The Real India, Behind The Fog

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Just over a decade ago, in the British university where I was studying, some students did not know where India was. Some thought that it was somewhere in Africa. (Admittedly, quite a lot of Indians who had emigrated to the UK had moved not from India, but from African countries.) Given the kind of television images they saw, a lot of them thought that all Indians did was throw dead bodies in the Ganges, bum widows on their husbands’ funeral pyres, charm snakes, and ride on elephants. They thought there were more cows on the roads than people – if roads existed at all. They thought India’s population was so large that people would soon need to sleep on top of each other, and that this was what they were doing anyway. Some thought it was a miracle if an Indian could add two and two.

Today the perception is completely different. Today India is a mammoth. Its GDP is tenth highest in the world, ahead of Singapore, Hong Kong, Finland, Austria, Sweden, Belgium, Switzerland, the Netherlands, and Australia. With the West’s rate of growth at about 2% of and India’s at about 6.9%,1 India is seen as a powerhouse and its inhabitants as supermen, achieving economic progress that could not occur in the wildest dreams of Westerners. People speculate about when, not whether, India and China are going to take over as the economic powers of the world. Indians are regarded as top-class doctors and engineers, men and women for whom nothing is now impossible.

Starting in May 2005, Canada’s National Post, a generally anti-statist newspaper, ran a series of stories on the enormous successes of India’s opening economy. On the first day of the series, most of the front page was occupied by a picture of an Indian rocket taking off. The story said that the Indian government was seriously contemplating a mission to the moon.

How much of this is truth, and how much of it is rhetoric, a false perception based on partial numbers and skewed analysis, catering to what people want to see instead of what they do see when their eyes are open?

Let’s sort things out.

Yes, India’s GOP is almost the same as that of Australia. But its population is more than 50 times bigger than Australia’s. Each year, India adds to itself a population nearly equal to that of Australia. When you re-rank the two countries on a per capita basis, Australia goes to the 24th position, and India slips to almost the bottom, way behind Albania ($2,080), Swaziland ($1,660), Angola ($1,030), and the Congo ($770). With a per capita GDP of $620, India is slightly ahead of Pakistan ($600) and Mongolia ($590).2

In other words, an average Indian lives on about $1.70 a day. And how does India’s glamorous growth appear from this perspective? Australia’s growth in GOP (which is around 20/0) will add about $600 to its per capita GO~ almost as much as India’s total GDP per capita. Its 6.9% growth will give the average Indian about 11 cents extra for use each da)’, a year from now.

So here is the summary: India is not an economic power, and at this rate cannot be one for the better part of this century. Just add 11 cents to the average daily per capita income of an Indian for the next year*, and another 13 cents next year* and so on, and you will quickly see the truth – and remem-

*Optimistic calculations – taking into account population growth, this actually drops to about 5.5%.

ber, these gains will be accomplished only if India manages to sustain 6.9% growth.

Here is the rest of the truth: India is developing fast, by Indian standards. For the average Indian living on $1.70 per day, an extra 11 cents next year will be a windfall. Despite their similar GDPs, the expenditure profiles of India and Australia are very different. The Indian will likely spend his 6.9% growth on food and accommodations, and will continue do- ing so for many decades to come. If Australia sent a mission to the moon for the ego satisfaction of its elites, it would be robbing the rich of their luxuries. If India sends its lunar mission, it will be robbing the poor of their bread.

What an irony: capitalist Australia refuses to rob – at least in this case – even the rich, whereas so-called socialist India robs the poor. This, of course, is not a perception that Indian statists wish to encourage. The lobbyists whom the state of India has employed in North America 4 have done a good job. They have helped Indian politicians hijack credit for whatever economic development has taken place. It is mostly forgotten that India has done better in the last decade largely because a few people have managed to bypass the state, using the Internet to create a huge software and call-center industry. To the degree that India may be considered an economic “powerhouse” (and that is a very small degree), it is so despite the state.

The Real India, Then

In 1993, I returned to India after completing my business education in the UK. During the two years I spent in Britain, perceptions of India had started going through a complete transmutation – the snake-charmers were becoming software engineers. Working as country manager for a British company, I was among the first to exploit the opportunities that a newly opening economy presented to foreign companies. Soon, every self-respecting company had to do something in India. *

I moved to Delhi. To my dismay, no one wanted to rent me a decent place to live in. The landlords mostly refused to talk

*Moving among expatriate businessmen, I was amazed at how the boards of many big companies had decided to enter India solely on the basis of irrational emotions. The consultants worked backwards to justify what was already fated to be done.

to me, and had blatantly advertised their property as for foreigners only. Dogs and Indians were not allowed. I feigned an English accent and fooled a landlord about my nationality. It was the only way to get the (less than perfect) place I wanted – my skin-color was not white, and whiteness was a necessity for a really decent abode.*

After looking for a place for over a month, and spending a fortune staying in a hotel, I got an accommodation with a

Despite its economic growth, India remains one of the world’s poorest and most wretched countries. The proof is visible in all its nakedness barely a few miles outside the city limits.

 

preinstalled telephone, the most highly prized commodity in India in those days. People who worked in public sector monopolies, which most industries were, made fortunes collect- ing bribes. On several occasions I was to see that they didn’t even care about money – they wanted the sadistic enjoyment of making people grovel.

But having a phone was not enough. It usually did not work, and when it did, I usually could not use my fax machine because of the “noise” that infested the communications network. For the next three years, I spent, on average, one day a month to keep my phone in operation by making personal visits to the telecommunication department. For the next three years I walked to the market four times a day, every day to send and receive faxes for my British company.

One of the several laws I broke in those days was the law restricting the fax machine itself. I should have sought a license to use it; but getting it would have meant tens of visits to the telephone office, more hefty bribes, and the certainty that if I was refused a license, I would not have been able to communicate. This meant that the government employee responsible for keeping track of my telephone connection got a particularly heavy bribe. I was committing a criminal offense simply by trying to participate in a modern economy.

In addition, I spent the equivalent of one day a month depositing my telephone, electric and water payments. Completing a simple transaction at a bank could easily cost an hour. Sometimes I traveled by train, but according to the law only I could buy my ticket. The lines to buy tickets used to be so long that it took me a day to get to the train station, buy my ticket, and return. I decided not to honor that law. Instead, I engaged an “illegal” company to send someone to present himself as me and buy my ticket.

Getting money from the UK was another bureaucratic nightmare. The money came to the foreign currency department of a public sector bank. Once the bank got the money it would take about two months to give it to me – the check just traveled around and around inside their office. I had to go to the bank several times to see whether my money had arrived, something not easily accomplished, as you might imagine if you think about the motivation of the bank employees. Usu- ally no one knew that any money of mine was lurking inside their piles of papers. Each visit to the bank consumed a day. The finance director of my UK compan~who had never been outside the UK, thought I was completely stupid.

In a grudging and belated concession to avoid defaulting on its foreign currency commitments, the Indian government had recently started to allow foreign companies to invest in India. Thick books were available to help in interpreting the associated laws. Legall~ I could create one of the following entities: a liaison office, a branch office, or a subsidiar~ each encumbered with unrealistic limitations on what we could or could not do therein. We spent a fortune, and more than two years of hard labor, just to get the necessary approvals.

Otherwise I did, as did other Indians, what was necessary _. growing a guilty conscience, suffering the moral corruption that results from dealing with a corrupt system, and eventually losing consciousness of what was a good law and what

was a bad one. There is a generally accepted saying in India: “You can scoop out butter only with a crooked finger.”

The company I worked for made high-technology equipment to measure gaseous emissions from chimneys. As we had no current installation in India, my company offered one

One of the several laws I broke in those days was the law restricting the fax machine itself.

 

installation to a (public sector) electricity generating company free of cost. The would-be installation site was about 38 miles from my place in Delhi – about five hours by taxi. The responsible person at the site, holding the fancy title of Deputy General Manager (Operation & Maintenance), had too important a designation to meet me before I held protocol meetings with his secreta~ a relatively uneducated person endowed with some of the ugliest manners I have ever encountered.

Landlords refused to talk to me and blatantly advertised their property as for foreigners only. I feigned an English accent and fooled a landlord about my nationality.

I was forced to meet with him several times before I could organize my first meeting with the boss. The secretary himself was too important to talk to me on the phone. A year was consumed before my first real meeting took place; two more years were wasted in bureaucratic dramas before I got the free installation running.

Since a good part of my day was spent in making sure that my telephone, electricity, and water were in operation, and the rest was spent dealing with bureaucracies, I worked almost 14 hours a day, every day of the year, and still lacked any real results (what the economists would call product or real value-addition) to show for it.

A year after I moved to Delhi, I employed a peon, a runner boy to take over the job of waiting in lines to make utility payments, visit banks, and do other non-productive administrative activities. I paid him a salary that was equivalent to about $40 a month. This was just above what the minimum wage laws asked for, and twice as much as the generally accepted minimum wage. Half the time, the peon didn’t come to the office, but I accepted the situation and never blamed him. Like most Indians who take such jobs, he was fatalistic and unreliable. Who wouldn’t be, in the system we lived in? If I had paid him more, I suspect, he would have reduced his visits until they were sufficient to earn the basic salary.

In those days, the Indian GOP hovered around $300 per capita – an average of less than a dollar a day per person. My education in economics in the UK had told me that with Western salaries almost a hundred times higher, jobs should flood into India. I had learned that minimum wage laws were the biggest reason for unemployment in the West. I wondered wh)’, given the fact that there were (for all practical purposes) no minimum wages in India,* more than half the country was unemployed. My return to India showed me what government can do to achieve this result.

My company spent more than three years and a million dollars to achieve what would have taken just a couple of days of work in the West. This is my anecdotal experience of what made India so pathetically poor, what made its productivity dose to zero, and usually negative, as reflected in its GOP. While I worked in Delhi, newly graduated university students were happy to work for me for free, just for the experience of working. But one of the most difficult things was to find people with decent work ethics – one of the primary victims of the collectivist system in which my associates had been reared. This is how India, despite its lack of an effectively implemented minimum wage, managed to have high unemployment: the marginal productivity of employing another Indian was zero, or even negative.

Human life, which should have been the nation’s biggest asset, had been transformed into a liability by idiotic laws and customs. Free from legal encumbrances, the cow was, of course, more holy and productive.

The Real India, Now

 

In 1998 I moved to a self-sufficient gated community with its own electrical generating plant, water supply system, and private security – probably among the first such communities in India. Telephones had just started becoming private all over the country. A guy wearing a suit in the sweltering

The minimum wage laws are very strict, but most private employers simply ignore them.

 

heat of Delhi came to install my new telephone. He made no pretensions of looking important and called me I I sir” more often than he should have. Efficient private banks had opened everywhere. I could talk to them on the telephone, and they even delivered money to my place without charge.

GM and Ford had just been allowed entry into the country, and those who could afford them had decent cars. Private airline flights were frequent and reliable – it continued to be common for the public sector airline to complete an hour’s flight in five, hopping to destinations not on its direct route. Cellular phones were cheaper and easier to get. Private electricity companies started to operate. They didn’t waste time and resources the way the public sector did. Selling my company’s equipment to them was peanuts compared to what I had experienced with the public sector.

Well-paid people like me were increasingly common. They were spending less and less time dealing with the bureaucracy and more and more time producing things that customers wanted. Industries catering to their needs started to appear. Life was starting to be easy. The best brains stopped working for the state and began working for the private sector, initially to deal with and circumvent legal restrictions, but later in productive activities that went beyond all that.*

By 2004, Indian CDP had grown to $620. Most of this growth was spearheaded by an emerging service industry related to software and telecommunications. It has therefore been restricted to the megacities, and even there to the relatively educated minority; the entire IT and office-service industry of India employs only about 1 (9) million people. To put this figure into perspective: the Indian population grows by more than a million every month! What the foreign business tourist saw in the megacities he soon considered characteristic of India as a whole. But despite its economic growth, India remains one of the world’s poorest and most wretched countries. The proof is visible in all its nakedness barely a few miles outside the city limits.

The foreign and Indian companies that managed to succeed in the new India were in the industry that the bureaucrats, in their stupidity didn’t know how to regulate: telecommunications and business based on the Internet. Manufacturing, agriculture, and mining remain under the control of a profoundly corrupt state.** According to Transparency International, perceived (10) levels of corruption haven’t changed since 1998. Toda)T, the poor are doing better than before because of the cascading effect of money generated in the service sector. For a developing country, India devotes a remarkable, indeed an anomalous, share of its economy to services: 51.8%. A big chunk of “industry” is “missing.”
A lot of multinational corporations ignored India as a place for their so-called sweatshops, as the bureaucratic costs of doing business in India more than offset the cheap labor costs. These “sweatshops” would have provided much-needed employment to the poor, covering a much broader base than a service-industry driven economy ever can. Ironically, several Indian companies have moved their manufacturing (11) operations to China.

When I lived in Delhi, I drove a good car, not because I

*I guarantee that most Indians would still find little value difference between time spent sorting out legal hassles, and time spent doing productive work.

**When I started working, a lot of public servants expected small bribes: cordless telephones, an expensive dinner, etc. When they saw money being generated by the private sector, they started to expect as gifts such things as foreign travel. In the early ’90s, the best went to work for the state. Then they stopped, and the quality of those who remained with the state went down.

wanted to show off, but because the car ensured that the police would not stop me all the time. In the capital city of Delhi, if you are poor, you have to go through a police verification to get a job – a practice, reminiscent of the old communist countries, that started in the mid-90s. (12) If you are rich, you are fine. For India’s poorest to do better, the restrictions on their lives and work have to be removed.

The Future of India

India is finally growing, and that is great news. It is out of the vicious cycle, and the future is bright. But it can do a great deal better; it can go much faster; and it should.

Free marketers who read In- dia wrong, who see in it a powerhouse and an economic miracle, risk glorifying its persistent stat- ism. Sending a mission to the moon is not a victory for the individual Indian. He needs more self-esteem and self-reliance, but that can come only if he can succeed and grow on his own terms, and above all if he is allowed to strive for the best in himself. If anything, the idea of a moon mission testifies to India’s entrenched statism and collectivist thinking.

Praise for the statist present is already harming the process of liberalization. Current benefits are enjoyed by people who can bypass the state – people in the software and telecommunication-based service industries. While “India” is praised for this mighty progress, the real India still lacks an emerging manufacturing sector, which could employ the poor. The meddling and corrupt politicians remain in power; and I have never met an honest politician or bureaucrat in India. Let us not glorify the enemy (the state) by calling it the savior; let us

There is a generally accepted saying in India: “You can scoop out butter only with a crooked finger. “

 

not believe that all is well in India just because we have seen the relative prosperity of Bangalore, a city that has less than 1% of India’s population. The truth of the poor is terrible.

If there is one lesson I have learned, it is this: if government simply lets people get on with their lives, even the poor- est and seemingly most stupid people can make their lives work fabulously well. Since this is happening in a small way in India, I see a future for that country, and for the billion people who suffer there from the horrors of statism. That is great news economically and morally. It is great news when people can grow up in a liberal environment, free from dehumanizing bureaucracy. But for this to happen in India, the lesson to which I just referred must be learned, both by the opinion leaders of the West and, especially, by the opinion leaders of India itself.

Until the early ’90s, India had no foreign companies of any significance. I did not know what Coke, Pepsi, or McDonald’s were. We were abysmally poor, and although the poverty was all of our own making, we blamed the CIA, our scapegoat for all our problems. Now university students, like their brethren in the West, rally against exploitation by multinational corporations and the Indian private sector. They rally to stop a clean private electrical generating plant from opening in Del- hi, while the state-owned plant spews black soot into the heart of the city. They complain that the bottled water marketed by multinational corporations fails to abide by European standards, while the tap water in India causes sickness and death. The facts are clear, but the young ignore them – perhaps because facing those facts might reflect poorly on India itself.

This, of course, is nonsense. What matters to the real India is the lives of individuals, and the truth – the history that future generations will read when they are trying to decide what made India a success: was it the state, or was it the free market?

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