Brilliant Democracy, Lousy Economics

Kanwal Rekhi
SiliconIndia, December 1999

Salvaging India's broken economy should be the number one priority in Indian politics.

Bill Clinton rode to the Presidency in United States in 1992 with a simple but eloquent slogan "It's the economy, stupid." For Americans, economics is at the heart of the political order - other issues pale in comparison. All the peccadilloes of Clinton have not amounted to much because the US economy has performed wonderfully on his watch.

Halfway across the world, in India, a country immeasurably more in need of economic reform, politicians during the elections last October - the thirteenth since independence - were obsessed with the birthplace of Sonia Gandhi, and Vajpayee's possibly sticky fingers in the sugar industry. Issues that, as the thriving American democracy demonstrates, don't really matter. The alarmingly poor condition of the Indian economy did not even figure in the debate. After 52 years of dismal economic performance under the national policy of socialism and statism - and after the collapse of socialism throughout the world - what could be more important than framing our national debate around economics? And though the baby steps India took towards liberalization eight years ago have yielded substantially positive results, we still don't see any champions of all out free markets.

But the Indian voter remains unfazed despite misguided election agendas and the stranglehold on free markets. The elections once again proved that India has a brilliant and vibrant democracy, with voters firmly in charge. Voter perception and wisdom was awe inspiring. The thumbs-up given to Naidu in Andhra Pradesh mangled the politicians' pet theory about the economic naivete of Indian voters. Slaps administered to Jayalalitha in Tamil Nadu, Laloo Prasad Yadav in Bihar, Prakash Singh Badal in Punjab - it's clear the Indian voter cannot be blindsided. Even the BJP was served notice in Uttar Pradesh and Karnatka.

I have never bought the instability theory about past parliaments. I see them as the necessary transitional steps to get to where we are now. I have always considered the top-down command politics as practiced by the Nehru-Gandhi dynasty as unnatural for India. It was unproductive and stunted the country's political growth. The first chance voters had after they saw the real face of Mrs. Gandhi during the emergency, they took charge. They did not allow any party or leader to come back till this time. Even this time it is a definite maybe after a couple of maybes. The latest election results represent the diversity of India and its people perfectly. It is for politicians to heed the lessons and not take the voters for granted.

Democracy is a market place of ideas. And state monopoly on the mass media fully undermined this market place. Mrs. Gandhi even tried to tame the print media. Today's lively debates on TV and multiplicity of channels bode well for the future of Indian democracy.

Let's Talk Cash
Economics should be central to Indian politics. Command politics has been dumped and it's time to dump the command economy too. India is too large, too complex, too smart, and too diverse to have one size fit its entire top-down planned economy. State knows best, bureaucrats are honest brokers, politicians are well meaning - nobody's buying that anymore. The last 52 years should be proof enough.

Free markets are nothing more than an economic democracy. The public as a consumer votes with its rupees every time it chooses between the competing products and services in the market place. That puts consumers in the driver's seat. Socialism and statism disenfranchises the public and puts bureaucrats and politicians in the driver's seat and they lap up every lucrative moment.

Free markets and free enterprise have been proven to be the best way to create wealth in nations. India needs to create wealth as fast as possible, if it is hopes to eliminate the poverty stranglehold that roughly half its population chokes on. The state's command of the economy - from planning to ownership - has been tried long enough, and has failed outright. That's no surprise. As Fredrick Hayak quite dramatically stated, socialism is a straight road to serfdom. The massive investments in state-run industry have been funneled into a national dumpster - a waste of national savings. India's return on public sector investments has averaged about one percent. So, forget about it producing any surplus - it doesn't even cover the cost of capital. Literally, India would have been better off putting this money in a savings account. At least that's an interest rate of five percent from the bank!

Germany and Japan hunkered down and put their economies together the old fashioned way. China got down to business and started restoring its economic vigor some 20 years ago. It is time India got its act together. Indians are smart and creative. Indians are specially blessed in this New World of information and intellectual property-based economies. And yet, not too long ago, smart Indians were relegated to doing second rate research and development in the state mandated import substitution regime. What a waste!

Free Markets, But When?
The question isn't about "what", but "when" and "why". How much longer must Indians suffer? How much longer will India pursue these long discredited policies? How much longer will we hang onto corruption-breeding statism? Are we still going to pass the buck for our failures fifty years from now? If we want to make progress, we must critically analyze the role of the government. Why does the government have to own 5 star hotels and airlines? Why do we have a Department of Electronics or a Department of Telecommunications? Why should the government participate in any business activity that private enterprise can do better? The government should stop being everybody's keeper and focus on its own role: building infrastructure, providing sanitation and healthcare, and primary education for India's youth.

I remember one of Nehru's favorite speeches from the 1950s. He spoke about the need to achieve economic freedom, now that we had established political freedom. It's ironic that he would limit the economic freedom of Indians even more than our erstwhile British masters had. It's high time to let Indians be free. We've proved that we can compete with the best of them, internationally. The government needs to adopt a straightforward, two-point economic policy. First, any private activity that produces jobs and wealth in India should be encouraged. Any investment by private parties that provides superior goods and services to the Indian consumer should be applauded. Nonsensical assertions, such as India should seek investment for computer chips, but not potato chips, reveal the naivete of Indian officials. What they don't realize is that an investment in potato chips not only improves the quality of the final product, but the whole chain of production behind it as well. Let Indian consumers, by the expression of their free will in the marketplace, be the judge of what stays and what goes.

India has everything it needs to be a successful country. We have loads of smart people, an abundance of natural resources, a large internal market, a vibrant democracy, the rule of law, and a nation that is at peace with itself. As soon as we forge our collective smarts into a political will, India will move forward.

December 1999
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