Indian coal miners push a trolley laden with coal inside an underground tunnel of a mine at Godavarikhani, July 27, 2007. (Photo: NOAH SEELAM/AFP/Getty Images)

A scandal roiling India’s multi-billion dollar coal industry has made its way into the country’s parliament. A recent report by the Comptroller and Auditor General accuses the government of giving out coal mining contracts to certain organizations using questionable accounting practices. By the report, India has lost out on $34 billion it should have collected from the contracts.

While $34 billion is no insignificant sum, allegations of government corruption of this kind are nothing new in India. Plus many question the amount arrived at in the report, believing it to be significantly inflated. Nevertheless, India’s opposition party has taking advantage of the controversy to bring parliament to a standstill.

India’s opposition Bharatiya Janata Party (BJP) is trumping up the scandal as the latest example of the Congress-led government’s mismanagement, and has called for Prime Minister Manmohan Singh’s resignation. While experts feel this is unlikely to occur, BJP MPs have refused to conduct government business. As a result India is now on pace to set a record for fewest number of working days for a parliamentary session.

BJP could also force early elections by directing its parliamentary reps to resign. But such a move would need support from other parties as well, which is not assured.

Despite any potential corruption that may have taken place, according to the Economist “BJP’s boycotts of parliament still look irresponsible.”

Is BJP using the democratic process solely for its own political advantage, or are they rightfully drawing attention to gross government misconduct? The U.S. Congress often faces similar questions over use of the filibuster; it is a slippery slope. Democracy gives countries the right to question and hold their governments accountable, but misuse of this right could cause more problems than the right solves in the first place.

Photo Credit: Reuters

Last week’s blackouts illuminate three fiascoes holding India back

The massive, cascading power outages that left the northern half of India in the dark for two days last week bring to mind a telling juxtaposition of events in mid-1998.  India had just concluded a momentous series of nuclear weapon tests, code-named “Operation Shakti” in reference to the Hindu concept of divine power.  The action unambiguously propelled the country into the small fraternity of nations bearing nuclear arms, causing Prime Minister A.B. Vajpayee to boast “We have a big bomb now.”  Yet at the same time, New Delhi was in the grip of sweltering summer heat and rolling blackouts.  At his wit’s end, the municipal official in charge of electricity declared the power situation to be beyond his control and in the hands of God.  He too, it seemed, was looking for some Shakti.

Fourteen years on, the continued development of its strategic arsenal is a source of national pride and part of India’s resume as a great power in the making.  In recent months, the country has tested a long-range nuclear missile capable of striking targets deep within China and is reportedly on the verge of producing a submarine-launched ballistic missile – feats that only a very elite club of countries can replicate.

Yet the enduring inability to provide adequate amounts of electricity to its growing economy is a constant source of embarrassment, negating whatever reputational gains the nuclear weapons program has achieved.  India may not be much of a factor at the Olympic Games in London, but it has now set a world-class record for the largest blackouts in human history – an exploit that is likely to stand for quite some time. The Economic Times, a leading business daily, succinctly summed things up with a front-page article titled “Superpower India: R.I.P.” while NDTV, a major news channel, broadcast an hour-long program called “Powerless Superpower: Are India’s superpower dreams a joke?”  Compounding the chagrin is that the country was forced to turn to tiny Bhutan, essentially an Indian protectorate, for emergency allotments of power.  Perhaps the only consolation – and this is not saying much at all– is that Pakistan’s power situation is no better off.

The media universally reported that the outages plunged about 700 million people – more than half of the population – into darkness.  Yet the truth is that for a large fraction of that number the blackouts were hardly noticed, since their villages are not connected to the power grid at all or, if they are, service is so intermittent and unreliable.  Still others were unaffected only because they know that frequent outages are a fact of life in India and had purchased backup diesel generators.  As The Onion, the satirical newspaper, put it, “300 Million Without Electricity In India After Restoration of Power Grid.”

The blackouts illuminated three colossal fiascos holding the country’s great power ambitions in check:

• Its ramshackle system of infrastructure
• The dereliction of state-run institutions
• The deficit of political accountability

Infrastructure Deficiencies

A few years ago, a government minister acknowledged that India is bedeviled by the “world’s biggest infrastructure deficit.”  According to the World Economic Forum’s 2011-2012 Global Competitiveness Index, India ranks 89^th out of 139 countries in terms of the quality of its overall infrastructure.  Equally dismal are India’s scores on specific criteria: Quality of roads (85^th rank); Port infrastructure (82^nd); Air transportation infrastructure (67^th); and quality of electricity supply (112^th).  India constantly benchmarks its progress vis-à-vis China, and here the scores are similarly telling – especially in electrical infrastructure where People’s Republic is ranked 49^th.   Indeed, China manages to install six times more generating capacity each year than India.

In no other sector is India’s infrastructure deficit as glaring as in power generation.  Burgeoning demand constantly outstrips available supply by as much as 10 percent.  The Central Electricity Authority estimates that the shortfall reduces Gross Domestic Product by about 1.2 percentage points annually, and the World Bank reckons that it poses the single most important constraint on economic growth.  The International Energy Agency estimates that India will need to invest a staggering $1.6 trillion in electricity infrastructure over the next two decades or so.  But it is unclear, to say the least, how the country can come up with the funds given the serious fiscal problems confronting the central and state governments, the lack of a proper corporate bond market, and foreign wariness in investing in infrastructure projects.

The overburdened power system is emblematic of the country’s other critical infrastructure challenges, the scope of which was spelled out in a McKinsey Global Institute report released two years ago.  It argues that the country will undergo an urbanization process of seismic proportions over the next two decades, with city populations nearly doubling to 600 million people by 2030.  By this date, India will have six megacities with populations of 10 million or more, at least two of which – Mumbai and New Delhi – will be among the five largest cities in the world.  To prepare for this demographic transformation, India must invest $1.2 trillion in core urban infrastructure over the next 20 years – an eight-fold increase from current spending levels – as well as an additional $1 trillion on operating expenditures.

The prospect of rapid urbanization imposes an unbelievably daunting challenge.  In transportation alone, the country will need to build 350-400 kilometers of new subway lines annually (more than 20 times the subway capacity created over the last decade) and between 19,000 and 25,000 kilometers of road lanes every year (nearly equivalent to the amount India has added over the last ten years).  India will also need 700-900 million square meters of new residential and commercial space a year—equivalent to creating more than two Mumbais annually.  If the country fails to address these challenges, the McKinsey report envisions a dystopian future for India’s cities.

Needless to say, the present record of the Indian government furnishes little reason for believing it’s up to the challenges.

Failure of the Indian State

In fact, far from committing sins of omission, New Delhi is actively contributing to crippling power shortages.  Much of the system of electricity production is still in government hands, starting with the lumbering coal mining company, Coal India, which is supposed to provide the fuel for much of the country’s electricity generation.  India possesses vast domestic coal reserves but constantly struggles to supply enough of the stuff to power plants, which in turn are forced to rely more and more on costly imports from Indonesia, Australia and elsewhere.  Coal India is legendary for its inefficiency, so much so that at the end of this March, 32 power plants had coal stocks described as “critical” by the government—less than seven days worth—and two dozen plants were running at less than 60% capacity.

The leading private players in the electricity sector huddled earlier this year with Prime Minister Manmohan Singh to complain about the supply problems.  Afterwards, Coal India’s remedy to alleviate the delivery constraints was to refuse to supply newly-constructed power plants.

Transmission and distribution companies, many of them government controlled, have racked up huge financial losses and are unable to invest in modernization.  These entities are forced to keep tariffs absurdly low by a politically-imposed system of subsidies and price caps inspired by economic populism rather than rational business plans.  According to the Economist magazine, losses at state utilities amounted to $11 billion in the 2009-2010 fiscal year.

After the blackouts, Mr. Singh’s government announced that coal output this year will be increased almost nine percent over last year’s total.  But Coal India has routinely fallen short of supply aims and New Delhi has given no real indication that this year will be any different.  Indeed, energy production targets have never been met in any of the five-year economic plans New Delhi has announced since 1951.  Only 64 percent of the new generation capacity called for in the 2007-2012 plan was actually brought on line.  Seven years ago, Mr. Singh launched a plan for full rural electrification by 2012.  As hundreds of millions of Indians can attest, this goal remains far out of reach.  (For an August 2009 report by McKinsey & Company on the country’s problems in implementing infrastructure projects, see here.)

Accountability Deficit

Finally, last week’s outages highlighted just how adept the political system is at shirking responsibility.  With its customary sense of maladroit timing, the Singh government announced during the blackouts that Sushil Kumar Shinde, the minister in charge of the electricity portfolio, was being promoted to home minister, a prestigious Cabinet post that oversees the nation’s law enforcement and internal security.*  Shinde also is reportedly being considered as head of the government faction in the parliament’s lower house.  The decision is reminiscent of the administration’s blundering late last year when it promulgated important retail-sector reforms without apparently bothering to consult its own coalition partners.  One respected commentator, Pratap Bhanu Mehta, castigated Shinde’s elevation as a sign of “how self-obsessed and out of touch the government has become.”

Further rubbing salt into the public’s wounds, Mr. Shinde quickly pronounced himself worthy of the promotion, saying that his stint as power minister was “excellent” – a declaration at some odds with more objective appraisals.  Not to be outdone in the chutzpah department, the chairman of the state-run Power Grid Corporation sought to reassure the public by saying that “The country is in safe hands” because blackouts “are not something new to us.”  Of course, the long-suffering populace would surely respond that the chairman should actually be concerned by routineness of the outages.

Incredibly, the Singh government managed to send yet another terrible signal: Mr. Shinde’s former responsibilities are to be looked after by a Cabinet official who already has his hands full being the corporate affairs minister.  As Mehta notes, entrusting the power portfolio to a part-time minister “displays the same casualness that is corroding the state.”

Anticipation has been growing in recent weeks that Mr. Singh may be close to pulling the trigger on much-needed economic reforms, perhaps as soon as next month following parliament’s adjournment.  But if his immediate response to the blackouts is any indication, it’s business as usual in New Delhi.

*Disastrous service as power minister isn’t a disqualification for political advancement in Pakistan either.  Raja Pervez Ashraf’s oversight of the power portfolio is widely regarded as dismal, if not scandalous.  In fact, the Supreme Court effectively turfed him out of office when it found that a program he oversaw to spur private generation of electricity was riddled with graft.  Yet this record did not prevent him from being tapped as prime minister two months ago.

This commentary was originally posted on Chanakya’s Notebook.  I invite you to join me on Facebook and follow me on Twitter.

Credit: Time Magazine

Whatever Singh’s own faults as a government leader, India’s economic malaise is due to more basic problems.

Prime Minister Manmohan Singh is on the receiving end of a barrage of slings and arrows these days.  The most recent salvo comes from Time magazine, whose Asian edition this week has a cover story labeling him “The Underachiever.”  But his detractors are off target: Whatever Singh’s faults as a policymaker, India’s economic malaise is due to more basic problems.

The article takes Singh to task for ineffectual leadership, asking whether the soft-spoken prime minister who turns 80 in September is still up to the demands of his office.  This has become a familiar theme.  A Washington Post article last week reported that many observers in New Delhi see him as “a broken man” and that “there is considerable doubt that Singh has the energy or determination to achieve much.”  The international ratings agency, Moody’s, described him in a recent report as an “ageing technocrat who now appears tired of the rough and tumble of Indian politics.”  The Economist speaks of “Brezhnev-grade complacency” afflicting his government, while Azim Premji, a widely respected business leader, claims that “We are working without a leader as a country.”

Even more, critics are laying siege to Singh’s reputation as a path-breaking reformer.  In this view, he is less a visionary who as finance minster two decades ago launched India’s economic boom than a factotum content to do the bidding of whichever prime minister employed him, be it the economic populism of the Gandhi dynasty (in the 1970s, 1980s and at present) or Narasimha Rao’s bold transformations in the early 1990s.  As one commentator puts it:

Singh’s poor economic record as prime minister is exactly what you would expect if you had looked at his entire career rather than merely his role as finance minister at the dawn of liberalization.

Keeping with this theme, others allege that Singh unfairly basks in the glow that should properly fall on Mr. Rao.

But the double-barreled attacks are off the mark.  The fundamental problems about his government’s economic stewardship do not stem principally from Singh’s shortcomings.  His actions in the tumultuous parliamentary vote on the U.S.-India nuclear accord – which nearly brought down his government in the summer of 2008 but ultimately was his finest hour in office – clearly attest to his grit and tenacity.

So, too, does his dogged pursuit of good relations with Pakistan, seemingly against the advice of his own cabinet.  Under his watch, an intensive back-channel peace process took place in 2004-07 before it petered out due to Pervez Musharraf’s troubles at home.  But the negotiations may have come tantalizing close to transforming the relationship and if that had happened much of the kudos would have gone to Singh.  Ditto for the resurrection of bilateral affairs over the past year.  As the New York Times recently argued, he deserves credit for a “sensible, workmanlike effort over the past year to improve relations between the two nuclear rivals.”

As for Singh’s reformist instincts, the revisionism underway does not square with his desire late last year to move forward on opening up the $450-billion retail sector to foreign companies.  True, the effort was thoroughly botched in its roll-out and quickly aborted when it ran into political headwinds.  But it was also a well-crafted policy that would have had a transformative economic impact if it had been allowed to go forward. Nor do the gainsayers explain such recent low-key reforms as the creation of special industrial zones where Nehruvian-era labor regulations are relaxed or the roll-backing of restrictions governing foreign participation in the equity market.

Rather, much of Singh’s failings as prime minister can be chalked up to the institutional constraints under which he labors.  Since he assumed office in 2004, his coalition governments have been stymied by nettlesome partners and allies.  Most recently, Mamata Banerjee, leader of the Trinamool Congress regional party, has emerged as “a one-woman wrecking crew of the national government’s policy initiatives.”  A tribune of economic populism, she was instrumental late last year in forcing Singh’s ignominious retreat on retail liberalization.

A recent post suggested that Banerjee’s obstructionism role might now be waning.  But even if this is so, a second set of encumbrances will come into view: Singh has the hapless distinction of being a prime minister who is in command of neither his cabinet nor his own party.  While he serves as the head of government, the real power resides in the Gandhi dynasty that controls the ruling Congress Party.  Sonia Gandhi, the party’s risk-adverse head, does not share Singh’s reformist inclinations and is more given to market-distorting redistributionist schemes than productivity-enhancing measures.  This diarchal arrangement has been a recipe for policy inertia and inconstancy, prompting one Western diplomat to exclaim that “Even the power structures in North Korea are clearer than those in India.”

It also does not help that Singh is not a natural politician and lacks an independent power base that would enable him to crack the whip against recalcitrant colleagues in the cabinet or the Congress Party.  He is not even a member of the Lok Sabha, the directly-elected lower house of Parliament — a first for any Indian prime minister – but rather a member of the Rajya Sabha, the indirectly-elected upper house.

But even if Singh were a more forceful personality with the full backing of his party, he would still face a fundamental handicap.  Since economic reforms were born amidst acute crisis two decades ago, there is no intellectual tradition underpinning them nor has a political champion emerged to galvanize public opinion.  As one commentator argues:

[T]he ‘original sin’ of 1991 is the fact that reform was pursued in crisis mode, with the underlying rationale never fleshed out or articulated once the moment of immediate crisis had passed.

Both Gurcharan Das, business leader turned public intellectual, and Nandan Nilekani, one of the famed co-founders of Infosys, observe that reforms have been pushed more by technocrats like Mr. Singh than by political leaders, a condition that ensures narrow and limited support.  The word “reform,” Nilekani notes, remains “conspicuously absent from the election manifestos of India’s parties.”  Mr. Singh flagged the consequences in an interview last week with the Hindustan Times:

[T]he logic of an open economy and its benefits are still not widely understood among the general public. Public discourse still sees markets as anti-public welfare. The instinctive reactions of many, both in the political class and in the public at large, is to revert to a state controlled system. There is no realisation that a reversal to an earlier era is neither possible nor desirable. Even a neighbour like China has understood the logic of an open economy and is developing the institutional framework which is required for this.

This broad ambivalence, if not hostility, accounts for a great deal, including the perceived necessity in New Delhi of “reform by stealth,” a mode that one commentator describes this way:

Faced with politically unpalatable proposals, Indian politicians and bureaucrats often go quiet, enact reforms in the dead of the night and then pray that the opposition is either too lazy or preoccupied to react.

It also explains the glaring silence in New Delhi last summer at the 20^th anniversary of the 1991 reforms – even the prime minister remained mute – as well as Narasimha Rao’s erasure from the Congress Party’s institutional memory.  Ironically, the economic transformations that Singh set in motion two decades ago have only reinforced the status-quo orientation of his party colleagues.

Mr. Singh now has an opportunity to prove his critics wrong.  As economic conditions worsen, a consensus is forming in New Delhi about the need for further reforms.  The prime minister is once again saying the right things, including putting an end to much-criticized tax proposals that have sent foreign investors fleeing, and hinting that retail liberalization is back on the agenda.  Another hopeful sign are reports that Palaniappan Chidambaram, the reform-friendly finance minister during the high-growth period in 2004-2008, is headed back to the ministry.

The weeks ahead will tell us much, not only about the prime minister’s skills and instincts but also whether something more fundamental ails the Indian economy.

This commentary was originally posted on Chanakya’s Notebook.  I invite you to join me on Facebook and follow me on Twitter.

Source: India Catalog

We’ll soon find out whether Prime Minister Singh can salvage something positive from his final two years in office

A previous post focused on the recent political crisis in Pakistan that resulted in Prime Minister Gilani’s removal and in the process further destabilizing the civilian government as well as complicating efforts to repair spiraling U.S.-Pakistan relations. As this drama was playing out, political intrigues were also afoot in New Delhi. Although it is too soon to know for sure, they might just prove cathartic and allow Prime Minister Manmohan Singh to shake off the policymaking torpor of the last three years.

Mr. Singh’s re-election in May 2009 – an unexpected political victory that he hailed as a “massive mandate” – sparked widespread hope that a spate of long-delayed economic reforms would finally be enacted. Indeed, the euphoria in the Indian business community was so great that frenzied trading at the Bombay Stock Exchange tripped the electronic breakers. But these high expectations have so far been misplaced. Just a few years ago, India was the darling of global investors and the country’s growth story was celebrated at the World Economic Forum in Davos. These days, however, foreign investment is fleeing the country at such a rapid clip that the rupee is now at record lows vis-à-vis the U.S. dollar.

The disillusionment is attributable, at least in part, to the fractiousness of Singh’s coalition government. As disappointments mounted about his record, he has sought to deflect responsibility by citing “coalition dharma.” A few months ago, Kaushik Basu, the finance ministry’s chief economic adviser, warned that coalition politics have so gummed up decision-making in New Delhi that serious movement on the reform agenda would have to wait until after parliamentary elections scheduled two years from now. He added that the best that can be hoped for until then is a sprinkling of minor initiatives.

Much of Singh’s travails can be traced to the Trinamool Congress, a political party based in West Bengal that is his most important coalition partner. Its head, Mamata Banerjee, has become what the Wall Street Journal calls “a one-woman wrecking crew of the national government’s policy initiatives.” The Economist terms her “a coalition member so truculent as to be a virtual member of the opposition.” A tribune of economic populism, she was instrumental late last year in forcing Singh’s ignominious retreat on opening up the huge retail sector to foreign companies, an act which would have had a transformative economic impact if it had been allowed to go forward. Indeed, she even reportedly snubbed the prime minister by refusing to take his phone call on the issue. She also has torpedoed a water-sharing treaty that was supposed to be the highlight of the prime minister’s landmark visit to Bangladesh last September as well as a proposal to create a national counter-terrorism center earlier this year.

Singh seemed resigned to the humiliations Banerjee regularly inflected on his reputation as an economic reformer, so much so that he seemed like a broken man to many observers. But events over the past two weeks suggest that Singh’s Congress Party has reached the limits of its patience with Banerjee’s intransigence. The showdown occurred over the selection of the country’s next president, who will be chosen July 19 by an electoral college composed of some 5,000 members of both houses of the national parliament and state legislative assemblies.

The presidency is the head-of-state post that is largely titular but also has significant discretionary authority in dealing with a hung parliament. Anticipating that no party will emerge from the 2014 elections with a clear parliamentary majority and that it may need inside help in forming a government, Congress nominated Pranab K. Mukherjee, a long-time party stalwart from West Bengal who has tons of ministerial experience and commands wide respect across the political spectrum. Banerjee rejected his candidacy, in part because she sees Mukherjee as a rival influence in the state’s politics, but also because she wants to create a national bloc of other regional parties that would run against Congress in the 2014 polls.

Opening defying her coalition partner, Banerjee put forth a list of her own presidential preferences, at the top of which was A.P.J. Abdul Kalam, a hero of India’s nuclear weapons program who earlier served a stint as president from 2002-2007. Mr. Singh’s name was also on the list, a backhanded honor indicating that she no longer had confidence in his abilities as prime minister. To make sure Congress took notice, she sought to enlist the backing of the Samajwadi Party, which governs Uttar Pradesh, the country’s most populous state, and provides outside parliamentary support to Singh’s government. But her plans dramatically collapsed when Kalam announced that he was not interested in the job and Samajwadi swung its support to Mukherjee.*

With Congress appearing to have lined up the requisite number of votes, Mukherjee is a shoo-in for the July 19th poll. But the skirmish with Banerjee has ramifications beyond the issue of who should next occupy the opulent presidential palace. With the TMC chief being outmaneuvered, Singh now has a freer hand within his Cabinet to reactivate the reform agenda. He has already started making noises about taking “tough decisions,” including moving ahead on retail liberalization. But he may soon run into an even more formidable roadblock, one that Banerjee’s obstructions helped camouflage: the ambivalence of his Congress Party colleagues.

Sonia Gandhi, the matriarch of the Nehru-Gandhi dynasty that controls the party, in particular does not share Singh’s reformist inclinations and is more given to market-distorting welfare spending that promises short-term electoral gains than productivity-enhancing measures whose effect will only be apparent over a longer frame. Her stance accounts for the huge budget deficits that Singh’s government is running but also the glaring silence in New Delhi last summer at the 20^th anniversary of the 1991 reforms that launched India into its current economic orbit as well as Narasimha Rao’s erasure from the party’s institutional memory. Ironically, the success of the transformations that Singh set in motion two decades ago as Rao’s acclaimed finance minister have only reinforced the party’s status-quo orientation.

We will find out in the coming weeks whether Singh’s government will continue drifting aimlessly or can salvage something positive for its last two years in office. Much is hanging in the balance. If the prime minister is indeed able to charge ahead with reviving “the animal spirits in the country’s economy” as he now says he intends to do, he will put to rest growing suspicions that India is destined to be a stillborn great power. Ditto for the increasing doubts in Washington about Delhi’s capacity for making the big decisions necessary to advance bilateral ties.

*It was not a good week for Banerjee. The Kolkata (formerly Calcutta) High Court also struck down a law she championed that would have forced Tata Motors to forfeit the land it acquired in a high-profile auto plant project that it later shelved. Banerjee’s election as West Bengal’s chief minister in May 2011 was largely due to her populist agitations that caused Tata to move the project to Gujarat state.

This commentary was originally posted on Chanakya’s Notebook.   I invite you to follow me on Twitter.

So what has brought about the reversal of fortune?  The conventional wisdom focuses on the dysfunctions of the present coalition government in New Delhi as well as the feckless leadership of Prime Minister Manmohan Singh.  The Trinamool Congress and Tamil Nadu’s Dravida Munnetra Kazhagam party have indeed proven to be most nettlesome partners in Mr. Singh’s cabinet.  TMC’s leader, Mamata Banerjee, the firebrand politician who serves as West Bengal’s chief minister, in particular has emerged as what one observer calls “a one-woman wrecking crew of the national government’s policy initiatives.”

A tribune of economic populism, Banerjee was instrumental late last year in forcing Singh’s ignominious retreat on opening up the huge retail sector to foreign companies, an act that would have had a transformative economic impact if it had been allowed to proceed.  Indeed, she even reportedly snubbed the prime minister by refusing to take his phone call on the matter.  Her stranglehold on his government was once again evident last month when Dinesh Trivedi, the railways minister, proposed a modest increase in passenger fares for the cash-strapped rail system.  Trivedi was hand-picked by Banerjee for his post but the move ran afoul of her policy views.  So she demanded that Singh unceremoniously replace Trivedi with Mukul Roy, who while serving as the junior railways minister less than a year earlier publicly defied Singh’s order to visit a rail accident site.  Invoking the “compulsions of coalition politics” – a refrain he has repeated frequently over the last year – he meekly complied with the demand.

The country’s economic travails and the ructions within his own government have put a huge dent in Singh’s once-stellar reputation.  Three summers ago, he was the first Indian prime minister in decades to win re-election, an unexpected political victory he hailed as a “massive mandate.”  The business community was so euphoric about the possibilities for new economic reforms that frenzied trading at the Bombay Stock Exchange tripped the electronic breakers.  The Australian newspaper hailed him “one of the greatest statesmen in Asian history” while The Independent described him as “one of the world’s most revered leaders.”  Forbes magazine wrote that he was “universally praised as India’s best prime minister since Nehru.”

But all the adulation is now distant echoes.  Last year The Financial Times upbraided Singh for “squandering the nation’s future through a lack of political will” and its South Asia correspondent opined that “India has quickly come to regret Manmohan Singh’s second term as prime minister.”  The Mint newspaper charged that his “inability to steer the government and tame the more reckless of his colleagues is now undeniable.”  More recently, the international ratings agency Moody’s, which currently assigns its lowest-investment grade ratings to long-term Indian sovereign debt, asserted that the prime minister, who turns 80 in September, is no longer up to the demands of his office.  An “ageing technocrat who now appears tired of the rough and tumble of Indian politics” is how he was described.

But the fundamental problems about his government’s economic stewardship do not stem principally from Singh’s personal leadership traits.  His actions in the tumultuous parliamentary vote on the U.S.-India nuclear accord – that nearly brought down his government in the summer of 2008 but which ultimately was his finest hour in office – clearly attest to his grit and tenacity.   Some allege that Singh does not deserve his widespread reputation as a veteran reformer.  But this perspective does not accord with his primary role in launching the economic reform era two decades ago as finance minister to Prime Minister P.V. Narasimha Rao, nor with the desire to move forward (albeit in a thoroughly botched way) with retail-sector liberalization.  Similarly, it does not explain such recent low-key reforms as the creation of special industrial zones where Nehruvian-era labor regulations are relaxed or the roll-backing of restrictions governing foreign participation in the Indian equity market.

A stronger explanation lies in the institutional constraints under which Singh labors.  He has the hapless distinction of being a prime minister who is in command of neither his cabinet nor his own party.  While he serves as the government’s front man, the real power resides in the Nehru-Gandhi dynasty that controls the governing Congress Party.  Sonia Gandhi, the party’s risk-adverse head, does not share Singh’s reformist inclinations and is more given to market-distorting welfare spending than productivity-enhancing measures.  This awkward division of labor between Prime Minister Singh and Mrs. Gandhi has been a recipe for policy inertia and inconstancy.  In the view of one Western diplomat, “Even the power structures in North Korea are clearer than those in India.”

It also does not help that Singh is not a natural politician and lacks an independent power base that would enable him to crack the whip against recalcitrant colleagues in the cabinet or the Congress Party.  He is not even a member of the Lok Sabha, the directly-elected lower house of Parliament, but rather a member of the Rajya Sabha, the indirectly-elected upper house.

So is evicting the Congress Party from the prime minister’s office the solution to India’s economic problems?  Sadly no.  Because economic reforms were born amidst acute crisis two decades ago, there is no intellectual tradition underpinning them nor has a political champion emerged to galvanize public opinion for them.  Both Gurcharan Das, business leader turned public intellectual, and Nandan Nilekani, one of the famed co-founders of Infosys, have observed (here and here, respectively) that reforms have been pushed more by technocrats like Mr. Singh than by political leaders, a condition that ensures narrow and limited support.  The word “reform,” Nilekani notes, remains “conspicuously absent from the election manifestos of India’s parties.”

This broad ambivalence accounts for the glaring silence in New Delhi last summer at the 20^th anniversary of the 1991 reforms – even the prime minister remained mute – as well as the air-brushing of Narasimha Rao out of the Congress Party’s institutional memory.  Ironically, the success of the economic transformations Singh set in motion back then have only reinforced the present status-quo orientation of his party colleagues.  But even the main opposition in New Delhi, the Bharatiya Janata Party, is similarly hesitant.

Kaushik Basu, the chief economic advisor at the Indian finance ministry stirred up controversy the other week when he stated the policy paralysis in the current government meant that crucial economic reforms would have to wait until after parliamentary elections that need to take place by mid-2014.    But given New Delhi’s general irresoluteness on the issue, that estimate may well be overly optimistic.

This commentary was originally posted on Chanakya’s Notebook.  I invite you to follow me on Twitter.

Although he claims to have been misquoted, Kaushik Basu, the chief economic adviser at the Indian finance ministry, has only confirmed what has been readily apparent for quite some time.  In Washington last week for the annual spring meeting of the International Monetary Fund and the World Bank, he told a think-tank audience that coalition politics has gummed up decision-making in New Delhi and that serious movement on much-needed economic reforms will have to wait until after parliamentary elections two years from now.  He added that the best that can be hoped for until then is a sprinkling of minor initiatives.

The comments set off a political furor and Kasu, a respected academic on leave from Cornell University, now asserts that Prime Minister Manmohan Singh’s government will soon move forward on the reform agenda in a big way.  Don’t bet on it.  His words may have been impolitic but they faithfully represent what is now a consensus view in India and far beyond.

Indeed, a few days before Kasu spoke, a group of Mr. Singh’s friends and admirers staged what can only be described as a public intervention, warning the prime minister that continued policy stasis would imperil his legacy.  The event was ostensibly a celebration of an updated book on India’s economic reform era, which was launched in the summer of 1991 amidst an acute balance of payments crisis.  Singh, then serving as finance minister to Prime Minister P.V. Narasimha Rao, famously inaugurated the era by quoting Victor Hugo: “No power on Earth can stop an idea whose time has come.”

Leading things off was Isher Ahluwalia, head of a prominent economic policy institute, who warned of “a deteriorating macro-economic environment and a downturn in the investment climate,” as well as the “unsustainability” of the government’s fiscal policies.  What made her criticism all the more poignant is that she is the wife of Montek Singh Ahluwalia, who currently serves as the prime minister’s economic policy czar.

Duvvuri Subbarao, head of the central bank and a former adviser to Singh, also weighed in, cautioning that the dangers that sparked the 1991 crisis – ballooning fiscal and current account deficits – are once again lurking about.  Raghuram Rajan, a former chief economist for the IMF and now an honorary adviser to the prime minister, called attention to the “paralysis in growth-enhancing reforms.”

Singh reportedly attended the event against his better judgment and on the condition that he would not be called upon to make extended remarks.  He ended the discussion merely by saying that “I am confident that with determination we will overcome.”  But he gave no indication he was a man capable of mustering any fortitude at all.  Far from channeling Victor Hugo, he nowadays gives every evidence of being trapped in Samuel Beckett’s absurdist play, Waiting for Godot.

The themes articulated by Singh’s alarmed friends are part of a crescendo of criticism about New Delhi’s economic management.  As Kasu’s statement demonstrates, even officials inside the Singh government now feel it necessary to join in.  Commerce Secretary Rahul Khullar told a group of business leaders last week that present economic indicators were provoking “a sense of déjà vu.”  Worried that conditions were ripe for a replay of the 1991 crisis, he exclaimed:

Why are we dodging these [policy challenges]?  In 1991, we were candid enough to take these decisions.  The quicker we take these decisions, the better it would be, instead of acting like ostriches.

Besides partaking in the intervention with Singh, Subbarao at the central bank last week tried to jumpstart the sagging economy with an unexpectedly large cut in interest rates.  But he also warned in a policy statement that further delays in instituting key reforms would jeopardize growth prospects and specifically urged the government to rein in swelling fiscal and current account deficits.  The fiscal deficit, which reached 5.9 percent of gross domestic product in the April 2011-March 2012 fiscal year, is caused in large part by the government’s ever-growing penchant for populist welfare spending in the form of large food and fuel subsidies.  Far from being an exercise in fiscal discipline, the budget plan introduced two months ago by Finance Minister Pranab Mukherjee was chock full of handouts and goodies, causing the Financial Times to liken it to a Christmas gift list.

Indian business leaders also have chimed in, warning that with the lack of reforms domestic companies are better off focusing their investments overseas.   A year ago, Mukesh Ambani, the usually-reticent chairman of Reliance Industries and the country’s richest man, publicly rebuked the small-bore reform agenda pursued by Singh’s government.  He challenged the prime minister to undertake the type of “disruptive policies” that Singh unleashed as Finance Minister at the start of India’s growth trajectory two decades ago and asserted that “India needs a bold new vision and a feasible action plan.”  Last summer, India Today punctuated this point with a cover story titled “India Inc. goes global as government chokes economy.”  Other prominent business leaders have taken to writing open letters to Singh as a way of conveying their urgent concerns.

The provision for retroactive taxation on capital gains arising from overseas purchases of Indian assets that Finance Minister Mukherjee unveiled in his proposed budget has set off alarm bells among foreign investors.   The Financial Times quotes one foreign investor as saying that the unpredictability of India’s tax regime is on par with that of the Democratic Republic of Congo.  According to the Wall Street Journal, net foreign capital flows into India dropped from $7.2 billion in February to a paltry $387 million in March, following the budget’s presentation.  So far in April, there has been a net capital outflow of about $27 million.

In an unprecedented move, business associations from the United States, the United Kingdom, Canada, Japan and Hong Kong issued a joint letter to Prime Minister Singh, warning that the provision “has undermined confidence in the policies of the government of India toward foreign investment and taxation and has called into question the very rule of law.”  The Asia Securities Industry and Financial Markets Association likewise complained in a letter to Mukherjee, while six financial industry groups in the United States wrote Treasury Secretary Timothy Geithner asking him to raise the issue with Mukherjee.  Meanwhile, the departing chairman of the U.S.-India Business Council, a unit of the U.S. Chamber of Commerce that is usually bullish on bilateral economic relations, has fired off a letter to the White House lamenting that a leadership vacuum in New Delhi is allowing anti-reform “forces in government to move on issues that are harmful to India’s investment climate.”

The latest vote of no-confidence came this week courtesy of the Standard & Poor’s rating agency, which citing the stalled reform agenda cut its outlook on India’s long-term sovereign debt to negative and warned of a possible credit downgrade to junk status.  For their part, the Moody’s and Fitch ratings firm have assigned their lowest-investment grade ratings to Indian government debt, with Moody’s cautioning that “The single biggest factor weighing on the [economic] outlook is the Indian government.”  Amazingly, senior Finance Ministry officials reportedly were looking forward to having the country’s status upgraded.

Beyond the immediate issue of the Singh government’s manifest dysfunctions and inconstancies, a key factor that blocking the cascade of reforms the country desperately requires is the assumption among the political class that the so-called “demographic dividend” will continue to power the country’s economic ascent.  But India’s vast human capital potential is rapidly turning into a wasting asset.  The World Health Organization a few weeks ago reported that the country’s elderly population will start to eclipse the number of young children by 2017.

Kasu in Washington assured his audience that the reform bandwagon will start rolling again in a few short years.  But the real issue is whether India can even wait that long.

This commentary was originally posted on Chanakya’s Notebook.  I invite you to follow me on Twitter.

Although the timing was coincidental and neither man professes the Christian faith, it was appropriately symbolic that Indian Prime Minister Manmohan Singh and Pakistani President Asif Ali Zardari broke bread in New Delhi on Easter Sunday.  After all, both are responsible for the resurrection of bilateral affairs from the deep chill that followed the 2008 terrorist strikes in Mumbai.  As a New York Times editorial today notes, “both deserve credit for their sensible, workmanlike effort over the past year to improve relations between the two nuclear rivals.”

Their luncheon, billed as an informal get-together but which had all the trappings of a mini-summit, was the first trip to India by a Pakistani head of state in seven years.  It not only gave further momentum to the peace dialogue the two countries launched a year ago, which has already resulted in growing trade links.  But it also imparted new optimism that the talks could move on to such contentious matters like the perennially-inflamed dispute over the Kashmir region.

The annals of India-Pakistan relations are filled with numerous false dawns and the current moves could well founder upon the sharp historical animosities that regularly bedevil bilateral affairs.  But things may be different this time.  Reports out ofIslamabad indicate that the Pakistani government realizes the country is in desperate economic straits and that closer ties with its ever-richer sibling constitute a much needed lifeline.  The military establishment is also said to understand that the eastern border needs to be stabilized so resources can be focused on combating rising internal security threats.  Significantly, General Ashfaq Parvez Kayani, the powerful army chief who is deeply suspicious of Indian intentions, met with Zardari just before his departure to New Delhi, seemingly giving his blessing to the journey.

Up until this point, the warming in bilateral relations has occurred on the economic engagement front.  The two sides have pledged to more than double their two-way trade flows – to the $6 billion annual level – by 2015.  They agreed to ease visa rules for business travel and tomorrow will open a new customs facility at the Attari-Wagah border crossing that lies midway between Lahore and Amritsar which will be able to handle about 1,000 trucks a day, up from the present 25.  Islamabad has also extended “most favored nation” trade status to New Delhi, reciprocating the status India conferred upon Pakistan years ago.  This last development promises to enliven the 2006 South Asia Free Trade Agreement which up until this point has been all but a dead letter.

The Indian and Pakistani central banks have announced plans to open branch offices in the other country, a move that will help facilitate cross-border transactions.  Both countries have also advanced initiatives to enhance energy cooperation, including joint development of a natural gas field inTurkmenistan.  And expert talks on expanding commerce in the electrical power and petroleum sectors have taken place in recent weeks.

If enhanced trade ties were to develop between South Asia’s largest economies, they would produce significant commercial and (eventually) security dividends for both countries.  According to various studies, a more liberalized trade regime would increase bilateral exchange at least 20 times above current figures as well as boost general prosperity in both countries.  A new report by the Confederation of Indian Industries argues that cross-border trade could easily quadruple in just a few years if both governments moved to increase economic linkages.

In his session with Prime Minister Singh, President Zardari agreed to an Indian proposal that the two countries pattern their ties along the lines of the India-China relationship, which combines broadening economic integration, frequent interactions between the national leaderships, and pragmatic diplomacy focused on incremental gains.

The so-called “Chinese model” has so far proven its utility.  In an interview yesterday with the Wall Street Journal, Indian Foreign Secretary Ranjan Mathai stated that the politically-difficult decision to open Pakistani markets to Indian goods has convinced New Delhi that Islamabad is serious about better relations.  “I wouldn’t have been as optimistic six months ago,” he commented.  “The fact the government is able to move on the trade track shows there’s a greater willingness to take things forward by all the players.”

Mathai also announced that India is now ready to reopen discussions on Kashmir, picking up where the intensive back-channel peace process both sides undertook in 2004-07 left off.  Although those negotiations ultimately collapsed due to Pervez Musharraf’s political travails, they may have come tantalizing close to defusing the volatile Kashmir issue.

Officials in both New Delhi and Islamabad also have put the word out that other long-running territorial contestations might be ripe for discussion, too, including the one over Sir Creek, a patch of marshland dividing the Indian state of Gujarat and the Pakistani province of Sindh.

The de-militarization of the Siachen Glacier, an uninhabitable stretch of the Himalayas that is filled more with political symbolism than strategic value, also might be on the agenda.  Although a ceasefire there has been in effect since 2003, the rigors of fierce climate and rugged terrain still exact a heavy toll on each side’s military.  On the eve of Zardari’s trip, an avalanche wiped out the base camp of a Pakistani army battalion, claiming the lives of some 135 soldiers and civilians.  Since the beginning of the year, avalanches have likewise taken the lives of some 20 Indian army and border security personnel.  The financial costs of maintaining garrisons in such an inhospitable environment also runs into the tens of millions of dollars for both countries.

These issues are likely to be given greater treatment when Indian Foreign Minister S.M. Krishna visits Islamabad in June or July, followed by a possible visit by Mr. Singh toward the end of the year.

But it is unlikely the bonhomie flowing from the Singh-Zardari luncheon will be enough to significantly advance the discussion on these sensitive questions.  Both governments are weak and lack the political capital to make fundamental breakthroughs on issues that have defied solution for decades.  (On this, see Myra MacDonald’s analysis of the prospects for a quick accord on Siachen.)  Battered by allegations of scandal and ineptitude, Singh’s government is seemingly consigned to lame duck status as it waits for its term to expire in two years.  In Islamabad, the government is within sight of its own electoral contest and in any case Prime Minister Yusaf Raza Gilani might soon find himself in jail on contempt of court charges.  Moreover, General Kayani, unlike his predecessor Musharraf, is reportedly much less ready to make peace with India.

A larger, if a bit more distant, danger resides in the sharper security competition that is sure to erupt between the countries as the United States and its NATO allies hasten their departure from Afghanistan.  Both India and Pakistan regard the country as a key theater of their strategic rivalry and the current defrosting in relations will likely become a casualty as the situation in Afghanistan deteriorates into a new civil war that has regional powers scrambling for influence.

Still, the present stirrings of peace demonstrate that despite its singularity intensity the India-Pakistan rivalry has always been a fluid admixture of cooperative impulses and competitive dynamics.  Both governments would be wise to do what they now can to accentuate the workings of the Chinese model before strategic distrust returns to the fore.

This commentary was originally posted on Chanakya’s Notebook.  I invite you to follow me on Twitter.

President Obama’s state visit to India in early November 2010 appeared to impart new dynamism to a bilateral relationship that had been listless since his inauguration. The trip offered an effective tonic for Indian concerns that he had forsaken New Delhi in pursuit of G-2 collaboration with Beijing. The president spoke of India as “an indispensable partner of the 21st century” and dramatically endorsed its long-standing bid for permanent membership on the United Nations Security Council. Reporting on his giddily-received address to a joint session of the Indian Parliament, the Times of India noted that the “audience lapped it up, with no less than 25 rounds of applause in a barely 45-minute speech. The cherry on the cake, of course, was the ‘Jai Hind’ [Hail India] with which he concluded.”

But the promise of re-energized partnership quickly dissolved as leadership capacity in Washington and New Delhi dramatically frayed. In retrospect, the trip’s maladroit timing and messaging should have been a tip-off. That the president’s Democratic Party received an electoral “shellacking” just days earlier meant that he arrived in India a much diminished political figure – a condition that became increasingly evident as time progressed. The White House also put out the word that the trip was essentially a jobs-hunting mission rather than one connected to grand strategy, telegraphing how domestic economic anxieties would continue to take attention away from the foreign policy agenda.

Prime Minister Manmohan Singh also was about to undergo his own political dimunition. A week after the state visit, the multi-billion dollar 2G telecommunications scandal exploded, igniting a crisis of governance and corruption that continues to engulf Mr. Singh’s administration. For the past year, Singh has been forced to deny that he is a lame duck even as his Congress Party colleagues openly pine for his replacement by Rahul Gandhi and his coalition partners – especially Mamata Banerjee’s Trinamool Congress – feel increasingly free to defy him. As 2011 unfolded, it became more and more clear that Singh’s government was adrift and ineffectual.

The leadership void has contributed to the “Delhi disillusionment” that is now a staple of Washington’s foreign policy conversation as well as the transactional approach some advocate vis-à-vis India. Experts now debate just how steadfast this “indispensable partner” really is. Deputy Secretary of State William J. Burns even felt it necessary to make a rhetorical nod to this discussion with this title to a recent address: “Is There a Future for the U.S.-India Partnership?”

Whatever its technical merits, New Delhi’s rejection of Boeing and Lockheed Martin’s bids in its lucrative fighter aircraft competition – an issue on the Obama administration lobbied aggressively – was handled so ineptly that it reportedly hastened Ambassador Timothy Roemer’s departure from New Delhi. Indeed, many discerned a deliberate snub of Washington. Ditto for the stringent nuclear liability law that is so divergent from international norms that it effectively locks out U.S. participation in India’s nuclear power sector – something that the nuclear cooperation agreement was suppose to bring about. Last week’s debacle on retail sector liberalization underscored U.S. concerns that New Delhi has permitted domestic political concerns to impede closer economic interactions, while the WikiLeaks revelations about the Indian debate over the nuclear accord further undermined confidence in New Delhi’s credibility as a serious strategic partner.

All of these episodes only sharpened questions in Washington about whether New Delhi is as compelling a geopolitical collaborator as the Bush administration had envisioned. They also help explain why the Obama administration took six months to nominate Roemer’s successor.

To be sure, the Indians have valid reasons to complain about the paucity of American leadership. President Obama’s announcement of an accelerated disengagement from Afghanistan – a decision driven more by the exigencies of domestic politics than by a careful assessment of U.S. security objectives in South and Central Asia – affects India’s security interests in unpalatable ways. Looking towards the exits, Washington does not seem overly concerned about the exact details of a possible political endgame while New Delhi is all too focused on how the strategic terrain in its neighborhood is shifting to its detriment. This lack of solicitude explains why, according to one analysis, “few tears are being shed in the top levels of the Indian establishment over the state of ties with the US.”

Yet beyond the top-level ructions, the past year also witnessed the growing density of bilateral affairs, especially the accelerating pace of economic interactions. Even with the global economy in the doldrums, 2010 was a banner year for the trade relationship, with two-way goods exports surging nearly 30 percent to $48.8 billion. Merchandise exports were also up significantly in the first half of 2011 compared to the same period last year. All told, India is now America’s 12th largest goods trading partner and one of the fastest-growing destinations for U.S. exports. This is a welcome trend, as increased private-sector linkages are key to limiting the risks that today’s political and diplomatic frictions could escalate and disrupt the overall partnership.

Notwithstanding the disappointments over the fighter competition, the United States has also become a critical player in the ambitious military buildup India is undertaking. New Delhi was the third largest buyer of U.S. weapons this year, with purchases amounting to $4.5 billion – a level ahead of such long-time American allies as Australia, Saudi Arabia, Israel and Japan. Indeed, over the past year or so the Indian government has either purchased or taken possession of a number of key weapons systems: the AH-64D Apache attack helicopter, the C-130J Super Hercules transport aircraft, and the C-17 Globemaster III strategic transport aircraft.

Finally, as the constant parade of Cabinet officers and senior officials between the two capitals attests, bilateral relations have acquired a scope and depth that were unimaginable less than a decade ago. Among other things, Washington and New Delhi now hold regular consultations on policy vis-à-vis China, Deputy Secretary Burns has just concluded talks in New Delhi about strategic and economic cooperation, and a trilateral U.S.-India-Japan security dialogue will meet for the first time next week. Indian foreign policy elites are growing more comfortable with the notion of strategic intimacy with the United States. And the expansion of Chinese strength will undoubtedly push New Delhi to tighten its security relations with Washington in the years ahead, though the process will neither be as smooth nor as speedy as many Americans would like.

All of these factors are contributing to the steady accumulation of bilateral bonds. The key question for the approaching year is whether Washington and New Delhi will exhibit the constancy of leadership needed to capitalize on these favorable developments. Alas, the prospects do not appear promising. With 2012 shaping up to be one filled with turbulent politics in both countries, the focus of President Obama and Prime Minister Singh will continue to remain inward.

(An earlier version of this post appeared at http://www.usinpac.com)

The fireworks celebrating India’s Independence Day on August 15 illuminated shifting political terrain.  Appropriating the motifs of the anti-colonial struggle against the British Raj, the anti-corruption movement that has been gathering momentum for months erupted in full force, staging the most widespread popular demonstrations in decades.  The protests presented Prime Minister Manmohan Singh’s seven-year-old government with its most serious crisis as well as exposed an acute leadership vacuum in the Congress Party, which was the nucleus of the nationalist movement and has governed the country for most of its post-independence era.

With Sonia Gandhi, the party’s president and India’s most powerful politician, away seeking medical treatment in the United States for an undisclosed ailment (though reports have emerged that she is suffering from cancer), the ground was set for her 41-year-old son, Rahul, to march to center stage.  The scion of the Nehru-Gandhi dynasty that has produced three legendary prime ministers, he is widely seen as the crown prince of Indian politics and a prime minister-in-waiting.  He is the primus inter pares in a quartet of family loyalists designated by Sonia Gandhi to run party affairs in her absence.  After spending a week at his mother’s side in New York, Rahul returned in time for the Independence Day festivities, ready, according to media reports, to assume a more prominent profile.

But the limelight that should have been Rahul’s was instead wrested away by Kiran Baburao Hazare, a social activist some three decades his senior who was largely unknown a year ago.  Widely called “Anna” Hazare (the honorific for older brother), he has emerged as the leader of the burgeoning public outcry against the procession of corruption scandals that are consuming the Singh government.  Dressed in homespun cotton and a white cap, the diminutive and bespectacled Hazare takes another Gandhi as his role model.  His personal asceticism recalls the Mahatma’s lifestyle, and his widely-noted record of social uplift in his home village in Maharashtra evokes Gandhi-ji’s vision of rural self-development.  Hazare’s methods of hunger fasts and mass demonstrations are reminiscent of the satyagraha (“civil resistance”) tactics employed against British colonial authorities.  He has even availed the rhetoric of the independence movement by proclaiming in a YouTube video that “the second freedom struggle has started.”

For months, Hazare has been embroiled in a dispute with the Singh government over the details of a proposed anti-graft agency (called the Lokpal or “ombudsman”).  He wants to endow the watchdog with greater authority than the government is willing to countenance, and to press his demands he had scheduled to a protest and fast in New Delhi for August 16, the day following the Independence Day celebrations.  When Hazare refused to agree to police restrictions on the size and length of the protest, the police moved to preemptively detain him and some 2,600 of his followers.  He ended up spending several nights in Tihar jail in central Delhi, which ironically is the current residence of a number of government officials and corporate executives implicated in the corruption scandals that so incense him.

The heavy-handed government response was redolent of the British crackdowns on the country’s founding fathers, as well as the emergency rule used by Indira Gandhi in the mid-1970s to suppress domestic criticism.  Adding to the latter comparison, the Congress Party’s spokesman even adopted Indira’s noxious practice of blaming the “foreign hand” for the tumult.

Predictably enough, Hazare’s arrest only fueled public anger.  Large pro-Hazare rallies broke out throughout the country.  His white cap or topi has become a fashion rage and even the famed dabbawallahs, or tiffin carriers, of Mumbai have gone on strike in solidarity.  The government quickly reversed itself and Hazare triumphantly walked out of captivity, transformed as a noted newspaper columnist observed “from rural activist to a national hero.”  He has now embarked on a 15-day fast at a vast public ground in the heart of New Delhi, sitting on a stage with a huge poster of the Mahatma to his back and tens of thousands of supporters in front of him.  He has also upped the ante by demanding that Parliament pass the strong Lokpal bill by the end of the month or face an “unprecedented revolution.” 

If Hazare is now in the catbird’s seat, Prime Minister Singh and Rahul Gandhi have been politically scarred.  The latter has been conspicuously silent over the past week, choosing to remain quiet during parliament’s raucous debate over Hazare’s arrest.  Far from leading from the front, he gave the impression that he was running for cover.  Indeed, he even ducked out of New Delhi for what appeared to be an impromptu visit to a remote village in Maharashtra to console victims of a police shooting.

But there was no refuge to be found for Mr. Singh, who did himself no favors in this episode.  His government’s actions were not only tone-deaf to the concerns of an increasingly angry electorate, but they allowed Hazare to shift the focus of the public debate.  Singh is correct that Hazare’s tactics have veered toward the demagogic and the all-powerful anti-graft organization he demands is in conflict with the principle of accountability in a parliamentary democracy.  Yet the merits of the government’s stand on the Lokpal bill were immediately eclipsed by what many Indians took as the government’s trampling upon the right of peaceful dissent.

With the government’s confrontational approach followed so quickly by its capitulation, Singh reinforced his reputation for ineffective governance.  As one observer puts it, he increasingly looks like “yesterday’s prime minister.”  Attempts to deflect blame onto the Delhi municipal police were believed by few, since the police force is responsible to Home Minister P. Chidambaram, who has taken an uncompromising line toward Hazare.  The episode only added to the controversies that now besiege Singh.  His undoubted personal rectitude is now besides the point.  With charges multiplying that he was phlegmatic – or worse yet, willfully blind – to the egregious malfeasance of his own ministers, his capacity for leadership and political judgment is increasingly the question of the day.

Rocky to begin with, the road Singh will have to travel over the next year has suddenly become harder.  A bandwagon is growing inside the Congress Party for Rahul Gandhi to assume the reins of government.  Yet with Rahul focused on preparations for the important mid-2012 elections in Uttar Pradesh and Sonia Gandhi out of the picture for what may be a prolonged period, the party has little choice but to soldier on with Singh.  The opposition parties also do not have the numbers in Parliament to oust him as prime minister.

Still, Singh’s performance last week will do nothing to check the incessant whisper campaign against him.  And with new corruption allegations pouring forth – including accusations directed at Sheila Dikshit, the Congress Party’s chief minister of Delhi, in connection with the corruption scandal surrounding last year’s Commonwealth Games – his critics have plenty of ammunition to keep up a constant barrage.  Given that opposition furor has all but paralyzed Parliament for the past nine months, Singh may now find it impossible to push through his version of the Lokpal bill, let alone key economic reforms like regulations governing the acquisition of farm land for industrial projects and the entry of foreign investment into the retail sector.

As an earlier post argued, Singh could even yet refurbish his legacy, as well as revitalize the Congress Party’s electoral prospects, with a bold program of governance reforms that eliminate the opportunities for high-level graft.  The leadership vacuum revealed by last week’s events makes this scenario very unlikely, however.

The plunder allegedly entails scores of mining companies, some of them run by the country’s wealthiest businessmen, acting in cahoots with hundreds of government officials, including B.S. Yeddyurappa, the state’s chief minister, who is reported to have received $7 million in bribes.  Under mounting political pressure, Yeddyurappa resigned last week, though he vociferously maintains his innocence.  Hegde’s investigation also implicates six members of Yeddyurappa’s cabinet, including two brothers of the powerful Reddy family, who are accused of running Karnataka’s ore-rich Bellary district as a personal fiefdom.  All told, the scandal is estimated to have cost the state’s treasury some $3.5 billion in lost royalties, permit fees and tax payments in just the March 2009-May 2010 period.

The episode resounds with political repercussions.  Karnataka’s capital is the world-famous technology hub of Bangalore, the icon of New York Times columnist Thomas Friedman’s “The World is Flat” thesis.  Many believe the modernizing, entrepreneurial impulses radiating from the city will propel India into the first rank of global powers.  Yet the supposed gateway to the dawning Indian Century has now been revealed as the latest residence of the old-school corruption that persistently continues to degrade the country’s rise. 

The Bharatiya Janata Party (BJP), the main opposition party in New Delhi, sought to make political hay out of the cascade of scandals that have deluged the ruling Congress Party and paralyzed Prime Minister Manmohan Singh’s government.  Foremost among these are allegations of impropriety in the telecommunications ministry’s licensing of second-generation (2G) spectrum, a scandal that has landed Andimuthu Raja, Singh’s telecommunications minister, in jail and forced the resignation of Dayanidhi Maran, another Cabinet member who previously headed the ministry.  The government auditor reckons that the scandal, which also casts a shadow over Ratan Tata and Anil Ambani, two of the country’s most prominent business leaders, has cost the national exchequer nearly $40 billion in foregone revenue.

But the knife the BJP has been wielding is now dulled, since Yeddyurappa was a BJP rising star and the Reddy brothers bankrolled the party’s operations in Karnataka.  Moreover, the brothers’ political patron is none other than Sushma Swaraj, the BJP leader in the Indian parliament.

The mining scandal will give new impetus to the unprecedented levels of public anger against corruption and shoddy governance, as well as reinforce widespread questions about whether the relationship between the state and the corporate sector is far too cozy and whether, as a result, oligarchic capitalism is taking root in India.  An immediate focus of this discontent is the controversial legislation that would establish a powerful watchdog agency (called “Lokpal or “Ombudsman”) to investigate government malfeasance.

The bill’s current form is opposed by Gandhian social activist Anna Hazare, the leader of a popular anti-corruption movement.  Last April Mr. Hazare staged a well-publicized hunger strike, a traditional Indian form of protest, to force Singh’s government to draft a Lokpal bill.  But Hazare and the government have been unable to reach agreement on the bill’s provisions and he is now mounting a new protest in New Delhi on August 16 (complete with threatened hunger strike) in order to press his demands.

Good governance is an obvious prerequisite for the country’s continued economic development.  India placed 87^th out of 178 countries in Transparency International’s 2010 Corruption Perceptions Index and this notoriety is deterring much needed foreign investment. The establishment of a robust Lokpal agency would certainly help in this regard, though it should be noted that the country does not lack for anti-corruption institutions, ranging from the Central Vigilance Commission to the Central Bureau of Investigation.  The Indian Supreme Court is now keenly focused on governance issues (see here and here) and government innovations like the Unique Identification Authority (which will issue national identity cards) should make a real dent in reducing rampant corruption in social welfare programs.  And over the last decade, civil society’s capacity to demand accountability of the government has grown with the Right to Information Act, crusading investigative journals like Tehelka, and citizen initiatives like 5^th Pillar and ipaidabribe.com (whose data points to Bangalore as India’s most corruption-ridden city by far).

All the same, India’s deep-rooted corruption problems go far beyond what any watchdog institution, however sharp-eyed and aggressive, could hope to tackle.  As The Economist observes, the country’s “regulations are not, by and large, deterrents to corruption, but a source of it.”  It is no coincidence that the mining and telecommunications scandals – not to mention a disturbingly large concentration of wealth – arose from sectors where state control is the heaviest.  A recent Asian Development Bank report estimates that about 80 percent of India’s total billionaire wealth in 2008 was derived from natural resources, land and sectors dependent upon government allocation decisions.  Nor is it an accident that the most dynamic, competitive sectors – like software and pharmaceuticals – are those in which the government is much less intrusive and the opportunities for political rent-seeking far less prevalent.

 Even after the much-touted economic liberalizations introduced two decades ago, the Indian state continues to wield excessive control over wide swathes of the national economy.  India ranks 124^th among the 183 countries surveyed in the Heritage Foundation’s frequently cited Index of Economic Freedom, right between Cote d’Ivoire and Moldava and not far from China’s 140^th showing.  Even Prime Minister Singh, the architect of the 1991 economic reforms, has taken to warning about the creeping return of the notorious “License Raj.”

Mr. Singh is undoubtedly a man of honor and high principle, but his reputation for personal integrity is being abraded by charges that he was obtuse – or worse yet, turned a blind eye – to the egregious malfeasance of his own ministers.  In response to swelling public anger, his government has undertaken a series of useful reforms, such as curbing the discretionary powers of Cabinet members and ratifying the United Nations Convention Against Corruption.  Worrisome, however, are reports that the recommendations mooted by a high-level panel for reforming the licensing process of key natural resources have been diluted by Cabinet officers.   

If Singh wishes to refurbish his legacy – not to mention revitalize the Congress Party’s electoral prospects – he will need to complete the work he set out to do 20 years ago by dismantling the remnants of the “License Raj” that breed opportunities for corruption and depress the country’s economic trajectory.

Two years and one conviction later, Mumbai was once again rocked by three serial bomb blasts last month (apparently to mark the 26/11 convict Ajmal Kasab’s birthday). Though smaller in comparison to the 26/11 terrorists attacks that killed some 166 people during a three day virtual siege on the city, the blasts on 13 July have until now claimed 26 lives and injured more than 100. So far, investigative agencies have been unable to single out any particular organization responsible, and theories ranging from Islamic fundamentalists to Hindu fundamentalists to Mumbai underworld are being espoused.
More shocking than the blasts was the news that many of the security upgrades and counter-terrorism plans proposed after 26/11 have been stuck in bureaucratic red-tape and political apathy. Simple updates such as installation of CC TV cameras in sensitive areas have not been done; in fact, the cameras have yet to be bought. A governmental team will now visit London to study how that is done and then implement it in Mumbai!

A genuine long- suffering victim of terrorism, India has never been shy of highlighting its victimhood. However, that has not translated into strong constructive actions to prevent terrorist attacks in the highly sensitive areas such as Mumbai, Delhi, and even Jammu & Kashmir. Terrorists continue to strike at regular intervals, and all we hear is political promises that lead nowhere.

While it is indisputable that Pakistan is the root-cause of the problem afflicting India, that does not absolve the Indian administration from being pro-active in protecting the lives of its people. There is no reason to believe that India lacks the brains to make plans and take steps. What is lacks is the political will. It is unfortunate that petty partisan politics and corruption have started sabotaging the security of Indian citizens. For a global player aspiring to be the next big thing in Asia and world politics, this is highly damaging. Indian politicians really need to take a hard look at themselves! The rapid economic growth can distract a people for only so long. Once that distraction becomes routine these life-threatening shortcomings and neglect will cease to be tolerated. Uncomfortable questions will be asked and action would have to be taken. It is probably only a couple of more blasts before Indian politicians run out of time. They would be wise to not wait for the final bang.

Flash forward to the present.  Singh now occupies the prime minister’s office but instead of decisive acts of policy, he sits atop a rudderless government.  The fecund sense of possibility has been replaced by a growing embattlement spawned by a corruption scandal that has landed his former telecommunications minister in jail and left him scarred politically.  In the place of lionhearted proclamations, he is reduced to protesting – as he did a month ago in an interview with media editors – that “I am not helpless.”  As one observer notes, Singh in 1991 was a man on a mission, while 20 years hence he seems a prime minister in hiding.

Earlier posts (here and here) have sifted Singh’s budget plans and just-concluded state-level elections for signs about his political fortunes.  In the past few weeks, two other indicators have emerged: a much-anticipated Cabinet shake-up that utterly failed to live up to expectations, and the strange silence in New Delhi about the 20^th anniversary of the economic reforms for which the prime minister has every right to claim ownership.

After a Cabinet reshuffle unveiled in January was widely panned as cosmetic and unimaginative, Singh promised a thorough house cleaning in the summer months.  An extensive makeover would have injected desperately-needed fresh blood and new talent into a lethargic administration, as well as help turn a political corner by demonstrating that business as usual was no longer the norm in New Delhi.  Yet the new line-up announced in mid-July failed to generate any sense of political dynamism at all.  Senior ministers remained in place while mid-level portfolios were merely shifted about.  Although a handful of new faces were brought in, the Cabinet retained its geriatric disposition, with the average age of ministers increasing from 61 to 65.  Nor was anyone inducted who could give new life to critical items on the stalled economic reform agenda. 

Moreover, the exercise served to underscore Singh’s ineffectualness.  Just days before the reshuffle was rolled out, Mukul Roy, the junior railways minister, openly defied Singh’s order to visit a rail accident site in northeastern India.  A confident, potent prime minister would have made him a conspicuous example of what happens to disobedient subordinates.  Yet Roy survived the Cabinet shake-up, merely transferred to another portfolio with his minister of state rank intact.

Of course, the hapless lot in which Singh now finds himself is largely not of his own making.  He is a person of undoubted integrity and honor, as well as genuine technocratic abilities.  But he is not a natural politician; indeed, he has never won an election.  Nor is he even in command of his own government, much less his own party – a point that was vividly registered this month.  While Singh was at work on the Cabinet re-jig, Digvijay Singh, a senior Congress Party leader, used the occasion of Rahul Gandhi’s 41^st birthday to trumpet Rahul’s qualifications for the prime ministership.  The current prime minister reportedly took exception to the implication.  Finance Minister Pranab Mukherjee, another party stalwart, has also climbed aboard the Rahul bandwagon.  In the media interview noted above, Manmohan Singh could only retort meekly that whenever the party “makes up its mind, I will be happy to step down.”

Singh’s position was further undermined when New Delhi’s rumor mills came alive with speculation that he could succeed Pratibha Patil as president – the titular and ceremonial head of state – after her term expires next July.  The timing here could be significant since elections in the politically-important states of Uttar Pradesh, Punjab and Gujarat will have taken place by mid-2012.  If this is indeed the Congress Party’s game plan, it would allow Rahul Gandhi to gain two full years of experience as prime minister before having to submit his government to the electorate.

Singh’s political condition is the result of the awkward system of governance that has prevailed in New Delhi for the past seven years, but which seems especially dysfunctional over the last two.  While he serves as the government’s front man, the real power belongs to Sonia Gandhi, Rahul’s mother and the Congress Party’s risk-adverse head.  Mrs. Gandhi does not share Singh’s reformist inclinations and is more given to market-distorting welfare spending than productivity-enhancing measures.

This state of affairs explains much – from the airbrushing of Narasimha Rao out of the party’s institutional memory, to the lack of progress on crucial economic reforms and the reticence about the transformational events of 1991.  Despite a notable re-election victory two years ago, Singh’s government has since been unable to muster the political will to advance any significant initiative.  A new report by the Macquarie Group, an Australian financial house, identifies some 80 key pieces of legislation now languishing in parliament.  In recent weeks, prominent business leaders, including Ratan Tata, have warned that the lack of reforms is causing Indian companies to concentrate their investments abroad, a point that was punctuated by an India Today cover story titled “India Inc. goes global as government chokes economy.”

Barring unforeseen developments, Singh’s job as prime minister is safe for the coming year.  But with each passing month of feckless policy-making, his ultimate legacy is more and more in jeopardy.

The Woman of the Hour

As suggested in an earlier post, the just-concluded elections in five Indian states provide an important signpost regarding Prime Minister Manmohan Singh’s political future.  As they involved four of the country’s 28 states – including West Bengal and Tamil Nadu, two of the most populous (plus the federally-administered city of Puducherry) – the contests were viewed as a collective national referendum on Dr. Singh’s beleaguered coalition government.  All told, roughly a quarter of India’s 675 million-strong electorate had an opportunity to cast a ballot over the past few weeks.  The election results were announced last Friday, May 13, and they offer mixed news for Singh and his Congress Party.

Although the prime minister is not given to open displays of emotion, he must have greeted the electoral drubbing the Communist Party of India-Marxist received in its long-time bastion of West Bengal with a more than a tinge of personal satisfaction.  In earlier times, the CPI-M’s parliamentary support was vital to the survival of his coalition government, though given the party’s ideological bearings it came at the cost of thwarting much of the economic liberalization agenda Singh would have otherwise pursued.  But the Communists dramatically broke with the Prime Minister over the 2008 U.S.-India civil nuclear accord, precipitating the tumultuous parliamentary vote of no confidence that nearly brought down Singh’s government but which ultimately was his finest hour in office.  The Communist rout in West Bengal, combined with its much narrower loss in the southern state of Kerala at the hands of a Congress Party-led alliance, has now pushed the CPI-M to the fringes of the national political landscape.

The CPI-M’s decimation in West Bengal was administered by the Trinamool Congress (TMC) party, the most important partner in Singh’s coalition government.  But this development does not add up to a net gain for the embattled Prime Minister.  The victor’s laurels in West Bengal belong to TMC’s leader, Mamata Banerjee, who today was inaugurated as the state’s chief minister.  Banerjee is a charismatic if mercurial figure who was the strongest voice of dissent against economic reform within Singh’s cabinet over the past two years.  Since she rode to victory by embracing economic populism, her resistance to Singh’s reform agenda could become more entrenched.  This is especially true on the economically important but politically explosive topic of acquiring farm land for industrial and infrastructure projects, an issue on which she revived her political career.  (Taking a page from Banerjee’s playbook, Rahul Gandhi, scion of the Nehru-Gandhi political dynasty and the Congress Party’s secretary general, has intervened in his own land-use controversy, this one involving the acquisition of farmland for an expressway project in Uttar Pradesh.)

Some argue that Banerjee is smart enough to realize that the key to her political longevity is delivering good governance and economic pragmatism to a state that has long suffered from the absence of both.  An optimistic sign is her selection of Amit Mitra as West Bengal’s finance minister.  A U.S.-educated economist, Mitra is the long-time head of the Federation of Indian Chambers of Commerce and Industry and a key player in the economic reform lobby.  Her rather derelict service as federal railways minister over the past two years (see here and here), however, offers a cautionary note about her governing skills.  (Also read Mahhavi Bhasin’s analysis.)

Singh’s government has promised to draft new legislation regulating the acquisition of land for industrial projects by July.  Its provisions will say much about how events in West Bengal will affect the prospects for economic liberalization.

Elsewhere, the Congress Party and the Dravida Munnetra Kazhagam (DMK), the second largest coalition partner in Singh’s government, experienced electoral disaster in the southern state of Tamil Nadu, as voters reacted strongly to the stench of the telecoms corruption scandal (which, after the Watergate affair, Time magazine in an exaggeration calls the worst abuse of power in recent history) that now surrounds both parties.  The backlash should give Singh all the more reason to keep his promise of rooting out corruption.  Also, given the diverging fortunes of the TMC and DMK – not to mention the fact that more and more of the DMK’s senior leadership is landing up in jail – one should expect the former to pick up more ministerial posts, and the latter to lost seats, in the forthcoming Cabinet reshuffle that Singh has pledged.

Although some media reports portray the election results as a boost for Singh’s government, what is striking is the lack of enthusiasm voters displayed for the Congress Party.  Of the five states that went to the polls, the party won an outright majority only in Assam, a moderate-size state in the northeast.  The CPI-M’s demise in West Bengal was Mamata Banerjee’s handiwork and she alone will take the glory from that contest.  The government in Kerala led by the CPI-M was only narrowly defeated by the Congress Party and its local allies – and this despite Rahul Gandhi heavily campaigning on behalf of the party’s candidates.  A Congress government in Puducherry was summarily booted out of office.  Considering the party’s rather poor showing in the Bihar state elections late last year, Congress has not had a run of good luck recently.

A final note concerns the continued regionalization of Indian politics.  Of the country’s 10 largest states, Congress is fully in charge in only one: Andhra Pradesh.  And the Bharatiya Janata Party, the main national opposition party, was a non-factor in the just-concluded state elections.  What this means on the national stage is that unwieldy coalition governments will remain the norm in New Delhi.  This is another reason that the much-anticipated second generation of economic reforms will be a long time in coming.

Finance Minister Pranab Mukherjee with budget proposal in hand

As suggested in my last post, the character of the budget Prime Minister Manmohan Singh’s presents for the fiscal year that begins April 1 will offer important clues about his political legacy.  His budget plan was laid before Parliament last week to mixed reviews.  Among its positive items are increased spending on desperately-needed infrastructure projects in the rural economy as well as steps to stimulate private investment in overall infrastructure development and the involvement of foreign investors in Indian capital markets.  These measures gave the bearish Indian stock market a momentary bounce.  Yet far more noteworthy is what the proposed budget does not contain – realistic assumptions and a commitment to press ahead with crucial items on the economic reform agenda.

The budget is laced with what will likely prove to be overly roseate expectations.  Although large spending increases are slated for educational and social programs, the government is banking that faster economic growth will generate an 18-percent rise in tax revenue.  Thus, even with higher spending, the government believes that it can cut the fiscal deficit from 5.1 percent of gross domestic product (GDP) in this fiscal year to 4.6 percent in 2011-12.  It forecasts that the economy will grow 9 percent in 2011-12, up from this year’s expected 8.5-percent rate. 

This key assumption is open to debate, however.  The growth rate fell more than expected in October-December 2010, to 8.2 percent from 8.9 percent in the previous quarter.  And the rate would have been even lower had it not been for the agricultural sector’s banner year.  The sector’s projected growth rate of 5.4 percent in 2010-11 is a positive contrast to the dismal performance the sector has experienced in recent years, but is also largely due to an exceptional monsoon season rather than increased productivity brought about by far-sighted government policies.*

Other factors likewise point to an economic slowdown:

• The industrial sector witnessed a sharp decline at the end of last year, foreign direct investment fell 31 percent in 2010, and foreign institutional investors have pulled out $1.2 billion from portfolio markets since January.
• The overall inflation rate – clocked at an annual rate of 8.2 percent in January – is unlikely to moderate in the coming months as the government expects, especially given global trends toward higher food prices and rising fuel costs (see the analysis here and here).  Indeed, India possesses the highest inflation rate among Asia’s ten largest economies.
• The deficit in the current account (which measures the country’s balance of payments) is very likely to widen from the 2.9 percent of GDP in 2009-10 to around 4 percent this year, in good measure due to the country’s very high dependence on imported oil.

The government’s hopes for lowering the fiscal deficit also rest on shaky grounds.  The proposed budget maintains expensive fuel and food subsidies, whose costs appear to be underestimated but are certain to rise.  With many subsidies off budget, their true costs are difficult to tally but Deutsche Bank estimates that costs will reach 2.5 percent of GDP in the current fiscal year, well above the government’s forecast of 1.8 percent.  And the food security legislation that the government plans to introduce later this year would increase these costs even further.  The ratings agency Standard and Poors concludes that “the government may struggle to meet its fiscal deficit target for 2011-2012 as pressure to step up spending mounts.”

Despite Mr. Singh’s promises in his televised press conference last month, his budget proposal is also noteworthy for the absence of reforms targeting the structural impediments throttling India’s full economic potential.  With surging food prices largely driven by supply-side constraints – food inflation was at an 11.49-percent annual rate in mid-February – the budget presentation would have been an opportune moment to unveil a plan to liberalize the retail sector, especially for foreign companies with deep experience in running sophisticated distribution chains.  Missing, too, was a commitment to open the insurance sector to overseas investment, a reform that many have long acknowledged as necessary.

A day after the budget’s presentation, these shortcomings were decried in a hard-hitting address by Mukesh Ambani, chairman of Reliance Industries and the country’s richest man.  Speaking at the annual meeting of the Federation of Indian Chambers of Commerce & Industry, he rebuked the small-bore reform agenda pursued by Singh’s government and challenged the Prime Minister to undertake the type of “disruptive policies” that Singh unleashed as Finance Minister at the start of India’s growth trajectory two decades ago.  The usually-reticent Ambani asserted that “India needs a bold new vision and a feasible action plan.”

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* I have written before about the dislocations caused by the Singh government’s use of social welfare spending to improve the rural economy, particularly how it comes at the expense of productivity-enhancing investments in irrigation systems and agricultural research and extension.  A key case in point is the National Rural Employment Guarantee Scheme, the headline initiative that provides a hundred days of annual (often make-work) employment for adult members of rural households who are willing to do public-works related manual work at minimum wage.  Now word comes, via Finance Secretary Sushma Nath, that NREGS is actually diverting the flow of labor from the private sector.

Manmohan has seen better days

In calendar terms, it’s only been a short time.  In July 2008, Manmohan Singh courageously placed his premiership on the line and won a dramatic no-confidence vote in the Indian parliament over the U.S.-India civilian nuclear accord.  Back then, he was lauded as the country’s “Lion King” and (borrowing from the Bollywood movie) shouts of “Singh is King” filled the air.  The Australian newspaper called him “one of the greatest statesmen in Asian history.”  A year later, he went on to become the first Indian prime minister in decades to win re-election, an unexpected political victory he hailed as a “massive mandate.”  It’s been just half a year since Newsweek magazine placed Singh on the top of its list of the world’s top 10 leaders and praised him for “inspiring awe among his fellow global luminaries.”  Mohamed El Baradei, now back in the news for his role in toppling Hosni Mubarak, extolled him as “the model of what a political leader should be.”  And only three months ago, Forbes magazine ranked him 18^th among the world’s most powerful people – between Apple’s Steve Jobs and French President Nicolas Sarkozy.

But those heady days must seem like the distant past to the increasingly beleaguered Singh.  Nowadays, he’s been reduced to denying that he’s a lame duck or intends to resign from office.  And The Financial Times is upbraiding him for “squandering the nation’s future through a lack of political will” – an opinion that many inside India and beyond are coming to share.

Singh’s hapless lot was on vivid display in his televised press conference last week.  Looking worn and at times rattled, he responded to questions about the telecom scandal now engulfing his government and eroding his reputation for sound judgment and competent management.  His interactions with the press are rare and his advisers presumably arranged the occasion to project an image of confident if unassuming authority.  He wound up sending the opposite signal, however.  At times he admitted implicitly that he has no control over his own coalition government and even his own Congress Party.  Elsewhere he resorted to reading prepared statements in response to sharp questions.  Far from dictating the pace of events, Singh now appears to be dispiritedly reacting to their flow.   (For more on Singh’s leadership traits, see Madhavi Bhasin’s post below.) 

In his remarks, Singh all but acknowledged that his authority as prime minister is derivative.  In reply to a query about why he reappointed Andimuthu Raja, from Tamil Nadu’s Dravida Munnetra Kazhagam party, as telecommunications minister when the whiff of corruption already surrounded him, Singh confided that he had no real choice in the matter.  Blaming the exigencies of coalition politics, he explained that “I did not feel that I had the authority to object to Mr. Raja’s entry” [emphasis added] into his own Cabinet.  This utterance caused the Wall Street Journal to exclaim that “it’s more than embarrassing when the leader of the world’s most populous democracy throws his hands up at the hijinks of his own ministers.  Accountability is clearly breaking down. India cannot be taken seriously on the world stage when its prime minister doesn’t have the power to speak on the country’s behalf.”  The Mint newspaper concurred, noting that Singh’s “inability to steer the government and tame the more reckless of his colleagues is now undeniable.”

The Prime Minister also intimated that the now-rescinded decision to resist opposition demands for a full-fledged parliament inquiry into the scandal – resulting in months of legislative paralysis – laid somewhere other than in his hands.  Of course, all of this underscores what has long been known: Sonia Gandhi, the cautious head of the Congress Party, is the real power behind Singh’s government. 

To be sure, Singh does not lack for tenacity or grit – his actions in the tumult over the nuclear accord with Washington attest to this.  But unlike his predecessors, he lacks an independent political base that enables him to crack the whip against recalcitrant colleagues in the Cabinet or the Congress Party.  He is not even a member of the Lok Sabha, the directly-elected lower house of Parliament, but rather a member of the Rajya Sabha, the indirectly-elected upper house.  He has stood for direct election just once in his life, in the 1999 parliamentary elections, and lost badly.  He is also the accidental prime minister – chosen by Sonia Gandhi when it became clear that her selection as PM would be problematic.  It was telling two months ago when the Raja affair was gathering steam that P. Chidambaram, Singh’s long-time associate and now his home minister, recommended that Gandhi conduct regular reviews of the Cabinet’s work – a proposal that The Times of India explained as akin to making her a “super Prime Minister.”  Singh’s meek admission that he does not call the shots in New Delhi only confirms his subordinate position.

Singh’s remarks before the media that the BJP’s “hostile attitude” is responsible for the lack of movement on the next generation of economic reforms are also incredible.  The real roadblocks are from within his coalition government, particularly the Trinamool Congress and the DMK, as well as the Congress Party’s risk-averse apparatchiks.  Ironically, the very success of the economic transformations that Singh set in motion two decades ago have only reinforced the status-quo orientation of his party colleagues.

The next few months will tell whether Singh has irretrievably lost his political mojo.  A first indicator is whether the now agreed-upon inter-party inquiry into the Raja scandal will be enough to allow the legislative process to resume as normal for parliament’s critical budget session that has now commenced.  A second signal will come in the character of Singh’s forthcoming budget plan.  In his comments to the media, he vowed to press ahead with crucial items on the reform agenda.  We will see whether the budget he tables matches this rhetoric.  My guess is that it won’t.

Singh also promised another Cabinet shake-up following the budget session, which concludes on April 21.  The reshuffle he announced last month was widely panned as cosmetic and unimaginative.  And so a third signpost will be whether he actually follows through on this vow and thoroughly cleans house.  A fourth indicator has to do with the outcome of the state elections that will take place in the coming months, including in West Bengal, Kerala and Tamil Nadu.  If, as expected, the Congress Party loses significant ground in these states, then the clamor for Singh’s ouster may reach critical mass.