© The Financial Times Ltd 2013 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
December 2, 2011 6:04 pm
Addressing 8,000 young party activists in a north Delhi park on a misty winter’s afternoon this week, Manmohan Singh gave a glimpse of the future.
Big foreign retailers with their box stores and refrigerated lorries would bring down prices for consumers, rescue the 40 per cent of farm produce that rots on the way to market, and create millions of jobs. No longer would Indians be condemned to scarcity and tiers of greedy middlemen.
That is, the country’s 79-year-old prime minister said meekly, if the opposition allowed him to do his job.
Political opponents and even some allies took no time to rip into Mr Singh. He was, they said, bringing back a loathsome past, opening the door to the predatory East India Company of colonial days in the new guise of Walmart, Tesco and Carrefour to suck India’s poor people dry.
This was no mere clash of shopping trolleys but rather a symptom of a malaise that many fear is eviscerating India in its quest to find a shared vision and greater prosperity for its 1.2bn people.
The world’s largest democracy is in trouble. Parliament is in turmoil, its members at each other’s throats and 31 bills stacked up awaiting approval, just as the economy is cooling fast. No one talks any more of matching China’s double-digit progress; growth has fallen beneath 7 per cent. The rupee is 13 per cent weaker than when the year began, as direct investment slows and foreign money leaves the stock market. Many analysts now say India has missed a golden opportunity to build up a domestically driven economy that had been little damaged by the 2008 global financial crisis – and put substance behind a claim to be a global power.
For a year, parliament has been an anarchy that would make Jawaharlal Nehru, the country’s first prime minister, weep. The squabbling has exposed India as a nation of parts, not a sum of its whole. Mani Shankar Aiyar, an upper house member of ruling Congress party, says bluntly that the “citadel of democracy is being destroyed” in a “criminal assault” by a destructive opposition Bharatiya Janata party. An array of jostling opposition leaders retorts that Mr Singh presides over the most corrupt cabinet in India’s history and is too weak to control his allies.
The “monsoon session” that ended in September was wrecked by protests over high prices as well as corruption. The current winter session never got started, brought to an immediate standstill by the dispute over allowing foreign retailers into the country.
Commentators such as Pratap Bhanu Mehta, director of the Delhi-based Centre for Policy Research, complain of “ungovernability” and a growing resistance to the state whether over land, energy or macroeconomic policy. “Politics is increasingly distracted by its own theatrics,” he warns. “India is at a great historical moment. But the most disquieting sign of ungovernability is that there is little political discussion of what this moment means, or the urgency it should represent.”
Business leaders look on in disbelief. They are aghast at the lack of decision-making that is laying waste to the image of India as a shining emerging market they helped create. Sunil Bharti Mittal, the chairman of Bharti Airtel, the country’s largest mobile phone operator, appeals for politicians to quit their feuding and urgently rise to the national interest. A “serious negative perception ... is now being created for India on the global stage”, he says. “The concern among investors, both FDI and in the stock markets, is palpable and being widely discussed.”
Mukesh Ambani, the Reliance Industries chairman who is the country’s richest man, complains that India’s prized democracy is too often an excuse for inaction. He calls for a “dramatic shift in governance”, warning of a calamitous mismatch between outdated thinking and the need for a 21st-century “delivery model” to lift living standards for the poor.
The forbidding global outlook apart, the financial markets scent a domestic political crisis. The rupee and the Sensex, the benchmark index on the Bombay Stock Exchange, are Asia’s worst performers over the past year. India considerably trails its fellow Brics in attracting foreign investment.
Should this be Belgium, a divided and bickering polity might not matter too much. But 800m in India scratch a living from about $2 a day or less, highly vulnerable to economic shocks, food shortages and a heavy dependence on imported oil.
Political leadership coupled with high growth rates was supposed to be transformational for the world’s largest concentration of poor people. But instead, an absence of leadership – among elder statesmen of both national parties and a timid, often US-schooled younger generation – risks cutting it short. The fracas in Delhi unmasks a political elite that if nothing else is out of touch with the needs of lower-income India.
. . .
In the thick of the pandemonium, Mr Singh this week made a last-ditch effort to relaunch reforms. His cabinet took the bold executive decision to allow greater foreign direct investment in what has long been a highly protected retail sector.
If successful, the move would bring the supermarket to India, several decades after it changed the retail landscape in most other parts of the world. No longer would the new urban middle class have to traipse daily around market stalls and dusty corner shops to stock up on food. A supportive Federation of Indian Chambers of Industry and Commerce predicts the shift would double the size of India’s $450bn retail market over 10 years.
A respected development economist, Mr Singh senses the peril of slacking growth momentum amid a weakening global economy. He understands better than most what is necessary to sustain progress and unlock foreign investment. “He is making a stand,” says Sanjaya Baru, a former Singh adviser now at the London-based International Institute for Strategic Studies. “The rupee is at Rs52 to the dollar, more money is going out than coming in and there’s a lack of business confidence in the economy. India is going down the scale” in world terms, he says. “The measures being taken are to respond. It’s a signal to the outside world.”
Mr Singh’s reputation rests on reform. Cambridge-educated, he served as central bank governor and finance minister before being appointed by Sonia Gandhi, Congress president, in her stead as prime minister in 2004. He is credited with implementing a 1991 overhaul that freed the economy from the “licence raj” that strangled entrepreneurial dynamism in red tape, largely to the benefit of vested interests.
Mr Singh’s reforms, which a BJP government took further, are largely responsible for India becoming the fastest growing large economy after China. But since Congress was re-elected in 2009 with a surprisingly strong mandate, Mr Singh’s reputation has come into question. His government was halted in its tracks by a slew of scandals. The worst, estimated to have lost the Treasury as much as $39bn, hit the telecommunications sector and highlighted the dark side of a fast-growing economy.
Mr Singh’s administration has also been unable to tame near double-digit inflation – repeated promises to bring price rises back down to 7 per cent have proved hollow. The government has meanwhile persisted with ambitious public spending, often to roll out welfare schemes championed by Mrs Gandhi for the rural poor.
A reform agenda that held so much hope for his first 100 days of a second term is limping. It has not helped that many senior Congress leaders are convinced India is a bullock cart unsuited to a superhighway and that its people are not ready to be exposed to the global economy. But a few successes could right the listing ship and give direction to a rudderless drift towards the next elections in 2014. Much therefore rides on the government holding its nerve on retail liberalisation and moving on to introduce a goods and services tax, undertake land reform and deepen debt markets to help fund badly-needed infrastructure.
. . .
The retail shake-up – which would let foreign groups hold 51 per cent of multi-brand operations and own single-brand chains outright – promises to build some of the supply chains and linkages with farmers and small business that big Indian commerce has not. It could also help curb inflation by cutting out tiers of intermediaries between farmers and consumers.
Yet even if they pass, the changes will not live up to potential. Given opposition across half the country, modern retail will come to only 20 out of the 50 cities that it could benefit, says Montek Singh Ahluwalia, Mr Singh’s closest aide.
The argument has opened up a well of xenophobia, reminiscent of when India was a closed economy in the shadow of the Soviet Union. MPs are calling for a vote. “Reverse the decision and you are inviting disaster,” warns Mr Baru. “Then we’ll see the rupee at Rs60 to the dollar.”
So inward-looking is the country’s overall economic debate that it risks turning a beneficial delinkage from a turbulent world economy into an impoverished isolation.
“The signal it sends out to the world is that it’s selectively complicated to do business in India,” says Anita Marangoly George, who heads one of the International Finance Corporation’s investments snared in indecision. “If you look into the politics, there are lots of issues other than those you see on the surface.”
Copyright The Financial Times Limited 2013. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.