It’s now 20 years: Reforms Vicenary: 1991-2011

It’s now 20 years—a generational epoch—since the 1991 economic reforms that have helped spur the fastest economic growth in our country’s history, and that have embedded us in an ever-more-complicated world. That 1991 also brought another pivot point, the fall of the Soviet Union, and seemed to signal a profound global switch: the victory of market capitalism and liberal democracy. But 20 years later, the meaning of 1991 looks more blurry.

Authoritarian China controls the world’s most dynamic economy, while the beacon of liberal democracy—the United States—finds its legitimacy chastened and its economic momentum checked, with no clear idea of how to renew that impetus. The neoliberal dream embodied in the ‘Washington Consensus’ has evaporated and, while China increasingly asserts itself as a powerful sovereign actor, the idea that there could emerge an attractive model that is styled around a ‘Beijing Consensus’ seems delusive.

Where, in this transformed, undecided world does India—itself changing profoundly, and ambivalent about its options and desires—stand? How is economic expansion altering our own society—and our place in the world? What is India’s post-liberalisation story, and how does it fit both with our own account of what we wish to be, and with a new global story?

We have now an entire post-1991 generation of adult Indians for whom the ambiguities of coalition politics, a volatile Hindu nationalism and intense caste politics are simply parts of the landscape—as are the market economy, dynamic growth rates, traffic hell and the electronic media. They have been reared in the age of economics. If in the 20th century India’s search was for political freedom, today most Indians are in search of wealth—and power.

Yet, in that search for wealth, it’s worth remembering that economic advantages are not always best achieved by economistic means. Achieving them requires a more complex view of human beings, and of the world, than the dismal science can ever allow. The greatest economists are not the whizkid ‘quants’ trying to model and predict the future in numerical terms. The greatest have been those—Adam Smith, John Maynard Keynes—with insight into human psychology and how the nature of uncertainty itself shapes human actions. Keynes, in 1937, wrote: “We assume that the present is a much more serviceable guide to the future than a candid examination of past experience would show it to have been hitherto. In other words we largely ignore the prospect of future changes about the actual character of which we know nothing.”

As Indians seek now to expand and consolidate the opportunities opened by the reforms of 1991, we need more than ever to think systematically about such uncertainties. Republics that endure and prosper are those that balance optimism about the future with a sense of the threats that may spring.

In our exuberance, we forget we cannot stay insulated from a dysfunctional neighbourhood.

“India is firmly on the growth expressway,” Goldman Sachs declared a few years ago, but the future is seldom reached by a through-route, nor can we foresee it in an economist’s graph or forecast. And only in the rhetoric of politicians do we reach out to grasp the future—more often, it hits us in the face, from unnoticed angles and with unexpected force. “The paradigmatic moment of political awareness”, the political theorist John Dunn reminds us, is Julius Caesar’s greeting his least-expected assassin, “Et tu Brute?”

It is clear that structurally, the fundamentals are now aligned to sustain India’s economic expansion. The country’s demographics, its levels of savings and investment, and its entrepreneurial talents could indeed enable significant growth to continue for another generation and more.

But the world consists not just of structures and trends—it is made up also of agency, and of actors. And how we cope with our own actions and their unforeseen results, as well as the often unpredictable actions of others, will be decisive for whether India’s economic potential is realised or squandered.

Twenty years on, the most important legacy of 1991 is that it has given us real choices to make, for better or worse. In making those choices—political judgements—two facts are crucial. The first is that we now have a very limited window of opportunity during which to get things right with respect to our productive capacities and competitive abilities—five years at most, perhaps ten. The second is that the decisions we take will have long-term effects, and will set us on paths that will be hard to alter. In that sense, the real turning point in our economic prospects will lie just ahead—and not back in 1991.

One of the most striking transformations since 1991 has been in our psychological outlook. Changes in the material world produced by economic growth—directly or vicariously experienced—have sparked extraordinary optimism about the future. Whether measured by levels of the stockmarket, investment, policy forecasts, it’s an optimism that seems insulated against political uncertainties, terrorism and the corruption that marks so much of what passes for everyday life in India.

Similar optimism pervades popular views. In 2009, when the effects of the financial crisis were cascading across the world, the Pew Global Attitudes group surveyed opinion in G-20 countries and found Indians to be the most positive in their attitudes towards market capitalism. Ninety-one per cent of Indians could describe their economic situation as good; 96 per cent were positive about trade with other countries; and 81 per cent agreed that people were better off in a market economy despite the inequalities. Such survey figures often do demand a dose of salt—but still they indicate the enthusiasm of the new convert, for whom the tests of experience lie ahead.

It used to be said that Indians didn’t bother to pursue wealth because of their belief in karma, a fatalistic determinism that held back economic development. Now, as we hear repeatedly—whether it is from caste groups or from national leaders—that “our turn has come”, there’s equally the danger of an inverted complacency: a deterministic faith in our upward economic surge. There is no way of knowing how history works, but it certainly does not work like a game of musical chairs.

The new optimism that fills young India is undoubtedly a good thing. Economic growth, despite being uneven (in fact, precisely when uneven), does have the initial psychological effect of encouraging hope and optimism. This in turn shapes behaviour. People may become initially less risk-averse, more willing to borrow, to invest—and to believe in the future. But setbacks can have equally powerful reverse effects. Think of Japan: once the paragon of consumerism, today shops there implore people, not very successfully, to buy.

It would be a mistake to imagine our future on the basis of extrapolating economic trend numbers. The core problems we face—questions of social justice, of ecology and natural resources, social conflict, an insecure neighbourhood—are not merely external constraints on our search for wealth, matters to be addressed in due course. They will have to be tackled all at once, and this will often generate contradictory choices. But working to sustain multiple commitments, often in tension with one another, is a lesson our founders taught us.

Three tensions—domestic, international and global—are intrinsic to our economic possibilities and will frame the choices we make.

We should by now be well aware of the accumulating domestic strains accentuated by our post-1991 growth pattern—a pattern economic analysts like Michael Walton have called ‘disequalising’. It results in fantastic over-concentrations of wealth, ‘Antilian’ islands teetering above impoverished oceans. Walton notes that the private wealth of India’s billionaires has surged dramatically in recent years (from less than one per cent of GDP in 1997 to a peak of over 23 per cent in 2008), and as a share of GDP, it’s now close to that of Russia and Saudi Arabia, even while India’s level of per capita income is much lower than in those countries—and it is a democracy.

The rich, we have learned to recognise, are a necessary public good for every society. But there are also times one has to ask the question: What exactly is the social utility of such levels of wealth concentration?

Precisely because we are a democracy, there will be pressures for redistribution. Yet, unsurprisingly, these have been couched in terms that seek preferential treatment for groups defined by social identities—which, in many cases, do indeed correlate with deprivation. But the correlations are increasingly contentious, not least because identifying them calls for a fair number of discretionary judgements—and the disputes as well as the attempts to smooth them over (“Let’s extend quotas”) run the risk of jamming our economic progress. We need to move away from notions of social justice based on redistribution, and towards an Indian social democracy based on expanding participation and giving the citizenry universal access to the dynamic parts of the economy.

That can only be done by a steroidal enhancement of our human capital. Spreading education and improving skills have to be the one central task to which we commit, now, our accumulating wealth. Azim Premji’s judgement about where to invest his wealth is exactly right—and it will need many more to clamber off their Antilias and Anandams and follow his example, as well as more sensible government efforts, if we are going to scale up to the levels we need.

Twenty years on, it’s time to broaden attention from economic liberalisation, toward achieving knowledge and skill liberalisation—so that Indians can participate in the growth economy. Rapid experiment and innovation will be needed as we search for effective ways to educate and train millions of Indians in quick march. We are talking, in effect, about an educational revolution: revolutionary in methods, scope, speed—above all, in will.

We have so far relied on 19th century models of education. It cries out for radical change.

Government will have to open up space for new ideas and approaches to building India’s human capital. Until now, we have relied on models developed in the 19th century—elite institutions and universities, supposedly fed by schools and colleges lower down the food chain—and on the amazing autodidactic capacities of Indians. Given the magnitude of the problem—one million Indians entering the workforce every month for the next 20 years—neither self-help nor lumbering governmental institutions can offer a strategy to educate citizens and make them socially mobile.

Lines of tension also loom in the international domain, in both our regional neighbourhood and the international economy.

Since 1991, the paths and prospects of India and Pakistan have dramatically diverged: if it is optimism that prevails in India, in Pakistan the dominant sentiments are resentment, victimhood and despair. Pakistan’s problems are severe. The country’s population is rapidly expanding, and it will likely be the world’s third most populous country by 2050. It has dismal social and human indicators, and its rate of growth is declining. Combined with the predicament of Afghanistan and the brittle veneer of order in Burma, the dysfunctionalities of our immediate region will hold back India’s progress: distracting attention and resources, extracting opportunity costs and hindering the economic integration of the subcontinent. The crises of these societies are deep; we are in no position to intervene to try to resolve them. Yet, neither will we be able to keep out. It will need considerable political skill to manage our economic development in this geopolitical terrain.

Beginning in 1991, we embraced an economic model based on the liberal premise of benign global integration—which for many years the western economies pressed on India. Yet, in today’s world of structural imbalances, the developed economies grow ambivalent about the liberal premise. They sense a threat in Asian economic growth—yet, also for their own purposes, need the economies of China and India to grow. The western economies, struggling to cope with the effects of trade imbalances, are likely to meander between efforts to protect their acquired gains, to intervene in and seek to regulate markets, and to push for greater access to growing markets.

The leaders of western economies recognise that India can be one of the main drivers of global economic growth. But, the more India succeeds in integrating, the more it may face pushback, as its growth collides with a sense in western economies that this threatens their prosperity. Already among western electorates there is a popular reaction against open markets—and their governments will be compelled to be more politically active in the management of their economies.

India, for its part, needs to be careful and shrewdly strategic as it deals both with global markets and competitor states. The fact that India appears frequently now on the business pages of the New York Times and in the Financial Times is driven by western self-interest in India’s growth. This is perfectly reasonable. India’s likely demands for consumer goods, for major infrastructure projects and for defence wares—makes it the last great economic frontier. Given India’s scale, if it maintains its current growth rates and profile, that will be sufficient to keep western economies in business. The latter only really need the revenue-rich Indian state—the buyer of armaments, and of major infrastructure— and a relatively small part of India’s society, the part that can hang out at DLF Emporio in Delhi or the Palladium in Lower Parel, Mumbai, to provide the necessary markets.

NREGA is fine, but when will we address the problems that made it necessary in the first place?

But is that the sort of growth we should be interested in? The standard leftist response, of course, is to abhor with full moral fervour any growth linked to the global economy—while remaining unable to offer a viable account of how to improve the lives of the majority of Indians. A more intelligent response, though one requiring greater political skill, is to figure how to leverage the current western interest in Indian growth to the advantage of those parts of the society that really need to benefit.

The third paradox is a truly global one—one that escapes and encompasses state boundaries. India’s post-1991 globalisation has not only increasingly connected it to international flows of goods, services, capital and ideas, it has also inserted India into a universal history of nature, a history in which all humans, whatever state they happen to live in, have a stake. It’s a history that is making humans, even as they have imagined themselves nature’s master, become its ever more abject supplicant.

For Indians, this has a particularly sharp edge, because, just when they feel that they are gaining some control over their material conditions, those material conditions are proving unsustainable in ecological terms. The growth pattern we’ve fallen into essentially replicates the high natural resource and energy use that the earlier growth economies followed. But for latecomers, it’s unlikely to be a repeatable ploy—especially not for an economy of India’s scale. What should India do? The answers remain in dispute. Alter growth models; trust in the market; or place hope in technical solutions. Frugality, price, science—individually, none seems adequate, but perhaps there is a winning combination.

Crisis prompted the economic reforms of 1991. It’s ironic, then, that the most recent global economic crisis has produced virtually no further reforms or policy ambition—at a time when much remains to be done. The one significant initiative in social and economic policy in recent years, NREGA, is an attempt to mitigate the failures of the Indian agrarian economy. The real question to ask is not whether NREGA is working or not, but: When are we going to address the causes which made NREGA necessary in the first place? There will be more crises and surprises ahead—and we’ll need to make better use of them, as we did in 1991.

{ Sunil Khilnani in Outlook | Magazine | Jan 10, 2011}