SPECIAL REPORT INDIA

September 29th 2012

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SPECIAL REPORT INDIA

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India’s prospects have dimmed as politicians shrink from big reforms. They must become bolder, says Adam Roberts

ACKNOWLEDGMENTS In addition to those mentioned in the text, the author would like to thank the following for their help in preparing this report: Bharat Agrawal, Syed Akbaruddin, Montek Singh Ahluwalia, Gautam Bambawale, Partho Banerjee, Himanshu Bhatt, Nick Bisley, B.I. Dalal, Sanjit Das, Sanjiv Goenka, Lalitha Kamath, Akash Kapur, Ajay Mathur, Pratap Bhanu Mehta, Shivshankar Menon, T.K.A. Nair, Anant Nath, Dinesh Navadiya, Nandan Nilekani, T.N. Ninan, Pankaj Pachauri, Paresh Patel, Basharat Peer, Aditi Phadnis, Jairam Ramesh, Sarang Shidore, M.A. Siddique, Sid Singh, Suhel Seth, Navdeep Suri, Manish Tewari , Mark and Gilly Tully, Maya Valecha and Anupam Yog

PICK YOUR WAY through the narrow alleys of a south Delhi slum to the dark, low-ceilinged home of a fortune-teller with a green parrot. For a bundle of rupees he sets the bird to work, picking from a selection of cards. The man glances at one and lets his conjectures y. India will soon be the world’s greatest power. An assassination looms. He sees an elderly leader’s death and a dynastic marriage. There will be political turmoil in the next two years, but strength will follow. Sporting triumphs lie ahead and riches will fall upon Indians. It is a razzle-dazzle prediction for a sixth of the world’s population. Yet his analysis of India’s prospects may not be so far o the mark. And its underlying optimism reects the attitude of many ordinary Indians, who have much to feel pleased about. In many ways India seems set on a promising path. After a decade of rapid economic growth, data from last year’s national census look good: fast-rising literacy; more girls in schools; the relentless spread of mobile phones. The economy is worth almost $2 trillion, making it the world’s tenth-biggest. The country is more stable than ever (aside from a brief spell of trouble in Assam this summer). It is young, big and fast-growing. By the mid-2020s it will be more populous than China. Income per person is up; rural poverty down; polio has just been eradicated; paved roads are becoming more widespread; and so on. The soothsayer is surely right, too, about the impending political drama. A general election is due by mid-2014 at the latest. The prime minister, Manmohan Singh, turned 80 on September 26th, and some members of his cabinet too are getting on. A political succession is inevitable in a country where the median age is barely 25. The challenge is to manage this change, and keep the gains coming, even as the economy goes through a tougher patch. Annual growth is down to about 5%, from a peak of 10%. Professional fortune-tellerspoliticians, bureaucrats, industrialists, economists and analystsgenerally come up with a dimmer prognosis than the Delhi soothsayer. Anand Mahindra, the boss of Mahindra Group, a leading manufacturing and technology rm, reckons this is the worst conjunction of political and economic problems he has seen in his adult life: I can’t remember any year worse than this. External problems hurt, including weak global growth and high oil prices (India imports 80% of its oil, then subsidises a lot of it for consumers). But the greatest pains are self inicted: locals and foreigners discouraged from investing; a scal decit that could provoke a nancial crisis; a current-account gap that is hard to nance; a slumping rupee. India faces 1

The Economist September 29th 2012

CO N T E N T S 3 Politics Power shifts 4 Gujarat’s chief minister The candidate 6 The economy Express or stopping? 7 Manufacturing On a hiding to something 8 Education A billion brains 10 Cities Concrete jungles 12 India abroad No frills 13 The tragedy of the commons An uphill walk

Missing map? Sadly, India censors maps that show the current effective border, insisting instead that only its full territorial claims be shown. It is more intolerant on this issue than either China or Pakistan. Indian readers will therefore probably be deprived of the map on the second page of this special report. Unlike their government, we think our Indian readers can face political reality. Those who want to see an accurate depiction of the various territorial claims can do so using our interactive map at Economist.com/asianborders A list of sources is at Economist.com/specialreports An audio interview with the author is at Economist.com/audiovideo/ specialreports A transcript of an interview with Narendra Modi is available at Economist.com/node/21563185

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PAKISTAN ADMINISTERED KASHMIR

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Amarnath Cave Srinagar JAMMU & 12.5 KASHMIR 1,057

old may be gone, but too much of the commanding heights of HIMACHAL 6.9 CHANDIGARH* the economy are still runor 000 PRADESH 1,801 1.1 rather, held backby ocials. 3,056 N UTTARPoliticians, rightly, got the PUNJAB AKHAND 1.4 C H I N A 27.7 10.1 25.4 HARYANA blame for the dramatic power 0.6 1,315 1,648 1,864 2,361 SIKKIM 2,677 Delhi N cuts of this summer, when L PRADESH E P Gurgaon DELHI* CHA NA 600m people in the north of A L 16.8 RU BHUTAN A Neemrana U T TA R 3,637 India suered blackouts for Gorakhpur 31.2 PRADESH 68.6 ASSAM 736 NAGALAND 2.0 103.8 Ga 1,194 two sweltering days. But the 1,056 n g 199.6 B I H A R 504 Jam e s 666 MEGHALAYA 3.0 una R A J A S T H A N deeper problem is organisaPatna 1,182 MANIPUR 2.7 BANGLADESH 708 tional: a wretched public coal JHARKHAND monopoly gets too little of its 1.1 TRIPURA GUJARAT MIZORAM 33.0 1,050† MADHYA PRADESH 3.7 60.4 Kolkata product distributed by the H 807 R † Ahmedabad 1,064 72.6 1,716 WEST state-run railways to (mostly) 849 BENGAL MYANMAR Surat state-run power stations. ODISHA 91.3 41.9 1,181 Babus have been a proMAHARASHTRA 1,052 112.4 blem since Mughal days, but Mumbai 25.5 2,158 things have got worse. Bu1,043 Pune B a y reaucracy now works to rule. Yangon No civil servant is remotely ino f Hyderabad terested in pushing something ANDHRA B e n g a l PRADESH along. There are three years1.5 GOA 84.7 worth of pipeline projects 4,851 1,557 KARNATAKA ANDAMAN AND stuck, lamented a senior plan61.1 NICOBAR ISLANDS* 1,507 A r a b i a n 0.4 ning ocial earlier this year. Chennai 1,957 Bangalore Like politicians, babus Puducherry S e a are worried by corruption PUDUCHERRY* TAMIL 300 km 1.2 NADU scandals that also nger buLAKSHADWEEP 2,135 72.1 ISLANDS* National totals: 33.4 reaucrats. A welcome new 1,853 na 1,848 Population, 2011 = 1,209.5m freedom-of-information act na GDP per person, March 2012 = $1,329 means dodgy deals no longer Thiruvananthapuram Exchange rates, September 17th 2012 SRI stay hidden. The public is so 100 rupees = US$ 1.86 ¤1.42 £ 1.15 LANKA Sources: Ministry of Statistics angry that even honest deciInteractive: Compare contrasting GDP and and Programme Implementation; *Union territories population levels across India’s states at: †March 2011 sions are sometimes conCensus of India; Thomson Reuters Economist.com/indiastates12 strued as favouring special interests, so babus consider it 2 awkward years, probably beyond 2014. safest to do nothing. Tenders for road construction, bids for land The core of the internal problem is often summed up as goto set up factories, applications to supply goods to local governvernance. That means, rst, politicians (netas) who do not rule. mentall are now stuck in bulging in-trays. Mr Singh did announce some limited economic reforms this Is there a way out? The country’s rst batch of liberalising month, which provoked considerable political upheaval. But reforms, in 1991, was precipitated by a balance-of-payments crigenerally his government has failed to carry out profound resis. Perhaps another economic emergency would force a second form, passed no signicant legislation and is mired in sleaze. round of big reforms. India’s economy is in a bit of trouble. Growth is down. ForNetas and babus eign direct investment, which last year hit a record $47 billion, The ruling United Progressive Alliance (UPA) coalition, has dropped by 67% so far this year, and domestic private rms dominated by Congress, has been stalled. Faced with slowing are refusing to invest. Services and consumer spending are still foreign investment and a revenue squeeze, Pranab Mukherjee, buoyant, but industrial production contracted this summer. until recently the nance minister, bizarrely attacked foreign inInation may at last be dipping, which could allow the investors, such as Vodafone, and retrospectively tried to rewrite dependent central bank to start cutting interest rates. But it, and tax rules. That spread uncertainty. Fortunately in July he was investors, will be reassured only if they see politicians deliver sebooted upstairs to become president. rious reforms. The IMF has said that the scal decit could rise to His successor, Palaniappan Chidambaram, briskly sets out about 9% of GDP this year. Most important, that means slashing a tempting menu of his intended economic reforms to boost consubsidies by more than a token amount. Beyond that, a host of dence and raise investment and growth. Yet with a do-little measures is waiting to be passed or implemented. A land-reform prime minister and a dithering dynastic party leader, Sonia bill could make it easier for industry to set up factories. More reGandhi, he looks short of political means. Congress’s coalition laxed labour laws could help get them staed. Welfare spending allies (together with obstructionist opposition parties) have recould switch from a widely abused system of food rations to peatedly blocked reform. This parliament is on course to sit for cash transfers into individuals’ bank accounts. less time than any other in India’s independent history. Netas beInviting more foreigners to invest in India would help senyond Congress share the blame for paralysis. timent and plug the current-account hole. Outsiders may now be Now add unhelpful babus, bureaucrats working in an ossiallowed to set up supermarkets in some Indian states and buy ed system bequeathed by Britain. Their dead hand explains into domestic airlines. But continued caps and restrictions on 1 much of what does not happen day-to-day. The licence raj of foreign capital look increasingly wrong-headed. 0.0

Population by state, 2011, m GDP per person, March 2012, $

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TI

SG

A

P A K I S T

A

GDP growth, 2003-12, % 9.5 and above 6.5-7.4 8.5-9.4 6.4 and below 7.5-8.4

KER

ALA

2

The Economist September 29th 2012

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One other important reform would simplify trade inside India. Known as the Goods and Services Tax (GST), it would replace a tangle of state levies with a single, national one. Rajiv Kumar, head of the biggest business lobby, FICCI, describes it as India signing a free-trade deal with itself. It is an obvious way to boost trade and growth and lure investors to a bigger single market. Yet state governments and the opposition are blocking it, distrusting the centre to dish out revenues fairly. The chances that all, or even most, such big reforms will happen soon are nil. But optimists think that if at least one or two of them do, the country’s mood could improve. These three months are crucial for India’s economy, says Prithviraj Chavan, Maharashtra’s chief minister and an advocate of reform. The time for adding to the current, limited reforms is short. The next budget, in the spring, is bound to be populist as it will be the last before the general election. One property billionaire with good contacts in government says that if it’s not done by the end of October, it ain’t happening. But building a constituency for bigger reformsanything beyond letting foreign supermarkets inwill be endishly dicult. On September 18th Congress’s main coalition ally, Mamata Banerjee, the populist chief minister of West Bengal, in a tirade before television cameras said that her party would quit the national government and no longer back it in parliament unless the limited reforms announced a few days earlier were rolled back. In recent years she had repreatedly blocked reform eorts by Mr Singh. Some close to her had thought she might be bought o on this occasion, perhaps with more public funds going to her state. Instead a strike was called for September 20th and street protests erupted. As this section of The Economist went to press, the outcome was still unclear. Given a rush of state elections over the next year, ahead of the general one, it is hard to see the party implementing the big reforms that it has failed to push since 2009. Most assume that Mr Singh’s government, perhaps with new allies, can hang on until 2014. But Congress will feel growing pressure to dish out public funds directly to its voters. Still, say the optimists, India does not have long to wait for an election. If Congress were pushed out it might be replaced by a pro-growth gure from the national opposition, such as Gujarat’s surly strongman, Narendra Modi. Mr Modi says he has a mission to serve his country. He wants to promote industry and would surely get the babus working again. The central bank would probably trust him to rein in public spending. Alternatively, even a minority government after 2014 might have the stomach for more reform than the current one. India has had a few of these in the 1990s, and some say that prime ministers who know their tenures will be short try to get more done than the timorous and long-serving.

The case for gloom Yet sceptics see a more alarming possibility: that India’s politicians are not really interested in reform. The liberalisation of 1991was pushed by outsiders and was relatively easy to implement. But even the limited reforms anounced this month, letting more foreigners into the retail business and slightly cutting diesel subsidies, caused a political storm, and bigger changes would be far more awkward. Politicians show no wish to be bolder, having learned from the defeat of the most recent reforming government led by the Bharatiya Janata Party (BJP) in the general election of 2004. Voters gave that party no credit for helping create conditions for economic growth, the reform of public pensions and the like. A dispirited senior member of government in Delhi frets that an old broad consensus in favour of reform has broken. Mr The Economist September 29th 2012

Singh’s warning in August that slower growth threatens national security sounded like a vain cry to his fellow politicians. Worsening the scepticism is widespread dismay over crony capitalism. Growth in the past decade, along with high commodity and land prices, has too obviously enriched a destructive band of robber-baron politicians. Public anger with the corrupt and the super-rich has risen, merging with doubts about market reforms. Mr Singh likes to say that ordinary voters more than politicians grasp the benets of reforms, and tried to make the case for them this month. But the gloomsters may be half right: India’s politicians are not, by instinct, reformers. They act when pushed. Ramachandra Guha, a noted historian, points out that India’s cheerleaders as well as its pessimists tend to overstate their case. This special report will try to steer a path between the two. More than usual now rests on who holds political power, as the next article will explain. 7

Politics

Power shifts Weaker national parties, stronger regions, new voter habits and corruption are changing India’s politics MAKING POLITICAL PREDICTIONS in India is risky. The ruling party in Delhi often suers so many setbacks that it is hard to believe voters will support it again. So it was with Congress in 2009, yet to general surprise it was re-elected with a bigger mandate than before. Explanations varied: urban voters liked rapid growth; rural ones were impressed by new welfare measures; allies ourished in the south and Congress roared in big Andhra Pradesh; perhaps people distrusted the opposition BJP’s candidates, such as Narendra Modi (see box, next page). Almost any explanation, and its opposite, could be right. Politics in India is big and messy: hundreds of millions of voters, from vastly dierent backgrounds, are bound to hold widely divergent views. Concerns at local and state level often trump national ones, and national aairs can appear as an amalgam of assorted local rivalries. The next general election is in 2014, unless Congress is forced out sooner. The party’s electoral prospects look poor. Mr Singh, once a model of rectitude, is tarnished by presiding over the most corrupt government in India’s independent history. And although he had a hard-won reputation for good economic management, his new eorts to reform are unlikely to win much support from the public. As usual, the ruling party has been thumped in big states. Andhra Pradesh provided more Congress MPs in 2009 than any other state, but now a local leader’s desertion has shattered the party there. Congress has also done badly in massive Uttar Pradesh (UP), earning only a poor fourth place in the state election there this year. Rahul Gandhithe son, grandson and great-grandson of prime ministerswas by now supposed to be reviving the party, or preparing to assume high oce. But having led a dreadful campaign for Congress in UP, he seems to have lost his nerve. No one really knows what he stands for or whether he can lead. Nobody ever gets to interview either him or his mother, Sonia, the party president. But that looks like a defensive strategy, and 1 3

S P E C I A L RE PO R T INDIA

2 meanwhile no other young leaders can rise.

Sachin Pilot, a junior minister and loyal friend of the Gandhis, says that analysis is unfair. Mr Gandhi’s restraint in reaching for power is admirable, he says, and no rising stars are being held back. Other observers are more sceptical. Rahul Gandhi intrinsically doesn’t want it. A level of detachment is built into his personality, says a Congress leader. The Gandhi dynasty still holds together Congress (which lacks much ideology beyond broad secularism) and helps to settle leadership spats. But it matters less and less to voters. Regional dynasties, with power and money to spread around their states, are in the ascendant. Without their own state as a ef, the Gandhis look unrooted. A newspaper editor in Delhi thinks India is getting ready to make the Gandhi family irrelevant. The crumb of hope for Congress is that the national alternatives are weak. Arun Jaitley, head of the BJP in parliament’s upper house, says the party has a galaxy of leaders for 2014. But they are really a collection of regional leaders, and the BJP is unsure of its ideology, having toned down its earlier, odious, form of Hindu nationalism but also muddied its old pro-market stance. It gets little support in India’s south, east or north-east.

The party tries hard to be seen as ghting corruption, yet projecting itself as clean is tricky. It has had its share of scams and crookedness, notably in the southern state of Karnataka, and it lacks ideas for making things better. It opportunistically backed Anna Hazare, an anti-graft campaigner, when he became popular, but not his plans for a powerful anti-graft ombudsman. Smaller national parties do not look promising. Ramachandra Guha, the historian, thinks a national two-party system as in America would raise standards. The lesson from India’s states, too, is that a regular alternation of parties in power tends to deliver the best results. This happens in Kerala and Tamil Nadu in the south and Himachal Pradesh and Punjab in the north. As parties compete to oer better public services and other social goods, things like literacy, the position of women and infantmortality rates improve.

Think local Regional parties ll the gap. Usually built around a charismatic individual who becomes a state’s chief minister, they matter, wielding near-presidential power over a territory that often has a country-sized population. These states control roughly half 1

The candidate Narendra Modi wants to be India’s next prime minister RESPLENDENT IN A pink shirt, with a neatly trimmed white beard, Narendra Modi chuckles when asked if he is a dictator. Suggestions that he cannot compromise, lead within a team or suer criticism are absolutely baseless, says Gujarat’s chief minister. No politician stirs as much anger, or grudging admiration, as the burly Mr Modi. He leaves little doubt about his wish to become prime minister, talking of his mission to serve: I am interested in doing something for my country. Polls show him to be the most popular gure to lead the country, outshining Congress’s indecisive Rahul Gandhi. The rank and le of his Bharatiya Janata Party (BJP) love him. He faces two main challenges. The rst is Muslims and other minorities. Many distrust and despise him for what happened in 2002, shortly after he took over as chief minister, when over 1,000 people, mostly Muslims, were killed in riots. He appeared to turn a blind eye, letting mobs vent their rage after Hindu pilgrims died in a train re. Courts have found him guilty of nothing. The state has been calm since and Gujaratis seem mainly to want to forget the riots. Elsewhere many are sure he is a monster: A mass murderer who should be in jail, says a political observer in Delhi. He fared poorly as a campaigner in the 2009 national election. Now Mr Modi is trying to reshape his image. Pressed about the riots, he says his local popularity proves them to be politically irrelevant: This question has no useI have 4

faced ten elections of various kinds in my state. The people always supported me. The second challenge is distrust inside his own party and among national coalition partners. In June a close ally of the BJP, Nitish Kumar, the chief minister of Bihar, said only a secular candidate could lead India, a direct swipe at Mr Modi, a Hindu nationalist. Unfazed, Mr Modi agrees and calls himself secular too. This is an article of faith, justice to all, appeasement to none. The Hindu nationalist movement, the RSS, which remains inuential in the opposition grouping,

Modi wants to get ahead

opposes its one-time protégé, preferring the BJP’s party president, Nitin Gadkari. Other BJP leaders are wary of Mr Modi. When he talks of seeing himself as destined to triumph, his eyes burn with determination. His fellow politicians do not know how to handle such a condent loner, says Swapan Dasgupta, an observer of the party. If the party wants to campaign on the economy and ecient government, Mr Modi is its likeliest candidate. Gujarat’s industrial success, luring manufacturers from the rest of India, is matched by a strong agricultural record. The hope is that Gujarat’s leader would replicate such gains elsewhere. Investors ock to Gujarat, Mr Modi says, for its well-built roads, the quick allocation of land, the plentiful supplies of gas, electricity and ecient bureaucratic support. Corruption has not been eradicated, but it is less debilitating than in many other places. As for the benets to ordinary Gujaratis, Mr Modi cites more girls at school and fewer drop-outs from education. Infantmortality rates are down and prosperity is up. Yet many other states, notably in India’s south, do much better on social indicators. Mr Modi’s time could come if the BJP got a big victory in 2014, say over 170 seats. It would then be in a good position to impose its choice of prime minister on its coalition partners. If not, he could turn out to be India’s Barry Goldwater, says Mr Dasgupta: reshaping the country’s right wing but seen as too divisive to lead. The Economist September 29th 2012

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2 of all India’s public spending. The most

has left voters resentful at the huge losses of revenue involved, prosperous ones, which rely least on Delespecially as a tiny minority grew rich beyond the dreams of avhi for discretionary funds, throw up the arice. The billionaires too often ourish thanks to political constrongest leaders, who often inuence nections and access to natural resources, land and public goods what happens in Delhi too. such as telecoms spectrum. Growing inequality spreads dismay. The mightiest satraps pay the least India may be passing through an American-style robberattention to national parties. They inbaron phase, driven by a commodity boom and a shift from a clude three women: Mamata Banerjee in closed to an open economy. Gloomier commentators see an outWest Bengal, Jayaram Jayalalitha in Tamil right Russian-style kleptocracy. We are creating an oligarchy, Nadu and Mayawati, a Dalit (the lowest sighs a commentator in Delhi. A leading Congress gure rails that caste) who ruled UP until earlier this year. there are no audits of political parties. There is such a deep nexThe others are Nitish Kumar in Bihar, Akus of property and political funding. Many political leaders are hilesh Yadav and family in UP, Mr Modi sustained only because they have huge war chests. in Gujarat and Sharad Pawar, an ally of Congress in Maharashtra and nationally. What is new is the arrival of oating middle-class voters They run some of India’s wealthiest states and preside over more than 600m people. who swing between parties depending on how they They are unlikely to unite as a coherent perform, not on promises of rewards for their group third force of politics, but have great veto power over national matters. In UP one politician was recently lmed telling ocials it Yet some voters are beginning to drift away from the rigid was acceptable to steal, and several ministers were sacked earlier identity politics of old. Nationally, Congress still gathers in the this year for pocketing $1.2 billion from a scheme supposed to Muslim and the more secular Hindu votes and the BJP the more help sick villagers. A political party is said to clear business profervent Hindus, and caste still counts: Mayawati relies on Dalit jects in exchange for 30% equity in them. One satrap is believed votes and the Yadav family on middle-ranking castes and Musto have become the biggest property developer in India. lims in UP. Leaders, in turn, reward favoured groups, sometimes The costs are real. A power minister in one state reportedly referred to as vote banks, with government jobs, education tried to close functioning power stations so he could take a cut quotas and other handouts. when pricier electricity was imported instead. India’s new airWhat is new is the arrival of a group of oating middleports, irrigation schemes and toll roads are typically overpriced class voters who swing between parties depending on how they and often late because they are built by rms with political ties. perform, not on promises of rewards for their particular group. Politicians want the lifestyle enjoyed by the country’s bilMostly young, urban, literate, mobile and privately employed, lionaires, but parties also raise huge quantities of cash to win they are increasingly well-informed thanks to cable news, social elections. Voting in India is generally clean and honest, but the media and mobile phones. campaigning is expensive and dirty. And everything is big. A typFor now they are in a minority, but they will increase as citical MP in the Lok Sabha, the lower house of the national parliaies expand and schooling improves. Around 100m voters in 2014 ment, has to woo around 1m voters. will be rst-timers. Young India wants good policy. It wants a Even state assemblymen have massive constituencies. good job, education, says a high-prole Congress gure in Money is needed for the usual stu: posters, rallies, trips to vilMumbai. Another government leader calls the middle class a lages, local organisers and the like. In India many voters in tight new caste. He reckons it is the single most cheering thing in Inraces also expect pre-election goodies, so politicians regularly dian politics. dish out cash, TVs, food mixers, saris, rice, whisky and even, in These voters may be starting to decide results. For evidence, Punjab this year, heroin. Ocial limits on party spending are look at Mr Kumar’s triumphant re-election in Bihar in late 2010. universally outed. Even the limited hope of letting private doCaste was still a factor, but voters overwhelmingly rewarded nors and parties maintain their close relations but making them him for delivering better roads, schools and hospitals, improving transparent, as in America, seems forlorn at the moment. law and order and lifting the economy. Mr Modi keeps being reMore likely, politics will become cleaner if and when Inelected in Gujarat mostly because he runs the place eciently. dia’s economy shifts away from a system in which politicians alThe chief minister of Chhattisgarh, Raman Singh, says that locate public goods. More wealth created by entrepreneurs, invoters re-elect him because their incomes are rising and public novators and manufacturers might loosen political ties. But such services are getting better. He identies, especially, the more changes will take time. 7 transparent and ecient delivery of food rations to the poor, thanks to computerisation and the spread of ID cards. If holding leaders accountable for their performance becomes a national habit, it will be in part because of an explosion 1 Cleaning up? in television watching. Rajdeep Sardesai, a leading news preSelected Indian scams senter and editor since the 1990s, says India now has 365 roundNotional the-clock satellite channels, as well as many city-based and caName Date Description loss* ble ones. Television helps shape reactions to national issues such “2G” 2008 Dodgy sale of mobile-phone licences $39bn as corruption. Mr Hazare’s dramatic street campaign and public “Coalgate” 2004-09 Shady allocation of coal blocks $34bn fasts were made for TV and earned non-stop live cable-news cov“Adarsh” 2010 Mumbai home for war widows taken by the powerful $ millions erage. Mr Sardesai thinks TV lets voters vent anger against the “CWG” 2010 Crooked contracts for Delhi Commonwealth games $ millions system and judge leaders from close by, but worries that it might Karnataka 2006-10 Illegal mineral pillage $3.6bn lead to public hatred of politics. Such hatred would be understandable because much of In*Maximum estimated by the Comptroller and Auditor Source: The Economist General and others, as lost revenues or as stolen goods dian politics is rotten. A series of outrageous scams (see table 1)

The Economist September 29th 2012

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2

The economy

Express or stopping? India’s growth rate, supercharged for a decade, is falling back to older, lower levels INDIA’S TRAINS MOVE slowly. That gives passengers plenty of time to observe their fellow riders. They are travelling far to visit a hospital, take up a job, enroll at college. Odishan coffee pickers in Karnataka, Assamese students in Kerala and Bihari diamond polishers in Gujarat all move as freely around their country as Americans hop from state to state. That mobility should give India an advantage over countries like China that penalise farmers when they leave their land. Indians are also increasingly well connected. On one 4,200km train ride, through 615 stations, your correspondent never once lost his mobile-phone signal. A decade ago few would have cared, since only 9% had a phone of any kind. Now, according to census data from last year, 63% of householders have a phone, usually a mobile. Ericsson, a maker of phone handsets, said this month that three-quarters of Indians now have access to a mobile. The endless rows of concrete houses with trailing wires seen from the windows tell a story too. The same census showed that of India’s 247m households, two-thirds have electricity and nearly half TV. A similar number own bicycles, though only 5%, so far, have a car. According to a new report by PricewaterhouseCoopers, in 2010 some 470m Indians had incomes between $1,000 and $4,000 a year. The consultancy reckons that this gure will rise to 570m within a decade, creating a market worth $1trillion. The big Indian rms that are doing bestsuch as Mahindra and Mahin6

dra, a carmaker, Hero MotoCorp, which makes motorbikes, or Hindustan Unilever, which produces small consumer goods are those targeting such buyers. Yet the rosy forecasts were drawn up when the economy was roaring ahead and it seemed that another decade or two of similarly high growth would deliver a big mid-income economy. Now that prospect is in question. The next few years are likely to see much slower expansion. Doubters had long been saying that India’s potential rate of growth was bound to be lower than, say, China’s. They agreed that India could achieve much more than the 3% stopper-train growth rate that was the norm before reforms in 1991. But they gave warning that it could not keep up an express-train speed of close to 10% because its economic engine quickly overheats. Recent years have brought high ination, especially in food prices. Roads, ports and railways are overwhelmed, blackouts are common and labour has become as expensive as in China, even though the Chinese, on average, are three times richer. The Transport Corporation of India, a logistics rm, reported in May that every one of 17 important road routes was clogged. To drive the 1,380km from Delhi to Mumbai, for example, takes an average of nearly three days, an average of just 21km 1

2

How the BRICs stack up Selected economic indicators, 2011, % Indicator

Brazil

Russia

India

China

GDP growth

2.7

4.3

7.2

9.2

Inflation

6.6

8.4

8.6

5.4

Unemployment

6.0

6.5

9.8

4.0

Investment/GDP

20.6

23.2

34.4

48.3

Savings/GDP

18.4

28.6

31.6

51.0

Current-account balance/GDP

-2.1

5.5

-2.8

2.8

Budget balance/GDP

-2.6

1.6

-8.7

-1.2

Sources: IMF; Economist Intelligence Unit

The Economist September 29th 2012

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2 an hour. The rm says the delays are getting worse: the road net-

still cheerful. Sevantilal Shah, the boss of Venus Jewel, a big diawork is growing by 4% a year but trac by 11%. mond polisher and producer in Surat, says domestic sales are The railways are no better. Raising passenger fares is politiourishing. Anand Mahindra, of the Mahindra Group, says he cally impossible. When Dinesh Trivedi, then the railways miniscan’t imagine anything but an improvement on a dreadful year: ter, tried it in March, for the rst time in nine years, his party I remember that old watch ad, ‘takes a licking, keeps on ticking’, leader forced him out. To subsidise the fares, freight charges keep that’s what I hope we’ll say of India soon. being raised, pushing many goods o the tracks and into overEconomists are more cautious. At a meeting in April Raghloaded lorries on crowded roads. uram Rajan, an academic and former chief economist at the IMF Seen in that light, the slowdown in economic growth to who has just taken over as the government’s chief economic adabout 5% was almost welcome. We should not try to get back to viser, inveighed against the paralysis in growth-enhancing rethe highest growth path. India hurts when it is growing at 8.5%, forms and an unholy alliance of some businessmen and poliargues Cyrus Guzder, a Parsi businessman in Mumbai. His particians that blocks change. He said India had to raise fuel prices ticular worry is energy. India has a voracious appetite for energy rapidly, to be kinder to investors in order to attract capital, and and minerals, he suggests, but cannot dig, import or shift enough to become paranoid again about generating growth. At the coal to keep the lights on even though there are new power statime Mr Rajan had not yet been appointed to his new job, but the 1 tions, and in theory quite a lot of capacity. Nor have India’s politicians shown much appetite for reforms to improve matters. One obvious remedy would be to deregulate the distribution of coal, argues N.K. Singh, an MP from Bihar and economic adviser to the BJP-led governA ourishing Indian leather business ment of 1998-2004. The government could even break up or sell o Coal India, stores in India within ve years and also has ON THE FACE of it, Hidesign is a manufactura massive and badly run state monopoly. booming markets in Malaysia, Sri Lanka, ing failure. Its leather bags are stitched and Congress did free petrol prices in Russia and South Africa. He is amazed by glued by ranks of well-educated women in 2010, and over the years the rupee has how many customers in forgotten corners of blue saris on a shady factory oor. Most of been allowed to oat more freely, but reIndia want $100 bags. them have been working there for ten or 15 forms tend to be introduced only little by He sees manufacturing as essential to years. Each of them takes an average of 13 little. Some scarce goods are now sold by his brand, but the skilled workers he needs hours to make a bag which a Chinese worker auction, but only after years of scams. are getting hard to nd. Many of the daughcould produce in three. Yet their wages are Single-brand retailers, such as IKEA, have ters of his present sta are studying for jobs rising by 13-14% a year. been allowed in, and multi-brand ones in banking or IT. Finding capable shop manDilip Kapur, who founded the business look set to follow. But sustained rapid agers, graphic designers and marketing and still runs it, admits over a vegetarian growth would require a slew of big secpeople is harder still, he says: We have lunch in his garden that he tried and failed ond-round reforms, to include things like mountains of untrained labour but hardly to speed them up. Simpler designs and more land acquisition, labour laws and tax. anyone trained who can work independentrepetition got the time down to nine hours, Politicians naturally prefer to spend. ly. Even so, the rm is doing remarkably but since labour costs make up only a small Congress is fond of entitlement schemes well. India could do with many more like it. share of the total he was saving little and his such as NREGA, which promises 100 days workers got grumpy. Worst, he says, we lost of paid work a year for every rural housethe core strength, a product that spoke of hold. That, along with other new welfare uniqueness. I lost the ability to brand. measures, is helping some of India’s Instead he decided to raise quality. poorest people, lifting rural incomes and Sta are now rewarded for eciency in using boosting consumer markets, but probaleather (the costliest input) and run an bly also raising labour costs. internal market to sell ocuts. They calculate Surjit Bhalla, a Delhi-based econotheir own productivity and follow complicatmist, points out that spending on welfare ed spec sheets for a wide variety of designs. to relieve poverty now represents 2.5% of His workers’ skills, says Mr Kapur, serve a GDP. That is not a huge share, but it is risthriving manufacturing niche. ing fast: during Mr Singh’s rst governHe employs 3,000 people and expects ment it was just 1.6%. Mr Bhalla worries this to rise to 5,000 soon. Already he is the that this sort of spending does less to help largest private employer in Puducherry the poor than, say, the creation of produc(formerly Pondicherry), one of India’s tive jobs. wealthiest corners. Despite slower economic Fiscal policy is generally proigate. growth, consumers love his products. DoDiesel prices went up this month, but the mestic sales rose by nearly one-third last fuel remains massively subsidised, along year. Twelve years ago the company relied on with kerosene, fertiliser and food. sales to foreign distributors, mostly British, All this suggests that potential American and Australian, for 94% of its growth is nowhere near double digits but income. Today 70% of its revenues come close to what India has today, especially from 70-odd branded shops at home. given a weak global economy. Growth is shattering, India is exploBusinessmen, particularly those enMr Kapur’s bags of success sive, says Mr Kapur. He expects 200-300 joying buoyant consumer demand, are

On a hiding to something

The Economist September 29th 2012

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3

Something missing

Education

A billion brains

GDP by sector, % 100 Services

80 60

Industry Agriculture

40

A better education system calls for more than money

20

CLIP ON A harness, lift your legs and hurtle down a wire towards the sharp corners of a 15th-century Rajasthani fort. As you whizz, you might have a few niggling doubts. Was the zipwire serviced by someone who knew what he was doing? Is the safety adviser any good? Who is trained in rst aid? Fortunately the sta in Neemrana, a tourist spot some 130km south-west of Delhi, are on the ball. Raj Kumar, the lead instructor of Flying Fox, has an impressive (if not entirely relevant) qualication as a Master of Philosophy in ancient Indian history. I had planned to do my PhD, but this opportunity came along, he says. The outt’s British owner-manager, Jonathan Walter, explains that getting and keeping reliable workers is his greatest headache. The problem is not so much the onerous labour laws but nding skilled people. To deal with foreigners his sta need good English; for Indian customers they need social skills to cajole the reluctant into the walk up the hill. There is plenty of anecdotal evidence that skilled workers are becoming scarce. The man in charge of building a university, also in Neemrana, says he had extreme diculty recruiting the ten types of masons he needed to work on his campus. A manag- 1

0 1951 55

60

65

70

75

80

85

90

95 2000 05

12

Fiscal years ending March Source: CEIC

2 prime minister was at his sideand clapped. In private, most se-

nior ocials say something similar. Sadly Mr Rajan, like his aable and clever predecessor, Kaushik Basu, lacks political clout. Mr Basu remains an optimist on the economy, contrasting it with the late 1980s when the country felt like a warmer outpost of Soviet thinking. He is particularly pleased that India has persistently high national savings and investment which in his view can be sustained, despite some recent slippage. So he reckons that the country will return to a high growth rate, near 9%, once the current uncertainty and urgent scal problems are dealt with. He puts faith in the expanding young, urban and literate population and in new technology. As for the rotten bits of the economy, the state-run rms, thankfully they account for only 14% of GDP (against about a third in China).

A hole in the middle Yet optimists need to address another problem: the structure of employment, which is very dierent from that in most East and South-East Asians economies. Agriculture still employs roughly half of all working Indians, many of whom are much less productive than they might be. And the service sector already makes up 59% of GDP (see chart 3) and is still growing rapidly. In particular, IT and outsourcing companies such as TCS and HCL are performing well, despite global worries. The missing middle is industry and manufacturing, of the sort that thrives in China and drives exports. More factories could provide more jobs for the 13m people that join India’s workforce every year, many still poorly educated. Manufacturing makes up just 15% of the economy, much the same as in the 1960s. More than other sectors, it suers from India’s entrenched bureaucracy and wretched infrastructure. Indian labour costs are high and laws are restrictive. As Chinese wages rise, countries such as Bangladesh are well placed to pick up business, but India is not. When rms persuade unions to allow contract labour to increase exibility, workers can end up getting paid different rates for the same job. At a Maruti factory near Delhi this summer, that led to clashes which left an HR manager dead. Manufacturers also complain about the high cost of credit in India. This may ease a bit as ination subsides, allowing interest rates to come down. A weaker rupee will make the country more attractive as a base for exporters. And its own booming markets oer a growing incentive for manufacturers to overcome their problems. India’s carmakers, by and large, have done well (though Tata’s Nano, a cheap small car, is not yet the triumph it was billed as). But there seems no prospect of a big leap in Indian manufacturing in the near future. And if services are to keep expanding, the country needs huge quantities of skilled labour that will not be easy to come by. 7 8

Your country needs you The Economist September 29th 2012

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2 er overseeing hotel construction near Del-

vertising English medium schools, com4 A vital test hi’s airport says good plumbers, carpenputer-training colleges, tutors and manGross school enrolment rates, 2010 or latest, % ters and electricians are like gold-dust. agement schools. In newspaper marriage A survey by the Royal Institution of ads, prospective grooms and brides often Secondary Tertiary Chartered Surveyors estimates that in mention their qualications before their 0 20 40 60 80 100 120 2010 India had just over 500,000 civil enage, looks or caste. Brazil gineers when it needed nearly 4m, and By one estimate, 40% of Indian stu45,000 architects when it needed dents now make some use of private eduOECD 366,000. It predicts that by 2020 the cumcationeither private school or topulative shortfall of core professionals inping-up by tutors. A survey in 2011 by Russia volved in the building trade could be in Credit Suisse suggested Indians typically the tens of millions. spend 7.5% of their income on education, China The shortages extend far beyond the more than Chinese, Russians or BrazilIndia construction industry. The editor of a new ians. Education is seen as a quick route to magazine, The Caravan, says nding prosperity. A senior government econoSource: World Bank skilled sta is next to impossible because mist worries that parents almost spend local education is extremely bad. A too much. manufacturer moans that even if you nd capable sta, they On a morning in a poor quarter of east Delhi, Khajuri Khas, quickly it o to the next job. that eagerness is evident. In one small school, Ebyon, 200 chilEven some low-skilled labour is in short supply. An agent in dren sit rapt before young women teachers in a series of small, Chandigarh for an engineering company says that sales of tracill-lit rooms each morning. Then they move to a nearby state tors, rice transplanters and harvesters are booming in Punjab beschool for the afternoon, enjoying a free midday meal, books cause fewer casual labourers are migrating from Bihar. Even and some other help. poorer farmers now buy machines to share. Parents like Ebyon because it is cheap (80-150 rupees a Generally, though, the shortage is of people who are litermonth) and well run. The headmistress, K.H. Alice, is bright and ate, trained and ready to work. The basics are improving. The nabrisk. A migrant from Manipur, like many of her students, she intional literacy rate is up from 52% in 1991 to 74%, according to the volves parents, even illiterate ones. The rude and troublesome, census. But gains beyond that are coming far too slowly. paan spitters, are turned away. And she keeps records: case There is no lack of interest in education, or willingness to studies of why some students ourish and others do not. pay. Small towns display garish murals or uttering notices adSchools and Teachers Innovating for Results (STIR), an NGO, is now gathering such examples of good teaching habits to share elsewhere. Spreading good ideas could do more to transform schools than simply scattering money around, argues the In 2010 group’s founder, Sharath Jeevan. India had Some 500,000 of India’s 1.4m schools, with around 300m students, are private. They gather in lots of funds from anxious just over parents. But the public sector gets plenty of money too. A mid500,000 day-meal scheme set up here and there decades ago to get poor children into school each day is now running nationwide, at a civil cost of about 120 billion rupees a year. Better nutrition should engineers mean more concentration and better results. Some 97% of school-age children enroll, though over half when it drop out before completing secondary school. The quality of needed teaching is variable; sometimes teachers do not even turn up for lessons. There is plenty of rote learning, discrimination against nearly 4m, low-caste children, grade ination and sometimes ogging. and 45,000 Some teachers accept bribes from students in return for exam passes. One private school in east Delhi has CCTV cameras in evarchitects ery class which allow the headmaster to monitor his teachers. when it To improve matters, training is crucial. N.K. Singh, the MP from Bihar, thinks the country needs to recruit 4m new teachers needed and to retrain 8m. The government seems to have recognised the 366,000 problem, setting aside about $11 billion for education this year (three-quarters for schools, the rest for universities), an 18% rise on last year. A new law, the Right to Education act, is designed to lift school results by setting minimum standards for school buildings, playing elds, student-teacher ratios and the like. That could raise quality, but may mean more bureaucracy, too. It also requires every private school to reserve 25% of its places for poor locals. Critics say fees for the rest will rise or standards will fall. But the best schools are getting on with it. To make India more competitive, though, the biggest gains in education must come after school: in vocational and higher education. Quantity is not the issue. The OECD predicts that by 1

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2 the end of this decade India will churn out more graduates than

any other country bar China, giving it 24m graduates aged between 25 and 34, some 12% of the world’s total. India’s ocial count of higher-education institutions, both private and public, is nearly 26,500, the world’s biggest country total. The number of students currently enrolled is 15m, or nearly 14% of the age group. The government is pushing to increase enrolment to 30% of the age group by the end of this decade. Ernst &Young, a professional-services rm, says this would involve a rise in the number of students to 40m, at a cost of around $200 billion. But funds are likely to be forthcoming. However, the quality is often wretched. A lot of private education is useless, sighs a noted economist. Many management colleges do little teaching but lure applicants with promises of getting them jobs when they have graduated. Too many people end up with worthless qualications.

Found wanting Education in engineering, for example, supposedly a great Indian strength, is not what it might be. The country produces over 500,000 engineering graduates a year. Aspiring Minds, a Gurgaon-based company that assesses students’ employability, surveyed 55,000 of them last year and found that not even 3% were ready to be taken on by IT rms without extra training. And even identifying people for further training might not be easy. According to the survey only 17% of the graduates had basic skills. Some 92% of the graduates were decient in programming or algorithms, 78% struggled in English and 56% lacked analytical skills. There is a long way to go before engineering graduates in India become employable, the survey concluded. That sounds glumuntil you realise that it also means India produces around 100,000 engineering graduates a year who could soon be working in its IT rms and beyond. Some pockets of higher education work well, notably the publicly run institutes of technology and of management, on the back of which the country’s IT sector ourishes. Some private groups, such as the NIIT, a computer-education company, also produce reasonable graduates. The next push is to expand their work into other sectors, such as nance, banking and insurance, says Rajendra Pawar, the NIIT’s founder. He says his group has trained over 30m people in technology. Over the next decade he wants to educate 7m more for industries such as hospitality, health care, the retail trade and banking. Public funds are also being deployed to lift skills. The government is pouring money into a National Skill Development Fund, allotting 10 billion rupees to it for this year alone. The fund is meant to help train 62m workers in courses of varying lengths over the next decade. So far, however, it has struggled to nd enough credible partners to spend its money well. Meanwhile private money is ooding into tertiary education. Several tycoons, rather than leaving their entire fortunes to their children, have endowed universities such as the OP Jindal University (named after a steel family), the Azim Premji University (after the founder of Wipro) and the Shiv Nadar University (after the founder of HCL). They are paying higher salaries for good faculty, luring Indian academics from foreign universities and encouraging research as well as teaching. Mr Pawar’s group is now building a university to promote research that will be immediately useful to business. The leafy campus in Neemrana is rising up beside a maze of Japanese factories. Part of a planned knowledge corridor of new universities in Rajasthan, it oers teaching as well as research into biofuels, biotechnology, wireless networking and more. Soon the campus will also provide space for start-up rms. It may not be San Francisco yet, but it is a step in the right direction. 7 10

Cities

Concrete jungles A mainly rural country is ill-prepared for its coming urban boom SAVDA GHEVRA IS a township of narrow, poorly built brick houses with beaten tin doors, west of Delhi. Flies swirl over open sewers. In the absence of piped water, 55 tankers bring in supplies daily. Only a minority of homes, pukka ones, have toilets. A few trees have been planted, but overall the feel is little better than that of a shanty town. In theory, Savda Ghevra represents progressof a minimal, unsatisfactory sort. The area was set aside for some of the estimated 500,000 slum-dwellers displaced when Delhi hosted the 2010 Commonwealth games: sh-sellers from beside the stinking Yamuna river, tailors, rickshaw-wallahs and hawkers who saw their shacks attened. Some were taken to Savda Ghevra, given plots and told to build. Now they have homes and electricity, but many families have been split: the father sleeping somewhere back in Delhi, the rest of the family in the new home. Some have sold their plots, illegally, to dodgy property traders. A corner house is for sale at a scarcely believable 2.7m rupees. India’s cities, by and large, are charmless and badly put together. That is one reason why the country remains mostly rural (see chart 5). Two-thirds of the population, some 833m, are living in 640,000 villages. Politicians such as A.P.J. Abdul Kalam, a former Indian president, or Narendra Modi, Gujarat’s chief minister (who talks of rurban life), want people to stay out of cities, and would like the internet, electricity, schools and jobs to go to rural areas instead. Since rural voters collectively have clout, much public spending ows to the sticks. Farmers get subsidised diesel to run pumps. The NREGA scheme creates low-paid make-work jobs. The government also pays inated prices for most wheat and rice, then sells much of it back to villagers as cheap rations. That discourages migration, and in many states it also encourages corruption. An ocial estimates that 44% of state-managed food vanishes as leakage. Some states, such as Kerala and Tamil Nadu, have good public services and social indicators despite slow urbanisation, but resisting it also comes at a price. Village life is often hard for 1

5

The slow road to the city India’s population, bn F O R E C A S T

Urban Rural

1.8 1.5 1.2 0.9 0.6 0.3

1960 65 70 75 80 85 90 95 2000 05 10 15 20 25 30 35 40 45 50

0

Sources: World Bank; UN Population Division

The Economist September 29th 2012

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Gurgaon looks good, but do the drains work? 2 people of low caste, women and members of religious or other

Already 53 cities have at least 1m inhabitants. Some are seeing improvements, but many are grim and badly run. Gorakhpur is a sprawling city near the Nepalese border in eastern Uttar Pradesh, notorious for thuggish religious politics, gangsters and smugglers. It has 670,000 inhabitants, poor public health and a broken and clogged road system. A cricket eld on the city’s edge is so thickly strewn with rubbish you can hardly see the ground beneath. Cows munch on plastic bags in the streets. India is ill-equipped to make such places attractive drivers of growth and better living. I see no improvement in thinking about cities, says a senior gure in construction and retailing. Much land is privately held, but markets are opaque and development too often depends on cronies with political connections. Mumbai is especially bad. Property in the city has run riot, says Mr Guzder, the Parsi businessman. Towers shoot up, especially around the Sea Link, a bridge connecting the southern part of the city to the north. But we have no urban infrastructure, no widening of roads, no provision of police. Prithviraj Chavan, the chief minister of Maharashtra, blames the city’s woes on a deep nexus of property and political funding. Municipalities also need planning skills. Mr Guzder says the entire Mumbai metropolitan region is overseen by a single town planner (and she is retiring soon). Mr Revi estimates that by 2031 India will be short of 100,000 professionalsplanners, engineers and the liketo manage cities. He heads a new university that will train people to ll the gap.

minorities. Villages are usually the places with the worst schools and health care and the least productive work. Putting o urbanisation can also mean postponing prosperity. When farmers leave the land to work in factories, call centres or almost anywhere else, their incomes and consumption almost always go up, lifting assorted development indicators. In China just over half the population is now urban. Aromar Revi, director of the Indian Institute for Human Settlements (IIHS), says that India’s 100 biggest cities, with 16% of its total population, contribute 43% of its national income. Even slum-dwellers are often productive manufacturers and traders. Yet many urban spaces, like Savda Ghevra, have a leg- India’s 100 biggest cities, with 16% of its total popacy of poor planning and management. ulation, contribute 43% of its national income. Even Gurgaon, a business district near Delhi, has plenty of glass towers but falls slum-dwellers are often productive short on sewerage and power supplies and is only slowly acquiring public transport. Gridlocked MumSome rich folk are trying to get round the problem by startbai can appear to be falling to bits, especially in heavy rains. ing a city from scratch. Called Lavasa, it is now being built on The number of town-dwellers, currently 377m, is growing 25,000 acres of hilly private land by a reservoir near Pune in Maby around 5m a year. Historically most urban growth has been harashtra. It looks pleasant enough: a town to walk in, good indue to natural increase, not migration. That is changing as counfrastructure, a sanctuary for 300,000 inhabitants. But it is mired try-dwellers see opportunities. So in future India’s urban popuin controversy and hardly oers an urban model for one-sixth of lation will rise much faster, doubling by mid-century. the planet’s population. Some urban centres will become megacities. According to What it takes one vision, India’s entire western seaboard could turn into a single conurbation, stretching from Ahmedabad in Gujarat in the A far more encouraging example can be found farther up north, past Mumbai and south to Thiruvananthapuram in Kerathe coast. Surat, a city in Gujarat of 4.5m people, is a ourishing la. Inland, Delhi and its environs could be a hub for 60m-70m trading hub that not long ago was a wretched dump like Gorakhpeople, provided there is enough water. Within two decades Inpur. In 1994, after a reported (but never conrmed) outbreak of dia will probably have six cities considerably bigger than New pneumonic plague, it became famous for squalor, gridlock, York, each with at least 10m people: Ahmedabad, Bangalore, Delslums and rotten management. Since then it has been transhi, Mumbai, Hyderabad and Chennai. formed. Eective managers cleaned up. Rubbish was collected Delhi gets plenty of public money, and even Japanese doand transport improved, streets were swept and public services nor funds, which have helped pay for a newish metro. Several delivered. Miraculously, the improvements were sustained. other cities, including Bangalore and Ahmedabad, are also getSome 96% of residents pay their municipal taxes on time. Manoj ting metros. Any big metropolis can tap a central fund, the JawaKumar Das, who now runs the city, says that over the past deharlal Nehru National Urban Renewal Mission, for new infracade the growth in Surat’s population averaged 5% a year, among structure. But there is plenty of growth in smaller places too. the fastest of any city in the world. According to his planners, by 1 The Economist September 29th 2012

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2 2031 it could have 9.3m people, overtaking London.

It helps that the local economy is thriving, with diamond polishing, textiles and petrol products doing particularly well. The boss of a diamond rm says his home town has been reshaped and feels great. Investors like its reliable power, trac that ows and the can-do culture of Surtis. Even the grimier end of town is uplifting. On a sweltering monsoon day the lack of smell, ies, dust or noise at the municipal dump is strangely thrilling. It is eciently run by private contractors, a model that other cities could copy tomorrow. Even the rubbish is being put to work: soon about 1,200 tonnes will be burned daily in German-built incinerators. The city’s sewage works are similarly impressive: ecient, computerised and run largely on electricity from a biomass plant red by methane. Over 90% of households are said to be connected to sewerage. The municipal engineer says the entire city has clean piped drinking water. Slums are being cleared and parks being created by the river. Next on the list is a rapid bus transport system, more yovers and a Bollywood theme park modelled on Disneyland. There are posh car showrooms, and retailers like Jimmy Choo, Burberry, Armani and Gucci are due to open soon. What made Surat work? An assortment of businessmen, the boss of a jewellers’ association, the local chamber of commerce and a prominent city journalist all give the same answer: governance. When residents felt able to trust ocials and their plans, they happily contributed to the city’s success. This year rms planted 200,000 trees to help make the place greener. Mr Das says given the right motivation and belief in ocials, others cities are capable of similar improvements. For instance, many people in Patna, Bihar’s capital and his home town, are now connected to the grid. When he was a boy, he had to study by lantern light. 7

India abroad

No frills The country’s foreign policy is frugal, sober and generally sensible DOWNTOWN YANGON, MYANMAR’S once-shuttered main city, is home to a large Indian diaspora. Many turned out to hear a speech from India’s prime minister during his rst visit in May. Keep a place in your hearts for India, Manmohan Singh implored a gathering of businesspeople. Nothing Mr Singh does is electrifying. The same day he turned a historic meeting with Aung San Suu Kyi, the democracy activist, into a stilted and awkward aair. His talk of a cross-border bus service, and mutual trade worth $5 billion by 2015, set few hearts racing. A group of resident Bengalis in a hardware shop, buying materials for a goat cage, shrugged when they heard that Mr Singh was in town. That he got to Myanmar at all was an achievement, even if he came long after nimbler leaders from Britain, Bangladesh, South Korea and elsewhere. The machine that guides India abroad is slow and cautious. We run a no-frills policy, concedes a senior ocial. We’re not trying to cut a grand gure abroad, it’s a realist approach. Put less kindly, India is still punching well below its weight 12

in foreign aairs. Shashi Tharoor, a Congressman from Kerala and one-time under-secretary-general at the United Nations, thinks India is trying to do more but is devoting far too few resources to achieving its foreign-policy goals. The country’s economy is more closely enmeshed with the rest of the world than ever. Foreign trade is now equivalent to 43% of GDP, against just 16% two decades ago. By last year India’s two-way trade was worth a total of $794 billion. In March SIPRI, a Swedish think-tank, ranked the country as the largest single importer of weapons, with a 10% share of the world’s total. Long a recipient of aid, the country is fast becoming a donor, dishing out aid and soft loans worth billions of dollars every year. It also has a growing appetite for energy, mineral, commercial and other interests in Africa, Central Asia and elsewhere. And it is an enthusiastic joiner of international groups.

On a shoestring All this speaks of rising ambitions, even if most foreign-affairs experts wisely eschew any talk of an incipient superpower. But the means are limited. Mr Tharoor notes that the foreign service has only about 800 diplomats, less than a fth of China’s and roughly the same as tiny Singapore’s (see chart 6). Overstretch is evident: a single ocial in Delhi has to liaise with 19 Latin American ambassadors, says Mr Tharoor. There are few people to handle dicult cross-regional topics such as water resources or climate change, and few linguists uent in tongues helpful beyond Asia. Dynamic Indian rms establish themselves in new markets without government help, but they grumble that rivals, notably state-owned Chinese ones, enjoy cheap credit and diplomatic backing. India’s state is a 65-year-old who has fat in all the wrong places, concludes C. Raja Mohan, a foreign-aairs expert. It has too few border guards, customs ocials, diplomats and soldiers, but far too many pen-pushers in the coal and steel ministries. After decades of facing inwards, Indian universities, think-tanks and commentators are only just beginning to show an interest in foreign matters beyond Pakistan, so as yet there is only a small corps of experts outside government to help advise policymakers. Pointlessly strict secrecy rules lock up ocial foreign-aairs documents for good. Some even wonder how much of a grip the national government in Delhi is able to keep on foreign policy. Regional satraps who bully Mr Singh on domestic issues have also caused sudden foreign-policy reversals. Last year Mamata Banerjee, West Bengal’s chief minister, scuppered an Indian water-sharing deal struck with Bangladesh. In spring this year a Tamil ally of Mr Singh’s government helped to get India to vote against Sri Lanka at the UN over war 6 Diplomacy lite crimes, reversing its policy. Size of diplomatic corps Even so, India’s star is risLatest, ’000 Population per ing abroad. Sensibly, its goals diplomat, ’000 are limited: to ensure that its 0 2 4 6 8 foreign relations serve its big United 20 16 transformation at home. That States 12 Germany goes down better with its foreign partners than its sermonis10 France ing of old. Its three main con10 Britain cerns today are America, China 23 Japan and its immediate region. 321 China Relations with America 162 Brazil have thrived ever since a civil 1,341 India nuclear deal agreed with 6 Singapore George W. Bush seven years Source: Shashi Tharoor ago. Cultural ties via India’s The Economist September 29th 2012

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2 diaspora in America help, as do stronger trade links. The two

countries also share the experience of running big, expensive, religious, materialistic and messy democracies in which central governments are constrained by powerful states. America is now one of India’s biggest weapons suppliers. Mr Mohan points to defence orders worth $10 billion for C130 and C17 aircraft, missiles and more, and says another $10 billion is lined up. Last year America failed to sell India a big consignment of ghter jets, but that caused only a temporary ripple of bilateral irritation. Close co-operation in counterterrorism, marine exercises and anti-piracy eorts continues. The two powers’ interests are converging. India, temporarily on the UN security council, has voted three times with America against Iran over that country’s nuclear programme (though it has been cagey over Syria). The two collaborate in Afghanistan, where India is a big civilian donor. Crucially, America is increasingly adopting India’s stance against extremist groups based on Pakistani territory. Awkward issues of old, such as who should run Kashmir, no longer get aired. India wants America to preserve its ties to Pakistan, since no one else, certainly not China, would help moderate Pakistani behaviour. But American ties with India will get more important, though there will be no formal treaty. And India will increasingly engage with the West. One big reason is its second concern: China’s rise. The two Asian powers are developing closer ties, notably in trade. But they also vie with each other. A China expert in India’s foreign ministry says that bilateral trade, worth just $2.9 billion in 2000, should pass $100 billion in 2015. But he explains with equal enthusiasm that India has made rapid gains in domestic military mobility. A decade ago it took two months to move several army divisions to defensive positions on a disputed border in the north-east; now, thanks to better roads, it takes just two weeks. In Myanmar, and elsewhere in the region, the two Asian giants compete for inuence and energy supplies. At the same time India is wary of China’s ability to make trouble, for example over Tibet and the Dalai Lama (who lives in India). And disputes continue along the still unxed India-China border, the site of a humiliating frontier war 50 years ago that India lost. India wants a stronger military deterrent. In April it testred a home-built long-range nuclear-capable missile, the Agni-V, which in theory could strike China’s big cities. And it is putting more soldiers and aircraft at permanent forward bases along the border. Farther east, too, India is forging links with democracies and those already close to America. Ties with Australia will improve as it looks poised to announce that it will sell uranium for India’s domestic nuclear plants. India has become modestly active in oil exploration in the South China Sea. And it is a big recipient of aid and investment from Japan.

Just in case Last, and long overdue, India is doing more to improve relations in its region. Mr Singh says he is ready to visit his own birthplace in Pakistani Punjab if only Pakistan would do more to stop terrorists who attack India, or at least to agree to India’s requests for more open trade. India is also trying to boost trade by building better border infrastructure and loosening non-tari barriers. This month the countries’ foreign ministers at last signed a deal easing their bilateral visa regime. Though still poorly resourced, India’s foreign aairs seem better run than they have been for a long time. Gone are the days when Indian leaders abroad somehow managed to appear arrogant, moralising and ineectual all at the same time. India’s policy may lack frills, but at least it has a clear purpose. 7 The Economist September 29th 2012

The tragedy of the commons

An uphill walk As Indians get richer and better educated, they need to become more public-spirited HIKING IN KASHMIR, in the Himalayan foothills, is a joy. Ravishing views of glacial lakes, snowy peaks and immense green valleys make it easy to see why Kashmiris, other Indians and Pakistanis have long vied to control this pristine territory. Unlike much of India, it oers the luxury of open, sparsely inhabited space. The air is still, cool and clean. Butteries seek out alpine owers. An occasional bird of prey swoops by. But over a few weeks each summer, thousands of Indian soldiers ascend zigzagging paths into a series of valleys near the line of control dividing India and Pakistan. They daub rocks with instructionsSlow and steady, Respect natureand the names of their battalions. Marksmen in nests of sandbags look out for militants. Red communications wires snake up clisides and around waterfalls. On every ridge soldiers are on guard. At stops along a 32km path that at the peak reaches a height of 4,500m, workers set up kitchens producing noodles, fried food, sugary tea and stodgy sweets. Goat-herders and villagers work as porters and guides, raising temporary tent cities. Then the annual invasion begins. Well over 600,000 Hindu pilgrims follow a yatra, a tough walk over several days to a cave containing a phallus-shaped piece of ice, or lingam. The Amarnath cave is revered as one of the most sacred sites in India. Barefooted and bedraggled yatris oer a picture of conviviality. Cheery city boys and middle-aged men with pot bellies race ahead, then slump, happily exhausted. This year 93 yatris died en route, most of them ill-prepared for the high altitude, exhaustion and exposure to bad weather. In the past there have sometimes been terrorist attacks, or threats have been so serious that the pilgrimage has been called o. The yatris’ devotion is remarkable, but they feel no com- 1 13

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2 punction about leaving some ugly marks on the landscape. The

approach to the ice cave crosses a glacier-turned-rubbish-dump, strewn with plastic, paper, tins, drinks cartons and mounds of waste half buried in the ice. Local men hired to gather litter along the way simply hurl their bags into the glacial stream below. Near the ice cave the valley is so crowded with shacks, stalls, ponies and yatris that it has the despoiled air of a refugee camp, with paths of mud and excrement. The valley is lled with acrid smoke from damp, smouldering piles of part-burned rubbish. Helicopters buzz above, whisking the wealthy and unt to the sacred spot.

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quickly than, say, China has Offer to readers done. But instilling respect for Reprints of this special report are available. common goods seems particuA minimum order of five copies is required. larly hard. The reasons may inPlease contact: Jill Kaletha at Foster Printing clude culture (a history of dividTel +00(1) 219 879 9144 e-mail: [email protected] ing people by caste), religion (for the faithful, the here and now is Corporate offer unimportant) and a sense of faCorporate orders of 100 copies or more are talism; or, more directly, the available. We also offer a customisation pressures of an overwhelmservice. Please contact us to discuss your requirements. ingly huge population. Tel +44 (0)20 7576 8148 Small failures of considere-mail: [email protected] ation for others are ubiquitous: For more information on how to order special drivers who race through red reports, reprints or any copyright queries lights, often causing crashes; you may have, please contact: crowds that barge on and o The Rights and Syndication Department trains, elbows ying. And de26 Red Lion Square London WC1R 4HQ spite the indignant rage about Tel +44 (0)20 7576 8148 corruption, paying or accepting Fax +44 (0)20 7576 8492 bribes is considered normal, e-mail: [email protected] and so is tax avoidance. www.economist.com/rights Given how common such Future special reports failures are, it may be dicult to The world economy October 13th get anyone to worry about a Information technology and geography particular example, such as enOctober 27th France November 10th vironmental despoliation. That Mexico November 24th people generally respond with Previous special reports and a list of good humour is a tremendous forthcoming ones can be found online: asset for the country. But with it economist.com/specialreports often comes an attitude that it is up to others to tackle the problems. People have a tendency to want the government to x things. This is true everywhere, but we carry it to a ne art. We have no sense of individual responsibility, notes Mr Pachauri. Altruism is thin on the ground. For example, Indians rank among the world’s least generous organ donors; and outrageously wealthy tycoons are only slowly discovering philanthropy. Yet that may change, too. For all that Indians are accused of fatalism, they are also increasingly ready to turf out politicians who have disappointed them. There have been street protests against corruption and innovative ideas for ghting it, such as providing websites where people can post details of bribes they have paid. When a crisis eruptsbe it environmental, terrorist, economic, politicalboth leaders and ordinary people in India draw on values such as tolerance and openness that do their country credit. A favourite word in India these days is jugaad, meaning a spirit of innovating and making do. The next ve years are likely to be messy, and the high expectations of recent

Years of insecurity and underdevelopment in Kashmir ironically served as a sort of nature conservancy scheme, leaving the place in good physical shape, melting glaciers aside. But now that military action has receded, each summer brings a bumper crop of tourists. Both last year and this, Kashmir got over 1m visitors. The once serene lake in Srinagar, the capital, is crowded with youngsters on jetskis. The mountain roads are clogged with straining, overloaded lorries. The valley is seeing a construction boom. Kashmir is slowly becoming more like the rest of India: wealthier, more peaceful but also gradually more despoiled. In much of the country the consequences of that process look devastating. A report in 1997 by a Delhi-based think-tank, The Energy and Resources Institute (TERI), gave stern warning that 50 years of rapid population growth had led to dire environmental prospects. Forest stocks were down. Air pollution plagued 90% of villagers (who breathed smoke while cooking) and around a third of urban dwellers. Soil degradation had cut farm output way below potential. Other woes included water shortages, pollutants in rivers and a dramatic fall in groundwater levels. Fifteen years on, matters are worse. Rajendra Pachauri, who heads TERI (as well as the Intergovernmental Panel on Climate Change), says he is certainly more concerned than he was at the time. Forests are a bit better protected and public transport in some cities has improved. Delhi’s air got cleaner for a decade after buses and autorickshaws switched to liquid gas in 1999. But the winter smog that bedevilled the city in the 1990s is now back. Along with Beijing it is one of the most polluted cities on earth. The river Ganges is considered sacred by Hindus, many of whom bathe in it. Yet tanneries, paper mills and other industrial users dump waste and chemicals in it, farmers allow pesticides and fertilisers to slosh in and the human waste from burgeoning cities goes in largely untreated. Groups such as WWF run projects It is depressingly common to litter and out with local governments to tackle the dam- environmental rules if you can get away with it age, but such eorts are too rare. Fast-growing economies with few rules often run into problems of this sort. But in India, especially years may need to be toned down. in the north, few people seem to have much of a sense of shared But eventually India has to move beyond jugaad. Robust ownership of public spaces or obligation to the natural world success will come only when standards rise, with better quality around them. It is depressingly common to litter, extend private in everything from homes and cities to schooling and sporting property by encroaching on public land and out safety and enachievements (pitifully low, apart from cricket). That requires vironmental rules if you can get away with it. It is a tragedy of functioning institutions, more responsible individuals and leadthe commons, laments Mr Pachauri. Everyone feels it is someers who dare to take decisions. Ordinary Indians will gradually body else’s job. start to contribute. More of them will refuse bribes, pay their taxWith luck, this will change as Indians become richer and es, create wealth as entrepreneurs and take better care of the enbetter educated. A ourishing democracy may respond more vironment. It will be a messy transition, but a welcome one. 7 14

The Economist September 29th 2012