JOIN USAs I was reading articles celebrating/commenting upon 25 years of liberalisation, the car radio was playing an very old song from the 1960s – ‘Around the world in eight dollars’. A few years previously, in the mid-1950s, strict foreign exchange controls had been imposed pursuant to Independent India’s first foreign exchange crisis.
Central planning and ambitious plans to capture the commanding heights of the economy through a vigorous public sector had thereafter been launched. These steps were widely applauded. But the song was popular.
Historians will, however, recall that a fresh crisis was again experienced in the mid-1960s. This time devaluation by over 30% was effected. This resulted in a sharp increase in inflation and growth slowdown. Further tightening of control systems was therefore carried out. Strict industrial licensing as also food rationing/subsidy measures etc were all introduced. The next two decades saw somewhat mixed economic results but also, in some respects, stability.
The third crisis came in 1990/91. It was far more severe. Indian credit worthiness in the international markets had slumped to such low levels that gold had to be physically transported out of the country and only then was accepted as a pledge to borrow measly sums of money. The measures to decontrol/reform the then existing state of affairs were thus not opposed. The state gave up some of its powers. Industrial licensing was abolished. Tax rates were reduced.
Financial market liberalisation (SEBI/ modern stock exchanges etc) happened. Private sector banks were allowed entry. Real sector reform was also promised…but then withheld as the national economy had in the meanwhile responded satisfactorily to the first few measures: economic growth had surged.
It had fluctuated around a mean level of 3% in the first four post-independence decades but now is averaging at more than double. Foreign currency reserves had slumped to single digit levels but now range around or above $300 billion. Individual tax payers had then numbered four million or so but have since risen 10 fold, while car ownership has gone up by over eight times. Bank account holders have more than trebled.
A silver jubilee is a good occasion to reflect and evaluate the post reform years. Undoubtedly, the gains have been significant. It is therefore equally important to reflect on what has not happened. Large levels of unemployment exist. Organised sector employment is still below 30 million in a nation of over 1,200 million. Our manufacturing sector has grown but we import as much manufactured goods as we locally produce. We are still an import-dependent economy importing, on a net basis, both capital and goods in large values.
We undoubtedly do well in services but on the whole we have a negative balance of payments. The consumption basket has undoubtedly increased – in a large variety of goods from cell phones to cars – but food items still constitutes over 50% of the total national consumption. The international mean is in mid-30s. Universal literacy is still a challenge.
Literacy has undoubtedly jumped from around 50% in 1991 to mid-1970s now despite a surge in population but most educationists bemoan its quality. The global literacy average is in the mid-1980s.
The quality of health care/sanitation is such that it was the first item for reform promised by the new government. A large number of our cities across states are in shambles. What is going wrong? Is it a sheer coincidence that all our trouble spots are now those where the state has zealously protected its powers?
Blame game
Blame exchange is taking place between different political parties. The debate is often presented in terms of ‘Left versus Right’. But is it? Historians will recall that Marx had been firmly of the view that socialism would result due to the inevitable decay of the ‘highest’ form of capitalism. The state was also to wither away. Undoubtedly, Lenin and Stalin thought otherwise but their statues were broken down in their homeland.
What had gone wrong in USSR? Then again, it’s worth recalling that while De-ng’s reforms in China were taking place, USA and UK were also concurrently experiencing the system cleansing drives in the Reagan/Margret Thatcher era.
Ideological positions are debated in terms of the roles and duties of the state. It is, however, forgotten that the states are manned and driven by individuals. They are mostly well-meaning and erudite. But in a large state, personnel size is also large. Bureaucratic structures get created, not by design, but by the sheer problem of dealing with large numbers of own employees.
Heterogeneity also increases with numbers. All bureaucracies have the same problems. The strength of a ‘chain’ is defined by its weakest, not strongest link. Parkinson’s law/Peter’s principles etc, are system behaviour truisms which, if forgotten, pave the way for disaster.
This problem is common to states and corporates. It is worth recalling that while Soviet Russia is no more, IBM/General Motor’s also had near death experiences and survived only with thoroughgoing decentralisation/ reform. Careful observers will note that the degree of autonomy granted to cities/industrial areas/public universities/cities as also provinces is equally high in USA or modern China and much higher than in India. This autonomy is not only with regard to work flows but also, powers, personnel rules and finances. Why not try it here?
What could be done first? There are over 700 industrial estates/areas/zones. Coincidentally, also over 700 universities/degree granting institutions with over 35,000 affiliated colleges. The best 10% of these three categories could, to start with, be made completely autonomous – even of the state government, UGC or university.
Eight mega cities and 46 ‘million plus’ cities exist. Some or all of them could be granted greater autonomy within their states. Other similar initiatives to decentralise could be thought about. The 1991 reforms had caused fear both in the bureaucracy as also in the chambers of commerce. They, however, worked. The silver jubilee may auger equally well for new reforms.
(The writer is former chairman, Exim Bank of India)