A slowing economy, an exploding submarine, corruption scandals -- what's happened to India?
Barely a decade ago, the National Intelligence Council’s Global Trends 2020 report highlighted the imminent rise of India, outlining its likely impact on a host of international regimes ranging from climate change to trade. More recently, during his maiden visit to the country in November 2010, President Obama stated that India was not merely a rising power but had actually risen. Indeed, in a subsequent statement that left many of his Indian interlocutors almost breathless, he even proffered qualified American support for India’s entry as a permanent member of a reformed and expanded U.N. Security Council. Neither the NIC report nor President Obama’s affirmation was out of step with conventional wisdom. For over a decade, India had been one of the four BRIC nations, destined to play a major role in the global economy.
Such characterizations now seem inaccurate, if not downright fatuous. In the last quarter, the Indian economy grew at a mere 4.5 percent (anemic by BRIC standards), and even the most optimistic of analysts do not believe that it will fare much better in the next. More recently, the Indian stock market plunged by 4 percent, falling to an 11-month low last week. Other economic indicators also offer cold comfort. Inflation is now hovering around 6 percent and is unlikely to abate.
Sadly, its economic woes are not the only challenge confronting India. In early August, one of the country’s recently retrofitted, Soviet-era, Kilo-class submarines blew up and sank off a naval base in Mumbai, emphasizing India’s military vulnerability at a time when China’s navy is making steady inroads into the Indian Ocean. Days before the tragedy at the naval base, a carefully negotiated ceasefire along the Line of Control (the de facto international border) in the disputed state of Jammu and Kashmir was breached, resulting in the deaths of five Indian soldiers. Subsequent clashes suggest that the ceasefire may well be at an end.
Not only does India now face renewed external threats at sea and on land, but it is also witnessing a resurgence of ethnic and religious strife in critical parts of the country. In early August, riots swept through Kishtwar, a town in Jammu in the southern part of the contested state. Such communal violence apart, a Maoist insurgency has become endemic to significant parts of the country. Earlier this summer, notably in June and July, the insurgents struck at will against police and paramilitary posts in the states of Jharkhand and Chattisgarh.
Other troubles are also besieging the United Progressive Alliance coalition government, which is dominated by the Congress Party. Over the past several years, it has been buffeted with one corruption scandal after another, including one involving the sale of the 2G spectrum that may have cost the exchequer as much as $40 billion. Though charges were leveled against the then telecommunications minister, A. Raja, and other associates, he and many others are now out on bail. The telecom scandal, however, was not the last that plagued the regime. A government investigative body, the Comptroller and Accountant General of India, issued a report in March 2012 that questioned the dubious allocation of coal seams to a number of Indian companies at throwaway prices. Most recently, Robert Vadra, the estranged husband of Sonia Gandhi’s daughter, Priyanka, faces accusations of impropriety in some highly lucrative land deals around New Delhi.
How did the country abruptly reach this very sorry pass? The answers are complex and are rooted both in India’s political culture as well as its institutional structures. It needs to be recalled that, in the midst of an unprecedented financial crisis in 1991, India undertook a spate of economic reforms. These reforms quickly spurred growth, making India’s the second-fastest growing economy in the world after China’s.
Despite this spurt, significant segments of India’s slothful bureaucratic apparatus, as well as an entire generation of politicians, remained either hostile or unconvinced of the utility and significance of the reforms. Furthermore, even as India liberalized its economy, it did not move with dispatch to create new institutions that could adequately monitor and set transparent rules for a more open market. The resistance to reforms from segments of India’s bureaucracy, the failure to create new institutions, plus a new propensity for populist programs using new revenue sources have conspired to produce disastrous consequences for both the economy and the polity.
For the bureaucrats, the reforms signaled an end to what eminent Indian economist Raj Krishna had sardonically referred to as the "license-permit-quota raj" — a labyrinthine set of regulations, rules, and restrictions over which they had exercised considerable discretion. With the advent of these reforms, they lost their ability to extract rents from hapless businessmen and industrialists. Not surprisingly, in an attempt to protect their entrenched interests, they sought to stall the implementation of new rules at every turn.
The post-reform generation of politicians was pleased with increased revenues that ensued from greater growth and productivity. However, they showed scant regard for fiscal rectitude as large segments of the population, which were hitherto economically disenfranchised, sought improved living standards in a booming economy. To ensure continued political support, the political class resorted to a host of populist schemes without the slightest regard for their financial soundness. These included the creation of guaranteed work schemes for individuals below the poverty line. In principle, such an assurance of work was a desirable public policy goal. However, without mechanisms in place to ensure that this system actually benefited the targeted population, its actual implementation became yet another source of corruption and a drain on the exchequer.
Despite the highly uneven impact of this work scheme, the present regime is now in the midst of debating new legislation that would assure access to a minimal caloric intake for every Indian citizen. The goal of this proposed legislation is laudable, but a number of prominent economists have warned that the government simply cannot afford it. Nevertheless, because of the program’s political popularity, the regime remains committed to implementing it, even though the fiscal deficit already stands at nearly 5 percent of the country’s gross domestic product. The exigencies of winning elections are now making populism run amok with disastrous economic consequences.
One other feature of the political landscape helps explain India’s current straits. Even as the economy dramatically expanded between 1991 and the present day, only piecemeal efforts were made to develop new institutions, mechanisms, and procedures for dealing with the ramifications of its expansion. Consequently, well-connected businessmen could still find ways to corner critical resources as the state withdrew from or opened up new economic vistas. The growing need for campaign funding in a political arena increasingly dominated by electronic media also led politicians of all stripes to turn to commercial elites for money. Not surprisingly, this nexus resulted in endless questionable deals. When, thanks to India’s watchdog institutions and a feisty press, at least some came to light — for example, the decision to purchase Agusta helicopters from Italy was allegedly influenced by bribes — political cynicism and distrust with the government grew. Meanwhile, the permissive environment that enabled high-level scandal had also encouraged corruption among petty officials who believed that only an unfortunate few would actually face punishment.
This virtual collapse of probity at practically every level of governance has afflicted other critical sectors. Owing to the long history of shady defense contracting, the current minister of defense, A.K. Antony, has actually instituted a series of internal checks to ensure that money does not routinely change hands as the country purchases huge amounts of military hardware from abroad. These regulations, however, have proven so draconian that they have now made it exceedingly difficult to execute a single defense contract. Despite the Indian air force’s acute need for a strike fighter, final stage negotiations to acquire the French-built Rafale remain suspended in mid-air. Meanwhile, India’s domestic defense industry, largely free from competition, is faced with vast cost overruns, interminable delays, and consequent technological obsolescence. A combination of these factors is leaving the country dangerously vulnerable to threats from China and even Pakistan.
Finally, thanks to a weak national government and a constitution that splits law enforcement responsibilities between federal and state authorities, the country has abjectly failed to develop a clear-cut strategy to combat terror in all its forms. Despite the creation of a new organization, the National Investigation Agency, in the wake of the Mumbai terrorist attacks of November 2008, it remains understaffed, underequipped, and lacks clearly defined jurisdictional powers. Consequently, the country remains acutely vulnerable to yet another terrorist strike.
The fond hope of some Indian political commentators is that next year’s national elections will end much of the policy paralysis that has currently gripped the nation. Yet such hopes may be little more than mere wistfulness. The problems that the country now confronts are the result of years, if not decades, of institutional slackness and neglect, dubious political choices, and flawed policies. Fixing them will require more than a changing of the guard.