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Millennium Post

The gathering darkness

In India: Still A Shackled Giant, economist Dev Kar points out the truth behind the noise of popular media and jingoism of leaders – meticulously researched and objectively narrated, this enlightening read tells us why India continues to be a shackled giant and how it can find the road to redemption; Excerpts:

Poor governance, of which corruption is a defining feature, undermines government funding as well as the efficiency of investment allocation. For instance, countries that are weakly governed tend to invest far less in health, education and other key sectors that strengthen the nation state and the development process itself. Take, for example, the question of national security.

The movie Hotel Mumbai (2018) depicts the horrific 26 November 2008 terrorist attacks on Mumbai's Taj Mahal Palace Hotel, the railway terminus, and a Jewish outreach centre. The movie accurately captures the abject state of India's national security when it comes to dealing with terrorist attacks. Poorly trained police, many wielding sticks, were shown chasing heavily armed terrorists. While innocent men, women and children were being killed, India's elite commandos, the National Security Guard (NSG), took nine hours to arrive on the scene. The Delhi-based NSG lacked a dedicated aircraft to fly them to Mumbai.

While there have been some improvements in the security apparatus, serious gaps remain in many areas. I feel that India is ill-prepared to deal with the next terror threat. For instance, the various agencies involved in ensuring security lack adequate equipment for surveillance and to take offensive action against terrorists. The NSG still does not have a dedicated aircraft to transport them in the event of a terrorist strike. Meanwhile, the various national and state security agencies continue to squabble among themselves over turf. To make matters worse, India's long coastlines remain vulnerable to terrorist infiltration.

Apart from weaknesses in counterterrorism measures, there are other failures of the state. One of the main reasons why the recent 'Make in India' proposal failed to take off is that successive governments since Independence did not invest adequately in education and vocational training. As a result, India's pool of skilled manpower is rather shallow, providing little support for investments in manufacturing and high-technology industries.

As we shall see later, healthcare in India, particularly for the poor, leaves much to be desired. Public hospitals are few and far between, and the quality of care is abysmal. Private hospitals and nursing homes are better but the cost of care is well out of reach of the poor or even many middle-class Indians. Health insurance schemes tend not to provide adequate coverage for serious illnesses at a reasonable cost.

Governance not only represents the quantity and quality of goods and services provided by the government such as security, education, and healthcare, but also the extent to which law and order underpins all contracts, actions, transactions and behaviour. The law applies to everyone including citizens, politicians and the government itself.

We all pay the price when there is poor law and order. For example, thousands have perished in riots in India since Independence. Yet, many of the perpetrators have not been brought to book. Moreover, the verdicts take decades to be handed down by clogged courts. These are some of the many facets of fragility and poor governance.

What sets apart the rich (or advanced) countries from poor developing ones besides income? Rich countries typically have a huge lead over developing ones when it comes to the state of overall governance. Daily life is so much easier when everything works as expected. While corruption in advanced countries may be hiding in high places, there is no corruption at the grass-roots level where we have to bribe others just to get basic services. This is because there is a healthy respect for law and order. Private transgressions, which are thankfully few and far between, attract sure and swift punishment.

Nevertheless, advanced countries have also experienced colossal failures in governance. The cases that follow show that when institutions relax their oversight or are infected with corruption, those lapses could lead to serious political and economic instability.

The larger point is that if advanced countries with stronger governance can experience serious crisis, the risks are much higher for a developing country like India. Often, these risks are hidden until a crisis strikes. The crisis can take any shape or form such as a terrorist strike or a mega scam that takes advantage of weak institutions and regulatory oversight. Politicians cannot afford to neglect the poor state of affairs. Yet, apart from paying lip service at election time, nothing significant has been done by successive governments since Independence to curb corruption, strengthen institutions, or improve law and order to name a few.

Many Indians may wonder why they should be concerned about governance when India has been among the world's fastest growing economies for quite some time. After all, today there are more than a hundred billionaires, millions of millionaires, and a middle-class that is larger than the population of some developing countries. Besides, millions more have been lifted out of poverty as a result of rapid economic growth. So what is there to worry?

The short answer is 'plenty'. High rates of growth provide no insurance against a failure to govern. In fact there may be more ways to make black money in a rapidly growing economy that is poorly governed. One simply needs to know how to exploit the existing weaknesses in the system in order to do that. We have been reminded time and again about the costs of corruption but our attention span seems too short.

Governance Failure: United States of America

Weak governance not only caused the financial crisis of 2008 that originated in the US, but was also responsible for the surprise election of President Donald Trump. The financial crisis was brought on by weak regulatory oversight of banks, mortgage companies and the agencies which rated them. If lax oversight can cause a crisis in an advanced country, imagine the economic damage that regulatory weaknesses can cause in India. The benign neglect of governance issues is sorely misplaced; we have been told that those who do not learn from history are condemned to repeat it.

It is widely known that dissatisfaction with mainstream politicians led to the election of Trump. But most political pundits did not see the huge backlash by disgruntled voters that put Trump in the White House. He had been loudly complaining for years that many countries had taken advantage of America. In his view, globalization had harmed the US economy. However, Trump's assertions and complaints were not taken seriously.

One of Trump's major complaints was that China was cheating in international trade. It restricted the entry of US goods, stole American company secrets and resorted to unfair practices in order to gain a competitive edge. Moreover, he argued that while the US maintains low tariffs on its imports of foreign goods, other countries impose much higher duties on its goods. This makes it very difficult for US firms to compete and create jobs in the country. Indeed, a record number of US firms have shifted their production abroad. This has displaced millions of workers from their jobs. Most of the unemployed have still not found work that pays anywhere close to what they used to make.

J.D. Vance, a former US marine and a graduate of Yale Law School, wrote a haunting book on poor, white Americans. It is based on his own personal experience of growing up in Ohio and the Appalachian town of Jackson, Kentucky. Jennifer Senior of the New York Times called the book 'a civilized guide for an uncivilized election', adding 'and he's done so in a vocabulary intelligible to both Democrats and Republicans. Imagine that.' I wasn't aware that such depths of despair, poverty and hopelessness exist in the US. The book opened my eyes.

(Excerpted with permission, from India: Still A Shackled Giant by Dev Kar; published by Penguin. This excerpt is a part of the chapter titled 'What Is Governance and Why Should We Care?')

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