CAT 1997 Question Paper
When talks come to how India has done for itself in 50 years of independence, the world has nothing but praise for our success in remaining a democracy. On other fronts, the applause is less loud. In absolute terms, India hasn't done too badly, of course, life expectancy has increased. So has literacy. Industry, which was barely a fledging, has grown tremendously. And as far as agriculture is concerned, India has been transformed from a country perpetually on the edge of starvation into a success story held up for others to emulate.
But these are competitive times when change is rapid, and to walk slowly when the rest of the world is running is almost as bad as standing still or walking backwards. Compared with large chunks of what was then the developing world — South Korea, Singapore, Malaysia, Thailand, Indonesia, China and what was till lately a separate Hong Kong — India has fared abysmally.
It began with a far better infrastructure than most of these countries had. It suffered hardly or not at all during the World War II. It had advantages like an English speaking elite, quality scientific manpower (including a Nobel laureate and others who could be ranked among the world's best) and excellent business acumen. Yet, today, when countries are ranked according to their global competitiveness, it is tiny Singapore that figures at the top. Hong Kong is an export powerhouse. So is Taiwan. If a symbol were needed of how far we have fallen back, note that while Korean Cielos are sold in India, no one in South Korea is rushing to buy an Indian car.
The reasons list themselves. Topmost is economic isolationism. The government discouraged imports and encouraged self-sufficiency. Whatever the aim was, the result was the creation of a totally inefficient industry that failed to keep pace with global trends and, therefore, became absolutely uncompetitive. Only when the trade gates were opened a little did this become apparent. The years since then have been spent in merely trying to catch up.
That the government actually sheltered its industrialists from foreign competition is a little strange. For, in all other respects, it operated under the conviction that businessmen were little more than crooks who were to be prevented from entering the most important areas of the economy, who were to be hamstrung in as many ways as possible, who were to be tolerated in the same way as an inexcisable wart. The high, expropriatory rates of taxation, the licensing laws, the reservation of whole swathes of industry for the public sector, and the granting of monopolies to the public sector firms were the principal manifestations of this attitude. The government forgot that before wealth could be distributed, it had to be created. The government forgot that it itself could not create, but only squander wealth.
Some of the manifestations of the old attitude have changed. Tax rates have fallen. Licensing has been all but abolished. And the gates of global trade have been opened wide. But most of these changes were forced by circumstances partly by the foreign exchange bankruptcy of 1991 and the recognition that the government could no longer muster the funds to support the public sector, leave alone expand it. Whether the attitude of the government itself, or that of more than a handful of ministers, has changed, is open to question.
In many other ways, however, the government has not changed one whit. Business still has to negotiate a welter of negotiations. Transparency is still a longer way off. And there is no exit policy. In defending the existing policy, politicians betray an inability to see beyond their noses. A no-exit policy for labour is equivalent to a no-entry policy for new business. If one industry is not allowed to retrench labour, other industries will think a hundred times before employing new labour.
In other ways too, the government hurts industries. Public sector monopolies like the department of telecommunications and Videsh Sanchar Nigam Ltd. make it possible for Indian businesses to operate only at a cost several times that of their counterparts abroad. The infrastructure is in shambles partly because it is unable to formulate a sufficiently remunerative policy for private business, and partly because it does not have the stomach to change market rates for services.
After a burst of activity in the early nineties, the government is dragging its feet. At the rate it is going, it will be another 50 years before the government realises that a pro-business policy is the best pro-people policy. By then of course, the world would have moved even farther ahead.
When Deng Xiaoping died a few months ago, the Chinese leadership barely paused for a moment before getting on with the business of governing the country. Contrast that with the chaotic contortions on India's political stage during the past month, and it is easy to conclude that democracy and democratic freedoms are serious obstacles to economic progress.
When the Chinese leadership wants a power plant to be set up, it just goes ahead. No fears of protracted litigation, of environmental protests, or of lobbying by interested parties. It — or the economy — is not held to ransom by striking truckers or air traffic controllers. Certainly, there is much that is alluring about an enlightened dictatorship.
But there the trouble begins. First, there is no guarantee that a dictatorship will be an enlightened one. Myanmar has been ruled by a dictator for decades, and no one would claim that it is better off than even Bangladesh which has itself suffered long stretches of dictatorship. Nor can Mobuto Sese Seko, much in the news these days, be described as enlightened by any reckoning. The people of Israel, almost the only democracy in a region where dictatorships (unenlightened ones) are the norm, are much better off than their neighbours.
Second, dictatorships can easily reverse policies. China was socialist as long as Mao Zedong was around. When Deng Xiaoping took over in what was essentially a palace coup, he took the country in the opposite direction. There is little to ensure that the process will not be repeated. In India such drastic reversals are unlikely.
Six years ago Indian politicians agreed that industries should be de-licensed, that imports should be freed or that investment decisions should be based on economic considerations. Now few think otherwise. Almost all politicians are convinced of the merits of liberalisation though they may occasionally lose sight of the big picture in pandering to their constituencies. India has moved slower than China on liberalisation, but whatever moves it has made are more permanent.
Democracies are also less likely to get embroiled in destructive wars. Had Saddam Hussain been under the obligation of facing free elections every five years, he would have thought ten times before entangling his people in a long confrontation with the West. Germany, Italy and Japan were all dictatorships when they launched the World War II. The price was paid by the economies. Democracies make many small mistakes. But dictatorships are more susceptible to making huge ones and risking everything on one decision — like going to war. Democracies are the political equivalent of free markets, Companies know they can't fool the consumer too often; he will simply switch to the competition. The same goes for political parties. When they fail to live up to their promises in government, the political consumer opts for the competition.
Democratic freedoms too are important for the economy, especially now that information is supreme. Few doubt that the Internet will play an important part in the global economy in the decades to come. But China, by preventing free access to it, is already probably destroying its capabilities in this area. As service industries grow in importance, China may well be at a disadvantage though that may not be apparent today when its manufacturing juggernaut is rolling ahead.
India has stifled its entrepreneurs through its licensing policies. That was an example of how the absence of economic freedom can harm a country. But right-wing dictatorships like South Korea erred in the opposite direction. They forced their businesses to invest in industries, which they (the dictators) felt had a golden future. Now many of those firms are trying to retreat from those investments. Statism is bad, no matter what the direction in which it applies pressure. At this moment, China and other dictatorships may be making foolish investment decisions. But as industries are subsidized and contrary voices not heard, the errors will not be realised until the investments assume gargantuan proportions.
India's hesitant ways may seem inferior to China's confident moves. But at least we know what the costs are. That is not the case with China. It was only years after the Great Leap Forward and only such experiments that the cost in human lives (millions of them) became evident to the world. What the cost of China's present experiments is we may not know for several years more. A nine per cent rate of growth repeated year after year may seem compelling. But a seven per cent rate of growth that will not falter is more desirable. India seems to be on such a growth curve, whatever the shenanigans of our politicians.
