India's Fortune

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    India's Fortune

    The Prospects of a Country on the Rise

    Edward Luce

    "Businessmen, after all, do not usually make good public intellectuals," writes Nandan Nilekani early in his book, as he recalls discussing with a friend whether to put finger to keyboard. A few pages later, he describes himself as an "avid amateur" when it comes to modern India's political economy. Avid and proficient, it turns out, for his efforts have produced one of the best and most thought-provoking books on India in years. Few Indian, or indeed Western, businesspeople would be capable of drafting such a dispassionate and self-critical account of their country's prospects. And perhaps no other Indian public intellectual could write across so many disciplines -- politics, economics, finance, education, the environment -- with as much clarity and acuity.

    Nilekani's book, Imagining India, charts how India arrived at the potentially transformative moment it has reached today and describes the gargantuan challenges the country will have to overcome if it is to fulfill that potential. ("Potential" is always a key word with India, which explains why the titles of so many books about this extraordinary country begin with Imagining . . . or The Idea of . . . or The Invention of . . .) Nilekani, one of the most prominent faces of India's success in information technology (IT), is especially well qualified to write this book. As a co-founder of Infosys, the country's second-largest IT company and one of its biggest earners of foreign exchange, he both departs from the traditional Indian way of doing business and embodies its recent promise.

    First, Nilekani did not inherit his business or his wealth. His father, a smalltime mill manager and a supporter of Jawaharlal Nehru, India's first prime minister, raised him to believe that the state, rather than the private sector, would provide for India's future. Nilekani remembers the logic that dominated in those days: "Why allow wealth to be created in private hands where it would probably be used for nefarious purposes?"

    Second, Nilekani is a risk taker. Nobody, including his father, gave him or his company much chance of success when he was talking about launching it in 1981. He remembers one conversation: "'Don't be an idiot,' an uncle told me. 'A start-up will find it impossible to do business here.' Two decades later, however, I was being fêted as a first-generation entrepreneur, and my socialist father was in attendance at each of Infosys's shareholder meetings."

    Third, Nilekani is a genuine philanthropist. In a country where giving private wealth usually involves building a temple to a Hindu god and receiving pride of honor there for generations, Nilekani is a socially progressive altruist. He has given millions of his own wealth to improve civic governance in his hometown, Bangalore, and education at his alma mater, the renowned Indian Institute of Technology Bombay. (In contrast, Mukesh Ambani, India's richest man and the chief executive of Reliance Industries, a company founded by his late father, is building a $1 billion home with 27 floors and accommodation for 600 servants on the site of a former orphanage in Mumbai.)

    Finally, Nilekani is a meritocrat. This should be unremarkable, but with its caste system, Indian society is entangled in perhaps the world's most binding network of traditional social ties and obligations. Both in theory, through his stated dislike for kith-and-kin patronage in public life, and in practice, as co-chair of a company that has provided many lower-caste Indians with a ladder to wealth and respectability, Nilekani is an unapologetic modernist.

    THE STRENGTH OF WEAKNESSES

    Imagining India is essentially divided into two halves. The first explains why democratic, English-speaking India is starting to achieve its potential and how that could lead to a globally influential position for the country. The second catalogs the often-alarming, although never alarmist, reasons why the country could still fall apart.

    "India now stands evenly balanced, between [Indians'] reluctance to change in the face of immense challenges and the possibilities we have if we do tackle these issues head-on," Nilekani writes, in reference to the country's dismal public health policies, growing energy deficit, and unwillingness to confront environmental problems. "In the long term we will either become a country that greatly disappoints when compared with our potential or one that beats all expectations."

    Nilekani makes a persuasive case that key attributes, some of which were once seen as India's weaknesses, have "matured at the same time" and together have become strengths. For example, although for years after independence many Indians saw the English language as a humiliating reminder of British imperial rule, it has been an essential ingredient of India's growing competitiveness and one of the few decisive advantages India has over China. (A chapter title of Imagining India says it all: "The Phoenix Tongue: The Rise, Fall and Rise of English.") Whereas India's state governments were until recently trying to stamp out English in schools -- an effort as ineffective, fortunately, as many other misguided policies -- nowadays even communist West Bengal and Hindu-nationalist Gujarat have made the teaching of English compulsory starting in the first grade.

    Or take two other former "weaknesses": India's often-chaotic democracy and its booming population. In the 1970s and 1980s, Indians and foreigners alike bemoaned the fact that New Delhi, unlike Beijing, could not control the country's galloping population growth. Autocratic China was believed to have a clear advantage over India because it could do things like limit families to one child apiece. No sane Indian politician would propose such a measure; it would have guaranteed defeat at the ballot box, writes Nilekani. Prime Minister Indira Gandhi did attempt draconian population control once during India's only brief spell of autocracy in the 1970s by imposing a brutal sterilization policy on millions of India's poor, particularly its Muslim poor. She was booted from power as soon as free elections were restored.

    Gandhi's failure three decades ago has become India's twenty-first-century "demographic dividend." Starting in 2015, the ratio of workers to retirees in China will start to drop relentlessly, imposing a large and then growing tax on production and creating a severe policy challenge for a communist state that has yet to devise a modern social safety net. In India, by contrast, the median age is 25 years and falling. India's increasing youthfulness will boost savings rates and economic growth almost as far as the eye can see. In this respect, at least, India's "democracy tax" would appear to be an advantage.

    Another of India's great weaknesses historically has been its addiction to bureaucracy: near-infinite paperwork offers the government middlemen who master it many opportunities for corruption. And although much of that remains, large parts of the Indian state, most important, its tax-collection operations, have become IT savvy in recent years thanks to the demonstration effect provided by the extraordinary growth of India's private sector.

    When computer imports were first proposed in the 1960s, Indian parliamentarians described them as "man-eating machines." Now, computer-related business generates millions of jobs. The communist government of West Bengal has even banned strikes at local call centers -- an extraordinary step for authorities backed by trade unions and a far cry from the day, in the 1980s, when a bureaucrat called the first computers to enter Indian government offices "advanced ledger posting machines."

    It is now widely acknowledged that India has benefited from this ALPM revolution. By putting an end to the culture of "export pessimism" and helping create a dynamic private sector, people such as Nilekani have given their country a perfect demonstration of what Indian businesses can achieve overseas. Gone are the days when Indian products were known for their "terrible quality" -- "yellow paper, refrigerators that didn't cool and cars that backfired on their way off the assembly line," as Nikelani puts it. Gone, too, are the days when kleptocrats could stuff the ballot boxes. India's fully electronic and much more tamper-resistant voting system was on full display in India's general elections in April and May.

    AFTER THE RISE

    Challenges -- to use a polite word -- still loom, of course, and Nilekani's book really comes into its own in describing those. By far the most worrying ones relate to India's rapid environmental degradation and shortsighted energy policies. On these issues, it is again Gandhi, that towering figure of strength -- "the only man in a cabinet of old women," according to one wit of her time -- who now looks like the leading culprit. By proclaiming "development before environment," she created a mindset that endures.

    She was not alone in endorsing this approach, but governments in the West have gotten away with it more easily. For much of the nineteenth and twentieth centuries, European powers could plunder their resource-rich colonies while exporting any surplus population there. But India today has no such outposts and no possibility of gaining any either. It is four times as populous as the United States with just one-third the territory. And New Delhi cannot plead ignorance of the consequences of environmental degradation at home (brown clouds, chemicals in rivers -- holy rivers, no less) or abroad (global warming). After all, the Intergovernmental Panel on Climate Change, which is headed by the Indian scientist Rajendra Pachauri, shared the Nobel Peace Prize with former U.S. Vice President Al Gore in 2007.

    Which is why it is particularly vexing to hear Indian leaders declare that global warming is "nothing more than a 'Western conspiracy' meant to keep India poor and underdeveloped," as Nilekani recalls one cabinet minister telling him in an all-too-believable aside. Nilekani argues that given India's population density and shocking level of deforestation, its government must transcend the dichotomy between development and the environment. Soil degradation has reduced India's agricultural output by roughly one-fifth, and growing salination caused by poor water usage will cut output further still.

    Indeed, India has already suffered so much environmental degradation at such a low level of development that it is now at risk of squandering perhaps its biggest achievement since independence: food security. Today, India has a food surplus: it exports a small amount of food and stores a large quantity in warehouses in case of famine. But according to Nilekani, if current trends continue, by 2030 it will need to import 30 percent of the food it consumes. It is already a prominent victim of global warming, and yet Indian politicians continue to see climate change through the prism of postcolonial rhetoric. The melting of the Himalayan glaciers has turned the once-bounty-providing grand rivers of Asia -- the Ganges, the Brahmaputra, the Irrawaddy -- into dry riverbeds for much of the year.

    Then there is the deteriorating quality of life. India's biggest cities are grinding to a halt with the rapid rise in private vehicle ownership. There are just two private vehicles for every 100 Indians, compared with more than 80 cars per 100 Americans. An India that advanced even one-tenth of the way toward the United States' version of a modern lifestyle would be a vision of purgatory. Describing the risk that ever-worsening congestion will lead to ever-tighter economic bottlenecks, Nilekani departs from his usually understated prose: "If we ignore these warnings and eventually see our growth rates tumble as our economy becomes unsustainable, we will have no-one to blame but ourselves."

    Nilekani issues much the same cry of alarm regarding energy. India is blithely spewing out an increasing quantity of coal-fired emissions, exceeded only by China. The story of development is, of course, a story about carbon. As the West developed, its carbon usage grew, and so it is with India today. But it would be absurd for India to cut off its nose to spite its face by following the high-consumption route taken by the United Kingdom, the United States, and other countries as they industrialized simply because that was the route they took. At the moment, India imports 70 percent of its oil; it is expected to be importing 90 percent by 2025. As a result, Nilekani argues, India's development model now faces the "triple challenge of global warming, rising costs and insecure energy supplies."

    Happily, India's relatively low level of development offers the country a hidden advantage, namely, the chance to leapfrog intermediary stages of progress. It exploited this advantage during its recent deregulation of the telecommunications sector: the absence of a deeply entrenched network of fixed phone lines enabled it to move directly to mobile telephony. Twenty years ago, it took educated city people months, sometimes years, to get a fixed line installed; today, even impecunious villagers can afford to buy a cell phone off the shelf. More than ten million new subscribers sign up for service every month.

    If only Indian policymakers would take note, they could also turn the country's relative lag when it comes to energy and the environment into an advantage. Nilekani offers many solutions, including building an integrated national gas grid to transport India's growing supply of relatively clean natural gas. Many of the world's most promising biotechnology and alternative-fuel entrepreneurs are Indians based in Silicon Valley. India could create a more attractive venture-capital sector to lure back more of its own scientists and entrepreneurs from abroad. Examples of potentially transformative Indian products that are already being developed at home include the $25 laptop and a carbon-positive electric car, which has a photovoltaic sunroof. Many more would be in the pipeline if India had a U.S.-style financial system for start-ups.

    IN PRACTICE

    The only area in which Nilekani's solutions come across as either impractical or unrealistic is in his treatment of Indian politics, the necessary vehicle for reform. If Indian politicians were like Nilekani, there would be reason to be optimistic about India's future. India possesses the human know-how and natural resources to surmount its challenges. For example, it could devote much more agricultural land to growing biofuel crops such as switchgrass -- a move that would expand its energy stocks and relieve the country's much-abused water table, which is being drained by water-guzzling crops such as rice and wheat. But reform would mean getting rid of the layer of bureaucrats and the groups of farmers who live off India's lavish and grossly corrupt subsidy system. Maintaining India's existing system of patronage-based subsidies is the raison d'être of many lower-caste political parties, which are essential partners for the formation of coalition governments.

    Nilekani does spot some hopeful trends in Indian politics, for example, the country's move away from a top-down "cathedral model" of the state toward a more decentralized "bazaar model" that draws on the country's "open source" talents. He is right to identify this. But India is no closer to being a "deliberative democracy," despite what he optimistically avers, than Italy was in the 1950s (or is today, for that matter). That said, as Nilekani rightly points out, China's worse record on some of these issues means that Indian democracy continues to be preferable to Chinese autocracy.

    For good or for ill, the decisions of Indians will hold ever greater sway over the fates of other countries, including that of the United States. The solutions to India's enormous problems may not be around the corner, but they deserve very close attention. Nilekani's book is an ideal place to start contemplating India's great challenges and its no-less-breathtaking potential. The world could do with a lot more "avid amateurs" like Nilekani.

    Foreign Affairs Magazine
     
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