India Transformed

by Rakesh Mohan

  INDIA

  TRANSFORMED

  25 Years of Economic Reforms

  edited by

  RAKESH MOHAN

  Brookings Institution Press

  Washington, D.C.

  Copyright © 2018

  Brookings Institution India Center

  THE BROOKINGS INSTITUTION

  1775 Massachusetts Avenue, N.W., Washington, D.C. 20036

  www.brookings.edu

  All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the Brookings Institution Press.

  The Brookings Institution is a private nonprofit organization devoted to research, education, and publication on important issues of domestic and foreign policy. Its principal purpose is to bring the highest quality independent research and analysis to bear on current and emerging policy problems. Interpretations or conclusions in Brookings publications should be understood to be solely those of the authors.

  Library of Congress Cataloging-in-Publication data are available.

  ISBN 978-0-8157-3661-5 (paper)

  ISBN 978-0-8157-3662-2 (ebook)

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  Contents

  Preface

  Foreword by Strobe Talbott

  I.     Introduction

  1.    The Road to the 1991 Industrial Policy Reforms and Beyond: A Personalized Narrative from the Trenches

  Rakesh Mohan

  II.   The Big Picture: Past, Present and Future

  2.    India’s 1991 Reforms: A Retrospective Overview

  Montek Singh Ahluwalia

  3.    Remembering 1991 … and Before

  Omkar Goswami

  4.    The Political Economy of Reforms: The Art of the Possible

  T.N. Ninan

  5.    India’s Entry into the Global Economy

  Martin Wolf

  6.    Trade-policy Reform in India Since 1991

  Harsha Vardhana Singh

  III.  Foreign and Security Policy for a Resurgent India

  7.    Foreign Policy in the Wake of Economic Reforms: New Options and Friends

  Shivshankar Menon

  8.    Navigating the Post–Cold War Landscape: India’s Rise in a Contested Geopolitical Space

  Shyam Saran

  9.    Security and Sovereignty in an Open Economy: New Thinking after 1991

  Sanjaya Baru

  IV.  Changing Contours of Indian Governance

  10.  India’s Governance Challenges: Why Institutions Matter

  Sarwar Lateef

  11.  Changing Colours of Government–Business Relations

  Tarun Das

  12.  Union–State Relations and Reforms

  Y. Venugopal Reddy

  13.  Energizing the States

  Laveesh Bhandari

  V.   The Parts of the Whole: Sectoral Developments

  14.  25 Years of Policy Tinkering in Agriculture

  Ashok Gulati, Shweta Saini

  15.  Indian Manufacturing Industry: On the Path to Global Leadership

  Baba Kalyani

  16.  Political Economy of Petroleum Sector Deregulation

  Vikram Singh Mehta

  17.  India Evolving: Infrastructure since 1991

  Jessica Seddon, N.K. Singh

  18.  Infrastructure: Hopefully a Renewed Opportunity for the Private Sector

  Vinayak Chatterjee

  VI.  Human Development: Miles to Go

  19.  Liberalization sans Liberalism: The Control Raj and the Perils of Ideology and Rents in Higher Education

  Devesh Kapur

  20.  Healthcare in India: A Fork in the Road

  Nachiket Mor, Diva Dhar, Sandhya Venkateswaran

  VII. The Financial Sector: An Opportunity for Innovation and Growth

  21.  Reforms and the Transformation of the Monetary and Banking Sectors

  C. Rangarajan

  22.  Liberalizing Indian Capital Markets: Highly Successful Reforms and an Unfinished Agenda

  Jaimini Bhagwati

  23.  Institution-building in the Financial Sector: The HDFC Experience

  Deepak Parekh

  VIII. Indian Business: Launched on a New Trajectory

  24.  Changes and Challenges: Corporate India since 1991

  Omkar Goswami

  25.  Animal Spirits : Stray Thoughts on the Nature of Entrepreneurship in India’s Business Families after Liberalization

  Gita Piramal

  26.  India’s National Innovation System: Transformed or Half-formed?

  Naushad Forbes

  27.  Consumer India’s Journey from Zero to Hero

  Rama Bijapurkar

  28.  Building a Global-scale Corporate in India

  Mukesh D. Ambani

  29.  Rise of the New Entrepreneurial Classes and the Emergence of a High-growth Economy

  Sunil Bharti Mittal

  30.  Liberalization and a Tale of Two Companies: Open the Cage and Let the Birds Fly

  R. Gopalakrishnan

  31.  25 Years of Reforms that Led India’s Pharmaceutical and Biotech Industry towards Global Leadership

  Kiran Mazumdar-Shaw

  32.  The Impact of the 1991 Economic Reforms on Indian Businesses

  Narayana Murthy

  Notes

  Contributors

  Index

  Preface

  This book should have been published in 2016 when the country completed twenty-five years of economic reforms. That was our intention, but it was clearly too ambitious to expect success in producing such a book within eight months of the inception of the idea. But, better late than never.

  I have been fortunate to have had the opportunity to serve the Government of India in a host of different capacities throughout the reform period from 1991 until late 2015. For a professional economist, nothing can be more exciting and gratifying than being part of a policy process that sets a country on a sustainable growth path that lasts over a long period. India has already grown at an average annual rate of around 6.5 per cent for almost thirty-five years. This was a significant acceleration over the anaemic rate of 3–3.5 per cent over the previous thirty-five years. We can hope that such a process will continue and even accelerate to the next stage at near 10 per cent over the next quarter century and beyond. As documented by the World Bank’s growth commission, since 1950, only thirteen countries have exhibited annual growth rates of 7 per cent or more for a period of twenty-five years or longer. India hasn’t quite joined this exclusive group but it must be our collective endeavour to do so in the coming years. That is the challenge facing the next generation of economic strategy, reform processes and performance.

  This is therefore a good time to chronicle the kind of change that the country has experienced over this past quarter century. In some areas the change has been truly transformative, while in others, much more could have been done, particularly in the areas of health, education and agriculture. What reforms were carried out and how do they affect the country? What were our expectations in 1991? What has been achieved, and what not? And, where do we go from here? These are the kind of questions that we set out to address as we started work on this book.

  Through my thirty years being in and around the government, I have had the good fortune of being associated in different ways with each of the remarkable individuals who have contributed to this book. I have called upon our bonds of friendship to persuade each of these busy individuals to reflect on their experience as they have transformed themselves, their respec
tive organizations and their country over these twenty-five years. This book brings together thirty technocratic leaders who have participated in this exciting project of nation-building since the early 1990s. This group includes some of the key policymakers and advisers, academics, industry leaders, opinion makers and commentators. Each of them has made key contributions over this period to bring India where it is today. They have worked in their respective fields consistently, and retained their credibility and commitment across a succession of diverse governments of different political persuasions. They have displayed professionalism of the highest order in their respective areas of operations.

  My greatest debt of gratitude goes to each of these impressive individuals who, in their folly, agreed to engage and commit their time to contributing to this collection. Given the many different pursuits that they are engaged in, it has been an act of considerable generosity to submit to the tortuous process that goes into the publication of any book. Each of them submitted to the various revisions that I subjected them to, somewhat cheerfully, and then to the professional editing process that followed.

  Hence, my heartfelt appreciation for this act of friendship expressed by each of the contributors.

  Vikram Mehta, in his role as chairman of Brookings India, must shoulder the blame for setting me on this task. As I returned to India in late 2015, after serving as executive director of the International Monetary Fund (IMF), he asked me to babysit Brookings India in early 2016 as he hunted for a full-time successor to Subir Gokarn who had led Brookings India from its inception in 2013, and who had to leave to succeed me at the IMF. As I took up my position in Brookings India, he thought I should also do something more substantive. He came up with the idea that Brookings India should do something to commemorate twenty-five years of reforms. Foolishly, I agreed readily. Then ensued a number of discussions of what this task would entail; and the idea of this collection emerged. My sincere thanks to Vikram for setting me up for doing this and then providing unstinting support, both personally and institutionally. This included active prodding of some recalcitrant authors.

  I have received consistent support from Nitika Mehta, the head of development and communications, and Shruti Gakhar, the development and communications officer at Brookings India, throughout the fifteen months or so that this project has taken. Nitika was instrumental in convincing Penguin Random House to publish this volume; how she did so remains a mystery to me since it agreed to do so even before there was any content available. Shruti has been diligently keeping track of each draft article at every stage and has kept all communications with both authors and the editors in good order. Together, they have been the chief interlocutors with the publishers and authors. Along with the publishers, they are also responsible for managing the communications strategy for promotion of the book. My sincere thanks for their consistent and devoted diligence to these tasks which have been far beyond their normal calls of duty at Brookings.

  My academic home is now at the Jackson Institute for Global Affairs at Yale University. Most of the work on this volume was done over the 2016–17 academic year at Yale. My sincere thanks go to Jim Levinsohn, the director of the Jackson Institute, for inviting me back to teach at Yale. The quiet, salubrious and supportive environment at the institute was very helpful in getting this task done. As it happens, the finishing touches to my last book were also done at the Jackson Institute in Yale in 2010.

  The team at Penguin Random House, led by Meru Gokhale, has been remarkable in the kind of support they have provided which has involved interaction with thirty-two authors. They have been consistently patient and cooperative. Anushree Kaushal has led the editorial team, supported by Rachita Raj and Shanuj V.C.; and Preeti Chaturvedi has led the promotion efforts for the book. My gratitude to all at Penguin who have made this book possible.

  I also owe a debt of gratitude to the time and effort that Ritu Vajpeyi-Mohan has devoted to educating me in the art of bookmaking and promotion.

  After he took over at Brookings India as executive director, Harsha Vardhana Singh has provided continual encouragement for this enterprise, apart from making his own path-breaking contribution on trade. My sincere thanks.

  Finally, I must thank Strobe Talbott for his support as president of Brookings in Washington, and specifically for agreeing to contribute his perspective—from a distance—on India’s transformation.

  My family has been almost oblivious to the work that I have been doing on this book! But my intensive engagement in policymaking over the past quarter century and frequent intercontinental movement between India and the United States over the past five years, would not have been possible without their collective forbearance, active support, tolerance and inspiration. My wife, Rasika, has been a tower of strength, especially in the last few years of extreme trial and tribulation, providing me with great cheerfulness, the environment of peace and tranquillity that is essential for undertaking such an endeavour. Tarini, my daughter, inspires us all with her continuing battle against adversity; and Rasesh, my son, gives us consistent support without compromising his own professional goals. His equanimity in the face of many competing professional and personal demands is a lesson on how to keep focus on the essentials.

  I dedicate this book to my family: Rasika, Tarini and Rasesh.

  Foreword

  Strobe Talbott

  This timely, authoritative and policy-relevant volume sheds light on India’s dramatic changes over the past quarter century. That transformation has not only been a boon to the people of India, it has also contributed to the progress of the human enterprise as a whole. The world’s largest democracy is a major player on the world stage. It is certainly viewed and valued that way by my own country, the United States of America.

  The economic and commercial dimension of India’s evolution is, of course, crucial. Hence, the focus of submissions in the pages that follow is political economy, financial development, trade and globalization, technology and innovation, agricultural and industrial development, and the interaction between the private and public sectors. The contributors include some of the original designers and implementers of the reform process, along with the prominent business leaders who have been the most successful builders of the economy.

  There is also, thanks to the inclusion of wisdom from Shivshankar Menon, Shyam Saran and Sanjaya Baru, due attention paid to India’s foreign and security policy.

  Over the course of the last half-century, I have had numerous opportunities to watch India’s evolution, first from the vantage point of a student of international relations and then for two decades as a journalist. During my eight years in government during the 1990s, I also had a chance to participate in the effort by the Indian and the US governments to put the bilateral relationship on a sounder—indeed, a transformed—footing than had been the case in the first four decades after Indian Independence. Dennis Kux captured the perception on both sides of that star-crossed backstory in the subtitle of his 1992 book, India and the United States: Estranged Democracies.1

  What stymied a robust bond between these two countries? After all, both had wrested their independence from British rule while adopting and adapting many of the features of British constitutional governance (minus, of course, the monarchy).

  The key factor, I’ve always believed, was the Cold War.

  It was approximately at the midpoint of that global schism that I first visited India forty-two years ago. I owe that enriching and informative experience to a glitch in my career as a Sovietologist.

  In those days, I was a reporter for Time magazine concentrating on East–West relations and was assigned to the State Department beat. This often meant whirling around the world, coping with what seemed like a permanent case of jetlag, trying to keep up with the then secretary of state Henry Kissinger.

  In October 1974, Kissinger embarked on a seven-nation diplomatic tour starting with Moscow. The Kremlin was eager to welcome the secretary of state as the personification of continu
ity in the US policy of détente, in the wake of Richard Nixon’s resignation and Gerald Ford’s ascension to the presidency. The Soviets, however, were not about to extend their hospitality to me. I was persona non grata because of my role in translating and editing Nikita Khrushchev’s memoirs. The material for the two volumes was surreptitiously recorded and spirited out of the country while he was under virtual house arrest, since his ouster from the leadership ten years before. The second volume, published earlier in 1974, particularly irked Foreign Minister Andrei Gromyko, who sent a message to Kissinger’s plane over the Atlantic, denying me a visa.2

  After I was unceremoniously dropped off in Copenhagen during a fuelling stop, I hopscotched to New Delhi, which would be Kissinger’s second stop after Moscow.

  On the personal front, my several days of free time were immensely gratifying. I made friendships that lasted for decades. I also came to know Ambassador Daniel Patrick Moynihan (whose desk officer at the State Department was none other than Dennis Kux). Moynihan’s wife, Elizabeth, took me under her wing and drove me out to—where else?—the Taj Mahal, where she was already deeply into studying the Mughal gardens.

  In the course of numerous interviews and briefings I had in New Delhi while Kissinger was still in Moscow, I was struck by the deep-rooted and long-simmering tensions in the official relations between the US and Indian governments. These went back to the 1950s, when India’s role as a founder of the Non-Aligned Movement (NAM) put it at odds with America’s self-assigned leadership of the Free World (a phrase also capitalized in those days). In the aftermath of independence from the Raj, Indian leaders were wary of another Western power claiming a sphere of influence on which the sun would never set. From the official American perspective, India’s purchase of MiGs for its air force and adoption of Soviet-inspired Five-Year Plans led policymakers such as Secretary of State John Foster Dulles to question whose side this giant Asian country was really on.

  Even before Henry Kissinger made his first official visit to India, he had already attracted the eye of Prime Minister Indira Gandhi. She was still bristling over the Nixon administration’s refusal, three years before, to support India’s intervention in the Bangladesh Liberation War. The columnist Jack Anderson publicized leaked government documents that exposed Kissinger’s critical sentiments about India and, in particular, Mrs Gandhi.3