Transcript
The Battle for India’s Future: Democracy, Growth and Inequality
Ellen Barry
International Correspondent, The New York Times
James Crabtree
Associate Fellow, Asia-Pacific Programme, Chatham House, Associate Professor of Practice, Lee Kuan Yew School of Public Policy, Author, The Billionaire Raj: A Journey Through India’s New Gilded Age
Shashank Joshi
Senior Research Fellow, RUSI
Saurabh Mukherjea
CEO, Ambit Capital (2016-2018), Author, The Unusual Billionaires
Chair: Dr Gareth Price
Senior Research Fellow, Asia-Pacific Programme, Chatham House
3 July 2018
The views expressed in this document are the sole responsibility of the speaker(s) and participants, and do not necessarily reflect the view of Chatham House, its staff, associates or Council. Chatham House is independent and owes no allegiance to any government or to any political body. It does not take institutional positions on policy issues. This document is issued on the understanding that if any extract is used, the author(s)/speaker(s) and Chatham House should be credited, preferably with the date of the publication or details of the event. Where this document refers to or reports statements made by speakers at an event, every effort has been made to provide a fair representation of their views and opinions. The published text of speeches and presentations may differ from delivery. © The Royal Institute of International Affairs, 2018.
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2 The Battle for India’s Future: Democracy, Growth and Inequality
Dr Gareth Price
Okay, welcome to Chatham House everyone. I’m Gareth Price, Senior Research Fellow with the Asia Programme here. I’m delighted to welcome you all, on this beautiful sunny day, to a discussion about The Battle for India’s Future: Democracy, Growth and Inequality, essentially a stocktake of where India is four years into the current Government, meaning that there’s one year – less than a year, now, to go before the General Election.
No particular comment on the timing of this meeting, except to say I think we will close at 7:00 rather than 7:15, in case people start drifting away for any other activities that might be happening. And at the same time, often, Q&A starts slowly and then, sort of, speed up towards the end, but today, if you’d have a question, frontloading is probably the answer.
We’ve got a very good panel here to speak to this subject. Shashank Joshi, upcoming Defence Editor of the Economist, formerly of RUSI, and longstanding Commentator on South Asia. We have Saurabh Mukherjea, Former Chief Executive of Ambit Capital and a top Investment Strategy in India in 2014/15 and 16, according to Asia Money. We have Ellen Barry, formerly the South Asia Bureau Chief for the Wash – for the New York Times and currently, International Correspondent, based here in London. And we have our own James Crabtree, Non-Resident Associate Fellow at Chatham House, but more often, at the Lee Kuan Yew School and formerly, with the Financial Times in Delhi and Author of a new book on India: The Billionaire Raj.
A couple of technicalities: you can comment on Twitter, using the #CHEvents. Please put your phones on silent and by the way of format, this is on the record. The speakers will speak to – for five to seven minutes each, leaving time for a couple of questions from me and then a Q&A for the remainder. So, without further ado, James.
James Crabtree
Thank you, Gareth. Yes, I say thank you very much all of you for coming. Given other events on in the city this evening, I think you all deserve a round of applause for not just heading to the pub immediately, but we will wrap up promptly at 7:00, so we can all flee and try and watch the match.
I was a Mumbai Bureau Chief for the FT for five years between 2011 and 2016, and in a sense, when you talk about how the Government in India is going, there tends to be a quite formulaic conversation, which comes down to this notion that the word that you hear is ‘reforms’, has Mr Modi delivered enough in the way of reforms? And then there’s a, sort of, way that we talk about this, you know. There’s a list of things that we think he probably ought to do and has he done them? You know, that’s, sort of, how some Journalists, some Investment Strategists, judge the progress of Governments, not just in India.
I suppose – so, the book that I’ve written, that’s coming out this week, it was my attempt to, sort of, take a step back from that and to try and take stock of some of what I saw as a foreigner in Mumbai. The front cover of the book has a picture of Antilia, the – for those of you who’ve been to Mumbai, the great landmark of the city, the billion dollar house owned by Mukesh Ambani, the richest man in India, that was built – finished building in 2010. And which, as I took my first car ride from the airport, in Northern Mumbai, down to the South, where I was going to live, you have to pass beneath this building, sort of, looming up on the left-hand side. And then, as I moved around the city, as a Foreign Correspondent, I’d go underneath this building, you know, once or twice a day, as I moved back up and down the Peninsula 3 The Battle for India’s Future: Democracy, Growth and Inequality
of Mumbai, and it, sort of, stands in the middle of India’s financial capital, as a testament to a remarkable change that has come across India, in the last three decades, but particularly since the mid-2000s.
In the book I call this ‘the Billionaire Raj’, and the three components that I talk about are partly the rise of a new, extraordinary wealthy, cadre of super rich individuals. There are now 119 billionaires in India, that’s more than any other country, apart from China and America. But the stage at which India has developed shows you how much money has accumulated at the very pinnacle of Indian society. At the moment India has an economy of about $2.3 trillion. China’s economy was about that size, roughly ten years ago, 2005/2006, at which time, China had ten billionaires. So, India has created, at the very pinnacle, eight times as many at the same time of its development. And, I mean, Ellen, to my left, used to be the New York Times Bureau Chief in Russia and therefore, can speak eloquently about oligarchs and the super rich. And it may well be that, you know, Russia is the absolute zenith of this, in terms of creating large amounts of wealth and inequality in the hands of the very few, but India is not that far behind, and so, you have that.
That’s one thing that has happened in India, to which Modi was, to some degree, a response, and you also had, over the last ten years, the problems of crony capitalism that happened in the mid-2000s and the later 2000s, and in a sense, Modi was a, sort of, response to these things. He won his election, in a large part, because he was seen to be personally honest. He was not seen to be in hoc to the super rich. He was going to deliver jobs and prosperity, and so, rather than looking at, you know, whether he’s done labour market reform or whether he adequately introduced a new tax system, I suppose I judge him against the extent to which he has managed to change these more fundamental issues that India needs to grapple with, and I think the record there is rather mixed.
The reason why it matters is India is trying to follow the successful developing economies of East Asia, in particular. Those who went from poverty to middle income status and a few of them have managed to become rich economies, and almost none of them have these characteristics, in the same way that India does now. They were more egalitarian. They did have problems of crony capitalism, but that crony capitalism was used strategically, to develop exporting industries that helped the country develop and they had an industrial model that worked.
India’s challenge, it seems to me, is to, sort of, fix all these three things. It’s quite difficult to imagine that you can develop, as South Korea has done, for instance, with a society that is so unequal and growing more unequal in the way that India has done, that remains – and still has big governance problems, even though some of the worst of the corruption scandals have gone by the wayside, and where the industrial economy is, to some degree, dysfunctional. And we can talk in more detail about the – what they call the twin balance sheet problems, the fact that the backbone of the Indian industrial economy is, sort of, bankrupt and the public sector banking system is also, heavily under water. But I suppose until you fix all three of these things, it’s much more difficult to imagine India following a smooth, upward development path and, again, I think Modi’s record on these things is pretty mixed. So, I’ll leave it there.
Dr Gareth Price
Thanks, James. Turn straight to Ellen.
4 The Battle for India’s Future: Democracy, Growth and Inequality
Ellen Barry
Well, first, I should say that I was very happy to be invited here today, because James, of all of my many colleagues, while I was in India, was, I think, the most original and the most, sort of, consistently surprising and entertaining, so I’m…
James Crabtree
That’s very nice of you to say.
Ellen Barry
Yeah. Anyway, I left, as Gareth said, a year ago and I’ll – I’m going to tell you a, sort of, a parable about one of the last things I did before leaving India. I, like James, spent a great – lavished a great deal of time and energy on analysing Narendra Modi, but there was another Politician, who I spent perhaps even more time with, who was a small town Village Chief of a village outside Meerut in Uttar Pradesh, and I used to go back to this guy over and over again. He would lecture me, as if I were a child, which was fairly appropriately about the real dynamics of Indian politics, as they exist on the ground. And his basic thesis was that essentially, it’s – it really has nothing to do with development, nor does it have anything to do with big ideas, or a competition of big ideas. He said, you know, “There’s no vote in the name of doing something virtuous. The vote is in the name of caste, family.” This is a lecture he gave me at some point, community, and then he said there’s – “And then there’s 10% of the people who will say this guy did something for me,” and this was openly his motivation for, basically, everything he did as a leader. He was quite unscrupulous and quite honest about it. For example, he occupied a position that was a position reserved for lower caste women. So, his wife had been the candidate, but it was his face on the poster and everyone, kind of, dismissed this as a, kind of, a mockery. So, this is a, kind of, a governance without big ideas, a governance that is about vote banks.
But the funny thing was, over time, because I was watching his constituents over two and a half or three years, that this seemed to be working fairly well, especially for some of the poor castes who constituted significant vote banks. And I decided I was going to write something about how they had been lifted up by this kind of governance, specifically that [Indian], this, kind of, corrupt small town boss, had acquired for them a number of things that were quite life changing, specifically and recently, gas canisters, which if you’ve ever been to a small town, especially in a place like Uttar Pradesh, when gas arrives, life changes completely, especially for the women. It is not only – it frees up enormous time in non-paid labour, stressful and very difficult and dangerous labour, but it also pushes the family onto the cash economy permanently. So, it has an extraordinary developmental effect down the line. The women had to go to work. When the women went to work, the food for the children changed and you could see that the whole health of the community changed.
So, I went to this village hoping to write this inspirational life story for the New York Times and everything got screwed up. And the reason it got screwed up is that a woman had been bludgeoned to death, in the middle of this village, and the people that I was interviewing had all seen it. I think there are lots of unsolved crimes, all the time, in families in India, but this one had happened in front of the whole village; everyone knew about it. They had called the Police and the Police had come, arrested the man who murdered this woman and then, after four or five hours, had released him. Everyone knew this had happened, it was an open secret, and as people told me about this case, I – it – I just found it very irritating. So, I went to the Police, had a long interrogation of the Constable in the case, who told me, in detail, of why they had concluded that she had, in fact, fallen down a ladder. It was not persuasive and at 5 The Battle for India’s Future: Democracy, Growth and Inequality
that point I was so angry that I went back to the village and I interviewed the man who had killed his wife, who, when I asked him if he had killed his wife, he said, “Yes, but she, sort of, had it coming and I didn’t really mean to kill her and we sorted it all out in the community. Her family didn’t want to go forward with the case. My family didn’t want to go forward with the case, and we essentially, negotiated this out of the legal system.” At this point, I went back to the Police, who said, “Yeah, you know what? 99% of our cases end this way.” The – there’s a payoff, there’s a negotiation, the community, basically, agrees to set the crime aside and handle it privately.”
I had everything on tape and I went back to the Village Chief, who apparently, had been the one who negotiated this private resolution. And I was very fluffed up and excited, thinking, you know, now I can prove that you have just buried a crime, in the way that Journalists get fluffed up when they have all the documents and feel like they’re about to win their point. And I went in and I accused him, I said, “You just – I can prove that you did this. You convinced everyone involved here to close this case,” and I don’t know what I expected, but what he said was, “That’s exactly right.” He was very proud of it, because he said, you know, “This is what we do, as political leaders, we solve problems and this was one of the best things I did, as Pradhan, and this is why I’m going to get re-elected, as Pradhan, because everyone wanted me to solve it this way.” And he said, “It took me five hours to persuade her mother,” because her mother, who was, like, an illiterate day labourer, was so angry, she had been very badly beaten. He said, “It took five hours to talk her into closing the case.”
But I suppose that the moral of this story is simply that vote bank politics can really cut both ways. They had elevated this whole community in ways that surprised me and they also, buried a murder and I think this is one of the real paradoxes of India, a state which has been such a, sort of, spectacular success at electoral democracy and yet, a dismal failure at rule of law and corruption.
Dr Gareth Price
And thanks, Ellen. Saurabh?
Saurabh Mukherjea
Well, thanks to Chatham House for inviting me. It’s an absolute privilege to be here, because you get to hear anecdotes, which are riveting and which rarely make their way to the Indian press. So, I migrated to India, from this country, a decade ago and have spent the last ten years running Ambit and I’m now going to set up my own business in India. So, I’ll give you my perspective on the country. I think the country works, but there are three fault lines. There are three fault lines around which India is basically, at war with itself, and I’ll give you my picture of those three fault lines.
If you look at India’s decadal growth rate, right, the 70s were better than the 60s, the 80s were better than the 70s, the 90s were better than the 80s, the noughties were better than the 90s, etc. For 50 consecutive years, so for five consecutive decades, this country’s growth rate has gone up. It’s got very little to do with any one Government as such. Saving rates, investment rates, overall economic growth rates have picked up, because there’s fundamentally, an impulse in Indian democracy, which means that if you want to get voted back into power, if you want two consecutive terms of running India, you’ve got to usher in incremental reform. If you try to do too much, you try to change the system too much, the system will reject you and throw you out. If you don’t reform at all and you can’t give the economy a growth impulse, you’re not going to get voted in, right. Because it’s a competitive political system, in a very funny way, as Ellen described, it’s a competitive political system, if you want to get elected to run the world’s largest democracy, you’ve got to deliver a basic amount of reform. And what Indian Politicians have figured out, 6 The Battle for India’s Future: Democracy, Growth and Inequality
over the last half a century is, how to incrementally move that needle, so that decade upon decade the growth rate picks up. And if you just, sort of, ponder for a moment, this is already the world’s fifth largest economy and yet, per capita income in India, is one third that of Sri Lanka. At one third the per capita income of Sri Lanka, we’re already the world’s fifth largest economy, and if we carry on growing at broadly 7%, which has been GDP growth for the last 15 years or so, we carry on growing at that rate, a decade out we’ll be the world’s third largest economy, behind America and China, right? That’s the power of the system.
But alongside that broadly positive narrative of improving growth over 50 years, are three big fault lines, right? The first fault line is what James’s book is about, which is clearly – and I think the French Economist, Thomas Piketty, has done some really good work on this. He’s shown that since the reforms really took off in the late 80s/early 90s, the top 10% of India’s population has grown their incomes in, say, the mid-teens and that’s been – that’s over 25/30 years, for the top 10% of a country’s population. To grow their income at mid-teens, in real terms, is a spectacular achievement. The problem is, the remaining 90% grow their incomes at barely 2/3%, right, and that creates this, the Billionaire Raj. Basically, the fundamental impulse of Billionaire Raj is that the top 10% are pulling away to lifestyles, which are increasingly like the rest of the middleclass, with similar, sort of, accoutrements of middleclass or affluent lifestyles. The remaining 90% are, to an extent, getting left behind, right?
Now, my reckoning is that the inevitable response of the Politician will be to create a Western style welfare state. So, what Europe did, after the Second World War, I think India will do in the next ten years. It’s classic political vote bank politics, where the Politician will turn up and say, “You were left behind. I will tax the rich and I’ll give you the monies,” and I think it’s an inevitable direction India will take.
The second fault line is one of gender, right? So, for reasons that nobody can quite fathom, labour force – woman’s – female labour force participation rates in India have been falling for the last 20 years and nobody can quite figure out why on earth this is happening. So, half of the population, if you look at women below the age of 20 and above the age of 50, labour force participation is barely 15%/20%. For prime age women, 20 to 50, labour force participation is around 40/50%. So, even in the, sort of, peak of their lives, 20 to 50 age group, half the women are not coming to the workforce and, in fact, the labour force participation rates are going down. Nobody quite knows why, but obviously, it has an impact on gender inequality. From an economic perspective, women are falling behind men, even as India gets richer, at a pretty punchy rate. 7% growth over 15/20 years is nothing to sneeze about.
And the third fault line, right, incredibly, sort of, the vivid fault line, is North versus South. The South of India, by South I broadly mean the Southern States in the Peninsula, per capita income is around $3,000. Sri Lanka is 4,500, South India is around $3,000. North India, per capita income is $1,000. North India’s per capita income, and by North India I’m referring to broadly, the area between Pakistan and Bangladesh, right? North India’s per capita income is lower than Pakistan, lower than Afghanistan. Female labour force participation in North India is lower than Afghanistan. Just imagine for a moment, female labour force participation in North India, which has roughly 700 million people, is lower than Afghanistan. Male/female gender ratios: a decade ago there were around 920 women for every 1,000 men in North India, now that ratio is 890. In the age bracket of 15 to 35, there are roughly 850 women for every 1,000 men in North India, right? So, in a way that the story Ellen reported about, wrote about, we, sort of, read it and re-read it again, because it was such a vivid example for us of what’s happening in the North. The South is the complete opposite. South, eight – and South has 996 women per 1,000 men. South is almost growing at Southeast Asian style rates for the good 20 years. In many parts of South India, the population growth has fallen to such an extent that primary schools are shutting down. In 7 The Battle for India’s Future: Democracy, Growth and Inequality
Kerala, primary schools are shutting down because population growth almost entirely stopped 20 years ago.
Right, so North versus south is a very, very powerful fault line and in 2026, India will have a, what shall I say, the electorals – how many seats, which part of the country gets, will be recalculated, based on population. And obviously, the South will say this is a raw deal we’re getting, because we are contributing to the nation’s economic prosperity, but we are getting less seats in Parliament, right?
So, here are the three fault lines of a country, which by itself, is actually quite a remarkable economy. There’s no other part of the world, China included, where over 50 years growth has gone up like this, savings rates have gone up like this, investment rates have gone up like this. As you would expect, in a country of such size, you will have inequalities and the three most vivid ones are likely agenda: women versus men, region: North versus South, and the general economic inequality, which I guess is sweeping the world, but which is increasingly, pronounced in India. The top 10% of the population is pulling away to Western middleclass style lifestyles, whereas, the remaining 90% are getting pushed back into, you know, their income growing at a measly 2/3% a year.
Dr Gareth Price
Thanks Saurabh. Shashank san, thoughts on India’s global position?
Shashank Joshi
Yeah, sure, I’m going to just zoom out a little bit from that and talk about India’s place in the world, particularly over the last five years, so thinking back how Modi has done and looking ahead to how he, or a successor, but most likely him, will operate in another term, in the next – in his next five years or so.
I think it’s really interesting to think about how incredibly polarised the Indian foreign policy debate is at this point and how, kind of, incredibly divided perceptions are of Modi, across the areas that we’ve discussed, but even in foreign policy as well. So, on Saturday, one of India’s most venerable, sort of, Edi – longstanding Editors, Shekhar Gupta, wrote a piece where he said, “India’s foreign policy is in tatters and the Modi Government only has itself to blame,” and he called it a ‘train wreck’.
Now, a few months ago, you know, you had people like the owner of the Indian Express Group declaring that there was no Indian foreign policy before Modi arrived in office and you have, you know, respectable Columnists, like, Raja Mohan, who’s now in Singapore, isn’t he, James? You know, who write very serious, credible foreign policy columns, saying, “Modi’s foreign policy has been so transformative that it amounts to the declaration of a Third Republic in India,” right, after the, sort of, Nehru years and the liberalisation years. I’m not sure Third Republic is the analogy I’d go for, but, you know, it’s a mark, I think, of how incredibly polarised the foreign policy debate is.
And before I just talk about some of the successes and failures, it’s worth asking why that is. I think part of the answer is, we’re seeing profoundly inflated expectations and a sense of grandiosity. And, in a way, that actually hobbles the Government ability to point to successes by setting expectations so high, by insisting that only a complete transformation of Indian foreign policy will have sufficed from the days of a feeble anaemic, you know, even, sort of, shameless and Congress-led Government, in the years preceding Modi, that actually set themselves up, in some senses, for failure, I think, on the foreign policy front. 8 The Battle for India’s Future: Democracy, Growth and Inequality
There’s also been a real personalisation of foreign policy, the sense that the identification of Indian foreign policy with the activity of Modi himself. I was really struck a few – about a month ago, we saw the US State Department put pictures of Trump up on their Twitter feed, saying, “We celebrate the first year in office,” or whatever it was. And this was seen as a, sort of, real troubling moment for the State Department, having to, you know, stick their President’s face onto their website, on their Twitter feeds. And actually, you know, on almost exactly the same week, the Ministry of External Affairs in India stuck big pictures of Modi up onto the MEA website.
Now, I looked at all the websites of Foreign Ministry for a lot of, you know, G20 states and India was almost the only one, along with the United States, under Trump, that had a picture of the Head of Government, or the Head of State, prominently displayed on the page of their Foreign Ministry. So, that identification of Modi, with Indian foreign policy, has also had an interesting impact. You know, a few years ago, the Foreign Secretary at the time, S Jaishankar, was asked, “What do you make of these claims that India’s foreign policy has failed?” And he said, “That’s rubbish, look at all the stuff we’ve done. We’ve had events at Madison Square Garden, we’ve had events at Wembley Stadium, we’ve had tours of Central Asia, Prime Ministerial tours of, you know, South Asia. Did that happen under the last Government?” And of course, I think it’s a, you know, it’s a great encapsulation of the sense that sheer diplomatic activity, but not just that, sheer Prime Ministerial activity, is a yardstick...
Member
Immensely.
Shashank Joshi
Sorry?
Member
Immensely.
Shashank Joshi
In fact, it’s a yardstick for success and I think that’s actually, it’s hobbled the Indian Government’s ability to point to what are, in fact, I think, real successes. So, I’ll just spend a couple of minutes offering a few successes and a few failures before looking at the future. Successes: first of all, I think the most interesting and valuable progress made in foreign policy has been more of the same, stuff that was happening under the Congress Government, but that’s been advanced and developed in a mature, sensible and constructive way, taking up things that were begun, you know, by Manmohan Singh or being – that were continuing strands that had been taken up in the 2000s, after previous BJP Governments, led by Atal Bihari Vajpayee. And the most important of those has been the relationship with the United States, right?
We can point to all sorts of problems in the relationship right now. They’ve postponed the dialogue of Foreign Ministers and Defence Ministers for the third successive time, for various complicated reasons to do with Mike Pompeo travelling to North Korea, and so on. There are questions swirling around whether the US will have to sanction India for its purchase of a Russian missile defence system, the big S-400 system. There are questions around a trade war and retaliatory Indian tariffs and Harley Davidsons. Trump’s favourite obsession has come back into the fold on the US-India picture. 9 The Battle for India’s Future: Democracy, Growth and Inequality
But beneath all of that, I’m sorry, I have a sore throat, is somebody who’s been watching the relationship, you know, on the US-India side for 15 years, we can see this Government taking steps that are really genuinely significant and new. So, for example, if I can – you’ll indulge me with the jargon for a second. In 2016, this Government signed something called LEMOA, a Logistics Exchange Memorandum of Agreement, very, sort of, you know, dull, unsexy sounding thing. But what it meant is that American Navy ships can dock at Indian ports, Indian Navy ships can dock in American ports, by the way, as well, and they don’t have settle accounts. They can settle accounts down the line. It doesn’t mean they have free and open access any time they like. But it does mean that something that would’ve been an incredible hang up in Indian politics, even under the Congress Government, this was an agreement that was negotiated, bargained for years and was completely shunned by the Congress-led Government, under its more cautious approach, was signed in mid-2016. And since then, we’ve seen a number of other steps, very unsexy, very small, very gritty, very bureaucratic, but I think that have pushed that relationship ahead.
I think we’ve seen – number two, we’ve seen breakthroughs in areas where, again, there was previously, a great deal of caution on the Middle East. Certainly, I think what India’s been willing to do, under this government, with, thank you, with the UAE, inviting the Crown Prince of the UAE to the Republic Day Parade, striking new agreements with Israel, the first Prime Ministerial meeting and the Prime Ministerial trip to Israel, this is stuff that probably would not have occurred under a Congress-led Government or would only have occurred after a, sort of, ten-year period, of a build-up. So, again, I think that this is effectively stuff that was happening, but it’s been speeded up and it’s been built up much more quickly, so it’s not transformative, but it is progressive.
And then finally, the third success I’d point to would be India has succeeded in crafting and spreading some sort of narrative about containing China’s rise in Asia that has found takers in other parts of Asia. So, this is the – one of – I’m not going to get to say these, am I? But we’ll – we can get onto those later on. That’s been taken up by others, so this is language of the Indo-Pacific, successfully persuading other big Asian powers, like Japan and Australia and Vietnam, that they have to think about the security of the Pacific, in terms of the Indian Ocean as well. Developing the quads, the quadrilateral dialogue, which has pulled together the US, Australia, India and Japan. Again, this was a four party dialogue that was begun in 2007 under the Congress Government, but they quickly got cold feet when China went ballistic and then never touched it again. And yet, this has been taken up and resuscitated by this Government in a very cautious way, a very slow, incremental way, but I think that’s another sign of progress.
Failures, I’m not going to go into them in detail, but I would say defence and defence reforms, this is a major problem. We can go into this in the Q&A, if you like. Neighbourhood policy, particularly blocking Chinese inroads into places like the Maldives, Nepal, Sri Lanka, this has been a huge problem. They’ve simply failed to deliver on regional projects. And thirdly, Russia, the Russia relationships, which Indians have, sort of, historically prized, has effectively drifted and is in a really bad place and Russia has tilted towards Pakistan.
Finally, on the future, I’m not going to go into this, but on just the three headline points, translating words into action, actually delivering on policy in the region. Number two: Afghanistan. Afghanistan is bubbling away and I think that India will have tough choices to make in the next five years, and in Modi’s next term, on how they respond to this. And finally on – they successfully quarantined domestic political difficulties, like Kashmir and debates around intolerance and communal violence from having really any foreign policy repercussions in the past five years, to a large extent. Whether that can continue for the next five years, I’m a lot less certain. 10 The Battle for India’s Future: Democracy, Growth and Inequality
Dr Gareth Price
Thank you, Shashank.
Shashank Joshi
Sorry for running over again.
Dr Gareth Price
No, that’s allowed, marginally. No, you make a lot of interesting points, all of you, and I like Shashank’s point about the inflated expectations, that it’s a really interesting thing about this Government that it can’t meet the inflated expectations, but the Government itself put those expectations in place and I think that’s a very interesting point.
I was going to ask a question, but I’ve, sort of, amended it in my head, listening to you all. The question was, what do you think will happen at the next election? But my subsidiary question is, do you think it actually matters? Does it actually matter what happens in the next election? Because I think, hearing a lot of your points, it’s more of the theme, in many fields. I don’t know who wants to…
James Crabtree
No, I mean…
Dr Gareth Price
…kick off?
James Crabtree
…I’ll give the, sort of, convent – and there’s a debate going on in India at the moment where the media is getting very excited about the fact that Modi might not win. That would be the interesting story and so, there’s a lot of scenarios being kicked around about the fact that the BJP ultra-right is not very happy with the mere BJP right, that the electoral geography – Modi won very big last time, particularly in North India, and the supposition is that he can’t do any better and probably, he’s, under any circumstances, going to do slightly less well and it could be quite less well, and so, there’s a lot of speculation about this.
I have to say, I don’t buy it. I think he’s going to do fine. I don’t think he will win as comprehensively as he did last time, but – so, the Pew data on Modi’s popularity is overwhelming. I mean, he has 80/85% approval ratings. The economy is doing reasonably well and the opposition is hopeless and so, even if, you know, they may not win a stonking majority, they may not win – you know, I suppose it’s plausible they might not win a majority. And I guess why it matters is we, even though the current Government has its failings of various different sorts, Analysts, I think, have suddenly got used to the fact that India has a majority Government and if it were to go back to a, kind of, much messier, weaker coalition, that would be a big change.
I mean, when I first moved to India in 2011 there was this sense that the, sort of, nature of Central Government in India was almost sociologically broken. That we were never again going to go back to anything other than a very weak coalition, that power was draining away from New Delhi, to the regions, to different parties, regional leaders, caste politics, language politics. And Modi, you know, one of his big 11 The Battle for India’s Future: Democracy, Growth and Inequality
achievements was he, sort of, reversed that and he gave the sense that power really did reside in Delhi again and so, were he to lose, that would be a big reversal of that narrative, so I think, in that sense, it would matter a lot.
Ellen Barry
I mean, I think why everything matters always comes back to one word, which is ‘jobs’. I think that the great hope that was, kind of, embedded in Modi’s campaign in 2014 was that there would be jobs for young Indians. So, you have to, like, confront this, sort of, scary reality of a million new people coming onto the workforce every month and what is going to happen when they realise that there was no – that there will be no jobs for them, like real jobs, where there are benefits and security and they can plan for their families? So, formal sector jobs, that is a promise that Modi has not been able to deliver on, but I don’t think people blame him too much for it, to be honest. I mean, I think this is – this may be the main problem for the country, but it’s not – and individual voters do not seem to necessarily, make their decisions based on that.
Saurabh Mukherjea
I think whether you look at the data in India or the United States, there’s very little evidence, very, very little evidence to show that the identity of the party, which wins the elections, has any real bearing on the economy. So, if you look at US data Republicans versus Democrats, our Indian data Congress versus BJP, there’s very little evidence to show that one party or the other makes a tangibly different impact on the economy.
I think what Politicians, very cleverly the world over, done, is presented themselves as some central figures, people who can actually make a difference. And if you, sort of, step back and reflect, I mean, it’s, sort of, inconceivable that anybody, anybody can really make an impact on the Indian economy over a five year term, right? It’s 1.5 billion people, it’s a $3 trillion economy, it’s a Federal structure of Government where the states have enormous amounts of power, the Central Government actually has much less power than people imagine it to have. And, by the way, America is actually a very similar construct and therefore, the best way to understand India is often to look at America. But it’s a narrative that suits every Politician of every hue very well, that everybody obsesses as to what will this great leader come and do, you know, what miracles will he work for us? And in that sort of narrative, we, I think we all get sucked in and we play along every five years and watch this, sort of, grand spectacle of the Indian elections and we will do the same this year. But I think for those of you who are trying to make decisions about India, whether from an investment perspective or whether to, sort of, you know, visit the country, live there, etc., whether Modi comes, doesn’t come, I don’t think will make that much of a difference, from a practical perspective.
If you’re asking for my ten cents worth as to whether the BJP comes back in, I think I agree with James, he will come back, and BJP will come back to power. Whether Modi himself will come back to power, I think is a little bit more up for debate, but BJP coming back looks like the highly likely outcome.
If you, sort of, step away from party specific politics, the drift towards a more nationalistic discourse in Italy looks inevitable. It’s part of the, sort of, journey from 1947 onwards, as you get richer, you get assertive, you start asserting your identity in various manners. So, whether – regardless of who wins power, India will become a more nationalistic, a more Hindu, chauvinist society. And in policy, a drift towards the welfare state looks inevitable, given the compulsions of politics, where you need to win votes from the majority of people, so you tax the minority to transfer to the majority. So, those impulses, 12 The Battle for India’s Future: Democracy, Growth and Inequality
nationalism and society and political life and social welfare, liberalism, in, sort of, the economic sphere, I think those impulses are going to happen, regardless of who wins power. And I think one of the most fascinating aspects of democratic discourse the world over this is this obsession with identity politics and the obsession with the identity of the Politician, when there’s very little scant evidence to suggest, whether it’s the UK or in the US, or indeed in India, the identity of the Politicians makes a jot of difference to the economy.
Dr Gareth Price
Thank you. We’ve got around 20 minutes left, so let’s open it up to the floor for a Q&A session. Yes.
Simon Charl
I actually have a question.
Dr Gareth Price
Gentleman there?
Simon Charl
I need a microphone. I’m Simon Charl, I’m a member of the Institute.
Dr Gareth Price
Do you want to take that microphone?
Simon Charl
Oh, really? Why has…?
Dr Gareth Price
I’m so sorry, can I – you gave your name, now, your affil…?
Simon Charl
Simon Charl, I’m just a Member of the Institute. To pick up on Mr Joshi’s point, but why has India failed to stop China making the inroads into the surrounding area? I presume it’s a little bit more than India not having thrown enough money at Nepal and the Maldives, and that sort of thing?
Dr Gareth Price
Yes, can we do…?
Shashank Joshi
Do you want an answer straightaway, Gareth, or are you going to collect some? Shall I respond? Well, so, I think the fundamental point is that, you know, the Former Indian Foreign Secretary, Shyam Saran, said, “I’ve always thought if you leave spaces open, people will walk in.” And the problem is, you know, partly 13 The Battle for India’s Future: Democracy, Growth and Inequality
Chinese ambitions and Chinese willingness to build up new, very amb – very assertive initiatives, like the Belt and Road, and it has a state backed capital to mobilise in pursuit of those things, which no other state can match, let alone India or India, in combination with partners. But I also think India’s inability to deliver on specific projects has also made local partners a bit wary about its credibility on these things. So, the classic example of this is the Chabahar Port in Iran, which is supposed to be the centrepiece of India’s efforts to bypass Pakistan and access Afghanistan by the Arabian Sea, to build a North-South corridor into Central Asia, to deepen its influence into Eurasia as a whole. And actually, you know, year- after-year, like clockwork, you will find new stories saying, “India and Iran sign new memorandum of agreement on building Chabahar.” And you look on the ground and what’s happened is a, you know, a bit of new concrete’s been poured, a few new projects have been added here and there, but no fundamental change has occurred. And that’s because India’s not very good at mobilising state owned enterprises, to go and deploy big strategic projects in the way that the PLA allied construction firms are. So, that’s one of the major issues. That’s not the only reason, but I think that’s one of them.
Ellen Barry
I think there’s also been a lack of consistency. If you think about the cases of both Sri Lanka and Nepal, which were big, kind of, swing states during the period where I was living there, India made efforts on both of those countries, but either were inconsistent in those efforts, or worked at cross purposes with itself. So, for example, Nepal, after the earthquake, there was a great jockeying for influence. And then India imposed a, you know, in fact, a fuel embargo, which caused half of Nepal to suffer terribly for months during the winter. In Sri Lanka, I think there was a real effort to get the Rajapaksa machine out and, in fact, it was decapitated, but it was not, by any means, eliminated and it appears that it’s on…
Shashank Joshi
Probably with Indian help.
Ellen Barry
Yes, almost certainly with Indian help and perhaps with American help as well. I mean, it was one of the real moments of geopolitical victory in the early part of Modi’s…
Shashank Joshi
But that’s the perineal dilemma, isn’t Indian foreign policy, which is, do we exert ourselves and assert ourselves in ways that may block China? So, the Maldives is a question right now, right? As the Maldives becomes more autocratic, do we step in and, you know, physically use gunboat diplomacy in the way that India did to reverse a coup in the 1980s, at the expense of embittering local opponents and, sort of, hardening opposition to India’s asp – hegemonic aspirations? Or do we sit back and say, no, no, you know, you go your own way, we’re not going to intervene, we’re going to live with your choices, and watch as small countries play Delhi off against Beijing and solicit Chinese funds and capital? And it’s a very, very difficult balance for India to strike.
James Crabtree
What’s really interesting is what you’re saying about the state owned enterprises. So, one way of judging, you have, you know, the two halves of the economy. You have the bit that is the, sort of, state owned bit and then you have the private sector, the conglomerates, and in a sense, neither of them are in very good 14 The Battle for India’s Future: Democracy, Growth and Inequality
shape at the end of Modi’s first five years. The state owned enterprises are, sort of, largely unreformed, you have a – not much has happened to the banking system, which is in great difficulty, the sort of, state owned steel companies are all still hopeless. So, it isn’t just that they’re unable to use the state enterprises to project power abroad, they can’t do very much with them at home either. But the private sector conglomerates are also in a pretty shocking state, because the tycoons, the billionaires, went nuts in the mid-2000s, took on lots of debt, blew it all and then discovered – you had this amazing reversal in India. So, in the old system, capital was very expensive, but politics was very easy and what’s happened is that’s completely flipped. So, now capital’s very easy to get hold of, you can get it anywhere around the world, but politics has suddenly become very difficult, and that has left the tycoons in a bit of a pickle. And so, you have this, sort of, oddity that the two engines of the Indian economy that should be working, the state owned enterprises and the private sector conglomerates, are both, sort of, in the doldrums, even though the, sort of, the nature of that economy remains unchanged. And so, until that gets fixed, it’s a – that’s a, sort of – it’s kind of difficult to fly if both of your engines aren’t working, so…
Dr Gareth Price
Ah, some hands are going up. I’ll start with the gentleman there.
Member
Is this under Chatham House Rules, or it’s on record?
Dr Gareth Price
It’s on the record, yes.
Member
Okay. Do you think this debate we have…
Dr Gareth Price
So, sorry, can you just give…?
Member
Yeah, I must introduce myself.
James Crabtree
Now I want to know the question you were going to ask before, and much more interesting.
Member
I know. I am a prematurely retired Civil Servant and Diplomat. I used to be posted in London, in the High Commission of India. Ten years back, I used to be a regular visitor. So, do you think most of this discourse is we are missing an important point, we are focusing more on symptoms, rather than problems? Because 47 challenges of democracy in India were far different from what it would be in a society like this. 15 The Battle for India’s Future: Democracy, Growth and Inequality
And I must mention, I will take a minute or so, again, in 2009, I was having a discussion with Professor Bhikhu Parekh at the House of Lords, and he asked, “Do you think everything is alright?” That time India was doing very well. And we concluded that one thing was fundamentally incorrect, the example of Policeman that you mentioned, even if he did his course, his – in that case very well, he had absolutely no incentive, he would have got into serious problem. You know, whether it’s regulatory capacity of state or enabling services, what is most important arm of the state? Civil services bureaucracy. There is absolutely no incentive, no opportunity, for high quality performance. Case of judiciary, we are all very aware. The fact is that, you know, in these structures, serious reforms were needed. So, that’s – you mentioned about this project. Who’s going to go through this project? If there is a simple accountability, absolutely no. Political parties, these are controlled by individuals, dynasties, etc., etc. Is there any space for people with merit and brilliance and telling to come and occupy a position? Quite doubtful. So, I don’t know whether we are focusing more on symptoms of the problem or we are avoiding the real problem itself. So, I would like to have views off all of you, thank you.
James Crabtree
Do you want to take it?
Saurabh Mukherjea
Well, you know, I – but...
Dr Gareth Price
Thank you, yeah. Do you want to have a quick response?
Saurabh Mukherjea
So, I think, for better or for worse, I end up meeting the bureaucracy almost on a daily basis, even if I don’t want to, and my reckoning is there is no way. There is no way the Indian political class will reform the bureaucracy. The bureaucracy, as it suits – as it currently stands, works just nicely for the Indian political class. Well, politics in India, and indeed, I think in most other democracies, is largely a game of retaining power, rather than, you know, trying to work miracles in a country of the size and scale of India. And therefore, if you have a bureaucracy, which is too good, too hyperactive, too focused on performance and KPIs and so on, it doesn’t actually suit the Politician.
I think India’s story will be in the way James has, sort of, given one contour of it. India’s story will be the gradual irrelevance of the state. It will have to be gradual, because it’s still an extremely poor country, but this – the gradual irrelevance of the state, to the development of the country, will have to be India’s story and…
James Crabtree
You – mind – no, you must be wrong about that. I mean, no – every country that has developed has developed by increasing state capacity. I mean, Singapore didn’t become what it is by having a, kind of, rubbish state. It has a high quality bureaucracy and the problem that – you know, Saurabh, I think you’re quite right, that the traditional story people tell of the Indian state is that lots of it is hopeless, but there are islands of excellence, you know, at the top of the Civil Service, the Central Bank, the Electoral Commission. And actually, one of the more worrying things now is even the really good bits are showing 16 The Battle for India’s Future: Democracy, Growth and Inequality
signs of degradation. So, the upper levels of the judiciary, you’ve had scandals in the Supreme Court, the Electoral Commission, the IAS, all of them are beginning to look a little bit more, sort of, shop worn.
I mean, I think you’re completely wrong, Saurabh, which I almost never say because you’re a, sort of, genius, but in the end, India needs a high quality state, if it’s going to have a hope of developing. So, I can’t see how it would happen otherwise.
Saurabh Mukherjea
One of the [inaudible – 47:09], as the gentleman rightly said…
Member
No, but he...
Saurabh Mukherjea
Yeah, absolutely.
Member
I’m sorry, what you’re saying is that just in fact…
Saurabh Mukherjea
But sir, and…
Member
…[inaudible – 47:14].
Saurabh Mukherjea
I think we will…
Member
I’m sorry, I have to tell you about myself. I used to be an ultra-left student, political leader, in preparatory college.
Saurabh Mukherjea
Right, right, so…
Member
And the duty of democracy is that I was allowed to join Civil Service. But let me tell you, now, all the bills try to adhere to the highest possible levels of integrity... 17 The Battle for India’s Future: Democracy, Growth and Inequality
Saurabh Mukherjea
Absolutely.
Member
…I must say.
Saurabh Mukherjea
I don’t think integrity is the issue here.
Member
No.
Saurabh Mukherjea
I think the integ…
Member
But…
Saurabh Mukherjea
The issue is…
Member
…without integrity, no society, no state, can progress. How to get [inaudible – 47:43] was compromise the integrity…
Saurabh Mukherjea
So…
Member
…of the [inaudible – 47:46].
Saurabh Mukherjea
…sir, but I’m not questioning, I’m not saying about that.
Dr Gareth Price
Saurabh, let’s take another. There were quite a few hands went up and we’re short of time, so there’s a lady on this side. 18 The Battle for India’s Future: Democracy, Growth and Inequality
James Crabtree
I think it’s the lady in…
Kamini Banga
Thank you. Hi, my name’s Kamini Banga. I’m a Writer. So, question is to Saurabh Mukherjea. You said the state is irrelevant, almost, you said it doesn’t impact the growth, and yet, you talked about the five decades of growth India has had. So, what are the few factors that really impact a country, a nation, the growth, everything?
Saurabh Mukherjea
To comment on that point…
Dr Gareth Price
So, we’ll take another couple of questions. There was the gentleman at the back and then just the one at the front. We’ll take three.
Peter Price
Peter Price, Former Member of the European Parliament. I’m going to empower the panel. You have just been elected as Prime Minister of India. You are ambitious, but realistic. What are your two priorities for the future five years?
Dr Gareth Price
Let’s go to an – and a gentleman at the front had his hand up.
Gesu’ Antonio Baez
Thank you. I’m Gesu’ Antonio Baez, I’m Chief Diplomatic Consultant with Pax Tecum Global Consultancy. Talking about women’s participation in voting and how you were indicating that it was quite low in comparison to other neighbouring countries. Now, with my understanding with India and my dealings with India on a professional level, I’ve understood that there has been, obviously, challenge in regards to women’s economic empowerment in certain areas. I know, within certain portions, for example, with the preference for the male child versus the female child, and that the Indian state has taken a lot of effort in regards to address this with the local population and whatnot. What – in regards to inequality, gender inequality, what do you feel needs to be done by the state in order to really make progress where there could be increase, both – not only in participation in voting, but also, within the workforce?
Dr Gareth Price
Okay, thank you. So, I saw another hand up here, so…
Member
Yeah, I can [inaudible – 50:05]. 19 The Battle for India’s Future: Democracy, Growth and Inequality
Dr Gareth Price
Are you sure?
Member
Yeah, yeah.
Dr Gareth Price
Okay, so, Saub, there’s a question specific to you and then maybe we’ll give everyone a couple of minutes each to, in particular, their two priorities and the gender inequality question. Shashank, can you…?
Shashank Joshi
Yes, happy to start. That’s a tough one, so, two priorities. I think, first of all, give small states in the neighbourhood – sorry, who asked that question? Yes, so give small states in the neighbourhood an alternative to Chinese financed ports, power plants, roads, and so on, working with likeminded countries, such as Australia, Japan, particularly, with its strong legacy of overseas development, and the United States. So, that is the only way in which India’s going to find a way to blunt the advance of Chinese power across the Indo-Pacific.
The second is, start taking defence more seriously. For, you know, for years the Indian Government complained that the Congress Party was ruining defence, that it wasn’t, you know, taking the necessary reforms. We now have a situation where Indian defence in spending stands at about 1.6%, the lowest in 50 years. But it’s not really about spending or investment. It’s more about reforms. Reforms that were promised, like an aerospace command, a cyber command, a special forces command, these were continually promised four years ago, in the early days of the Modi Government and absolutely nothing came of them. So, there’s a fundamental problem with delivering, even on those things that the highest levels of Government are promising, and you’ve cycled through multiple Defence Ministers, some of them wearing multiple hats. The Finance Minister has taken on the defence portfolio twice. So, defence and simply enacting those reforms from the very top of Government would be the second of those priorities. But, of course, reality is, still more complicated than easily enacting both of those things.
Saurabh Mukherjea
Sir, let me try to amalgamate the three questions, including Kamini’s question. I think – let me pretend I’m the Prime Minister in for a five-year term and let me try to put myself in the shoes of a country where the – both the policy and the bureaucracy barely delivers and there’s scant hope, there is scant hope, I would say, that we’ll ever become a Singapore. You simply can’t find people of enough talent to run a 1.5 billion strong, 3 billi – $3 trillion democracy.
So, what are the two things I can try to do, over a five year term, to make – to move the needle, so to speak? I think the first is the state has to – the Government has to step back from activities, which it has no business to be in the first place, right? So, what exactly the Government can do and it’s still in public sector banking, in airlines, is not obvious to a lot of people, including the Government itself. These are vast loss making enterprises and a pullback of the Government from activities, which the private sector will happily do and the Government has very little governing capacity, legislative capacity, or bureaucratic capacity to do, will make sense. I can’t, in five years, I can’t, sort of, privatise every swathe of the Indian 20 The Battle for India’s Future: Democracy, Growth and Inequality
economy. So, a logical place to start would be Air India and a couple of the public sector banks. I think that’s one facet.
The second piece, which would play nicely to my old banks and move the needle for the country is, the state has to provide the things that the private sector won’t. The private sector is not going to provide low cost education, low cost healthcare and law and order, right? So, that those are the obvious areas for the Government to step in. Again, these are massive issues of education, healthcare, law and order. I can’t, in five years, sort of, create Utopia, so a natural place to start would be the beginning of a health insurance and unemployment insurance system. It’s a vote-getter. Yes, I’ve put the beginnings of it together already in the current Government and therefore, for the next five years, whoever comes to power over the next five years, should pursue the basics of a health insurance and an unemployment insurance framework. I think that’s where – that should be the logical drift of India. We’re not going to be able to govern a country of this size and complexity in the manner of a Southeast Asian style economy, it’s too complex and hence, I’ve got to pullback from areas where the Government has no business to be. The private – the free market can do it better and I’ve got to go into areas where the private sector simply will not have any interest to step in.
Dr Gareth Price
Thank you. Ellen?
Ellen Barry
I have an interest in women’s participation in the workforce. I think, historically, if you look at the United States, or Britain, or China, or Korea, any of these countries, that only one thing has pulled women into their workforce in huge numbers, it’s manufacturing. Right now, China is shedding textile manufacturing jobs like crazy and they’re going to Bangladesh and I think India could clearly compete for those jobs. I would, if I were advising the Government on that, I would say put those manufacturing facilities where the workers live. Don’t put them in Bangalore, where they can’t even find a place to live. Because I think one of the main things that is preventing women from working is that you have to migrate to work and young women, who are unmarried, in India cannot migrate for work. It is too big a risk for the family. They lose their value on the marriage market. So, somehow finding a way for them to get through that period between being unmarried and married and keeping them in manufacturing jobs, it would be transformational. So, I think that could be done. I think it’s realistic, and I think the social message is about young women working and their value as daughters and their value as wives, is something that could be very powerful, if the Government decided to pick it up.
In fact, Modi has been very good at messaging about citizenship, about responsibility for public spaces. This is something that he could really do. And then, I guess the one other thing I would say, if I were Prime Minster, public works. I would just rollout a great society style public works programme. I would get everyone invested. Again, Modi has been good at messaging on this kind of thing, with demonetisation. We all have to suffer for the common good. He can do that if he wants to.
Dr Gareth Price
James, final word?
21 The Battle for India’s Future: Democracy, Growth and Inequality
James Crabtree
Yeah, so in addition to all of the other spectacular bits of reporting that Ellen did in Delhi there, one of – the story that you wrote about there that women who arrived in Bangalore, that was a really magnificent – it’s really worth going, sort of, finding this story about the young women who, sort of, moved to Bangalore to try and find work and the things that they went through. It was an amazing piece of reporting.
So, I started out by saying three big challenges for India: the rise of the super-rich, corruption and the, sort of, breakdown in the industrial model. I have – you know, I – it’s not for me to come up with all these ideas, but there are things you can do on all these areas. As Saurabh says, India needs much better education and health system at the bottom, the rich need to pay more tax, all sorts of things you can do on corruption. But underneath all of this, and it gets back to what the gentleman here was saying, you need a, sort of, state that functions, that has high quality technocrats, that runs by the rules, that isn’t, sort of, malleable. Now, that’s not very sexy. It’s the sort of thing that, sort of, wonky people are interested in. But in the end, if you – I disagree with Saurabh completely. If India is to develop it needs higher state capacity. The state is not going to wither away. There is no country that has gone from being poor, to middle income, to being rich, by having, kind of, a rubbish state. The best countries have high quality public administration and that’s where I’d put my efforts.
Dr Gareth Price
Well, thank you all. Thank you for coming and staying ‘til the end. As a, sort of, logistical point, I suggest that public transport will be less crowded than usual, as you make your way home. Thank you for coming and for your questions and interactions and most of all, thank you to our panellists [applause].