Capital: The Eruption of Delhi

Two 1991

I’m very proud to be an Indian. When I was a kid and people would ask me where I was from I would be embarrassed to say I was from India. But something changed in the nineties. Now I’m very proud to say I’m from here. In those days there was nothing, you know, and the place was so dirty. Now we have BMWs on the streets. By the time I’m fifty it will really have arrived. My kids’ generation will really see it. Everything is happening, people have so much energy. It’s all happening here.

— Indira, jewellery designer

On 24 July 1991, Manmohan Singh, India’s new finance minister, announced in his budget speech that his nation would henceforth embrace the principles of open markets and free enterprise. Life changed immediately, even in its most basic elements. A new landscape appeared: as one person remarked to me, “Before that I had never seen the colour pink.”

It could be said that India’s departure from the centrally planned, closed-economy orthodoxy that had prevailed since Independence was slow in coming. After all, India’s traditional exemplar, the Soviet Union, had already passed into history. A free-market doctrine — the ‘Washington Consensus’ — had gripped the world’s power centres for the entire previous decade, leading to the — frequently forcible — conversion of much of Latin America and Africa. Even within India, free-market advocates — among them Manmohan Singh himself, who was a respected economist — had been pushing since the 1970s for state controls to be relaxed. But such appeals, seen as ‘pro-business’ and ‘anti-populist’, had always proved politically unviable, and even those pro-market concessions that were implemented before 1991 were usually rolled back in the approach to elections. The fact was that any politician who came out and said that the so-called ‘Socialist’ system did not work implied, thereby, that he or she was disloyal to the sacred legacy of the nation’s founding father, Jawaharlal Nehru.

Like Manmohan Singh half a century later, Nehru had studied at Cambridge University — as, too, did his opposite numbers in the independence struggle: the king-emperor George VI and the viceroy, Lord Mountbatten (Nehru was the only one of these three to complete his degree). Having gone to Harrow before Cambridge, Nehru had lived in England from 1905 until the end of his undergraduate studies in 1912, and he was in nearly every respect more like the British rulers whose eviction he superintended than the 350 million people he then undertook to govern. But his vision for the society he would build in India was radically different from that of the departing British. What had inspired him at Cambridge was not the British empire’s laissez-faireism but the social engineering of its Fabian Socialist intellectuals. He disliked the excessive luxury of Britain’s landed aristocrats, industrialists and bankers, and felt they had no place in the modern republic. He wanted to rid India not only of British rule but also of the economic system with which, he felt, Britain had pauperised India, whose per capita income had not increased at all between 1757 and 1947.²

Nor was this Nehru’s private view alone. The independence movement owed its origins in part to a 1901 book — Poverty and Un-British Rule in India — whose detailed analysis of India’s economic flows found that the principle cause of its contemporary poverty was the enormous drain exerted on Indian wealth during the British era — wealth that had accounted as recently as the seventeenth century for a spectacular 25 per cent of global GDP. The book’s author, Dadabhai Naoroji, was no hot-headed amateur. Writer, publisher and professor at both Bombay University and University College London, Naoroji was also a wealthy and successful cotton merchant who became the first Indian magnate to set up his own British subsidiary. Beyond all this, Naoroji set up one of the first associations devoted to the advancement of the status and interests of the Indian peoples. Drawn increasingly into politics, he served as prime minister of Baroda and, later, as Liberal member of parliament for Finsbury Central: as the first Indian to be elected to the British parliament, he was able to express in London’s power establishment his analysis of the injustices of imperial rule both in India and Ireland. By the time Nehru returned from Cambridge, Naoroji too was back in India and serving for the third time as president of the Indian National Congress — the political vehicle for India’s eventual independence campaign, and the foundation of the post-Independence Congress Party, which dominated the country’s democracy until the 1970s — which Nehru would himself later head.

A decade after Nehru’s return to India, as his political career began, he was enraptured by the news of the Bolshevik revolution — and within the independence movement he was the most vocal and articulate of those who argued for a centrally planned economy. Nehru was a modern, and he was filled with that modern dream of the total society, in which injustice, inequality and indeed all of human beings’ baser drives would be defeated by the perfect nation system. His 1927 visit to the USSR, where he attended the tenth anniversary celebrations of the revolution, filled him with hope and excitement. The book he later wrote about this visit overflows with awe at the Soviet achievement: the industry, the art, the high-minded bureaucrats — the enterprise so majestic that even its failures were difficult to judge too harshly. In Russia, Nehru did not — or could not — see the luxurious few lording it over the miserable many. The image he brought away with him was that of Mikhail Kalinin, chairman of the Central Executive Committee — and head of state — wearing peasant clothes and receiving a salary that was barely more than that of a worker. “Russia thus interests us,” he wrote, “because it may help us to find some solution for the great problems which face the world today. It interests us specially because conditions there have not been, and are not even now, very dissimilar to conditions in India. Both are vast agricultural countries with only the beginning of industrialisation, and both have to face poverty and illiteracy. If Russia finds a satisfactory solution for these, our work in India is made easier.”³

As prime minister of India, then, Nehru embarked on a bold experiment — one whose incongruities would hold together only while he, with his unique aura, was around to ensure it. On the one hand, incredibly, he made this largely feudal country instantly and indiscriminately democratic. The constitution granted universal suffrage to adult citizens, despite the fact that only 12 per cent of them could read, and contrary to a widespread feeling that it was dangerous — and unnecessary — to give the country’s fate away to people so ignorant of democracy that it would never occur to them even to ask for it. Nehru and his colleagues in the Constituent Assembly, which drafted the constitution, were in this respect liberals of affecting conviction who unhesitatingly gave guarantees to the justice, equality and liberty of all citizens and to the freedom of the press. The fact that this gamble — of democracy and stable liberal institutions — paid off and endured is deservedly seen as an extraordinary legacy of India’s founding politicians, and it is has secured for Nehru himself a posthumous aura of quasi-divine rectitude and foresight.

On the other hand, Nehru felt, having studied the rapid industrial development of Japan and the Soviet Union, that only the state would be able to drive economic expansion fast enough to realise his fledgling nation’s epic dreams — and he instituted a centrally planned economy inspired by that of the USSR. India’s growth and modernisation would be achieved through a series of Five-year Plans which would harness the nation’s resources into coordinated forward thrusts. These Plans reached their height of intellectual rigour with the Second Plan, conceived by a man named Prasanta Chandra Mahalanobis, who had previously founded the Indian Statistical Institute and who combined just the attributes guaranteed to endear him to Nehru: a learned appreciation of big systems, a degree in physics from Cambridge, and a love of ancient Indian philosophy. On his appointment to the Planning Commission, Mahalanobis visited England, the USA, France and the USSR to discuss with the world’s leading statisticians and economists the question of how state investment could best reach the sectors that needed it, at the appropriate time and in the appropriate quantity, in order to ensure holistic long-term growth.

In Mahalanobis’ conception, the essential strategic industries — such as oil and gas, atomic energy, defence, aircraft, iron and steel, electricity generation and transmission, heavy electricals, telecommunications, coal and strategic minerals — were the exclusive preserve of the state, while both state and private enterprises could operate within a second category — which included chemicals, pharmaceuticals, fertilisers, pulp and paper, and road transport. The remaining industries — such as consumer goods — were open to private companies. Private enterprise was subject to intense controls, however: businesses could not introduce new products, set up a new plant, fire workers or make major investments without acquiring specific government licenses. It was a highly restrictive regime but it turned out to be a rewarding one for established interests, and Indian big business was not generally opposed to it. Those big business houses that escaped nationalisation were kept under the watchful eye of the Congress Party; in return for their docility they were given cosy access to commercial licenses, which kept competition away and ensured high profits even when, as was often the case, their actual products were of terrible quality. (The defectiveness of Indian material life in those years, perversely, became over time a further justification for the system, since if markets were open then foreign companies would flood India with products of diabolical perfection and Indian companies would be annihilated in their own land.)

But Nehru was not greatly preoccupied by the quality of consumer products. He was drawn to the monumental. He loved to be photographed with large dams, which produced two other essential developmental forces — electricity and irrigation — and for which he entertained exalted feelings: at the dedication to the nation of the vast Bhakra dam, he called it — for he was not only a modern but a secularist — “the new temple of resurgent India”. The three great steel plants built during those years were also close to his heart, for they demonstrated India’s ability to harness its own mineral resources and produce a vital industrial asset without outside assistance. He was eager for India to boast great institutions of research and higher learning: he showered money on the Cambridge-educated theoretical physicist Homi Bhabha, who set up two high-level research institutes — the Tata Institute of Fundamental Research and the Atomic Energy Establishment, Trombay — and he established the lavish Indian Institute of Technology and Indian Institute of Management networks to cultivate home-grown leaders for a technocratic future.

These institutions, in fact, would continue to play a critical role into our own century, for they turned out many of the men and women responsible not only for India’s technology boom but indeed, since a large number of them ended up in Silicon Valley, for America’s. But in general Nehru’s vision of how the economy might flourish was less enduring than his vision of political life. As it turned out, the complexity of actual economic processes proved too great for even such gifted planners as his: the second Five-year Plan was abandoned because its theories broke down in the face of unexpected real-world developments such as foreign currency shortages and inflation. By the time of Nehru’s death in 1964, and the end of the third Five-year Plan, the promise of the early years was looking remote: many sectors of the economy had been choked by regulatory restrictions and lack of capital, and the country was suffering severe agricultural shortages. Nehru left behind a thwarted economy, whose resuscitation was the subject of furious debates for nearly three decades thereafter.

Part of the reason these debates were so drawn out, however, was that Nehru’s conception of India continued to enjoy an almost theological prestige, even as the economic system withered on which it was, to a great extent, based. It was a lofty, brahminical conception, which disdained money-making and worldly vanity; private enterprise, and the buying and selling of consumer products — especially luxury goods — were seen as vulgar and granted little freedom or respect within the nation’s life. The nation itself was the proper object of aspiration, and the closed economy was a sort of injunction, too, against too much dwelling on the outside world. As Nehru’s own cosmopolitanism ebbed away in the years following his death, there entered into Indian life a particular, self-involved texture as the wider world gradually became, even for the educated and affluent, more remote and prohibited. During the 1970s and much of the 1980s, for instance, foreign travel by private citizens, while technically allowed, was difficult even for the few who could afford an air ticket, because of the severe restrictions placed on currency exchange. An international phone call had to be booked a day in advance. Very few foreign companies could invest in Indian firms or set up Indian operations of their own, and imports of foreign products were largely banned.

Over time, such repression gave rise to strange fantasies about the outside, which, like prisoners’ dreams, were enervating and ambiguous. On the one hand, there was a great frisson about everything international: those who did travel abroad during that period, for instance, were a tribe apart, and whole towns turned up at airports to welcome them home with garlands, and to glimpse the radios and perfumes they brought back from other lands. But, at the same time, there were genuine fears of the evil that foreign countries could do, and the barriers that protected India’s innocence could seem powerfully reassuring. Thinking back on long periods of insidious foreign rule, India maintained a paranoia about the possibilities of foreign infiltration and corruption — Pakistan and the CIA, for instance, were supernaturally present as agents of ill-luck in Indian life.

Perhaps it may be understood from all of this why India could not contemplate the dismantling of its state controls and the embrace of global capital until there was simply no other choice — even though the Indian economy was conspicuously dysfunctional for decades, and even given the spectacular growth, during the 1970s and ’80s, of such neighbours as South Korea and Taiwan. The idea was simply too blasphemous. And yet, by July 1991 the prevailing system was in tatters and there was, indeed, no other choice. The Congress Party was discredited by scandal and rocked by the recent assassination of its leader, Rajiv Gandhi, who was Nehru’s grandson and a former prime minister — and the economy had reached a fatal crisis. Perennially unable to export enough to pay for what it imported, despite the old rhetoric of self-sufficiency, India’s foreign exchange reserves dropped in the middle of that year to just over half a billion dollars — enough to pay for about three weeks of essential imports. In order to get through the situation, the government negotiated an emergency loan of $2 billion from the International Monetary Fund. This loan came at a price. Pure gold, first of all: the government was forced to secure the loan by pledging sixty-seven tonnes of its gold reserves as collateral; forty-seven tonnes were airlifted immediately to the Bank of England and twenty to the Union Bank of Switzerland. The other condition of the loan was immediate free-market reforms.

Manmohan Singh had been appointed finance minister precisely because he had been calling for such reforms for many years, even when they were an anti-Indian taboo, and he seemed to be the person best equipped to implement them. What he announced in 1991, indeed, went far beyond the demands of the current crisis: it comprised a fully conceived system which had been developing in his mind since the 1960s, when he wrote his PhD thesis about foreign trade. This system heralded a new economic era to come and, as he made clear in his epochal budget speech, it could not be introduced too quickly: “Neither the Government nor the economy can live beyond its means year after year. The room for manoeuvre, to live on borrowed money or time, does not exist anymore. Any further postponement of macroeconomic adjustment, long overdue, would mean that the balance of payments situation, now exceedingly difficult, would become unmanageable and inflation, already high, would exceed limits of tolerance.”

Since this speech, the Indian economy has grown by as much as 10 per cent per annum, overtaking those of Canada and Russia to join the ten largest economies in the world. So it is striking in retrospect how cautious and apologetic Singh was in putting forward his system — a system which, from our position of hindsight, has the feeling of inevitability. He gave the strangest of performances, bending over backwards to his point: for though he laid out a clear plan for the deliberate and far-reaching destruction of the old economic regime, it was cushioned all around with paeans to socialism and to Nehru — as if the only viable way to present this departure was as continuity, even consummation. He seemed terribly anxious to suggest that his was a profoundly Indian project, and that ‘traditional’ attitudes towards the outside world would be preserved: he reiterated, for instance, the familiar abhorrence of the “mindless and heartless consumerism we have borrowed from the affluent societies of the West”. And at the end, having declared that India would now integrate with the global economy, he issued his battle cry — “we shall overcome” — a quotation from a familiar protest song from the old days which, while it might have reassured his audiences that values were intact, was totally incongruous in the context: against which oppressor was it now directed? But it was a speech that was all the more revealing for its muddlement: for if Singh’s metaphors were confusing in their present context it was because they were time-travelled from Nehru’s own. No orator himself, it was clear through his cadences that the finance minister was trying to assert fidelity to the nation’s great speech-maker:

. . as Victor Hugo once said, “no power on earth can stop an idea whose time has come”. I suggest to this august House that the emergence of India as a major economic power in the world happens to be one such idea. Let the whole world hear it loud and clear. India is now wide awake. We shall prevail. We shall overcome.

Singh’s implausible attempt to arouse here invoked Nehru’s announcement of Indian independence from the battlements of Delhi’s Red Fort. “At the stroke of the midnight hour,” he had declaimed as 15 August 1947 chimed in, “when the world sleeps, India will awake to life and freedom.” Since India had awoken so spectacularly in 1947 it was of course somewhat anti-climactic to announce, in 1991, that it was still awake, but you could see what he was trying to do.

For Singh’s anxiety about how to own up to this revolution was well-founded. Already there had been outrage that the nation’s gold had been flown to the vaults of the old colonial masters. And now there was widespread disquiet about the new strategy, and about the role of foreigners — the IMF — in its formulation. As the New York Times put it, “India, which still views itself as a socialist nonaligned leader, views [economic reforms] with pain, even embarrassment… This will be seen as a kind of interference with India’s autonomy.”⁴

In our era, when we have lost our sense of the global power of the Soviet-sponsored system — and indeed of the ‘non-aligned’ movement advocated, among others, by Nehru — we recognise only one kind of ‘globalisation’. It is difficult for us to imagine anymore, therefore, how a vast nation could have chosen to remove itself from this particular form of globalism, or to remember how dangerous and disloyal a prospect embracing it might have seemed only twenty years ago. India’s entry into the global system, like that of so many other countries around the same time, was not the smooth reversion to a natural state it is so often imagined to be in our now-seamless capitalist world (which has lost so much of its comprehension and empathy for variety and alternative). It was in many respects a humiliating defeat for everything on which the country’s greatness stood, and it generated a schizophrenic legacy. India ‘came into’ globalisation in the same sense as someone ‘comes into’ an inheritance: with a sense both of new economic possibility, and of crippling bereavement. Money would arrive; but everything exalted and nurturing was passing away, and nothing could replace it except a flood of baseness.