March 18, 2013 7:01 pm

Delhi needs to sell the idea of the market

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Indians say their country ‘grows at night while the government sleeps’, writes Gurcharan Das

When the Indian government presented its budget last month, the people were expecting giveaways, subsidies and bribes for votes. But it turned out to be a surprisingly responsible settlement that capped the fiscal deficit at 4.8 per cent of economic output. It was a sensible budget, but it will not get India growing again.

Meanwhile, the day before the budget, Sugata Mitra, a researcher at Newcastle University, won the TED (Technology, Entertainment and Design conference) prize of $1m to run Schools in the Cloud from India. The scheme aims to empower teachers and parents towards self-directed learning by children.

To Indians, the contrast between the budget and the prize confirms their perception of the country’s “bottom-up” success, driven by people, in contrast to China’s “top-down” success, induced by state investment. Prosperity is spreading, despite appalling governance in the world’s biggest democracy.

Indians despair over the delivery of public services. Where the state is needed – to provide law and order, education, health and water – it performs poorly. Where it is not needed, it is hyperactive, tying people up in red tape. People sum up their country’s story of private success and public failure with the phrase: “India grows at night while the government sleeps.” The country’s recent slowdown suggests it may have reached the limits of its ability to grow in the dark.

Two years ago, India was the envy of the world. It had survived the financial crisis and was growing rapidly, creating jobs and lifting millions out of poverty. The country had innovative companies competing brutally at home and starting to stomp on to the global stage. This came on the back of free-market reforms begun in 1991. Since then, governments had kept reforming slowly, making it the world’s second-fastest growing economy.

But soon after the current government, led by the Congress party, came to power in 2004, it made a disastrous mistake. Under the influence of Sonia Gandhi and her National Advisory Council, it concluded the reforms only helped the rich. It changed its focus to welfare spending. Instead of building roads, it offered cheap food, energy and make-work jobs. This resulted in high inflation, low growth and an unsustainable deficit.

Hope for India may well lie with its aspiring young people, those who are in the middle class or about to reach it. They are about a third of the country now, and will be half in a decade. They have no one to vote for because no politician talks the language of public goods or governance. The existing parties treat voters as poor, ignorant masses who need to be appeased at election time with populist giveaways.

They are puzzled why their nation offers astonishing religious and political freedom but not economic freedom. In a country where two out of five people are self-employed, it takes 42 days to start a business. The entrepreneur is a victim of endless red tape and corruption. It has been ranked 132nd in the world for “ease of doing business”.

India ends up reforming furtively because no party has bothered to explain the difference between being “pro-market” and “pro-business”. People are left with the impression that liberal reforms mostly help the rich. They don’t understand that being pro-market is to believe in competition, which helps keep prices low, raises the quality of products and leads to a rules-based capitalism that helps everyone. To be pro-business means allowing politicians and officials to retain authority over economic decisions, leading to crony capitalism. It also explains why India does not perform to potential.

There is a political space that should be filled by a secular party at the right of centre. None of the existing parties is likely to fill it. The only answer for aspiring India may well be a new liberal party, which trusts markets rather than officials and focuses on the reform of institutions. This party might not win votes quickly but it could bring governance reform to centre stage and gradually prove to voters that open markets and rules-based government are the only civilised ways to lift living standards and achieve shared prosperity. At a time when western economies and their way of doing business are under a cloud, a successful India driven by free markets and democracy can be a real force for good.

The writer is the author of ‘India Grows at Night’

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