Accidental India- Shankkar Aiyar

The book by Shankkar Aiyar narrates transformative changes that shaped India post Independence. Seven of them to be precise.

Shankkar Aiyar is a political economy analyst, columnist and author and his 1991 scoop on India pledging its gold reserves to the IMF drew international attention to the crisis in the economy, which consequently compelled liberalization.

The book, while discussing the transformative changes in India, is not however a breathless eulogy of giant leaps taken by a modern-soon-to-be-superpower India. Rather it’s a bare faced indictment of how India has always moved on ahead in fits and bursts, with our backs literally against the wall. 

The sneaking suspicion that the Country is directionless with no concrete ideology nor exalted vision to propel us?  Well. The book underscores the argument pretty well. We do appear rudderless.

The major transformative changes in India thus far has been, as the author puts it, purely accidental.

Either we got our arms twisted resulting in the  90s liberalisation. Or sometimes it was merely politicians being politicians when Indira Gandhi  nationalised banks to put the 'syndicate' in its place and show who’s boss.

In the Preface the author wonders why. Why does India attempt to change only when it teeters on the brink of catastrophe? Why do Indian leaders not anticipate adversity and act before being engulfed by catastrophe?

‘Are India’s failure to respond with alacrity to challenges dictated by the peculiarities of its culture? How true are theories about the slow rhythm of river-valley civilizations, bountiful geography and the somnolent climate to explain most Indians’ tolerance of the dysfunctions in their society?’

Aiyar finds resonance in a theory put forth by Daron Acemoğlu and James Robinson, authors of ‘Why Nations Fail’.

 ‘The destiny of a country, they said, is largely determined by its choice of political and economic systems. The countries that have succeeded chose inclusive politics and inclusive economics. Indian politicians -influenced less by pride and more by prejudice and paranoia-chose a combination of incompatible ideas. That is, inclusive politics and extractive economics. In other words, political freedom was granted and economic freedom denied.’

The seven transformative changes covered by Aiyyar are the 90s liberalisation, the Milk revolution, the Green Revolution, Mid day meal scheme, Nationalisation of banks, IT revolution and the RTI act 2005.   

Liberalisation of 1991

By 1991 India was already living much beyond her means. The overall deficit was 8.4 % of GDP. Close to 20% of expenditure went to paying interest and repaying debt.

More than Nehru, Indira Gandhi has been blamed by the author for the downward spiral of the Indian economy. With her leftist policies Indira Gandhi brought home to business the real power of the State. On 19 July 1969 the government nationalized fourteen major banks and brought them under state control. This in itself was not an unwelcome step, but Indira Gandhi did not stop there.

Under Indira, the Monopolies and Restrictive Trade Practices (MRTP) Act was enacted which monitored and controlled the expansion of business houses. The provisions of the MRTP were used to bring recalcitrant big business to heel. 

To appease powerful trade unions and win political brownie points, she further nationalised the coal industry, troubled textile mills and steel units. In 1973, Indira Gandhi also pushed through the Foreign Exchange Regulation Act (FERA). Under this Act, foreign companies were obliged to bring down their stake in Indian operations from 51 per cent to 40 per cent.

By the 80s, Rajiv Gandhi recognized that the Indian economy was in doldrums as did VP Singh. But they merely paid lip service. It was only Narasimha Rao who did something about it and the credit should go to him.  At least he did something. The dream team chosen by him delivered-Manmohan Singh, P Chidambaram, AN Verma and Rakesh Mohan.

Rao also instituted a steering group within the PMO which met every week to discuss and debate the architecture of what would eventually be defined as the liberalization of 1991.

But the fact is India had no choice but to institute reforms. The foreign exchange reserves had dried up to the point that India could barely finance three weeks worth of imports. With India’s foreign exchange reserves at $1.2 billion in January 1991 and depleted by half by June, barely enough to last for roughly 3 weeks of essential imports, India was only weeks way from defaulting on its external balance of payment obligations.

To secure an emergency loan of $2.2 billion from the IMF, India pledged 67 tons of India's gold reserves as collateral security. The RBI airlifted 47 tons of gold to the Bank of England and 20 tons of gold to the Union Bank of Switzerland to raise $600 million.

 A chartered plane ferried the precious cargo to London between 21 May and 31 May 1991, jolting the country out of an economic slumber.

The scoop by Aiyar who broke the story of gold being transshipped by stealth abroad enraged national sentiments and thus kick-started Rao’s economic reform process.

As per the author however, two decades later, the lessons of 1991 have scarcely been learnt. ‘The license-permit-quota raj has been replaced by the clearance raj. It takes between three to five years before the scissor meets the ribbon for any industry to start.’ ‘Industry accounted for 25 per cent of the GDP in 1991. Two decades later, it continued to lag at 27 per cent of the GDP in 2011. Employment in the organized sector in manufacturing-which was supposed to absorb surplus labour after liberalization-is, in 2012, stagnant at around 6 million, the same as it was in 1991.’

The Green Revolution

The historic roots of the endemic poverty in India has been nicely chronicled in the book.

The problem of poverty in India, the author says has its roots in the business model adopted by the Raj.

Just the statistics of famine in India gives an idea of how callous the Raj was. Between 1860 and 1909, famines struck various parts of India twenty-two times, claiming millions of lives. In 1897 alone, famine affected eight provinces which killed three million.

The East India Company, however, was unconcerned. ‘The recurrence of famine in India was a problem that did not exist. The Company’s sole objective was the maximization of revenue from the land, not the health of the colony. The profit it made was based on the rent it was able to extract from farmers. And as the rent itself was calculated not on actual produce but on an estimate of future harvests, it didn’t matter what the eventual production would be. This callous system paid scant attention to the welfare of farmers.’

‘In the early days of its tenure, the Company bartered goods imported from England for Indian spices, crafts and commodities which were then sold for a profit. However, once it had acquired the right to collect revenue, the Company converted the right to collect tax into a zero-capital, high-profit business model. It collected revenue and then used the same money to buy commodities to export to Europe. Or to put it differently, it took money from the farmers and then used a part of it to pay them for commodities. It was a brilliant business model from the Company’s point of view, but grievously exploited Indian farmers.’

One of the root causes of impoverished farmers in India has been on account of the ‘Zamindari’ system, prevalent in India during the time of Independence and indeed even today in various parts of the country.

Land in India, historically, belonged to local communities and the rights of those who worked their land was well understood. However the Mughals, and the British who followed them, altered this structure.

For ease of  collection of levies, the Mughals appointed favoured gentry to collect levies for them in return for the right to retain a fixed proportion of the levy as fee.

Over a period of time, as the Mughal Empire went into decline, and the rights of the farmers, thus far guaranteed by the monarch, were diluted and taken away from them.

Thus evolved the Zamindari system and farmers became tenants at the mercy of the Zamindars.

This system suited the British, and the Zamindars became the new aristocracy of the country.

Nehru was well aware of the plight of the farmers and was convinced that the Zamindari system had to abolished. The land system, he said, ‘cannot endure and an obvious step is to remove the intermediaries between the cultivator and the State. Cooperative or collective farming must follow’.

However removing the well entrenched Zamindars was complicated. Hence in spite of  introduction of Zamindari (Abolition) Act and bringing in constitutional amendments to this effect , nothing changed on ground.

The problem was that the Congress, through the struggle for independence, had carefully nurtured Zamindars as important cogs in the movement for freedom. ‘Typically, the basic unit was built at the local level with members of the dominant caste and the land-owning gentry making up the foundation of political mobilization. A collection of these units, from village to district to state, made up the national party pyramid in which every unit was intricately linked to the other by various alliances on issues and votes.’

The Zamindars turned out to be too powerful and could not be dislodged. Hence, the author says,’ barring Kerala and West Bengal, land reforms floundered everywhere else. The success of land reforms in Kerala and West Bengal is largely explained first by its acceptance by civil society and the influence of competitive socialism between the Left and the Congress.’

But Zamindari system was just part of the reasons for poverty in Inida. The other reason the author cites was the sub optimal allocation of funds for the agricultural sector on which 70% of the people depended for survival.

In the first  five year plan, Nehru made it clear that he wanted to build a nation that built world-class industries in metals, power and heavy machinery. He rejected the premise that endemic poverty required an absolute focus on agricultural development and placed his faith on a model in which import substitution and investment in heavy industry would lead to growth. Agriculture thus received a substantial allocation, but did not command the entire focus of government.

In the second five year plan, out of a total sum of 4,800 crore just 568 crore was allocated for agriculture and community development.

This inspite of India being a recipient  of food aid under PL 480 since 1954. Between 1955 and 1971, India received over 50 million tons of grain-almost half of all food grains given under the PL 480 programme.

By the end of 1956 it was clear that the template for agricultural revival was a failure. By the time the Third Plan was to be drafted in 1961, the nation was drifting and the Congress was in disarray.

In 1963, a study conducted by the Food and Agricultural Organization (FAO) stated that India was struggling to supply food to a rising population that had shot up from 361 million in 1951 to 438 million in 1961.

Notwithstanding the writing on the wall, it was not enough to propel Indira Gandhi to adopt course correction measures.  

By the 60s on account of  friction in relationship with America, the Lyndon B Johnson administration, which had promised 3.5 million tons of food aid, had placed all shipments under despatch control, shipping only just enough food every month which led to the coining of the term ‘ship to mouth’-a policy where food would be released just in time to reach consumers and couldn’t be stored or used as a buffer.

‘At one point in December 1966, Indira Gandhi had to personally call President Johnson to push for food aid. At the end of the conversation, she clenched her fist and angrily told C Subramaniam, (the Agricultural minister) who was present at the time, that she never wanted India to ever have to beg for food again.’

The humiliation inflicted by the US and the lessons of the 1962 and 1965 war finally brought home to politicians the imperative of food security.

C Subramaniam was the man behind the Green Revolution in India. Born in Senguttaipalayam, a small village near Pollachi in Tamil Nadu, Subramaniam graduated in physics from Presidency College and later took a degree in law. Soon after he graduated in 1930 and then plunged into the freedom movement.

Indira Gandhi backed Subramaniam on the revival of agriculture and thus began the Green revolution which refers to the period when agriculture in India changed to an industrial system due to the adoption of modern methods and technology such as high yielding variety (HYV) seeds, tractors, pump sets, etc

In 1967, as the first reports on that year’s harvest came in, they stunned the world. India had produced 17 million tons of wheat, 5 million tons more than the previous highest yield.

Even though India achieved food sufficiency on account of the Green revolution, crisis looms in the agricultural sector today.

Investment in agriculture dropped to barely 3 per cent of the GDP between 1980 and 2005. ‘Nearly two-thirds of farmers have no access to credit from banks and depend on moneylenders. The impact of neglect is most visible in its human aspect. India has the largest number of farmers committing suicide-between 2004 and 2010 over 120,000 farmers committed suicide.'

Nationalisation of Banks

On 19 July 1969, the Banking Companies Ordinance was promulgated by acting President V. V. Giri.

Ordinance 8 of 1969 transferred ownership of fourteen commercial banks to the State.These banks together controlled 70 per cent of the nation’s deposits.

However nationalisation of the 14 banks in 1969 took place when the Congress party was undergoing an internal crisis, marked by a bitter conflict between Indira Gandhi and the Syndicate, which ultimately led to its split in the same year.

 The syndicate led by K. Kamaraj, included Atulya Ghosh, member of parliament from West Bengal, Andhra Pradesh Chief Minister N. Sanjiva Reddy, S. Nijalingappa from Mysore and Srinivas Mallya from Mangalore.

‘Indira Gandhi, post the 1967 drubbing, began the conversion of the party-one in which, historically, decisions were arrived at after consultation-into an instrument of top down decision making. However, the syndicate was not giving up. She understood this as an attempt to clip her wings. Her retaliation began with the formation of the government. The composition of the 1967 cabinet, in many ways, set the tone for events to come. Indira Gandhi rewarded those who supported her with ministerial berths and used merit, experience and integrity as criteria where convenient. She virtually bypassed the organizational leadership.’

Bank nationalization may well have been born out of political necessity, as it sidelined the Syndicate and established the supremacy of Indira over the Congress party, but it paid dividends as far as the economy was concerned.

‘In 1969, after twenty-two years of independence, the Indian banking system had barely 6,900 bank branches. By 1979 India boasted 30,202 branches and by 1989 the number had increased to 57,699 branches. Between 1969 and 1989 the number of branches in rural India, in villages, shot up from 1,833 to 33,014. The average number of customers per branch, which was 63,000 in 1969, was down to 14,000 customers per branch in 1989.’

The Milk Revolution

The template for self sufficiency in milk had already been on display by the success of Verghese Kurien's Amul that he set up in the 50s.

Verghese Kurien was born on 26 November 1921 in Kozhikode, to a Syrian Christian family. He joined Loyola College, in Madras at the age of 14, graduating in science with physics in 1940, and then got a bachelor's degree in mechanical engineering from the College of Engineering, Guindy, Madras, in 1943.

‘Kurien won a scholarship to study dairy engineering at Michigan State University. But being the maverick that he was, when he got there he chose to study metal casting, metallurgy and nuclear engineering. Upon graduation, Kurien was recommended by the dean of his university for a job with Union Carbide. There was a hitch, though. When he signed up for the scholarship, he had committed to the Government of India that on returning he would serve the government in the Department of Dairy Development at the ministry of agriculture for five years. Kurien thought he would be able to sidestep this bond. He approached John Mathai and pointed out that since he didn’t study what he was sent for he was not qualified for dairy development. Mathai not only refused to help but said he would ensure that Kurien fulfilled his obligation to the government.

So here he was in Anand, armed with a thesis on the heredity in iron castings, a degree in metallurgy and a fascination for nuclear engineering, stuck with the responsibility of managing a milk creamery. Life on the professional and the personal front looked dismal. A Malayali Syrian Christian and a non-vegetarian, the place he found himself in was conservative, mostly Hindu, Gujarati-speaking and predominantly vegetarian.’

Amul owed its success to the institution of the Kaira Cooperative by Kurien and the way in which it empowered individual farmers. The Amul dairy was owned by the farmers, their elected representatives managed the cooperative, and Kurien, and everyone else, were employees and accountable to them. Almost all countries with developed dairy systems had followed the cooperative route.

But inspite of the Amul success, India was not following the cooperative route, inspite of Kurien personally meeting and impressing upon Nehru of the same. The result was that till late 1960s we were importing 70% of our milk requirement.

‘Milk production of 17 million metric tons (MMT) in 1950 rose to just 21.2 MMT after three Five Year Plans. In 1952, 74 per cent of the demand for milk and milk products was met through imports. In 1967, some fifteen years later, as much as 55 per cent of the demand was fulfilled by imports. The irony is that the government didn’t need to invent a plan, it just needed to follow the successful Kaira model engineered by Kurien. It did not.’

The death of Nehru was fortunate in a sense, because Lal Bahadur Shastri when he visited Amul sometime in 1965 realised how the idea of cooperatives can be emulated all over India.

He gave orders and wrote to all chief ministers to have the same set up in all the states.

But then there was no support for Kurien.

Kurien met chief minister after chief minister, many ministers for agriculture and sundry bureaucrats. The general response was cynical and negative.

The idea of self-sufficiency threatened the network of patronage fueled by imports. Moreover, as cooperatives would promote the cause of small and marginal farmers, politicians who were allied with large land-holding farmers were determined to scuttle the idea. Many in the state governments, while mouthing support for the idea, did their best to stall it.

No state was willing to provide the seed money to get the cooperatives functional.

But Kurien was of a different mould.

He said he did not want money from the states. And that the National Dairy Development Board that he set up would provide the money instead.

How he managed the money is an amazing story.

He approached the the European economic commission, which  had announced that they had surplus dairy products with them that they wished to donate.

He got in touch with them and got the milk powder and butter surplus stocks held with them at low rates.

He then sold them for a profit in Indian markets.

Then with the profit so generated he was able to generate funds to get the NDDB going and he created a national network of cooperatives in every state.

When Kurien came to Anand in 1949, India was producing around 17 million tons of milk every year. Between 1947 and 1968, milk output grew to barely 21.2 million tons.

After his launch of cooperatives-called operation flood-from 1970 to 1996, India’s milk production shot up from 31 million tons in 1981 to 54 million tons in 1991 and to over 66 million tons in 1996 at the culmination of Operation Flood-3.

Midday Meal Scheme

MG Ramachandran, who was instrumental in introducing mid day meal on a large scale in Tamil Nadu, ‘was born in Kandy in Sri Lanka to magistrate M. Gopala Menon and Satyabhama. MGR lost his father early. The family moved to Tamil Nadu where his mother was forced to find work with a drama company in Kumbakonam. When the drama company folded up, Satyabhama couldn’t feed MGR and his brother, M. G. Chakrapani, every day. She would often lock up the two brothers fearing they would take to begging to feed themselves. Satyabhama was MGR’s inspiration. She brought her children up in great hardship and was a strict disciplinarian. Her constant strictures to the two brothers were: don’t lie, don’t steal and don’t be abusive. MGR never forgot them. Throughout his film and political career he made sure that he was seen to be a man who valued these principles above all else. They won him a devoted following.'

Mid day meal scheme of MGR in Tamil Nadu  fed everyday at noon, over 6 million school children between the ages of two and fifteen in over 20,000 child welfare centres and over 35,000 schools across Tamil Nadu. The scheme would not only fund the feeding of millions of poor children, it would also provide employment to over 200,000 people who would cook for and feed the children. It was easily the largest employment-generating idea of its time.

Even the mid day meal scheme was however launched by MGR to reclaim political capital. In 1981, MGR was haunted by his failure to keep a promise he had made to the people. One of the biggest reasons for his victory in the elections of 1977 was the word he had given to the women of Tamil Nadu that he would free their men from the oppression of alcoholism.

‘He promised he would come down hard on arrack and toddy bootleggers, and while he did his best to deliver, he was fighting a losing battle. Prohibition required action against both bootleggers and drinkers. When their menfolk were arrested, the women often had to borrow money, even pawn family silver, to bail out the principal wage earner of the family. At public meetings, MGR was besieged by women who petitioned him for the release of the men incarcerated under prohibition. MGR realized he was being failed by the system. In June 1981, MGR admitted defeat and allowed the sale of arrack and toddy.’

The failure resulted in loss of face and political capital. MGR wondered how he could make good on the promise he had made to women voters, his biggest support base. It struck him that he must compensate the family, give back what seemed to have been taken away. The reparation, he decided, would be made to children through a mid-day meal scheme.

There was no disputing the impact it had on education, particularly enrolment. According to studies conducted two months after the scheme was launched, enrolment in primary schools across Tamil Nadu shot up-by one estimate 2 million additional children enrolled in schools-and truancy or absenteeism among students dropped by over 80 per cent.

But national mid day meal took a lot of time to take off. 
On 15 August 1995, thirteen years after Tamil Nadu had implemented its mid-day meal scheme, the Government of India followed suit. Its scheme, grandly christened the National Programme of Nutritional Support to Primary Education, aimed to boost the ‘universalization of primary education by increasing student enrolment, retention and attendance and simultaneously reduce malnutrition of students in primary classes’. Unfortunately, unlike the MGR initiative of 1982, the Centre’s programme was not ambitious enough as it was limited to students from Classes I-V only.

.

By 2010, the national mid-day meal scheme had led to a substantial increase in enrolment and attendance and a decrease in dropout rates in primary and secondary schools.

The IT revolution and the RTI Act of 2005 are the last two transformative changes that are covered by the author.

IT revolution has helped India grab nearly 67% of the current global IT market, provides employment to 2.5 million people and indirect employment to 8.3 million people.

The enactment of the RTI act has encouraged citizens, journalists and activists to question the state of affairs and government policies.  It has the power to promote accountability and can be used as tool to collect trustworthy information.

In the epilogue, Aiyar further dwells into the future shocks that the nation will be subject to if we do not anticipate and prepare ourselves for. These are Water, Energy, Poverty, Corruption, National Security and Centre-state relations.

The book is a fascinating read. Aiyar backs his narration with data and references and provides interesting titbits on the main charcaters and the compulsions faced by them.