How India Is Breaking Its Shackles

By Pete Engardio

INDIA UNBOUND

By Gurcharan Das

Knopf -- 406pp -- $27.50

While visiting New Delhi during a break from his studies at Harvard University in the early 1960s, Gurcharan Das recalls, he was invited to lunch by John Kenneth Galbraith, the new U.S. Ambassador to India. At Harvard, the eminent economist had frequently criticized market economies, so Das figured Galbraith would be thrilled to be living in a country that shared his enthusiasm for state intervention. Instead, Galbraith was glum. The onerous controls on the private sector, he conceded, were choking the economy and were inappropriate for India's low level of development.

Anecdotes like this one grace nearly every chapter of Das's book, India Unbound. And they help make it one of the most readable and insightful books to appear on India's tortuous economic path in its 54 years since shaking off British rule. Das, a retired Procter & Gamble executive and newspaper columnist, seems to be speaking mostly to Indians. But Westerners would also do well to read it--especially those who find themselves drawn to the growing political crusade against globalism. Many are still convinced that, somewhere, there is a viable alternative to market capitalism that can bring both prosperity and equity to the world's masses. India's story should be sobering.

The failure of India's brand of socialism can't be blamed on brutal dictators. It was fostered by benevolent leaders such as Mohandas K. Gandhi and Jawaharlal Nehru, and nurtured by a parliamentary political system. Nor can it be said that India stuck rigidly to one path. In the West, such fads as Fabian socialism, the admiration for Soviet central planning, the small-is-beautiful movement, and Third World dependency theory were indulged in universities. But in India, "tragically, they were translated into policies, with poverty-stricken peoples as guinea pigs," Das notes.

The results were sobering, especially in contrast to other countries in Asia. By the early 1990s, in countries such as Thailand and Singapore that developed export industries and welcomed outside capital, millions of people had vaulted out of poverty. Many of these countries were once colonies of European states, just like India. But by 1991, India was more isolated, poor, and dysfunctional than ever. In their obsession with achieving social equality and self-sufficiency, Indian leaders never grasped that companies must make profits before they can help to create wealth and erase poverty.

India's business leaders share the blame for the debacle. Many of them acquiesced to massive regulation in return for an easy life making shoddy goods that were protected from competition. Not until its sweeping market reforms of the 1990s, mandated as part of an International Monetary Fund bailout, did India begin its economic revival as a dynamic hub of software, Internet, pharmaceutical, and media concerns.

India Unbound excels when Das describes his and other industrialists' maddening experiences under the so-called License Raj, when any product launch or expansion needed state approval. Tata Group, India's premier conglomerate, made 119 business proposals from 1960 to 1989. All were rejected. The state telecom monopoly was slow to install phone lines because it didn't think phones were "appropriate technology" for villagers. Even after India implemented reforms, the government has remained lethargic. When an Indian executive for a U.S. chemical company explored building a plant in China recently, a senior official met him at Shanghai's airport. Staff from several agencies visited his hotel on a Sunday, pledging to provide land and a 1 1/4 mile power line in 30 days. In India, it took the exec nine months and many bribes to get land. It took Das two years, plus 38 visits and hundreds of phone calls to New Delhi officials, just to get to approval to remodel his house.

Das is exuberant about what is happening today. India, he writes, is "on the brink of the biggest transformation in its history." Nationalism, inflexible labor laws, terrible infrastructure, and poor education remain hindrances. But the Information Age is igniting an Indian renaissance. He chronicles the many software and Net tycoons who have put India back on the global map. What's more, he believes, the process is becoming irreversible: As every village gets connected to the outside via cable, satellites, and the Net, bureaucrats are fast losing the control over information that is essential to their power. "We have realized that our great strength is our people," he says. "Our great weakness is our government. Our great hope is the Internet."

Unfortunately, Das takes the argument too far. He asserts that, having blown the industrial revolution, India can "leap right into the information revolution." Services will create many more jobs than manufacturing anyway. The fact that Das now consults for a venture-capital fund with stakes in an array of dot-coms partly explains his enthusiasm for the Net. But the broadbased tech meltdown makes this view look outdated, and by the end of the book you wonder whether India is being deluded by yet another fad. With its wealth of engineering talent, cheap labor, and one of the world's biggest domestic markets, why can't India be world-class in manufacturing as well as information services? Why cede such a powerful growth engine to China?

To be fair, one assumes Das would have toned down the hyperbole were he writing now, amid the tech crash. While the book is hopeful, he also makes it clear throughout that India, Internet or no, still has lots of work to do before its renaissance is secure.

Engardio writes on the global economy from New York.

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