The West’s fantasies of a free-market “New India”

June 14, 2009

By Pankaj Mishra, The National

Last month India held its 15th general elections. Those who recall some of the previous 14 could only marvel at the great interest the recent round of voting aroused in the western media. Less than a decade ago India was typically depicted in the international press as a poor, backward and often violent nation. Its experiments with democracy may have been unprecedented for a large poor country – but in the West they usually appeared solely in the guise of photographs of peasant women in colorful saris lining up to vote (this ageless staple popped up again in recent weeks). India’s image received a dramatic makeover only in the early years of this century, when the country’s protectionist economy, which was first liberalised in 1991, opened up further to foreign trade and investment.

With its “turbocharged” economy and its glossy new consumer culture, India suddenly became the poster-child for globalisation among western politicians, businessmen and journalists. It seemed not to matter that India remains one of the poorest countries in the world, where more than half of children under the age of five are malnourished, and where failed crops and debt have driven more than 100,000 farmers to suicide in the past decade. In 2006, Foreign Affairs, the house journal of America’s foreign policy mandarins, crowned a series of ecstatic “India Inc” cover stories in Time, Newsweek and The Economist by declaring India “a roaring capitalist success-story”.

This new idea of India owed much to the post-Cold War ideological climate in the West. If the Reagan and Thatcher revolutions renewed a belief in the “magic of the marketplace”, the collapse of Communist regimes provoked a millenarian conviction among politicians and journalists alike that the world had little choice but to converge on a single model of government (liberal democracy) and single economic system (free-market capitalism).

It became a journalistic reflex to credit economic growth and poverty-reduction in India (and China) to their market reforms, as though the two countries had done little in preceding decades except lurch from one socialist delusion to another. In fact, India’s industrial output and GDP took off in the 1980s, well before a foreign exchange crisis forced the government to invite outside investment and deregulate private industry in 1991; it was also in the 1980s that India’s poverty rate began its accelerated decline – at more or less the same rate as today.

The liberalisation of the Indian economy, apart from boosting corporate profits, also provided existential and ideological self-affirmation for many western elites. Certainly, among the Asian giants converging on the western model of modernity, India was more reassuring than China, whose communist rulers adopted capitalism while keeping a fastidious distance from liberal democracy.

India’s tiny English-speaking elite, the beneficiaries of the country’s new wealth and international prominence, amplified this foreign enthusiasm, helping to create an echo chamber where a small minority seems increasingly to hear its own voice. India’s leading business paper, The Economic Times, introduced a regular feature devoted to chronicling what it called “The Global Indian Take-over”. Few people remarked on the presumptuousness of the ruling party, the Hindu nationalist BJP, when it campaigned in the 2004 elections with the slogan “India Shining”. Indeed, almost all of the English-language press in India predicted a BJP victory.

The Congress party, then in the opposition, seemed a bit forlorn, campaigning, as The Economist put it, “as the party of India’s secular traditions, as well as of the poor, especially those in the countryside, for whom the fast-growing economy is just a distant rumour”. As it turned out, the party found itself in power, and Manmohan Singh, an Oxford-educated economist, became prime minister. The majority of Indians voted against incumbent politicians, unseating, among others, strongly pro-business state governments in Andhra Pradesh and Karnataka (whose capital, Bangalore, had become synonymous with the high-tech “New India” championed by the likes of Thomas Friedman).

Arguing that “catastrophe for the ruling party need not spell the end of reform”, The Economist declared after the election in 2004 that “the strongest reason to hope that India is indeed on the path to Chinahood is the bipartisan consensus on the virtues of privatisation, deregulation and opening to the outside world”. But if this consensus existed, the Congress was forced to conceal it from the vast majority of Indians.

In the next five years business periodicals like The Economist and Financial Times often complained that economic “reforms” had stalled, blaming the Congress’s left-wing coalition partners. But then Manmohan Singh was unlikely to lose sight of why the Congress won the last election. When he assumed office in 2004, agriculture, which still sustains 60 per cent of India’s 1.2 billion-strong population, was stagnating. The “boom” sector of the economy – information technology and business-processing offices (which employ only about 1.5 million of the 400 million-person workforce) – was not only failing to create enough jobs for the swelling ranks of the young unemployed in India; it had also deepened pre-existing imbalances between rural and urban areas.

In 2004, the backlash from Indians who felt themselves excluded from the benefits of globalisation was just building up. Singh’s plan to set up Chinese-style Special Economic Zones for foreign companies quickly ran into violent opposition from farmers facing eviction from their lands. Plans to relax India’s labour laws – in other words, to import the hire-and-fire practices of American companies – provoked strong protests from trade unions. Since the last elections, the militant communist insurgencies led by landless and tribal people have broadened their base in central India, prompting Singh to describe them as the biggest internal security threat in the history of the state.

Singh’s government was obliged to play by the “free trade” rules mandated by the World Trade Organisation. But it could not commit political suicide by lowering import tariffs on foreign agriculture products. Unable to persuade the United States to cut its subsidies to American farmers, the Indian commerce minister spent much of his time at the WTO’s Doha Round of talks in July 2006 watching the football World Cup. Lamenting that the Indian government had “pandered shamelessly to its protectionist farmers”, the Financial Times wrote that “leading players” such as India have become “servants rather than managers of their domestic constituencies”. But this was to assume that a bit of managerial sweet-talking would persuade more than a billion highly unequal and politicised Indians.

Perhaps this is why India receives one-tenth the foreign investment lavished on China, where lack of democratic accountability has allowed the Communist regime to give generous subsidies and tax breaks to exporters and outside investors – and to swiftly suppress peasant protests and seize land as it likes.

Manmohan Singh could not go as far as his Chinese colleagues in creating a “business-friendly” climate. Ignoring western demands for further liberalisation of domestic industry, trade and banking, Singh kept many regulations in place. (All of India’s big banks remain state-owned, and were consequently insulated from the financial meltdown in the west.) Continuously under pressure from his left-wing allies, Singh himself seemed reluctant to embrace the neo-liberal vision of consumer societies full of self-seeking individuals. In a little-reported but extraordinarily revealing interview with The Economic Times in 2006, Singh made it clear that only a small minority in India can and will enjoy “western standards of living and high consumption”. Singh, who was responding to another wave of farmer suicides, exhorted his countrymen to abandon “wasteful” western consumerism and learn from the frugal ways of Gandhi, which he claimed were a “necessity” in India.

This year Congress under the astute Sonia Gandhi again built its election campaign around the travails of the “aam aadmi” – the ordinary Indian – in the age of globalisation. Arguing for “inclusive growth”, its manifesto proposed a rejection of the BJP’s “policy of blind privatisation”. In the months leading up to the election, the Congress-led government showered the poorest Indians with much largesse: a generous loan waiver, and most importantly, the expansion of the National Rural Employment Guarantee Scheme, a vast national jobs programme intended to lift millions out of poverty. Paradoxically, the left parties, which are in power in the state of West Bengal, bore the brunt of populist anger over their appropriation of farmland on behalf of India’s leading industrial groups.

Undaunted by previous let-downs, The Economist hailed the Congress victory, yet again hoping for “liberal reforms” – this time in the “country’s statist financial sector”, despite that fact that state ownership is what protected India from the disastrous mistakes of western bankers. The Wall Street Journal, which admitted that “the world economic crisis has reaffirmed the views of many politicians and technocrats that the go-slow approach has helped insulate the Indian economy from the vicissitudes of global capitalism”, nevertheless called on India to continue “reforming its archaic labor laws and perhaps opening it further to global capital flows”.

It is no easy job to interpret the results of the Indian elections, which reflect many different tendencies and dynamic identities of caste and region in a vast and complex country. But it does help to remember that the neo-liberal free market, for all the private wealth it creates, exacts social costs so high that, as the British philosopher John Gray writes, they “cannot for long be legitimated in any democracy”. It is again clear in the West that democratically elected governments, whether of the left or right, have to urgently respond to the crises created by unregulated capitalism’s cycles of boom and bust – indeed, their very survival depends on their ability to restore checks and balances. This is also what India’s last two elections have proved: a lesson the Congress and economic “reformers” in the West would do well to remember until the next time peasant Indian women in colorful saris congregate before voting booths.