Gurcharan Das On How To Make India Grow During The Day

It’s a common saying in India that the “country grows at night while the government sleeps.” But how could the nation become the world’s second fastest growing economy despite poor governance and weak institutions?

What would happen if India grew while “the government was awake” -- in other words, what if India grew under the rule of an effective government, one with strong institutions and bureaucracies that don't hinder business growth?

Gurcharan Das, the former CEO of Proctor and Gamble, India, whose book “India Grows at Night” was released recently, feels the present slowdown in the country is a sign that India may have begun to experience the limits of "growing at night,"

Das says the country needs institutional reforms, not just foreign direct investment reforms. He hopes the rapid growth of a young, impatient middle class will bring about the reforms.

In an interview with International Business Times, the author of bestsellers like “India Unbound” and “The Difficulty of Being Good,” says India will have to recover a moral core in order to come to grips with the present crisis.

Excerpts from the interview:

Your first book, “India Unbound,” dealt with Artha (money), and “The Difficulty of Being Good” was about Dharma (duty). How do you describe your latest book, “India Grows at Night”?

Niti, also called Rajniti, or statecraft. My book is about how to make India’s democracy successful.

Is it correct to say India grows while the government sleeps?

Yes. When two Indians sit down to sip tea, they quickly agree that their country seems to be rising despite the state and cynically express the idea of private success and public failure as “India grows at night while the government sleeps.” But how could a nation become the world’s second fastest growing economy despite a weak, flailing state? And my point is -- shouldn’t India also grow during the day?

The recent slowdown is a sign that India may have begun to experience the limits of growing at night. India has managed to become a high growth economy despite poor governance and weak institutions.

I believe that for the next couple of decades it should be able to grow at 7-8% a year and become a middle income country with a per capita income of $6,000. After that, it will get stuck in the “middle income trap” unless it reforms its institutions of governance.

How will you justify the title, especially after the government has announced reforms like FDI in different sectors?

The FDI announcements are only a small feature of many reforms needed in a half-reformed economy. More important reforms are needed. We need to reform the institutions of governance -- the bureaucracy, judiciary, police -- and we need political reform.

There are huge vested interests in all these institutions, and it will take a strong and determined leader like Margaret Thatcher, who was also a reformer of institutions, to take them head on. If we are lucky, we will get such a leader, but you can never be sure in a democracy.

We had a strong leader in Indira Gandhi, but she was a destroyer of institutions, not a reformer of them. I am hoping that the rapid growth of a young, impatient middle class will force a reform. The middle class has realized its power (especially when it is backed by an aggressive media) and it has tasted a degree of success in recent years -- Anna Hazare movement being the last instance.

A second impediment to reforms is that no one has sold the wonderful liberal ideas of our Constitution to the people in a language that they understand so that they could become a moral core of their lives and eventually become what Tocqueville called “habits of the heart.”

India too will have to recover a moral core in order to come to grips with the present crisis. “Recover”, I say, because a moral notion of public dharma, “rajdharma,” exists in the people’s minds, thanks to the extraordinary continuity of Indian civilization.

What are the main characteristics of a strong, liberal state?

A successful liberal state has three elements. It has strong authority to allow quick and decisive action; a transparent rule of law to ensure the action is legitimate and it is accountable to the people.

This was the original conception of the state as imagined by the classical liberal thinkers which inspired both America’s and India’s founding fathers. Combining these three elements is not easy as they tend to check each other, but in India we seem to have forgotten that the state was created to act. It should not take eight years to build a road when it takes three elsewhere; it should not take ten years to get justice instead of two.

The rule of law has weakened as a result of populist and patronage politics, unaccountable officials, judicial delay, and a toady police. There is paralysis in executive decision-making, parliamentary gridlock and the courts routinely dictate action to the executive. An aggressive civil society and media have enhanced accountability in India, but it has also enfeebled the executive.

Generally, leftists desire a large state and rightists a small one, but what India needs is a strong, efficient and enabling state with a robust rule of law and accountability. A strong liberal state is efficient in the sense that it enforces the rule of law fairly and forcefully. It is strong because it has independent regulators who are tough on corruption and ensure that no one is above the law. It is enabling because it delivers services honestly to all citizens. It is not a benign dictatorship -- such as tempting Singapore with its enviably high level of governance. Neither is it intrusive like the “license raj.” It is a rules-based order with a light, invisible touch over citizens’ lives.

To what extent will India’s story be impacted by having got democracy before industrialization/ capitalism?

India got democracy in 1947 and capitalism in 1991. Democracy before capitalism created huge populist pressures without the productive financial base to fulfill those expectations. Because democracy came before capitalism in India, the constitutional restraints and fiscal discipline of a modern state were quickly challenged by the rough and tumble of competitive politics.

Politicians were happy to create the illusion of a limitless state with populist giveaways at the ballot box. Nehru’s choice of a socialist economy reinforced this illusion. Thus, a large government came into being with far too many opportunities for bureaucrats and politicians to be corrupt. After forty years, this state became bankrupt and was forced to make a U-turn.

Beginning in 1991, through a series of reforms, it dismantled socialist institutions and replaced them with market-oriented ones. These gained legitimacy quickly because the economy responded and other command economies also collapsed around the world at the same time.

Twenty years of capitalist growth have stimulated a broad transformation of society in India. Although a capitalist economy after 1991 has created a more robust economic base for a liberal democracy, the UPA government has frittered these gains in “premature welfarism,” such as huge subsidies on diesel.

We must learn to live and behave within our means and keep our focus on investment and growth in order to become a middle income country in the next two decades. We cannot afford to have the subsidies of middle or high income country today. This means we must resist the temptations for populism.

How will the interplay between a weakening centre and stronger regions contribute to India’s growth story?

The reality is that the running of India now is actually in the hands of the states and the regional parties. With gridlock at the Centre, state governments have become more powerful. Chief ministers want more power to be transferred to the states. Voices have begun to ask, has India become too big to be managed as one unit, especially by a fractious coalition?

There is a prime ministerial system in Delhi, but a de facto presidential one in most states. While the prime minister must be consultative, imperious state chief ministers get away with arbitrariness. Voters look less and less to the central government.

Increasingly, the momentum for economic reform comes from the states, which control more than half of government spending. The rise of the regions is spreading the economic boom to every corner of the land, as new consumer subcultures emerge. But alongside there is a serious and unchecked rise of cronyism.

You prescribe the need for a secular, liberal party in the book. How do you compare this with Arvind Kejriwal’s party?

I have prescribed a secular liberal party which would be single-mindedly dedicated to reforms. Kejriwal’s party does not whole-heartedly believe in reforms and it has illiberal tendencies.

In recent years the middle class has expressed its anger at governance failures, most recently via the Anna Hazare movement. Whether it can convert it into a constructive secular, liberal party is a big question.

It is always better to improve existing institutions than to create new ones. It would be preferable to nudge one of the two major national parties towards a secular, free-market agenda of good governance. But that seems almost a hopeless prospect. The DNA of the BJP is not secular; the DNA of the Congress is statist, populist and socialist. Neither of the two has shown the commitment for institutional reform that is needed for good governance, let alone the ability to deliver it.

The regional parties lack a national vision. The Left parties do not believe in market-based outcomes. So, although the last thing India needs is a new party, it is unfortunately the only alternative for a young, aspiring, secular Indian in the twenty-first century.

Hence, I have advocated in Chapter Seven of the book that we either revive the old Swatantra Party or start a new secular liberal party. It would have a single-minded focus on the reforms of institutions and on the second generation of economic reforms. It would trust markets rather than officials for economic outcomes, thereby drastically reducing the discretionary authority of politicians and bureaucrats in microeconomic decision-making. This in turn would decrease the interface of citizens with the state and shrink the chances of collusive corruption. Thus, the country would begin to move away from crony capitalism and towards rules-based capitalism.

The timing for such a party of aspiration is far more propitious than the 1960s of the Swatantra Party. The mindset of the nation has shifted in the past two decades from a command economy run by the state to one based on competitive market. Its primary constituency, the middle class, is almost a third of the population and will be half the country in a decade.

As the Anna Hazare movement has shown, it is impatient for good governance. As the citizen of a poor democratic country, one must be concerned about reducing hunger and poverty. It is also important not to cede the “inclusion” or “social justice” platform to the Congress and the parties of the Left.

The overwhelming task is to prove to the voters that open markets and rules-based government are the only civilized ways to lift living standards. When open markets are combined with genuine equality of opportunity via good schools and primary health centres, the result is shared prosperity for everyone.

Reforming the corrupt government institutions is never easy. But the task cannot be put off any longer. In chapter four, I compared the crisis-ridden Hastinapur in the Mahabharata with today’s flailing Indian state. Just as we have a problem with our corrupt institutions of governance, the kingdom of the Bharatas had a problem with the self-destructive Kshatriya institutions of its time, and it had to wage a civil war at Kurukshetra to cleanse them.

There are impatient voices in India today that are prepared to wage such a Kurukshetra-like war in order to bring accountability into public life. This was apparent in the clamour surrounding Anna Hazare’s movement for a Lokpal in 2011. There is thus an urgency to the task, but it should be not be addressed through mobs on the street but through institutional reform. However, Anna Hazare’s cautionary message is that if the political class is not up to enacting those reforms, then it better be prepared for a bloody civil war.

Are you planning to write books on other Purusharthas?*

Yes, about Kama or desire.

* According to Indian philosophy, Dharma (duty) Artha (money), Kama (desire) and Moksha (liberation ) are the Purusharthas or the objectives of man.