Devolution of Power in India

Sankarshan Acharya


October 27, 2005

India is booming in knowledge-based sectors like information technology, medicine and other professional services.  The boom started around 1991.  Our media attributes such boom to IITs and political leaders with vision.  There is no dearth of cronies to extol their political leaders who laid foundations for industries and educational institutes.  But all these industries and institutes have existed even prior to 1991.  The leaders credited for the boom also existed before 1991. Here is an industrialist's account of Indian Economy since independence.

The press has rarely emphasized one of the biggest blots in India’s history since independence: the nation’s foreign currency checks bounced in 1991.   This was due to complete erosion of India’s global competitiveness.  India could not pay for its imports.  The country could not produce enough of high quality goods to sell in global markets.  The same problem of trade imbalance persists even now.  Yet, there is a perception of some kind of boom in knowledge based sectors.    

A dispassionate analysis shows that the boom is almost like a mirage for the vast majority.  It is because money is created by decree for the exporters of labor, goods and professional services.  As the value of rupee falls relative to hard currencies like dollar, euro and yen, the government transfers more fiat money (rupee) to the accounts of exporters.  The real (inflation adjusted) rate of growth in monetary values of goods and services sounds impressive.  This is trumpeted as India’s economic expansion or growth.   But the latent truth is very different.  The inflation is measured by the increase in the prices of a bureaucratically set basket of goods and services.  This basket is very different from all the other items whose monetary values are rising due to creation of money for those who can trade on such items.  This is why India’s economic growth is not creating many jobs and poverty is still significant.  This phenomenon is described in detail in Prosperity.

There is a very different kind of real change taking place in India.  The system of governance – with ministers and bureaucrats who have traditionally exuded enormous power – is ceding control to exporters by transferring newly minted fiat money.  The system has lost control over such transfer because it cannot fix the international value of rupee.  The system has raised staff salaries and perquisites through pay commissions up to 90% of total government revenues.  It is also borrowing most of the savings in the name of development.  But according to former Prime Minister Rajiv Gandhi’s estimates, 85% of the development funds never reach their planned targets.  This 85% of the borrowed funds and 90% of tax revenues are thus consumed by people, most of whom are really unproductive and many offer only disservice to public.  Most of the illegitimately usurped public funds gravitate to real estate for the fear of vigilance and Central Bureau of Investigation.  Real estate produces few jobs or incomes.  This is why we see jobless growth.  More importantly, we have a government system that is grudgingly creating money by decree for private individuals to whom it is increasingly becoming indebted.  Our neo-colonial lords are thus willy-nilly being subjugated, financially, by those they were used to control.  It is because they cannot control international value of rupee.  Muscle power is no longer helping.  This is a tremendous devolution of power from the lords to the subjects – the exporters including those who work in sweat shops in India and abroad.

Devolution of financial power in India can be gauged by the historical value of rupee in terms of dollar, plotted in the graph below.  It started after India’s iron lady, Mrs. India Gandhi, was weakened by the Khalistan movement before she was assassinated.  Rupee fell dramatically after Mrs. Gandhi died.  The strength of rupee was a reflection of strong leadership of Mrs. Gandhi and her self-sufficiency drive.  Further weakening of rupee thereafter was primarily due the Chinese currency’s devaluation.   By devaluing yuan, China has forced workers to sweat for pittance.  While this created millions of new jobs in China, it has not devolved financial power to ordinary exporters.  Only those connected to the Chinese authorities tend to be in plum export sectors of China.  This is unlike India, where politically unconnected knowledge-based professionals have amassed fortunes legitimately by building world-class corporate behemoths.  This is the kind of latent devolution of power that is reshaping India like never before. 

Jan 12, 1975

Indira Gandhi was found guilty of corruption

March 22, 1977 

Congress loses general election

January 7, 1980

Indira Gandhi returns by landslide

Feb 20, 1983

Hundreds die in Assam poll violence

October 31, 1984

Indira Ghandi was assassinated

Nov 1, 1984

Violence follows Gandhi killing

Dec 3, 2004

Hundreds die in Bhopal chemical accident

Dec 29, 1984

Rajiv Gandhi wins landslide victory

Nov 7, 1991

Indian PM VP Singh resigns

May 21, 1991

Rajiv Gandhi is killed

Dec 6, 1992

Mob rips apart mosque in Ayodhya

March 12, 1993

Bombay hit by devastating bombs

March 19, 1998

BJP forms government

May 11, 1998

India tests nuclear bombs

December 13, 2001

Suicide attack on Indian Parliament

May 13, 2004

Congress returns to power.

The recent duel between an icon of India’s success and an ex-prime minister is simply a symptom of the cataclysmic devolution of power from the brawny to the brainy.  The era of engaging one caste or religion against the other to usurp public wealth may be ending in India.  It seems the confrontation is turning open.  The muscle-driven politicians once orchestrated emigration of talents from IndiaIndia has, as a result, lagged globally in production of quality products and service.  This raised India’s trade imbalance.  The rupee value has been declining.  With the falling rupee financial power is transferring to professionals.

The political and bureaucratic neo-colonial lords of India have thus hoisted their own petard.  They cannot continue to show a mirage of prosperity to get votes.  The habit of printing/borrowing rupees to distribute to followers (staff and political workers) in the name of development is simply ruining the national competitiveness.  It is weakening the lords financially and morally.  This is rapidly loosening their grips over voters who are no longer willing to be taken for a ride behind a mirage of prosperity.  This may not have dawned yet on all of our political leaders and their bureaucratic cohorts. 

The real global power base of India now is the brainy, skilled and productive citizens.  Nationalistic zealots of any country should be proud of such citizens who have propped national prestige, security and currency globally.  Without these citizens, India would have languished like another Latin American country with hyper inflation and international economic subjugation.  Quarreling with the true latent vanguards of the nation is not a reflection sagacity of a political leader. But new political leaders will definitely emerge from such a rapidly transforming India.  They will eventually recognize this devolution of power and tacitly pursue a path of peaceful coexistence to foster prosperity through diligence and perseverance by everyone.