HVK Archives: India and Pakistan at 50 - Happy anniversary?
India and Pakistan at 50 - Happy anniversary? - The Economist
Posted By Krishnakant Udavant (kkant@bom2.vsnl.net.in)
16 August 1997
Title: India and Pakistan at 50 - Happy anniversary?
Author:
Publication: The Economist
Date: August 16, 1997
Partition in 1947 created two nations. Our first article deals with India,
which has paid heavily for a failed economic experiment, but is justly
proud of its political achievements. Our second article argues that
Pakistan has done better than India economically, but worse politically
On August 15th 1947, India became the first British colony to win
independence. its new leaders swore to make democracy work in a
multi-religious, multi-lingual, multi-ethnic region that had never been
under unified rule. In speeches to enthusiastic crowds around the country,
they pledged to end poverty and help India regain its pre-colonial glory as
a great economic power.
Today, the euphoria is gone. The champagne bottles will pop on the 50th
anniversary of independence, but the bubbly will taste a trifle flat. At
best, India has been a qualified political success and a barely qualified
economic failure.
Indian leaders believed in 1947 that colonial exploitation had kept the
country poor, and that when the British went, so would poverty. in fact
320m Indians remain below the poverty line today, almost as many as India's
entire population was in 1947. A mistaken socialist experiment has cost
India dear.
India's first prime minister, Jawaharlal Nehru, wanted to attack what he
saw as the two main evils of the colonial era. The first was rural
feudalism-under which princes and aristocrats creamed off one-fifth of
national income while the poor starved, and were denied basic civil rights.
The second evil, according to Nehru, was the de-industrialisation of India
by the Raj. Before the British came, India and China were the world's
biggest manufacturers. When the British left, India was relatively poor and
backward. Nehru attributed this not to Britain's industrial revolution but
to the net transfer of capital from India to its colonial master, which
averaged 1.5% of GDP annually throughout the two centuries of the Raj.
This transfer was financed because, throughout the colonial period, India
had a persistent trade surplus with Britain, and thus exported capital. So
Indian leaders regarded export-orientation as an instrument of colonial
exploitation. And since colonial India's exports were overwhelmingly
commodities, free trade was regarded as a hypocritical ploy to force
British manufactures on India while stifling local industry. Thus the
colonial experience led Indian leaders to turn to autarkic socialism.
Nehru wanted an activist state to enact egalitarian laws, transfer land
from the aristocracy to the peasants, and make India a great industrial
power again. He succeeded, despite many shortcomings in land reforms, in
gradually giving power to India's rural peasantry. The peasants re-elected
Nehru repeatedly with massive majorities, convincing him of the need for
ever-more state activism.
Besides, state activism was fashionable at the time. Capitalism was widely
seen as having failed between the world wars, while the Marshall Plan,
Keynesian demand management and the rise of the welfare state seemed to
vindicate government intervention. Rapid Soviet industrialisation made
five-year plans look such a good idea that they were adopted even by
anti-Soviet countries like South Korea and Taiwan, with the blessing of the
World Bank.
Unlike future East Asian tigers, however, Nehru's India neglected primary
education. He viewed universal literacy as socially desirable but not as a
key economic input, and instead emphasised higher and technical education.
A far-reaching consequence after So years is that India's literacy rate is
a pathetic 52%, lower even than in Kenya (78%) or Tanzania (68%).
East Asian countries sometimes used state intervention to help support
competitive private-sector giants. But Nehru, impressed by the Soviet
model, wanted the public sector to capture the commanding heights of the
economy. He saw industry, especially the heavy sort, as the key to
prosperity, and thought the potential of agriculture and exports was
limited. So he decided to protect industry heavily against trade, and left
agriculture relatively unprotected. This implicit tax on agriculture
skewed Indians' investment decisions. And the investment that flowed into
industry was often wasteful because Nehru forsook export-orientation for
import substitution, with no checks to ensure efficiency.
Under Nehru, GDP growth averaged 3.5% per year. This was almost three
times as fast as the i.3% averaged during the first half of the century
under the Raj, and faster than Britain's own growth rate during its
industrial revolution. Many economists the world over hailed India as a
success, convincing Indian leaders that they had nothing to learn from
free-marketeers in the West. Only much later did East Asia demonstrate
that, in the new post-war conditions, growth of 3.5% was slow rather than
fast. But by then Indian planners had become knowledge-proof.
Planning created a veritable jungle of controls on production, prices and
employment. Companies could not sack workers or close down without
permission, which was virtually never given. The planners regarded
competition as wasteful because it allowed an excess number of competitors,
and then forced some to close down. As they saw it, this caused
unemployment and wasted capital. instead, the planners proposed a licensing
regime that would create exactly the planned capacity in each industry, and
keep it going no matter how badly it was run. The result was a
proliferation of uneconomic units and corruption, and a collapse in
productivity.
Nehru's daughter, Indira Gandhi, became prime minister in 1966, and in the
next decade took the command economy to new heights. Using the slogan
garibi hatao (abolish poverty), she nationalised banks and several
industries, increased price and trade controls, and squeezed foreign
investment. This socialist economic agenda masked a private political one.
The main opposition party at the time, the Swatantra Party, was led by a
coalition of princes and businessmen. Mrs Gandhi abolished the princes'
principal source of income, "privy purses" (annual payments from the
government as compensation for the loss of their fiefs) and imposed harsh
income and wealth taxes on businessmen, whose cumulative effect at the
margin exceeded 100%. Garibi hatao killed the Swatantra Party. Poverty,
alas, survived.
Mrs Gandhi reversed Nehru's neglect of agriculture and ushered in the green
revolution. Nehru had left India dependent on food aid from America,
heightening the sense of national humiliation that already prevailed after
India's military defeat by China in 1962. Indira Gandhi's administration
restored Indian pride by making the country self-sufficient in food, and by
winning the 1971 war with Pakistan.
But this political triumph could not mask the failure of her command
socialism to improve either economic growth or social justice. in her first
stint of ii years, the percentage of Indians below the poverty line
remained as high as it had been at independence.
Enter liberalisation
It was clear by then to all parties that a new direction was needed. So the
Janata Party government in 1977 began relaxing the most stringent controls.
This creeping liberalisation was carried further by Mrs Gandhi in 1980-84,
and further still by her son Rajiv in 1984-89. Limited reform, along with
the improvement of agricultural productivity across the country, enabled
GDP growth to accelerate to 5.5% per year in the 1980s. Poverty declined
steadily for the first time since independence.
But there was a downside too. Competition between political parties at
election time drove up subsidies and government spending of every kind.
implicit and explicit subsidies shot up from 8.2% of GDP in 1977-78 to
almost 15% by 1987-88. State spending grew explosively, financed by a
borrowing spree, internal and external. The fiscal deficit rose sharply,
the trade deficit widened, and foreign debt quadrupled during the 1980s.
India was on the verge of defaulting on its foreign debt in 1991 when a new
reformist government, headed by Narasimha Rao, came to power.
Earlier, politicians of all parties had loved socialism for two unstated
reasons-it enabled them to keep expanding public investment (useful for
building patronage networks), and subsidies(which they saw as essential to
get re-elected).The fiscal crunch now meant that neither the central nor
state governments could expand both public investment and subsidies: they
had to choose one or the other. They chose subsidies, across all parties.
This necessarily meant turning to the private sector and foreign investors
to take care of investment. The collapse of the Soviet Union showed that a
further shift to the left was no solution. And so an astonishing
transformation took place-the national consensus on socialism was replaced
by one on liberalisation. An empty treasury forced politicians to turn, in
sorrowful confusion rather than ideological triumph, to the market.
Politicians remain reluctant to reduce subsidies, relax rigid labour laws
or reform the public sector. Bankrupt state governments have no cash to
invest in education, health and rural development. Yet this muddled reform
has produced GDP growth averaging 7% in the past three years. That is well
below India's potential, and means Indians will remain far poorer than they
deserve to. Yet 7% is not to be sniffed at. India may be less than a
tiger, but it is no longer a bumbling centipede.
Democracy flowers
Socialism failed, but Nehru's other experiment-in democratic
nation-building succeeded despite many flaws and travails. Democracy, a
rare flower in the third world, has taken deep root in India. Indeed, it
has proved to be the only way to reconcile the aspirations of so many
conflicting groups.
In 1947, sceptics wondered whether India would survive as a country. The
British Raj directly ruled only two-thirds of the subcontinent-the rest was
ruled by 600-odd princes. This huge region had five religions, 18 major
languages and 93 minor ones. The Hindu majority itself was split into
thousands of conflicting castes. Winston Churchill once dismissed India as
a mere geographical expression, a place that was no more a nation than was
the equator.
Indian independence was accompanied by partition (the Muslim-majority areas
split away to form Pakistan) and unparalleled bloodshed from Hindu-Muslim
violence. Half a million were killed and tens of millions driven from their
homes. In subsequent years, the Indian state was challenged by
secessionists in Kashmir, Punjab, Tamil Nadu and the north-eastern states.
it faced Maoist insurrections. it faced a thousand clashes based on
religion, caste and region, yet it stayed intact and democratic.
In most colonies gaining freedom, the new leaders opted for autocracy or
one-party rule on the ground that multi-party democracy would deepen social
divisions and make governance impossible. India has proved the
opposite-that democracy can allow a highly divided society to reconcile
conflicting claims. The right to dissent keeps dissenters active in
politics instead of driving them into insurrection. Secession in several
Indian states has been tamed by a combination of force and political
carrots-after a military crackdown, the rebels have been offered regional
autonomy and a chance to rule through the ballot. This has not worked
everywhere (Kashmir remains a running sore), and human rights have often
been violated. Yet, on balance, India can look back with some pride at so
years of democracy.
Between 1947 and 1989, the country was ruled almost continuously by the
Nehru-Gandhi family. Single-family rule is rarely a prescription for
democracy. But Nehru was a dedicated democrat who created institutions that
ensured a wide sharing of power and provided a permanent, honourable place
for dissent. He had no desire to create a dynasty, and was succeeded by Lal
Bahadur Shastri. But Shastri died soon afterwards in 1966. Nehru's
daughter, Indira Gandhi, won a hotly contested battle for the succession,
largely because leaders of the Congress party thought they could manipulate
her from behind the scenes. in fact, she turned out to be a master
politician who split the party twice to assert her complete supremacy.
Mrs Gandhi was a ruthless centraliser of power who eroded many of the
independent institutions her father had created. She converted her Congress
party from the proud party of the independence movement into something that
sometimes seemed little more than a bunch of family retainers. in 1975, a
court disqualified her from holding office for a minor technicality in
election expenditure. She responded by imposing an "emergency", suspending
civil rights and jailing political opponents. In many developing
countries, such a person would have gone on to become dictator for life.
But Mrs Gandhi did not institutionalise the emergency. Instead she held a
fair election in 1977 in which she was routed.
The rag-tag coalition of parties that ousted her soon fell apart. This
enabled Mrs Gandhi to win the next election in 198o. Many of her supporters
claimed this was a vote for a new emergency. But she found herself unable
to shake off the Nehruvian tradition completely. So ingrained was her
desire for public approbation that she stayed democratic. Indian democracy
had proved its resilience.
A strong current of violence, however, continued to mar politics. Mrs
Gandhi was assassinated by Sikh militants in 1984. Her son, Rajiv, won a
landslide election victory later that year, leading some to believe that
the Gandhi dynasty was unshakeably established. But the Congress party was
rotting beneath the Gandhis' feet. Over four decades it had become
increasingly corrupt. other parties had grown steadily, and now ruled
several states. Rajiv lost the 1989 election and was then himself
assassinated by Tamil militants from Sri Lanka. Although some Congress
party activists still hanker after bringing Rajiv's widow, Sonia, into
politics, his death seems to have marked the end of the Gandhi dynasty.
With the passing of the Gandhis, India in the 1990s shifted from
single-party rule to coalition politics. Earlier prime ministers were
charismatic members of a charismatic family. But the most recent three
Narasimha Rao, Deve Gowda and now Inder Gujral-have been political
lightweights who got the top job mainly because they were too lacklustre to
have many enemies. This does not make for strong leadership. But a system
that propels nonentities to the front does not lend itself to dictatorship
either.
In the authoritarian parts of East Asia, India's democracy is sometimes
blamed for its relative backwardness. But to democracy goes the credit for
one of India's key achievements in the past 50 years-the conquest of mass
starvation. This was a recurring problem in every drought, and thousands
died in the twin droughts of 1965 and i966, despite 21M tonnes of food aid.
one much-discussed book of the time even argued that India was
fundamentally unviable and should be left to starve, conserving scarce food
aid for savable countries.
Yet within a decade, India had conquered starvation. The credit for this
is widely but mistakenly given to the green revolution. In fact food
production between 1965 and 1980 grew by just 2.8% annually, no faster than
in the preceding 15 years. Several developing countries, including many in
Africa, fared much better.
India ended starvation by better distribution, not accelerated food
production. A drought decimates agricultural activity and hence the
earnings of farm labourers. Indians proved that if they are given
purchasing power through employment schemes, they will survive even when
food is scarce. In the Indian state of Maharashtra, in the early 1970s
more food was available than in the Sahel. Yet there was famine in the
Sahel but not in Maharashtra.
Apart from employment schemes, an affected country needs grain reserves,
rural roads, and the ability to spot distress and move grain quickly. By
the 1970s India had created all these facilities, but most African
countries had not. The pressures of a free press and opposition parties in
India forced the government to act. Such pressures were rare in Africa.
A similar tale can be told of China, where about 30m people starved during
the "Great Leap Forward" Of 1958-6o. China had no free press to give
warning of impending disaster, no opposition demanding action. Instead it
had sycophants unwilling to tell Mao how bad things were. In China, as in
the Sahel, the needy were killed as much by a lack of democracy as by a
lack of food.
The virtues of Indian democracy must not, however, be exaggerated. It may
have helped prevent famine. But it has not prevented mass hunger,
illiteracy, or policies guaranteed to keep people poor. Nor has democracy
checked growing corruption and the emergence of a political class that is
widely held in contempt by ordinary Indians. These days it is a common
complaint in India that public services and government work only for those
with money, muscle or influence.
In 1947, joining politics meant sacrificing your career for public service.
Today, joining politics increasingly means joining the race for money,
power and influence. Every political party now has links with gangsters,
many of whom have elbowed their way into the legislatures. in some states
the distinction between lawmakers and lawbreakers has virtually
disappeared. A former home secretary estimates that in recent municipal
elections hundreds of suspected criminals stood for election in Mumbai
(formerly Bombay). Similar calculations were made by newspapers at the
time of the Delhi elections earlier this year.
For all the flaws in India's democratic system, however, most middle-class
Indians remain proud that their country can claim to be a rare democracy in
the third world. If India can achieve economic success as well, the dreams
of its founding generation may finally be fulfilled.
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