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GURCHARAN DAS

India Unbound From Independence to the Global Information Age

PENGUIN BOOKS

Contents

About the Author

Dedication

Introduction: The Wise Elephant

PART ONE: OUR SPRING OF HOPE (1942–65)

1. Ranting in English, Chanting in Sanskrit

2. Smells of the Bazaar

3. The Train to Nowhere

4. Blind Then, Blind Now

5. If We Were Once Rich, Why Are We Now Poor?

6. The Paper Route

7. Capitalism for the Rich, Socialism for the Poor

PART TWO: THE LOST GENERATION (1966–91)

8. Bazaar Power

9. Lerma Rojo and Taichung Native No. 1

10. Caste

11. Multiplying by Zero

12. Merchants of Marwar

13. Dreams in Kabutarkhana

14. Licensing Blues

PART THREE: THE REBIRTH OF DREAMS (1991–99)

15. The Golden Summer of 1991

16. A Million Reformers

17. New Money

18. Old Money

19. The Rise and Rise of a Middle Class

20. Modern vs. Western

21. Democracy First, Capitalism Afterwards

22. Knowledge Is Wealth

23. A New Country

Afterword

Notes

Acknowledgments

Copyright Page

PENGUIN BOOKS

INDIA UNBOUND

Gurcharan Das is an author and public intellectual. He writes a regular column for the Times of India, Dainik Bhaskar, Eenadu and other newspapers. He also writes for the Wall Street Journal, Financial Times, Newsweek and Foreign Affairs. He graduated from Harvard University in philosophy and politics and was CEO of Procter & Gamble India before he took early retirement to become a full-time writer.

He is the author of the novel A Fine Family. His other literary works include a book of essays, The Elephant Paradigm, and an anthology, Three English Plays, consisting of Larins Sahib, a prize- winning play about the British in India, which was presented at the Edinburgh Festival; Mira, which was produced off-Broadway to critical acclaim; and 9 Jakhoo Hill, which has been performed in major Indian cities.

First published in 2000, the best-selling India Unbound has been translated into several languages worldwide, and was also made into a film by the BBC.

Praise for the Book

‘It is a wonderful book—a great mixture of memoir, economic analysis, social investigation, political scrutiny and managerial outlook being thrown into the understanding of India … The temper of the book is both critical as well as optimistic, and I think the combination works well. Gurcharan being happier with the world makes a difference—there is a kind of positiveness that breathes through every page’—Amartya Sen

‘This brilliant work in political economy is for all young Indians, especially budding politicians and IAS probationers. It deserves to be translated in all Indian languages so that the common person can become better educated about the policies that they want for their country’—N.R. Narayana Murthy

‘Having constructed a comprehensive indictment of India’s economic failures, Das is optimistic about the liberalization that has opened the economy in the 1990s … Das writes in an engaging style, sprinkling his text with a well-chosen array of quotations. There are layman-friendly discussions of economic theories of poverty, and his arguments are leavened with a close reading of economic texts, both classic and contemporary. But what shines through is the telling anecdote, the personal example, the remembered conversation’—Shashi Tharoor, Los Angeles Times

‘There’s much to be said for this book. In the first place, it’s interesting, for Das is a natural storyteller. Second, it’s unpretentious—the language, while adequate, is without unnecessary flourishes. Third, it’s informative—it contains a mixture of history and autobiography—which includes some essentials for anyone in business or management—and the reader glides smoothly from one to the other’—Shashi Warrier, Indian Review of Books

‘Gurcharan Das is by any standard an amazing man … India Unbound is an education by itself. [He] goes back and forth into history, politics, social changes as and when the situation calls for, and speaks more about the world around him than about himself … Even when he is critical of Jawaharlal Nehru’s policies he is appreciative of his sentiments’—M.V. Kamath, The Daily Sunday

‘Gurcharan Das has written a paean to liberalization (India Unbound)—arguably the most readable book on the reforms of the 1990s. Gurcharan is a magical writer and a great storyteller; his account of the reforms is so upbeat that even I thought we had accomplished something’—Ashok Desai, Business Standard

‘India Unbound is bound to become an essential component of the reading list for anyone interested in the contemporary Indian economy’—Sushma Ramachandran, The Hindu

‘Gurcharan Das is a good storyteller. He weaves a series of unconnected actions into a pattern with some sort of theme. His technique is to put himself, often vicariously, as an observer, occasionally a participant, into the events he describes; in this way he gives immediacy to history’—Sudhir Mulji, Business Standard

‘Why has a country as bountifully blessed as India achieved so little in a half century of freedom? Gurcharan Das provides a fascinating interpretation of the possible reasons in India Unbound … Not often does one come across a former CEO of a major organization … who is also well-read in a wide range of subjects, ranging from economics to philosophy to poetry. And if one does come across them on rare occasions, not many can wield a pen as dexterously as Das does’—V.S. Mahesh, Business India

‘Gurcharan Das’s keen eye … captures the panorama of the last 50 years of Indian history in his own way … both fascinating and interesting … India Unbound keeps your interest in top gear throughout the book’—Shunu Sen, Business Line

‘The change in India since economic liberalization in 1991 has been astonishing, and the pace of it picks up every day. On a recent visit—after several years—I found a book which gave a vivid and persuasive explanation of the transformation all around me. India Unbound … is a mixture of memoir and social and economic inquiry, written with great energy, personal knowledge and clarity. I would firmly recommend it to any visitor to India as a key guide to its recent past’—Ian Jack, New Statesman

‘India Unbound is at the top of the country’s best-seller list for non-fiction, tapping into a vein of renewed self-confidence and national pride that is itself a central theme of his study. Part memoir, part history, part travelogue, part polemic, India Unbound dissects the failures of the country’s Nehruvian socialist experiment and vividly describes the changes that are transforming the daily lives and outlooks of the country’s 1 bn people’—John Thornhill, Financial Times

‘India Unbound is a lively, interesting and well-documented answer—the first of its kind—to a key question: why was India rich, why is it poor, when will it be rich again? It is also full of the kind of stories which make that fascinating country come alive for the reader’—Olivier Bernier, author of The World in 1800

‘India Unbound is a quiet earthquake that shook faraway shores long before its shockwave reached Britain. [Its] conclusion is that in the next two decades India will become the third-largest economy, after the US and China … [and] two industries, information technology and agriculture, will lift India out of poverty. It talks of an India where teenage tea-shop assistants work to save money for computer lessons …[and] says that if the poor get rich and a few people get filthy rich, that is better than worrying about the distribution of wealth and no one getting rich. Amartya Sen, the Nobel Prize- winner, was so impressed he asked Das to start a “secular, right-wing party” modelled on Britain’s Tories in India’—The Guardian

‘Part memoir, part journalism, part history and part management bible … India Unbound is an opinionated but insightful guide to a rapidly changing nation in which old cliches about spirituality and poverty are increasingly irrelevant … Das had a ringside seat at the events he describes, and the result is an engaging account that moves easily from the big picture to the telling anecdote’—New York Times Book Review

‘The strength of [Das’s] inquiry lies in its castigation of those who inherited the running of India from the British. He is commendably scathing about Nehru and his daughter Indira Gandhi, who had her father’s hubris and contempt for businessmen but not a trace of his erudition … The author regards economic growth as the only way to strengthen Indian democracy … [and] his optimism is potent when he says, “We have good reasons to expect that the lives of the majority of Indians in the 21st century will be freer and more prosperous than their parents. Never before in recorded history have so many people been in a position to rise so quickly.”’—The Wall Street Journal

‘[India Unbound] could be an eye-opener to readers unfamiliar with the radical transformations currently under way in the subcontinent’—The Washington Post Book World

‘Remarkable … Head and shoulders above the customary books … This story is so much more persuasive and effective … [as] Das traces his life as a journey headed in the same direction as the business life of his country, an almost literary scheme that is unusually effective … The issues of business vs. private enterprise [are] played against the somewhat parallel questions of modernity vs. tradition and nationalism against cosmopolitanism … This elegant essay has something for everyone’—St. Louis Post-Dispatch

‘Informative, entertaining and basically correct about India’s need to embrace capitalism more whole heartedly, for all the costs and risks’—The Economist

For Bunu, Kim, and Puru

Introduction: The Wise Elephant

… the causes of wealth and poverty of nations—the grand object of all enquiries in Political Economy.

—MALTHUS TO RICARDO, LETTER DATED 26 JANUARY 1817

The ascent of a country from poverty to prosperity, from tradition to modernity, is a great and fascinating enterprise. India has recently emerged as a vibrant free-market democracy after the economic reforms in 1991, and it has begun to flex its muscles in the global information economy. The old centralized bureaucratic state, which killed our industrial revolution at birth, has begun a subtle but definite decline. With the rule of democracy the lower castes have gradually risen. This economic and social transformation is one of the themes of this book. The struggle of one-sixth of humanity for dignity and prosperity seems to me a drama of the highest order and of great consequence for the future of the world. It has meaning for all of humanity and sheds new light on the future of liberalism in the world.

The story I will be telling is soft drama. It is taking place quietly and profoundly in the heart of Indian society. It unfolds every day, in small increments barely visible to the naked eye, and is more difficult to grasp than hard drama, which is more dramatic and captures the headlines. Most people instinctively grasp the spirituality and poverty of India. But the significance of this quiet social and economic revolution eludes them. The change is partially based on the rise of social democracy, but more importantly on the sustained 5 to 7 percent annual economic growth that India has experienced for the past two decades, which has tripled the size of the middle class. Although the middle class is still only 18 percent of India’s one billion population, it is expected to become 50 percent within a generation. In the end, this “silent revolution” is more significant historically than the constantly changing fortunes of political leaders and parties which so absorb Indians.

I have followed, I find, the method of Defoe’s Memoirs of a Cavalier, in which the author hangs the chronicle of great political and social events upon the thread of an individual’s personal experience. However, this is not autobiography. I have decided to tell the story in the first person because I believe that one person’s experience, honestly captured, even on the sidelines, not only is unique but is the only certain data of history that we possess as human beings. I did not, besides, wish this account of national competitiveness to be dry and didactic; I wished to breathe life into the clash of economic and social ideas.

When I was young, we passionately believed in Jawaharlal Nehru’s dream of a modern and just India. But as the years went by we discovered that Nehru’s economic path was taking us to a dead end, and the dream soured. Having set out to create socialism, we found that we had instead created statism. As a practicing manager in the 1960s I found myself caught in the thick jungle of Kafkaesque bureaucratic controls. Our sense of disillusionment reached its peak during Mrs. Gandhi’s autocratic rule in the seventies. There was a glimmer of hope when Rajiv Gandhi became Prime Minister, but it

quickly died when we discovered that he did not have what it takes. It was not until July 1991 that our mood of despair finally lifted, with the announcement of sweeping liberalization by the minority government of P. V. Narasimha Rao. It opened the economy to foreign investment and trade; it dismantled import controls, lowered customs duties, and devalued the currency; it virtually abolished licensing controls on private investment, dropped tax rates, and broke public sector monopolies. As a result, growth picked up to 7.5 percent a year in the mid-nineties, inflation came down from 13 percent to 6 percent by 1993, exchange reserves shot up from $1 billion to $20 billion.* As India joined the world economy we felt as though our second independence had arrived: we were going to be free from a rapacious and domineering state.

Although the reforms after 1991 have been slow, hesitant, and incomplete, they have set in motion a process of profound change in Indian society. It is as important a turning point as Deng’s revolution in China in December 1978. A half century of the ballot box has also empowered the lower castes, and this means that the fruits of the reforms are likely to be better distributed. The world has, meanwhile, changed from an industrial to an information economy, and it speaks to India’s advantage—our initial success in software is the first evidence. The irony is that most Indians, especially in the political class, have not yet realized it. If they had, they would invest more in education and implement the reforms much faster.

One of the intriguing questions of history is why we failed to create an industrial revolution in India. Marx predicted that the railways would transform India and usher in an industrial revolution. Indeed, by the First World War, some thought that we were ready to take off. By 1914, India had the third-largest railway network, the world’s largest jute manufacturing industry, the fourth-largest cotton textile industry, the largest canal system, and 2.5 percent of world trade. It also had a merchant class hungry to become industrialists. After the war, industrialization did, in fact, pick up. G. D. Birla, Kasturbhai Lalbhai, and other businessmen made huge trading profits during the First World War and reinvested them in setting up industries. Between 1913 and 1938, our manufacturing output grew 5.6 percent a year, well ahead of the world average of 3.3. By 1947, industry’s share doubled to 7.5 percent of national output from 3.4 percent. But it was not enough to broadly transform our agricultural society. Modern industry employed only 2.5 million people out of a population of 350 million. The chief problem was our agriculture, which remained stagnant, and you cannot have an industrial revolution without an agricultural surplus or the means to feed a rapidly growing urban population.

After we won freedom, Jawaharlal Nehru and his planners attempted an industrial revolution through the agency of the state. They did not trust private entrepreneurs, so they made the state the entrepreneur. Not surprisingly, they failed, and India is still paying a huge price for their follies. Instead, we experienced an agricultural revolution. Ironically, we now had an important precondition in place—an agricultural surplus—but the industrial revolution continues to elude us.

When I was in college, we talked about India as though it were an airplane and we wondered when it would take off into self-generating growth. No one asked “if” it would take off—the only question was “when.” During the takeoff, economists told us, the nation’s investment rate would climb to 10 to 12 percent. Well, our investment rate in India has been well over 20 percent for two decades, and yet

we have not transformed our society. Why? There were at least six things wrong with India’s mantra. One, it adopted an inward-looking, import-substituting path, rather than an outward-looking, export- promoting route, thus denying itself a share in world trade and the prosperity that trade brought in the postwar era. Two, it set up a massive, inefficient, and monopolistic public sector to which it denied autonomy of working; hence our investments were not productive and we had a poor capital–output ratio. Three, it overregulated private enterprise with the worst controls in the world, and this diminished competition in the market; besides, our merchant-businessmen were not “tinkerers” and they were slow to innovate. Four, it discouraged foreign capital and denied itself the benefits of technology and world-class competition. Five, it pampered organized labor to the point where we have extremely low productivity. Six, and perhaps most important, it ignored the education of half its children, especially of girls.

In part, this is a story of the betrayal of the last two generations by India’s rulers. In stubbornly persisting with the wrong model of development (especially after 1970, when there was clear evidence that this path was doomed), they suppressed growth and jobs and denied their people an opportunity to rise above poverty. It is ironic that men and women of goodwill created this order and were widely admired. After all, they did succeed in institutionalizing democracy. The second irony is that in the name of the poor they refused to change course. The worst indictment of Indian socialism is that in the end it did very little for the poor. All the countries of East Asia did far better. Even China, with all its convulsions over the past fifty years, has done a better job at improving the lives of its people. Our failure came less from ideology and more from poor management.

Hence, India’s per capita income is $450, which places it 162nd out of 206 countries in the World Development Report for 2000–2001. In 1960, it was higher than China’s, but today it is half. Although by purchasing power parity India’s income rises to $2,149, that lifts its global rank only marginally, to 153rd. Half the Indian people are poor by the international poverty line of one dollar per person per day, and a third of the world’s poor are in India. An Indian’s life expectancy is sixty- three years, lower than that in many poor countries. As many as sixty-five out of a thousand infants die, and that is too high; two-thirds of the children suffer from malnutrition and are underweight. Seventy-one percent cannot access sanitation. Four out of ten Indians are illiterate. Therefore, India is ranked 134th out of 174 countries on the United Nations Development Program’s Human Development Index. India’s performance is not good enough. Other similarly placed countries have done better.

To top this tale of India’s lost decades, members of the Indian ruling elite—the politicians, the MPs, the senior bureaucrats, and the economic planners—are not contrite. They complacently proclaim, “After all, we have done rather well compared to the 3.5 percent Hindu rate of growth.” There is no more defeatist expression in the dictionary than this fatalistic phrase. They feel no humiliation that India has lagged behind in a Third Worldish twilight while its neighbors in East and Southeast Asia have gone ahead. There is no feeling of shame that countries with a fraction of India’s natural and human resource potential have created some of the most prosperous societies in the world. They have used the recent troubles of East Asia to justify our incomplete and frustratingly slow reforms. When individuals blunder, it is unfortunate and their families go down. When rulers

fail, it is a national tragedy. Indians have not traditionally accorded a high place to the making of money. The Vaishya or bania

(merchant) is placed third in the four-caste hierarchy, behind the Brahmin and the Kshatriya (warrior, landowner), and only a step ahead of the laboring Shudra. Since the economic reforms, making money has become increasingly respectable and the sons of Brahmins and Kshatriyas are getting M.B.A.’s and want to become entrepreneurs. India is in the midst of a social revolution rivaled perhaps only by the ascent of Japan’s merchant class during the 1868 Meiji Restoration, which helped transform Japan from an underdeveloped group of islands into a thriving modern society and economy. The commercial spirit is not limited to the cities. The smallest village has found it. On a visit to Pondicherry from Madras a few years ago, I stopped at a roadside village cafe where fourteen-year- old Raju was hustling between the tables. He served us good south Indian coffee and vadas. Raju told us that this was his summer job and it paid Rs 450 a month—enough to pay for computer lessons in the evenings in the neighboring village. For the next summer, his aunt in Madras had arranged a job for him in a computer company.

“What will you do when you grow up?” I asked. “I am going to run a computer company,” said Raju. He had decided this when “I saw it in TV, where this man Bilgay [sic] has a software company and he is the richest man in the world.”

In Bartoli, a sleepy village of six hundred families in the heart of feudal Uttar Pradesh, a government schoolteacher lamented: “Everyone has become money-minded. Even the leather workers, low down on the social scale, are removing their children from my school and putting them into this newfangled private ‘English’ school which opened six months ago. Can you believe it—they are willing to spend Rs 35 a month when it costs one rupee a month in my school!” They were leaving his school “because they watch TV; they want to learn English; they want to get rich. This is what happens when the ‘low’ castes get uppity. No one wants to work on the land.”

“There is no loyalty left, sir,” added Fateh Singh, who stood shyly outside the door and would not sit with us because he is from a low caste. He complained that his grown-up nephew, Vikas, wanted to set up a factory to make steel trunks in nearby Khurja rather than become a conductor in the state- run bus company like his father. Indians are slowly realizing that economic reforms are not only about tariff levels, deregulation, and structural adjustment. They are about a revolution in ideas which is changing the mind-set of the people and leading to the commercialization of Indian society.

Rich countries were supposed to specialize in the knowledge industries of tomorrow and poor countries in low-wage, low-skill industries of yesterday. This was the theory, but someone forgot to tell Bangalore (and Hyderabad, Chennai, Gurgaon, and Pune). Every day these days we read about a new success in the new “knowledge economy,” and we wonder if, at last, we may have arrived. There are 325 software companies in Bangalore. Most of them have customers in America, who e- mail their needs before they leave their offices. While they sleep, Indian engineers work on their problems. By the next morning, as they bring their coffee mugs to their desks, Americans have their answers as they log on.

One of these companies is Infosys, which started out with a $500 capital; in February 2000, it was worth $15.4 billion and more than a hundred of its managers were each worth over a million dollars.

Another is the National Institute of Information Technology (NIIT), which has franchised (like McDonald’s hamburgers) 1,750 computer schools in Indian bazaars and in thirty-one countries. It plans to become the world leader in computer education. Over the last decade, it has created 1,750 entrepreneurs and fifteen thousand jobs. On 22 February 2000, Azim Premji had become the third- richest man in the world on Forbes rankings based on the market capitalization of his software company, which crossed $46 billion, or 11.3 percent of India’s GDP. With his wealth, Premji could pay for India’s fiscal deficit and still have change left over.

The spirit of the age is reflected in hundreds of entrepreneurial successes in the knowledge economy. Subhash Chandra used to be a rice trader in the 1980s and he has built a worldwide media empire that was worth $14 billion in February 2000; he is called the Murdoch of Asia. A tiny two- year-old company in Bangalore called Armedia achieved a breakthrough in designing a chip for digital TV in 1999; America’s Broadcom bought it for $67 million and made its forty-three employees rich beyond their wildest dreams. Ranbaxy, Dr. Reddy’s Laboratories, Cipla, and Wockhardt are building successful global businesses in generic drugs. Crest Communications in Bombay is one of only two studios outside North America with the expertise to make 3D animation films and it has recently won a contract from one of the Hollywood studios to make an animated feature film. Rajesh Jain’s Internet sites were so attractive that Satyam Infoways bought them for $116 million—a nice return on the $57,000 that he invested five years ago. Around forty thousand Indians are employed in online “remote services”—transcribing medical records, editing books, making digital maps, doing payroll accounts for customers around the world; and McKinsey projects that this could grow to a million jobs earning $50 billion in revenues by 2010.

These entrepreneurial miracles are part of a new social contract for postreform India. The new millionaires did not inherit wealth. They have risen on the back of their talent, hard work, and professional skills. The old business houses, on the other hand, are struggling in the competitive economy created by the reforms. The dilemma of Rahul Bajaj is typical of the old companies. Bajaj is the clear leader in the world’s second-largest scooter and two-wheeler market. Yet he is unable to take the next step, which is to become a global player. He has the world’s lowest costs; he has successfully withstood the challenge of Japanese competitors on his home ground; he is cash rich— making more profit than all his competitors put together. But he exports only 3 percent of his output. Despite his awesome advantages, Bajaj does not have the confidence to take on the Hondas and Yamahas in the world market.

A decade ago, no one would have even thought of criticizing Rahul Bajaj for not thinking globally. Government rules did not permit him to have a foreign operation, or buy equity of a foreign company, or import components at a reasonable tariff, or expand capacity at will, or buy new technology without a lengthy approval process. Rahul Bajaj had a purely “local” mind-set of a shortage economy. He sold everything he produced, because demand was always ahead of supply—for a decade, there was a ten-year waiting period for his scooter. Thus, he never developed marketing or product development skills. Rahul Bajaj is a creature of Nehruvian socialism. The legacy of forty years of a closed economy has caught up with him. He is the symbol of the “old” India, hobbled by poor infrastructure, obstructionist bureaucrats, high tariffs and interest costs, and a “factory mind-

set.” As with Bajaj, the older Indian groups are creatures of a system they did not create. They do not

have the skills to succeed in the global economy. Eight years into the reforms, they are still floundering. Success in the global economy needs three things: massive investment in human resources, a passion for product improvement, and a deeply caring attitude for customers. These companies are smart and they understand this. Then why haven’t they acquired these skills? The answer is that it takes time to change from doing what you have been doing successfully. But time is precisely what they do not have.

The beginning of the twenty-first century is a time of ferment. Two global trends have converged— both of which work to India’s advantage and raise the hope that it may finally take off. One is the liberal revolution that has swept the globe in the past decade, opening economies that were isolated for fifty years and integrating them spectacularly into one global economy. India’s economic reforms are part of this trend. They are dismantling controls and releasing the long-suppressed energies of Indian entrepreneurs. They are changing the national mind-set, especially among the young. Because we are endowed with commercial communities, we may be in a better position to take advantage of this global tendency. Merchants understand from birth the power of compound interest; they know how to accumulate capital. The Internet has also leveled the playing field, so that it seems sometimes that any mad, passionate Indian entrepreneur can write his own future.

Meanwhile, the information economy is transforming the world—this is the second global trend. We may not be tinkerers, but we are a conceptual people. We have traditionally had a Brahminical contempt for manual labor, which was relegated to the lowest caste, Shudras, who were also denied knowledge. A tinkerer combines knowledge with manual labor, and this produces innovation. Our entrepreneurs, who come mainly from the higher merchant caste, have also shied away from manual labor and technology. This may be another reason why we did not produce innovation and failed to create an industrial revolution. But this is all changed now, for the industrial age is gone and the knowledge age potentially plays to our advantage. Our success in software and the Internet is the first emerging evidence. We have wrestled with the abstract concepts of the Upanishads for three thousand years. We invented the zero. Just as spiritual space is invisible, so is cyberspace. Hence, our core competence is invisible. In information technology we may have finally found the engine that can drive India’s takeoff and transform our country.

There is an old idea in economics, as old as Adam Smith, that if a rich and a poor country are linked by trade, their standard of living should converge in the long run. It makes intuitive sense, because standard of living depends on productivity, and productivity, in turn, depends on technology. When a poor nation is connected, it merely adopts the technological innovations of the rich one without having to reinvent the wheel. Thereby, it grows faster and eventually catches up. Why then has the world not converged in the past fifty years? Very simply, because the rich and poor were not joined. Two Harvard scholars, Jeffrey Sachs and Andrew Warner, studied this dilemma and concluded that only thirteen out of eighty-seven Third World countries were “open” to world trade, and they grew six times faster. Between 1970 and 1990, the thirteen open countries grew at an average 4.5 percent per capita per year compared to the 0.7 percent growth rate of the seventy-four

closed countries. India was in the latter group, and not surprisingly many East Asians were in the former. Thus, convergence did take place among the virtuous few economies, and they did substantially conquer poverty.

Now the world has changed. Whereas only 20 percent of the world’s people lived in open economies in 1970, today more than 90 percent do, and that is why we call it a globalized world. China and India, with more than a third of the world’s population, have accelerated their growth rates in the past two decades: China 8 to 10 percent, and India 5 to 7 percent. If this is sustained and literacy keeps rising, there is a very real prospect that people below the poverty line, who live on less than a dollar a day, will decline to a more manageable 15 to 20 percent of the population from 50 percent today. This is the experience of the East Asian countries. India’s poverty is a symbol of poverty on our planet, and if India can hope to make a significant dent, so can most of the Third World. China will get there probably ten to fifteen years earlier. Just ten years ago, this would have been unthinkable. Today, astonishing as it may seem, we can dare to contemplate this proposition.

The Indian state’s biggest failure has been in building human capabilities. As a result, 40 percent of Indians remain illiterate. We have now realized that primary education and primary health care are the two most powerful ways to eradicate poverty. Simultaneously, there is a growing, impatient demand for these social goods from below. Indian literacy has already risen by ten percentage points in the past six and a half years, from 52 to 62 percent. It is primarily because of grassroots pressures from below as social democracy has created upward mobility among the lower castes. The push for liberal economic reforms combined with investment in human capabilities will ensure that millions of Indians lift themselves from poverty within a generation.

India embraced democracy first and capitalism afterwards, and this has made all the difference. India became a full-fledged democracy in 1950, with universal suffrage and extensive human rights, but it was not until recently that it opened up to the free play of market forces. This curious historical inversion means that India’s future will not be a creation of unbridled capitalism but will evolve through a daily dialogue between the conservative forces of caste, religion, and the village, the leftist and Nehruvian socialist forces which dominated the intellectual life of the country for so long, and the new forces of global capitalism. These “million negotiations of democracy,” the plurality of interests, the contentious nature of the people, and the lack of discipline and teamwork imply that the pace of economic reforms will be slow and incremental. It means that India will not grow as rapidly as the Asian tigers, nor wipe out poverty and ignorance as quickly.

The Economist has been trying, with some frustration, to paint stripes on India since 1991. It doesn’t realize that India will never be a tiger. It is an elephant that has begun to lumber and move ahead. It will never have speed, but it will always have stamina. A Buddhist text says, “The elephant is the wisest of all animals/the only one who remembers his former lives/and he remains motionless for long periods of time/meditating thereon.” The inversion between capitalism and democracy suggests that India might have a more stable, peaceful, and negotiated transition into the future than, say, China. It will also avoid some of the harmful side effects of an unprepared capitalist society, such as Russia. Although slower, India is more likely to preserve its way of life and its civilization of diversity, tolerance, and spirituality against the onslaught of the global culture. If it does, then it is

perhaps a wise elephant.

PART ONE

OUR SPRING OF HOPE (1942–65)

Some try to represent political economy as being a dry, cold abstract science, which has no warmth of feeling to spare on suffering humanity …. This is far from the truth; on the contrary, political economy produces feelings so intense for the removal of these evils, that it will not permit us to rest satisfied … but impels us to … discover the true causes of this wretchedness, and the mode by which it may be removed ….

—JAMES WILSON

One

Ranting in English, Chanting in Sanskrit

To everything there is a season, and a time to every purpose under the heaven. A time to be born, and a time to die …

—BOOK OF ECCLESIASTES (3:1–2)

I can measure the passages of my life by the nation’s milestones. When I was born, we were fighting to get the British out of India. By the time I went to school, we were free and we thought we would soon enter a new paradise. During my school days in the 1950s, Nehru set about building a proud new nation based on democracy, socialism, and secularism. When I went to work in the sixties I discovered that we had become economically enslaved and socialism was leading us to statism. By the time I got married and we had children, Indira Gandhi was creating dynastic rule and leading us into a ditch. When she declared the Emergency in the mid-seventies, we knew that political freedom was gone, and paradise was lost. Mercifully, the Emergency lasted only twenty-two months, and we soon recovered our political freedom. Just before I took early retirement in the early nineties, Narasimha Rao delivered us our economic freedom. It doesn’t matter who will be ruling India when I die, because democracy has got entrenched and its institutions are best run by modest men. Thanks to the reforms, we have glimpsed paradise again and are on our way to regaining it. We have climbed to a 7 percent economic growth rate, and if we grow at this rate for a few decades and keep raising our literacy level, the nation will turn increasingly middle class and the degrading poverty of India will begin to vanish.

I was born soon after Mahatma Gandhi challenged the British by launching the Quit India movement in 1942, which led to Independence five years later. My birth also coincided with a second event, the Great Bengal Famine, in which three million people perished. Both these events would never be repeated, and have become remote in public memory. They were the last examples of what were commonplace happenings during my father’s and grandfather’s days. In a sense, the year of my birth brought down the curtain on an age.

The Quit India movement was born of frustration. For twenty years, Gandhi and the leaders of the nationalist movement had tried to negotiate with the British. It was a nonviolent struggle, based on Gandhi’s belief in satyagraha, or “truth force.” Because “truth” was on his side, Gandhi believed that he would shame the rulers into giving us freedom. Twelve years earlier, on 11 March 1930, he had informed the British that he was going to violate the salt-tax laws and collect salt from the sea. On that day, in a single stroke, he aroused the whole of India. Fishermen began collecting salt; then the peasants were making salt; the housewives followed suit. Soon the whole country was breaking the law and the people began to court arrest. But how many could the police arrest? Thus, year in and year out, Gandhi provoked the rulers with civil disobedience and drove them to distraction. In the end, they just gave up and left. India won freedom without a single English casualty—and this

happened in a world filled with Hitler’s and Stalin’s shadows. No wonder we felt that we were a nation created by saints.

I grew up in a middle-class home in Punjab in northwest India. Most of Punjab was arid, but over three generations the vision and toil of engineers like my father created a network of canals that irrigated the land and made it a granary. The lower Chenab canal was one of the first to be built in the last quarter of the nineteenth century. With it came an orderly and planned town called Lyallpur, so named after the ruling lieutenant governor of Punjab, Sir James Lyall. It was to this town that my mother’s ambitious father proudly moved in the early part of this century to start a law practice. I was born there a generation and a half later. In the middle of Lyallpur was a brick clock tower where eight roads crossed and around which the town spread out in concentric circles. Our house was off one of these roads, called Kacheri Bazaar, on the way to the Company Bagh, whose gardens sprawled sumptuously over forty acres.

We were a professional middle-class family not particularly given to patriotic enthusiasms. We never thought much of Gandhi—he was merely our “liberator with clean hands.” My uncle specialized in uncovering the latest scandal in our neighborhood, and that always took precedence over politics. Famines, of course, were too unpleasant to be the subject of polite conversation. Nevertheless, the famine in Bengal did intrude into our complacent world. My grandfather’s nephew, Sat Pal, decided one day to help in the relief work. He took a train from Lahore to Calcutta, and from there he went on to the Bengal countryside, where he experienced the trauma of the riots and deaths that took place. On his return, he told us that he did not understand the insanity of the situation. The supply of food had declined only marginally, but its distribution had failed completely. The only thing he could say for sure was that there was a human agency involved in a criminal and nasty form. He spoke vividly of a peasant who had fallen dead on a street in Calcutta—he spoke as though he knew him intimately. When it came to explanations, Sat Pal tended to see everything in class terms, and the others would lose interest. Much to my grandfather’s disappointment, Sat Pal had spurned a brilliant professional career and become a communist.

During the Great Bengal Famine entire villages ceased to exist. The tragedy of the Bengali people’s suffering was equaled only by the indifference of the British authorities. It was largely a man-made event, caused not by a decline in the food available but by the inadequacy of the response. The reports of the district officers of the province and clippings from the Statesman reveal the progress of the tragedy: “Rangoon falls to Japan—rice imports cut off” (10 March 1942); “Cyclone hits Bengal” (4 October 1942); “Rice price doubles in Birbhum district” (6 November 1942); “Wholesale price of rice in Calcutta is Rs 13 compared to Rs 7 a year ago” (11 December 1942); “Hunger marches organised by communists” (28 December 1942); “People having to go without food” (10 February 1943); “Acute distress prevails” (26 March 1943); “Paddy looting cases have become frequent” (28 March 1943); “Major economic catastrophe in the making” (27 April 1943); “Bands of people moving about in search of rice” (12 June 1943); “Death in the streets” (12 June 1943); “Town filled with thousands of beggars who are starving” (17 July 1943); “Disposal of dead bodies … a problem” (27 September 1943).

Lord Wavell, the British viceroy, summed up the situation in 1944: “The Bengal Famine was one