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 India Grows at Night: A Liberal Case for a Strong State
 Author: Gurcharan Das
 Publisher: Penguin
 Price: 599
 Pages: 307

 

 

“India grows at night…when the government sleeps,” is the popular phrase, suggesting that much of the progress achieved by the nation is because of the people’s enterprise, in spite of the state. Wouldn’t it be wonderful if India grew during the day too through effective governance, asks well-known writer Gurcharan Das in his book, India Grows At Night.

What India needs, he says, is a strong liberal state which would be accountable to the people and which would have the authority to take quick, decisive action. We present below a book extract:

 

 

 Gurcharan Das

 

 

It is an amazing spectacle to see the country turning middle class alongside the most appalling governance. In the midst of a booming private economy, Indians despair over the delivery of the simplest public goods. It used to be the other way around: during the 1950s and 1960s, Indians worried about economic growth but were rather proud of their judiciary, bureaucracy and police. Now, the old centralized bureaucratic Indian state is in steady decline.

Institutions have frayed. Where the state is desperately needed- in providing basic education, health care and drinking water- it has performed dismally. Where it is not needed, it is still hyperactive in stifling small private enterprise through red tape and the ‘inspector raj’.

The modern Indian state was formed in the early 1860s soon after the British Crown took over the rule of India from the East India Company and set up a rule of law with clear, written-down rules in a set of elaborate codes. It was well administered but was not accountable to the citizens. In 1947, this state became answerable to the people. Independent India inherited robust institutions of governance, which were considered by many to be among the best in the world.

Partly enabled by these institutions, India went on to become a dynamic democracy with a vibrant civil society, and after 1991 it became a rapidly growing economy. However, those inherited institutions have not been renewed, reformed or modernized, despite the repeated recommendations of expert committees. This is the crux of the problem.

The puzzle is this: how can a vibrant democracy with a rising economy and an energetic civil society have allowed the state and governance to decay in this way? India has discovered that democracy does not necessarily lead to economic development without the right policies- it had to take a U-turn in 1991, adopt market-oriented policies and only then did prosperity begin to spread. Now it is learning that high growth and prosperity do not ensure good governance.

It has also begun o realize that it cannot take growth for granted. Optimists think that it is the country’s destiny to reach the high income levels of the West and Japan. This will not happen unless the country fixes its institutions of governance. If it doesn’t, it will more than likely be caught in a ‘middle-income trap’ like some Latin American countries which lost decades mostly for the same reason.

Another lesson from this overview of India’s unique model of modernization is that a nation cannot rise forever at night. It needs a solid, effective state to provide a rule of law to support a rapidly growing economy and a rising society. The 1991 reforms did not happen spontaneously. They were in the end initiated by the state- even though it took a crisis, and the government was kicked and dragged into doing them. Moreover, markets have not entirely worked in a vacuum after 1991. Although institutions have deteriorated, a reasonable degree of property rights, security, and law and order have been undoubtedly important to India’s rise.

Markets need a network of regulations and institutions and umpires to settle disputes. In the past two decades some good regulators have emerged. In the capital markets, the Securities and Exchange Board of India (SEBI) has matured and brought transparency; the Reserve Bank of India (RBI) has become less arbitrary in its oversight of banking; the telecom revolution, ushered in by the revenue sharing model of the Vajpayee government, was ably supported by the Telecom Regulatory Authority of India (TRAI) which withstood pressure from the telecom department to weaken the private sector. Similarly, insurance and pension regulators have also struck the right note; the new National Stock Exchange (NSE) forced reform on all the other stock exchanges. On the other hand, reforms of electric power failed because of weak and spineless regulators, and the later troubles in telecom relating to the radio spectrum were exacerbated by poor regulators.

Despite some real achievements, such as the setting up of some world-class institutions, of higher learning during Nehru’s time, the truth is that the Indian state is in serious trouble. After 2010, India began to experience the limits of ‘growing without the state’. Investment slowed down because investors lost trust in the ability of the state to provide a reliable and predictable environment. Red tape reared its ugly head as the government became paralysed. Crony capitalism also became a real worry in the unreformed sectors of the economy. With high growth, tax revenues had risen for two decades, but they were not used to improve the capacity of the state or modernize governance.

Infrastructure spending did rise but far too much still went into subsidies and ‘premature welfarism’. The state did not hire more judges or police officials, or significantly upgrade technology or change obsolete systems in the bureaucracy and other functions that could have improved governance.

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