Peering Into Indias Future: Xenophobia
and Neta-Babu Raj
Parth J. Shah
The SiliconIndia Magazine, Feb 1998
Yet again the walls will be dirty, and the loud-speakers will blare. Yes, India goes to
vote, yet again! What are the issues involved, and what does it portend for the future?
Here is a hard look on all sides of the cross-roads that India is at today, and where its
going to go.
Even in the 50th anniversary of independence, almost everything important to the future of
India and her people seems to be thrust upon her. The Lok Sabha election that no one
actually wanted is now upon her, not to mention the fall of two governments since the last
election in 1996. At this rate, India could break Italys record of most changeovers
in government in a given election cycle. With Rajiv Gandhis Italian-born widow,
Sonia Gandhi, finally entering the election campaign, Indias government could be
competing with the Italian government for the dubious distinction. Thats the
In the economic arena, most of the reforms have been the result of either internal crisis
or external pressure. Unsustainable deficit in the Oil Pool led to the
phase-out of administered prices of petroleum products, and fiscal stringency forced the
announcement of divestment from several public sector undertakings (although not much
actual divestment has yet taken place). The World Trade Organization and the US compelled
India to promise gradual elimination of Quantitative Restrictions (QRs) on imports, to
open up the banking sector to foreign institutions, and to deal with the issues of
intellectual property rights and patents. This process of implementing reforms is probably
not surprising since the initiation of liberalization in 1991 was itself caused by
dwindling foreign exchange reserves. Indias economic reforms, as all parties recite,
are irreversible. But the reforms, which cant be reversed, do not seem to advance
much, either. Earlier, India was resigned to the Hindu rate of growth; now, she seems
incapable of anything more than a Hindu rate of liberalization.
This is indeed the age of coalition governments in India. But the resultant instability
has dire consequences. And that is unlikely to change with the new election, the Bharatiya
Janata Partys claims to the contrary notwithstanding. Maybe it would depend on the
extent to which the BJP can play the power game with other partiesform
alliancesand can throw populist sops to the electorate. BJP has succeeded in joining
hands with parties in the Southern states, where historically it has had little support.
The Southern march may increase the vote count, but it wont much increase the seat
count. BJP has also learned the game of promises: It extended an olive branch to Muslims
and minorities and has sworn to deal with the mandir-masjid issue through legal and
consensual routes. The Uniform Civil Code would not be put in place immediately, but it
would be allowed to evolve over time. It had the first ever mass meeting of women, and
assured free education to all girlsnot just primary or secondary, but college and
post-graduate education, too. Just when economic reforms were fostering a bit of
competition, BJP has pledged to the whining Indian industry that it will go slow. It plans
to direct multinationals toward areas where they wont directly compete with Indian
industrial giants. Its the giants who are frightened; entrepreneurs are flourishing
since the partial abolition of the license-raj. Restrictions will be placed on foreign
institutional investors (FIIs) to curb their influence on Indian bourses. How would that
benefit India? No one dares say it publicly. But tying the hands of FIIs would free up
those of Indian mavericks to play the game of the early 1990s with stock prices.
Add the charismatic Atal Bihari Vajpayee to these populist promises, and the BJP looks
like a winning horse on the track. There is no one in the arena who can match
Vajpayees oratory or his image of a clean, honest man with a strong mind and a soft
heart. He is like Ronald Reagan, Bill Clinton and Jimmy Carter rolled into one. When
projected as a prime ministerial candidate, he is indeed formidable. In a recent poll, he
was the most favored future prime minister at 27 percent, with Sonia Gandhi at 17 percent
as the distant second. In the Southern states, however, Gandhi beat Vajpayee by a mob.
Despite its Southern alliances, the BJP may still be the party of the North. And
unfortunately for the BJP, the North is no longer the dominant player in the political
Then there is the United Front, a coalition of 13 parties. The United Front and Laloo
Yadavs newly formed Jan Morcha (a nine-party conglomerate), make the bedrock of
secular forces for this particular election. However, the opportunism of some of the
secular forces of the last election in embracing the BJP has taken some steam out of their
claims. Probably only in India that parties which divide people along caste lines can
claim to be secularist, while the one that divides along religious line is called
fundamentalist. What is caste without religion? Its not just Hinduism Christianity
and Islam too have castes in India.
The shining star of the season is Mamata Banerjee, who broke from Sitaram Kesris
Congress. For the first time, she will pose a respectable challenge to the ruling Marxist
party of Jyoti Basu in West Bengal. If nothing else, that will dampen the fervor of some
of the violent revolutionary gangs in the area. People not just of West Bengal but from
all of India should thank Mamata for the courage to break away from the
Marxist-accommodating Congress in that state. For the Congress, the independence
anniversary ironically will relegate it to playing second fiddle to the BJP and regional
parties for some time to come. Sonia Gandhis, and probably Priyanka Gandhis,
work on the campaign trail will surely draw crowds but they are unlikely to
translate into seats in the parliament. Who will prefer Rome Raj to Ram Rajya?
What does the election scene, as it has shaped up at this point, portend for Indias
1998: The Year of Xenophobia and Neta-Babu Raj
The BJPs pledge to go slow on liberalization, to rethink the areas where
multinational companies are allowed, and to curtail the range of investments by FIIs
clearly indicates the real fear of outsiders in the Indian industry. The other political
parties have not made such distinct promises, but thats largely because they are
still scrambling to put together their own coalitions. More importantly, the BJPs
prescriptions have become the conventional wisdom among economic and political power
circles. The turmoil in East Asia has provided a perfect alibi. The dangers of currency
convertibility, inflow of portfolio investments, and unrestricted imports of consumer and
capital goods are now as obvious as pointing a finger at East Asia on the map. No more
arguments; conventional wisdom reigns supreme.
Again, the internal crisis of confidence and external circumstancesIMF demands on
East Asiahave coalesced to thrust India into a liberalization slowdown. Recent
newspaper headlines proclaimed that 85 more items were put on OGL (Open General License).
No prior permission is now required to import these items. One would have thought that the
list would include information technology products, to move India into the 21st Century
and allow her hard-working software engineers to compete globally. The list included
cosmetics and stockings. Well, Indian women are now free to compete! It is absolutely
mind-boggling to think that someone actually had to get a license to import stockings. And
this was before East Asia and the phantom of fear.
Combine the consensus among politicians and captains of industry with the performance of
Indias most crucial bureaucrat the governor of the Reserve Bank of India,
Bimal Jalan. Within less than two months of his appointment, there has been an avalanche
of proscriptions, regulations and diktas. Many a reform achieved in the financial and
money markets have been made moot in a short time. And all this occurred without any
uproar or even an argument. People have always doubted Indias understanding of the
need for reforms and therefore her commitment. No one has built a constituency for
reforms; the reforms were largely reactions. Fortunately for India, because of the
collapse of the Soviet Union and the presence of a Manmohan Singh and a P. Chidambaram,
the reactions turned out to be liberalizing. They could just as easily have been of the
opposite kind. But now, the fear of outsiders is again ushering in the Neta-Babu raj.
Lessons From the Past
As Professor Bibek Debroy, prominent consulting economist and author suggests, the events
that occurred in various 98s past may indicate what 1998 holds for India. In 1298,
the Mongol chief Qutlugh Khan tried to conquer India. Even though Alauddin defeated him,
in 1398 Taimur Lang succeeded in capturing Delhi. Vasco da Gama anchored at Calicut in
1498, and that began European domination. In 1598, the architect of Din Ilahi, Sheikh
Mubarak, passed away. Din Ilahi had prohibited construction and repair of mosques with
government funds. This may hint at the fate of constructing a temple at Ayodhya or of the
claims on Kanchi and Mathura. Continuing on, in 1698, Marathas lost the important Jingee
Fort to Aurangzeb. In the same year, Prince Azam Shah allowed the East India Company to
purchase three villages in Bengal. The Nizam of Hyderabad surrendered to the East India
Company in 1798. In 1898, Sister Nivedita arrived in India and was initiated by Swami
Vivekananda. The conclusions: There are well-grounded historical reasons for India to be
afraid of outsiders. And the BJP, playing down the mandir-masjid issue, may have a good
shot at forming the government, if not winning a clear majority. The year 1998 will then
be the year of xenophobia and Neta-Babu raj.
The sweeping prognosis offered here is mostly based on broad principles and patterns.
India, the ancient and resilient civilization which has withstood a multitude of
invasions, is nothing if not full of contradictions. It is her ability to hold together
Yin and Yang, thesis and antithesis, that explains her continued survival. On one hand,
there is the new governor of the RBI, the crisis of confidence, and the specter of
outsiders. On the other hand, Atal Bihari Vajpayee is of the old Jan Sangh, which had
championed a market economy before it became fashionable. The BJPs finance
minister-in-waiting, Jashwant Singh, has a good knowledge of history and a sharp and
analytical mind. If not the BJP, then Congress still has Manmohan Singh; and the United
Front, P. Chidambaram. So it will be the battle of historical forces and a few good men.
India will again hold both together.
The Outlook for Investors
Moving on to more mundane matters: Should an NRI or an outsider invest in
India in 1998? Of course, India eventually does learn from her mistakes. Invest at the
Hindu rate. A Hindu rate of liberalization cant demand much. But join hands with the
new class of entrepreneurs, and avoid the industry moguls; it will be good for your future
and Indias future. People who earn their fortunes are generally good losers, not
people who acquire them. Hopefully the next chamber of commerce will be formed of this new
class of men and women.
However, one must match ones patience and resilience with that of India. And
Indias knows no bounds. Just look at Enron. It survived change in state and central
governments and fought a protracted legal battle. Now it has full counter-guarantees on
the Dabhol power project which no one else is likely to get, and has plans to invest about
$2 billion in India. Rebecca Mark, though, probably spent more hours with ministers in
Delhi and Bal Thackeray in Mumbai than with her family in Houston. India does reward her
virtues: patience and resilience. What if you dont have them? Go to East Asia.
Professor Parth J. Shah, on leave from the University of Michigan-Dearborn, runs the
Centre for Civil Society in New Delhi, India.
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