India Unbound

by Gurcharan Das

Gurcharan Das has a fascinating history. He received a good education in India and went on to college in the USA, where he did well. Then he returned to India in the 1970s to work at an American firm trying to break into the Indian market. He spent a lot of time talking directly to people in the field: customers, store owners, small-time distributors, and anybody else related to his business. This taught him much about the fundamentals of business and the imperative to satisfy the customer.

He also learned that the Indian government was his most serious obstacle. Some background: when India finally obtained independence in 1947, its leader, Nehru, was determined to achieve two goals. First, to free India from its economic dependence upon England, a colonial leftover that kept the Indian economy in a backwards state. Second, to relieve the poor with an economically more just society. Nehru therefore set up a socialist economy with a huge bureaucracy to regulate every aspect of the Indian economy. He died before the flaws in his system became evident, but Mr. Das saw those flaws on a daily basis. First, the extensive regulations slowed businesses down and prevented them from responding quickly to market changes. Second, the many restrictions made it impossible for businesses to gain the economic benefits of working with foreign businesses; this in turn made Indian business less efficient. Third, because the bureaucrats who enforced the regulations were not answerable to anybody, they were susceptible to corruption. Obtaining a license to set up or expand a business could take years, but the right amount of money would convince a bureaucrat to “work late” and “expedite” the application. This practice steadily spread through the Indian bureaucracy until it was hopelessly corrupted. Nothing happened without greasing the wheels.

The corruption in the Indian bureaucracy spread to Indian business. You didn’t get ahead by building a better product or lowering your costs or improving your efficiency. Instead, you got ahead with your connections inside the government, groomed over years with gifts and assistance, so that you could get whatever you wanted. Mr. Das had, by virtue of hard work, risen in his business by the 1980s and notes that his company had four separate “lobbyists” in Delhi to advance its interests. Each lobbyist had developed his own set of connections and together they could piece together whatever set of licenses was required to keep the company moving.

This system is now called “the License Raj”, as distinct from the original Raj set up by the British. The License Raj was every bit as oppressive as the original Raj, but it was carried out by Indians instead of the British. By the 1980s, many educated Indians had realized how badly the License Raj was failing; GDP growth in India was tepid. Indeed, Indians were poorer in 1985 than they were at independence in 1947. The pressure grew, and there were a number of attempts to reform the system, but they came to nothing.

Then in 1991 a stroke of luck hit: there was a financial crisis demanding immediate action. The Minister of Finance, a Mr. Rao, carried out sweeping reforms that yanked the carpet out from underneath the License Raj. The political situation was such that he could get away with it. Afterwards, the pace of reform slowed, but the key step had been taken and the License Raj was on its way out. Since then, the Indian economy has been growing by leaps and bounds, showing growth rates of 8% per annum or higher.

Mr. Das was right in the middle of it and tells the story with verve. He mixes lectures on economics with cautionary tales of policy mistakes and personal tales of how the economic changes affected individuals. The story that most affected me was of a factory worker who was caught sleeping on the job. He was admonished to stay awake and keep working, but he went to sleep four more times before the company initiated formal proceedings to fire him. After several months, the company fired him for sleeping on the job. He appealed to the courts. All this happened in 1984. A few years later, the courts decided in his favor, awarding him back pay and reinstatement. The company appealed. The case was finally closed in 2006 when the Indian Supreme Court ruled in favor of the company. Thus, it took 22 years to fire an employee who was sleeping on the job!

The author has grand hopes for India; the book’s title says it all. The people in India brim with optimism and work hard to better their lives. It is only a matter of time before the Indian GDP surpasses the American GDP.

Herewith some nice quotes from the book:

Bombay has this civilizing quality, I think, because of its origins as a city of commerce. Montesquieu wrote in his Spirit of the Laws that “it is almost a general rule that wherever manners are gentle, there is commerce; and wherever there is commerce, manners are gentle.”

There is a concept in Yoga called one-pointedness (from the Sanskrit ekagrata, which means to direct and concentrate one’s energy at a point).

The Germans have a similar word: schwerpunkt, the point of maximum effort. But while the Sanskrit word is derived from spiritual considerations, the German word was used primarily in military contexts. Same idea, different points of view.