Rumination: Gains of Growth in India

Image: Goutam Roy for Forbes India

The process of economic reform that India embarked upon 20 years ago was expected to produce immense churning. Most of India’s citizens are too young to even remember the India before reforms. State control was pervasive. Growth, even when it took place, was not sustained for significant periods. The spectre of mass poverty was overwhelming, and till the mid-90s it was still plausible to question the viability of the Indian Union.

Reforms changed all that. After an initial period of contraction, they gave India the highest and most sustained burst of growth. Poverty may have fallen more slowly than anticipated. But there is no doubt that for the first time mobility out of poverty was a possibility, not just an abstract idea. The confidence that came with growth, changed India’s psyche beyond recognition.

Instead of being wrecked by sectarian nationalism, India arrived at the world stage. Wealth creation was no longer anathema. Aspiration gripped all levels of society: From the poor who sent their children to private schools even at the cost of eating less, to India’s capitalists who dreamt of owning the world. Reforms tore through psychological barriers and fears.

Such an immense transformation was not going to take place without serious dislocation and conflict. New fault lines were bound to emerge. The gains of growth, no matter how impressive, were going to be uneven. The rampant instrumentalism that the quest for wealth bred was both a strength and weakness. It was a spur to dynamism and breaking down barriers. But it also generated impatience, where an ‘anything goes’ attitude legitimised riding roughshod over the rights of citizens or care for the environment.

In theory, the story was supposed to go like this.  The state would free private enterprise and create conditions for its success. The growth in turn would generate resources that the state could invest in addressing market failures or the needs of those who could not participate in the growth. There was a hope that economic reform would be a spur to political reform. By cutting down the need for state intervention in certain areas, the state would become less corrupt; by having access to increased resources it could provide public goods like health and education on an unprecedented scale.

 Image: Amit Verma
Pratap Bhanu Mehta is president, Centre for Policy Research, New Delhi

There is a feeling that in some respects the opposite happened. While the state did free large chunks of business from state control, it shifted the site of corruption. Three or four sectors, like natural resources, real estate, spectrum required the use of state power. In addition, areas where citizens are taxed, licensed, stamped, registered, identified, continued to be sites of corruption. New forms of contracting, like public private partnerships, became sites for new forms of corruption, in sophisticated forms.
 
The picture at the level of ordinary services provided by the state is more mixed: Some states managed to cleanse egregious corruption from particular programmes, while others slid back. The accelerated pace of growth also did three things. The demand hugely magnified the scale of government activity in these areas — whether it is mining licences or real estate permissions. The volume of people affected by these activities began to rise. So, the scale of mining generated resistance among tribals; land acquisition among farmers. The sheer scale of dislocation made it hard for the state to manage.

But it is important to recognise the character of these protests. They are not the resistance of the old order against the new. These struggles are a consequence of the success of liberalisation. Farmers are often not averse to giving up land; but they now have the means to resist any land acquisition that does not make them a substantial partner in the gains of development. There is a great clamour for participation and the new fault lines reflect that demand.

The horizons of what politicians began to expect changed in two ways. The scale of money available for rent seeking expanded dramatically. Many politicians decided that instead of helping businessmen, they should pursue business themselves. This is a growing trend at the state legislature level. DMK portends the future, not the past. The scale, depth and breadth of corruption acquired unprecedented forms.

DEMAND FOR INCLUSION Mill workers cross J.J.Flyover during a protest march in Mumbai on July 28, 2011

All this happened in a new context. First, there has been, over the past few years, a governance vacuum at the Centre, with the highest functionaries — from the Congress party president to the prime minister — unwilling  to exercise a minimum modicum of authority. We can analyse this vacuum to death and explain it in structural terms: The fragmentation of power, the structures of inner party competition and so forth. But there is no avoiding the fact that this vacuum was largely a self-inflicted goal: India’s leadership was stuck in indecision, ideological confusion and complicity in veniality.

This had ramifications for the state’s capacity to negotiate social conflict. While some states exercised leadership at their level, the vacuum at the Centre empowered all kinds of groups and institutions to veto constructive change.

This vacuum came at the moment where tectonic changes in society were empowering citizens: A growing middle class was able to use new instruments of governance, from RTIs to courts, from the media to social networks to ensure that the state could no longer function in secrecy. In the short run, there is a dizzying sense of vertigo about the fact that there is almost a new disclosure about the state every day; venality is out in the open. At one level, this seems dis-spiriting. At another level, it suggests we may be on the verge of a game changer: Where governments cannot assume they can fool all the people all the time.

These changes made it difficult for the state to keep its side of the reform bargain. While it got more access to resources, it frittered more of them away. Its normative ambitions changed for the better: Health, education and employment became rights. But its functioning remained caught in the old paradigm, governed by laws, attitudes, procedures, hierarchies fashioned in many cases in colonial times.

To be sure, the state did have many successes. Notably, India has created a remarkable set of regulatory institutions that function as islands in the desolate sea of the state. But by and large, the state’s promise to create the conditions where all could participate seemed more hollow than real.

This state failure had a paradoxical consequence. The more the state failed, the more there was a clamour to ‘privatise’ services, the more the state was delegitimised.

The fact remains that the state is indispensable in many areas: Sovereign functions like law and order, but also in the provision of social services and public goods. In the ideology of liberalisation, the scepticism of the state had a self-fulfilling corrosive effect. Everything public came to be delegitimised. The solution to every problem was private exit — if the state cannot provide security, get your own security guard; if state schools don’t work, go to private school; if the state does not generate power, get your own captive power. But what was a rational decision at an individual level cumulatively had the effect of eroding the state even further. It also, perhaps more subtly, undermined its will and self-belief. The prime minister was an emblem of economic reform. But in a curious way, he has also become an emblem of another belief we all now share: That the state cannot govern, it has simply given up.

Our fault lines are not social, rooted in inevitable structural contradictions. They are products of uneven governance, where the distinction between what is public and what is private has eroded. Our conflicts are not social antagonisms between different groups. These fault lines run through each one of us, as we remain confused about the balance between private adaptation and public purpose. Reform was relatively successful at creating markets; it did relatively little to improve the state. We focussed so much energy on figuring out how to get the state out of areas where it did not belong, that we neglected to figure out how to get it properly in areas where it did.