Monday, October 08, 2012

India 2020: The State in Trouble?

Indian politics has just got interesting in the last few weeks. 

Anand Mahindra, a leading industrialist, was quoted by The Economist recently saying that 2012 was possibly the worst year for India's economy and polity for a long time. He is indeed right: For much of 2012, Indian economy was bumping along the bottom and the Government was frozen in a policy paralysis, mired in corruption scandals and unable to do anything at all. The economic growth rate plummeted to 5% mark, which meant, in effect, that more people will remain in poverty and the middle classes will take a lot longer to get the commodities they covet than they previously expected: A recipe for disaster in a country like India. Modern India presents a classic illustration of Ernest Gellner's point that the modern state draws its legitimacy from economic growth and the lack of it may cause an existential trouble for the state. That moment surely arrived in India in 2012.

In many a ways, India's democracy was seen as the culprit. There were always doubts about Indian democracy and theories that it can't work for a country with so many poor and illiterate people. Besides, there were such deep divisions, along the language, religion, caste and regional lines. There was always a risk that Indian democratic system will be taken over by demagogues, who will buy votes with cheap promises and eventually drive the system towards failure. This looked very real in 2012, particularly with West Bengal's Chief Minister, Mamta Banerjee, losing her bearings completely and her party of sycophants blocking everything that the government at the centre, run by a coalition in which it was a senior member, wanted to do. It was political dysfunction at its worst, and coming in the middle of a global economic crisis, it was indeed a very risky game to play.

The warning signs were all there. The rupee started plummeting, driving up the energy prices and along that, everything else. The current account deficit widened, and the borrowing costs of the country was steadily going upwards. The government's policy of investing in rural India, while bringing in many benefits in terms of literacy and social mobility, created structural inflation, which was difficult to contain with interest rate rises, which the Central Bank kept trying out, raising the cost of credit and dampening the EMI (Equal Monthly Instalment) culture which the middle classes so coveted. There were asset bubbles visible in Indian cities, gold prices kept going up and unemployment among middle classes were becoming common again. The gigantic corruption scandals made all government projects a suspect, and froze the bureaucracy into inaction as they feared any decision will attract the vigilante crowd with their secret cameras and freedom of information requests.

The democracy is in danger too. The parliament has hardly worked in the last session, with the opposition and even the governing coalition members resorting to walk outs and other measures rather than the legislative ones. The progress as opposed to freedom argument has been rekindled, with Gujrat's authoritarian Chief Minister, Narendra Modi, trying to position himself as a Prime Ministerial candidate on the development agenda. Leaders like Mamta Banerjee made the political process look silly, forcing her party leaders into hopeless submissions to her own whims and reducing the political process to a kitchen table drama both in her own state and on the wider national stage. The middle classes, reduced to vigilantism by the corrupt government practises, dismayed by obstructionism of regional chieftains like Ms Banerjee, and squeezed by rising prices and interest rates and vanishing jobs, have started blaming democracy and the state for all their woes - or it seemed. The fear-mongers such as Mr Modi are clearly enjoying their moment in the sun, and Indian state, as it stands now, is facing its worst existential crisis since India's independence sixty years ago.

However, India's democracy worked because of its diversity, not in spite of it. There were always dangerous demagogues lurking in the regional politics, but they were contained by the democratic requirements. If anything, the Indian constitution, with its centralising tendencies, stands vindicated at moments like these (despite the benefits of greater devolution of powers to the states) and the fact that Indians can't agree on hard measures, a key problem for pushing through the economic reforms, may just spare us from the horrors of a dictatorship. 

Finally, the government has also finally woken up from slumber. In the last few days, a range of unpopular measures allowing Foreign Direct Investment in different sectors and partially withdrawing energy subsidies, moves that will help plugging Current Account deficits to some extent and help the Central Bank to start reducing interest rates, have been put in effect. This was a rare show of courage from an otherwise lackluster government, and though it has resulted in Ms Banerjee storming out of the coalition, it has allowed the momentum to shift in favour of the government somewhat. 

The interesting thing about this latest political drama is that even the regional politicians with a caste/ religion agenda are quickly learning that it is economic growth, and that alone, can give them legitimacy and create a sustainable political base. The spectacular fall from grace of Bihar's master demagogue, Lalu Prasad Yadav, is a case in point: His successor, Nitish Kumar, very much a caste politician, has learnt hard lessons and turned his focus on delivering growth rather than playing the vote bank politics. The shift is discernible in Gujrat, where Mr Modi, after his riots and rampages are over, reincarnated himself as the 'development guy'. Even in the UP, India's biggest and one of the most backward state, a traditional playground for vote bank politics, the message of development is clear and unambiguous, ironically championed by a caste-based party: But it is trends like these which indicate that Indian politicians are capable of learning lessons and they may be able to turn things around, even if this happens only at the precipice.

There are people like Ms Banerjee who may never learn the lessons, such great is her megalomania. The politics of West Bengal is rather atypical, dominated by upper castes, urban traders and middlemen interests, but rest of the country has indeed moved forward. The new generation of regional leaders are pragmatic, and they are likely to be nimble in forming coalitions and pushing their agenda. The state in India may look fragile, but this may be the inflection point rather than the setting of a catastrophe: This may be the time when a coalition of regional interests, focused on the economic growth agenda, may emerge as a dominant force in national politics. Despite its apparent limitations, this may be a good thing: This will preserve democracy and the Indian constitution as it stands, but at the same time, promote growth and bring governance closer to the people. In the middle of this crisis, modern India's golden age may be about to begin.

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