered by a free constitution”.

When Victoria was declared India’s “Empress” in 1877, a “Council of the Empire” was mooted but had remained a non-starter even until the 1887 Jubilee. An “Imperial Council” was now designed of the so-called “Native Princes”, which came to evolve into the “Chamber of Princes” which became the “Council of the States” and the Rajya Sabha.

It was patterned mostly on the British and not the American upper house except in being not liable to dissolution, and compelling periodic retirement of a third of members. The American upper house is an equal if not the senior partner of the lower house. Our Rajya Sabha follows the British upper house in being a chamber which is duty-bound to oversee any exuberance in the Lok Sabha but which must ultimately yield to it if there is any dispute.

Parliament in India’s democracy effectively means the Lok Sabha — where every member has contested and won a direct vote in his/her constituency. The British upper house used to have an aristocratic hereditary component which Tony Blair’s New Labour Government has now removed, so it has now been becoming more like what the Rajya Sabha was supposed to have been like.

The corruption of our body-politic originated with the politicisation of the bureaucracy thirty five years ago by Indira Gandhi and PN Haksar. The Rajya Sabha came to be ruined with the “courtier culture” and “durbar politics” that resulted. This bad model which the Congress Party created and followed was imitated by the Congress’s political opponents too. Our Rajya Sabha has now tended to become a place for party worthies who have lost normal elections, superannuated cinematic personalities, perpetual bureaucrats still seeking office, and similar others. The healthiest course of action for Indian democracy may be to close it down completely for a few years, then recreate it ab initio based on its original purposes and intent (but this may not be constitutionally possible to do).

Holding Executive accountable

It is a forgotten platitude that in a representative democracy what elected legislators are supposed to be doing is represent the interests of the Electorate. Along with the Judiciary, the Legislative Branch is supposed to control the Executive Government, which is the natural oppressor of the Electorate. That is why the Legislature must be independent of the Executive — which is the precise intent behind Article 102 (a) of the Constitution of India: “A person shall be disqualified for being chosen as, and for being, a member of either House of Parliament… if he holds any office of profit under the Government of India or the Government of any State…”

In other words, if you are a Lok Sabha MP or State MLA who is supposed to be a part of the august House which has elected the Executive Government and by whom that Government is supposed to be held accountable, then it is a clear conflict of interest if you are yourself in the pay of that Government. As a legislator, you are either in the Executive or you are not. If you are in the Executive, you are liable to be held accountable by the House. If you are not in the Executive, you are duty-bound as an ordinary Member of the House to hold the Executive accountable. The logic is ultimately as clear and simple as that.

It is inevitable that the delineation of the appropriate boundaries between Legislature and Executive will have to be pronounced upon by the Judiciary. The “Office of Profit” issue has opened an opportunity for a Constitution Bench of the Supreme Court to speak on the rights and duties of the Legislative and Executive Branches of Government. And no Constitution Bench has ever spoken unwisely.

Separation of Powers: India, the USA, Pakistan

SEPARATION OF POWERS

Montesquieu’s Spirit of the Laws outlined a doctrine that applies to India, the USA and all constitutional democracies: there is no monopoly of political wisdom.

By SUBROTO ROY
First published in The Sunday Statesman, The Statesman Editorial Page, Special Article Feb 12-13 2006

The Speaker’s noble office is that of the single member of the House, traditionally chosen by unanimity, whose task it is to self-effacingly maintain order in Parliamentary debate and proceedings, so that the House’s work gets done. C’est tout. Once chosen Speaker, he ipso facto retires from partisan politics for life. The Speaker neither contributes to the substance of Parliamentary debate (except in the rare case of a tie) nor has to feel personally responsible for Parliament’s conduct.

Our Parliament has tended to become so dysfunctional since Indira Gandhi and her sycophants destroyed its traditions 30 years ago, that supervising its normal work is an onerous enough task for even the finest of Speakers to handle.

The Lok Sabha’s incumbent Speaker has tended to see himself as the champion of Parliament.  He need not.  He does not command a majority in the Lok Sabha; the Government Party does. We have had the oddest peculiarity unfolding in India at present where the person who does command the Lok Sabha’s majority, and therefore who would be normally defined as Prime Minister of India, has chosen to nominate someone who is not a member of the Lok Sabha to act as Prime Minister, i.e. to command the Lok Sabha’s majority. (The Rajya Sabha was and remains irrelevant to most things important to Indian democracy, regardless of its narcissism and vanity). Someone with access to 10 Janpath should have told Sonia Gandhi in May 2004 that if she did not wish to be PM and wanted to gift the job to someone else, she should do so to someone who, like herself, had been elected to the Lok Sabha, like Pranab Mukherjee (elected for the first time) or Kamal Nath or Priya Ranjan (both veterans).

Manmohan Singh, a former Lok Sabha candidate, may as Finance Minister have been able to progress much further with economic reforms. But sycophancy has ruled the roost in the Congress’s higher echelons, and nobody had the guts to tell her that. Indeed as early as December 2001, Congress leaders knew that in the unlikely event they won the polls, Manmohan Singh would likely be PM by Sonia Gandhi’s choice (though he was not expected to last long at the top), and yet he did not contest the Lok Sabha polls in 2004.

The Government of the day, not the Speaker, is Parliament’s champion in any discussion with the Supreme Court over constitutional rights and Separation of Powers. And the Government has in fact quietly and sensibly requested the Supreme Court to set up a Constitutional Bench for this purpose. Such a Constitutional Bench shall have cause to ask itself how far Kesavananda Bharati needs to be tweaked if at all to accommodate the contention that Parliament has a right to judge its own members. The Court may well likely say that of course Parliament has a right to judge its own members but even that right is not an absolute right, (nothing is). Even Parliament’s right to judge its own members must be in accordance with natural law, with principles of justice, with due and clearly defined processes. E.g. the established Privileges Committee and not the ad hoc Bansal Committee had to do the needful.

Imagine a hypothetical case of fantastic fiction where half a dozen independent MPs are elected to a future Lok Sabha, and then take it upon themselves to expose corruption and shenanigans of all major political parties. Our fantastic super-heroes become whistleblowers within Parliament itself while remaining totally incorruptible as individuals — like Eliot Ness’s team who jailed Al Capone and other gangsters, and came to be depicted in Hollywood’s The Untouchables. These Untouchables would come to be feared and despised by everyone from Communists on one side of the political spectrum to Fascists on the other. They would upset everybody precisely because they were so clean and were not purchasable. The Government and Opposition of the day might wellgang up to expel such troublemakers and even fabricate charges to do so. (Now there’s a script for a Bollywood movie!)

What our Supreme Court’s Constitutional Bench decides now in the matter at hand will determine the fate of our super-heroes in such a future fantasia. The present case is a polar opposite — where MPs have been caught on camera with their sordid fingers in the cookie-jar, and then made to walk the plank immediately by their peers. Yet natural law applies here as it will to our fantastic future fighters, and this is what the Bench would have to speak on.

Why the present situation continues to be disconcerting is because the whole country heard all the holier-than-thou protestations, yet everyone continues to take a very dim view of what they see of politicians’ behaviour. There remain strong suspicions that only a few very tiny tips of very large icebergs were or can be caught on camera. Large-scale deals and contracts involve payments into invisible bank accounts, not petty cash into pockets or even suitcases filled with cash sloshing around Delhi.

What we have desperately needed in the situation is modern prime ministerial leadership which could intelligently and boldly guide national debate in the right direction on the whole matter of probity in public life. Why a distinguished parliamentarian like the Speaker has found himself in the limelight is because neither the de jure nor de facto Prime Ministers of India are anywhere to be seen thinking on their feet on these central issues of constitutional procedure and practice. They tend to use prepared scripts and may be temperamentally disinclined to do what has been called for by these unscripted circumstances. (Indeed the much-maligned H. D. Deve Gowda could be alone among the bevy of recent PMs who has been able to think on his feet at all.)

Collapse Before Executive Power

In the meantime, the United States is going through its own Separation of Powers’ crisis. As explained in these columns previously, the American system is distinctly different from the British, and our own system is midway between them. Yet similar principles may be discerned to apply or fail to be applied in all.

Winston Churchill once perspicaciously observed:

“The rigid Constitution of the United States, the gigantic scale and strength of its party machinery, the fixed terms for which public officers and representatives are chosen, invest the President with a greater measure of autocratic power than was possessed before (the First World War) by the Head of any great State. The vast size of the country, the diverse types, interests and environments of its enormous population, the safety-valve function of the legislatures of fifty Sovereign States, make the focussing of national public opinion difficult, and confer upon the Federal Government exceptional independence of it except at fixed election times. Few modern Governments need to concern themselves so little with the opinion of the party they have beaten at the polls; none secures to its supreme executive officer, at once the Sovereign and the Party Leader, such direct personal authority.”

America’s Legislative Branch has, on paper, strong powers of advice and consent to control errors, excesses or abuse of power by the Executive President. But (with rare and courageous exceptions like Sen. Robert C. Byrd of West Virginia) the Legislature cravenly collapsed before the father-son Bush presidencies in regard to the Middle East wars of recent years. America’s once-revered federal judiciary has also tended to lose its independence of mind with overt politicisation of judicial appointments in recent decades.

Bush the First went to war against Saddam Hussein (a former American ally against Islamic Iran) at least partly with an eye to winning re-election in 1992 (which he would have done as a result but for a random shock known as Ross Perot; Bill Clinton became the beneficiary). Bush the Second obsessively wished to follow up on the same, to the point of misjudging the real threat to America from Bin Laden and fabricating a false threat from an emasculated Saddam.

America’s Legislature palpably failed to control her Presidents. Now, late in the day, after all the horses have bolted, the Senate Judiciary Committee began tepid hearings on February 5 2006 into whether the President authorized laws to be broken with impunity in regard to wire-tapping some 5,000 citizens (doubtless mostly non-white and Muslim) without judicial warrants. Republican Senator Arlen Specter, the Committee’s Chairman, has said he believes the Foreign Intelligence Surveillance Act has been “flatly” violated, and “strained and unrealistic” justifications are now being offered. Bush’s men, from his Vice President and Attorney General to political intelligence operatives, have brazenly placed in the dustbin the traditional principle fiat justitia pereat mundus — let justice be done even if the world perishes — saying that the Sovereign can do just as he pleases to save the realm from external enemies as he might perceive and define them to be.

What this kind of collapse in current American practice reveals is a new aspect unknown at the time of Montesquieu’s Spirit of the Laws. In the modern world, Separation of Powers involves not merely constitutional institutions like Executive, Legislature and Judiciary but also the normal civil institutions of a free and open society, especially academic institutions and the press. In America, it has been not merely the Legislature and Judiciary which have tended to collapse before Executive Power in regard to the recent Middle East wars, but the media and academia as well.

“Embedded reporters” and Fox TV set the tone for America’s official thought processes about Iraq and the Muslim world — until it has become too late for America’s mainstream media or academics to recover their own credibility on the subject. On the other hand, unofficial public opinion has, in America’s best traditions, demonstrated using vast numbers of Internet websites and weblogs, a spirited Yankee Doodle individuality against the jingoism and war-mongering of the official polity.

Neither the press nor academia had collapsed the same way during America’s last major foreign wars in Vietnam and Cambodia forty years ago, and it may be fairly said that America’s self-knowledge was rather better then than it is now, except of course there were no Internet websites and weblogs.

Our Pakistani Cousins
Across the border from us, our Pakistani cousins are, from a political and constitutional point of view, cut from the same cloth as ourselves, namely the 1935 Government of India Act, and the Montague-Chelmsford and Morley-Minto reforms earlier. However, ever since Jinnah’s death, they have refused to admit this and instead embarked haplessly on what can only be called an injudicious path of trying to write a Constitution for a new Caliphate. The primary demand of the main scholars influencing this process was “That the sovereignty in Pakistan belongs to God Almighty alone and that the Government of Pakistan shall administer the country as His agent”. By such a view, in the words of Rashid Rida and Maulana Maududi, Islam becomes “the very antithesis of secular Western democracy. The philosophical foundation of Western democracy is the sovereignty of the people. Lawmaking is their prerogative and legislation must correspond to the mood and temper of their opinion… Islam… altogether repudiates the philosophy of popular sovereignty and rears its polity on the foundations of the sovereignty of God and the viceregency (Khilafat) of man.” (Rosenthal, Islam & the Modern National State, Cambridge 1965.) Pakistan’s few modern constitutionalists have been ever since battling impossibly to overcome the ontological error made here of assuming that any mundane government can be in communication with God Almighty. In the meantime, all normal branches of Pakistan’s polity, like the electorate, press, political parties, Legislature and Judiciary, have remained at best in ill-formed inchoate states of being — while the Pakistan Armed Forces stepped in with their own large economic and political interests and agendas to effectively take over the country and the society as a whole, on pretext of protecting Pakistan from India or of gaining J&K for it. Pakistan’s political problems have the ontological error at their root. Pakistan’s political parties, academics and press, have with rare exceptions remained timid in face of the militaristic State — directing their anger and frustration at an easier target instead, namely ourselves in India. The Pakistan Government’s way of silencing its few political, academic or press dissidents has been to send them into comfortable exile abroad.

Sheikh Abdullah Contrasted
Pakistan’s perpetual constitutional confusion deserves to be contrasted with the clarity of Sheikh Mohammad Abdullah’s thinking, e.g. his 5 November 1951 speech to the Constituent Assembly of J&K: “You are the sovereign authority in this State of Jammu & Kashmir; what you decide has the irrevocable force of law. The basic democratic principle of sovereignty of the nation, embodied ably in the American and French Constitutions, is once again given shape in our midst. I shall quote the famous words of Article 3 of the French Constitution of 1791:- ‘The source of all sovereignty resides fundamentally in the nation. Sovereignty is one and indivisible, inalienable and imprescriptable. It belongs to the nation.’ We should be clear about the responsibilities that this power invests us with. In front of us lie decisions of the highest national importance which we shall be called upon to take. Upon the correctness of our decisions depends not only the happiness of our land and people now, but the fate as well of generations to come.”

Contrasting the Pakistani views of constitution-making with those of Sheikh Abdullah may help to explain a great deal about where we are today on the delicate and profound subject of J&K. (See “Solving Kashmir”, The Statesman, December 1—3, 2005)

India’s current debate about Separation of Powers needs to keep at a distance the clear negative examples of our American friends, who have brought upon themselves in recent times a craven collapse of Legislature, Judiciary, press and academia to the Executive President (as Churchill had seemed to predict), as well as of our Pakistani cousins who have continued with general political and civil collapse for half a century. Because our universities are all owned by the State, India’s academics, from Communist to Fascist, have tended to be servile towards it. In respect of the press, the power of independent newspapers has been dwindling, while the new TV anchors have created their own models of obsequiousness and chummery towards New Delhi’s ruling cliques of the day. It thus becomes India’s Supreme Court which remains the ultimate guardian of our Constitution and the safest haven of our very fragile freedoms — besides of course our own minds and hearts.

Unaccountable Delhi: India’s Separation of Powers’ Doctrine

UNACCOUNTABLE DELHI

India’s Separation Of Powers’ Doctrine

First published in The Statesman Jan 13 2006 Editorial Page Special Article,

By Subroto Roy

The Speaker does not like the fact the High Court has issued notices questioning the procedure he followed in expelling MPs from Parliament. Sonia Gandhi’s self-styled “National Advisory Council” has demanded control over disbursement of 100,000,000,000 rupees of public money. The Manmohan Singh Government plans to quietly ignore the Supreme Court’s finding that it had breached India’s Constitution in imposing President’s Rule in Bihar.  All three issues have to do with application of India’s Separation of Powers Doctrine, i.e. the appropriate delimitation of Constitutional powers between our Legislature, Executive and Judiciary.

A constitutional crime was attempted in India during the Indira-Sanjay Gandhi political “Emergency” declared on 26 June 1975. On 10 November 1975 (a time of press censorship) a 13-judge Bench of the Supreme Court met to hear the Government plead for overrule of Kesavananda Bharati (A.I.R. 1973 S.C. 1461), a landmark Nani Palkhivala once called “the greatest contribution of the Republic of India to constitutional jurisprudence”. Within two days, the Government had failed in the Court, and Kesavananda held. What was upheld? That while India’s Parliament was sovereign and could amend the Constitution, the amending power may not be used to alter or destroy “the basic structure or framework of the Constitution”. And the Supreme Court decides for itself whether Parliament has exceeded its legitimate power to amend.

Basic structure
Palkhivala’s description of what constitutes the “basic structure or framework” of India’s Constitution is excellent enough: “the rule of law, the right to personal liberty and freedom from arbitrary arrest and imprisonment, the right to dissent which implies the freedom of speech and expression and a free press are… a part of the basic structure of a free democracy, and it is these priceless human freedoms which cannot be destroyed by Parliament in exercise of its amending power. Thus Kesavananda’s case ensures that tyranny and despotism shall not masquerade as constitutionalism.”

Palkhivala argued that, if anything, the aspects of Kesavananda that needed to be set aside were those that had over-ruled Golaknath (A.I.R. 1967 S.C. 1643) which said Parliament should not be held to have the power to abridge any fundamental right, indeed any amended article which abrogates any fundamental right is invalid.

Dicey said “In the principle of the distribution of powers which determines its form, the constitution of the United States is the exact opposite of the English constitution.” Kesavananda Bharati showed the midway point between the two in constitutional jurisprudence anywhere in the world. We are like the Americans and unlike the British first in being a Republic, and secondly in having an explicit written Constitution. We are like the British and unlike the Americans in being a parliamentary democracy where the Executive Branch of Government, namely the Prime Minister and his/her Cabinet is elected from within the Legislative Branch of Government, namely, Parliament, and must at all times retain the confidence of the latter, specifically the Lok Sabha, the House of the People.

The American Executive Branch has a directly-elected President who chooses his administration, and it is commonplace for him to not have the confidence of the Upper or Lower House of the Legislature, to the point that one recent president had to undergo impeachment proceedings and barely survived. There is no constitutional crisis in America if the Legislature loathes the President and wishes him out. The American President and his Executive Branch stay in office until the last minute of his fixed term.

PM answers to Parliament
In our system, the Prime Minister answers at all times to Parliament. Parliament in India’s democracy has normally meant the House of the People — where every member has contested and won a direct vote in his/her constituency. India’s current Lok Sabha has set a constitutional precedent not seen in more than a hundred years anywhere in electing an Executive led by someone not a member. The British Upper House used to have an aristocratic hereditary component which Mr Blair’s New Labour Government has removed, making it more like what the Rajya Sabha was supposed to be — except that by now our Rajya Sabha has tended to become a place for party worthies who have lost normal elections, superannuated cinematic personalities, perpetual bureaucrats still seeking office, and others who really should be at home helping to raise the grandchildren.  Parliament may not have fully recovered its health ever since that constitutional crime committed against the Republic known as the Indira-Sanjay “Emergency” (and at least one member of Sanjay’s coterie wields much power today).

Crimes and misdemeanours
The Supreme Court’s finding that the Government breached the Constitution by imposing President’s Rule in Bihar is a finding not of a constitutional crime but of a constitutional misdemeanour. (For reasons given already in these columns on 20 October 2005, it has nothing to do with the President, who merely embodies the sovereignty of our Republic.)  For an Executive Order or Legislative Act to be found by a competent Court as being unconstitutional means merely that it does not have to be obeyed by citizens. In the Bihar case, the Supreme Court found this consequence irrelevant because new elections were already in process, the result of which would come from the most authentic democratic voice possible, namely, the same people who elect the House of the People in the first place. India’s Executive has been found to have committed a constitutional misdemeanour, for which it needed to apologise to the Court and Parliament (who are its constitutional co-equals) and then ask the latter to renew its confidence — in which event, life goes on. If confidence was not renewed, the Government would fall and a new Government would have to be formed. But we do not have yet the idea of a backbench revolt —mainly because all the front benches themselves have tended to be in such confusion and disarray with regard to parliamentary traditions, processes and functions.

The Supreme Court as the ultimate protector of the Constitution would be well within its prerogative to oversee whether a Parliamentary Speaker has acted appropriately. Consider a hypothetical case. Once elected, a Speaker is supposed to have no party-affiliation ever more for the rest of his/her life. Suppose, hypothetically, a controlled experiment found a Speaker systematically biased in favour of his/her own former party-members and against their opponents. Where but the Courts could such arbitrariness be effectively remonstrated against? Even if the incumbent Speaker impossibly imagines himself the personal embodiment of the Legislative Branch, he is not beyond the Constitution and therefore not beyond India’s Separation of Powers’ Doctrine.

The Opposition had alleged that the Speaker failed to follow procedure which required the culprits in the expulsion case be referred to the Privileges Committee. But beyond that the Opposition was too confused and guilt-ridden to pursue the matter during the dying moments of Parliament’s Winter Session. In the clear light of day, the issue has now ended up in the Courts. If the Supreme Court eventually rules the Speaker had in fact failed to follow Parliament’s own procedures (and hence breached Constitutional practices), the Speaker would need to apologise to the Courts and the House that elected him, and perhaps offer to fall on his sword.

Finally, for the “National Advisory Council”, a wholly unelected body, to demand a say for itself over spending Rs. 100 billion in State and Union Government budget-making, would be another constitutional misdemeanour — unless its members are merely on the personal staff of the Hon’ble Member representing Rae Bareili, who may of course introduce whatever legislation on money-bills that any other Lok Sabha Member may do.

The Dream Team: A Critique

The Dream Team: A Critique

by Subroto Roy

First published in The Statesman and The Sunday Statesman, Editorial Page Special Article, January 6,7,8, 2006

(Author’s Note: Within a few weeks of this article appearing, the Dream Team’s leaders appointed the so-called Tarapore 2 committee to look into convertibility — which ended up recommending what I have since called the “false convertibility” the RBI is presently engaged in. This article may be most profitably read along with other work republished here: “Rajiv Gandhi and the Origins of India’s 1991 Economic Reform”, “Three Memoranda to Rajiv Gandhi”, “”Indian Money & Banking”, “Indian Money & Credit” , “India’s Macroeconomics”, “Fiscal Instability”, “Fallacious Finance”, “India’s Trade and Payments”, “Our Policy Process”, “Against Quackery”, “Indian Inflation”, etc)

1. New Delhi’s Consensus: Manmohantekidambaromics

Dr Manmohan Singh has spoken of how pleasantly surprised he was to be made Finance Minister in July 1991 by PV Narasimha Rao. Dr Singh was an academic before becoming a government economic official in the late 1960s, rising to the high office of Reserve Bank Governor in the 1980s. Mr Montek Singh Ahluwalia now refers to him as “my boss” and had been his Finance Secretary earlier. Mr Ahluwalia was a notable official in the MacNamara World Bank before being inducted a senior government official in 1984. Mr P Chidambaram was PVNR’s Commerce Minister, and later became Finance Minister in the Deve Gowda and Gujral Governments. Mr Chidamabaram is a Supreme Court advocate with an MBA from Harvard’s Business School. During 1998-2004, Dr Singh and Mr Chidambaram were in Opposition but Mr Ahluwalia was Member-Secretary of the Vajpayee Planning Commission. Since coming together again in Sonia Gandhi’s United Progressive Alliance, they have been flatteringly named the “Dream Team” by India’s pink business newspapers, a term originally referring to some top American basketball players.

Based on pronouncements, publications and positions held, other members or associates of the “Dream Team” include Reserve Bank Governor Dr YV Reddy; his predecessor Dr Bimal Jalan; former PMO official Mr NK Singh, IAS; Chief Economic Advisers Dr Shankar Acharya and Dr Ashok Lahiri; RBI Deputy Governor Dr Rakesh Mohan; and others like Dr Arvind Virmani, Dr Isher Ahluwalia, Dr Parthasarathi Shome, Dr Vijay Khelkar, Dr Ashok Desai, Dr Suman Bery, Dr Surjit Bhalla, Dr Amaresh Bagchi, Dr Govind Rao. Honorary members include Mr Jaswant Singh, Mr Yashwant Sinha, Mr KC Pant and Dr Arun Shourie, all economic ministers during the Vajpayee premiership. Institutional members include industry chambers like CII and FICCI representing “Big Business”, and unionised “Big Labour” represented by the CPI, CPI(M) and prominent academics of JNU. Mr Mani Shankar Aiyar joins the Dream Team with his opinion that a gas pipeline is “necessary for the eradication of poverty in India”. Mr Jairam Ramesh explicitly claimed authoring the 1991 reform with Mr Pranab Mukherjee and both must be members (indeed the latter as Finance Minister once had been Dr Singh’s boss). Dr Arjun Sengupta has claimed Indira Gandhi started the reforms, and he may be a member too. External members include Dr Jagdish Bhagwati, Dr. TN Srinivasan, Dr Meghnad Desai, Dr Vijay Joshi, Mr Ian Little, Dr Anne O. Krueger, Dr John Williamson, IMF Head Dr R Rato, and many foreign bank analysts who deal in Bombay’s markets. Harvard’s Dr Larry Summers joins with his statement while US Treasury Secretary in January 2000 that a 10% economic growth rate for India was feasible. His Harvard colleague Dr Amartya Sen — through disciples like Dr Jean Dreze (adviser to Sonia Gandhi on rural employment) — must be an ex officio member; as an old friend, the Prime Minister launched Dr Sen’s recent book while the latter has marked Dr Singh at 80% as PM. Media associates of the Dream Team include editors like Mr Aroon Purie, Mr Vinod Mehta, Dr Prannoy Roy, Mr TN Ninan, Mr Vir Sanghvi and Mr Shekhar Gupta, as well as the giddy young anchors of what passes for news and financial analysis on cable TV.

This illustrious set of politicians, government officials, economists, journalists and many others have come to define what may be called the “New Delhi Consensus” on contemporary India’s economic policy. While it is unnecessary everyone agree to the same extent on every aspect — indeed on economic policy the differences between the Sonia UPA and Vajpayee NDA have had to do with emphasis on different aspects, each side urging “consensus” upon the other — the main factual and evaluative claims and policy-prescriptions of the New Delhi Consensus may be summarised as follows:

A: “The Narasimha Rao Government in July 1991 found India facing a grave balance of payments crisis with foreign exchange reserves being very low.”

B: “A major cause was the 1990-1991 Gulf War, in its impact as an exogenous shock on Indian migrant workers and oil prices.”

C: “The Dream Team averted a macroeconomic crisis through “structural adjustment” carried out with help of the IMF and World Bank; hence too, India was unaffected by the 1997 ‘Asian crisis'”.

D: “The PVNR, Deve Gowda, Gujral and Vajpayee Governments removed the notorious license-quota-permit Raj.”

E: “India’s measurable real economic growth per capita has been raised from 3% or lower to 7% or more.”

F: “Foreign direct investment has been, relative to earlier times, flooding into India, attracted by lower wages and rents, especially in new industries using information technology.”

G: “Foreign financial investment has been flooding into India too, attracted by India’s increasingly liberalised capital markets, especially a liberalised current account of the balance of payments.”

H: “The apparent boom in Bombay’s stock market and relatively large foreign exchange reserves bear witness to the confidence foreign and domestic investors place in India’s prospects.”

I: “The critical constraint to India’s future prosperity is its “infrastructure” which is far below what foreign investors are used to in other countries elsewhere in Asia.”

J: “It follows that massive, indeed gargantuan, investments in highways, ports, airports, aircraft, city-flyovers, housing-estates, power-projects, energy exploration, gas pipelines, etc, out of government and private resources, domestic and foreign, is necessary to remove remaining “bottlenecks” to further prosperity for India’s masses, and these physical constructions will cause India’s economy to finally ‘take off’.”

K: “India’s savings rate (like China’s) is exceptionally high as is observable from vast expansion of bank-deposits, and these high (presumed) savings, along with foreign savings, will absorb the gargantuan investment in “infrastructure” without inflation.”

L: “Before the gargantuan macroeconomic investments bear the fruits of prosperity, equally large direct transfer payments also must be made from the Government to prevent mass hunger and/or raise nominal incomes across rural India, while existing input or other subsidies to producers, especially farmers, also must continue.”

M: “While private sector participants may increasingly compete via imports or as new entrants in industries where the public sector has been dominant, no bankruptcy or privatisation must be allowed to occur or be seen to occur which does not provide public sector workers and officials with golden parachutes.”

Overall, the New Delhi Consensus paints a picture of India’s economy on an immensely productive trajectory as led by Government partnered by Big Business and Big Labour, with the English-speaking intellectuals of the Dream Team in the vanguard as they fly between exotic conferences and international commercial deals. An endless flow of foreign businessmen and politicians streaming through Bangalore, Hyderabad, five-star hotels or photo-opportunities with the PM, followed by official visits abroad to sign big-ticket purchases like arms or aircraft, reinforce an impression that all is fine economically, and modern India is on the move. Previously rare foreign products have become commonplace in India’s markets, streets and television-channels, and a new materialist spirit, supposedly of capitalism, is captured by the smug slogan yeh dil mange more (this heart craves more) as well as the more plaintive cry pardesi jana nahin, mujhe chhorke (foreigner, please don’t leave me).

2. Money, Convertibility, Inflationary Deficit Financing

India’s Rupee became inconvertible in 1942 when the British imposed exchange controls over the Sterling-Area. After 1947 independent India and Pakistan, in name of “planned” economic development, greatly widened this war-time regime – despite the fact they were at war now only with one another over Jammu & Kashmir and, oddly enough, formed an economic union until 1951 with their currencies remaining freely convertible with each other.

On May 29 1984, the present author’s Pricing, Planning and Politics: A Study of Economic Distortions in India proposed in London that the Indian Rupee become a convertible hard currency again — the first time liberal economics had been suggested for India since BR Shenoy’s critique of the Second Five Year Plan (a fact attracting an editorial of The Times). The simple litmus test whether believers in the New Delhi Consensus have or have not the courage of their stated convictions – i.e., whether what they have been saying is, in its empirical fundamentals, more signal or noise, more reality or rhetorical propaganda – would be to carry through that proposal made 21 years ago. The Dream Team have had more than enough political power to undertake this, and it remains the one measure necessary for them to demonstrate to India’s people and the world that the exuberant confidence they have been promoting in their model of India’s economy and its prospects is not spurious.

What does convertibility entail?  For a decade now, India has had limited ease of availability of foreign exchange for traders, students and tourists. Indeed some senior Government monetary economists believe there is convertibility already except forex dealers are being allowed “one-way” and not “two-way” quotes! That is wrong. The Government since 1942 has requisitioned at the border all foreign exchange earned by exporters or received as loans or investment — allocating these first to pay interest and amortisation on the country’s foreign debt, then to make its own weapons and other purchases abroad, then to release by ration what remains to private traders, students, tourists et al. Current account liberalisation has meant the last of these categories has been relaxed, especially by removal of some import quotas. What a convertible Rupee would mean is far more profound. It would allow any citizen to hold and save an Indian money that was exchangeable freely (i.e. without Government hindrance) into moneys of other countries. Full convertibility would mean all the paper money, bank deposits and rupee-denominated nominal assets held by ordinary people in India becomes, overnight, exchangeable without hindrance into dollars, yens, pounds or euros held anywhere (although not of course at the “one-way” rates quoted today).

Now money is a most peculiar human institution. Paper money is intrinsically worthless but all of India’s 1,000 million people (from street children onwards) have need to hold it temporarily to expedite their individual transactions of buying and selling real goods and services. Money also acts as a repository of value over time and unit of account or measure of economic value. While demand to hold such intrinsically worthless paper is universal, its supply is a Government monopoly. Because Government accepts obligations owed to it in terms of the fiat money it has itself issued, the otherwise worthless paper comes to possess value in exchange. Because Government controls its supply, money also can be abused easily enough as a technique of invisible taxation via inflation.

With convertibility in India, the quantity of currency and other paper assets like public debt instruments representing fiscal decisions of India’s Union and State Governments, will have to start to compete with those produced by other governments. Just as India’s long-jumpers and tennis-players must compete with the world’s best if they are to establish and sustain their athletic reputations, so India’s fiscal and monetary decisions (i.e. about government spending and revenues, interest-rates and money supply growth) will have to start competing in the world’s financial markets with those of the EU, USA, Japan, Switzerland, ASEAN etc.

The average family in rural Madhya Pradesh who may wish, for whatever personal reason, to liquidate rupee-denominated assets and buy instead Canadian, Swiss or Japanese Government debt, or mutual fund shares in New York, Frankfurt or Singapore, would not be hindered by India’s Government from doing so. They would become as free as the swankiest NRI jet-setters have been for years (like many members of the New Delhi Consensus and their grown children abroad).  Scores of millions of ordinary Indians unconnected with Big Business or Big Labour, neither among the 18 million people in government nor the 12 million in the organised private sector, would become free to hold any portfolio of assets they chose in global markets (small as any given individual portfolio may be in value). Like all those glamorous NRIs, every Indian would be able to hold dollar or Swiss Franc deposit accounts at the local neighbourhood bank. Hawala operators worldwide would become redundant. Ordinary citizens could choose to hold foreign shares, real-estate or travellers’ cheques as assets just as they now choose jewellery before a wedding. The Indian Rupee, after more than 65 years, would once again become as good as all the proverbial gold in Fort Knox.

When added up, the new demand of India’s anonymous masses to hold foreign rather than Rupee-denominated assets will certainly make the Rupee decline in price in world markets. But — if the implicit model of India’s economy promoted by the Dream Team is based on correctly ascertained empirical facts — foreign and domestic investor confidence should suffice for countervailing tendencies to keep India’s financial and banking system stable under convertibility. Not only would India’s people be able to use and save a currency of integrity, the allocation of real resources would also improve in efficiency as distortions would be reduced in the signalling function of domestic relative prices compared to world relative prices. An honest Rupee freely priced in world markets at, say, 90 per dollar, would cause very different real microeconomic decisions of Government and private producers and consumers (e.g., with respect to weapons’ purchases or domestic transportation, given petroleum and jet fuel imports) than a semi-artificial Rupee at 45 per dollar which forcibly an inconvertible asset in global markets. A fully convertible Rupee will cause economic and political decisions in the country more consistent with word realities.

Why the Rupee is not going to be made convertible in the foreseeable future – or why, in India’s present fiscal circumstances if it was, it would be imprudent to do so – is because, contrary to the immense optimism promoted by the Dream Team about their own deeds since 1991, they have in fact been causing India’s monetary economy to skate on the thinnest of thin ice. Put another way, a house of cards has been constructed whose cornerstone constitutes that most unscientific anti-economic of assumptions, the “free lunch”: that something can be had for nothing, that real growth in average consumption levels of the masses of ordinary households of rural and urban India can meaningfully come about by nominal paper-money creation accompanied by verbal exhortation, hocus-pocus or abracadabra from policy-makers and their friends in Big Business, Big Labour and the media. (Lest half-remembered inanities about “orthodox economics” come to be mouthed, Maynard Keynes’s 1936 book was about specific circumstances in Western economies during the Depression and it is unwise to extend its presumptions to unintended situations.)

3. Rajiv Gandhi and Perestroika Project

On 25 May 2002, India’s newspapers reported “PV Narasimha Rao and Manmohan Singh lost their place in Congress history as architects of economic reforms as the Congress High Command sponsored an amendment to a resolution that had laid credit at the duo’s door. The motion was moved by…. Digvijay Singh asserting that the reforms were a brainchild of the late Rajiv Gandhi and that the Rao-Singh combine had simply nudged the process forward.”

Now Rajiv Gandhi was an airline-pilot and knew no economics. But the origins of the 1991 reform did come about because of an encounter he had, as Opposition Leader and Congress President from September 1990 onwards, with a “perestroika” project for India’s political economy occurring at an American university since 1986 (viz., The Statesman Editorial Page July 31-August 2 1991, now republished here; Freedom First October 2001). In being less than candid in acknowledging the origins of the reform, the Dream Team may have failed to describe accurately the main symptoms of illness that afflicted India before 1991, and have consequently failed to diagnose and prescribe for it correctly ever since.

The Government of India, like many others, has been sorely tempted to finance its extravagant expenditures by abusing its monopoly over paper-money creation. The British taught us how to do this, and in 1941-43 caused the highest inflation rates ever seen in India as a result. Fig. 1 shows this, and also that real growth in India follows as expected the trend-rate of technological progress (having little to do with government policy). Independent India has continually financed budget- deficits by money creation in a process similar to what the British and Americans did in wartime. This became most conspicuous after Indira Gandhi’s bank and insurance nationalisations of 1969-1970. Indeed, among current policy-makers, Pranab Mukherjee, Manmohan Singh, Arjun Sengupta, Montek Singh Ahluwalia, Bimal Jalan, NK Singh, Amaresh Bagchi and Shankar Acharya, were among those governing such macroeconomic processes before 1991 — albeit in absence of the equations that illustrate their nature. Why the Rupee cannot be made an honest, internationally convertible, stable money held with confidence by all Indians today, is because the Dream Team have continued with the same macroeconomics ever since. The personal and political ambitions of the tiniest super-elite that the New Delhi Consensus represent (both personal and political) have depended precisely on gargantuan unending deficit-financing backed by unlimited printing of paper-money, and hence the continuing destruction of the integrity of India’s banking system. A convertible Rupee would allow India’s ordinary people to choose to hold other stores of value available in the world today, like gold or monies issued by foreign governments, and thus force an end to such processes.

Two recent articles in The Statesman (Perspective Page 30 October 2005, Front Page 29 November 2005) outlined India’s financial repression and negative real interest rates (which suffice to explain the present stock market boom the way athletes perform better on steroids), and also how deficits get financed by money creation accompanied by wishful projections of economic growth in an upside down imitation of how macroeconomic policy gets done in the West.

“Narrow Money” consists mostly of hand-to-hand currency. “Broad Money” consists of Narrow Money plus bank-deposits. Modern banking is built on “fractional reserves”, i.e. a system of trust where your bank does not literally hold onto deposits you place there but lends these out again – which causes further deposit expansion because no individual banker can tell whether a new deposit received by it is being caused by the depositor having himself borrowed. As a general rule, bank lending causes further deposit expansion. Why India’s (and China’s) bank deposits have been expanding is not because Indians (or Chinese) are superhuman savers of financial assets in banks but because the Government of India (and China) has for decades compelled (the mostly nationalised) banks to hold vast sums of Government debt on the asset side of their balance-sheets. Thus there has been humongous lending by the banking system to pay for Government expenditures. The Dream Team’s macroeconomics relies entirely on this kind of unending recourse to deficit finance and money creation, causing dry rot to set into banks’ balance sheets (Figs. 2,3, 4).   If the Rupee became convertible, those vast holdings of Government debt by banks would become valued at world prices. The crucial question would be how heavily New York, London and Hong Kong financial markets discounted Indian sovereign debt. If upon convertibility, the asset sides of domestic Indian banks get discounted very heavily by world financial markets, their insolvency upon being valued at international prices could trigger catastrophic repercussions throughout India’s economy. Hence the Rupee cannot be made convertible — and all our present inefficiencies and inequities will continue for ever with New Delhi’s rhetorical propaganda alongside. The capital flight of 10 out of 1000 million Indians will continue, leaving everyone else with the internal and foreign public debts to pay.

4. A Different Strategy had Rajiv Not Been Assassinated

Had Rajiv Gandhi not been assassinated and the perestroika project allowed to take its course, a different strategy would have been chosen. Honest money first demands honest Government and political leadership. It would at the outset have been recognised by Government (and through Government by all India’s people) that the asset-liability, income-expenditure and cash-flow positions of every public entity in the country without exception — of the Union Government, every State and local Government, every public undertaking and project – is abysmal.  Due to entanglement with government financial loans, labour regulations, subsidies, price controls, protection and favouritism, the same holds for the financial positions of vast numbers of firms in the organised private sector. Superimpose on this dismal scene, the bleak situation of the Rule of Law in the country today – where Courts of Justice from highest to lowest suffer terrible abuse receiving pitiable amounts of public resources despite constituting a third and independent branch of India’s Government (while police forces, despite massive expenditure, remain incompetent, high-handed and brutal). What India has needed ever since 1991 is the Rule of Law, total transparency of public information, and the fiercest enforcement of rigorous accounting and audit standards in every government entity and public institution. It is only when budgets and financial positions become sound that ambitious goals can be achieved.

The Dream Team have instead made a fetish of physical construction of “infrastructure”, in some grandiose make-believe dreamworld which says the people of India wish the country to be a superpower. The Dream Team have failed to properly redefine for India’s masses the appropriate fiscal and monetary relationship between State and citizen – i.e. to demarcate public from private domains, and so enhance citizens’ sense of individual responsibility for their own futures, as well as explain and define what government and public institutions can and cannot do to help people’s lives. Grotesque corruption and inefficiency have thus continued to corrode practically all organs, institutions and undertakings of government. Corruption is the transmutation of publicly owned things into private property, while its mirror image, pollution, is the disposal of private wastes into the public domain. Both become vastly more prevalent where property rights between private and public domains remain ill demarcated. What belongs to the individual citizen and what to sovereign India –their rights and obligations to one another – remains fuzzy. Hence corruption and pollution run amuck. The irrational obsession with “infrastructure” is based on bad economics, and has led to profoundly wrong political and financial directions. The Rupee cannot be made an honest stable money because India’s fiscal and monetary situation remains not merely out of control but beyond New Delhi’s proper comprehension and grasp. If and when the Dream Team choose to wake up to India’s macroeconomic realities, a great deal of serious work will need to be done.

 

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Assessing Vajpayee: Hindutva True and False

Assessing Vajpayee: Hindutva True and False

by

Subroto Roy

 

 

First published in The Sunday Statesman, Nov 13 2005 and The Statesman, Nov 14 2005, Editorial Page Special Article

 

 

 

Atal Behari Vajpayee, mentored by Shyama Prasad Mookerjee himself, became Prime Minister of India for less than a fortnight in 1996, then again in 1998 and again in 1999 and remained so until he was voted out in 2004.

 

 

He became PM holding the trust of India’s 120 million Muslims. He was supposed to be the genial, avuncular “good cop” who would keep at bay the harsh forces represented by the unpredictable “bad cop”, his Deputy PM and long-time colleague LK Advani. It was the first time RSS members had come to lead India’s government. How is the Vajpayee-Advani duumvirate to be candidly assessed? The question is important not only for the RSS and BJP engaged in their own introspection and petty politics but for the country as a whole. India needs both a competent Government and a competent Opposition in Parliament, and it is not clear we have ever had either.

 

 

Overall, Vajpayee-Advani, as the chief public symbols of the RSS-BJP, earned relatively high marks in office handling India’s strategic and security interests, including the nuclear issue and Pakistan. Equally, they failed badly in their treatment of India’s Muslims and religious minorities in general. This is a paradox that can be explained by the general failure of putative Hindutvadis to acquire an objective understanding of the processes that had led to Independence, Partition, and Pakistan’s creation.

 

 

Roughly, their comprehension of these processes has been one which sees all Muslims everywhere as cut from the same communal cloth, regardless of the beliefs or actions of individual Muslims. In such prejudiced eyes, there is no conceptual or ultimate difference between a Jinnah and an Azad, between a Salauddin who attacks India at Kargil and a Lt Hanifuddin who dies for India at Kargil. This is the product of a sloppy and erroneous philosophy of history, which in turn is an outcome of an attitude towards modern science and modes of rigorous reasoning that can only be called backward and retrograde.

 

 

It has been signalled most conspicuously by the extremely public adherence of many putative Hindutvadis (and millions of other Indians) to astrology — in apparent ignorance of the fact that all horoscopes assume the Sun rotates around Earth. Astrology, a European invention, came to decline in Europe after the discoveries of Copernicus and Galileo became widely understood there.

 

 

Like Indian Communists, Hindutvadi ideologues with rare exceptions played no role in the movement that led to Indian independence in 1947 and creation of the modern Indian Republic in 1950. They remained to their credit constantly suspicious of and hostile towards the foreign phenomena that were Bolshevism, Stalinism and Maoism. They remained to their discredit constantly suspicious of and hostile towards Indian Muslims, even at one point seeing virtuous lessons in Hitler’s attitude towards the Jews. They have in their own way subscribed to Ein Reich, Ein Volk but fortunately have always failed to find Ein Fuhrer (on a pattern e.g. of a modern “Netaji”).

 

 

Where Nazis saw communists and Jews in conspiracies everywhere, Hindutvadi ideologues have tended to see communists and Muslims, and also Christians and “Macaulayite” Hindus, in conspiracies everywhere. (An equal methodological admiration for Nazism occurred on the part of Muslims in the 1930s led by Rahmat Ali, the Pakistani ideologue — who saw “caste Hindus” as the root of all evil and in conspiracies everywhere.) The paradox of the RSS-BJP success in handling nuclear and security issues quite well and domestic issues of secular governance badly, is explained by this ideology of double hostility towards communism and Muslims.

 

 

On the positive side, Vajpayee-Advani advocated a tough clear-headed realpolitik on the issue of Indian’s security. “We should go nuclear and sign the Non-Proliferation Treaty as a nuclear weapons’ state. The whole world will recognise us by our power. We don’t want to be blackmailed and treated as oriental blackies. Nuclear weapons will give us prestige, power, standing. An Indian will talk straight and walk straight when we have the bomb”. That is what the BJP told the New York Times in 1993.

 

 

Three years later, the moment Vajpayee first entered office as PM in May 1996, the government’s scientists who had already secretly assembled the bomb for testing, were instructed to stand by for orders to go ahead. Vajpayee did not know if his Government would survive the vote of confidence required of them. When it was pointed out that if he tested the bomb and lost the vote, a successor Government would have to cope with the consequences, Vajpayee, to his credit and reflecting his political experience and maturity, cancelled the test. When he lost the vote, the public demonstration of Indian nuclear weapons capability was also postponed until May 1998, after he had returned as PM a second time. The bomb was a celebration of Hindu, or more generally, Indian independence in the world. India had nominally freed herself from the British but not from Western culture, according to the RSS. Where the Congress had been in the grip of world communism, the RSS-BJP led India to nuclear freedom – such was their propaganda.

 

 

In reality, a long line of prime ministers including Jawaharlal Nehru, Indira Gandhi, Rajiv Gandhi, VP Singh and IK Gujral had authorised India’s bomb, and a long line of scientists starting with Homi Bhabha had developed it over several decades.

 

 

Vajpayee’s decision finally flushed out Pakistan’s clandestine nuclear weapons developed with North Korea and China. Pakistan is an overtly Islamist state where liberal democracy shows no signs of starting even 65 years after the Lahore Resolution. Its nuclear bombs remain a far greater threat to the world than anyone else’s. Moreover, while India has renounced first use of such weapons, Pakistan has not only not done so, its Foreign Minister Gohar Ayub Khan boasted in 1998-1999 that the next war would be over in two hours with an Indian surrender.

 

 

Such glib talk about nuclear war is beyond contempt in its irresponsibility. A study by medical doctors estimated that a Hiroshima-sized bombing of Mumbai would cause 9 million deaths from blast, firestorms, radiation and fallout. An Indian retaliation would end Pakistan’s existence (though the Pakistani super-elite has long ago fled with its assets to Britain and America). An India-Pakistan nuclear exchange would leave a vast wasteland, finally ending all intellectual controversies about Partition and Jinnah’s theory. In reality, each is hardly able to cope with natural calamities like earthquakes, cyclones and floods, and also has very grave macroeconomic crises brewing because of unending deficit-finance and unlimited printing of paper money. For either to imagine itself a major power is a vain boast regardless of the polite flattery from visiting foreign businessmen. Of course, while each remains the principal enemy of the other, neither is a serious military force in the world.

 

 

After the exchange of nuclear tests in 1998, Vajpayee took the bus across the Wagah border to meet Nawaz Sharif in February 1999. He claimed it was a diplomatic and psychological breakthrough as indeed it was for a moment. But it had not been his original idea. AM Khusro, who accompanied him on the bus, had worked with Rajiv Gandhi in 1990-1991 when Rajiv was advised to make such a Sadat-like move. Furthermore, Vajpayee failed to see the significance of the Pakistani military chiefs led by Pervez Musharraf refusing to meet him formally, which would have entailed saluting him when he was their enemy.

 

 

Vajpayee also may not have known the Pakistani monument he visited was later “purified” with rose water by orthodox Muslim believers. So much for Indian diplomatic triumphs or Pakistan’s diplomatic niceties towards their kaffir guest. BJP foreign ministers later ingratiated themselves with Ariel Sharon because he was an enemy of Muslims — though again the BJP seemed unaware that “a single hair” shorn from idol-worshipping Hindu women at Tirupathi was enough for orthodox rabbis to declare as “impure” the wigs worn by Jewish women made from such hair. The evil of “untouchability” has not been a “caste Hindu” monopoly.

 

 

Kargil war

According to the Sharif-Musharraf plan secretly brewing during Vajpayee’s Pakistan visit, the Kargil infiltration followed. India’s Army and Air Force gamely fought back in the initial weeks suffering relatively severe losses, but the country seemed mesmerised by World Cup cricket and there was no significant political leadership from Vajpayee’s Government until the second week of June 1999. It was only after Brajesh Mishra was provoked by an analysis of how Pakistan might actually succeed (with the possibility of hidden Pakistani plans of a blitzkrieg and missile attacks), that Vajpayee’s Government seemed to wake up from its stupor, mobilised forces rapidly and threatened Pakistan with direst consequences, a threat made credible because it was conveyed by Mishra via the Americans. The Pakistanis backed down, which led soon to Musharraf’s coup détat against Sharif, and the world has had to deal with a Pakistani state synonymous with Musharraf ever since. The Vajpayee-Advani military triumph at Kargil was short-lived, as it was followed within months by an abject surrender to the Taliban’s terrorists at Kandahar airport.

 

 

In the meantime, on 23 January 1999, the Australian missionary Graham Staines and his two young sons were murdered by a savage anti-Christian mob as they slept in their car in rural Orissa. Vajpayee, the agreeable face of the RSS-BJP with allegedly impeccable secular credentials, responded without the moral strength that was necessary from a leader of all of India’s people. It was a model of weakness of political will and comprehension that would be followed in the larger catastrophe to occur in Gujarat.

 

 

On 27 February 2002, a train approaching Godhra station had a bunch of travelling rowdies bullying ticketed passengers, ticket-collectors and local tea-vendors. The vendors belonged to a lowly Muslim caste whose members were entrenched around Godhra and the nearby Signal Falia. During an extended stop at Godhra station, the altercations grew fiercer — the rowdies forcing people to shout slogans and roughing them up when they did not. False rumours flew that the rowdies had molested a Muslim woman and her two daughters who had been waiting on the platform. As the train left Godhra, a gang of rioters led by one tea-shop owner and other tea-vendors gathered before Signal Falia, stopped the train and assaulted it with stones and petrol-bombs.

 

 

One whole compartment was completely burnt, scores of passengers, including 26 women and 12 children, were incinerated, many of whom remain unidentified. (Some of those supposed to be in the compartment according to Railway lists were later found alive and well, as they had moved due to the rowdyism.) Throughout the day, Godhra District Collector Jayanthi Ravi stated on television and radio that a riot had occurred and appealed for calm. But after 7 pm, the State’s political executive called it a “pre-planned violent act of terrorism”, and an organised pogrom began against Muslims across the State. Over several weeks, thousands were killed and raped and turned into refugees inside their own country.

 

 

Political patronage

Gujarat’s chief political executive, a Vajpayee-Advani protégé, should have been immediately held accountable; instead he continued to receive their political patronage. Vajpayee, en route to a planned business trip abroad, made a perfunctory visit to the scene of the civil horror, then proceeded to Singapore, where he was shown moving around on a golf-cart wearing designer goggles. He had clearly failed to grasp the dimensions or the gravity of the nature of the office he held. Vajpayee thus came to lose the trust of India’s Muslims and minorities in general which he had earned by his moderation and maturity over many decades in the Opposition. The RSS-BJP had lost, perhaps permanently, the last opportunity to make their actions tally with their sweet words about a united Indian people living in bliss in a common sacred Motherland.

 

Vajpayee’s finance and economic planning ministers were as ignorant of the reality of India’s macroeconomics as the Stalinist New Delhi bureaucrats pampered by Congress and its Communist friends. These bureaucrats continued in power under Vajpayee. Plus the RSS’s pseudo-economists were enough to scare away all except a minor econometrician and a shallow economic historian. The latter led the BJP up the garden path in 2003-2004 with talk about India’s economy being on the point of “take off” (based on defunct American theory from the 1960s), which misled them into the “India Shining” campaign and electoral defeat. The BJP finance minister, thus misled, revealed his own ignorance of his job-requirements when he happily spoke on TV of how much he sympathised with businessmen who had told him CBI, CVC and CAG were the initials holding India back from this (bogus) “take off”. Equally innocent of economics, the BJP’s planning chief went about promising vast government subsidies to already-rich Indians abroad to become “venture capitalists” in India! Instead of reversing the woeful Stalinism of the Congress decades overall, Vajpayee’s Government super-imposed a crony capitalism upon it. Budgetary discipline was not even begun to be sought — another BJP finance minister revelling publicly in his ignorance of Maynard Keynes.

 

The signal of monetary crisis that was the UTI fiasco was papered over with more paper money printing. Privatisation was briefly made a fetish — despite there being sound conservative reasons not to privatise in India until the fiscal and monetary haemorrhaging is stopped. Liquidating real assets prior to a likely massive inflation of paper assets caused by deficit-financing, is not a public good.

 

RSS members and protégés appointed to government posts and placed in charge of government moneys revealed themselves as corrupt and nepotistic as anyone else. The overall failure of the management of India’s public institutions and organs of State continued under Vajpayee-Advani just as it had done for decades earlier. Vajpayee-Advani evinced no vision of a modern political economy as reformers of other major countries have done, such as Thatcher, Reagan, Gorbachev-Yeltsin, Adenauer-Erhardt, De Gaulle, even Deng Tsiaoping.

 

Irrational obsession

The overall explanation of the ideological and practical failure of the putative Hindutvadis must have to do with their irrational obsession over two decades with the masjid-mandir issue. Ramayana and Mahabharata are magnificent mythological epics yet they are incidental aspects of the faith and culture deriving from the Vedas and Upanishads. The motive force of a true Hindutva is already contained in the simple Upanishadic motto of the Indian Republic, Satyameva jayathe (let truth prevail) which is almost all the religion that anyone may need. The search for all truth necessarily requires individual freedom, and taking its first steps would require the RSS-BJP denouncing all their backward pseudo-science and anti-science. Who among them will liberate them from the clutches of astrology, and bring instead the fresh air and light of modern science since Copernicus and Galileo? Without rigorous modern reasoning, the RSS and BJP are condemned to their misunderstanding of themselves and of India, just as surely as their supposed enemies — literalist Muslim believers — are committed to a flat earth and an implacably stern heaven placed above it. Pakistan’s finest academic has reported how his colleagues pass off as physics the measurement of earth receding from heaven if Einstein and The Qúran could be amalgamated. The RSS and BJP need to free themselves from similar irrational backwardness in all fields, including politics and economics. It is plain Vajpayee, Advani or any of their existing political progeny cannot lead themselves, or Indians in general, to that promised land.

The Mitrokhin Archives II from an Indian Perspective: A Review Article

The Mitrokhin Archives II from an Indian Perspective: A Review Article

by Subroto Roy

First published in The Statesman, Oct. 11 2005, Perspective Page

 

Vasili Mitrokhin’s defection from the former Soviet Union to Britain in 1992 caused a treasure-trove to reach MI-6 and the CIA and FBI, because he exposed many dozens of Soviet agents and their plots and intrigues around the world. But this fact that his material greatly helped Anglo-American counter-intelligence does not per se make it a source of accurate evidence with which a historian’s history book can be created. Rather, what this monumental and extremely informative volume amounts to being is a vast documentation, from an Anglo-American perspective, of what MI-6 and its allies have agreed to make public about what they now know of Soviet foreign policy and KGB practices, and of how Russian diplomacy and the KGB’s successors might function in the future.

 

That this is not a detached and disinterested history of intelligence is revealed by the three chapters on the subcontinent which have been causing a stir in India for the wrong reasons.

 

Everyone in the 1970s and through the 1980s knew of the tight grip around New Delhi’s policy-making circles of top bureaucrats, academics, journalists etc who were blatantly and incorrigibly pro-Soviet, some being active communists or fellow- travellers. Some of those complaining today know fully well that a cardinal implicit reason the CPI(M) broke from its parent party had to do precisely with Moscow’s control of the CPI. Moreover, while it might have been newsworthy when the KGB honey-trapped a senior diplomat or a junior cipher clerk in the Indian Embassy now and then, there were also hundreds of public sector bureaucrats, military personnel, journalists, technology professors, writers, artists, dancers et al who were treated most hospitably by the Soviet state – getting freebies flying to Soviet cities, being greeted by singing Young Pioneers, touring L’Hermitage with Intourist, receiving dollar honoraria and splendid gifts, sitting in on “technical training”, even receiving bogus Soviet doctoral degrees to allow themselves to be called “Dr” etc. Purchasing influence in New Delhi or any other capital city has never been merely a crude matter of cash-filled suitcases sloshing around in the middle of the night. Much of what Mitrokhin’s material says about the KGB’s penetration of India should, candidly speaking, generate but a desultory yawn from us –although even this book seems not to know that Narasimha Rao’s infamous, catastrophically damaging remarks in August 1991, in favour of the abortive KGB coup led by Kryuchkov against Gorbachev and Yeltsin, had been prompted by a staunchly pro-Soviet retired Indian diplomat at his side long-associated with the CPI.

 

Yes there are many titbits in this book that may be of interest from an Indian perspective — such as that Sanjay Gandhi’s entourage contained both a Soviet and an American mole in it (where are they now?). But what may be far more interesting to us today is what can be deduced from what Mitrokhin is silent about. For example, India and the Soviets were close allies in 1971 when Kissinger had teamed up with Yahya Khan and Bhutto to send Nixon to China. It is well known our Army Chief, General Maneckshaw, had demanded and received from Indira Gandhi and Jagjivan Ram enough time to prepare to go to war, and when Maneckshaw finally did move to liberate Bangladesh in December, it surprised Yahya and the Americans. Were the Soviets also quite surprised? If so, it would mean that although the Indian establishment was as porous as a sieve with respect to arms’ deals etc, on a matter of paramount national interest, namely, the just war on our own against Yahya Khan and Tikka Khan’s brutality in East Pakistan condoned by Nixon and Kissinger, India had kept her secrets secure. If, as seems likely, Indira Gandhi and her overtly communistic advisers had kept India’s war plans from not leaking to the KGB between March and December 1971, we may not have been in fact too badly compromised despite the widespread “shallow” penetration that occurred through corruption all around in the bureaucracy, academic institutions, media, political parties, etc.

 

Mitrokhin’s material describes this kind of shallow corrupt penetration that everyone knew was (and still remains) part of the lobbying process in Delhi. But there is no evidence in the book that the KGB knew of General Maneckshaw’s military preparations or plan of action until the lights went out in a blackout in Delhi on the night of December 2 1971 — that at least is something of which Indians may be slightly proud today. The same goes for the Pokhran nuclear tests. It is well known the CIA was caught by surprise by Pokhran-II in 1998; was the KGB caught by surprise by Pokhran-I in 1974? Probably so. Equally, the book says the KGB had at one point cracked Pakistani codes; did the Soviets share this information with India? Almost certainly not. Our Government’s chummery with the Soviets during the Cold War probably stopped well short of complete incest.

 

Unfortunately, many questions of interest to India or other countries have simply not been asked in the book. The Soviets (and Harold Wilson) had seemed to broker the India-Pakistan ceasefire in 1965, and Lal Bahadur Shastri died the day after he signed the Tashkent Declaration. What is the inside KGB information on that?

 

We do not know from this book. What do Soviet archives say about communist influence through the 1940s in Jammu & Kashmir (upon some of the very names who became Indira Gandhi’s inner circle later in Delhi)? Or about the uncritical adoption in the 1950s of Sovietesque economic models by the Planning Commission (and the suppression of Milton Friedman’s November 1955 memorandum to the Government of India, as well as the tarnishing of BR Shenoy as a CIA agent)? The answers are not present in this book because these and analogous questions of interest to India or many other countries simply have not been asked. Mitrokhin’s material has been mined only from an Anglo-American point of view, and until it is thrown open completely to everyone, a detached and disinterested history of permanent and universal interest on the important matters it touches upon is not available.

 

Several factual and methodological problems result as a consequence, and these need to be identified for purposes of future progress in understanding. For example, the book speaks many times of the KGB having forged or fabricated documents around the world as a technique of spreading disinformation.

 

Doubtless this was standard operating procedure for intelligence agencies but it is left completely impossible for the average reader to come to any assessment whether a given document mentioned was genuine or forged.

 

Consider a case in Iran. The book states that in February 1958, the KGB “forged a letter from the American Secretary of State, John Foster Dulles, to his ambassador in Tehran belittling the Shah’s ability and implying that the United States was plotting his overthrow. The Teheran residency circulated copies of the letter to influential Iranian parliamentarians and editors in the confident expectation that one would come to the attention of the Shah – which it duly did. According to the KGB files on the operation, the Shah was completely taken in by the fabricated Dulles letter and personally instructed that a copy be sent to the US embassy with a demand for an explanation. Though the embassy dismissed it as a forgery, the Teheran residency reported that its denials were disbelieved. Dulles’s supposedly slighting references to the Shah were said to be a frequent topic of whispered conversation among the Iranian elite.” (p. 171)

 

It is impossible for anyone who has not seen this document or other supporting evidence to come to any assessment of what actually happened here. Matters are made worse by a note that says the KGB “claimed improbably that the Americans blamed the forgery not on the KGB but the British, who were said to be jealous of the strength of US influence in Iran”.

 

Was the document genuine or was it forged and if so by whom? If forged, must we believe the KGB was so astute in 1958 in its knowledge of American idiom that it could achieve the tremendous deception of mimicking the greatest of Cold Warriors writing to his own ambassador, enough to fool the Shah of Iran who had been placed in power by the very same Americans? No one can really tell unless the documents are opened up completely.

 

Another example is of more topical interest, and also reveals that this book must be seen as a contribution to a continuing (if friendly and academic) battle between rival intelligence agencies. Yevgeny Primakov, the former KGB chief and reformist Prime Minister (and Soviet Ambassador to India) is quoted as saying about the American help to the Pakistan-based guerrillas against the Soviets in Afghanistan: “the idea of deploying the Stingers (shoulder-held ground-to- air-missiles) was supplied by Osama bin Laden, who had been cooperating closely with the CIA at the time.” (Russian Crossroads, Yale University Press, 2004.)

 

Professor Andrew denies this flatly: “There is no support in the Mitrokhin material (or any other reliable source) for the claim that the CIA funded bin Laden or any of the other Arab volunteers who came to support the mujahideen. Most were funded through charities and mosques in the Middle East, especially Saudi Arabia and the Gulf states, and were frequently viewed with suspicion by the Afghan mujahideen.” (p. 579)

 

It is obvious why this question is important: if Primakov is right and Andrew is wrong the Americans must be acutely embarrassed in having been allies or supporters or financiers not long ago of the very same Bin Laden who has now become their most bitter enemy. The United States Government’s “9/11 Commission” in 2004 made a much weaker statement than Professor Andrew: “Saudi Arabia and the United States supplied billions of dollars worth of secret assistance to rebel groups in Afghanistan fighting the Soviet occupation. This assistance was funnelled through Pakistan: the Pakistani military intelligence (ISID) helped train the rebels and distribute the arms. But Bin Laden and his associates had their own sources of support and training and they received little or no assistance from the United States…. In his memoirs, (Bin Laden’s deputy) Ayman al Zawahiri contemptuously rejects the claim that the Arab mujahideen were financed (even `one penny’) or trained by the United States… CIA officials involved in aiding the Afghan resistance regarded Bin Laden and his `Arab Afghans’ as having been militarily insignificant in the war and recall having little to do with him.”

 

Bin Laden was a callow youth when he got to Afghanistan shortly after the Soviet invasion in December 1979. Yet his contributions of funds, military effort and religious zealotry made him emerge age 33-34 as the “Emir” of Al Qaeda by the time the Soviets were compelled to withdraw in 1989, having suffered 14,500 dead. The Americans then began to lose interest in the region and in their Pakistani clients, and it was in that atmosphere that Pakistan decided to declare its independence in the world with its clandestine nuclear programme (never having felt part of the nationalist movement which led to Indian independence in 1947). It was in the same period that Bin Laden and Al Qaeda grew to become implacable and formidable enemies of the West, which culminated in the 9/11 mass murders in 2001. The claim that while the CIA certainly supported “Afghan” jihadists, it did not support Arab or African ones like Bin Laden and his friends is highly implausible. The New Yorker and Washington Post reported in 1986 the CIA supplying and training Hekmatyar’s “Hizbe-Islami” in the use of Stinger missiles to bring down Soviet aircraft. It is impossible to imagine the admittedly myopic American policy at the time included checking passports of these trainee- beneficiaries, saying “OK, you’re an Afghan resistance fighter you get a Stinger, you’re an Arab/African terrorist-of-the-future-who-may-attack-New York, you don’t”. Professor Andrew quotes positively the work on Bhutto of Raza Anwar, the Pakistani socialist, but he may have been unaware of Anwar’s The Tragedy of Afghanistan (Verso, 1988) where the precise nature of the American, Chinese and Arab support for the thousands of guerrillas in the dozens of camps in Zia’s Pakistan is quite fully and objectively documented. Foreign jihadists in Jammu & Kashmir came to be known as “Afghans” because they were veterans of the Afghan conflicts, not because they were Afghan nationals. Unlike Britain’s MI-6, the United States Government’s 9/11 Commission has made no bones about the connection between Bin Laden and the Pakistani ISI whose intent has been to attack India: “Pakistan’s rulers found these multitudes of ardent young `Afghans’ a source of potential trouble at home but potentially useful abroad. Those who joined the Taliban movement, espousing a ruthless version of Islamic law, perhaps could bring order in chaotic Afghanistan and make it a cooperative ally. They thus might give Pakistan greater security on one of the several borders where Pakistani military officers hoped for what they called `strategic depth’ (…. Pakistan’s need for a friendly, pliable neighbour on the west due to its hostile relationship with India on the east.)… It is unlikely that Bin Laden could have returned to Afghanistan (in 1996) had Pakistan disapproved. The Pakistani military intelligence service probably had advance knowledge of his coming, and its officers may have facilitated his travel. During his entire time in Sudan, he had maintained guesthouses and training camps in Pakistan and Afghanistan. These were part of a larger network used by diverse organisations for recruiting and training fighters for Islamic insurgencies in such places as Tajikistan, Kashmir and Chechnya. Pakistani intelligence officers reportedly introduced Bin Laden to Taliban leaders in Kandahar, their main base of power, to aid his reassertion of control over camps near Khowst, out of an apparent hope that he would now expand the camps and make them available for training of Kashmiri militants.”

 

Regardless of the fondness of the very strong lobby of British apologists (led by a former British High Commissioner to Pakistan) for the ISI and Pakistani Army, no detached history of modern intelligence in our part of the world can be written which whitewashes the misdeeds of Pakistan’s generals over several decades. Aside from what The Mitrokihn Archive II signifies about our region, there is a great amount of invaluable material on other parts of the world too, from Chile and Peru to Cuba and Nicaragua, to South Africa and Egypt and Israel, to China and Korea and Japan.

 

Indeed the keenest pages have to do with the internecine tensions between communists, like Castro and Gorbachev, or Khrushchev and Mao Zedong, in which no Anglo-American interests were involved. We in India have had our share of academic apologists and fellow travellers for totalitarian communist China, but the roots of the Sino-Soviet split have never come to be aired in Indian discussion. Professor Andrew is a leading member of the vitally important Cold War International History Project at the Woodrow Wilson Center in Washington DC, whose website displays new and vitally important data from formerly communist countries (like Mongolia, Russia and East Germany) about how Chinese communists saw and felt about India, Pakistan, Tibet etc, which needs urgent attention from serious Indian observers. The Mitrokhin Archive II gives us a privileged glimpse of some of what happened: “The Sino-Soviet split in the early 1960s brought to an acrimonious end the deference from the PRC which Stalin had taken for granted. The first public attack on Moscow was made by Mao’s veteran security chief, Kang Sheng, whose ferocious purges during Mao’s Great Leap Forward were largely modelled on techniques he had learned in Moscow during the Great Terror. On the Soviet side, the ideological dispute with China was compounded by personal loathing for Mao – the `Great Helmsman’ – and a more general dislike of the Chinese population as a whole, Khrushchev `repeatedly’ told a Romanian delegation shortly before his overthrow in 1964 that `Mao Zedong is sick, crazy, that he should be taken to an asylum, etc.” An assessment of Chinese national character circulated to KGB residencies by the Centre twelve years later claimed that the Chinese were `noted for their spitefulness’. What most outraged both the Kremlin and the Centre was Beijing’s impudence in setting itself up as a rival capital of world Communism, attempting to seduce other Communist parties from their rightful allegiance to the Soviet Union. Moscow blamed the horrors of Pol Pot’s regime… on the takeover of the Cambodian Communist Party by `an anti-popular, pro-Beijing clique’.

 

If nothing else, The Mitrokhin Archives II provides an honest opportunity for India’s Left to come clean with their frank and non-ideological opinions about Soviet, Chinese and other communist histories, and hence to candidly gain self-knowledge. Will they take it? Are there any George Orwells out there?

 

Kolkata, October 5 2005

Rajiv Gandhi and the Origins of India’s 1991 Economic Reform

Rajiv Gandhi and the Origins of India’s 1991 Economic Reform

Subroto Roy

 

Author’s Note May 2008: The family of Rajiv Gandhi received a copy of this when it was first written in July 2005. An earlier abbreviated version “Encounter with Rajiv Gandhi: On the Origins of India’s 1991 Economic Reform” was published in October 2001 in Freedom First, Bombay, a journal founded by the late Minoo Masani and now edited by S V Raju. A copy of that article was received by all Congress MPs of the 13th Lok Sabha. In May 2002, the Congress Party passed an official resolution stating Rajiv Gandhi and not Narasimha Rao or Manmohan Singh was to be credited with having originated the 1991 economic reforms. This article has now been published in print in The Statesman Festival Volume, October 2007.  It may be profitably followed by “The Dream Team: A Critique”, “Solving Kashmir”, “Law, Justice & J&K”, “What to tell Musharraf”, “India’s Macroeconomics”, “Fiscal Instability”, “India’s Trade and Payments”, “Fallacious Finance”, “Against Quackery”, etc. My original advisory memoranda to Rajiv in 1990-1991 were published in The Statesman’s Editorial Pages July 31-August 2 1991, and now have been republished elsewhere here as well. See too https://independentindian.com/thoughts-words-deeds-my-work-1973-2010/rajiv-gandhi-and-the-origins-of-indias-1991-economic-reform/did-jagdish-bhagwati-originate-pioneer-intellectually-father-indias-1991-economic-reform-did-manmohan-singh-or-did-i-through-my-e/  https://independentindian.com/2014/08/07/haksar-manmohan-and-sonia/

 

 

 

I met Rajiv Gandhi for the first time on 18th September 1990 thanks to an introduction by S. S. Ray. We met a half dozen or so times until his assassination in May 1991. Yet our encounter was intense and consequential, and resulted directly in the change of the Congress Party’s economic thinking prior to the 1991 elections. I had with me results of an interdisciplinary “perestroika-for-India” project I had led at the University of Hawaii since 1986. This manuscript (later published by Sage as Foundations of India’s Political Economy: Towards an Agenda for the 1990s edited by myself and W. E. James) was given by me to Rajiv, then Leader of the Opposition, and was instrumental in the change of thinking that took place. In interests of fairness, I tried to get the work to V. P. Singh too because he was Prime Minister, but a key aide of his showed no interest in receiving it.

 

The Hawaii project manuscript contained inter alia a memorandum by Milton Friedman done at the request of the Government of India in November 1955, which had been suppressed for 34 years until I published it in May 1989. Milton and Rose Friedman refer to this in their memoirs Two Lucky People (Chicago 1998). Peter Bauer had told me of the existence of Friedman’s document during my doctoral work at Cambridge under Frank Hahn in the late 1970s, as did N. Georgescu-Roegen in America. Those were years in which Brezhnev still ruled in the Kremlin, Gorbachev was yet to emerge, Indira Gandhi and her pro-Moscow advisers were ensconced in New Delhi, and not even the CIA had imagined the Berlin Wall would fall and the Cold War would be over within a decade. It was academic suicide at the time to argue in favour of classical liberal economics even in the West. As a 22-year-old Visiting Assistant Professor at the Delhi School of Economics in 1977, I was greeted with uproarious laughter of senior professors when I spoke of a possible free market in foreign exchange. Cambridge was a place where Indian economists went to study the exploitation of peasants in Indian agriculture before returning to their friends in the well-known bastions of such matters in Delhi and Calcutta. It was not a place where Indian (let alone Bengali) doctoral students in economics mentioned the unmentionable names of Hayek or Friedman or Buchanan, and insisted upon giving their works a hearing.

 

My original doctoral topic in 1976 “A monetary theory for India” had to be altered not only due to paucity of monetary data at the time but because the problems of India’s political economy and allocation of resources in the real economy were far more pressing. The thesis that emerged in 1982 “On liberty and economic growth: preface to a philosophy for India” was a full frontal assault from the point of view of microeconomic theory on the “development planning” to which everyone routinely declared their fidelity, from New Delhi’s bureaucrats and Oxford’s “development” school to McNamara’s World Bank with its Indian staffers.

 

Frank Hahn protected my inchoate liberal arguments for India; and when no internal examiner could be found, Cambridge showed its greatness by appointing two externals, Bliss at Oxford and Hutchison at Birmingham, both Cambridge men. “Economic Theory and Development Economics” was presented to the American Economic Association in December 1982 in company of Solow, Chenery and other eminences, and then Pricing, Planning and Politics: A Study of Economic Distortions in India published by London’s Institute of Economic Affairs, provoking the lead editorial of The Times on May 29 1984. The Indian High Commission sent the editorial to the Finance Ministry where it caused a stir as the first classical liberal attack on post-Mahalonobis Indian economic thought since B. R. Shenoy’s original criticism decades earlier. The “perestroika-for-India” project was to follow at Hawaii starting in 1986. New Delhi was represented at the project’s conference held between May 22-27 1989 by the accredited Ambassador of India to the USA, the accredited Consul General of India to San Francisco, and by the founder-director of ICRIER (see photo).

 

friedman-et-al-at-uh-india-conf-19891

 

All this I brought into that first meeting with Rajiv Gandhi on September 18 1990. That first day he came to the door to greet me. He was a handsome tall man with the most charming smile and manner, seemed pleased to see me and put me at ease at once. I gave him my books as well as the manuscript of the “perestroika for India” project. He gave me a celebratory volume that had just been published to mark his grandfather’s centenary. He began by talking about how important he felt panchayati raj was, and said he had been on the verge of passing major legislation on it but then lost the election. He asked me if I could spend some time thinking about it, and that he would get the papers sent to me. I said I would and remarked panchayati raj might be seen as decentralized provision of public goods, and gave the economist’s definition of public goods as those essential for the functioning of the market economy, like the Rule of Law, roads, fresh water, and sanitation, but which were unlikely to appear through competitive forces.

 

I distinguished between federal, state and local levels and said many of the most significant public goods were best provided locally. Rajiv had not heard the term “public goods” before, and he beamed a smile and his eyes lit up as he voiced the words slowly, seeming to like the concept immensely. It occurred to me he had been by choice a pilot of commercial aircraft. Now he seemed intrigued to find there could be systematic ways of thinking about navigating a country’s governance by common pursuit of reasonable judgement. I said the public sector’s wastefulness had drained scarce resources that should have gone instead to provide public goods. Since the public sector was owned by the public, it could be privatised by giving away its shares to the public, preferably to panchayats of the poorest villages. The shares would become tradable, drawing out black money, and inducing a historic redistribution of wealth while at the same time achieving greater efficiency by transferring the public sector to private hands. Rajiv seemed to like that idea too, and said he tried to follow a maxim of Indira Gandhi’s that every policy should be seen in terms of how it affected the common man. I wryly said the common man often spent away his money on alcohol, to which he said at once it might be better to think of the common woman instead. (This remark of Rajiv’s may have influenced the “aam admi” slogan of the 2004 election, as all Congress Lok Sabha MPs of the previous Parliament came to receive a previous version of the present narrative.)

 

 

Our project had identified the Congress’s lack of internal elections as a problem; when I raised it, Rajiv spoke of how he, as Congress President, had been trying to tackle the issue of bogus electoral rolls. I said the judiciary seemed to be in a mess due to the backlog of cases; many of which seemed related to land or rent control, and it may be risky to move towards a free economy without a properly functioning judicial system or at least a viable system of contractual enforcement. I said a lot of problems which should be handled by the law in the courts in India were instead getting politicised and decided on the streets. Rajiv had seen the problems of the judiciary and said he had good relations with the Chief Justice’s office, which could be put to use to improve the working of the judiciary.

 

 

The project had worked on Pakistan as well, and I went on to say we should solve the problem with Pakistan in a definitive manner. Rajiv spoke of how close his government had been in 1988 to a mutual withdrawal from Siachen. But Zia-ul-Haq was then killed and it became more difficult to implement the same thing with Benazir Bhutto, because, he said, as a democrat, she was playing to anti-Indian sentiments while he had found it somewhat easier to deal with the military. I pressed him on the long-term future relationship between the countries and he agreed a common market was the only real long-term solution. I wondered if he could find himself in a position to make a bold move like offering to go to Pakistan and addressing their Parliament to break the impasse. He did not say anything but seemed to think about the idea. Rajiv mentioned a recent Time magazine cover of Indian naval potential, which had caused an excessive stir in Delhi. He then talked about his visit to China, which seemed to him an important step towards normalization. He said he had not seen (or been shown) any absolute poverty in China of the sort we have in India. He talked about the Gulf situation, saying he did not disagree with the embargo of Iraq except he wished the ships enforcing the embargo had been under the U.N. flag. The meeting seemed to go on and on, and I was embarrassed at perhaps having taken too much time and that he was being too polite to get me to go. V. George had interrupted with news that Sheila Dixit (as I recall) had just been arrested by the U. P. Government, and there were evidently people waiting. Just before we finally stood up I expressed a hope that he was looking to the future of India with an eye to a modern political and economic agenda for the next election, rather than getting bogged down with domestic political events of the moment. That was the kind of hopefulness that had attracted many of my generation in 1985. I said I would happily work in any way to help define a long-term agenda. His eyes lit up and as we shook hands to say goodbye, he said he would be in touch with me again.

 

The next day I was called and asked to stay in Delhi for a few days, as Mr. Gandhi wanted me to meet some people. I was not told whom I was to meet but that there would be a meeting on Monday, 24th September. On Saturday, the Monday meeting was postponed to Tuesday because one of the persons had not been able to get a flight into Delhi. I pressed to know what was going on, and was told I was to meet former army chief K.V. Krishna Rao, former foreign secretary M. K. Rasgotra, V. Krishnamurty and Sam Pitroda.

 

The group met for the first time on September 25 in the afternoon. Rasgotra did not arrive. Krishna Rao, Pitroda, Krishnamurty and I gathered in the waiting room next to George’s office. The three of them knew each other but none knew me and I was happy enough to be ignored. It seemed mysterious while we were gathering, especially when the tall well-dressed General arrived, since none of us knew why we had been called by Rajiv, and the General remarked to the others he had responded at once to the call to his home but could not get a flight into Delhi for a day.

 

Rajiv’s residence as Leader of the Opposition had a vast splendid meeting room, lined with high bookshelves on one or two walls, a large handsome desk on one side, two spacious comfortable sofa sets arranged in squares, and a long conference table with leather chairs occupying most of the rest of the room. The entrance to it was via a small 10 ft by 10 ft air-conditioned anteroom, where George sat, with a fax machine, typewriters and a shredding machine, plus several telephones, and a used copy of parliamentary procedures on the shelf. Getting to George’s office was the final step before reaching Rajiv. There were several chairs facing George, and almost every prospective interviewee, no matter how senior or self-important, had to move from one chair to the next, while making small talk with George, as the appointment with Rajiv drew near. Opening into George’s office was a larger and shabbier waiting room, which is where we sat, which was not air-conditioned, and which opened to the outside of the building where a plainclothes policeman sometimes stood around with a walkie-talkie. There were large photographs of Mahatma Gandhi, Nehru and Indira Gandhi on the wall, and a modern print also hung incongruously. A dozen or more plastic chairs lined the walls. There were faded torn issues of a few old magazines on the plastic coffee-table, and on one occasion there was a television playing the new sporadic domestic cable news and weather information for the entertainment of the many visitors waiting. Via this waiting room went the vast majority of people who were to meet Rajiv in his office. To reach the waiting room, one had to walk a hundred yards along a path lined by splendid high hedges from the initial reception desk at the rear-gate, manned by Congress Seva Dal volunteers in khadi wearing Gandhi-caps. These persons were in touch with George’s office by telephone, and would check with George or his assistant Balasubramaniam before sending a visitor along. The visitor would then pass through a metal-detector manned by a couple of policemen. If someone’s face came to be known and had been cleared once, or if someone acted to the policemen like a sufficiently important political personage, such a person seemed to be waved through. Outside, the front-entrance of the premises were closed unless extremely important people were entering or exiting, while at the rear-entrance there were usually two or three jeeps and several plainclothes policemen, who might or might not challenge the prospective visitor with a kind of “Who goes there?” attitude before the visitor reached the Seva Dal reception desk. The whole arrangement struck me from the first as insecure and inefficient, open to penetration by professional assassins or a terrorist squad, let aside insiders in the way Indira Gandhi had been assassinated. I could not imagine counter-terrorist commandos would suddenly appear from the high hedges in the event of an emergency.

 

On that Tuesday when Rajiv finally called in our group, we entered hesitantly not knowing quite what the meeting was going to be about. Rajiv introduced me to the others and then spoke of why he had gathered us together. He wanted us to come up with proposals and recommendations for the direction the country should take on an assumption the Congress Party was returned to power in the near future. He said it would help him to have an outside view from specialists who were not party functionaries, though the others obviously had been closely involved with Congress governments before. Rajiv said we were being asked to write a draft of what may enter the manifesto for the next election, which we should assume to be forthcoming by April 1991. I asked what might have become of the “perestroika” manuscript I had given him at our previous meeting. He said he had gotten it copied and bound, and that along with my 1984 monograph, it had been circulated among a few of his party colleagues who included P. Chidambaram and Mani Shankar Aiyar.

 

The initial meeting left us breathless and excited. Yet within a few days, the others became extremely tied up for personal causes, and I found myself alone in getting on with doing what we had been explicitly asked to do. I felt I should get done what I could in the time I had while keeping the others informed. Rajiv had said to me at our first meeting that he felt the Congress was ready for elections. This did not seem to me to be really the case. He actually seemed very isolated in his office, with George seeming to be his conduit to the outside world. I decided to start by trying to write a definite set of general principles that could guide and inform thought about the direction of policy. I spent the evening of October 26 in the offices at Rajiv’s residence, preparing an economic policy memorandum on a portable Toshiba computer of his, the first laptop I ever used. After Rajiv’s assassination, this was part of what was published in The Statesmen’s center pages July 31-August 2, 1991.

 

 

Rajiv read the work and met me on October 30 or 31, even though he was down badly with a sore throat after his sadbhavana travels around the country; he looked odd clad in khadi with a muffler and gym shoes. He said he liked very much what I had written and had given it to be read by younger Congress leaders who would discuss it for the manifesto, for an election he again said, he expected early in 1991. I said I was grateful for his kind words and inquired whom he had shown the work to. This time he said Chidambaram and also mentioned another name that made me wince. In December 1990, I was back in Hawaii when I was called on the phone to ask whether I could come to Delhi. With the rise of Chandrashekhar as Prime Minister, Rajiv had called a meeting of the group. But I could not go.

 

 

In January 1991, the Gulf War brought an odd twist to my interaction with Rajiv. On January 15, the UN deadline for the withdrawal of Iraq from Kuwait passed without Iraqi compliance, and American-led forces started the heavy aerial bombardment of Iraq. The American media had built up the impending war as one of utter devastation and mass killing, especially when the American infantry became engaged. Estimated casualties on the American side alone were being wildly exaggerated by the number of “body-bags” being ordered by the Pentagon. An even larger conflagration was being imagined if Israel entered the fighting, while Saddam Hussein had vowed to set fire to Kuwait’s oil-fields before retreating. I like everyone else erroneously believed the media’s hyperbole about the impending regional catastrophe. On January 16, just after the bombing of Iraq had begun, I called an American family friend who had retired from a senior foreign policy role and who had known me from when I was an infant. In informal conversation, I mentioned to him that since other channels had by then become closed, an informal channel might be attempted via India, specifically via Rajiv who was still Leader of the Opposition but on whom the Chandrashekhar Government depended. The sole aim would be to compel an immediate Iraqi withdrawal without further loss of life. What transpired over the next few days was that a proposal to that effect was communicated at Rajiv’s decision to a high level of the Iraqis on the one hand, and evidently received their assent, while at the same time, it was mentioned to the authorities on the American side. But nothing came of it. Rajiv initiated a correspondence with Chandrashekhar beginning January 19, demanding a coherent formulation of Indian policy in the Gulf war, and faxed me copies of this. By February 8, the Times of India led by saying Rajiv’s stand “on the Gulf War demonstrates both his experience and perspicacity … in consonance with an enlightened vision of national interest”, and urged Rajiv to “give the nation some respite from [the] non-government” of Chandrashekhar. I taped my phone conversations with Rajiv during the Gulf War because notes could not be taken at the necessary speed; in late December 1991, I was to give his widow a copy of the tape for her personal record.

 

 

I returned to Delhi on Monday, March 18, 1991 as new elections had been announced. Rasgotra said I should be in touch with Krishna Rao, and the next day March 19 Krishna Rao met me for several hours. I told him what I thought were the roots and results of the Gulf war. He in turn generously told me what had happened while I had been away. He said the group had met Rajiv in December with the proposal that Rajiv better organize his time by having an “office manager” of larger political stature than George. The name of a UP Congressman of integrity had been put forward, but nothing had come of it. Rajiv had been advised to keep Chandrashekhar in power through the autumn of 1991, as Chandrashekhar was doing Rajiv’s work for him of sidelining V. P. Singh. The idea was to cooperate with Chandrashekhar until he could be pushed up to the Presidency when that fell vacant. Rajiv had been advised not to work in a Chandrashekhar cabinet, though in my opinion, had we been like the Scandinavians, it was not impossible for a former prime minister to enter another cabinet on the right terms in the national interest of providing stable government, which was imperative at the time. Things seem to have slipped out of control when Chandrashekhar resigned. At that point, Rajiv called the group together and instructed them to write a draft of the manifesto for the impending elections. I had advised readiness back in September but the lack of organization had prevented much tangible progress at the time. Our group was to now report to a political manifesto-committee of three senior party leaders who would report to Rajiv. They were Narasimha Rao, Pranab Mukherjee and Madhavsingh Solanki. Krishna Rao liased with Narasimha Rao, Krishnamurty with Mukherjee, Pitroda with Solanki. While Rajiv would obviously lead a new Congress Government, Mukherjee was the presumptive Finance Minister, while Narasimha Rao and Solanki would have major portfolios though Narasimha Rao was expected to retire before too long.

 

 

Krishna Rao said I should be in touch with Krishnamurty who was preparing the economic chapters of the draft of the manifesto. Krishnamurty told me he had brought in A. M. Khusro to the group, and there would be a 5 p.m. meeting at Khusro’s office at the Aga Khan Foundation. I arrived early and was delighted to meet Khusro, and he seemed pleased to meet me. Khusro seemed excited by my view that India and Pakistan were spending excessively on defence against each other, which resonated with his own ideas, and he remarked the fiscal disarray in India and Pakistan could start to be set right by mutually agreed cuts in military spending. (Khusro was eventually to accompany Prime Minister Vajpayee to Lahore in 1999).

 

 

Krishnamurty had prepared a draft dated March 18 of several pages of the economic aspects of the manifesto. After our discussions, Krishnamurty was hospitable enough to open the draft to improvement. That evening, the 19th, I worked through the night and the next morning to get by noon copies of a revised version with all the members of the group. At 4 p.m. on the 20th there was a meeting at Andhra Bhavan of the whole group except Pitroda, which went on until the night. The next day the 21st , Krishnamurty, Khusro and I met again at Andhra Bhavan for a few hours on the economic aspects of the draft. Then in mid-afternoon I went to Rasgotra’s home to work with him and Krishna Rao. They wanted me to produce the economic draft which they could then integrate as they wished into the material they were dictating to a typist. I offered instead to absorb their material directly on to my laptop computer where the economic draft was. Rasgotra was reluctant to let go control, and eventually I gave in and said I would get them a hard copy of the economic draft, which they then planned to re-draft via a stenographer on a typewriter. At this, Rasgotra gave in and agreed to my solution. So the work began and the three of us continued until late.

 

That night Krishna Rao dropped me at Tughlak Road where I used to stay with friends. In the car I told him, as he was a military man with heavy security cover for himself as a former Governor of J&K, that it seemed to me Rajiv’s security was being unprofessionally handled, that he was vulnerable to a professional assassin. Krishna Rao asked me if I had seen anything specific by way of vulnerability. With John Kennedy and De Gaulle in mind, I said I feared Rajiv was open to a long-distance sniper, especially when he was on his campaign trips around the country.

 

This was one of several attempts I made since October 1990 to convey my clear impression to whomever I thought might have an effect that Rajiv seemed to me extremely vulnerable. Rajiv had been on sadhbhavana journeys, back and forth into and out of Delhi. I had heard he was fed up with his security apparatus, and I was not surprised given it seemed at the time rather bureaucratized. It would not have been appropriate for me to tell him directly that he seemed to me to be vulnerable, since I was a newcomer and a complete amateur about security issues, and besides if he agreed he might seem to himself to be cowardly or have to get even closer to his security apparatus. Instead I pressed the subject relentlessly with whomever I could. I suggested specifically two things: (a) that the system in place at Rajiv’s residence and on his itineraries be tested, preferably by some internationally recognized specialists in counter-terrorism; (b) that Rajiv be encouraged to announce a shadow-cabinet. The first would increase the cost of terrorism, the second would reduce the potential political benefit expected by terrorists out to kill him. On the former, it was pleaded that security was a matter being run by the V. P. Singh and then Chandrashekhar Governments at the time. On the latter, it was said that appointing a shadow cabinet might give the appointees the wrong idea, and lead to a challenge to Rajiv’s leadership. This seemed to me wrong, as there was nothing to fear from healthy internal contests for power so long as they were conducted in a structured democratic framework. I pressed to know how public Rajiv’s itinerary was when he travelled. I was told it was known to everyone and that was the only way it could be since Rajiv wanted to be close to the people waiting to see him and had been criticized for being too aloof. This seemed to me totally wrong and I suggested that if Rajiv wanted to be seen as meeting the crowds waiting for him then that should be done by planning to make random stops on the road that his entourage would take. This would at least add some confusion to the planning of potential terrorists out to kill him. When I pressed relentlessly, it was said I should probably speak to “Madame”, i.e. to Mrs. Rajiv Gandhi. That seemed to me highly inappropriate, as I could not be said to be known to her and I should not want to unduly concern her in the event it was I who was completely wrong in my assessment of the danger. The response that it was not in Congress’s hands, that it was the responsibility of the V. P. Singh and later the Chandrashekhar Governments, seemed to me completely irrelevant since Congress in its own interests had a grave responsibility to protect Rajiv Gandhi irrespective of what the Government’s security people were doing or not doing. Rajiv was at the apex of the power structure of the party, and a key symbol of secularism and progress for the entire country. Losing him would be quite irreparable to the party and the country. It shocked me that the assumption was not being made that there were almost certainly professional killers actively out to kill Rajiv Gandhi — this loving family man and hapless pilot of India’s ship of state who did not seem to have wished to make enemies among India’s terrorists but whom the fates had conspired to make a target. The most bizarre and frustrating response I got from several respondents was that I should not mention the matter at all as otherwise the threat would become enlarged and the prospect made more likely! This I later realized was a primitive superstitious response of the same sort as wearing amulets and believing in Ptolemaic astrological charts that assume the Sun goes around the Earth — centuries after Kepler and Copernicus. Perhaps the entry of scientific causality and rationality is where we must begin in the reform of India’s governance and economy. What was especially repugnant after Rajiv’s assassination was to hear it said by his enemies that it marked an end to “dynastic” politics in India. This struck me as being devoid of all sense because the unanswerable reason for protecting Rajiv Gandhi was that we in India, if we are to have any pretensions at all to being a civilized and open democratic society, cannot tolerate terrorism and assassination as means of political change. Either we are constitutional democrats willing to fight for the privileges of a liberal social order, or ours is truly a primitive and savage anarchy concealed beneath a veneer of fake Westernization.

 

 

The next day, Friday March 22, I worked from dawn to get the penultimate draft to Krishna Rao before noon as planned the night before. Rasgotra arrived shortly, and the three of us worked until evening to finish the job. I left for an hour to print out copies for a meeting of the entire group, where the draft we were going to submit would come to be decided. When I got back I found Rasgotra had launched an extended and quite unexpected attack on what had been written on economic policy. Would someone like Manmohan Singh, Rasgotra wanted to know, agree with all this talk we were putting in about liberalization and industrial efficiency? I replied I did not know what Manmohan Singh’s response would be but I knew he had been in Africa heading something called the South-South Commission for Julius Nyrere of Tanzania. I said what was needed was a clear forceful statement designed to restore India’s credit-worthiness, and the confidence of international markets. I said that the sort of thing we should aim for was to make clear, e.g. to the IMF’s man in Delhi when that person read the manifesto, that the Congress Party at least knew its economics and was planning to make bold new steps in the direction of progress. I had argued the night before with Rasgotra that on foreign policy we should “go bilateral” with good strong ties with individual countries, and drop all the multilateral hogwash. But I did not wish to enter into a fight on foreign policy which he was writing, so long as the economic policy was left the way we said. Krishnamurty, Khusro and Pitroda came to my defence saying the draft we had done greatly improved on the March 18 draft. For a bare half hour or so with all of us present, the draft was agreed upon. Later that night at Andhra Bhavan, I gave Krishna Rao the final copy of the draft manifesto which he was going to give Narasimha Rao the next day, and sent a copy to Krishnamurty who was liaising with Pranab Mukherjee. Pitroda got a copy on a floppy disc the next day for Solanki.

 

 

In its constructive aspects, the March 22 1991 draft of the Congress manifesto went as follows with regard to economic policy: “CHAPTER V AGENDA FOR ECONOMIC ACTION 1. Control of Inflation …. The Congress believes the inflation and price-rise of essential commodities… is a grave macroeconomic problem facing the country today. It has hit worst the poorest and weakest sections of our people and those with fixed incomes like pensioners. The Congress will give highest priority to maintaining the prices of essential commodities, increasing their production and supply using all appropriate economic instruments. 2. Macroeconomic Policy Framework To control inflation of the general price-level, the Congress will provide a predictable long-term policy framework. The average Indian household and business will not have their lives and plans disrupted by sudden changes in economic policy. Coherent monetary policy measures will be defined as called for by the Report of Experts of the Reserve Bank of India in 1985. The Long-Term Fiscal Policy introduced by the Congress Government of 1984-1989 will be revived. Medium and long-term export-import policies will be defined. The basis for a strong India must be a strong economy. The Congress believes a high rate of real growth is essential for securing a strong national defence, social justice and equity, and a civilized standard of living for all. As the party of self-reliance, Congress believes resources for growth must be generated from within our own economy. This means all wasteful and unproductive Government spending has to be cut, and resources transferred from areas of low priority to areas of high national priority. Subsidies have to be rationalized and reduced, and productivity of investments already made has to be improved. The widening gap between revenue receipts and revenue expenditure must be corrected through fiscal discipline, and the growing national debt brought under control as a matter of high priority. These policies in a consistent framework will create the environment for the freeing of the rupee in due course, making it a hard currency of the world of which our nation can be proud. Public resources are not unlimited. These have to be allocated to high priority areas like essential public services, poverty-reduction, strategic sectors, and protection of the interests of the weaker sections of society. Government has to leave to the initiative and enterprise of the people what can be best done by themselves. Government can now progressively vacate some areas of activity to the private, cooperative and non-government sectors. Black money in the parallel economy has become the plague of our economic and political system. This endangers the social and moral fabric of our nation. Artificial price controls, excessive licensing, capacity restrictions, outmoded laws on rent control and urban ceiling, and many other outdated rules and regulations have contributed to pushing many honest citizens into dishonest practices. The Congress will tackle the problem of black money at its roots by attacking all outmoded and retrograde controls, and simplifying procedures in all economic spheres. At the same time, the tax-base of the economy must be increased via simplification and rationalization of tax-rates and coverage, user-fees for public goods, and reduction of taxes wherever possible to improve incentives and stimulate growth. 3. Panchayati Raj India’s farmers and khet mazdoors are the backbone of our economy. Economic development is meaningless until their villages provide them a wholesome rural life. The Congress will revitalize Panchayat Raj institutions to decentralize decision-making, so development can truly benefit local people most effectively. 4. Rural Development Basic economic infrastructure like roads, communications, fresh drinking water, and primary health and education for our children must reach all our villages. The Congress believes such a policy will also relieve pressures from migration on our towns and cities…… Through the Green Revolution which the Congress pioneered over 25 years, our farmers have prospered. Now our larger farmers must volunteer to contribute more to the national endeavour, and hence to greater equity and overall economic development. Equity demands land revenue should be mildly graduated so that small farmers holding less than one acre pay less land revenue per acre…. 9. Education and Health The long-run prosperity of our nation depends on the general state of education, health and well-being of our people. Small families give themselves more choice and control over their own lives. Improving female literacy, promoting the welfare of nursing mothers and reducing infant mortality will have a direct bearing on reducing the birth-rate and improving the health and quality of all our people. Primary and secondary education has high social returns and is the best way in the long-run for achievement of real equality. Efforts will be made to reduce the cost of education for the needy through concessional supply of books and other study materials, scholarships and assistance for transportation and residential facilities. The Congress Party pledges to dedicate itself to promoting education, especially in rural areas and especially for girls and the weaker sections of society. The next Congress Government will prepare and launch a 10-year programme for introduction of free and compulsory primary education for all children of school age. It will continue to emphasize vocational bias in education, integrating it closely with employment opportunities…. 11. Industrial Efficiency Our industrial base in the private and public sectors are the core of our economy. What we have achieved until today has been creditable, and we are self-reliant in many areas. Now the time has come for industry to provide more efficiency and better service and product-quality for the Indian consumer. The public sector has helped the Indian economy since Independence and many national goals have been achieved. Now it has become imperative that the management of public sector units is made effective, and their productivity increased. Major steps must be taken for greater accountability and market-orientation. Failure to do this will make our country lose more and more in the international economy. Budgetary support will be given only for public sector units in the core and infrastructure sectors. Emphasis will be on improving performance and productivity of existing investments, not on creating added organizations or over manning. Units not in the core sector will be privatised gradually. Even in core sectors like Telecommunications, Power, Steel and Coal, incremental needs can be taken care of by the private sector. The Government-Enterprise interface must be properly defined in a White Paper. The Congress believes privatisation must distribute the profits equitably among the people of India. In order to make our public enterprises truly public, it is essential that the shares of many such enterprises are widely held by the members of the general public and workers. Congress pledges to allot a proportion of such shares to the rural Panchayats and Nagarpalikas. This will enhance their asset-base and yield income for their development activities, as well as improve income-distribution. 12. Investment and Trade Indian industry, Government and professional managers are now experienced enough to deal with foreign companies on an equal footing, and channel direct foreign investment in desired directions. Foreign companies often bring access to advanced technological know-how, without which the nation cannot advance. The Congress Government will formulate a pragmatic policy channelling foreign investment into areas important to the national interest. Every effort must be made also to encourage Indians who are outside India to invest in the industry, trade and real estate of their homeland. Because of the protected and inflationary domestic market, Indian industry has become complacent and the incentive for industrial exports has been weakened. When all production is comfortably absorbed at home, Indian industry makes the effort to venture into exports only as a last resort. This must change. A Congress Government will liberalize and deregulate industry to make it competitive and export-oriented, keeping in mind always the interests of the Indian consumer in commercial policy. Export-oriented and predictable commercial policies will be encouraged. Existing procedural constraints and bottlenecks will be removed. Quotas and tariffs will be rationalized. Thrust areas for export-development will be identified and monitored. Efforts will be made to develop a South Asian Community. Trade and economic cooperation among South Asian countries must be increased and simplified.”

 

 

This March 22 1991 draft of the Congress’s intended economic policies got circulated and discussed, and from it rumours and opinions appeared that Congress was planning to launch a major economic reform in India. Economic Times said the manifesto “is especially notable for its economic agenda” and Business Standard said “if party manifestos decide election battles” Congress must be “considered home and dry”. A senior IMF official told me three years later the manifesto had indeed seemed a radical and bold move in the direction of progress, which had been exactly our intended effect. When I met Manmohan Singh at the residence of S. S. Ray in September 1993 in Washington, Ray told him and his senior aides the Congress manifesto had been written on my computer. Manmohan Singh smiled and said that when Arjun Singh and other senior members of the Congress had challenged him in the cabinet, he had pointed to the manifesto. Yet, oddly enough, while the March 22 draft got discussed and circulated, and the Indian economic reform since July 1991 corresponded in fundamental ways to its contents as reproduced above, the actual published Congress manifesto in April 1991 was as tepid and rhetorical as usual, as if some party hack had before publication put in the usual nonsense about e.g. bringing down inflation via price-controls. Certainly the published manifesto was wholly undistinguished in its economic aspects, and had nothing in it to correspond to the bold change of attitude towards economic policy that actually came to be signalled by the 1991 Government.

 

 

On March 23, our group was to meet Rajiv at noon. There was to be an event in the inner lawns of Rajiv’s residence in the morning, where he would launch Krishna Rao’s book on India’s security. Krishna Rao had expressly asked me to come but I had to wait outside the building patiently, not knowing if it was a mistake or if it was deliberate. This was politics after all, and I had ruffled feathers during my short time there. While I waited, Rajiv was speaking to a farmers’ rally being held at grounds adjoining his residence, and there appeared to be thousands of country folk who had gathered to hear him. When it was over, Rajiv, smiling nervously and looking extremely uncomfortable, was hoisted atop people’s shoulders and carried back to the residence by his audience. As I watched, my spine ran cold at the thought that any killer could have assassinated him with ease in that boisterous crowd, right there in the middle of Delhi outside his own residence. It was as if plans for his security had been drawn up without any strategic thinking underlying them.

 

 

Krishna Rao arrived and graciously took me inside for his book launch. The event was attended by the Congress’s top brass, including Narasimha Rao whom I met for the first time, as well as foreign military attaches and officers of the Indian armed forces. The attaché of one great power went about shaking hands and handing out his business card to everyone. I stood aside and watched. Delhi felt to me that day like a sieve, as if little could be done without knowledge of the embassies. One side wanted to sell arms, aircraft or ships, while the other wanted trips abroad or jobs or green cards or whatever for their children. And I thought Islamabad would be worse — could India and Pakistan make peace in this fetid ether?

 

 

Proceedings began when Rajiv arrived. This elite audience mobbed him just as the farmers had mobbed him earlier. He saw me and beamed a smile in recognition, and I smiled back but made no attempt to draw near him in the crush. He gave a short very apt speech on the role the United Nations might have in the new post-Gulf War world. Then he launched the book, and left for an investiture at Rashtrapati Bhavan. We waited for our meeting with him, which finally happened in the afternoon. Rajiv was plainly at the point of exhaustion and still hard-pressed for time. He seemed pleased to see me and apologized for not talking in the morning. Regarding the March 22 draft, he said he had not read it but that he would be doing so. He said he expected the central focus of the manifesto to be on economic reform, and an economic point of view in foreign policy, and in addition an emphasis on justice and the law courts. I remembered our September 18 conversation and had tried to put in justice and the courts into our draft but had been over-ruled by others. I now said the social returns of investment in the judiciary were high but was drowned out again. Rajiv was clearly agitated that day by the BJP and blurted out he did not really feel he understood what on earth they were on about. He said about his own family, “We’re not religious or anything like that, we don’t pray every day.” I felt again what I had felt before, that here was a tragic hero of India who had not really wished to be more than a happy family man until he reluctantly was made into a national leader against his will. We were with him for an hour or so. As we were leaving, he said quickly at the end of the meeting he wished to see me on my own and would be arranging a meeting. One of our group was staying back to ask him a favour. Just before we left, I managed to say to him what I felt was imperative: “The Iraq situation isn’t as it seems, it’s a lot deeper than it’s been made out to be.” He looked at me with a serious look and said “Yes I know, I know.” It was decided Pitroda would be in touch with each of us in the next 24 hours. During this time Narasimha Rao’s manifesto committee would read the draft and any questions they had would be sent to us. We were supposed to be on call for 24 hours. The call never came. Given the near total lack of system and organization I had seen over the months, I was not surprised. Krishna Rao and I waited another 48 hours, and then each of us left Delhi. Before going I dropped by to see Krishnamurty, and we talked at length. He talked especially about the lack of the idea of teamwork in India. Krishnamurty said he had read everything I had written for the group and learned a lot. I said that managing the economic reform would be a critical job and the difference between success and failure was thin.

 

 

I got the afternoon train to Calcutta and before long left for America to bring my son home for his summer holidays with me. In Singapore, the news suddenly said Rajiv Gandhi had been killed. All India wept. What killed him was not merely a singular act of criminal terrorism, but the system of humbug, incompetence and sycophancy that surrounds politics in India and elsewhere. I was numbed by rage and sorrow, and did not return to Delhi. Eleven years later, on 25 May 2002, press reports said “P. V. Narasimha Rao and Manmohan Singh lost their place in Congress history as architects of economic reforms as the Congress High command sponsored an amendment to a resolution that had laid credit at the duo’s door. The motion was moved by…. Digvijay Singh asserting that the reforms were a brainchild of the late Rajiv Gandhi and that the Rao-Singh combine had simply nudged the process forward.” Rajiv’s years in Government, like those of Indira Gandhi, were in fact marked by profligacy and the resource cost of poor macroeconomic policy since bank-nationalisation may be as high as Rs. 125 trillion measured in 1994 rupees. Certainly though it was Rajiv Gandhi as Leader of the Opposition in his last months who was the principal architect of the economic reform that came to begin after his passing.

Pricing, Planning & Politics: A Study of Economic Distortions in India (1984)

Pricing, Planning & Politics: A Study of Economic Distortions in India Subroto Roy

First published on May 29 1984 as Occasional Paper No. 69 of the Institute of Economic Affairs, London

Preface March 2007

A quarter century has passed since my 1982 doctoral thesis at Cambridge University under Frank Hahn, examined by Christopher Bliss and Terence Hutchison, and titled “On liberty and economic growth: preface to a philosophy for India.” I wrote what follows shortly afterwards in Blacksburg, Virginia, and Ithaca, New York, and it was published on May 29 1984 in London by the Institute of Economic Affairs as Occasional Paper No. 69, ISBN: 0-255 36169-6. The day it was published it turned out to be the subject of the main editorial of The Times, then London’s leading newspaper. (I learnt later this had been due to Peter Bauer, and also that 700 copies sold in the first month, a record for the publisher.) The Times editorial though laudatory was misleading, and I had to clarify the contents of the monograph in a letter published on June 16 1984; both documents are available elsewhere at this site.

This work was the first explicit critique of post-Mahalanobis Indian economic thought from a classical liberal perspective since B. R. Shenoy’s initial criticism decades previously. I was 29 when it was published, I am 52 now. I do not agree with everything I wrote back then and find the tone a little puffed up as young men tend to be; it was five years before publication of my main “theoretical” work Philosophy of Economics: On the Scope of Reason in Economic Inquiry (Routledge: London & New York, 1989, also now republished here). My experience of life in the years since has also made me far less sanguine both about human nature and about America than I was then. But I am glad to find I am not embarrassed by what I said as a young man, indeed I am pleased I said what I did in favour of classical liberalism and against statism and totalitarianism well before it became popular to do so after the Berlin Wall fell. (In India as elsewhere, former communist apparatchiks and fellow-travellers became pseudo-liberals overnight.)

The famous November 1955 Milton Friedman memorandum is referred to herein for the first time as “unpublished” in note 1; I was to meet Milton and Rose Friedman at the Mont Pelerin Society meetings held at Cambridge later that year, where I gave them a copy of this monograph; when Milton returned to Stanford he sent to me in Blacksburg his original 1955-56 documents on Indian planning. I published the 1955 document for the first time in May 1989 during the University of Hawaii perestroika-for-India project that I was then leading, it appeared later in the 1992 volume Foundations of India’s Political Economy: Towards an Agenda for the 1990s, edited by myself and WE James. The results of the Hawaii project reached Rajiv Gandhi through my hand in September 1990, as told elsewhere in “Rajiv Gandhi and the Origins of India’s 1991 Economic Reform”. The 1956 document was published in November 2006 on the front page of The Statesman, on the same day my obituary of Milton appeared in the inside pages (both are republished here too).

It is apparent from this monograph that I knew almost nothing then about Pakistan or Islam; that has changed as may be seen especially from the other book I created with WE James at the University of Hawaii, Foundations of Pakistan’s Political Economy: Towards an Agenda for the 1990s, as well as my more recent work on Pakistan and Islam. It is of course impossible to understand India without understanding Pakistan and vice versa.

In general, this monograph had to do with India’s microeconomics and theory of value and resource allocation while my latest work – “India’s Macroeconomics”, “Fiscal Instability”, “India’s Trade and Payments”, “Our Policy Process”, “Fallacious Finance”, “The Dream Team: A Critique” . “Against Quackery”, “Growth & Government Delusion” etc – has to do with India’s macroeconomics and monetary and fiscal theory and policy. Part of the criticism of “distorted incentives” prevailing in Indira Gandhi’s India may still be relevant to India today, while the discussion of ethnic problems, agriculture, the “public choice” factors that stymie Indian progress, misgovernance etc will almost certainly be found so.

Pricing, Planning and Politics:

A Study of Economic Distortions in India

First published on May 29 1984 as Occasional Paper No. 69 of the Institute of Economic Affairs, London

“The economic laws which operate in India are the same as in other countries of the world; the causes which lead to wealth among other nations lead to prosperity in India; the causes which impoverish other nations impoverish the people of India. Therefore, the line of enquiry which the economist will pursue in respect of India is the same which he adopts in inquiring into the wealth or poverty of other nations.” Romesh Chunder Dutt, 1906, The Economic History of India

“Satyameva Jayathe” (“Let truth be victorious”), Motto of the Indian Republic

I. INTRODUCTION

IN THE last 15 years, considerable evidence has accumulated to suggest that the most important policies pursued by successive governments of independent India have not been conducive to economic development, and have indeed gone against some of the most basic lessons that political economy has to offer. Forewarnings of the present predicament of India had come from a few economists in the late 1950s and early 1960s, but their arguments were either ignored or maligned as dogmatic and motivated by`ideology’.[1] My thesis in this Occasional Paper will be that, if the basic and commonsensical lessons of political economy had been acknowledged early on in the history of the Indian Republic, we might have found today a much more prosperous economy and a much healthier body politic than is the case.

To argue this, it is first necessary to describe an economy where the pursuit of the individual good by rational agents is conducted within some set of orderly political institutions which is conducive to both civil peace and sustained mass prosperity. Accordingly, Part I of this short Paper begins by describing the broad and familiar features of what may be called a neo-classical or liberal model, and then proceeds briefly to contrast it with a model in which individual incentives and public institutions have been distorted from their efficient characterizations.

The practical question that arises is: Where in practice have independent India’s policies led most conspicuously to distorted incentives and institutions? This will be the subject of Part III. Part II places the discussion in context by briefly describing a few relevant aspects of the political history of the Indian Republic.

I have argued elsewhere that every normative proposal for action is, in principle, open to question and criticism on the logical and factual grounds upon which it is founded. Whenever two people disagree about what ought to be done, it will be found either that at least one of them has made a mistake of logic or that they are also in disagreement about the facts of the case.[2] In Part IV, a tentative manifesto for political and economic reform in India is proposed, and I hope these proposals too will be subjected to critical scrutiny on the positive grounds upon which I shall seek to establish them.

Part I: Theory

2. EFFICIENT INCENTIVES AND INSTITUTIONS

A `FACT’ may be understood as the opposite of that which could have been the case but is not. A basic fact of the study of men and society – one which was acknowledged first by Aristotle and then, very importantly, by Adam Smith, and which has been emphasized in modern times by Friedrich Hayek – is that, while we are able to study and speak of the nature of human decision and action in general terms, we do not and cannot have a knowledge of how particular actions are moved by particular causes and circumstances.[3]

We might certainly know, for instance, that every household in an economy views some horizons, wants to fulfill some aspirations, and faces some constraints. But if we were asked to specify what all these characteristics happened to be as a matter of fact at any one moment, we would certainly not be able to do so. Men are concerned almost wholly with (and are experts at) living their own lives as best they can – foraging for food, shelter and work, celebrating weddings and births, rearing children, and mourning deaths. For the most part, they are neither interested in, nor competent at judging, what others happen to be doing in their private lives. Neither benevolence nor envy extends much beyond a man’s immediate vicinity, and, certainly, neither can extend to people he does not know or come to know of in the course of a lifetime.

This fact is also acknowledged in modern microeconomics, when it is said that, for the individual agent to be able to make decisions and act upon them, it is sufficient for him to know (besides his own desires, abilities and constraints) only of the relative prices prevailing locally of the goods and skills he wishes to trade.`Efficient incentive’ defined We might then provisionally define an `efficient incentive’ as a set of relative prices and wages such that, when economic agents act upon them, three conditions are fulfilled:(i) the difference between the total demand for and the total supply of every good and skill is zero; (ii) every consumer succeeds in trading the amounts of different goods that he desires, and so obtains the highest utility he can within the constraint of his budget; (iii) every private enterprise maximizes the difference between its total revenues and total costs, that is, its profits. [4]

Rational action, however, occurs within a particular institutional context. Which action is rational and which is not will depend on what institutions there are and how well or poorly they function. As both classical liberals and Marxists argue, the neo-Walrasian tradition in modern economics – as exemplified by the Arrow-Debreu model – is practically devoid of any explicit institutional description, and so may best be regarded as a useful but grossly incomplete metaphor in the economist’s inquiry.

The institutions most relevant to economic activity are those of government. We might therefore add a fourth condition to characterize an efficient economy, namely, that government institutions work in such a way as to allocate tax revenues towards providing public goods in the amounts desired by citizens. This must be an institutional assumption implicit in the general equilibrium construction, without which it would be impossible to see the sense of that model.

The question that follows is how we are to ascertain the composition of the set of public goods to be provided. As is commonly known, this seems to confront the economist with numerous conceptual and practical problems. I propose here to circumvent all the typical difficulties of how to discover and combine individual preferences for public goods, or how to prevent free-riders, and to take a somewhat different route.

Functions of civil government: protection, public goods, education

To answer the question `What should be public goods first and foremost? I suggest we look for the kind of answer Adam Smith or Jeremy Bentham or J. S. Mill might have given to a related but different question : `What should be the functions of government in a large civil society, regardless of whether or not it is constituted democratically?’ This was the relevant question before the modern era of mass democracy. And it is still interesting because, first, it probably remains the appropriate question for the many countries today which either do not have democratic governments or do not have long histories of democracy, and, secondly, because the kinds of answer given by classical authors were very similar to those we might expect from individual citizens in modern democracies as well.

The most important practical functions of civil government include defence against external aggression, the dispensing of civil and criminal justice, the protection of life, property and trade – broadly, the Rule of Law – and the pursuit of a judicious foreign policy. All are different aspects of the same broad objective of ensuring the survival of the community and the security of individual life.

Yet no pretext has been more common than that an imminent danger to the security of the community requires the government to take despotic measures. The guarantee by a civil government of the freedom of inquiry, discourse, criticism, and historical research should take precedence, therefore, even over ensuring security and survival, for it is probably the only final check there can be on whether what a government says is or is not in fact the case. Where this freedom is forcibly denied, or where it exists but people are too apathetic, ignorant or busy with their daily lives to exercise it, public life soon becomes self deceptive and absurd, with propaganda taking the place of discourse, and pretensions and appearances diverging more and more from attainments and reality. Wherever the questions `What is true?’ or `What is the case?’ are not asked frequently enough, there will be fewer and fewer correct answers as to what the case happens to be.[5]
After collective and individual security, the functions of government include the building of dams, embankments, bridges and canals, the provision of roads and fresh water, and so on – activities which, as Adam Smith put it, “. . . though they may be in the highest degree advantageous to a great society, are, however, of such a nature that the profit could never repay the expence to any individual or small number of individuals, and which it, therefore, cannot be expected that any individual or small number of individuals should erect or maintain.” [6]

Each may be more or less a “pure” public good in the modern sense :“that each individual’s consumption of such a good leads to no subtraction from any other individual’s consumption of that good”.[7]

Such a list could be extended to include activities as diverse as: the prevention of soil erosion; the public finance of school education, and’ of measures of basic public health such as vaccinations against contagious diseases; the issuing of currency; sewage disposal; population censuses; the standardization of weights and measures; and so on. It is unnecessary to be more specific here since some people will find even this list controversial. Dogmatists will deny the need for free inquiry; pacifists will dispute that defence is a public good; communists will protest against the public protection of private property; `anarcho-capitalists’ will contest the public dispensation of justice; and so on. To these critics, I would offer merely the following short and incomplete reply.

First, a sound argument can be made that what functions civil government should have can be ascertained, without prejudice, by reasonable citizens, though which particular functions these are may well vary according to circumstances. Secondly, if we could spend time in thoughtful and leisured conversation with every citizen of a large community, it might be predicted – as a matter of cold, empirical fact – that practically everyone would agree with the suggestion that the first destinations of tax revenues should indeed be activities like defence, civil protection and the Rule of Law, the provision of roads, and so on. If such a prediction is correct, my thesis is plainly much more democratic than it might appear to modern economists, though I shall later claim that an objective defence of democratic institutions can be made on quite different grounds as well.

If there is a clear family resemblance between classical liberal authors – from Smith and Mill through to Hayek, Robbins, Friedman, Buchanan, Bauer and many others – it has to do, not so much with the denunciation of government activity in the market-place, as with the recognition of the existence of certain duties of government outside it, the fulfillment of which are indispensable to civil life, let alone the pursuit of economic prosperity. Their protest is at the high opportunity cost of the alternatives foregone.

This raises the question of how we might tell whether government is working well or badly in a particular country at a particular time, or, generally, how we might tell whether different public goods are provided in too small or large amounts. For present purposes it will again be sufficient to suggest a very rough and common sense way of proceeding: let us look first, and think second.

For example, the Iran-Iraq war has clearly been a perfect public bad as far as the ordinary citizenry in either country are concerned. Similarly, if there happen to be millions of cases queuing outside the courts waiting to be heard, or if crime is rampant and police protection ineffective, that may constitute prima facie evidence that too few public resources have been devoted to civil order and justice. Or, if heavy rainfall annually causes landslides in the hills and floods in the plains, devastating crops and leaving innumerable citizens destitute, that also might prompt us to ask whether sufficient public resources have gone towards precautions against such havoc. And so on.[8]

Which goods happen to be public goods depends on the circumstances and the level of government being discussed. For similar circumstances and levels, similar goods will most likely be public goods in different countries. The state ordinarily consists not only of the national government but also of several provincial governments and a myriad of local governments. In particular, a premise of the liberal state would be that public goods should in fact be provided by various levels of government, financed through taxes paid respectively at those levels. The citizen is a taxpayer at a variety of levels, and accordingly public goods are due to be provided at a variety of levels. Just as the national government may not usurp the power to tax for, or spend money on, a public good which is best provided by a provincial government to the citizens of a province, so a provincial government may not tax for, or spend on, a public good best provided by a local government to the citizens of a locality.

The broad principle involved has two aspects: first, a recognition that knowledge of particular circumstances – and hence the ability to act – is infinitesimally dispersed within a population; and, secondly, as direct and visible a matching as possible of the benefits a citizen receives from a particular public good with the taxes he pays towards it, thereby perhaps reducing his incentive to be a free rider on the contributions of others.8Uncertainty and ignoranceProvisionally, therefore, efficient incentives may be thought to consist of a set of market-clearing relative prices and wages, occurring within an institutional context in which the basic and indispensable functions of government have been adequately performed at a variety of appropriate levels.

Such a definition would still be seriously incomplete in one major respect. For we must now recognise: (i) that history is unique and irretrievable, that the present consists only of the fleeting moment, and that the future, by its very nature, cannot be fully known; (ii) that such a thing as human freedom exists; and (iii) that, as a consequence, uncertainty and ignorance are ubiquitous.

Some of the uncertainty derives from the unfolding of natural events (like the rains) over which man has little or no control. The rest derives from the fact that the individual is a free agent who is affected by the actions of others but who cannot predict those actions completely because they too are free agents like himself. Game theory would have had no appeal for the economist if the existence of human freedom had not been a fact. It is this which makes it impossible to read everything in another person’s mind and thus makes it impossible to predict everything he might do. The lasting contribution of Keynesian economics could be its emphasis that such uncertainty and ignorance are important to the economist’s inquiry.

Mathematical economists have been saying for several years that what is required if we are to be realistic are models which reflect the sequential character of actual decision-making and account for the past being immutable and the future uncertain.[9] However, they have proceeded to write even more complex mathematics than we already have – disregarding Aristotle’s advice not to seek more precision from the subject of an inquiry than it may be capable of yielding.[10] My question is the more mundane one of what becomes of the classical liberals’ concept of efficient incentives and institutions in a dynamic world. I shall answer it too in a pedestrian way.

The single overwhelming reason why uncertainty and ignorance are relevant to the economist’s descriptions is that they make real the possibility of mistakes by economic agents. To extend the previous discussion to a dynamic context, what we can do is to ask which institutions are most likely to reduce or mitigate the social consequences of mistaken decisions, whether made by private agents or by those in public office. And it is here that the classical liberals advocate two important institutional features: competition and the decentralisation of decision-making.

The major value of democratic institutions over authoritarian ones is that they encourage these two principles to be put into effect. Because, in a large economy, particular knowledge is infinitesimally dispersed, it may be better for adjustments to a multitude of variables to be made continuously in response to changing circumstances by a vast number of small economic agents, rather than for adjustments to a few variables to be made at political intervals by a small group of very powerful agents. The concentration of power to make major decisions among a few fallible men is a much more ominous prospect than the distribution of power in small amounts among a large number of fallible men. It is much more dangerous for a monopoly of ideas to be claimed about where the political good of a country lies than for there to be free and open competition among such ideas at the bar of reason.

D. H. Robertson put it well when he warned “that all the eggs should not be in the same basket – that in this highly uncertain world the fortunes of a whole trade, or a whole area, should not depend on the foresight and judgement of a single centre of decision”.[11] The presumption in favour of democratic institutions is that they reduce the potential damage from wrong political decisions damage which can be rationally expected in an uncertain world.[12] Elections, in the liberal understanding, are then not so much the means to promote the interests of one’s confederates as to remove from office without bloodshed rulers who fail to do what they are entrusted with, and to replace them by those from whom better is expected. Economic efficiency in an uncertain worldThe economic notion of efficient incentives is also modified by uncertainty and ignorance. In the theory, a set of prices is market clearing only relative to unchanging preferences, resources and technologies. In a dynamic world, however, demand and supply functions are themselves changing and the notion of efficient incentives must accordingly be adapted to one in which relative prices move in the direction of the excess demand: that is, if the parameters change so that the total demand for a good or skill comes to exceed the total supply, we should want to see its relative price rising (and, conversely, if total supply exceeds total demand, we should want to see its relative price falling). During such a process of adjustment, many people may suffer very considerable hardship – something which reasonable Keynesians do well to emphasise.

If changing preferences, resources or technologies cause the demand for a product to diminish, we should want to see the firms which manufacture it either entering different markets, or improving its quality by technological innovation, or lowering prices. Similarly, we should want to see workers in these firms whether blue- or white-collar – who have skills specific to a product whose price is falling either increasing their productivity or retraining themselves in different skills more specific to the manufacture of goods whose prices are rising. Numerous enterprises can go bankrupt, and numerous workers can find themselves unable to sell the skills they possess, if they fail to adapt quickly enough to changing market conditions. The more specialised the product and the more specific the skill, the more hardship there may be. There could well be orthodox Keynesian consequences whereby laid-off workers reduce their consumption expenditures and firms on the verge of bankruptcy reduce their investment expenditures, leading to lower incomes for others, and thus to lower expenditures by them too, and so on. An anti-Keynesian who denied the existence of such hardship would be closed to the facts. He might also not be doing his own theory justice: for it is not unreasonable to argue that, while adjustments are inevitable in an uncertain world, the classical response of prices moving in the direction of excess demand probably minimises the hardship in the transition from one equilibrium to the next.

In a dynamic world, therefore, in which supply and demand functions are shifting continually and unpredictably (though probably incrementally, and not drastically), efficient incentives are better thought of as relative prices which are not stagnant but which are moving – and moving quickly – in the direction of excess demand. It should, in general, be continually profitable at the margin for firms and workers to be innovating technologically and improving productivity. As everyone knows from experience, the principle goad to such activity is fair and free competition. If a job or contract is sought badly enough, and if better quality or lower price are known to be the only criteria of selection, the expected outcome is a differentiation and improvement by competitors of the individual quality or price of what is sold.

In broad summary, the liberal understanding of how material well-being can be improved rests on the assumption that the basic functions of civil government are performed satisfactorily. Government provides the backdrop of civil order and protection necessary for private citizens freely and fairly to conduct their own lives and their transactions with one another. It is a theory which acknowledges a fundamental fact in the study of society, namely, that the individual household : (a) most commonly defines its own horizons; (b) knows the particular opportunities available to it to produce, trade and consume; (c) recognises the particular constraints which prevent it from doing all that it may desire; and(d) perceives how these opportunities and constraints may be changing. Where, as in the liberal picture, there are large numbers of producers and consumers, sellers and buyers – each family acting more or less independently – the efforts of one family do not directly make for other than its own success, while at the same time the repercussions of its mistakes are felt by itself and do not reverberate throughout the whole community. Such has been, as I see it, the American secret to mass prosperity.

3. DISTORTED INCENTIVES AND INSTITUTIONS

DISTORTED INCENTIVES are the logical opposites of efficient ones. Relative prices and wages send distorted signals to individual economic agents when they do not move in the direction of excess demand, so that there is no general tendency for markets to clear. A long-run or endemic excess demand for a good reveals itself in rationing, queueing and black markets. The price at which trade nominally takes place is too low and shows no tendency to move upwards.

Conversely, in a product market, a long-run or endemic excess supply reveals itself in surpluses and spoilages. In a labour market, it reveals itself, on the one hand, in armies of tenured employees who have no incentive to improve productivity, and, on the other hand, in lines of involuntarily or disguised unemployed who cannot sell all the skill they possess and have to settle for selling their less-specialised ones. The price at which trade nominally takes place is too high and shows no tendency to move downwards. In practical terms, firms do not find it profitable to be continually entering new markets or improving quality or enhancing technology or reducing price in order to attract and retain customers. Farmers in particular may face output and input prices which make technological improvements unprofitable.

In politics, distorted incentives are ones which make it profitable for politicians and government officials to be corruptible and taxpayers to be evasive. Because corruption is not penalised and honesty not rewarded, the pursuit of private interest may make it rational to be corrupt and irrational to be honest.

Individualism and statism

A neo-classical economic model like the one outlined above presupposes among citizens a political attitude of individualism. This may be defined as a condition in which citizens have the idea (a) that it is the individual household itself which is principally responsible for improvements in its own well-being, and (b) that government merely “is, or ought to be, instituted for the common benefit, protection and security of the people …”, and that government officials are merely the citizens’ “trustees and servants, and at all times amenable to them.” [13]

Its logical opposite may be called an attitude of statism – defined as prevailing when various classes of citizens have the idea that it is government which is and should be principally responsible for improvements in individual and public well-being. A good sense in which `power’ can be defined in political and economic contexts is as “the capacity to restrict the choices open to other men”.[14] An attitude of statism entails a willingness, or at least an acquiescence, on the part of citizens to relinquish to those in government, with little or no questioning, the power to make decisions which may affect their lives intimately. At the same time, responsibility for relapses or lack of progress in individual well-being is also thought to be the consequence of governmental and not private decision-making. Whereas individualism is a self-assertive attitude, statism is a self abnegating one. For those in government to have a statist mentality is the same as saying they are paternalistic, that is, making the presumption that the citizen is often incapable of judging for himself what is for his own good.

The suggestion that government should have the principal responsibility for improvements in individual and collective economic well-being – in the sense that the collectivity can and should satisfy the material aspirations of every individual – appears straightaway to be self contradictory. An individual can have enough difficulty trying to articulate his own horizons, aspirations and constraints, let alone trying to do the same for others. For a politician (or economist) to claim (or imply) not only that he knows(or can know) the relevant characteristics of everyone at once, but also that he knows how to ameliorate the condition of humanity at a stroke, as if by magic, would have been considered ridiculous in more candid times than ours. If we understand `collective effort’ to mean the sum of individual labours engaged in a common pursuit or endeavour, then for the collectivity to try materially to satisfy every individual would amount to imposing a duty on everyone to try materially to satisfy everyone else – an absurd state of affairs, flying in the face of the fact that most people most of the time do not wish to, or cannot, cope with much else except their private lives.

Exhorting government directly to improve the material wellbeing of `the people’ cannot mean what it seems to because it cannot refer to literally all the people but only to some of them perhaps only a majority, or only the well-organised. That the state is endogenous to the polity implies that no government has resources of its own out of which to disburse the amounts a politician may promise or an economist recommend. To fulfil new promises, given an initial condition of budgetary equilibrium, a government is only able either to print more fiat money or to tax the resources of individual citizens more heavily. Leaving aside the first alternative, fulfillment of the exhortation amounts to using public institutions to transfer resources from some people in order to keep promises made to others.

When the attitude spreads that, in politics, one man’s gain is another man’s loss, and where political control is to be had by winning majorities in elections, the citizen comes to face a perverse incentive to try to coalesce with more and more others in the hope of capturing the public revenues in his favour – instead of thinking critically about the nature of the political good as the institutions of democracy require him to. Political power becomes less dispersed, and the size of the polity diminishes in the sense that it comes to have fewer and fewer constituent agents, each of which is a larger and larger coalition of like-minded confederates intent on acquiring control for its own benefit.

Perhaps the worst consequence of a general attitude of statism, however, is that the basic, commonsensical functions of government are obscured, ignored, and neglected. Instead of requiring politicians and government officials to fulfill these functions, a citizenry allows its public agents to become brokers and entrepreneurs – trading not only in the products of government controlled industries but also in an array of positions of power and privilege, all in the name of directing a common endeavour to help the poor. The state places itself at every profitable opportunity between private citizens who might otherwise have conducted their transactions themselves perfectly well. The result is that governments do, or try to do, what either does not need to be done or ought not to be done by government, while they neglect that which only governments can do and which therefore they ought to be doing.

Part II: History

4. INDIVIDUALISM AND STATISM IN INDIA

AN ATTITUDE of statism has probably been present in India since Mughal times at least. If anything, it spread during the British period since the raison d’être of British rule in India would have vanished without paternalism (as in the course of time it did) and the existence of British rule was the raison d’être of the nationalist movement. Paternalism towards India was espoused even by those Englishmen known for their liberal views at home. Thomas Macaulay, for instance, declared to the House of Commons in 1833: “It may be that the public mind of India may expand under our system till it has outgrown that system; that by good government we may educate our subjects into a capacity for better government; that having become instructed in European knowledge, they may, in some future stage, demand European institutions. Whether such a day will ever come I know not. But never will I attempt to avert or retard it. Whenever it comes, it will be the proudest day in English history.”[15]

Less than a hundred years later, in 1930-31, the Indian National Congress – to the considerable chagrin of the British Government – resolved to bring about an independent India in which every citizen would have the right to free speech, to profess and practise his faith freely, and to move and practise his profession anywhere in the country. There would be universal adult suffrage and no-one would be unjustly deprived of his liberty or have his property entered, sequestered or confiscated. In particular, all citizens in the future republic would be `equal before the law, irrespective of religion, caste, creed or sex’, and no disability would attach`to any citizen by reason of his or her religion, caste, creed or sex, in regard to public employment, office of power or honour, and in the exercise of any trade or calling’.[16]

These resolutions were made in the thick of the battle for independence, and underscored the fundamental argument of the nationalists that, in spite of the infinitely diverse characteristics of the inhabitants of the sub-continent, a free and secular India was possible in which all would be ruled by a common law. That argument had been in contradistinction to the frequent taunt from British Conservatives that an
India without Britain would disintegrate in internecine bloodshed, and also to the later `two nations’ theory of the Muslim League which led eventually to the creation of
Pakistan. With the departure of the British and the Pakistanis, in 1950 the Constitution of the first Indian Republic was finally able to bring into force the idea of secularity which had inspired the nationalist cause. Thus, among the Fundamental Rights established by the Constitution, Article 14 provided that the state `shall not deny to any person equality before the law or the equal protection of the laws within the territory of
India’. Articles 15.1, 15.2, 16.1, 16.2 and 29.2 went on to prohibit discrimination on the arbitrary grounds of religion, race, caste, sex or place of birth in matters of public employment or access to publicly-funded education.

The century between Macaulay and the resolutions for independence was by far the most important to the country’s intellectual history since earliest antiquity. While it took its turbulent course, long severed since the time of the early Greeks – came to be re-established. The common interest and the common contribution became one of admiring and learning from Europe and from India’s own past what there was to be admired and learnt, whilst forsaking and resisting what was self contradictory or base. The maxim for a century might have been : learn the good and let the evil be buried in history. As Tagore wrote :`The lamp of Europe is still burning; we must rekindle our old and extinguished lamp at that flame and start again on the road of time. We must fulfill the purpose of our connection with the English. This is the task we face in the building up of a great India.’[17]

The ideal aspired to was swaraj, or `self rule’. It literally meant not only a government of India by Indians accountable to Indians, but also the governance of the individual by himself. Not only was the country to be sovereign vis-à-vis other states; its individual citizens were to be free vis-à-vis each other and equal before its laws. Swaraj meant, in other words, a condition of political autonomy where the citizen constrained his own free actions so as not to harm others, and where the Rule of Law would protect him when he acted autonomously and resist him when he did not. Given a backdrop of civil order, the infinite number of ways to individual happiness and prosperity in an infinitely diverse sub-continent could then be pursued. Statism all pervading

An attitude of statism, however, has pervaded all public discourse in independent India, and has been reinforced by the social and economic policies pursued by successive governments.

In the first place, a ghost from earlier controversies with the British was to remain in the 1950 Constitution. Immediately after the provisions establishing equality before the law and equality of opportunity in public employment and publicly funded education, the following caveats appeared. Article 15.3 said that the state could make “any special provision for women and children”; and then, of more significance, Article 15.4 allowed the state to make “any special provisions for the advancement of any socially and educationally backward classes of citizens or for the Scheduled Castes and the Scheduled Tribes”.

Article 16.4 allowed it to make “any provision for the reservation of appointments or posts in favour of any backward class of citizens which, in the opinion of the State, is not adequately represented in the services under the State.” Lastly, Article 335 said that “the claims of the members of the Scheduled Castes and the Scheduled Tribes shall be taken into consideration, consistently with the maintenance of efficiency of administration, in the making of appointments to services and posts [under the State] . . .” Who was to decide who was `backward’ and who was not, or which group was to be `scheduled’ and which not? Article 341.1 said that `The President may . . . by public notification specify the castes, races or tribes which shall for the purposes of this Constitution be deemed to be Scheduled Castes’, and Article 341.2 added that `Parliament may by law include in or exclude from the list of Scheduled Castes specified under 341.1 any caste, race or tribe or part of or any group within any caste, race or tribe . . .’ Articles 342.1 and 342.2 said the same for the Scheduled Tribes.

Subsequently, two Presidential Orders named no fewer than 1,181 different groups in the country as `Scheduled Castes’ and more than 583 other groups as `Scheduled Tribes’. Roughly a sixth of the population thus came to be termed `backward’ by executive decree and were segregated by statute from the rest of the citizenry.

The direct precursor of these provisions was the `Communal Award’ by the British Government in 1932, who had taken it to be their duty “to safeguard what we believe to be the right of Depressed Classes to a fair proportion in Legislatures ”.[18] (`Depressed Classes’ was the official name for those misleadingly called `untouchables’ outside the Hindu fold.)

The complex customs of the Hindus call for endogamy and commensality among members of the same caste, thus making anyone outside a caste somewhat `untouchable’ for its members. In marriage and dining habits, many orthodox Hindus would hold foreigners, Muslims, and even Hindus of other castes at the same distance as those formally classified as `Depressed Classes’. Indeed, non-Hindus in India -including the British often maintained social protocols that were equally as strict.

No serious Indian historian would doubt that members of the `Depressed Classes’ had been oppressed and had suffered countless indignities throughout Indian history at the hands of so-called`caste Hindus’. At various times, persecution had led to mass conversions to the more secular faiths. But the ancient wrongs of the Hindu practices had to do not so much with the lack of physical contact in personal life which the word `untouchability’ connotes for Indian society has always consisted of a myriad of voluntarily segregated groups – but rather with open and obvious inequities such as the denial of equal access to temples, public wells, baths and schools.

Gandhi, who by his personal example probably did more for the cause of the `Depressed Classes’ than anyone else, protested against the Communal Award with one of his most famous fasts. Privately, he suspected that `…the communal question [was] being brought deliberately to the forefront and magnified by the government because they did not intend to part with power’.[19] Publicly, he argued that the pernicious consequence would be a further exacerbation of the apartheid under which the `Depressed Classes’ had suffered for so long, when the important thing was for their right to be within the Hindu fold to be acknowledged by `caste’ Hindus.[20]

The Fundamental Rights in the 1950 Constitution establishing the equality of all citizens before the law evidently had the 1930-31 resolutions as their precursors; while Article17 – which specifically declared `untouchability’ to be `abolished’ and its practice `forbidden’ – was part of Gandhi’s legacy, placing those who had for centuries been denigrated and persecuted on exactly the same footing in the eyes of the laws of the Republic as their denigrators and persecutors. The subsequent clauses authorizing the state to discriminate in favour of `Scheduled Castes’, and allowing it to define by executive decree who was to be so called, were evidently the remnants of the Communal Award of 1932. Discrimination by the state was initially to last for a period of 10 years only. It has, however, been extended three times -for another 10 years on each occasion – and so continues to the present day. We shall examine a few of the consequences in Part III.‘A socialistic pattern of society’As for economic policy, while the original 1950 Constitution had ambiguously stated certain ends – such as that government was `to strive to promote the welfare of the people’ – it made no mention at all of any specific economic institutions, statist or liberal, which the new Republic was to nurture as means towards those ends. In spite of this omission, successive governments have explicitly avowed their espousal of` socialism’ as the means to the good and prosperous society.

For instance, a “socialistic pattern of society where the principal means of production are under social ownership or control” was declared to be a national objective at the ruling Congress Party’s convention in 1955; and, in 1976, the notorious 42nd Amendment purported to change the very description of the country in the preamble to the original Constitution from the sober `Sovereign, Democratic Republic’ to the awkward `Sovereign, Secular, Socialist Democratic Republic’. It is an open and important issue of constitutional practice whether a temporary majoritarian government can change the legal description of a republic so fundamentally that it necessarily begs every question now and in the future about the efficacy of socialism as the route to mass prosperity.[21]

Even so, `socialism’ is a vague and equivocal word, meaning different things to different people. Briefly, what happened in the Indian context seems to have been that the Nationalist Government explicitly took upon itself the responsibility of becoming the prime mover of the economic growth of the country. This was in addition to its other fundamental and urgent political responsibilities at the time, namely, to establish peace and civil order in the aftermath of a bloody partition, re-settle several million destitute refugees, integrate into the Republic the numerous principalities and fiefdoms run by the princes and potentates, re-draw provincial boundaries on a sensible linguistic criterion, and generally educate people about their rights and responsibilities as individual citizens in a new and democratic republic.

In a poor country which had just ended a long period of alien rule, it was understandable, if in advisable, that a nationalist government led by cultured, educated men among unlettered masses should take upon itself the responsibility for economic growth. Part of the nationalists’ critique of British rule had been precisely that it had worked to the considerable detriment of the Indian economy. And, certainly, whatever the exact calculation of the benefits and costs of the British presence in India, while there had been obvious benefits, there had also been obvious costs such as iniquitous taxes and overt racial discrimination in employment. [22]Thus, when the nationalists practically swore themselves to provide better government for the economy, it was certainly a very praiseworthy aim; 1947 would indeed be the year of India’s `tryst with destiny’.

Better government not necessarily more government
What the Nehru Government came to believe, however, was that better government for the economy necessarily meant more government activity in the economy. A similar nationalist government led by cultured, educated men among an unlettered public had chosen differently in 1776 at Philadelphia, but the times and circumstances were very different. The Indian nationalists, and most especially Prime Minister Nehru, had just witnessed what they took to be, on the one hand, the collapse of the market economy in the Great Depression and, on the other, the rapid growth to greatness of Bolshevik Russia. In his presidential address to the Congress in 1936, for instance, Nehru spoke of the immediate past in these terms: `Everywhere conflicts grew, and a great depression overwhelmed the world and there was a progressive deterioration, everywhere except in the wide flung Soviet territories of the USSR, where, in marked contrast with the rest of the world, astonishing progress was made in every direction . . .’ Thus, it seemed to him, there was`. . . no way of ending the poverty, the vast unemployment, the degradation, and the subjection of the Indian people except through Socialism”. Socialism meant, inter alia, ` the ending of private property, except in a restricted sense, and ttte repla emenr of the ,private profit system by a higher ideal of co-operative service. It means ultimately a change in our instincts and habits and desires. In short, it means a new civilisation, radically different from the present capitalist order. Some glimpse we can have of this new civilisation in the territories of the USSR. Much has happened there which has pained me greatly and with which I disagree, but I look upon that great and fascinating unfolding of anew order and a new civilisation as the most promising feature of our dismal age. If the future is full of hope it is largely because of Soviet Russia and what it has done, and I am convinced that, if some world catastrophe does not intervene, this new civilisation will spread to other lands and put an end to the wars and conflicts on which capitalism feeds’.[23]
Equally as certain and deep as his admiration for the liberal values of the West was Nehru’s evident misunderstanding of the causes and consequences of Stalin’s Russia. The political and economic history of India in the past 30 years cannot be understood without regard to her most powerful leader’s ambivalence about the nature of the political and economic good.
By the mid-1950s, many of India’s other prominent statesmen had died or retired from public life, and there was hardly a public figure of’ stature left (with the exception of Rajagopalachari) to challenge Nehru’s socialist vision of the country’s future. Moreover, men who were ostensibly `expert economists’, but whose writings revealed no knowledge of prices or markets or the concept of feasibility, were encouraged to endorse and embellish this vision, which they did without hesitation in the secure knowledge that they were shielded from critics by the intellectual patronage of a charismatic and elected leader.[24]
The choice between alternative models of mass economic prosperity must have seemed quite clear at the time. The cold fact did not, however, vanish that one of the oldest objective lessons of political economy has been that more government is not necessarily better government. It is to the consequences of ignoring this lesson that we now turn.

Part III: Practice
ECONOMIC POLICIES IN INDEPENDENT INDIA

INDIA TODAY is a bizarre maze of distorted incentives, which I (and no doubt others) have found very difficult to untangle and understand. I shall, however, list and discuss the most significant of them as methodically as I can.

(i) Industry
The Indian Government has declared a large `public sector’ in commerce and industry to be a national objective. Towards this end, it has therefore progressively acquired numerous enterprises, large and small, so that it now has either a full monopoly in an industry or is one of a few oligopolists. These industries range from banking, insurance, railways, airlines, cement, steel, chemicals, fertilisers and ship-building to making beer, soft drinks, telephones and wrist-watches. There are no explicit penalties for indefinite loss-making; indeed, bankrupt private enterprises have often been nationalised to serve politicians’ ends. And, certainly, there has been no general rule of marginal-cost pricing. In public utilities, like electricity generation and distribution or city buses and trams, prices appear to be well below marginal cost, leading to severe rationing and queueing. Sudden stoppages of electricity for hours at a time and monumental congestion on buses and trams have become endemic facts of life for millions of urban Indians.
At the same time, private industry in India has been made to face labyrinthine controls. The government has continually exhorted private firms to work in the `national interest’ – which means accepting the constraints of centralised planning. It has left no doubt that, while there is a `role’ for the min the growth of the economy, they exist at the sufferance of government and had better realise it, otherwise the dark forces of revolution which have so far been kept at bay will inevitably sweep them away altogether, as happened in Russia and China.
The constraints imposed on the operation of a private business are legion, and would make a businessman from the West or Far East reach for a psychiatrist or a pistol. An entrepreneur may not enter numerous industries without government approval of the `technical’ viability of his project; once it is approved, he cannot find credit except from a government bank; and he cannot buy raw materials and machinery of the highest quality at the lowest price since, if they are produced in India, he will be denied a licence to import better and/or cheaper foreign substitutes. The onus is on him to satisfy the government that no production occurs within India of the input he requires; only then will an import licence conceivably be granted, subject to periodic review by the government. He may be compelled to export a specified proportion of his output as a condition for the renewal of his import licence, which therefore places him at a disadvantage with foreign buyers who, of course, are aware of this restraint. He may be unable to compete internationally because the rupee is priced above its likely equilibrium and some of the inputs he uses are high-cost, low-quality domestic substitutes. As a result, he may be compelled practically to dump his output abroad at whatever price it will fetch.

The entrepreneur’s factory may be subject to random cuts in electricity for hours at a time. He may require government approval before he can increase his fixed capacity, modernise his plant, change a product-line, or even change the number of labour shifts. He may face minimum-wage and stringent unfair dismissal laws on the one hand, and price controls on the other. If he fails to meet credit obligations to the nationalised banks, he may be penalised by the appointment of one or more government directors to his board – a form of `creeping’ nationalisation. Further, he may be subjected to a constant threat of full nationalisation as and when the government decides that his industry should be in the public sector in the interests of national planning.[25]

The consequence of all these controls has been a monumental distortion of incentives away from encouraging private firms to try to attract customers by improving technology and quality or reducing prices towards encouraging them to concentrate on `rent-seeking’, in the term made familiar by Professors Gordon Tullock and James Buchanan.[26]

As Anne Krueger says in her excellent study of the automobile ancillary industry, the very notion of entrepreneurial efficiency changes in such circumstances: `Under conditions in India, the most important problem confronting entrepreneurs is that of assuring that production will continue. The combined effects of import licensing and investment licensing give virtually every firm a monopoly or quasi-monopoly position. The entrepreneur who is most successful in getting licences of greater value and/or in getting licences more quickly than his fellow producers will have higher profits. `The producer who does not compete successfully for licences cannot produce at all, no matter how skilled he is in achieving engineering efficiency, unless he enters the “open market” and pays a premium to the successful licence applicant for some materials . . . Successful entrepreneurs are therefore those who are best at obtaining the greatest number of licences most expeditiously . . .’ [27]

Moreover, firms which are low-cost and efficient (in the free market sense) and which are successful at rent-seeking as high-cost, inefficient firms may still not be able to compete the latter out of business because government will not usually allow a particular firm to expand – regardless of its efficiency – if there is excess capacity in the industry of which it is a part. High-cost firms can thereby rationally count on staying in business simply by maintaining significant excess capacity.

(ii) Foreign trade
The Government of India has always claimed that foreign exchange is a `scarce’ resource which must be rationed by fiat in the national interest. The total foreign-exchange revenue (at an exchange rate which was fixed until 1971 and has since been on a managed `peg’) has been allocated in the following order of priorities: first, to meet foreign debt repayments and government expenditures in the conduct of foreign policy, such as the maintenance of embassies (G1); secondly, to pay for imports of defence equipment, food, fertilisers and petroleum (G2); thirdly, to meet ear-marked payments for the imported inputs of public sector industries so that they may achieve projected production targets (G3); fourthly, to pay for the imported inputs of private sector firms which are
successful in obtaining import licences (P1); and, lastly, to satisfy the demands of the public at large for purposes such as travel abroad (P2).
Foreign exchange is `scarce’ in India, or elsewhere, in precisely the same sense that rice or petrol or cloth is scarce. Just as there exists some positive price for rice, petrol or cloth which, at any moment, will match total supplies with total demands, so there exists some positive price for rupees relative to dollars which, at any moment, will match the transaction and asset demands of Indians for dollars with the transaction and asset demands of foreigners for rupees. Underlying that market-clearing price would be (a) the demands of Indians for foreign goods whose f.o.b. prices were lower than those of domestic substitutes, and, similarly, the demands of foreigners for goods in which India has had a comparative advantage; and (b) the expectations of Indians and foreigners about the future purchasing power of the rupee relative to the dollar, using as a proxy, say, the difference between interest rates in India and abroad.

A free market in foreign exchange would first have encouraged India’s traditional exports, like jute manufactures and textiles, and then (if the positive theory of international trade is broadly correct)progressively encouraged the export of other non traditional goods which used India’s relatively inexpensive labour relatively intensively and thereby enabled Indian entrepreneurs to compete successfully in foreign markets. At the same time, capital flows into and out of India would have given the monetary authorities an incentive to keep domestic interest rates in line with the real opportunity cost of forgoing consumption in favour of savings.

Thus, the case against a free market in foreign exchange has always been, to say the least, far from obvious.[28] But even if, for the sake of argument, we accept the presumed superiority of rationing, the elementary theory of optimisation which underlies the so-called theory of `planning’ dictates that the government should allocate dollars between alternative uses such that the marginal dollar yields the same increase in social utility in any use. The Indian Government, however, appears to have allocated foreign exchange simply on the basis of giving a higher priority to its own foreign expenditures (categories Gl, G2 and G3) than to private foreign expenditures (categories Pl and P2). That is to say, regardless of how much social utility might have been derived from a particular increase in private-sector imports, it would not be considered until after the government had met all its own expenditures abroad.[29]
Jagdish Bhagwati and T. N. Srinivasan put it as follows : `The allocation of foreign exchange among alternative claimants and users in a direct control system . . .would presumably be with reference to a well-defined set of principles and criteria based on a system of priorities. In point of fact, however, there seem to have been few such criteria, if any, followed in practice.’[30]
With respect to imported inputs for private- and public-sector industries, a rule of `essentiality’ (that is, the input must be technically `essential’ to the production process) and a rule of `indigenous availability’(that is, there must be absolutely no domestically-produced physical substitutes, regardless of cost and quality)seem to have been followed. But, as Bhagwati and Srinivasan report, `. . . the sheer weight of numbers made any meaningful listing of priorities extremely difficult. The problem was Orwellian: all industries had priority and how was each sponsoring authority to argue that some industries had more priority than others? It is not surprising, therefore, that the agencies involved in determining allocations by industry fell back on vague notions of “fairness”, implying pro rata allocations with reference to capacity installed or employment, or shares defined by past import allocations or similar rules of thumb’. [31]

Clearly, in abjuring the free market and claiming a monopoly over foreign-exchange transactions, government planners have accepted certain premises as unquestionable: (a) that government sponsored industrialisation is the best means to mass prosperity; (b) that a policy of indefinite import-substitution is the best means to industrialisation; and (c) that such a policy requires all foreign expenditures by government to take precedence over all private foreign expenditures. The trade and foreign-exchange policies pursued cannot be understood except by reference to domestic economic policies and, in particular, to the view held about the proper functions of government in and out of the market-place.

In addition to a plethora of controls, tariffs and outright bans on imports, there have been erratic policies, subsidising the export of `new’, non-traditional manufactures like engineering goods, and taxing- and even banning – the export of goods in which India has traditionally enjoyed a comparative advantage.[32]

Moreover, the rupee has been continuously over-valued. From 1949 to 1959, the official exchange rate of Rs. 4.76 to the US dollar was, on average, 12..3 percent above the black-market rate, a figure which rose to 61 per cent between 1960 and 1965. From 1966 to 1970, the devalued official rate of Rs. 7.50 to the dollar was above the black-market rate by an average of 47.6 per cent, while from 1971 onwards the managed-peg rate has been above the black-market rate by an average of 24.3 per cent.[33]

Simple economics suggests that a free-market equilibrium rate would be somewhere between the black-market and official rates. An official exchange rate for the rupee fixed above that warranted by underlying relative demands for Indian and foreign goods, as well as by relative degrees of confidence in the rupee and the dollar, subsidises imports at the expense of exports. By discriminating in favour of its own foreign expenditures and against those of the private sector, the government has been the principal beneficiary of an over-valued rupee. If capital-intensive goods are the main imports and labour-intensive ones the main exports, an over-valued rupee further distorts incentives so as to favour the use of capital-intensive production processes over labour intensive ones – in a country with a demonstrable abundance of relatively inexpensive labour!
With an eye to India, Krueger has argued the general issue in these terms:`Subsidies can make any industry an export industry, even one that would not produce at all in an efficient allocation. Similarly, taxes can be levied on an industry that has comparative advantage which will penalize it enough to render domestic production entirely unprofitable. When taxes and subsidies are used, therefore, it is possible not only to distort the structure of production, but to distort it so much that the “wrong” commodities are exported.”[34]

The Indian Government’s planners have had the idea of forcibly effecting a reversal in the comparative advantage of the country, as if by magic overnight. The hope might have been that a forced pace of industrialisation would somehow allow economies of scale to be reaped and thus soon make Indian industrial goods competitive enough in international markets to be the country’s principal source of foreign exchange, displacing traditional manufactures like jute and textiles. In practice, however, as the evidence given by Bela Balassa
and other economists demonstrates, such a policy has not succeeded to date and is most unlikely ever to do so.
India’s import bill has risen continuously, most drastically after the 1973-74 quadrupling of petroleum prices; non-traditional manufactures have hardly been able to compete successfully in foreign markets; and the traditional exports of jute and textiles have suffered very severe setbacks. Balassa contrasts the consequences of the freer, outward-looking trade policies of South Korea, Singapore and Taiwan with those of the inward-looking, controlled regime of India as part of a study of 11 countries(including Argentina, Brazil, Colombia, Mexico, Chile, Israel and Yugoslavia) which, along with Hong Kong, account for most of the manufactured exports of developing countries. India’s share of the total manufactured exports of these countries has fallen steadily from 65.4 per cent in 1953 to 50.7 per cent in1960, to 31.2 per
cent in 1966 and to a mere 10.3 per cent in 1973. The proportion exported of India’s total manufactured output fell from 9.7 per cent in 1960 to 9.4 per cent in 1966 and to 8.6 per cent in1973. In contrast, during the same two periods, the proportion of manufactured output exported rose from1 to 14 to 41 per cent in South Korea, from 11 to 20 to 43 per cent in Singapore, and from 9 to 19 to 50 per cent in Taiwan.[35]
Balassa cogently argues that the adverse effects of a sudden change in external factors, such as the quadrupling of petroleum prices in 1973-74 or the 1974-75 Western recession, were absorbed much more easily by developing countries with large foreign-trade sectors than by those like India with relatively small ones: `Outward orientation is associated with high export and import shares that permit reduction in non-essential imports without serious adverse effects on the functioning of the economy. By contrast, continued inward orientation involves limiting imports to an unavoidable minimum, so that any further reduction will impose a considerable cost in terms of growth. Furthermore, the greater flexibility of the national economies of countries pursuing an outward-oriented strategy, under which firms learn to live with foreign competition, makes it possible to change the product composition of exports in response to changes in world market conditions, whereas inward orientation entails establishing a more rigid economic structure.’[36]
In other words, if imports are both high in total value and diverse in composition, a rise in the relative price of a particular import for which home demand is relatively inelastic (like petroleum and its products) can be accommodated by a substitution of expenditure towards it and away from inessential imports for which demand is relatively elastic. A similar argument had typically been advanced by advocates of import-substitution when they maintained that the exports of a small country should be diverse and not concentrated on only a few goods since a decline in world prices would otherwise lead to serious falls in export revenues. This suggests that both critics and advocates of import substitution might agree that, for a country which is a price-taker in world markets, the encouragement of a large foreign-trade sector is a way of diversifying the risk of adverse effects from changes in world prices. The question remains as to whether the positive theory of trade is correct in saying that the encouragement of comparative advantage is superior to import-substitution as a means of achieving a large foreign sector. From the contrasting experiences of, say, South Korea on the one hand and India on the other, the answer seems overwhelmingly to be that it is.

(iii) Agriculture
The Indian Government has instituted a multiple-pricing system for the major food-grains, especially rice and wheat. Farmers are compelled to sell a specified fraction of their output to the government, at a price fixed by the government which is significantly lower than that warranted by underlying supply and demand conditions. Farmers may sell the remainder of their output freely. The quantities the government acquires in this way, plus any it imports (imports being subsidised by the over-valuation of the exchange rate), are sold by ration at lower than free-market prices in the so-called `fair-price’ shops – which happen to be mainly in urban areas. Urban consumers may purchase part of their requirements from such shops and the remainder on the open market at higher prices. Astute middle-class urban housewives know that rationed grain is often of poorer quality than that sold on the open market. Accordingly, the former often constitutes part of the wages of the domestic servants of the urban household, while the family consumes the latter. Insofar as this is true, it suggests that farmers distinguish quality much better than do government officials, and that they use this advantage somewhat to partition their output into low- and high-quality, selling the first under compulsion to the government and the second on the open market.
While such is the general food policy of India, the compulsory procurement of grains and their distribution to the ration-shops is implemented by individual State governments and not by the Union Government. There have usually been numerous restrictions on inter-State movements of grain, so the States do not form a full customs union; instead, the Union Government tries to be a central clearing-house, matching the desired imports of one State with the desired exports of another.[37]

Economic effects of ban on futures contracts
Furthermore, futures contracts in grains have been banned by law, in the belief that futures trading is conducive to speculation and that speculation is undesirable. A futures contract in grain consists simply of a promise by a seller to deliver an amount of grain to a buyer at some specified date in the future in return for payment at a price agreed today. The seller’s incentive to enter into the contract is the guarantee of a certain sale, and the availability of funds now; the buyer’s incentive is the guarantee of a certain price for future deliveries. The contract may be entered into because buyer and seller have different expectations about what the spot price will be in the future. The buyer minimises his expected costs and the seller maximises his expected revenues; both are able to balance their budgets inter-temporally. Even if they have the same expectations about future spot prices, buyer and seller may still find it mutually profitable to enter into a futures contract as a way of insuring against risk. Forbidding such contracts by decree thus forces more risk onto both buyer and seller than they would normally be prepared to carry, and also induces them to balance their accounts in each period rather than it inter-temporally. Alternative kinds of credit markets become it relatively more lucrative, with the potential seller and buyer of futures wheat respectively borrowing and lending more than they would otherwise have done.[38]
The government has also expressed its determination to keep prices in ration-shops low. It has accordingly stockpiled large inventories of grain, apparently regardless of the costs of storage and spoilage or the alternative of holding larger foreign-exchange reserves to permit increased imports when necessary.

The ostensible, declared objective of all such policies has been to ensure that the poor do not suffer severe adverse income effects from sudden rises in the price of food resulting (it has been thought) from the contingencies of rainfall and the actions of speculative traders. It is, however, an open secret that the policies have really been a means of (a) taxing farmers, who pay a smaller percentage of their income in direct and indirect taxes than do urban dwellers, and (b) subsidising urban consumers, who broadly comprise the industrial working class and the middle in classes.
At the same time, however, the government and its advisers — after the considerable hesitation recorded by David Hopper [39]- have also accepted that the best long-run prospects for increasing agricultural productivity lie in modernising traditional farming techniques. Given the outstanding results of the Green Revolution in wheat, they could hardly have arrived at any other conclusion. The problem from the government’s point of view has been, as a sympathetic economist puts it “…how to procure a sufficient quantity of food grains at reasonable prices without jeopardising the farmers’ incentives to produce more”.[40]

Thus, while taxing farmers de facto on their output, on the one hand, the government has tried, on the other, to promote the use of modern inputs by subsidizing them both directly and through low-interest loans from the banks for such investment.
Distortions of incentives in agriculture
The distortions of efficient incentives caused by such policies are not difficult to see. First, the low output prices of wheat and rice have, in effect, been discriminatory taxes on wheat. As Edward Schuh remarks, these discourage the production of `. . . the very crops that policy-makers believe the vulnerable groups should have greater access to . . .’[41]

Vasant Sukhatme and Theodore Schultz have argued that, even between wheat and rice, there has been severe discrimination in favour of the former. At the official over-valued exchange rate, the price of domestic wheat has been significantly higher than imported, while at open-market rates for the rupee, the domestic price approximated the import price. For rice, however, the domestic price has been consistently below the import price. Sukhatme estimated that the dead weight loss in welfare from the under pricing of rice amounted to 8.5 per cent of total agricultural income in 1967-68 and to 2.2 per cent in 1970-71. He also calculated effective rates of protection, which were strongly negative for rice whether at official or open-market exchange rates and positive for wheat at the official exchange rate. Both he and Schultz conclude that the discrimination against rice has been a major factor in explaining the absence of a Green Revolution in rice on the scale of that in wheat.[42]
Secondly, the main beneficiaries of government subsidies for modern inputs have evidently been not the many small farmers but the fewer relatively large ones. As Gilbert Brown reports :`Large-scale farmers buy most subsidised inputs. Poorer farmers usually lack the money to buy adequate amounts of fertiliser and pesticides, and are commonly unable to get credit except at near-prohibitive rates of often 60% to 100% per year. Even in countries with subsidised bank credit for agriculture, rich farmers get most of the credit because of legal or administrative restrictions and/ or through open or disguised bribery. Credit and subsidy programmes for tractors, tube wells and other fixed investments also go mostly to the largest and richest farmers . . .Water is also a subsidised input . . . The farmers who receive this subsidised water generally have substantially higher incomes (because of the water) than farmers without access to public irrigation. Thus, claims that water should be subsidised to help small farmers misses the point that most farmers with irrigation have higher incomes than those who do not.’[43]
Brown argues that subsidies for inputs have been made necessary only to offset the forced depression of output prices. Moreover, the social benefit from subsidising inputs is limited to when the input is first introduced: ‘Once the benefits and technique of using the input are widely known, however, the continuation of such subsidies serves largely to increase the benefit-cost ratio of using the input . . .’.
Whether it is better to continue with artificially low input and output prices or to adjust towards a free market in both must take into account that the subsidies have encouraged more capital-intensity in production, and also that the `. . . low prices of certain inputs, particularly water, are often associated with widespread waste and inefficient use of the resource’.[44]
Thirdly, the farmer who is too small to find investment in storage facilities profitable may also consider it not worth his while to hold any of his output for sale on the open market. He will then sell it all to the government – at a below-market price.
A general conclusion would seem to be that, if the combined effect of input subsidies and forced grain sales to government has been a net subsidy to agriculture, then it has been a progressive subsidy; whereas if the combined effect has been a net tax on agriculture, then it has been a regressive tax. The Marxists may be quite right to protest that what gains there have been in agriculture have accrued to the relatively larger farmers, while smaller peasants and farmers are becoming landless labourers in growing numbers as a result of bankruptcy (that is, there has been increasing `rural proletarianisation’, to use the Marxists’ picturesque phrase). But if this is true, the cause can be traced unambiguously to the Indian Government’s belief – vociferously shared by the Marxists – that the way towards the declared objective of helping the poor is by extensive interference in the price system. Besides, the industrial working class demonstrably benefits from low food prices, so the honest Marxist must face up to being torn by divided loyalties between the rural and the urban proletariats.

Srinivasan put it as follows in a 1974 survey article :`The public distribution system with respect to foodgrains . . . operated to the benefit of all those living in metropolitan cities and other large urban concentrations while all others, including rich and poor in relatively small urban and almost all rural areas, did not benefit at all. When one recalls that the rural population includes the most abject among the poor, namely landless workers, the inequity of the system becomes glaring. And in urban areas, the existence of the system and the fact that the ration is often inadequate provides incentives for a household to falsify the data on its size and age composition given to the rationing authorities, as well as to create bogus or ghost ration-cards, not to speak of the corruption of the personnel manning the rationing administration.’[45]

The history of the extensive control of agriculture – which has included a partial government monopsony, forcibly-depressed output prices, inter-State restrictions on grain movements, and urban ration-shops – can be traced to the last years of British rule, as an attempt to bolster the popularity of the imperial regime. [46] The continuation and reinforcement of statism in agriculture in independent India has evidently rested on certain premises, namely, that the private market would be grossly inefficient and would be dominated by a few traders continually reaping large speculative profits, with both the small farmer and the ordinary consumer suffering in consequence.

Uma Lele’s fine study of the private grain trade, however, shows the real picture to be quite different. She found that the trade was highly competitive, that individual traders were rational agents (given the constraints of technology and government policy), that location price differences closely reflected transport costs, and that temporal price differences closely reflected storage costs. She argued that, while there was considerable scope for government activity, it should be in the form, not of interfering in the competitive market, but rather of encouraging the market to work – by, for example, disseminating relevant information such as crop forecasts, standardising weights and measures, constructing or improving roads and encouraging efficiency in the market for the transport of grain, etc.[47]

The evident neglect of such findings as these, and the continued application of policies inimical to competition and the free market, suggest that successive governments of independent India have been hardly more concerned for the rural poor – whether as farmer or consumer – and hardly less concerned with bolstering their popularity in the urban areas than were the British.

(iv) Employment
An obvious consequence of the economic policies described above has been the distortion of the individual citizen’s calculation of the expected benefits and costs of living and working in urban areas compared with the rural countryside. The forced depression of output prices in agriculture and the plethora of foreign-trade policies which discriminate against agriculture certainly seem to have artificially depressed the expected incomes of farmers. At the same time, a large `public sector’ in industry, plus the array of foreign-trade policies which have protected private industry, plus the indirect subsidisation of food sold in urban ration-shops certainly seem to have artificially raised expected urban incomes. Predictably, the reaction has been a vast and continuing net migration from the villages to the towns and cities, even after adjusting for the seasonal nature of agriculture. This drift has been the subject of much inquiry and discussion by development economists.[48] I propose to set it aside and examine instead a different aspect of employment policy which has not received nearly as much attention, namely, the consequences of putting into effect the clauses in the 1950 Indian Constitution mentioned above which authorised discrimination in employment and public education in favour of the `Scheduled’ castes and tribes, as well as other policies which discriminate on grounds of ethnic origin.

The consequences have been similar in several respects to those in America of `affirmative action’ towards so-called `racial minorities’, and it will be useful to draw out the analogy a little. As Thomas Sowell has cogently argued in recent years, the racial composition of contemporary American society is a complex mosaic, and no-one can say with certainty how it has come to be what it is today. In such circumstances, for the government to try to isolate a single contingent characteristic like `race’, partition society on the basis of census data according to this characteristic, and then construct public policies accordingly, is to introduce an enormous arbitrariness into economic life. By merely defining a group by reference to a single contingent characteristic, which all its members seem to possess, the intrinsic complexity of the individual person is lost or overlooked. Two members of the same race may be very different from each other in every relevant characteristic (income, education, political preference, and so on), and indeed resemble members of other races more closely in them. A policy which introduces a citizen’s race as a relevant factor in the assignment of jobs or college places partitions the citizenry into vague groups : members of groups who are very different from members of other groups in characteristics other than race rarely competing with each other anyway, while the burden and beneficence of the state’s policies fall on members of groups who are not very different from members of other groups in characteristics other than race: `. . . costs are borne disproportionately by those members of the general population who meet those standards with the least margin and are therefore most likely to be the ones displaced to make room for minority applicants. Those who meet the standards by the widest margin are not directly affected – that is, pay no costs. They are hired, admitted or promoted as if blacks did not exist. People from families with the most general ability to pay also have the most ability to pay for the kind of education and training that makes such performance possible. The costs of special standards are paid by those who do not. Among the black population, those most likely to benefit from the lower standards are those closest to meeting the normal standards. It is essentially an implicit transfer of wealth among people least different in non-racial characteristics. For the white population it is a regressively graduated tax in kind, imposed on those who are rising but not on those already on top.’[49]
At the same time, there is, in effect, a progressively graduated subsidy for members of the `minority’ group in favour of those who are already closest to meeting the general standards. Those in the mainstream of each group are largely unaffected; it is at the margins of competition that the bitterness caused by such policies will be felt and will manifest itself. It would seem that the situation in India – where the racial mosaic is if anything more complex than in America – is somewhat analogous. In recent years there has been civil tension and violence in the streets as poor Muslims, `caste’ Hindus, Sikhs and others have protested at being edged out of jobs and promotions by equally poor, or wealthier, members of the `Scheduled Castes’. In March-April 1981, for instance, there was widespread civil tension and violence in Gujarat over the reservation of places in the State’s medical colleges. A quarter of these places were statutorily reserved for members of the `Scheduled Castes’, with any not taken up by qualified candidates from these groups accruing to them in the future, thereby rapidly excluding from general competition as many as half the total number of places.[50]

The cruel paradox is that, while the position of many members (perhaps the vast majority) of the `Scheduled Castes’ vis-à-vis `caste’ Hindus remains one of degradation and persecution – quite regardless of the constitutional guarantees of equality in the eyes of the law – the relatively few who have succeeded in taking advantage of the discriminatory statutes have aroused the indignation of those who have not -causing even more animosity towards the `Scheduled Castes’ in general. One commentator observes the emergence of a `new elite’ among the `Scheduled Castes’ which `ceases to identify with its caste brethren’; while, at the same time, the law on equality `is so widely flouted precisely because the Scheduled Castes have not the means or courage to seek its protection . . .’ He concludes :`Contrived gestures such as are now popular will either not benefit [the Scheduled Castes] . . . or will do so only by further lowering already deplorable academic and administrative standards’. [51]
Moreover, when all government posts are advertised with a caveat that 10 or 15 per cent of themare reserved for members of the `Scheduled Castes’ and `Scheduled Tribes’, there is a considerable incentive for people to persuade Parliament to declare them as being such. And that also has happened. Discrimination in employment on the ground of caste has not been the only kind of discrimination practised by the Indian state. In what may be the most thorough study currently available on the origins, consequences and legal history of official discrimination in India, Weiner, Katzenstein and Rao have described the plethora of policies pursued by the central and state governments which have used not caste but ethnic origin as a criterion for public employment (with the private sector also often being `encouraged’ to follow suit) :`Preferences are given to those who belong to the “local” community, with “local” understood as referring to the numerically dominant linguistic group in the locality.’ [52] The authors conclude that what is emerging in India is`. . . a government-regulated labour market in which various ethnic groups are given a reserved share of that market. Competition for employment is thus not among all Indians, but within specified linguistic, caste, and tribal groups.`. . . various ethnic groups, therefore, fight politically for a share of that labour market. The major political struggles are often over who should get reservations, how the boundaries of the ethnic groups should be defined, and how large their share should be. There are also political struggles over whether there should be reservations in both education and employment, in private as well as in public employment, and in promotions as well as hiring. The preferential policies themselves have thus stimulated various ethnic groups to assert their “rights” to reservations.’[53]

It is not difficult to understand the general economic argument against discrimination on grounds such as caste or ethnic origin. If a private employer indulges a personal preference to hire only people of an kind A when there are more able or better qualified candidates of other ethnic kinds B, C, D, . . . ,available, and if the product of his firm is subject to competition in the market from other enterprises which do not discriminate on criteria which are irrelevant to economic efficiency, we may confidently expect the discriminating employer’s product to become uncompetitive and his profits to fall. The best and most obvious example of this would be in the professional sports industry in the USA : a `whites-only’ basketball or football team would be immediately vanquished on the games-field into bankruptcy. If government pursues employment policies which discriminate according to economically irrational criteria such as caste or ethnic origin, or if it forces all private firms to do likewise, there will certainly be inefficiency resulting in a loss of real aggregate output in the economy. In the terms of modern economics, a vector of total outputs which would be feasible given the parameters of the economy, and which would leave everyone either better off or at least no worse off, would not be achieved. In sum, the consequence of direct and widespread government interference in the labour market in India appears to have been, not only a disregard for the principle of equality before the law for every citizen (in a nascent republic of immensely diverse peoples), but also a loss of real output and an enormous `politicisation’ of economic life whereby individual success becomes increasingly tied to political power and increasingly removed from personal merit, enterprise and effort. In addition, the composition of occupations in the economy has been indirectly distorted by the set of industrial, agricultural and foreign-trade policies pursued by successive governments.

6. THE MALFUNCTIONING OF GOVERNMENT

IT MIGHT be thought that a large and flabby `public sector’ in industry and commerce, labyrinthine controls on private industry, a government monopoly of foreign-exchange dealings, the overvaluation of the currency, indefinite import-substitution, forcibly depressed output and input prices in agriculture, enormous politicization of the labour market, disregard for equality before the law, and distortion of the composition of occupations would constitute a sufficient catalogue of symptoms of grave illness in the political economy of a nation. Sadly, however, there are in modern India other symptoms too which I can mention only briefly here.
An opinion frequently encountered among urban Indians (as well as among the majority of Western development economists) is that government control over the size of the population is a necessary condition for economic development, and indeed that it is the failure of government to do this that has dissipated the economic growth that would otherwise have resulted from the economic policies pursued. The urban Indian witnesses the hovels and shanty-towns inhabited by migrant families from the countryside attracted by the policies discussed previously, and he experiences the resulting congestion. So does the Western development economist when he ventures out of his hotel into the city streets. Very often, that is his only personal experience of the legendary `poor masses’ of India. It is understandable that such princely discomfiture should lead him to the opinion that the poor are mindless in their breeding habits and that they must be persuaded, bullied or compelled to change. If this opinion were true, it would seem to point to a neat and simple solution to many of the woes of poor countries, and India in particular. But if the opinion is false and yet widely believed, it would cause governments to be, as it were, barking up the wrong tree.
It is, however, far from established, and certainly not at all obvious, that demographic control is either necessary or desirable in India or elsewhere. In the first place, when the rate of infant mortality is known and experienced by rural people to be high, there will be mare births than there would have been otherwise. Secondly, it is perfectly clear that children are an investment good in traditional societies such as those of rural India. Even young children are a source of family income, either directly by working outside the home or indirectly by working at domestic chores and thereby releasing adult members of the family for outside work. For a child to be absent from primary school or to drop out within a few years is not necessarily truancy; it may be the outcome of a rational economic calculation about where his time may be better spent towards increasing the household’s income. Furthermore, in traditional societies adult children are the principal source of support for elderly and retired parents.
To know of the existence of artificial measures of contraception certainly enlarges the alternatives open to a couple. Assuming that such knowledge is not in itself a cause of unhappiness (as it can be if there are conflicting religious commitments), a couple may certainly be better off with that knowledge because of their ability to control the number and timing of their children. The couple might also have fewer children – though there is no necessary or causal connection between a knowledge of contraception and the number of children born to a couple. Rational calculation may produce the same number of children as the caprice of nature, the implication being that in general there is no causal connection between the availability of contraceptives and the rate of growth of the population. The value of a public policy which encourages the use of artificial contraception is not so much that it reduces the number of births as that it may allow couples more control over their own lives. Whether or not artificial contraception should be publicly subsidised is quite another question.
The Indian Government has expended considerable resources in propagating and subsidizing artificial birth control. The results appear to have been, at best, indifferent (coupled as birth control has been with indirect incentives for large families and, at worst, cruel – as when frenetic zeal spilled over into demands for, and the implementation of, compulsory sterilisation. For this author, however, the important consideration would seem to be not so much the exact costs and benefits of the demographic policies pursued as the critical acknowledgement that they have little or nothing to do with the fundamental causes of mass economic development.[54]
It remains a stark paradox that, with a general literacy rate of perhaps 30 per cent [NB: In 2007, this has grown to 73% for males and 48% for females] India still produces the third largest absolute number of science and engineering graduates in the world. This reflects the lopsidedness of the educational system, continued from British times, in which higher education is enormously subsidised relative to primary education. In addition, entry into the civil services requires a college or university education, which in turn requires a good private secondary school education, which in turn requires a good preparatory school education. Strenuously competing to enter prep. school, with the help of outside tutoring, is the unhappy fate of many a five- or six-year-old in the towns and cities, followed by strenuous competition in secondary school, college and university, and finally at the doorstep of government (or a foreign university).
A job in government – any job in government – has carried prestige since Mughal times. In addition to the prestige and the obvious benefits of tenure where ether `decent’ jobs are scarce, there has been in recent times the inner satisfaction from a belief that a person can truly do his best for his country only by being in government. Tens of thousands of youths spend significant personal resources (such as whole years in cramming schools) to compete for a few annual openings in government. It is only to be expected that the competent, ambitious, patriotic youth who succeeds will mature into a respected mandarin with an unshakeable conviction in the good his government has done for the masses, and in the further good yet in prospect.
Failure to anticipate monsoon damage and disarray of the judicial system
The most serious examples of the malfunctioning of civil government in India are probably the failure to take feasible public precautions against the monsoons and the disarray of the judicial system. Official estimates, for instance, of the damage caused by flooding to homes, crops and public utilities in a few weeks of July-August 1981 alone amounted to over Rs 1 billion, with 10.8 million people `affected’, 35,000 head of cattle lost, and 195,000 homes damaged. The full magnitude of the devastation which annually visits vast areas can be understood perhaps only by those in rural India, although the towns and cities also regularly suffer considerable chaos. [55] [NB 2007: Monsoon prediction appears far better today than it was when these words were written.]
As for the disarray of the judicial system, The Statesman lamented in July 1980:`The simplest matter takes an inordinate amount of time, remedies seldom being available to those without means or influence. Of the more than 16,000 cases pending in the Supreme Court, about 5,000 were introduced more than five years ago; while nearly 16,000 of the backlog of more than 600,000 cases in our high courts have been hanging fire for over a decade. Allahabad is the worst offender but there are about 75,000 uncleared cases in the Calcutta High Court in addition to well over a million in West Bengal’s lower courts.”[56] Such a state of affairs has been caused not only by lazy and corrupt policemen, court clerks and lawyers, but also by the paucity of judges and magistrates. In addition, however,`. . . a vast volume of laws provokes endless litigation as much because of poor drafting which leads to disputes over interpretation as because they appear to violate particular rights and privileges. Land legislation offers an example of radical zeal running away with legal good sense, giving rise to thousands of suits against the Government . . .’ [57] When governments determinedly do what they need not or should not do, it may be expected that they will fail to do what civil government positively should be doing. In a sentence, that has been the tragedy of modern India.

Part IV : Reform
A LIBERAL AGENDA

IT WILL by now have become evident to the reader from the descriptions and arguments given above that, in the judgement of the present author, only a set of radical changes in policy can put the Indian economy on a path to higher mass prosperity within a free and healthy body politic. I shall therefore put forward a tentative manifesto for reform, adding some predictions about which classes of citizens would be most likely to support or oppose a particular proposal. The scope and intention of such a manifesto should be made clear at the outset. As Aristotle taught, a set of actions which are the means towards certain ends may themselves be the ends towards which other prior means have to be taken.[58]
The ultimate ends of economic advice in India are to seek to bring about mass prosperity under conditions of individual freedom. The proposals I which follow are to be construed as means towards those ultimate ends. But they also constitute a set of intermediate ends, and their implementation would require further judgement about the best means towards achieving them. In economic policy, for instance, a firm but gradual phasing-in over a period of three or four years may be the best way to minimise the hardships entailed by the adjustment. For reasons which will become clear, however, I shall not here try to answer the question as to how the proposals might best be implemented.

(a) Effects of foreign policy on the domestic economy
It will be useful to begin with a short and very incomplete consideration of foreign policy insofar as it may bear upon domestic economic policies. It is a settled fact of international politics that, while there is no obvious connection between a nation’s economic and political institutions and the choice of strategic allies it faces, people’s subjective perceptions and opinions of the social arrangements in a foreign country can be deeply influenced by whether that country is seen as a potential ally or adversary. A related and equally settled fact is that war, or the fear of war, can make for the most incongruous of bed-fellows. In contemporary India, it is quite evident that the antipathy and pessimism towards market institutions found among the urban public, and the sympathy and optimism to be found for collectivist or statist ones, has been caused to a very significant extent by the perception that the United States is relatively hostile towards India while the Soviet Union is relatively friendly. This was not always so. The official affection between the United States and India in the early years of the Republic was grounded in sincerity and goodwill. The roots of its demise are probably to be found in the split between the Soviet Union and China in the late 1950s which, in a short period of time, made the latter a valuable strategically for the United States against the former. By the early 1970s, the spectre of a joint military threat to India from a totalitarian China and a militarist Pakistan – and especially a threat which it was perceived democratic America would do little or nothing to thwart – made it prudent for democratic India to become the virtual ally of totalitarian Russia.
Such a configuration on the international chess-board need not have been detrimental to India’s economic development. It is possible to imagine a liberal state allied to a totalitarian one for strategic reasons, yet maintaining liberal economic policies domestically and internationally. In practice[58], however, the extent of `economic collaboration’, bilateral trading arrangements, `joint ventures’, barter agreements, `cultural exchanges’, and the like into which the Indian Government has entered with the Soviet bloc, appears significantly to exceed what it has achieved with the Western powers. In particular, Soviet arms have in recent years been purchased more often and then manufactured under licence. This too need not have been economically detrimental if the Soviet products had in practice been competitive on international markets in terms of price and quality. As is common knowledge, however, this is often not so. It therefore appears that part of the price India has had to pay for the strategic support of the Soviet Union has been the foisting on her of low-quality, high-priced Soviet goods, whether arms or steel mills or technical know-how. At the same time, for reasons which are partly historical and partly related to these considerations, direct foreign investment by private Western firms has been treated with, at best, coolness and, at worst, open hostility.

A change in India’s foreign policy
If the economic liberalisation that will be proposed here for India is to be effective, a truly independent yet prudent foreign policy may be required to accompany it. A change in the present strategic configuration – in which the United States is perceived in India to be virtually the ally of both China and Pakistan, while India is perceived in the United States to be virtually the ally of the Soviet Union – is unlikely until and unless the United States finds it in her best interests in the region to distance herself from China and Pakistan, which is unlikely to happen without a rapprochement between the Soviet Union and China. A drastic alternative way for India to reduce her dependence upon the Soviet Union would be the kind of divorce Egypt effected some years ago, followed by an alliance with the Western powers. This might, however, undermine once more the independence of foreign policy and be perceived in India as a move from the devil to the deep sea. The prudent remaining alternative would appear to be an earnest and vigorous pursuit of serious no-war pacts with Pakistan and China, combined with an appropriately small independent nuclear deterrent. It seems to the author that the reasons which commend this course are closely analogous to those offered by the present American and British governments for pursuing serious no-war negotiations with the Soviet bloc whilst simultaneously improving the Western nuclear deterrent.
(b) Liberalisation of foreign trade
Not only would the truly independent foreign policy proposed in the preceding paragraph allow India to distance herself from the Soviet Union; it would probably also prompt the Western powers to end the intergovernmental transfers which go by the name of `foreign aid’. For reasons that Peter Bauer has emphasised over many years, an end to such transfers might be a boon in disguise for India.[59] In particular, it would require the government to seek to balance the foreign-exchange accounts without becoming obligated to the Western powers, and this in turn would require a major economic transformation from a closed and protectionist economy to an open one which harnessed India’s comparative advantages.
An initial liberalisation of foreign trade, involving a transition from quotas to tariffs, would probably be supported by private industry as a whole. It would, however, be opposed by incumbent politicians and government officials since it would dissipate the rents they receive under the closed regime. A subsequent reduction in tariffs, a withdrawal of export subsidies, and the free floating of the rupee would be opposed by those private firms (and their labour unions) which would be uncompetitive internationally – probably those in `non-traditional’ industries. The measures would, however, be supported by ordinary consumers, by private firms in traditional industries like jute manufactures and textiles, and particularly by farmers.
Once private industry became subject to the strict discipline of international competition again, there would be no reason whatsoever for government-imposed internal controls which were not conducive to free and fair competition among firms for the consumer’s rupee. The repeal of the plethora of licensing policies would dissipate the large rents attached to the controls under the present regime. Since these rents are paid by private industry and received, directly or indirectly, by incumbent politicians and government officials, the former could be expected to welcome repeal and the latter to oppose it vigorously.

(c) Privatisation of `public-sector’ industries
At the same time, for the so-called `public-sector’ industries to face international competition, when they are currently monopolists or oligopolists, would demand such an improvement in economic discipline as probably to require the shares of most of them to be sold on the open market, with marginal-cost pricing imposed on the remainder. There is no economic reason why the Government of India shouldbe engaged in commercial or merchant banking and insurance, or in industries from steel, machine-tools, ship-building and fertilisers to wrist-watches, hotels and beer. Nor is there any cogent reason why it should be a major producer, let alone a monopolist, in the road, rail, air and sea transport industries. Large-scale privatisation would be supported by private citizens in general, and would also draw out the reputedly vast private funds which circulate in the untaxable underground economy. But such measures would probably be opposed vigorously by the government officials who currently manage these industries, aswell as by the public-sector labour unions.

(d) Free-market pricing in agriculture
With the repudiation of the mistaken premise that government sponsored industrialisation is the best means to mass economic development, the free-market pricing of agricultural outputs and the removal of all controls that are not conducive to free competition among farmers should follow. This would be welcomed by all farmers and perhaps by the rural population in general. It could also be expected to provide much encouragement to the technological transformation of traditional agriculture. The abolition of ration-shops in urban areas would be opposed by the industrial working class, by the urban middle classes in general, and by government officials and employees engaged in the present regime of public distribution. Further, farmers, especially relatively large ones, might be expected to oppose the concomitant free-market pricing of agricultural inputs, including credit and fertilisers, as would those government employees presently charged with distributing these inputs.
The ending of the distortions in agricultural output and input prices would establish a conclusive case for uniform systems of taxation in the economy, and especially for income from agriculture to be treated on a par with income from other occupations. These systems could locally include direct subsidies to those (whether in rural or urban areas) who are unable to provide any income for themselves, such as the insane and the severely disabled – all of whom are currently cared for, if at all, by private charity, and none of whom, strangely enough, appears to enter the moral calculations of socialist and Marxist economists.

(e) Tax revenues for public goods
The first and most important destination of tax revenues, whether raised centrally, provincially or locally, must be the provision of public goods – central, provincial and local. In an earlier section, we have seen what kinds of goods these should be. Among the most urgent in India are more effective precautions against the monsoons and improvements in the efficiency of the systems of civil and criminal justice. The former might include measures to prevent soil erosion and the building of better dams, embankments, canals and roads. Such programmes would be likely to command practically unanimous support in the localities in which they were implemented.
Reforms of the judicial system might include raising the salaries of judges and policemen, as well as the penalties for their misconduct; improving the training and morale of the police, with the object of increasing public confidence in them (especially in the villages); and expanding the number of courts, at least temporarily until the monumental backlog of cases has been reduced and brought under control. A general reduction in the political and administrative direction of economic life would lead to fewer lawsuits being brought against the government itself, and thus provide further relief for the judiciary. Widespread prison reform may also be required if the reports are true that a large proportion of those held prisoner for a number of years have yet to be brought to trial, and that potential prosecution witnesses, if they are poor and uneducated, are themselves sometimes kept in jail until a case comes to court. Such reforms would command the support of everyone except criminals, capricious litigants and corrupt or incompetent members of the police and judiciary, none of which groups, it must be supposed, comprises apolitical constituency.

Together with improvements in the system of justice, the principle of equality before the law would have to be taken seriously. This would require the dispensation of justice by the state to be, as it were, a process blind to the infinitely diverse caste and ethnic characteristics of the citizenry, which in turn would imply the repeal of all laws – whether central, provincial or local – permitting governmental authorities to discriminate in favour of a particular politically-specified caste or ethnic group. Merely to have written `equality before the law’ into the Constitution without really believing it either possible or desirable is to allow the mutual caste and ethnic bigotry of private citizens to be exploited for political ends. That innumerable members of a caste, or religious or ethnic community have suffered at the hands of another, and that members of the `Scheduled Castes’ in particular have been victims of enormous cruelty, should not prevent acknowledgement of the sober fact that the past is irretrievable, or that it is similar cruelty in the present and future against any citizen at the hands of any other, or the state, that the declaration of Fundamental Rights was intended to prevent.

(f) Other reforms
Other proposals could also be suggested : the introduction of vouchers for primary and secondary education; a serious assessment of the benefits from and costs of subsidies to higher education; an end to the government monopoly of radio and television; a revision of government pay-scales to make them competitive with the private sector, together with equivalent reductions in non pecuniary benefits; a decentralisation of public spending decisions from New Delhi to the State capitals and from there to the districts; and so on. However, it is hardly necessary to go further, since even a limited liberal agenda would appear doomed to be still-born.
Incumbent politicians, government officials, and the public sector unions in general would vigorously oppose any reduction in government intervention in the economy for fear of losing the rents and sinecures of the status quo. Indeed, professional politicians in general could be expected to be averse to any lessening of the politicisation of economic life.
In other countries, a political party proposing such a reduction in government intervention would usually enjoy the backing of private industry. In India, however, private industry in general would probably see it in its own interest to support only the reduction of internal controls, whilst vigorously opposing reductions in the neo-mercantilist external controls. In July 1981, for example, I asked a prominent industrialist to imagine first a free-market regime at home : `That would be very welcome indeed’, he replied enthusiastically. I then asked him to imagine a policy of free trade : `That would wipe us out’, he replied gravely. His answers indicate very well what is perhaps the single most important feature of the equilibrium that has emerged in India: by accepting without significant protest the constraints and costs imposed upon it by the government and its `planners’, the private corporate sector has traded the freedom of enterprise for mercantilist monopoly profits in the home market.
When Indian Marxists rail about collusion between the `national bourgeoisie’ (that is, the governmental class) and the `comprador bourgeoisie’ (that is, the private sector), they make a cogent point as old as Adam Smith’s critique of mercantilism.[60] But, again, they fail to see that the fortunes of the industrial working-class have also risen with those of the private and public industries that have gained from the present regime. Moreover, a large proportion of industrial workers and blue-collar government employees are migrants with families left behind in rural areas; these rural families might also oppose reductions in the transfers currently received by their migrant relatives. Finally, while joining other farmers in welcoming a free market in grain, the politically influential larger farmers could be expected to oppose the direct taxation of agricultural incomes and the elimination of subsidies for inputs.

Who is left who would gain from the kinds of reforms proposed here? Only the ordinary citizen qua consumer, the rural poor and the residuum of severely disabled citizens unable to create any income for themselves. None of these has been or is likely to become an effective political force.

India’s `unhappy equilibrium’
The economy of the first Indian Republic has tended towards a broad and increasingly unhappy equilibrium. Distortions of efficient relative prices and wages lead to both substitution and income effects. Those who lose from one distortion rationally seek another from which they may gain; those who lose from the second seek a third; and so on ad infinitum until a maze of distorted incentives are in place and a60Adam Smith, host of income transfers are in progress – sometimes offsetting losses, sometimes not. Tullock has emphasised that the problem is not only that there are dead-weight losses in welfare, but also that people are led `. . . to employ resources in attempting to obtain or prevent such transfers.’[61] In modern India, the waste of productive resources put to the pursuit of such transfers has been incalculable. The reforms pro-posed here would cut through the maze of distorted incentives and institutions all at once – for which very reason it seems unlikely they can come to be implemented.

The economic significance of a political attitude of individualism is that it clearly recognises the relationship between individual effort and reward, and the relationship between cause and consequence generally. An attitude of statism obscures or obliterates this relationship. In republican India, statism has pervaded all public discourse and prompted most public policy. Successive groups of politicians and government officials seem never to have recognised the fundamental nature of those functions of government which are the indispensable prerequisites of civil peace and mass prosperity. Nor have they understood that it is no part of government’s agenda to be the driving force to mass prosperity, and that this can come (if it will) only from innumerable individual efforts in the pursuit of private rewards. This is not at all to say that those in government have been ill-intentioned. On the contrary, they may have sincerely sought the public good whilst introducing a Leviathan government into the market-place and neglecting the proper duties of government outside it. As Bauer has remarked in a related context :`Their financial benefits may appear to be fortuitous, as if Adam Smith’s invisible hand were to work in reverse, so that those who sought the public good achieve what was no part of their intention, namely personal prosperity.’[62] It is indeed possible that the basic fact of human nature that individual households every where ordinarily know most about, and are only concerned with, their own well-being has never been acknowledged in modern India. The simple secret of a stable and prosperous polity is to create institutions which harness the universal pursuit of individual self interest, and not ones which pretend that men are selfless saints. A polity where this fact is acknowledged would not have to depend for the viability of its institutions on mere exhortation, as the institutions of the Indian Republic seem perpetually fated to do, even while the competitive pursuit of self interest is everywhere manifest.

The logic of economic reasoning and the adducement of economic evidence have in the past had little effect in India because the distribution of gains and losses from the policies pursued has been closely matched by the distribution of effective political power. This distribution seems most likely to continue, and so the prospects of significant and sustained endogenous reform seem, to this author at least, very small. Changes in external constraints seem to be the only likely source of a major disturbance to the equilibrium, and there can be no guarantee that the results will be for the better. This is a sad and troubling conclusion to come to, for a citizen of India or anyone else who has loved the country. It places this author in the paradoxical position of believing his arguments to be broadly correct – while hoping they are not.

ENDNOTES (The original monograph in 1984 had footnotes, which have had to be transformed since pages, in this new HTML age, no longer have to be linear as in a book nor have to be turned in order to be read).

[1] The early studies notably include: B. R. Shenoy, `A note of dissent’, Papers relating to the formulation of the Second Five-Year Plan, Government of India Planning Commission, Delhi, 1955; Indian Planning and Economic Development, Asia Publishing, Bombay, 1963, especially pp. 17-53; P. T. Bauer, Indian Economic Policy and Development, George Allen & Unwin, London, 1961; M. Friedman, unpublished memorandum to the Government of India, November 1955 (referred to in Bauer, op. cit., p. 59 ff.); and, some years later, Sudha Shenoy, India : Progress or Poverty?, Research Monograph 27, Institute of Economic Affairs, London, 1971. Some of the most relevant contemporary studies are: B. Balassa, `Reforming the system of incentives in World Development, 3 (1975), pp. 365-82; `Export incentives and export performance in developing countries: a comparative analysis’, Weltwirtschaftliches Archiv, 114 (1978), pp. 24-61; The process of industrial development and alternative development strategies, Essays in International Finance No. 141, Princeton University, 1980; J. N. Bhagwati & P. Desai, India: Planning for Industrialisation, OECD, Paris : Oxford University Press, 1970; `Socialism and Indian Economic Policy’, World Development, 3 (1975), pp. 213-21; J. N. Bhagwati & T. N. Srinivasan, Foreign-trade Regimes and Economic Development: India, National Bureau of Economic Research, New York, 1975; Anne O. Krueger, `Indian planning experience’, in T. Morgan et al. (eds.), Readings in Economic Development, Wadsworth, California, 1963, pp. 403-20; `The political economy of the rent-American Economic Review, 64 (June 1974); The Benefits and Costs of Import-Substitution in India : a Microeconomic Study, University of Minnesota Press, Minneapolis, 1975; Growth, distortions and patterns of trade among many countries, Studies in International Finance, Princeton University, 1977; Uma Lele, Food grain marketing in India : private performance and public policy, Cornell University Press, Ithaca, 1971; T. W. Schultz (ed.), Distortions in agricultural incentives, Indiana University Press, Bloomington, 1978; V. Sukhatme, “The utilization of high-yielding rice and wheat varieties in India: an economic assessment”, University of Chicago PhD thesis, 1977.

[2] S. Roy, “On liberty and economic growth: preface to a philosophy for India”, University of Cambridge PhD thesis, 1982a, Chapters I and II; “Knowledge and freedom in economic theory: Parts I and II”, Centre for Study of Public Choice, Virginia Tech, working papers, 1982b. My epistemological arguments have closely followed those of Renford Bambrough, Moral Scepticism and Moral Knowledge, Routledge and Kegan Paul, London, 1979.

[3] Aristotle, Ethica Nicomachea, in Richard McKeon (ed.), The Basic Works of Aristotle, Random House, New York, 1941. We read: `. . . the whole account of matters of conduct must be given in outline and not precisely, as we said at the very beginning that the accounts we demand must be in accordance with the subject matter; matters concerned with conduct and questions of what is good for us have no fixity, any more than matters of health. The general account being of this nature, this account of particular cases is yet more lacking in exactness; for they do not fall under any art or precept but the agents themselves must in each case consider what is appropriate to the occasion, as happens also in the art of medicine or of navigation.’ (1,104a2-a9.)`. . . we do not deliberate even about all human affairs; for instance, no Spartan deliberates about the best constitution for the Scythians. For none of these things can be brought about by our own efforts. We deliberate about things that are in our power and can be done.’ (1,112a28-30.) Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations(1776), eds. R. H. Campbell et al., Liberty Classics, Indianapolis, 1981. We read: `What is the species of domestick industry which his capital can employ, and of which the produce is likely to be of the greatest value, every individual, it is evident, can, in hislocal situation, judge much better than any statesman or lawgiver can do for him.’ (Book IV. ii. 10, p. 456.) In modern times, Friedrich Hayek has always kept this fact in the foreground of his thinking. In his Individualism and Economic Order, Routledge and Kegan Paul, London, 1949, we read, for example, of `. . . the constitutional limitation of man’s knowledge and interests, the fact the he cannot know more than a tiny part of the whole of society and that therefore all that can enter into his motives are the immediate effects which his actions will have in the sphere he knows . . .’ (p. 14.) The individual agent has a `special knowledge of circumstances of the; thus `. . . practically every individual has some advantage over all others because he possesses unique information of which beneficial use might be made, but of which use can be made only if the decisions depending on it are left to him or are made with his active co-operation.’ (p. 80.)

[4] The mathematical economist will recognise these three conditions as the characteristics which define a multi-market general equilibrium in the Arrow-Debreu model: Gerard Debreu, Theory of Value, Yale University Press, New Haven, 1959; K. J. Arrow and F. H. Hahn, General Competitive Analysis, Oliver and Boyd, Edinburgh, 1971.

[5] This argument is discussed further in Roy (1982a), pp. 96-107, pp. 133-43.

[6] Adam Smith, op. cit., Book V. i. c., p. 723.

[7] P. A. Samuelson, `A pure theory of public expenditures’, Review of Economics & Statistics, 36, 1954,reprinted in K. J. Arrow & T. Scitovsky (eds.), Readings in Welfare Economics, R. D. Irwin, Homewood, Ill., 1969.

[8] The idea I have in the background is of some implicit public goods function endorsed more or less unanimously by citizens – but not necessarily by those with political power – with commonsense dictating the elements it should contain. Thus Let U = U (π1, π2 , …, πn) be such a function with δU/δπi > 0, δ2U/δπi2 < 0 i=1,2,…,n, where πi = 1,2,…n, is a lateral index of a public good or service like defence, civil protection, roads, dams, or the finance of basic education. Each of these is “produced” by an expenditure of public resources: πi = πi (τi ), δπi/δτi > 0, δ2πi /δτi2 < 0 i=1,2,…,k, Σ i=1,2,…,n τi = τ* where τ* is the total level of public resources available (whether by taxation or borrowing). An efficient condition, i.e., one in which given public resources are efficiently allocated among alternative public goods or services, would be δU/δπi/ δπi/δτi = δU/δπj / δπj/δτj for every i,j = 1,2,. .,n. So, if the marginal tax-rupee was put towards the production of any public good, the increase in social utility should be the same; otherwise we would find an excess supply of some public goods (e.g. bureaucrats) and an excess demand for others (e.g. courts, dams, police protection, etc.).

[9] Two examples are F. H. Hahn, On the notion of equilibrium in economics : an inaugural lecture, Cambridge University Press, Cambridge, 1973, and J. M. Grandmont, “Temporary general equilibrium theory : a survey”, Econometrica, vol. 46, 1977.

[10] Aristotle, op. cit., 1,094b12-1,094b27

[11] D. H. Robertson, `The Economic Outlook’, in his Utility and All That, Allen & Unwin, London, 1952, pp.51-52.

[12] Karl Popper made a similar point in The Open Society and its Enemies, Princeton University Press, Princeton, 1950, when he suggested that Plato’s question `who should rule?’ should be discarded for the question:`How can we so organise political institutions that bad or incompetent rulers can be prevented from doing too muchdamage?’ (p. 120). There is relevant discussion by Renford Bambrough in `Plato’s modern friends and enemies’, Philosophy, 37, 1962, reprinted in R.Bambrough (ed.), Plato, Popper and Politics : some contributions to a modern controversy, Barnes and Noble, New York, 1967. I have discussed the relationship of expertise to democracy in Roy (1982a), pp 80-95.

[13] Virginia Bill of Rights, 1776, in The Constitution of the United States, ed. E. C. Smith, Barnes & Noble, New York, 1979, p. 21.

[14] P. T. Bauer, Dissent on Development, Harvard University Press, Cambridge, Mass., 1971, p. 72, n. 2. The term `statism’ suggested itself to the author after he read M. R. Masani, “Post-Sanjay outlook: where salvation does not lie” The Statesman, 9 July 1980.

[15]G. M. Young (ed.), Macaulay: Prose and Poetry, London: Macmillan, 1952, p. 718. Some 20 years later, in Considerations on Representative Government, ed. H. B. Acton (London: J. M. Dent), J. S. Mill claimed that rule by`a superior people . . . is often of the greatest advantage to a people, carrying them rapidly through several stages of progress’ (Ch. IV, p. 224). Ironically, a few years ago a distinguished retired member of the Indian civil service (who happens to be a recipient of the Lenin Peace Prize) used very similar words in a newspaper article – in defence of the Soviet occupation of Afghanistan!

[16] Resolution of the Indian National Congress, August 1931, reprinted in B. N. Pandey (ed.), The IndianNationalist Movement : 1885-1947, Macmillan, London, 1979, p. 67.

[17] S. Radhakrishnan, The philosophy of Rabindranath Tagore, Macmillan, London, 1918, p. 232. For an excellent account of the intercourse between ancient India and ancient Greece, H. G. Rawlinson, `Early contacts between India and Europe’, in A. L. Basham (ed.), A Cultural History of India, Clarendon Press, Oxford, 1975. For excellent accounts of the growth of liberalism in India in the l9th and carly 20th centuries : Anil Seal, The Emergence of Indian Nationalism : Competition and Collaboration in the later l9th Century, Cambridge University Press, Cambridge, 1971, Chs. 1, 3-6; J. R. McLane, Indian Nationalism and the Early Congress, Princeton University Press, Princeton, 1977; Gordon Johnson, Provincial Politicsand Indian Nationalism,Cambridge University Press, Cambridge, 1973, Ch. 1.

[18] Ramsay Macdonald’s letter to M. K. Gandhi, 8 September 1932, reprinted in Pandey (ed.), op. cit., p. 74.

[19] Devdas Gandhi’s letter to Jawaharlal Nehru, 2 October 1931, reprinted in Pandey (ed.), op. cit., p. 71

[20] Gandhi’s protest succeeded to the extent that the Award itself was superseded; and in unusual, euphoric displays of fraternity, `caste’ Hindus threw open temples to members of the `Depressed Classes’ and embraced them with
garlands. The compromise Pact which replaced the Communal Award removed separate electorates but still guaranteed special political representation for some years following the agreement. For an account of Gandhi’ s position on the Communal Award, Judith M. Brown, Gandhi and Civil Disobedience, Cambridge University Press, Cambridge, 1977, pp. 313-21.

[21] For an eminent lawyer’s commentary, N. A. Palkhivala, The Light of the Constitution, Forum of Free Enterprise, Bombay, 1976.

[22] There is reason to think the Mughals before the British had done no better and had probably done much worse. T. Raychaudhuri, `The State and the Economy: the Mughal Empire’, in T. Raychaudhuri & I. Habib (eds.), The Cambridge Economic History of India, vol. I, Cambridge University Press, Cambridge, 1982.

[23] V. B. Singh (ed.), Nehru on Socialism, Government of India, Ministry of Information and Broadcasting, Publications Division, Delhi, 1977, pp. 56-57, 67.

[24] `Draft recommendations for the formulation of the Second Five Year Mahalanobis;`The Second Five-Year Plan – A tentative framework’, drafted by the economic ministries; and a `Memorandum’ written by a panel of prominent Indian economists – all contained in Papers relating to the formulation of the SecondFive Year Plan, Government of India: Planning Commission, 1955 – were the principal influences on the actual Second Plan. No significant understanding of markets, prices or the concept of feasibility is evident on the part of any of the authors. Shenoy’s lonely dissent has already been noted (note 1).

[25] The best descriptions of Indian industrial policy are still to be found in Bhagwati and Desai (1970), op. cit. Also C. Wadhwa, `New Industrial Licensing Policy: An Appraisal’, in C. Wadhwa (ed.), Some problems of India’seconomic policy, Tata-McGraw Hill, Delhi, 1977, pp. 290-324.

[26] Gordon Tullock is generally credited with introducing the notion of rent-seeking in `The welfare costs of tariffs, monopolies and theft’, Western Economic, Journal, 5 (June 1967), while Krueger (1974), op. cit., introduced the term itself. The collection edited by J. M. Buchanan et al., Toward a theory of the rent-seeking society, Texas A&M Press, College Station, 1980, contains reprints of both papers as well as other studies.

[27] Krueger (1975), op. cit., p. 108 ff.

[28] The classic argument for a free market is in M. Friedman, `The case for flexible exchange rates’, in his Essays in Positive Economics, University of Chicago Press, Chicago, 1953, pp. 157-203. Also V. S. Vartikar,Commercial policy and economic development in India, Praeger, New York, 1969, based on his PhD at Wayne State University; and D. Lal, A liberal international economic order : the international monetary system and economic development, Essays in International Finance No. 139, Princeton University, October 1980.

[29] An additive sub-utility function might be defined within each set of categories UG= ∑ ai vi (Gi) a1 ≥ a2 ≥ a3, ∑ ai= 1UP= ∑ bj wj (Pj) b1 ≥ b2 ∑ bj= 1where the vi (.) and the wj (.) are further sub-utility functions defined on each category, etc. None of these has ever been spelt out by the Indian Government and certainly no amount of UP has seemed substitutable for an iota of UG.

[30] Bhagwati and Srinivasan, op. cit., p. 38.

[31] Ibid.,p. 38

[32] In 1980, for example, exports of pig-iron and of sheep- and goat-meat were banned; an export duty on jute manufactures was imposed on 18 February and lifted on 8 September. (Annual Report on Exchange Controls, International Monetary Fund, 1981, pp. 205-13.) The Import and Export Policy (April 1982, March 1983)announced by the Commerce Ministry reported the banning of exports of cane, paraffin wax, mustard and rape-seedoil, and `certain
wild-life items’, including lizards and robins. An embargo on the export of CTC (cut, tear and curl) tea was announced by the Ministry of Commerce on 24December 1983. CTC is high-quality tea which accounts for about three-quarters of India’s tea exports. The ban followed a doubling of domestic prices over the previous year, compulsory registration of tea dealers holding more than 1,000 kg. to prevent hoarding, and agreement by manufacturers to reduce their profit margins and cut prices ofpackaged tea by about 20 per cent (Financial Times, 14 December 1983). The Indian Government apparently feared that the supply of tea for the domestic market was going to run out (The Times, 5 January 1984). The effect of thesemeasures is artificially to depress prices in the domestic market whilst raising them overseas (The Economist, 14 January 1984).

[33] Pick’s Currency Year-book, various editions

[34] Krueger (1977), op. cit., pp. 27-28.

[35] Balassa (1978), op. cit., p. 39; Balassa (1980), op. cit., p. 16.

[36] Ibid.,p. 22.

[37] Short surveys of the relevant practices can be found in Lele, op. cit.,Appendix 1, pp. 225-37, and Sukhatme, op. cit., pp. 29-37. Also Gilbert Brown, `Agricultural pricing policies in developing countries’, and G. E.Schuh, `Approaches to “basic needs” and to “equity” that distort incentives in agriculture’, in Schultz (ed.), op. cit.,pp. 84-113 and pp. 307-27 respectively.

[38] Theoretical economists have long recognised that a fundamental flaw in, for example, the Arrow-Debreu model is its assumption that all conceivable futures contracts are practicable. The longest futures price actually quoted at
the Chicago Board of Trade, however, would be for silver, at about two years; for grains, the longest would be only about three months. Since the natural market outcome is a far-cry from the theory, the Indian Government’s fears about the effects of speculation appear to be much exaggerated. To see the risk-dispersing character of a futures contract, let us suppose that both buyer and seller place a probability of one-half on prices being either in 8 or 2; if they are risk-averse, they may prefer to trade at a certain futures price of 5 now, rather than wait for the future to unfold.

[39] David Hopper, `Distortions of agricultural development resulting from Government prohibitions,’ Schultz (ed.), op. cit., p. 69 ff.

[40] K. Prasad, `Foodgrains policy 1966-1976′, in Wadhwa (ed.), op. cit., p.479.

[41] Schultz (ed.), op. cit., p. 309.

[42] Sukhatme, op. cit., pp. 74-86; T. W. Schultz, `On the economics and politics of agriculture’, in Schultz(ed.), op. cit., p. 15 ff.

[43] Schultz (ed.), op. cit., pp. 92-93.

[44] Ibid.,p. 95.

[45] T. N. Srinivasan, `Income Distribution: A survey of policy-aspects’, in Wadhwa (ed.), op. cit., p. 265. That the small farmer may not find it profitable to invest in storage, and that (if it has been taxed) agriculture has been taxed regressively, are also remarked upon by Srinivasan.

[46] Lele, op. cit., p. 2, where reference is made to Sir Henry Knight, Food Administration in India, Stanford University Press, Stanford, 1954.

[47] Lele, op. cit., pp. 214-24

[48] For example, M. Todaro, `A model of labor migration and urban unemployment in less developed countries’, American Economic Review, March 1969, 59, pp. 138-48; J. P. Harris & M. Todaro, `Migration,unemployment and development: a two-sector analysis’, American Economic Review, March 1970 60, pp. 126-42.The best paper known to the author is by Jerome Rothenberg, `On the economics of internal migration’, Working Paper No. 189, Dept. of Economics, MIT, July 1976.

[49] Thomas Sowell, Knowledge and Decisions, Basic Books, New York, 1980, pp. 268-69.

[50] `The logic of protection’, The Statesman, Editorial, 19 March 1981; also the Editorial, `Danger of caste ethnic

[51] S. K. Datta Ray, `Backlash to protection: fancy gifts ignore real reform’, The Statesman Weekly, 21 March 1981.

[52]M. Weiner, M. F. Katzenstein, K.V.N. Rao, India’s preferential policies : migrants, the middle classes and ethnic equality, University of Chicago Press, Chicago, 1981, pp. 16-17.

[53] Ibid. p. 5

[54] P. T. Bauer, `Population explosion: myths and realities’, in Equality, the Third World and Economic Delusion, Harvard University Press, Cambridge, Mass., 1981, pp. 42-65, contains some of the clearest arguments known to the author about this question; also M. Weiner, India at the Polls : the Parliamentary Election of 1977, American Enterprise Institute, Washington DC, 1978, pp. 35-39.

[55] 10 8 million people affected by floods’, The Statesman Weekly, 22 August 1981; also `Down the drain’, Editorial in The Statesman, 8 July 1981.

[56] Justice with speed’, Editorial in The Statesman, Calcutta and New Delhi, 21 July, 1980

[57] Aristotle, op. cit., 1,094a1-1, 094b11.

[58] There are few thorough studies known to the author that are relevant. One such is Asha L. Dattar, India’s Economic Relations with the USSR and Eastern Europe 1953-1969, Cambridge University Press, Cambridge, 1972.

[59] Bauer (1981) op. cit. Chapters 5 & 6.

[60]. Adam Smith op cit Book IV; also B. Baysinger et al.,`Mercantilism as a rent-seeking society’, in Buchanan et al (eds) op. cit. pp. 235-68.

[61] G. Tullock in Buchanan et al. (eds.), op. cit., p. 48.

[62] Bauer (1981), op. cit., p. 144.