Friday, 20 September 2013

India's Perfect Storm - And Its Likely Aftermath

India is facing a perfect storm from a combination of political, social and economic crises that are rapidly converging and have already begun to have an impact.

The political and economic crises are more tangible, but their resolution will be comparatively simpler. It is the social crisis that will have a much heavier long-term cost.

India's political landscape is fractured. 1984 was the last year when a general election resulted in a single party winning an absolute majority. Since 1989, elections have thrown up hung parliaments and only coalition governments have been the norm. The splintering continues unabated. Although disenchantment with the UPA coalition government has never been higher, there are strong doubts about whether the opposing NDA coalition will succeed in winning enough seats and allies to obtain a parliamentary majority and form the government. It is likely that the hung parliament that emerges after the 2014 election will be so badly splintered and (more importantly) irreconcilably divided that a government may not emerge. If one does, it will probably not last long, and fresh elections may need to be called mid-term, with no guarantee of a more stable result. In some ways, the election will probably clear the air by showing the vocal urban right-wing minority just how much of a minority it really is, but in other ways, the poisonous hatred between political groupings will only intensify.

There are mixed signals on the economy, whose heady 9% growth of just a few years ago has now slowed to about half that value, and I am not enough of an economics heavyweight to sift through the noise and form an independent opinion. In blunt terms, one opinion is that India is stuffed, and without drastic reforms that take place very quickly, is doomed to remain a poor country for the foreseeable future. The other viewpoint is that a whole swag of infrastructure projects is already in the works, and when these start to come on-line in the next 3 to 5 years, growth will improve and establish itself at a permanently higher level. As I said, I have no independent means to say which viewpoint is correct.

The third area, the social front, is where I am most concerned. The recent riots in Muzaffarnagar are disturbing, because they are a watershed. They were politically engineered of course, as all good riots are, but this one is probably the first to occur in a rural area. Communal riots have generally taken place in urban areas, usually in lower- to lower middle-class localities, where social cohesion between recent migrants has never been high. This riot has shown, disturbingly, how easy it is to sunder the more cohesive fabric of the hinterland as well. I have the uneasy feeling that a line has been crossed somewhere, and India will never be the same again. I can sense the bottomless sense of insecurity that a Muslim would now feel in post-Muzaffarnagar India. The Indian Muslim's native land has suddenly become an alien land. This India will suffer the negative effects of widespread minority insecurity for many decades. And it was totally unnecessary.

There is a way out of the political and economic logjam. That is to make the centre less relevant. The way government financing works today is untenable and cannot continue. I have the following information from a very knowledgeable friend and old classmate:

a.  70% of all tax revenues collected go to the Centre. All the states share the remaining 30%.  This is as per a Constitution mandated Finance Commission.
b.  The centre during our socialist era under a strong Mrs Indira Gandhi used this money leverage to kill state leadership and play power politics. But since the 70s, her Congress party has been vanquished in several states.
c. The tax sources for states primarily revolve around real estate taxes, octroi and excise duty (euphemism for booze). So states that have gone outside of government sources to do stuff, have typically leveraged land - e.g., Gujarat, Tamil Nadu, Rajasthan. Other than land and waiving taxes there is not much they can do, money wise.
d.  States can't borrow directly on their own books - they don't have a revenue base worth talking about and don't run surpluses, by and large. All big foreign aid has to be approved through the Central government's Ministry of Finance. 
I wrote before that India's salvation would be a true federation of states, where states have much more power and autonomy vis-a-vis the centre. In that post, I neglected to mention financing arrangements, because I did not have my friend's depth of knowledge. After reading his inputs, I believe the regional parties must get together in the next parliament, and regardless of other affiliations, vote for an amendment to the constitution to give the states more financial independence. A part of all tax revenue collected should compulsorily go to the state where the revenue was generated. The states should also be free to solicit and get funding from overseas sources without having to go through the central government. This will free them from political interference. When the states compete for investment, the free-market energies that have been shackled by decades of socialistic central planning (which was needed in the early stages of development) will be unleashed.

Which party forms the government at the centre and who becomes prime minister will then be much less relevant to the daily life of the average citizen, because the centre's role in daily life will have been much diminished. Smaller states, each with financial and political autonomy, closer to the local people and more accountable, will become more efficient units of governance that will deliver quality of life improvements much faster. [I remember a relative from the US telling me that in any US state, "the governor is at least ten times bigger than the president."]

That single change could solve India's political and economic problems within a couple of years and place the country on a permanently faster path to growth and prosperity.

Which leaves us with the serious social problem. I blame the Congress party for pandering to Muslim leaders (as opposed to instituting measures to improve the life of the average Muslim). I also blame the Hindutva parties for stoking a problem that they cannot resolve, which will benefit them electorally but cost the country dearly. Together, their short-sightedness has seriously damaged India's social fabric and will continue to do so.

India has a significant Muslim minority of 15%, or about 180 million people. Any sensible and realistic person will see at once that such a large minority cannot be wished away by any means, no matter how fascist one's rhetoric may be (e.g., "let them all go to Pakistan", "drive them into the Arabian Sea", etc.) Coexistence is the only practical way forward. For coexistence to be viable in the long term, what is needed is a strong system of social justice, civil rights and fairness in all dealings by the state (government and judiciary). And this should have been easy, since India's diverse society has been inherently predisposed to coexisting. On the ground, there has been remarkable social cohesion between the communities, otherwise for a population of this size, there should have been widespread and bloody clashes occurring every day with a death toll going into the hundreds of thousands. The fact that violent incidents are so few and far between means that there is no inherent social tension.

Any problem that exists today has been politically manufactured. Political parties stand to gain by polarising the electorate and sharpening communal divides. The Congress has done a fair bit of damage over the years by yielding to hard-line Muslim leaders (as opposed to listening to and ensuring the welfare of ordinary Muslims). The shameful Shah Bano case comes to mind, in which the Rajiv Gandhi government overturned a secular court decision on granting alimony to a poor Muslim widow by deeming such issues within the purview of Muslim personal law. The widow then got no money under Sharia law, which weakened the average Muslim citizen's rights compared to other Indian citizens. The only beneficiaries were the hardline leaders of the Muslim community (who did not speak for the majority of the Muslims in any case), and the Hindutva parties, who gained from the Congress party's appeasement of the Muslim leadership by stoking and exploiting Hindu outrage. The Hindu parties have exploited every Congress mistake and gained from every incident since then, including the court-ordered unlocking of the Babri Masjid, which they then demolished a few years later, and went on to commit more and more aggressive acts, winning votes for themselves from a larger and larger segment of polarised Hindus, but weakening the country's social fabric in the process.

The Muzaffarnagar riot was in a way an expected consequence of the fractured four-way vote split in the state of Uttar Pradesh. Clearly, a more effective carving of the pie was called for, and what better way than for two of the four to gang up against the other two? The BJP and SP, nominal enemies, seem to have conspired to play the roles of majority spokesman and minority protector, aiming to win votes from the Hindus and Muslims respectively, at the immediate cost of the Congress and BSP.

Both the Congress and the RSS-led Hindutva parties have mortgaged India's long-term future to win short-term electoral battles. There was a time when I trusted in the wisdom and sagacity of the average Indian voter to see through these games when voting in aggregate, and ensuring sanity of political results. Alas, I no longer believe that the electorate is, in aggregate, wise. I fear that infection by communal poison has crossed a tipping point, and the average voter is now more self-destructive than wise. In this climate, the BJP has dropped the mocking term it earlier used ("pseudo-secularism") and begun to use the word "secularism" itself as a pejorative!

In summary, I think India has a chance to weather its political and economic storms with a simple change to the way states are financed. But its fractured civil society will probably never heal, and could lead in the future to a bloody civil war.

As a bankrupt Pakistan struggles through what could be its last decade of existence as a viable country, it may have the bitter satisfaction of seeing the Two-Nation Theory proved right after all. Hindus and Muslims can never live together in one country. Cynical politicians from opposing camps have cooperatively moulded the will of the people to a self-destructive end.

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