Updated: July 3, 2016 8:04:19 am
Last week marked the 25th anniversary of possibly the most important event in modern Indian economic history: the end of the licence raj. On this anniversary, let us remember what India was like in licence raj times. Let us remember that nearly every Indian lived in poverty. In the name of the poor, Nehruvian socialism had created a vast ‘welfare state’ that existed mostly as an illusion. On paper, there were schools, hospitals, health centres and grandiose schemes to end poverty, but anyone who dared travel down those broken, dusty roads that led into the wilds of rural India saw that the welfare schemes did not work.
The great Indian dream in those times was a government job. Private enterprise and profit were dirty words. Entrepreneurs who produced more than their licences permitted were punished. Airports looked like rundown barracks and railway stations like dumping grounds. And generally the world viewed India as a country of starving millions. The only people who profited from the licence raj were officials.
If India today looks very, very different, it is because a prime minister had the courage to begin dismantling the licence raj. Vinay Sitapati’s excellent new book, Half Lion: How P V Narasimha Rao Transformed India, could not have come at a more appropriate time. In it, he writes, ‘In 1991, the middle-class numbered no more than 30 million, compared to 300 million in 2013. There were only 2.3 million kilometres of roads in 1991, compared to double that in 2012. Flying was expensive, with only one option, the state-owned Indian Airlines. A mere ten million passengers travelled by air in 1991 – compared to 82 million in 2014.’
There is no question that to date no prime minister deserves more credit for transforming India from an economic basket case into a country that dares to dream of being an economic superpower. But Narasimha Rao made one crucial mistake, and this was that he brought about his reforms by stealth. He was an uncharismatic leader without popular support and knew well that he owed his job to Sonia Gandhi, so he hesitated to tell the Indian people why their country had remained poor.
It would have been quite easy. At around the time that the licence raj was being dismantled, I used to report for a TV show called Business Plus, and so it was that I wandered about Mumbai’s largest slum, Dharavi, one day, asking very poor Indians if they thought officials should be doing business or governance. I did not meet one person who said that it was all right for officials to be in charge of big public sector companies in which their money had been unprofitably poured for decades. Everyone I talked to said business should be the business of businessmen and governance should be the business of officials. Many said that it was the job of officials to ensure good schools, hospitals and other public services, and that they did not do this well because they were too busy being businessmen.
It is because today there is a huge empowered, literate middle class that it is easier to convince people that the licence raj was evil. Many of this class are old enough to remember what an unequivocally shabby country India was when officials controlled all the levers of the economy. It was middle-class Indians who helped Narendra Modi win a full majority despite Rahul Gandhi and Arvind Kejriwal accusing him daily of working only for ‘Ambani and Adani’. The Prime Minister seems to have forgotten this because otherwise it is hard to understand why he is not speaking openly about the reason why India needs many, many more reforms. In the interview he gave Arnab Goswami last week, he said that the passing of GST would help poor people more than anyone else but he sounded defensive and almost apologetic.
He has no reason to, since unlike poor old Narasimha Rao, he does not belong to the party that imposed the licence raj. He should speak as openly against it as he did during the election campaign in 2014. He can use his Mann ki Baat to explain in simple terms why corruption and cronyism were the main products of the licence raj, and why it is so important to prevent officials from crushing private enterprise. It is because he has not spoken forcefully enough that India continues to remain at the bottom of the ease of doing business list.
Unless this changes fast, there is no possibility that India will be able to create the million new jobs that we need to every month. As a popular leader, the Prime Minister needs to be as aggressive about encouraging private investment as he has been about his initiatives in the social sector. And he needs to aggressively sell off or close profitless public sector companies that are ugly remnants of the licence raj.
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