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Indian Government Flunks Management 101

Some of India’s private companies are among the best managed firms in the world. Government, however, is another story. Not only is India’s government notoriously corrupt and slow; it lacks the capacity to make basic decisions and repeated failures to manage issues like infrastructure development, land sales and natural resources are reaching a critical mass.

The latest scandal to hit the government, “coalgate” as it is called, is a fairly typical (though outsized) Indian scandal: privileged private firms and favored political actors get access to valuable public resources for much less than those assets would bring in a fully fair and transparent auction. It’s clear at this point that the system isn’t changing because substantial chunks of the Indian elite like what they’ve got. Too many nests are being too comfortably feathered for the politicians and their allies to welcome change.

But in some ways, the purchasing scandal is just the tip of the iceberg.  The biggest obstacle to India’s development isn’t corruption so much as it inefficiency. Bribes and kickbacks to politicians are just the start of your headaches when you get involved in big mining and infrastructure projects there.   Owning the rights to a resource in no way implies permission to do anything about it. As Reuters reports,

Ten years after announcing the project, Jindal Power and Steel is still waiting to start digging for coal to fuel its $3.1 billion steel and power complex in India’s eastern Orissa state…The obstacles include tardy environmental clearances and complex land acquisitions, as well as populist policies that often mean hefty losses for power utilities.

Coal is and will continue to be the dominant source of fuel in India. India has plenty of it — the  fifth-largest reserves in the world, in fact — but can’t get it out efficiently. 80 million tons were imported last year. Power outages were widespread regardless.

A few years ago I was visiting the (beautiful and welcoming) state of Orissa when I was stuck in my hotel for a couple of days. An indigenous group which felt it had been unfairly treated by some land ownership process had declared a ‘bund’ — sort of a compulsory strike. There were reports of people shooting arrows into the tires of vehicles out on the road in defiance of the bund.

I wouldn’t be surprised if the tribal people had some legitimate grievances; but what was also quite clear was that India doesn’t have a way of resolving these disputes one way or the other. Disputes can drag on in the courts and the legislatures for years.

The results can be seen all over India in poor infrastructure and problems like power shortages. What you don’t see, but is very real, is the absence of massive manufacturing investment. Because India can’t manage the various permitting and land transfer policies expeditiously and transparently, many manufacturers look to other locations. The result is that India is failing to create enough jobs for the people who need them the most — the rural poor who don’t speak enough English to get jobs in call centers and who don’t know enough about computers to get jobs in the high tech industry.

The failure of India’s growth to include more opportunities for low skilled, less educated workers reinforces public suspicion of globalization and of foreign investment. It also holds India’s growth rate down; it’s likely that faster, more effective and less dishonest government would significantly enhance Indian growth and employment prospects.

India’s ability to overcome these problems has a lot to do with the future happiness and well being of what will soon be the most populous country in the world, but to Americans it means something more. The rough balance of power we hope to see in Asia, one that keeps China honest without committing America to decades of expensive and dangerous containment policies, depends on the continued progress in India.

When that isn’t happening, and when things are even going backward, geopoliticians as well as investors start adding up the numbers and reassessing their assumptions. Better governance in India means a safer and more peaceful as well as more prosperous world.

For better or worse, what happens in India affects people all over the world.

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  • Brett

    That’s what happens when you take a giant bureaucracy dependent on the local elites to maintain order, and then slap the disastrous regulations, autarkism, and socialism that characterized India’s “license raj” for decades. I suppose we should be grateful that the country held together at all as a democracy (or simply held together instead of fragmenting further).

  • Brett

    To add-

    India, like several other countries in Latin America and Africa, had poor timing when it chose a central economic policy following its independence. India went socialist and autarkist because the Soviet Union and several other communist countries appeared to be growing rapidly in the 1950s (and in the Soviet Union’s case, they were coming off of a brutal but successful period of industrialization). Several Latin American countries did a lighter version of this with Import-Substitution Industrialization and state-owned companies.

    I wonder if it might have been different if India had become independent earlier on. Possibly not, since the failure of communism as an economic strategy didn’t really become apparent until after the 1950s.

  • Kris

    “The failure of India’s growth to include more opportunities for low skilled, less educated workers reinforces public suspicion of globalization and of foreign investment. ”

    Oh, were we talking about India?

  • Hubbub

    “…it’s likely that faster, more effective and less dishonest government would significantly enhance Indian growth and employment prospects.”

    Might the same be said as well of the United States? Surely our government is becoming slower, less effective, less efficient, and more dishonest with each passing administration.

  • Jacksonian Libertarian

    I disagree with your analysis of India’s progress against corruption.

    It takes years for politicians to build up their systems of patronage and corruption, because they have to be cautious doing all that illegal stuff. The foremost benefit of Democracy is that the systems of patronage and corruption can be disrupted by firing the political leadership, and installing new leadership which knows the same thing will happen to them if they don’t serve the public better. Democracy is the only way that the all important “Feedback of Competition” can at least minimally affect the Government Monopoly.

    We have seen very little change in India’s political leadership since Independence from Great Britain. Without the disrupting affects of a change in leadership, the systems of patronage and corruption keep growing. Compared to the US where the Republicans and Democrats are constantly fighting for supremacy, India’s politics have been stagnant.
    With the political competition now heating up in India, numerous scams are coming to light as ambitious politicians reveal them to damage their political opponents and gain power for themselves. The level of corruption in India is falling, and as long as the scams are being revealed faster than new ones can be created, the overall level of corruption will continue to decline.

  • gavin

    remember mumbia(Bombay) attacks?man shooting in station with machine pistol.police equipped with rifle could have dropped pac man at 100yds easy,why not as police have rifles.
    not really sure where this goes ,but Hassan was shot by policewoman within a NY minute .

  • carvaka

    @Jacksonian Libertarian

    most of the corruption cases in india are not exposed due to political rivalries (though there are some such cases).

    mostly these have been brought into notice by government institutions like CAG (comptroller and auditor general).

    politics also in my opinion has not stagnated. you need to look into election results – state and national to see the dynamics.

    what actually happened is there is a decay in political parties – mainly the national parties . so much that regional parties have become relatively strong. which makes the government fractured , inefficient and stagnant.

    there is no way out unless the big parties get the right diagnosis and reform themselves. so far there is no such indication.

  • Ian

    I love the headline of this post. Perfect title and made me laugh out loud!

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