India Unbound

Title: India Unbound – From Independence to the Global Information Age
Author: Gurcharan Das
Publisher: Penguin, 2015 (First published 2000)
ISBN: 9780143419259
Pages: 419

A big contradiction lies at the heart of the perception of Indian society regarding the growth of its economy in the last three decades, especially after the great Liberalization of 1991 put forward by Prime Minister P V Narasimha Rao. It emancipated the economy and unleashed its animal spirit which was kept in bondage for four decades by the debilitating chains of Nehruvian socialism. Truly, 1991 can be designated as the year of India’s economic independence. But the irony is that most Indians still believe that the market makes ‘the rich richer and the poor poorer’ which would lead to corruption and crony-capitalism. The 1991 reforms and its aftereffects catapulted India to the position of the fifth largest economy in the world and lifted 415 million people out of poverty in the last fifteen years. Despite the market having generated widespread prosperity over two decades, people still distrust it and the nation continues to reform by stealth. This book is a jewel of sorts; you would find hundreds of books criticizing liberalization churned out by political and academic factories of the Left but rarely a book of this kind appears. It is in its core a biography of the author, but examines the Indian economy also in parallel. Das explains why the 1991 reforms was essential, how it progressed, what were the areas which needed accelerated reform and the changes it has wrought in Indian society. Gurcharan Das graduated in philosophy from Harvard and was CEO of Procter & Gamble India. He was instrumental in setting up the market for Vicks Vaporub, which is an American product. After taking early retirement at 50, he became a writer and consultant who give time only to young and promising companies.

This book is a must-read for those who want to understand how India failed to get its objectives correct. The leaders of the freedom struggle – Gandhi and Nehru – used their influence over the masses in a way harmful for them as well as for the nation. Fallacious arguments captivated the public mind such as ‘small companies are better than big ones’ (Gandhi), ‘public enterprises are better than private ones’ (Nehru) and ‘local companies are better than foreign ones’ (both). They so mesmerized India that the succeeding generation whose job was to jettison these foolish ideas, failed to do so and did us incalculable harm. And what did they achieve after half a century of mixed economy? After 50 years, the failure was staggering: 40 per cent of Indians were still illiterate, half were miserably poor earning less than a dollar a day, one-third of the people did not have access to safe drinking water, and only a sixth of the villages had modern medical facilities. In the end, this meant two generations who missed the opportunities. Instead of socialism, this path led to a corrupt, domineering state. Narasimha Rao was also forced by the IMF to bring in meaningful reforms. The 1991 Liberalization opened the economy to foreign investment and trade. It dismantled import controls, lowered customs duties, devalued the currency and virtually abolished the licensing controls on private investment. The reforms drastically cut down the tax rates and broke public sector monopolies. Growth immediately picked up to 7.5 per cent and foreign exchange reserves shot up from 1 billion to 20 billion USD. The author however notes that though the license raj was done away with, the inspector raj is still intact. The reforms are only half complete. This book was written in 1999, but the observed shortcomings still exist in the system.

The author remarks that the immediate post-independence years were a time of centre-left ideology in many countries and in fact Nehru was in sync with Fabian socialists of the UK. During his college days at Harvard, Das noted that students were left-of-centre in thought and were concerned with redistribution of wealth and ignored the whole subject of wealth creation. Many of India’s intellectuals and policy makers were trained in the West and suffered the same blind spot. Most of the teachers also had an anti-business bias which reinforced the student prejudices. Developmental economists thought that growth would provide jobs, raise incomes and pull up people from poverty. However, East Asia realized the futility of this policy after a decade or so of experimentation. They quickly changed track and went back to market-oriented reforms. But in India, the failed policies were consolidated under Indira Gandhi. She further tightened the rules which were already taut. It was the period in which the author completed his education and joined Richardson Hindustan which produced the ubiquitous balm of India – Vicks Vaporub.

Gurcharan Das provides an excellent survey of the misfortune that is euphemistically called Nehruvian socialism or the mixed economy. The 1956 Industrial Policy Resolution was a great blunder of Nehru and his planning advisor Mahalanobis. It reserved seventeen sectors exclusively for state enterprises. When G D Birla requested for permission to start a steel plant, consent was denied! The Tatas made 119 proposals between 1960 and 1989 to start new businesses or expand old ones and all of them ended in the bureaucratic files. Nehru in his naivety dampened the competitive spirit of India’s entrepreneurs when he innocently enquired of the need for having ‘nineteen brands of toothpaste’ (p.153). Another ‘gem’ of stupidity came later when Nehru declared in parliament that ‘public sector’s aim is not to make profit but to meet social objectives’. He nationalized a number of industries without adequately compensating the owners. His public sector was marked by low return on capital, lack of autonomy and accountability of senior managers. The supreme leader’s callous attitude did not instill in them a concern for profit and efficiency. In fact, this complacency to profits continued until recently till the government linked the employees’ wage revision to the company’s profitability.

If Nehru’s economic policy was unfortunate, Indira Gandhi’s trajectory was nothing short of a disaster. Since the author was personally at the receiving end of some of her bad policies, he argues with spirit and conviction. Under her tenure, India withdrew further from world trade, raised tariffs and taxes even higher and became one of the worst performing economies. He estimates that Indira’s follies cost about 1.3 per cent lower in terms of GDP per year. The stringency of laws was in direct proportion to corruption. It could also be that the rules were hardened to thoroughly milk the industry in terms of kickbacks. The MRTP act brought in to curb monopolistic and restrictive trade practices in 1969 was so draconian that it crippled private industry for a generation. Under this law, any business group with combined assets worth rupees 20 crores or above was declared a monopoly and effectively debarred from expanding its business and placed under strict anti-monopolistic supervision and control. Rajiv Gandhi ‘graciously’ raised the limit to rupees 100 crores, but Narasimha Rao entirely scrapped this ridiculous law. Pranab Mukherji, who was the finance minister of Indira and later the nation’s president, was totally closed to any new idea and embarrassingly arrogant when he answered questions (p.197). The Janata party which replaced Indira continued to hoist Gandhian socialism and sacrificed growth. They reserved 863 industries for the small sector. Only entrepreneurs who invested less than rupees 60 lakhs could enter one of these industries. Competition from large and medium enterprises vanished and the sector moved into paralysis. A great irony of this period was that some of the future champions of the 1991 Liberalization were part of the government and responsible for some of its stringent regulations. There were many outstanding economists in government and academia such as I G Patel and Manmohan Singh who didn’t blow the whistle. They kept serving a morally bankrupt system for years, providing it with intellectual respectability and support.

The author joined Vicks very early and has contributed a great deal in making the product widely acceptable and used. It is amusing to learn that people thought it to be an original Ayurvedic remedy while in fact it was researched and developed in the US. It was only in the 1980s that it was marketed as Ayurvedic after ascertaining that its constituents were described in Ayurvedic textbooks. Their efforts to ensure customer satisfaction at every level of the employees are enlightening. Having partnered and worked with foreign and Indian professionals for many decades, Das feels that Indians are not good at working as a team. He claims that the poor teamwork of Indians is a festering, chronic disease. This divisive character is a national competitive disadvantage. A recurring refrain in the book is that intellectuals have not been able to sell the 1991 Reforms to the common public as a beneficial thing. Most of the people who really understand it remain mute while the politically motivated gang continuously point to the mindless jargon of ‘growing inequality’ as something that is going to seriously affect the lives of the less well-off. This book provides several arguments to decimate such propaganda of naysayers. The author comments in this regard that greater benefits owned by a few could be justified if the inequality improved the situation of the poor. A CEO earns many times more salary than the ordinary workers, but they consent to it as long as it motivated him to earn more profit to the company and the workers get higher wages as a result.

The book includes biographical sketches of Aditya Birla, Dhirubhai Ambani and Sam Pitroda as a kind of motivational story for young entrepreneurs. The latter parts of the volume deals with a review of the 1991 reforms and the areas which have not improved in the year 1999 when this book was written. A drawback is that it includes long sermons to the government, politicians, businessmen and the people which can be a bit tiring for the readers. This edition of the book is published in 2015 and includes a fresh Introduction and Afterword which brims with claims of vindication of the author’s original arguments. His viewpoints are very bold and are excellent examples of out-of-the-box thinking. Das presents data to show that the British rule was not so damaging to India on the economic front, particularly after the last decades of the nineteenth century. Running the empire was definitely not a hugely profitable enterprise. Several grave blunders of Nehru’s economic policy are listed in the book which can supplement Rajnikant Puranik’s famous book, ‘Nehru’s 97 Major Blunders’ and would help him complete a century and a few more points. You can find my review of that book here.

The book is highly recommended.

Rating: 4 Star