Whatever Singh’s policymaking faults, India’s economic malaise is due to more basic factors.
By David J. Karl
Prime Minister Manmohan Singh is on the receiving end of a barrage of slings and arrows these days. The most recent salvo comes from Time magazine, whose Asian edition this week has a cover story labeling him “The Underachiever.” But the detractors are off target: Whatever Singh’s merits as a policymaker, India’s economic malaise is due to more basic problems.
The cover story takes Singh to task for ineffectual leadership, asking whether the soft-spoken prime minister who turns 80 in September is still up to the demands of his office. This has become a familiar theme. A Washington Post article last week reported that many observers in New Delhi see him as “a broken man” and that “there is considerable doubt that Singh has the energy or determination to achieve much.” The international ratings agency Moody’s described him in a recent report as an “ageing technocrat who now appears tired of the rough and tumble of Indian politics.” The Economist speaks of “Brezhnev-grade complacency” afflicting his government, while Azim Premji, a widely respected business leader, claims that “We are working without a leader as a country.”
Even more, critics are laying siege to Singh’s reputation as a path-breaking reformer. In this view, he is less a visionary who as finance minster two decades ago launched India’s economic boom than a factotum content to do the bidding of whichever prime minister employed him, be it the economic populism of the Gandhi dynasty (in the 1970s, 1980s and at present) or Narasimha Rao’s bold transformations in the early 1990s. As Sadanand Dhume puts it:
“Singh’s poor economic record as prime minister is exactly what you would expect if you had looked at his entire career rather than merely his role as finance minister at the dawn of liberalization.”
Keeping with this theme, others allege that Singh unfairly basks in the glow that should properly fall on Mr. Rao.
But the double-barreled attacks are off the mark. The fundamental problems about his government’s economic stewardship do not stem principally from Singh’s shortcomings. His actions in the tumultuous parliamentary vote on the U.S.-India nuclear accord – that nearly brought down his government in the summer of 2008 but which ultimately was his finest hour in office – clearly attest to his grit and tenacity.
So, too, does his dogged pursuit of good relations with Pakistan, seemingly against the advice of his own cabinet. Under his watch, an intensive back-channel peace process took place in 2004-07 before they petered out due to Pervez Musharraf’s troubles at home. But they may have come tantalizing close to transforming the relationship and even that had happened much of the kudos would belong to Singh. Ditto for the resurrection of bilateral affairs over the past year. As the New York Times recently argued, he deserves credit for a “sensible, workmanlike effort over the past year to improve relations between the two nuclear rivals.”
As for Singh’s reformist instincts, the revisionism underway does not square with his desire late last year to move forward on opening up the $450-billion retail sector to foreign companies. True, the effort was thoroughly botched in its roll-out and quickly aborted when it ran into political headwinds. But it was also a well crafted policy that would have had a transformative economic impact if it had been allowed to go forward. Nor do the gainsayers explain such recent low-key reforms as the creation of special industrial zones where Nehruvian-era labor regulations are relaxed or the roll-backing of restrictions governing foreign participation in the equity market.
Rather, much of Singh’s failings as prime minister can be chalked up to the institutional constraints under which he labors. Since he assumed office in 2004, his coalition governments have been stymied by nettlesome partners and allies. Most recently, Mamata Banerjee, leader of the Trinamool Congress regional party, has emerged as “a one-woman wrecking crew of the national government’s policy initiatives.” A tribune of economic populism, she was instrumental late last year in forcing Singh’s ignominious retreat on retail liberalization.
But having overplayed her hand in the selection of the country’s next president, Banerjee’s obstructionist power might now be on the wane. But even if this is so, a second set of encumbrances will come into view: Singh has the hapless distinction of being a prime minister who is in command of neither his cabinet nor his own party. While he serves as the head of government, the real power resides in the Gandhi dynasty that controls the ruling Congress Party. Sonia Gandhi, the party’s risk-adverse head, does not share Singh’s reformist inclinations and is more given to market-distorting redistributionist schemes than productivity-enhancing measures. This diarchal arrangement has been a recipe for policy inertia and inconstancy, prompting one Western diplomat to exclaim that “Even the power structures in North Korea are clearer than those in India.”
It also does not help that Singh is not a natural politician and lacks an independent power base that would enable him to crack the whip against recalcitrant colleagues in the cabinet or the Congress Party. He is not even a member of the Lok Sabha, the directly-elected lower house of Parliament, but rather a member of the Rajya Sabha, the indirectly-elected upper house.
But even if Singh were a more forceful personality with the full backing of his party, he would still face a fundamental handicap. Since economic reforms were born amidst acute crisis two decades ago, there is no intellectual tradition underpinning them nor has a political champion emerged to galvanize public opinion. As one commentator argues:
“[T]he ‘original sin’ of 1991 is the fact that reform was pursued in crisis mode, with the underlying rationale never fleshed out or articulated once the moment of immediate crisis had passed.”
Both Gurcharan Das, business leader turned public intellectual, and Nandan Nilekani, one of the famed co-founders of Infosys, observe that reforms have been pushed more by technocrats like Mr. Singh than by political leaders, a condition that ensures narrow and limited support. The word “reform,” Nilekani notes, remains “conspicuously absent from the election manifestos of India’s parties.” Mr. Singh flagged the consequences in an interview last week with the Hindustan Times:
“[T]he logic of an open economy and its benefits are still not widely understood among the general public. Public discourse still sees markets as anti-public welfare. The instinctive reactions of many, both in the political class and in the public at large, is to revert to a state controlled system. There is no realisation that a reversal to an earlier era is neither possible nor desirable. Even a neighbour like China has understood the logic of an open economy and is developing the institutional framework which is required for this.”
This broad ambivalence, if not hostility, accounts for a great deal, including the perceived necessity in New Delhi of “reform by stealth,” a mode that one commentator describes this way:
“Faced with politically unpalatable proposals, Indian politicians and bureaucrats often go quiet, enact reforms in the dead of the night and then pray that the opposition is either too lazy or preoccupied to react.”
It also explains the glaring silence in New Delhi last summer at the 20th anniversary of the 1991 reforms – even the prime minister remained mute – as well as Narasimha Rao’s erasure from the Congress Party’s institutional memory. Ironically, the economic transformations that Singh set in motion two decades ago have only reinforced the status-quo orientation of his party colleagues.
Mr. Singh now has an opportunity to prove his critics wrong. As economic conditions worsen, a consensus is forming in New Delhi about the need for further reforms. The prime minister is once again saying the right things, including ending much-criticized tax proposals that have sent foreign investors fleeing and putting retail liberalization back on the agenda. Another hopeful sign are reports that Palaniappan Chidambaram, the reform-friendly finance minister during the high-growth period in 2004-2008, is headed back to the ministry.
The weeks ahead will tell us much, not only about the prime minister’s skills and instincts but also whether something more fundamental ails the Indian economy.
David J. Karl is president of the Asia Strategy Initiative, an analysis and advisory firm located in Los Angeles. He earlier served as project director of the Task Force on Enhancing India-U.S. Cooperation in the Global Innovation Economy, jointly sponsored by the Pacific Council on International Policy and the Federation of Indian Chambers of Commerce and Industry. He blogs on South Asia at Chanakya’s Notebook and can be followed on Twitter @davidjkarl.