Vivek Kaul
My standard tenth exams got over on March 12, 1993. It was late evening, around 6pm, and I was having a vanilla ice-cream (or was it chocolate I don’t remember) in a cone along with some of my friends standing outside Firayalal, the premier shopping destination for clothes in the city of Ranchi, where I grew up.
A small kid started pestering me to buy a copy of Sandhya Ranchi Express, an evening newspaper that had been recently launched. I tried to shoo him away. He wouldn’t go and was determined to sell the last copy that he had.
The trouble was I did not have a single rupee in my pocket. My parents never came around to the idea of giving me pocket money, being forever bothered that I would use it to buy the music cassette of the latest Hindi film, which was one of the two interests I had at that point of time. The other one being religiously listening to Cibaca Sangeet Mala, a countdown show of Hindi film songs hosted by the one and only Ameen Sayani every Monday on the government owned radio channel Vividh Bharti (He started with Radio Ceylon and during the later years moved to Vividh Bharti).
My friend Anshuman, who had also paid for the ice-cream (if I remember correctly), first gave me a stare and then a one rupee coin. I bought the newspaper. A small piece of news which seemed to have been inserted at the last moment as the paper went to press talked about bomb blasts in Bombay (now Mumbai).
Those were the days when evening newspapers were not meant to be taken seriously. They usually had their share of masala and gossip. I thought the news about the blast was not true and would have just been put in to hopefully sell a few copies more.
In fact I was sure of this primarily because all kinds of news that appeared in the local newspapers. A few days after the assassination of Rajiv Gandhi in May 1991, a local newspaper had even gone to the extent of reporting that he was alive, living in the United States of America (USA) and having fun there.
The news about the blasts in Bombay turned out to be true. By the time I reached home, people had tuned into BBC Radio on the short wave and confirmed the same. Those were the days when people did not believe in anything unless they had heard it on the BBC (and if not them, someone else they knew had because it was not always easy to tune into the right frequency).
The evening news on Doordarshan, first in Hindi and then in English, also reported on the blasts. I went to sleep peacefully that night, the first time since January 29, when I had started preparing for my tenth standard exams, on the day Vinod Ganpat Kambli made his test debut and batted ahead of his schoolmate Sachin Ramesh Tendulkar. The blasts in what was a ‘far away’ Bombay did not effect a small town boy who was just happy that his exams were done and out of the way.
Investigations soon revealed that the blasts were carried out on the orders of the much feared Dawood Ibrahim, the mafia don who ruled what was then Bombay. By the time the news of his involvement came out, Ibrahim had left the country , never to come back. It is said that Ibrahim carried out the blasts to revenge the demolition of the Babri Masjid and the riots that followed against the Muslim population in the city of Bombay.
Babri Masjid in Ayodhya was demolished on December 6, 1992, twenty years to this day. I clearly remember that rumours were abuzz in the colony that we lived in, about the Masjid having been brought down. The rumour mongers used the usual ploy of saying “BBC par bol diya hai (they have said it on the BBC)” to give a kind of an authenticity to what they were trying to spread.
But cable television had already arrived by then. We had got a connection on February 22, 1992, on the day India lost to England in Benson and Hedges cricket World Cup being played in Australia and New Zealand.
Earlier on the same day the New Zealand captain Martin Crowe had surprised the entire cricket fraternity by asking the off spinner Dipak Patel to open the bowling in the match against Australia. Something like this had never happened before.
And it was on cable TV we got some confirmation of the Babri Masjid having been brought down. The BBC (television and not radio) showed some kar sevaks getting on the dome of the Babri Masjid and starting to hit it with rods and hammers.
Lal Krishna Advani of the Bhartiya Janata Party and Ashok Singhal of the Vishwa Hindu Parishad could be seen rushing towards the disputed structure and asking kar sevaks to stop what they were doing. Whether they really meant it or not is something even they won’t be able to tell.
Those were the only visuals of that were broadcast on the BBC. In fact from what I remember it was not BBC’s original footage and they were broadcasting a tape that was put together by news agency ANI. The media was thrown out soon after the kar sevaks starting demolishing the Masjid and those are the only visuals that anyone ever got of the Masjid being brought down.
The only other news show was on Doordarshan and nobody of course believed what they were reporting. So people would tune into BBC on their cable television and waited with a baited breath to hear something being reported on the scene in Ayodhya and the riots that had broken out in different parts of the country in the aftermath of the Masjid being brought down. Given that a lot of people did not have cable television, they waited with a baited breath in homes of people who had it.
Schools, colleges and offices had been closed down and a curfew had been imposed on the city of Ranchi. Shoot at sight orders had also been given. But we were safe inside the confines of the CMPDI colony. I was advised to start preparing for my tenth standard exams which were due in less than three months time. I remember studying some Chemistry or at least pretending to, just to ensure that my mother did not bother me too much. And I was really kicked to know that the word Oxygen is an oxymoron. But being the news junkie that I was, I was more interested in all the rumours that were going around rather than studying for my tenth standard exams.
Most of the people around me were happy at what had happened. “Advani ji ne kar dikhaya (Advani ji has got it done),” was an oft repeated phrase. People also talked about the time when Advani had come visiting us in October 1990.
Advani was on his Rath Yatra across the country starting from the Somnath Temple in Gujarat on September 25, 1990. He arrived late one night to stay “overnight” in the guest house in our colony primarily because there wasn’t a hotel good enough for him in the city of Ranchi. At least, that’s what the rumour was.
In fact, in the years to come I saw a spate of BJP leaders from Atal Behari Vajpayee (who was sitting in the front seat of a Maruti Omni), Murli Manohar Joshi and the late Pramod Mahajan, all stopping overnight at the guest house.
Early next morning, before Advani was supposed to leave, a small crowd, which included me, had gathered in front of the guest house. He came out and was requested to speak a few words. I don’t remember anything of what he said except the last line, which was “Saugandh Ram ki khaate hain, mandir wohin banayenge”.
He was out of the place in five minutes. But the crowd that had gathered continued to mingle. Some were happy to have seen him. Some were amazed to know that his so called rath wasn’t actually one. Some women spoke about the glow Advani ji had on his face. Some others said “kam bole par bahut acha bole. (he spoke less but spoke very well).”
And some others who thought they were worried about the state of the nation asked “mandir banega ki nahi? (Will the temple be made or not?)”. With the Babri Masjid out of the way the first step towards the making of the temple had been made.
The slogan going around was “ye to kewal jhanki hai, kaashi mathura baaki hai (This was a just a trailer, Kashi and Mathura are still remaining).” Ranchi was a hardcore BJP constituency returning its candidate Ram Tahal Choudhary to the Lok Sabha four times in a row between 1991 and 2004.
People who had gone to Ayodhya from Ranchi as kar sevaks became minor celebrities once they came back. One of my older friends claimed to have met one such person who had told him “ke masjidwa ekbak hi gir gaya (The masjid fell rather suddenly with ekbak being the Ranchi lingo for suddenly)”.
So those were the days.
Its late in the night as I sit writing this and wonder about all that has changed since December 6, 1992.
Vinod Kambli now sports a weird hairstyle and recently had an angioplasty. He never fulfilled all the potential he showed in the early 1990s. He is probably the only test player to have played just 18 tests with a batting average of 54.
Captains now regularly use spin bowlers to open the bowling in T20s, one day internationals as well as test cricket. Ravichandran Ashwin, India’s latest spinning sensation is regarded as the best new ball spinner in the world. Talk about oxymorons!
Ranchi now has much better hotels. And it no longer votes for the BJP. Since 2004 its turned to the Congress and voted for Subodh Kant Sahay, who till very recently was a minister in the Union government but has since been dropped due to his role in the coalgate scam.
Nobody listens to the BBC Radio in India any more. Very few watch its World News Service on cable television. And Cibaca Sangeet Mala has been long gone.
Atal Bihari Vajpayee went onto become the Prime Minister of India and started travelling in bullet proof BMWs, with the days when a small town boy could catch a glimpse of him sitting in the front seat of a Maruti Omni being over.
Pramod Mahajan was murdered by his younger brother.
Ameen Sayani’s voice still continues to be strong. On the two occasions I have heard him live in the last two years I went back to the time two decades back when life was fun and simple.
The internet hindus who are highly educated, well paid and normally upper caste, have replaced the kar sevaks who largely belonged to the middle class and the lower classes.
Today we have mobile phones and the internet unlike two decades back. If an incident like this were to happen, the media would cover it in a more detailed manner. If they are thrown out like they had been 20 years back, the kar sevaks (or should we be saying the internet Hindus) would be recording the event on their mobile phones and uploading pictures on Facebook with messages like “I was there.”
But some things are still the same.
Dawood Ibrahim continues to be a free man.
Lal Krishna Advani still goes on rath yatras whenever he does get the time and still hopes to become the Prime Minister of this country some day.
Sachin Ramesh Tendulkar ironically continues to look like the best batsman we have.
And Rahul Gandhi is still a bachelor!
The article originally appeared on www.firstpost.com on December 6, 2012.
(Vivek Kaul is a writer. He can be reached at [email protected])
Month: December 2012
FDI debate: Why Sushma should get the stupid-statement award
Vivek Kaul
It’s that time of the year when awards are given out of for the best things and possibly the worst things of the year. And the award for the most stupid statement of the year has to definitely go to Sushma Swaraj, the leader of opposition in the Lok Sabha.
During the course of the debate on the government decision to allow foreign direct investment into multi-brand retailing or what is more popularly referred to as big retail, she said: “Will Wal-Mart care about the poor farmer’s sister’s wedding? Will Wal-Mart send his children to school? Will Wal-Mart notice his tears and hunger?”
These lines sound straight out of a bad Hindi movie of the 1980s with dialogues written by Kadar Khan. Yes, Wal-Mart will not care about the poor farmer’s sister’s wedding. Neither will it send his children to school. And nor notice his tears and hunger simply because its not meant to do thatThis is because Wal-Mart is a selfish company interested in making money and ensuring that its stock price goes up, so that its investors are rewarded.
The same stands true for every Indian company which is into big retail (be Tata, Birla, Ambani or for that matter Big Bazaar). No company, Indian or foreign, into big retail or not, is bothered about the tears of the farmer. And neither is the government.
Let’s look at some other things that Swaraj went onto say. “The remaining 70 percent of the goods sold in these supermarkets will be procured from China. Factories will open in China, traders will prosper in China while darkness will befall 12 crore people in India,” she declared.
Already a lot of what is sold in India comes from China. Around three weeks I went around several electronic shops in Delhi trying to help my mother choose a refrigerator. Almost all Indian brands had compressors which were Made in China. If one takes the compressor out of the equation what basically remains in a refrigerator is some plastic and some glass. And all that is Made in India.
My television set which is a Japanese brand is also Made in China. A leading Indian electrical company buys almost all the irons that it sells in India from China and simply stamps its brand name over it.
A lot of pitchkaris that get sold around the time of Holi and diyas and electronic lighting that get sold around the time of diwali are also Made in China. As a quote from a story that appeared in The Times of India story earlier this year went “It seems that ‘Made in China’ has researched our festivals and sensed the need of the customers. For the past 10 years, the business of local sprinklers is decreasing due to stiff competition with Chinese sprinklers. We are facing huge loss, plastic powder through which the pichkaris are prepared locally are bought at Rs 100 per kg while at the same time, there is no subsidy or relaxation on the name of festival,” shared Bihari Lal, a local manufacturer and trader of sprinklers.” Chinese made colours also available during Holi.
And none of this has been brought to India by Wal-Mart. It was brought to India largely by Indian entrepreneurs and traders, a lot of whom form the core voting base of the Bhartiya Janata Party (BJP) and also fund the party to a large extent.
Made in China has become a part of our lives whether we like it or not and it will continue to remain a part of our lives, with or without Wal-Mart. If Wal-Mart does not supply us with Made in China goods, the Indian entrepreneurs and retailers will surely do, primarily because Chinese goods are cheaper than the Indian ones. Hence, what Swaraj wants us to believe is already happening with no Wal-Mart in sight.
The other point that comes out here is the ability of Wal-Mart to source stuff from China. This is not rocket science. Indian retailers can also do the same thing. As Rajiv Lal of the Harvard Business School told me in an earlier interview “If Wal-Mart is operating in Brazil there is nothing that Wal-Mart can do in Brazil that the local Brazilian guy cannot do. If you want to procure supplies from China, you can procure supplies from China as much as Wal-Mart can procure supplies.”
Swaraj also talked about predatory pricing that Wal-Mart would resort to. “These supermarkets introduce predatory pricing. At first, they will introduce such low prices, that will finish the rest of the market. Then when the customer has no other choice, they will keep hiking prices and looting the people,” she said.
This statement is also misleading As Rohit Deshpande of the Harvard Business Schoool told me in a recent interaction that I had with him “ For a company like Wal-Mart historical strategy is fairly easy to understand. It is to make a major branded product available cheaper. So you will have a wider assortment of branded product than any of their competitors that’s the first thing. The second thing is that they have private label. They keep increasing the percentage of their private label within each of their broad categories. So the consumers get trained to come to the store because they can find an assortment of branded products. And once they become loyal to your store then they find that they can make price comparisons within the store and they end up buying your private label. And then your margin is really so much better. It’s a strategy that has worked well for Wal-Mart.”
So for this strategy to work Wal-Mart has to ensure that they stock private label goods (basically their own brands) which are cheaper than other brands. Hence, Wal-Mart might decide to stock it’s own brand of soap which is lets say cheaper than Lifebuoy. For this strategy to work their own goods will have to be cheaper than other branded goods. Hence, it can’t keep increasing prices and keep looting people as Swaraj wants us to believe. Indians aren’t exactly idiots.
Also, if you have visited any of the big retail shops over the years you would have realised that these shops have been increasing the number of private label brands that they sell. As of now this is largely to limited to things like pulses, noodles, sugar etc. The point is that big retail in India is following the same strategy that Wal-Mart does worldwide.
The other interesting point that comes up here is that Wal-Mart is able to offer low prices primarily because of two things. One is the fact that it gets its real estate cheap because it typically sets up shop outside city limits. And two is the fact is the homogeneity of the population when it comes to consumption.
A typical Wal-Mart in the United States is situated outside the city, where rents are low. But such a strategy may not work in India. “It’s not easy to open a 150,000 square feet store in India. That kind of space is not available. They can’t open these stores 50 miles away from where the population lives. People in India don’t have the conveyance to go and buy bulk goods, bring it and store it. They don’t have the conveyance and they don’t have the big houses. So it doesn’t work,” explained Lal.
This is something that marketing guru V Kumar agreed with when I interviewed him sometime back. “Even if Wal-Mart is there in every place, the way they are located is typically outside the city limits. So only people with time, motivation and a vehicle, will be able to go and buy things. And the combination of these three things is very rare.”
The other factor as to why Wal-Mart may not be able to offer very low prices in India is because there is no homogeneity when it comes to consumption behaviour leading to a situation where the company may not have the same economies of scale that it does in other parts of the world.
As Kumar told me “Does the country as a whole consume common things or there are regional biases? In a country like Brazil people eat similar foods that every retailer can sell.” In India clearly things are different. “In India between South, East, West and the North, there is so much heterogeneity that you need localised catering and marketing. So consumption behaviour varies therefore unless you are willing to carry heterogeneous products in each of the locations it is tough,” said Kumar.
The point I am trying to make is that Wal-Mart is not such a big fear that it was made out to be by Swaraj. They do make their mistakes as well. As Deshpande told me “They have had hiccups in the interest of scale and cost efficiency. They have sometimes pushed products that did not make sense for the local market. An example, I believe it was in Argentina, where Wal-Mart, around July 4(the American independence day) had a lot of American flags shipped into their stores.
Pankaj Ghemawat, the youngest person to become a full professor at Harvard Business School makes an interesting point in his book Redefining Global Strategy. As he writes “When CEO Lee Scott (who was the CEO of Wal-Mart from 2000 to 2009) was asked a few years ago about why he thought Wal-Mart could expand successfully overseas, his response was that naysayers had also questioned the company’s ability to move successfully from its home state of Arkansas to Alabama…such trivialisation of international differences greases the rails for competing exactly the same way overseas at home. This has turned out to be a recipe for losing money in markets very different from the United States: as the former head of the company’s German operations, now shut down, plaintively observed, “We didn’t realise that pillowcases are a different size in Germany.””
Wal-Mart had to pull out of South Korea as well in 2006.
Hence, Swaraj could have clearly done some better research before making one of the most important speeches of her career. She could have read the recent column that P Sainath wrote in The Hindu , where he talks about Chris Pawelski, an American farmer and the onions that he produces.
As Sainath writes “While the Walmarts, Shop Rites and other chain stores sell his (i.e. Pawelski’s) kind of onions for $1.49 to $1.89 a pound, Pawelski himself gets no more than 17 cents. And that’s an improvement. Between 1983 and 2010, the average price he got stayed around 12 cents a pound. “All our input costs rose,” he points out. “Fertiliser, pesticide, just about everything went up. Except the price we got.” Which was about $6 a 50-pound bag. Retail prices though, soared in the same period. Distances are not the cause. The same chains sell cheap imports from Peru and China, driving down prices.”
The other interesting point that Sainath makes it that companies even dictate the size of the onions he produces. As Sainath writes “Pawelski held up the onion. “They want this size because they know you won’t use more than half of one of these in cooking a meal. And you’ll throw away the other half. The more you waste, the more you’ll buy.” The stores know this. So wastage is a strategy, not a by-product.”
Such examples on Wal-Mart and other big retail chains are not hard to find. A Google search throws up plenty of them. A speech against the negative effects of big retail should have been full of such examples instead of saying things like whether Wal-Mart will be bothered by farmer’s sister’s wedding.
The article originally appeared on www.firstpost.com on December 5, 2012.
(Vivek Kaul is a writer. He can be reached at [email protected])
Why you should not believe LIC’s bulls**t on Ulips
Vivek Kaul
Patrick Jake O’Rourke an American political satirist and journalist recounts a very interesting story in his book Age and Guile – Beat Youth, Innocence and a Bad Haircut.
It was 1969 and O’Rourke had applied for a fellowship. To get the fellowship he had to clear an interview at the Ohio State University English Department.
On reaching there he was asked “Which literary critic has had the most profound influence on your thinking?”
“I could not think of the name of a single literary critic,” recalls O’Rourke in the book. But of course he had to say something, which he did.
“Henry David Thoreau,” was his answer to the question. Thoreau was an American poet, author and philosopher.
“Henry David Thoreau wasn’t a literary critic,” the board interviewing him rightly pointed out.
“His whole life was an act of literary criticism,” retorted O’Rourke.
He got the scholarship. “Well, it was 1969. Bullshit was an intellectual mainstay of the era,” he writes.
Bullshitting or BS as it is more euphemistically referred to as is a very important part of life in general and corporate life in particular. If one needs to survive and get out of tricky situations, learning how to give bullshit as well as decipher it is, very important.
Take the case of the decision made by the Life Insurance Corporation of India to relaunch Unit Linked Insurance Plans (Ulips) after a gap of nearly two years. Ulips are essentially high cost mutual funds masquerading as insurance. A major part of the premium collected through selling Ulips is invested in the stock market.
As the Business Standard reports today “The intention is to take advantage of the bullishness in the stock market. Sources familiar with the developments said this would also help the insurer attain its target of Rs 45,000 crore of new premium income collection in 2012-13 and increase its market share.”
Now this is what one would call bullshitting. Giving out every reason for a decision except the real one. And what is the real reason for LIC suddenly deciding to launch Ulips?
The real reason for LIC suddenly deciding to launch Ulips is the disinvestment programme of the government. At the beginning of the year the government had targeted to raise Rs 30,000 crore by selling shares of public sector enterprises to investors.
But now that number will have to go up due to several reasons. The government has been spending money at a faster rate than it had envisaged. The fiscal deficit during the first six months of the year had already reached 65% of the targeted amount of Rs 5,13,590 crore.
The tax collections have slowed down and only 40% of the projected amount has been collected during the first six months of the year.
Also, the auction of telecom spectrum through which the government had plans of raising Rs 40,000 crore has turned out to be a damp squib. The government could collect only Rs 1,707 crore or around 4.3% of the targeted amount.
This means a short fall of nearly Rs 38,300 crore which will now have to be most probably made up through the disinvestment route. Hence, a total of around at least Rs 68,000 crore (Rs 38,300 crore + the earlier target of Rs 30,000 crore) will now have to be raised through disinvestment.
This means the government will have to sell shares of a lot of public sector companies to investors. But the question is whether investors have an appetite for it?
And the answer is no given the current mess that the government is in. This is where LIC comes in. India’s biggest insurer bought a major part of the recent sale of shares of Hindustan Copper Ltd by the government and thus rescued its disinvestment.
And this is something that LIC is expected to do over and over again till March 31, 2012 and help the government meet its disinvestment target. Recently the government allowed LIC to own up to 30% of a company against the earlier stipulated limit of 10%.
Hence, LIC will end up buying shares which the government wants it to buy rather than the shares it should be buying from the point of view of generating good returns for its investors. Given this, LIC needs money which has the mandate to be invested in equity. The premium that it collects through its traditional endowment plans needs to be invested in safer avenues like government securities and loans raised by the best companies.
This money cannot be invested in the stock market. The money raised through selling Ulips can be invested in stocks. And that is the kind of money that LIC needs right now. Thus the decision to launch Ulips after a two year hiatus.
Also the last three months of the financial year are the best time to sell Ulips or any other kind of insurance plan, given that this is the time most people get around to doing their tax planning and investing money in tax saving avenues, insurance is one of which.
Ulips were the wonder drug for the insurance industry for a very long period of time until investors started figuring out that the only person gaining from the Ulip was the insurance agent. Also, the clamp down by Insurance Regulatory and Development Authority (IRDA) of India, the insurance regulator, on Ulip commissions, pushed insurance agents towards traditional insurance plans which continue to pay a high commission.
Now Ulips are all set to act as the wonder drug for the government. The money raised by LIC by selling its new Ulips is likely to be invested in the shares of the public sector units the government plans to sell to meet its disinvestment target.
It’s a win a win proposition for everyone. The government gets its easy money. LIC gets new premium on which it charges a management fee to manage that money. The insurance agent makes the commission. The only person losing out, as always, is the person buying the Ulip, who ends up indirectly owning shares that no one else in the market wants to buy. But then who was bothered about him anyway? He could always be bullshitted and told it was all for his own good.
Today’sEconomic Times says that the LIC lost over Rs 5,000 crore by buying public sector shares of ONGC, NMDC and NTPC.
But DK Mehrotra, chairman, LIC had told Business Standard on an earlier occasion “Ulip has its own advantages, it gives you fast returns.” But the question Mehrotra does not answer is faster returns for whom? It clearly isn’t the Ulip investor.
Hence, dear reader it is important that you decipher this bullshit and allocate your hard earned money somewhere else.
The article originally appeared on www.firstpost.com on December 4, 2012.
(Vivek Kaul is a writer. He can be reached at [email protected])
Would India have grown faster if it wasn’t a democracy?
Vivek Kaul
The India growth story as it was originally envisaged to be, is more or less over. Days when 8-9% growth was taken for a given are gone. The gross domestic product (GDP) for the period July 1 to September 30, 2012, grew by 5.3%. GDP growth is a measure of economic growth.
Further, what is true about India, is also true about China. As Ruchir Sharma head of Emerging Market Equities and Global Macro at Morgan Stanley Investment Management told me in a recent interaction “As far as China was concerned the growth expectations were too high out of China. People kept expecting China to grow at 9-10%. But there has been a reset of expectations. This year the growth rate is going to be 7.5% officially. Some suggestions have been made that the actual number would be lower than that if you look at the corresponding data.”
As was the case in the past, expectations are that China will continue to grow at a much faster rate than India. To me this raises the question whether countries with authoritarian governments, or countries with lower levels of democracy or even countries run by dictators, do better during the initial few decades of economic growth than countries which are democracies?
Or to put it simply is India’s democratic form of government slowing down its economic growth? This is a question that makes for engaging discussion in the business circles of Mumbai and the power circles of Delhi. Would have done better if we were more like China or Singapore, than the way we actually are, is a question which is often asked?
Vivek Dehejia and Rupa Subramanya discuss this question in some detail in their new book Indianomix – Making Sense of Modern India(Random House India, Rs 399).
As they write “When you look back on the history of the twentieth century – in fact through human history – you notice periods of very high economic growth are associated with autocratic, not democratic regimes. Just think of Chile under the dictatorship of Augusto Pinochet or the ‘miracle’ economies of East Asia – Hong Kong, Singapore, South Korea, and Taiwan. Starting in the 1960s these four economies went from being poor to being rich in just over a generation. The first one was a British colony, the second an oligarchy, and the latter two essentially one-party states. It’s true that Chile, Taiwan and South Korea democratised – but that was after they’d experienced a generation of rapid growth, not before.”
As Dehejia told me in an earlier interview “You need to have some sort of political control, you cannot have a free for all, and get marshalling of resources and savings rate and investment rate, that high growth demands.” And this is more possible in an authoritarian regime than in a democracy.
The same stands true for China now. It has had a generation of fast economic growth without any democracy. The country is ruled by one party, the Chinese Communist Party (CCP). As Richard McGregor, the author of The Party: The Secret World of China’s Communist Rulers told me in an earlier interview “The CCP is basically a political machine, as well as being a permanent governing party. As a political machine, it does not consider that its internal mechanisms should be open to public view. The top leaders are unveiled to the country at the end of five years and very little is revealed in the process. After the 2007 Congress, the nine men – and they are all men – walk out onto the stage, all wearing dark suits and all but one wearing a red tie; they all displayed slick, jet-black pompadours (a style of haircut), a product of the uniform addiction to regular hair dyeing of senior Chinese politicians; and they had all worked their up through the same system for all their lives.” Conformity is the name of the game.
The Western nations which grew at a very fast rate towards the end of the nineteenth century and early twentieth century also had very little democracy back then. As Dehejia and Subramanya point out “All of the rich countries of the West achieved rapid growth and economic development when they weren’t democracies. Just think of Britain during the Industrial Revolution. While it’s true that Britain was a parliamentary democracy it came with one catch, the fact that most people couldn’t vote. Franchise restrictions based on property ownership meant that the poor and the lower middle class were prevented from voting.”
The same stands true about the United States of America as well, the biggest economy in the world right now. “Britain was really an oligarchy, not a democracy, and so too was the US and every other Western country that industrialised and got rich.. The US, for example, legally enfranchised the African-Americans after their emancipation from slavery, but this was ‘offset’ by franchise restrictions that meant most Southern blacks couldn’t participate in the political process until the civil write movement of the 1960s. And let’s not forget that women didn’t get the vote in all of these Western countries till very late – well into the twentieth century in many cases,” the authors point out.
India on the other hand was a unique case. As Dehejia told me in an earlier interview “The India story is unique. We are the only large emerging economy to have emerged as a fully fledged democracy the moment we were born as a post-colonial state and that is an incredibly daring thing to do.”
This despite the fact that the Constituent Assembly which drafted the Indian Constitution had been elected under a very limited franchise by 5 to 10% of the Indians at the top of social and the So has Indian economic growth suffered because we are a democracy? Dehejia and Subramanya point out the research of William Easterly, an economics professor at the New York University. “The historical data on growth over time in many different countries that Easterly has analysed show that if you’re a fast growing country then there’s a 90 per cent chance that you’re an autocracy. The problem is that you should be asking the reverse question: if you’re an autocracy, what’s the chance that you’ll be a growth success? The answer to that question is an underwhelming 10 per cent?”
What that means is that fast growing countries are almost inevitably autocracies but not all autocracies are fast growing countries. An excellent recent example is Zimbabwe under Robert Mugabe who now functions like a dictator. “What was once a break basket has now become a basket case,” write the authors. The continent of Africa is full of authoritarian regimes which have made a mess of their respective economies.
Closer to home under General Zia-Ul-Haq, Pakistan first turned into an Islamic state and now has turned into a full fledged terrorist state. The horrors that Pol Pot perpetuated as the dictator of Cambodia are well known.
And the biggest example of an authoritarian regime gone wrong was Adolf Hitler. Hitler first rode to power on popular discontent and then used a lot of Keynesian economics ( which John Maynard Keynes was still in the process of formulating) to create economic growth by building roads and then lead his country into a disastrous World War.
So yes, fast growing countries are authoritarian regimes but as explained above things can go terribly wrong as well under these regimes. Hence, we really don’t know which way will the authoritarian regimes go, towards economic growth or towards social disaster.
But then why does the myth of authoritarian regimes always creating economic growth prevail? This is because of what is known as the ‘availability heuristic’. “This refers to the fact that human beings tend to attach too high a probability to an event that’s very vivid in our minds. A classic example is natural disasters like earthquakes and tornadoes. Because they’re splashed all over the news on the rare occasions they do occur, people always think they’re far more likely than they really are,” write the authors. “Compiling data from news stories in the New York Times from 1960 to 2008, Easterly shows that successful autocracies are heavily over-reported compared to failed autocracies. Compared to a little under 6,000 stories on failed autocracies and about 15,000 on those in the middle, there were a staggering number of stories – more than 40,000 on autocratic successes. So if China has been on your mind rather than Zimbabwe you’re not entirely to blame,” they add.
Hence, India’s democratic form of government may impact its economic growth to some extent but it saves us from other problems as well. “What the data do show is that autocracies have many more highs and lows than democracies: they tend to be spectacularly successful or unmitigated disasters. Democracies generally are found somewhere in the middle. India, for example, hasn’t yet achieved Chinese-style double digit growth rates, but nor has it ever had negative double-digit growth as in Zimbabwe,” write Dehejia and Subramanya.
The article originally appeared on www.firstpost.com on December 3, 2012.
(Vivek Kaul is a writer. He can be reached at [email protected])
Downgrade fuss's overdone. Who cares?
India’s fiscal deficit has reached worrying proportions. During the first six months of the year it had already crossed 65% of the year’s target of Rs 5,13,590 crore. Fiscal deficit is the difference between what the government earns and what it spends.
The government’s effort to raise revenues has barely gone anywhere. During the half of the year only 40% of the targeted revenues had been raised. The recent 2G auction was a damp squib and the disinvestment process has barely started.
So what is the way out? “You know you always find some way out. Nobody quite believes the fiscal targets as yet. It is still all about hope and let’s see what happens in the next few months,” says Ruchir Sharma, the head of Emerging Market Equities and Global Macro at Morgan Stanley Investment Management. “Only thing that which makes me sound a bit positive in terms of hope that at least they have recognised the problem. Till a year ago, even till April, there was no recognition of the problem. And that to me is at least a positive that we can look on.”
Given the slackening finances of the Indian government there has been a lot of talk about the rating agencies downgrading India, something, if media reports are to be believed, even the finance minister P Chidambaram is worried about.
But Sharma feels the threat is majorly overblown. “I just feel this fuss about that is really overdone to be honest with you because who cares! They (the rating agencies) are far behind, so whether we get downgraded or not, to me it just doesn’t matter and that doesn’t change anything for us,” says Sharma.
Explaining his logic Sharma says “Let me put it this way. If growth is less than 5% etc, that would be horrendous. But I think the reasons for the downgrade are already well telegraphed. If it happens it will be a formality. It will be a short term negative undoubtedly.”
The other big worry in India right now is inflation. “Commodity prices are generally down globally and that should help inflation. The problem is the same that unless we put an end to this populist surge in terms of spending you can’t get a meaningful decline in interest rates,” says Sharma.
“That really is at the core of the problem as far as inflation and interest rates are concerned. How do you put an end to that culture? That genie is out of the bottle. How do you put it back in?,” he asks.
The main problem that remains for inflation is just that there is too much government spending going on and too much of it is inefficient, feels Sharma. “This at a margin is a problem that is getting better,” he adds.
But the real test for the government would be whether they are able to put off the food subsidy kind of schemes. As Sharma puts it “To me the real signal will come if they back down on these populist schemes. Such as the whole food subsidy bill etc. The real fear that I have now is that we do all this now and this is only preparing for another populist scheme at the end of it, at the first sign when things are manageable or things are brought under some control. The fact that they can postpone such things or put them completely away will be a very positive sign. But until then I don’t know.”
The realisation that needs to come in is that government spending as a share of India’s gross domestic product is too high. “You can’t carry on this way. Not because it’s bad thing to do but you can’t keep writing cheques which the exchequer can’t cash. To me that is the bottomline. That spending now for a country of India’s per capita income level of $1500, government spending as a share of GDP is too high.”
Government scams have also been a major issue in the recent past. Sharma feels that this does impact India’s perception in the West. “For them it reinforces the fact about two issues that they have had with India. One is the fact that it is a tough place to do business in. And that shows up in all the metrics like the ease of doing business that World Bank and IMF put out, India ranks in the bottom quartile of most of these things. It also highlights that in India it is very difficult to do greenfield projects and set something up. You might as well be a partner with one of these guys who can get stuff done in India,” says Sharma. “But this is something that people have known and this just reinforces their perception,” he adds.
The interview originally appeared in the Daily News and Analysis on December 3, 2012.
(Vivek Kaul is a writer. He can be reached at [email protected])