Director Magazine

INDIANS are inordinately proud of the fact that they have the world’s largest democracy. The sight of poor villagers trudging miles in order to vote is an awesome sight. In India, it is the poor who value their votes and who make sure to cast them, often standing in the sun for hours to do so. The rich, on the other hand, alternatively bored and disgusted with politics, rarely do.

And who can blame them? Satish Kumar is the vice-president of Oberoi Hotels, perhaps the best hotel group in the country. His Grand Hotel in Calcutta is a haven of security and peace in a city that can often seem like a cross between Beirut and Baghdad. Here is the precious illusion of a city that works. This is where the dwindling band of Western businessmen who come to Calcutta choose to stay. The film crew of City of Joy, the controversial film about Calcutta’s poor, saw it as the one sane place in the city, from where they periodically ventured out into a quite insane, hostile world.

Kumar, like any good hotelier, has a fund of stories, but his most chilling one is his inability to vote. At the last election, when he got to the polling booth he was not on the list. Indians have perfected the Irish system of “vote early, vote often”. In the municipal elections it was even worse: his block of flats was padlocked on the day of the election so nobody could leave. This time he is determined to vote but is not sure he will be allowed to.

This is not the only way the Indians have stood Western ideas on their heads. The world’s largest democracy has always been politically closest to the USSR. Forty-four years after independence India has the most regimented, socialist economy in the world but those very controls sustain some of the country’s most profitable businesses — the politicians talk socialism, businessmen make profits. Many of them enjoy a virtual monopoly status that would be the envy of their counterparts in less regulated economies.

JAWAHARLAL NEHRU, India’s first prime minister, was much taken by the socialist wisdom of promoting heavy industry and government control of the means of production and of the commanding heights of the economy. His daughter Indira read the New Statesman regularly and nationalised all the country’s banks in 1969. When her son Rajiv showed signs of abandoning socialism, there was much trauma among businessmen who feared a competitive market as much as the intelligentsia of the left. Socialism still remains the great political creed in the land. Indeed, Indian politicians do not appear to have heard about the fate of Eastern Europe. When questioned, they point to the fact that since independence the country has grown so resilient that it feeds itself. They will reel off the statistics: its gross domestic product of nearly $200bn ranks it 12th in the world; in industrial production it is seventh; it is the world’s fifth biggest cement producer; fifth biggest iron ore producer; Bombay’s Hindi film industry has long outstripped Hollywood; it has the second biggest rail network. But then the USSR has the world’s biggest rail network — hardly a reassuring symbol of progress.

In many ways, India faces the same problem as the USSR: there are parts of the country that want to secede and it cannot figure out how to dismantle the system of the last 40 years while not producing total chaos. The system is what Indians mockingly refer to as the “permit Raj”, where a businessman has to go to a bureaucrat to obtain permission to do various things, leading to a cosy world of bribes and monopolies. The bureaucrat sanctions a project only after palms have been greased; the license the businessmen receives is almost an invitation to print money for his product, which may often be the only one on the market. Thus India does not allow free imports of cars. For 40 years, two suppliers have held a monopoly: one producing a Morris Oxford, the other a fifties version of the Fiat. Despite recent liberalisation, they remain ubiquitous throughout India.

The restrictions can be so stifling that separate licenses are required to make soap and fatty acids, the ingredient from which soap is made. Indian company law restricts how much can be paid to the managing director. So Indian companies frequently have a president, in the style of American companies, and pay him a very generous salary. The managing director of an Indian company is quite often a lowly person. In one company, the managing director ranks as the seventh highest-paid person in the company — remarkable even by India’s convoluted standards.

But despite such unintended corporate engineering, there are parts of India, almost wholly in the private sector, that work very well. The hotel industry is a good example. The Hungarian government emphasised this recently when it turned to Oberoi as a partner in plans for hotel management in Hungary. However, such are the peculiarities of the Indian economic model that, just

as the Soviet system has created the vested class of nomenklatura — the communist officials who benefited from the system and are most resistant to change — so in the Indian economy there are businessmen in hock to the

government. Even the most flourishing private sector company has a large block of shares owned by the financial institutions. That may sound similar to London or New York. But in India the financial institutions, the banks, the insurance companies and the unit trusts are all owned by the government. So nearly all the major Indian companies have large blocks of shares owned by the government. It can amount to 45 per cent of the shares, giving the institutions seats on the board. However, back-scratching between bureaucrats and management does take place. The result? The original owners of the company, who may hold no more than five per cent of the equity, continue to run the business as a feudal concern.

If real structural change is to come, then it is this class of businessmen that will have to be taken on and defeated. Some Indians, who are keen that the rupee should became a convertible currency and the stock market part of the global market, see this as being done through the IMF. The over borrowing of successive governments has meant that India is now in hock to the foreign agencies. In January, India received a stand-by credit of $1.8bn from the IMF but still requires up to another $3bn. The hope is that the price the IMF will extract will be real, radical economic change.

This, I fear, underestimates the strength of Indian reaction. When socialism was riding high, Indians loved to point to Latin American countries such as Brazil and say that if they followed the American free enterprise path that is what would happen. Latin American banana republics were always being contrasted with model socialist planned economies. The rise of countries such as Taiwan and Korea has shocked and startled the Indians. Here is proof that free enterprise works — and the success of such countries is also very demeaning for many Indians. To find Korea and Taiwan and Malaysia (countries about which Indians know little) far ahead is incomprehensible. “Are we inferior to the Koreans?” one leading economist asked me in despair.

ON ECONOMIC performance the answer must be “yes”. The Asian tigers export 30 to 50 per cent of their GDP. India exports only 5.1 per cent and gets less foreign investment than Malaysia, a country almost one-tenth of its size in population. But these Asian tigers are succeeding because, like Japan, they have adapted the Western model to suit their culture. The problem in India is that it has yet to develop its own indigenous economic model, like the Japanese zaibatsu system. The tragedy is that there is no evidence that such a system is being developed.

But even if IMF pressure makes it change, it will still leave a wider question — as much as a problem for the West as India. This is that, whatever happens, the developing world cannot hope to industrialise to the extent of the developed world. The planet just does not have the resources for that. Yet the Indian elite operates as if it can catch with up the West. Western experts and commentators who are constantly visiting India do nothing to disabuse them of this dangerous notion. That is the real tragedy for India and might yet turn out to be quite a headache for the West.

© Mihir Bose


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