A Tale of Two Indias: Twenty Years of Liberalization

M. Sengupta: Liberalization in India

SIMI MEHRA moved to India two years ago, when her husband’s Chicago-based firm collapsed in the wake of the financial crisis. But Mehra isn’t sorry. Arun landed a well-paying finance job in Delhi almost immediately, and the couple moved into a posh, gated residential community on the outskirts of the city.

In America, Mehra’s life was a swirl of cooking, cleaning, and carpooling. In India, her daughters, aged seven and nine, attend an “exclusive” private school only a short walk from home. She has a cook, a nanny, and a chauffer—for about $150 per month each—which leaves her plenty of time for boozy lunches with girlfriends, siestas in the afternoon, and private yoga lessons. “Home is beautiful,” she says, and understandably so. The green lawns and airy houses of her gated community seem worlds away from the congested alleys and heavily breathed air of the city.

The most taxing part of Mehra’s week are the obligatory visits to her in-laws on Sundays. “Driving anywhere outside the compound is a battle,” she tells me. She must negotiate potholes, bits of road washed away by rain water, and acres of maddening traffic. What’s most stressful, however, is her (usually unsuccessful) effort to shield her children from the sight of “stray dogs, beggars, and street kids.” “It’s just too traumatic,” she says.

Mehra remembers the summer of 1991, when she left India to be married to Arun, who was finishing an engineering degree in the United States. Arun’s parents, mid-level bureaucrats in the Railway Ministry, “had scrimped for years in order to send their son to the Promised Land,” she recalls, rather glumly. “For us girls, marriage was the only route.”

“But so much has changed since then,” Mehra brightens up. “India has opened up and will soon be world class in every way. My daughters won’t have to leave. They can have a global life right here in Delhi.”

Twenty Years of Liberalization

Mehra may be onto something. Gallup data from 2010 suggest that only 5 percent of educated Indian adults would like to leave India permanently if they could. While no comparable study exists for 1991 (or before), anecdotal evidence suggests that far more Indians were prepared to bid farewell to their motherland some twenty years ago. This change, along with many others, is typically attributed to a specific event: the Indian government’s introduction of an ambitious program of economic liberalization in July 1991.

Though the Indian economy was gradually liberalized through the 1980s, the 1991 reforms represented a major rupture with the past. Unlike the incremental reforms of the 1980s, which concentrated on deregulating the domestic market, the 1991 reforms entailed a comprehensive, economy-wide approach that focused on integrating India with global markets. Indeed, the 1991 reforms marked India’s “neoliberal” turn and followed, in design and intent, the IMF and World Bank’s standard prescriptions for “structural adjustment” (programs through which heavily indebted countries were forced to liberalize their economies in return for IMF and World Bank loans).

Once initiated, the reforms quickly took on a life of their own. Despite multiple changes in government and a rather ponderous pace, they were carried forward, widened in scope, and institutionally entrenched. The result, though not as dramatic as neoliberal ideologues might have wanted, is a fundamental transformation of the Indian economy, and a total reversal of the long-cherished ideal that the state must serve as India’s engine of development.

But have twenty years of neoliberal policy reform pushed India into a new orbit of prosperity and well-being?

Cheering on Liberalization

Simi Mehra’s enthusiasm for the new, “open” India is shared by many within the country’s burgeoning middle class. Like anywhere else, the size of this category varies according to the criteria used to draw its boundaries. In India, broader definitions suggest that the size of India’s middle class is approximately 300 million. That’s a lot of cheerleaders.

At the upper end of this category are liberalization’s strongest proponents—the managerial layer of India’s globally connected financial and corporate sectors, elite journalists attached to big media corporations, and high-level policy advisers armed with American MBAs and PhDs. The latter, who are an influential new breed, flit in and out of the revolving doors of government, policy think tanks, and international organizations, issuing buoyant appraisals of reform. Most of the Finance Ministry’s top advisers have previously worked with the World Bank or IMF, as have the directors of many prestigious, government-funded research institutes.

Their triumphalism about India’s achievements and prospects is certainly not without basis. The economy has grown at a brisk pace, with annual GDP growth rates reaching 7 to 9 percent in the last decade. India is now the world’s tenth largest economy, and when figures are adjusted for purchasing power parity, it is the fourth. It has become a global leader of sorts in sectors such as information technology (IT) and pharmaceuticals, which performed remarkably well even through the years of the global financial crisis of 2008–09.

The signs of prosperity are everywhere: in opulent shopping malls that specialize in luxury cars, in glamorous cocktails parties that are hungrily photographed by tabloids, and in the palatial homes of India’s fifty-five known dollar billionaires (an example of the latter is the twenty-seven-story, billion-dollar home of Reliance Industries chief Mukesh Ambani, the richest man in India).

Of course, only a few can aspire to the success of Mukesh Ambani, whose father, Dhirubhai Ambani, established Reliance Industries and amassed a vast personal fortune in the years of the state-controlled economy. There is no shortage, however, of well-heeled Indians. A recent study by Merril Lynch Wealth Management revealed there were some 126,700 dollar millionaires in India in 2009, and that their numbers are growing quickly.

There are also encouraging signs of meritocratic social mobility. It is now quite common to hear of “rags to riches stories,” such as that of IT guru and multi-billionaire N.R. Narayana Murthy, the cofounder and former chairman of Infosys Technologies. Murthy, whose father is described as a “poor schoolteacher” by admiring biographers, is said to have risen in life through good, honest, hard work and an entrepreneurial ability to seize the opportunities thrown up by liberalization. Unlike Dhirubhai Ambani and other “robber barons” of the past, it is said, Murthy didn’t have to bend the rules to succeed. Murthy’s example is cherished by proponents of liberalization, as it suggests that a cleaner ascent to wealth is possible in the new India.

“A Rising Tide Lifts All Boats”

India’s new rich may be more deserving than its old rich, but has their immense wealth “trickled down” to the poor? Has the key neoliberal promise—that “a rising tide lifts all boats”—been realized?

The answer to this straightforward question varies depending on who is doing the counting, and by which complicated methodology. Overall, however, the news is not good. There are far too many signs that India’s exemplary rates of growth have failed to translate into comparatively high rates of growth in the expansion of well-being.

Let’s begin with data from the World Bank, an institution that has proved unwavering in its support for the 1991 reforms. It estimates that the proportion of people living below $1 per day (in 2005 purchasing power parity) steadily declined in India, from 42.1 percent in 1981 to 24.3 percent in 2005. In absolute numbers, this is impressive—a few hundred million human beings have been lifted out of wretched poverty.

India’s achievement, however, pales in comparison to China’s, where (going by World Bank estimates again) the percentage of people living below $1 per day declined much more rapidly, from 73.5 percent in 1981 to 8.1 percent in 2005. When one looks beyond these World Bank data, moreover, India’s record on poverty reduction seems even less praiseworthy. The government’s self-assessments are cases in point. In 2009, the government-appointed “Saxena Committee” concluded that 50 percent of Indians are living in poverty.

An even more damning appraisal was issued by another government body, the National Commission for Enterprises in the Unorganized Sector (NCEUS), also in 2009. The NCEUS reported on many unpleasant facts about neoliberal reform, including that of “jobless growth.” The NCEUS found that new employment in the post-reform period had occurred mainly in the “unorganized” (informal) sector, which is notorious for its paltry wages and precarious work conditions. It revealed, furthermore, that workers in the informal economy make up almost 93 percent of India’s labor force, and of these, only 6 percent are protected by some (usually meager) form of social security.

The NCEUS’s most controversial finding, however, was that 77 percent of the country’s population lives on less than twenty rupees (about fifty cents) per day, and that a large proportion of the worst off are from historically marginalized communities, such as Muslims and Dalits (members of low-ranking castes previously known as “untouchables”). This spelled bad news for a country that prides itself on how well it treats its religious minorities and socially disadvantaged, and for neoliberal Pollyannas, who claim that liberalization will lead to a more “modern” and egalitarian social order because “markets do not discriminate like people do.”

Displacement and Dispossession

The NCEUS’s candid reports were exceptionally courageous for what they were—government publications. In comparison to reports from civil society, however, the NCEUS’s are quite tame.

The stories that have emerged from activist circles are gut-wrenching. They suggest that the state’s expropriation of land and natural resources for export has caused social dislocations on an unprecedented scale. Thousands of peasants, fishermen, and indigenous peoples have had their lives and livelihoods disrupted or destroyed. Indeed, the Naxalite-Maoist insurgency in the country’s south has its roots in the eviction of indigenous communities from their land.

Of particular concern to social and human rights activists is the development of India’s “special economic zones” (SEZs), the tax-exempt industrial areas that are expected to boost India’s global exports. Their reports suggest that much of the land for the creation of SEZs has been acquired coercively, with state officials and private developers colluding to exploit legal loopholes and evade fair compensation, and summoning the police to back up their arm-twisting tactics. The result has been widespread rural distress.

The urban poor have not fared much better, thanks to the relentless quest to create “world-class” and “entrepreneurial” cities. Municipal governments routinely raze slums, obliterating living quarters, community forums, and home-based enterprises. Also common are “beautification” drives, wherein beggars, street vendors, and homeless persons are cleared from public spaces like beaches, parks, and promenades, which are then spruced up and secured with cameras, guards, and gates for middle-class use. The 2010 Commonwealth Games, held in Delhi last October, were marked by many such operations to “beautify” the city, and at an outrageous price of $22.5 million, according to a report released by the Auditor General in early August.

The displaced poor may have evaded starvation by clutching on to the lowest rungs of the new urban economy, but like their rural counterparts—who toil as farm hands on daily wages—they have lost a considerable amount of autonomy and dignity, and are often reduced to working long hours under constant management surveillance, such as in the sweltering kitchens of fast-food chains, or in cramped “sweatshops” producing goods for the export market.

More Cellphones than Toilets

Last year, a UN study on sanitation revealed that more people in India have access to mobile phones (about half of India’s 1.2 billion-strong population) than to toilets (about one-third). The government’s National Family Health Survey indicated, moreover, that many of India’s health indicators are worse than those of Bangladesh (in maternal mortality and infant mortality) and even of Sub-Saharan Africa (in the percentage of underweight children).

In light of the state’s record on social spending, such revelations are unsurprising. In the past decade, expenditure on education has remained stuck at around 2.6 percent of GDP, and on health at a little above 1 percent. Expenditure on defense, in contrast, has increased steadily, and is currently at 3 percent of GDP.

The government’s consistently meager expenditure on the social sector has been counteracted, to some extent, by a wave of welfare programs and rights-based legislation. The most significant of these is the National Rural Employment Guarantee Act (NREGA), a job-guarantee scheme enacted by parliament in 2005 and extended to every district in the country in 2008. The program assures 100 days of employment to all rural households that apply. Another milestone is the passage of the Right to Free and Compulsory Education Act in 2009.

Though commendable, such efforts to expand social safety nets and recognize the entitlements of the poor are almost entirely the result of pressure from social movements, like the Right to Food Campaign. There is good reason, in other words, to remain circumspect about the political elite’s willingness to think beyond the logic (and myth) of “trickle down.” While legislation covering the operation of SEZs cleared parliament relatively quickly and with minimal debate, the passage of NREGA and the Unorganized Workers’ Social Security Act was marked by delays, expressions of outrage, and a great deal of watering down. And while politicians repeatedly stress the need for “universal access” to food, education, health, and so on, government policy makers and their technocratic advisers consistently favor privatization, tax cuts, and directing welfare to only a few, narrowly defined groups in the population (usually, people living below an abysmally low income cutoff point).

Big Money, Big Corruption

The government’s half-hearted effort to address the problem of corruption also suggests that it isn’t serious enough about helping the poor. Twenty years of liberalization have not led to lean, effective, and transparent government in India. This is yet another neoliberal promise that stands betrayed.

In 1986, Prime Minister Rajiv Gandhi stunned the country with his declaration that, due to corruption and mismanagement, only 15 percent of every rupee spent on poverty-alleviation programs in India actually reaches the poor. By all indications, not much has changed since then. According to a 2008 study by Transparency International, India’s poor have to pay some $200 million in bribes every year to avail themselves of the most basic services. This, along with other findings, has led Transparency International to consistently downgrade India’s ranking in its Corruption Perceptions Index—from seventy-second in 2009, to eighty-fifth in 2010, to eighty-seventh in 2011. (The index measures the perceived levels of public-sector corruption in 178 countries.)

There is no doubt that corruption is deeply ingrained in India’s development machinery, which remains cumbersome and bureaucratic and continues to allow state officials enormous powers of discretion. What needs to be recognized, however, is that liberalization has made things worse, not better, by prying open a vast number of new avenues for making a quick buck.

Most cases of flagrant corruption today are spawn of the liberalization process. The most notorious of these was the “2G spectrum scam,” in which cellphone licenses were sold for a fraction of their value, resulting in the loss of a staggering $39 billion to the national exchequer. Over a dozen of India’s most powerful politicians, civil servants, and journalists were implicated in the imbroglio when it surfaced in November last year, merely weeks after a series of corruption scandals bubbled up around the 2010 Commonwealth Games. The Auditor General’s report on the games has confirmed fears that its organizers had committed nothing short of daylight robbery. The report revealed, among other things, that many lucrative contracts—from buying toilets to building the athletes’ village—had been awarded on the basis of single bids to favored vendors.

Indeed, the Commonwealth Games were a testament to the scale of India’s corruption problem, and to the sort of big money that’s up for grabs in the country’s new economy. These prestige games—which organizers claimed would affirm India’s “world-class” status—cost taxpayers $4.1 billion instead of the $270 million initially projected, mainly because the government gave a “blank check” to the organizing committee in its rush to meet deadlines and avert “national embarrassment.” Some $1.8 billion is said to have gone missing, and the head of the organizing committee has been in jail since April on corruption charges. WikiLeaks head Julian Assange’s allegation that Indians now have more “black money” in Swiss banks than citizens of any other nation is hardly surprising in this context.

The Indian government’s response to corruption has been disappointing for two reasons. First, corruption is too readily used as an excuse to cut welfare spending and argue for the privatization of public services. This punishes the poor and ignores the fact that privatization and deregulation tend to generate fresh opportunities for corruption. Second, the government is focused too heavily on eliminating personal greed, and not enough on root causes, such as poorly paid civil servants, or how, in the race to be “world class” and achieve the highest possible growth rates, large swathes of decision-making have been removed from even the most elementary forms of scrutiny (the Commonwealth Games are a case in point; SEZs are another). The emphasis on correcting individual behavior has led to top-down, apolitical proposals such as the creation of a “high-powered” ombudsman’s office and the issuing of biometric identity cards to thwart fraudulent claims on social services. It is unlikely that either will make more than a small dent in India’s massive corruption problem.

Segregate and Insulate

While educated Indians are proud of India’s stature as the “world’s largest democracy,” their social and political organizations—residents’ associations, “go green” campaigns, wildlife protection funds, and so on—are primarily concerned with the creation of safe, clean, and aesthetically pleasing bourgeois utopias. Their desire to segregate and insulate themselves from the “great unwashed” is correspondingly stronger. Cities such as Delhi, Mumbai, and even Kolkata (which was under a Marxist government for years) have undergone radical spatial reorganization, with old, mixed-class neighborhoods giving way to private residential enclaves encircled by walls and barbed wire. Given how cut off they are from their fellow citizens, not to mention the public education and health-care systems, it is hardly surprising that India’s rising middle classes have little interest in supporting universalistic programs of social security.

The Indian elite’s ambivalence about democracy is by no means a new development. Nor am I arguing that elites in other parts of the world are very different. It is instructive, nonetheless, that globalization and “openness” have not resulted in a flowering of liberal political values or a fresh love for human rights, as one might have expected. If anything, whispers that India would be better off as a dictatorship “for the time being” are more audible now, drifting out of private clubs and parlors and into mainstream public forums, such as television talk shows. Concern for the poor, when articulated at all, is limited to supporting privately funded charitable organizations, and to lauding the work of individual benefactors, such as industrialist Azim Premji or Bollywood actor Aamir Khan.

As India completes its sixty-fourth year of independence from British colonial rule on August 15, along with twenty years of market reform, one must pause to reflect on the future of this vibrant but troubled nation. India’s high rates of growth and confident middle class render it a force to be reckoned with in the global economic arena. It remains a beacon of democracy and pluralism amid South Asia’s openly authoritarian states. Yet the country’s profound disparities of wealth have undermined many of its achievements. India’s population is effectively divided into two classes of citizens, one with access to a full complement of rights and privileges, and one without.

Inevitable Collisions

What will happen as these two worlds collide? Will we see more crime, conflict, and planned acts of terrorism, such as the one that seared through the heart of Mumbai in mid-July? It is well-known that poverty and social exclusion churn out ready recruits for extremist organizations. India’s low ranking in the Global Peace Index fits this gloomy narrative. (Developed by an Australian think tank, the GPI is based on more than twenty indicators, such as deaths from active conflicts, threats of terrorism, numbers of violent demonstrations, and levels of military expenditure. India ranks 135th on a list of 153 countries.)

Or will the friction between the two Indias channel into something more positive? Will we see a (nonviolent) revolution that will fundamentally change the order of things? Given India’s vastness and extraordinary diversity, a coordinated, countrywide response to neoliberalism appears unlikely. Vertical ties of caste, language, religion, and region tend to supersede those of class, making it difficult for marginalized communities to work together and resist systemic subordination. Social movements such as the National Alliance of Peoples’ Movements have found it challenging to extend the scope of their struggles beyond local and specific issues. Yet nothing should be considered unattainable in the land of Mohandas (Mahatma) Gandhi. Gandhi, after all, inspired a successful mass movement against the colonial state at a time when the latter seemed invulnerable.

What is certain, at any rate, is that India’s segmented worlds cannot survive on separate tracks. In a country that is as densely populated as India, collisions are guaranteed, even if they are not of the high velocity kind that draws attention from the media, or from think tanks specializing in the study of peace and conflict.

In fact, it is through their low intensity encounters with the rich that the poor may succeed in exacting a measure of retribution for their marginalization. Simi Mehra’s world will never be hermetically sealed. She will have to bump into beggars, prod her maids through police checks, and lose sleep over the possible illnesses her slum-dwelling chauffeur could transmit to her cocooned family. Her daughters, however liberal and cosmopolitan their private school education, could lose faith in their ability to change the world around them. As her everyday life becomes shuttered and tense, the “world-class” and “open” India of Mehra’s imagination could seem impossibly out of reach.

Mitu Sengupta is an associate professor in the department of politics and public administration at Ryerson University and the director of the Centre for Development and Human Rights.

Image: Men rebuild a slum dwelling demolished by the Indian government in Mumbai (Joe Athialy, 2005, Flickr cc)