India (27 page)

Singh’s advantage was that his calm, technocratic manner meant no one perceived him as a political threat. He was an antidote to the comedic stereotype of the brash and irate Sikh. Some people even assumed, having known him in different incarnations, that he was a believer in the old socialist consensus. With his professorial manner—he had never learned how to drive a car—he was as far as it was possible to be from the classic, bombastic Indian politician. This did not mean he was weak. In the words of his colleague P. Chidambaram, a lawyer and former trade union leader from Tamil Nadu born a couple of years before independence: “He came with no political baggage at all. Few knew him except as an economic administrator, few thought that he had any sharp political views, he was acceptable to everybody. From day one Dr. Manmohan Singh simply took charge and said, ‘These things have to be done.’ ”
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The economic moves he proposed came very close to failing. He made it clear to the prime minister immediately that big structural changes were needed. He told the press in his quiet voice that he could offer nothing but blood, sweat and tears for three years. The deficit was so large that lenders were pulling out and India’s foreign exchange reserves had dipped below $1bn, which would cover around two weeks of essential imports like petroleum, without which the country would come to a halt. As the new government tried to put together a temporary solution, they were obliged to mortgage some of India’s gold reserves to the Bank of England, and even to physically transfer gold to other countries for sale. A Chinese businessman flew in to New Delhi and offered to extend a substantial loan, but his credentials were dubious and this was rejected.
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An emergency rescheduling deal was requested from the IMF and discussed in shuttle negotiations between London and Washington, which came near to collapse. A Western official involved in the talks told me later: “I really thought it might not come through, and India would default and join the basket cases of the world. It was a very tense time.”
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The deal was secured, although the IMF’s demands for reform were weaker than the changes Manmohan Singh finally made: within weeks he had devalued the rupee and moved to allow new foreign investment, cut tariffs and eliminate licences for small industries. He presented an emergency budget to Parliament, telling MPs that India could not continue to live beyond her means, and had the ability to emerge as a global economic power. Quoting Victor Hugo, he said that no power on earth can stop an idea whose time has come.

Singh presented a second budget, entrenching more serious reform, saying the nation would build “an India worthy of the dreams of the founding
fathers of our republic. We shall pay any price, bear any burden, make any sacrifice to realize those dreams. India is on the move again.” Responding to the speech, the constitutional lawyer Nani Palkhivala said the budget marked “a new chapter in India’s economic history. It was our ideological socialism which had been responsible for India remaining the twentieth poorest nation on earth … We must get rid of the illusion that we are still fighting the East India Company.” Somnath Chatterjee of the CPI(M), or Communist Party of India (Marxist), was having none of it: the Congress government would “go down in history as the one which has mortgaged our country to the imperialist financial marauders for some tainted lucre”—Indians were now slaves to “those agencies whose imperialist and capitalist design so far as the Third World countries are concerned is very well known … Pandit Jawaharlal Nehru has been given an indecent burial.”
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To be a technocrat is to wear an invisibility cloak. Despite his apolitical background (not being an elected Lok Sabha MP, he had to make do with the Rajya Sabha), Manmohan Singh was to emerge as a canny political operator. In 1998 he would negotiate an unlikely electoral alliance for Congress with the notoriously abrasive Kanshi Ram of the BSP.
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His unassuming manner and ability to defuse tension, and above all his reputation for being “clean,” enabled him to do things no other leader could have done. Together with Chidambaram in the commerce ministry, he reworked fiscal, economic and trade policy. When Congress MPs and even the prime minister, Rao, expressed doubt, he cleverly harnessed the legacy of the late, apotheosized Rajiv Gandhi, saying that reform was Rajivji’s wish. It was true that economic reforms had been included in the election manifesto in 1991, but very doubtful Rajiv Gandhi would have implemented them on this scale.

At first government revenues fell, but the reforms delivered growth, a 5–7 percent annual GDP rate, growing to 7–9 percent during the following decade. As the market deregulated, carefully positioned businesses managed to make huge sums of money, with much of it evading the tax system. Government borrowing remained high, and inflation rose to unexpected levels. Singh’s calculation was that although in the short term the benefits of growth were dangerously uneven, without them India would have no chance of raising the overall standard of living and be left in the position it had been in before, of redistributing poverty rather than redistributing wealth. Further reforms were needed but seemed politically impossible: the removal of unproductive subsidies in the power and agricultural sectors, a widening of the tax base, a culling of further unnecessary business
regulation, a simplification of foreign direct investment and a change in the law on industrial disputes, which prevented large companies from making anyone redundant without government authorization.

Manmohan Singh’s hopes in
India’s Export Trends
for a boom in the export of goods and services took time. India’s share of world exports grew, though slowly by comparison with China. New markets for textiles, jewellery, manufactured products, computer software and pharmaceuticals opened up, but it was not until his return to office in 2004, this time as prime minister, that trade really took off. Through the 1950s and 1960s, India’s export earnings had hovered between $1bn and $2bn a year; by the time of the economic reforms of 1991 they stood at $18bn; a decade later they had reached $45bn, and a decade after that they were heading for $200bn.
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In a Pew global-attitudes survey in 2009, 96 percent of Indians responded positively to the question: “What do you think about the growing trade and business ties between your country and other countries?”—the highest figure for any nation surveyed.
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India could sell to the world, even if the progress was gradual.

When Manmohan Singh became prime minister at Sonia Gandhi’s behest in 2004, his government’s lack of a majority limited his opportunity to make further reforms. The communist parties on whom he depended for votes would not back further liberalization, while L. K. Advani of the BJP said he was in power but not in authority, a puppet of the Gandhi family. This was to misunderstand the quality of his relationship with Sonia Gandhi. She might not know an endogenous growth model from a fiscal deficit, but she had strong intuition and accurate political instincts, keeping command of electoral manoeuvring while he got on with being prime minister, with Chidambaram as his reliable finance minister and Montek Singh Ahluwalia, a Sikh economist who had previously worked at the World Bank, running the Planning Commission.

India’s export trends, $bn

It was a careful, understated two-step, with Mrs. Gandhi always calling on the prime minister rather than the other way round, a reverse of the symbolic arrangement by which Congress leaders were required to pay obeisance at her residence, 10 Janpath. His style did not change when he took the premiership—to the consternation of officials, he continued to go home for lunch with his wife each day—but he moved rapidly to encourage growth and push forward infrastructure and rural development projects.

Spotting the global economic crisis some way off, Manmohan Singh raised spending in advance of a dip in an attempt to boost the economy during 2008–9. Working with the Reserve Bank of India, he made sure the Indian banking system was not exposed compared to that of other countries where banks were less strictly capitalized and regulated—a residual benefit of the controlled economy. His thinking on the stimulus was explicitly Keynesian, spending in advance to avoid greater calamity. Sanjaya Baru, his media adviser, recalled a flight to Mumbai with the prime minister in 2006, when he presented him with a draft speech. Singh glanced through it and wrote an extra paragraph: “If the rich had spent their new wealth on their own enjoyments, the world would long ago have found such a regime intolerable. But like bees they saved and accumulated, not less to the advantage of the whole community … the capitalist classes were allowed to call the best part of the cake theirs and were theoretically free to consume it, on the tacit underlying condition that they consumed very little of it in practice. The duty of ‘saving’ became nine-tenths of virtue and the growth of the cake the object of true religion.” This was a quote from Keynes’s
The Economic Consequences of the Peace
, perfectly remembered.
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Manmohan Singh preferred saving to consumption, and in the years after his 1991 reforms, India’s private savings had indeed grown along East Asian rather than American lines, with money stored for the future. At the close of 2009, the Reserve Bank of India bought 200 metric tonnes of gold from the IMF to diversify its assets. One financial analyst described this as “the biggest single central bank purchase that we know about for at least 30 years.”
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Like the Chinese, the Indians did not want to rely only on U.S. dollars or U.S. Treasury bonds at a time of economic flux. It was a dramatic turnaround from the anxious days of 1991, when gold bars had been sent
from Bombay to Switzerland in a desperate move to raise $600m. India’s foreign exchange reserves were now approaching $300bn.

Politics in India tends to be seen only in close focus. An outsider watching a television debate, with its cheerful shouting, cross-talking, references to “the creamy layer” (privileged people from minority communities who benefit from affirmative action) and frequent acronyms, might be left unaware what subject is under discussion. Indian politicians love intrigue and detail, and like to turn debates about policy into philosophical discussions, but they tend to avoid drawing back from the close focus to look at the wider picture. This is a problem around the world, but in India it can be acute. Like Nehru, Manmohan Singh had the ability to take a long view, and in 2005 he pursued a contentious nuclear deal with the United States, realizing it offered India an extraordinary and possibly unique opportunity. With Sonia Gandhi’s backing, he risked bringing down his government.

During the Cold War, U.S.–India relations had been tense, with the CIA running agents inside ministries in New Delhi to counter extensive Soviet infiltration, and Indian politicians busily attacking American hegemony.
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In 2000, Bill Clinton became the first U.S. president in more than twenty years to visit India. Except for a few minor politicians who engaged in a public fast at the Constitution Club, drinking only water and fruit juice while Uncle Sam was on Indian soil, the visit was a surprising popular and political success, with Clinton taking the chance to join in with a group of iridescent dancing women in Rajasthan.

Five years later, President George W. Bush offered to accept India as a nuclear weapons state and to share technology, all without India signing the Nuclear Non-Proliferation Treaty. This move was a rare example of a neoconservative dream becoming a reality. The U.S. ambassador, Robert Blackwill, had arrived in New Delhi shortly before 9/11 with little prior knowledge of the country and deduced that, as a large, diverse and vibrant functioning democracy, India would be the perfect ally for the United States in the twenty-first century, especially since Pakistan was no longer stable. He convinced Bush there should be a strategic shift, and that by building up India against China, Asia would not in the future be dominated by any single power. Both the U.S. Congress and Indian political leaders had understandable doubts about the proposal.

In a parliamentary debate in 2008 that was disrupted by MPs waving wads of cash which they claimed had been given to them to abstain from voting on a confidence motion, Manmohan Singh explained his belief that India needed energy security, and slapped down the opposition BJP for their
cynical refusal to back the deal, despite having done much to engineer a rapprochement with America when they were in government. Standing before Parliament, with his calm voice, trained white beard and pale blue turban, Singh told the MPs: “The nuclear agreement that we wish to negotiate will end India’s nuclear isolation, nuclear apartheid and enable us to take advantage of international trade in nuclear materials, technologies and equipment … Every day that I have been Prime Minister of India I have tried to remember that the first ten years of my life were spent in a village with no drinking water supply, no electricity, no hospital, no roads and nothing that we today associate with modern living. I had to walk miles to school, I had to study in the dim light of a kerosene oil lamp … my conscience is clear that on every day that I have occupied this high office, I have tried to fulfil the dream of that young boy from that distant village.”
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