India at Sixty- III

India, a land of more than one billion people has successfully survived as democracy for more than six decades (the imposition of emergency during mid-70s by Mrs. Gandhi being an aberration). Especially when considered against the complex problems such as communal divide in select pockets, sharpening caste conflicts, wide social and economic disparities, growing regional chauvinism, and language barriers and so on, it is really a matter of pride that India has evolved as a functioning parliamentary democracy.

True, the democracy we have had may not be vibrant or dynamic and perhaps more shallow and dynastic in character and yet the country has not fallen into the trap of military dictatorship. The worrisome feature of our democracy is that it is not only bristling with dynastic and feudalistic tendencies with all crookedness and wickedness built into the system but it is also increasingly rooted on the personalities rather than issues and ideologies. Politics has become almost a family business yielding a lucrative rate of return, cutting across various political parties in the country. The law of family inheritance seems to hold in politics more.

If only there had been a facility or rather a critical ability for the majority of the population to win an education – a quality primary school or secondary education at an affordable cost or grossly subsidized by the state, a fighting chance subsequently to land a job thereafter by sheer merit given transparency in job selection, the existence and operation of a benevolent nexus between the beau racy and judiciary leading to a just legal system – an orderly procedure of the rule of law that does not bend backward to shield the erring politicians, bigwigs and criminals, India would have traveled miles ahead in its economic journey with tremendous social empowerment but alas, we were not destined to be.

India At Sixty- II

With the Nehruvian command model of inward looking insular Indian economy faltering and collapsing to deliver the goods, India made a paradigm shift in the early 1990s in its economic policy. Confronted with a severe payment and fiscal crisis India embraced market ideology. For more than a decade we have been seduced sufficiently to believe that our heightened romantic filtration with market economics and continual embrace of globalization administered on us by international agencies like World Bank, IMF and WTO would serve as an express way for growth, help alleviate poverty and inequality and also strengthen the roots of our democracy and freedom. Imperialism and colonialism are no more in a raw form. They have worn a new cloth namely economic globalization. We have never conducted any serious debate on pros and cons of liberalization and a marketisation process going on in our country.

Globally Berlin wall has fallen; in our economy too the command model which was more like a Berlin wall has been dethroned. Trade barriers are slowly breaking down. Finance capital has become more mobile. They inject more oxygen into sensex. For a long time our stock market was on song. Only very recently close on the heels of sub-prime lending banking crisis in the US and world wide stock market crash, our market received a setback. Along with rise in sensex there is also an escalation in the rate of farmers’ suicide. Windows have opened for the IT professionals but the doors are shut for dalits and adivasis. The world has become flat for the educated middle class but it is still a night mare for those lacking access to education and health.

Our scholar prime minister has clearly evolved and adapted himself to the status of a matured politician. He is now in a catch 22 situation over the nuclear agreement with the US. To what extent the Left can succeed in keeping the US at a distance from our foreign policy making is a moot point. There are doubts about the very survival of the government. We don’t think that the vested interests will allow the government to fall.

The single most fundamentally flawed aspect of our shallow democracy is stinking corruption and growing amorality in Indian politics at a time when the Indian economy is undergoing sweeping economic reforms, it is also time for ruminating over reforming politics and humanizing the tribe called politicians. Taming and pruning the inflated ego and misplaced arrogance of those politicians having criminal nexus is not an easy job. With all the aggrandizement of power which has resulted in an infinite accumulation of wealth, they really enjoy a monopoly power and it is very difficult to dislodge them. Even while debating the nature and content of our economic reforms, there is more politics and economics in it. Unless the political entrepreneurs and the economic policy entrepreneurs seriously commit themselves to remove the pitfalls and contradictions in the governance of our country, economic reforms and globalization can not work.

India at Sixty- I

A man gets old in sixty years but India at sixty is a nation of a young and vibrant people given its demographic profile. While celebrating the completion of 60 years of independence we can be proud that ours is still a functioning democracy no matter how shallow or dynastic it is. It is time to ruminate over the path that we have traversed and take stock of the situation.

Despite the fact that Gandhiji was instrumental in getting freedom, when it did arrive on August 15, 1947 he was busy extinguishing the communal fire that was raging in Bengal’s hinterlands (Naokali) than becoming a part of the jubilations. Thanks to the visionary ambition of Pandit Nehru and his unquestioned authority for 17 long years, a diversified industrial base could be built up keeping the secular and democratic framework intact. Regardless of the criticism which has been voiced against his command model and his love for socialist ideals which came to be branded as Nehruvian post office socialism or Congress brand of bureaucratic socialism later, the inward looking, protectionist, import substitution model, dominated and frustrated by the state, had its own rationale in building up our economic strength.

Mrs Gandhi’s elevation to power against the backdrop of revolt by a bandicoot of syndicate, made her embrace a socialist policies like bank nationalization and abolition of purses and privileges. With the creation of Bangladesh under her preponderant show of strength virtually made her the modern incarnation of Goddess Durga at least in the mind of the generation of 1970s. However, with the passage of time this Goddess turned dictatorial and imposed emergency when she thought she was losing the unquestioned hold of power. Indian illiterate people showed the power of democracy by unseating her when the election was conducted. In her second innings at the helm of affairs she was found wanting in not resolving the communal question and religious extremism. The Kashmir and Punjab problems acquired communal and religious content under her dispensation which was neatly taken to its logical conclusion by her successors. Her son Rajiv Gandhi pandered to Hindu religious extremism by unlocking the locks of Babri mosque and then in an attempt to pacify Muslim extremism reverted back the Supreme Court’s indictment in the Shah Bano case and finally, Narasimha Rao who did everything under the sun, not only to hold on to power by horse trading but also becoming a party in the demolition of Babri mosque.

The greatest tragedy of this era of Nehruvian dynasty was that no concerted efforts were made to introduce basic structural reforms like land reform and no serious attention was paid to provide basic education, health care, connecting roads, affordable drinking water and so on to the bulk of the population in both rural and urban areas. The list of problems plaguing India is long, never ending and if one single reason is to be given for the plight of common man it would be a grand betrayal by the politicians and bureaucrats. The image that most of us have about them is not that pleasant to look at. There is a deep seated feeling and apprehension that a majority of them are not just honest and hence steeped into a sea of corruption and the current form of political democracy is becoming a source of irritant in the dynamic functioning of market based economic order. Politics has become business; education and health have too not remained untouched by it. There is a gross indifference by the vocal elites and the educated towards the elections and the poor people (the silent majority) increasingly come forward to change the destiny but alas they are caught between the devil and the deep sea as there is no better alternative for them. Indeed the honest and the decent will abhor politics when muscle and money power predominate over everything else and politics becomes a family business. Unlike corporate sector no special skill is needed here except the blind loyalty by the committed party cadre subservient to caste ridden political parties. You stretch this loyalty a little, it turns into sycophancy. Those who have mastered the art of conducting exhibition in the game of flattery have reaped rich dividends in the field of politics.

You may ask where is the young blood, the student community which stirred the conscience of the society in the swirling sixties. They are too busy in the IT and BPO world trying to chase the chimera of green card and/or getting those benefits by remaining within the country, thanks to internet revolution, digitizing work and changing the very nature of work.

Seven Year Battle Comes to an End:

My office manager who was suffering from cancer for seven long years breathed his last yesterday. He was not merely an office staff to me but something more than that. Right from my appointment in the university (1994), I had developed some physics and chemistry with him; perhaps I was seeing some replica of my childhood school friend in him. So my relationship with him became not hierarchical but just emotional and sentimental. This did not change even after I became the Head of the Department. Indeed at one stage in the early 2000s I told him that if he was not available in the department as office manager I would not even accept the headship. The wise and benevolent destiny delayed my professorship and in the process denied my headship too. He felt more than what I missed.

Right from the day when he was diagnosed as a cancer patient, another office staff who worked as manager at that time played a very supportive role and he was the one who was present at his death bed. Very rarely I have come across a person like him who was willing to run around to save his life. In the beginning my friend was slightly indifferent to his ailment and when the time came for treatment his one leg had to be amputated from the hip. With tremendous religious faith and will power he managed to walk with crutches and ride tricycle to come to office. He never allowed his physical ill health paralyze his work ethics. He had to undergo two operations in the lungs and he successfully negotiated all kinds of physical and financial discomfort with courage and fortitude. Affectionate wife and lovely daughters gave him the necessary oxygen to live, love and respect the fellow human beings. He was always soft spoken and kind and very meticulous in doing office work, sometimes carrying files home and on important occasions attending office on Saturdays.

Such a nice young man in his forties was just snatched away by the almighty for the reasons known to him only. It was only a month ago he complained of stomach pain. We all felt at that time that it should not have anything to do with his ‘problem’. But this time he was quick to go to Chennai Cancer Institute and check. Like a bolt from the blue the scan report revealed that the cancer had invaded his liver and pancreas and he was told that he must switch over to some alternative medicine as further surgical operation was not just possible.

Being a deeply religious person, he somehow felt that God would not abandon him and somehow he would come out of this acute pain but alas he was not destined to be. Given my pressure of work and my own health problems I could not frequent his house in the last one month as I used to in the past. There is only some consolation that I was at his side just four hours before his death. His face was fresh and serene despite his problems he spoke to me. That picture of his will remain as one who fought against the deadly disease with all the smiles on his face. I don’t know whether he was aware that his days were numbered. Given his acute pain and many other complications that had developed I feel that God was merciful enough to take him to his kingdom with tremendous love, care and concern giving relief to him and also to persons who were close to his heart and hence were not able to bear the pain that he was suffering from. The entire university including the new VC were sharing the agony of the bereaved family and also willing to shower the much needed financial benevolence for the family. As and when the university does adequate compensation which will definitely provide some economic wherewithal to my friend’s wife in the form of a job the uprooted family tree can get some sustenance to live and thrive.

Personally it was a great loss. Outside our family circle we get closer only with a select few and Mr Murugan was one such person. His whole life is an example for many of what one should do (about work) and what one should not do (ignoring health). While giving condolences, I just pleaded before the faculty and administration that all of us during our brief stay on the planet must conduct ourselves in such a way that we will be of some help to fellow human beings in whatever way we can. This is what I have learnt from Murugan. I also wish I had his faith in the almighty.

Have Your Come Across 100 Mile Diet?

Thomas L Friedman is a famous columnist in New York Times and best known for his books on globalization, ‘The Lexus and the Olive Tree’ and the more recent ‘World is Flat’. In the latter, he has identified three phases in the evolution of globalization. The first one dates from 1492, the year when Columbus set sail to discover India until around 1800 and the dynamic force behind integration centered on physical power like muscle and steam. The second phase begins from 1800 to 2000 during which the focus shifted from countries to companies and the fall in transport cost and later telecommunication costs leading to diffusion of PC and internet was the prime dynamic force behind global integration. This made shrinking world to go from medium to small. The third phase which begins from 2000 is more momentous one. The internet revolution has not only made the world tiny but also flat meaning there is a level playing field for everyone- be it an individual, a company or a country. This enables an individual to compete and collaborate globally through internet and e-commerce.

Mr. Thomas L Friedman may have been right in articulating from the standpoint of business process out sourcing (BPO) economy. But there is also a powerful resistance to globalization. Indeed the drive for localization will also equally thrive so long as the bulk of the population gets marginalized and devastated by those segments profiting by globalization. I remember a Malayalam movie seen long ago wherein a boy would go to a water tank lorry and take water in an empty Coca Cola tin and proudly say, “This is pure water. It won’t spoil your health”.

As if to challenge the sophisticated nuances of globalization articulated by Thomas L Friedman, I saw a news item yesterday stemming from Seattle, the place synonymous with IT revolution as also anti-globalization demonstrations. It is all about the commitment of some 80 local residents of Seattle to eat only what is grown 100 miles from home. This Seattle project is in a way a repeat of an experiment by ‘Vancouver, B.C., couple who for a year eat food from no farther than 100 miles away’.

Those of us who are away from our home for work would realize how valuable the good food is even while we work in air conditioned cities like Bangalore. Seattle project reminds all of us that the local farmer and local business will get immense benefits if the residents resist buying goods which shipped cross countries or internationally. No one can challenge that the food coming from radius of 100 miles would be fresher, healthier and better tasting.

July 1997 Currency Crisis Revisited

A few days ago Indian sock market got the beating following the global market crash. The greatness of the financial market is that it is always very difficult to anticipate its strange behaviour. Ten years ago I was lucky to predict the inevitable fall of Thailand’s baht by accidentally stumbling upon the London Economist’s cover story ‘Fall of Thailand’. As a keen student of international finance I had already internalized the fundamental factors leading to Mexican peso collapse in 1994-95. I could foresee the repeat of that currency episode in Thailand. I wrote a piece for The Hindu Business Line in mid-June 1997 and a week after Thailand was amidst its worst currency crisis.

Ten years after the crisis I would like to revisit now. An interesting paradox of Thailand’s crisis was that it was only a few months before the crisis both IMF and Asian Development Bank had given a good report card about its economic performance. Like other Asian miracle nations, Thailand too had a remarkable macro economic stability for a longish period. Inflation was moderate within manageable limits; government did not run into any budget deficit; indeed there was a fiscal austerity and the budget was in surplus. Until mid 1990s, Thailand’s export growth was robust. It was only threatened after Chinese currency’s devaluation in 1994. The debt service ratio was around just 10 percent. Huge capital inflows in pursuit of high interest rate at home and booming stock market conditions kept the exchange rate stable. All these made the banks and firms which had borrowed dollars not to hedge their exposure. Everyone was under an illusion that the fixed exchange rate would rule forever and not pose any problem at the time of repayment.

Then why did the currency was molested by the speculators? The prime villain of the piece was rise in current account deficit which stood at 8 percent of the GDP- a magic number which figured in the preceding Mexican currency crisis also. Another worrisome factor was huge rise in short term component of external debt which far exceeded the exchange reserves and more important for 12 long years exchange rate had been almost fixed with the dollar which really warranted a revision (devaluation) given a high real exchange rate appreciation that had taken place through inflation which itself was the consequence of cumulative capital flows resulting in expansion in money supply, notwithstanding some measure of sterilization under taken by the central bank of Thailand.

The currency was now ripe and ready for the speculators’ attack. Central bank by active intervention in both spot and forward markets tried in vain to protect the currency. Even the interest rate defence could not rescue it. On July 2, 1997 Thai’s baht had to fall. At that time no one would have imagined that this was only a beginning in a series of currency crises which were going to envelop not only the Asian region but also even distant lands such as Russia, Brazil, Argentina and even the US. If one single reason is to be given for the crisis, it can be rightly stated that a premature embrace of financial market liberalization and capital account convertibility without making any serious attempt to put banking and financial system in order.

Poem by R A Mundell

In the course of preparing for the class, I stumbled upon a poem by R A Mundell in his book ‘Man and Economics’ published in the mid-sixties. We are now living in a time when almost the prices of all goods are driven by the market to touch dizzy heights; RBI is so obsessed with inflation in its recent monetary policy announcement yesterday. Although inflation is manageable still our central bank wants to dampen inflationary expectation and in line with global monetary tightening, it is also sucking excess liquidity from the economy by hiking CRR to 7 percent. Shall we go to Mundell’s articulation which goes to disprove the conventional notion that economics is a dry subject and economists are the driest of the lot.

Free goods, scarce goods
Goods made for market
Public goods, private goods
Goods made in Chile

There are necessaries, luxuries
Snob goods of Veblen
There are war goods and peace goods
Goods sent to Vietnam

There are present goods, future goods
Consumer goods and capital
Wholesale goods and wholesome goods
Goods not for children

There are stolen goods, hot goods
Used goods and services
Intermediate goods and final goods
Goods made for retail

Dry goods, Hong Kong goods
Import goods with the taxes
Traded goods, home goods
Goods made with axes

Substitutes, complements
Bread, Butter and cheese
Superior goods, inferior goods
Goods made for deep freeze

Outputs, inputs
Goods and factors
Inventions and patents
Plays by actors

Goodness!