How India Holds Itself Back

By Kenneth J. Cooper, Washington Post

Sunday, May 30, 1999; Page B02


Eight years ago, when India abandoned socialism and stepped into the

world economy, hope sprang alive in New Delhi's corridors of power and

in the boardrooms of multinational corporations that this Asian giant was

about to become a global economic player, despite the desperate poverty

that has shaped its international image.


Here was a huge country--nearly 1 billion people--capable of throwing its

weight around, if it finally exercised the economic muscle that had wasted

away behind protectionist barriers for decades. India had one of the

world's largest contingents of skilled technicians, a consumer class about as

big as the population of the United States, an industrial base that made

everything from carpets to satellites, and an agricultural sector that ranked

as a leading producer of basic foodstuffs such as wheat and milk.


That was all true then, and remains so, but few India hands have retained

their optimism that the nation's potential for rapid growth is going to be

realized any time soon, even if the next century does turn out to be "the

Asian century" as was widely predicted here--at least before last summer's

Asian economic downturn. (As growth in India's economy and exports has

slipped since 1997, politicians have taken comfort that the declines have

not been as steep as in Southeast Asia.) Many Western executives whose

companies rushed in the early 1990s to establish offices in India have

scaled back their operations--and their hopes--in the past few years.


I understand why they are doing so. My experience covering a succession

of five governments in New Delhi has convinced me that instead of

claiming a significant place in the global economic order, India is holding

itself back.


Like Washington, New Delhi is a government town where the powerful

and their retainers strut at evening cocktail receptions. At these social

affairs in the cool gardens of official bungalows and on the open rooftops

of middle-class homes, conversation between Americans and members of

the English-speaking Indian elite almost inevitably turns to the globalizing

economy. After a Scotch or two, many educated Indians find it hard to

contain the combustible mix of envy and resentment they harbor toward

the United States, its prosperity and power.


Talk economics long enough, and an American is likely to get a short

history lesson about the traders of the British East India Company, who

arrived in the early 17th century--long before India was united as a

nation--and the stealthy conquest that eventually followed. The country's

post-colonial paranoia leads otherwise reasonable Indians to react with a

paralyzing fear that their country, confronted with commercial

representatives from a new era's superpower, is surely threatened again

with a similar fate.


Retired law professor M.D. Nanjundaswamy, who represents the interests

of peasant farmers, once assured me with all the conviction he could

muster that PepsiCo Inc.'s real purpose in bringing Kentucky Fried

Chicken to India was to buy and slaughter all the nation's cattle, the sacred

cows of the Hindu majority. Baffled, I asked what chicken restaurants

would do with so much beef. He was not dissuaded in the least, adopting

the all-knowing look and tone of conspiracy theorists.


This fear of cultural invasion, of losing control of national resources--or

even sovereignty--has repeatedly stymied moves by successive

governments to convert the prevailing consensus on market economics into

policy and law. Parliamentary debate over conforming to international

patent protections gets reduced to worries that Western pharmaceutical

companies will steal traditional Indian remedies, which Indian drug

manufacturers have rarely tested or marketed abroad. Legislation to open

the government's monopoly on insurance to foreign companies gets

sandbagged and tagged as a treasonous plot to export Indian savings,

instead of being welcomed as a way to create jobs, make certain kinds of

coverage more available and collect a pool of patient capital that could be

invested in badly needed infrastructure.


In recent years, successive governments have occasionally overcome

opposition and opened some sectors of the domestic economy, such as

telecommunications and broadcasting, both of which had been entirely

under government control. But policies affecting those industries shift often

enough to unnerve foreign investors, some of whom have packed it in and

gone home as a result. I recall a French telecommunications manager

reciting a litany of policy changes, punctuating each with a diving index

finger to indicate a steep downturn in business caused by higher charges

for cellular calls and a new luxury tax on mobile phones, for instance. That

manager headed back to Paris, leaving behind a skeletal corporate



The satellite television industry may have had it the worst. With hardly any

government forethought, foreign operators were permitted in 1991 to

break the state-run network's monopoly because, without CNN, India

could not watch the Persian Gulf War along with the rest of the world. But

since then, sole foreign ownership of satellite channels has come under

attack from Indian politicians fretting about a "cultural invasion," by which

they usually mean exposure to the supposed sexual licentiousness of the

West. Serial drafts of broadcasting legislation have proposed limiting

maximum foreign ownership to 49 percent--and even as little as 25



To keep the cultural invaders out, Hindu nationalists--apparently confused

about how the technology works--first proposed a ban on foreign

broadcasters transmitting programs from India via satellite. Next, the same

politicians reversed themselves: They vowed to require foreign

broadcasters to transmit India-oriented programs from the country so the

government could collect satellite fees and regulate programming content.

In the end, the current government decided to allow only Indian-owned

channels to transmit from India. (There is no practical way to control

picking up programming from a satellite.) Legislation regulating

broadcasting overall still has not passed parliament.


"This is India. What can you do?" Jayanthi Natarajan, an exasperated

cabinet minister, replied in 1997 when I asked about similar bobbing and

weaving on civil aviation policy. Natarajan's response was common Indian

shorthand for "We're a big democracy, with a multiplicity of opinions. It

takes some time to reach agreement." The same has often been said of the

United States, but India has a far larger and more diverse population, 40

parliamentary parties and only a half-century of experience with

democratic rule. A corollary popular with the elite holds that China, the

only country of comparable dimensions, has attracted exponentially more

foreign investment, outperformed India in world trade and grown faster

because of its authoritarian rule. Wrong, I say. The world has known many

more authoritarian regimes that have presided over contracting economies,

such as Cuba, or Zaire during the Mobutu regime. A decisive difference is

that Beijing has an economic strategy, one geared to promote growth, and

New Delhi doesn't seem to have any kind of strategy.


I once asked P. Chidambaram, a Harvard Business School graduate and

India's market-oriented finance minister from 1996 to 1998, to outline his

coalition government's economic strategy. Instead of outlining goals and

priorities, he launched into a laundry list of changes in bureaucratic

procedures for reviewing foreign investment proposals, a torrent that left

me dazed.


Other Indian leaders, when asked more explicitly why New Delhi has not

developed an overall strategy to compete in the globalized economy the

way Beijing has, used to offer reasons why democratic India cannot copy

Beijing's strategy of freeing market forces in selected, coastal areas or

relying on its diaspora to boost foreign investment. Like Chidambaram,

they missed the point: India needs a economic strategy of its own making,

suited to its national strengths, weaknesses and needs. Such a strategy

would provide a framework to guide parliament in writing sector-by-sector

legislation. It could get government ministers, who too often describe

market-oriented legislation as the byproduct of World Trade Organization

rules or Western diplomatic pressures, off the defensive.


With a sound strategy in place to satisfy the educated elite, a shrewd

Indian politician could parlay market economics into a strong nationalist

appeal to the masses. It could go something like this: "Centuries before our

India became a united nation, our people were engaged in trade with much

of the known world. We held our own in the spice trade and along the Silk

Road until the British came in and exploited us. We chased the British out

a long time ago and we will never again allow outsiders to come here and

exploit us. But we need to buy essential goods from the rest of the world

and sell our goods outside India. And it will help us grow into an even

stronger nation if foreigners invest their money in our country. We can

compete in world trade. We have done it before. We can do it again."

I kept waiting to hear an Indian politician of any ideological stripe say

something like that. I never did.


"They ain't ready," concluded an American diplomat who arrived in New

Delhi during the giddy days of economic optimism and left as it was

waning. That diplomat predicted a generation, maybe two, would pass

before India's leaders get the nation's economic act together.

Even that strained measure of optimism springs from faith in what should

be the pride of India, an entrenched democracy that is not only the world's

largest but also the oldest in a developing country. My gut tells me that if

Indian politicians debate it long enough, as they most surely will, they'll get

it right. But as they say in India, "That will take some time."


Kenneth Cooper, who just completed a three-year tour as New Delhi

bureau chief, reports on domestic education issues for The Post.