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November 4, 2009

Human capitalism

Even before joining the Indian government to lead the national ID project, Nandan Nilekani — then chairman of Infosys Technologies — was engaged in a number of public policy initiatives. He is the president of the National Council of Applied Economic Research, a member of the National Knowledge Commission, a member of the board of governors of the Indian Institute of Technology, Bombay and is involved in numerous other governmental and nongovernmental initiatives. The range of his interests and his passionate commitment to India’s future comes out in his book Imagining India – Ideas for a new century. As indeed, in his voice when he spoke to Pragati.

How would you define India’s national interest? When we posed this question to Jaswant Singh, he said it was the preservation of the resilient core of Indian society that is the heart of India’s national interest, because it is Indian society that keeps the wheels turning whatever is the political structure of the state. According to K Subrahmanyam, India’s national interest is to ensure high rates of growth, alleviate poverty and ensure good governance.

Anything that we can do to make the country stronger, more equitable, more secure, more fair and which can truly leverage the extraordinary opportunity—that would be the national interest. The definition of Indian society is amorphous and is prone to multiple interpretations. My view is that it is very rare that nations get an opportunity to lift a billion people out of poverty. And due to a confluence of events that I have described in my book, we have a truly extraordinary opportunity that comes once in a millennium. It is in our national interest to make the most out of that opportunity and achieve economic independence and fulfilment for all our citizens—doing that would automatically address the other challenges that we have.

Human capital

Your book is about ideas, and you have quoted a number of people and their ideas. If you were to pick one to focus the governance agenda of the coming central government, what would it be?

The most important idea and the central theme that I start off in my opening chapter is the change in our view of the population. For a long time, in part due to international pressure, we treated our population as a burden and something that needed to be controlled. But today, we’ve finally realised that people are our biggest strength, our assets and not liabilities, that human capital is what makes you tick. The moment you think of our people as human capital then automatically the challenge becomes how do we make sure they are healthy, educated, have roads to go to work and school, have lights to study at night, have jobs and can become entrepreneurs. The fundamental shift in the way we think about population is the central theme of my book and everything I talk about is how do we leverage and exploit that human capital, and what are the obstacles that you see in doing that.

If I were to stretch that—what would be the policy measure that would stem from this idea?

Part of it is execution—in areas like single markets, urbanisation, primary education and infrastructure, for instance, I don’t think it’s a policy issue so much, because there is a demand for that from the people, and there is political will. It is about doing it right, on time and with quality. Take primary education—there’s a huge amount of money coming down the pipe, and there’s a huge demand from the poor who have realised that lack of education impairs their  economic mobility. So you have demand and supply, but execution is a problem—getting schools to work, getting teachers to come…

The policy issues—which I talk about in my third section—first, we need to completely deregulate our higher education: it is unfair on our part to deny our children a good education. That’s exactly what we are doing by all these artificial constraints we have put on the sector, in the form of the whole “HRD Raj” that we have.

Second: labour reforms, and creating an environment where companies and well-meaning entrepreneurs can create a large number of jobs with the flexibility to be able to contract the work force when necessary. Today, due to the inflexibility of our labour laws, entrepreneurs are developing capital intensive industries when there are a large number of people who need jobs. On the other hand, 93 percent of the employment in the unorganised sector where people have no rights whatsoever. This is clearly an untenable situation. We need to change that and create a large number of jobs in the organised sector.

And third, if we are able to do these then we don’t really need reservations, because reservations is a way to parcel out quotas from an small existing capacity. It is much better to expand capacity so significantly that nobody really needs reservations; and we move towards a system of affirmative action where we offer people opportunities instead.

Right shift

It’s hard to dispute your contention that the extremes must be rejected in favour of a fine balance. But anyone born before 1991, and perhaps after that too, has been raised on a diet of socialism. The population may be young, but most of our politicians and decisionmakers still carry socialist baggage. In this climate, isn’t it necessary for those who believe in liberalism to take extreme positions so that the balance moves towards the right? In other words, shouldn’t those who want to bring about centre-right outcomes take an unabashed stance in favour of individual rights and economic freedom?

The experience of the world, including the current economic crisis has demonstrated that unregulated markets are as bad as unrestricted socialism. Markets are very powerful and useful instruments…they are the engines of economic progress and the only known way of raising the standardof living of billions of people. At the same time I think we need to balance markets with very good public governance and public accountability. The last section of my book, which is about anticipating the future, looks at health, pensions, energy, environment and technology. There is clearly a huge role for the state to make the right choices so that it can create the right environment in which markets can operate.

Markets should operate freely within a framework of rules, regulations and incentives. I’m not in favour of a state that hunkers down and decides who should produce what but more in terms of public policy. For example, if you want to drive a post-carbon economy, you can’t do it in a big way without public policy. I’m a strong believer in markets, but I also think that markets should be complemented with a very strategic thinking state.

But is there enough in the public discourse in terms of selling market ideas to the people?

Absolutely not. In fact, one of the arguments I make in the book is that half-done reforms are worse than no reforms. Because when you have half-done reforms, those of us who have access to education, English language and jobs can really prosper in this economy, and those who don’t get shut out.  Rather than positioning our reforms as something which is to make rich people richer, the real part of reforms is to broaden the access to opportunity—of education, infrastructure, healthcare to the common man. Reforms have not been positioned as something that lead to improved opportunities. That’s one of the political failures. All our reforms are done under stealth by our technocrats as if its something they shouldn’t be doing. If sold properly, reforms are pro-people, and not pro-rich. This has not been sold well-enough.

In the 20-odd months between your starting the book and its publication, the world—and India—is in a crisis. The UPA government’s fiscal profligacy has left us staring at a large fiscal deficit, severely constraining India’s ability to implement fiscal stimuli. Now exports have begun to dip, perhaps indicating coming heartburn on the balance-of-payments front. And the terrorist attacks on Mumbai have not only resulted in a geopolitical shock (the benign half-decade has come undone) but also exposed immense shortcomings on the internal security front. In your book you write about the transformative effect of crises—1991 changed our attitude towards our entrepreneurs. What do you think the current, manifold crisis, will transform?

There are broadly two issues: one, the global economic crisis and its implications on India; and two, the issue of security.

On the first, the whole world was in a bubble phase of growth and it made us complacent. The 8-9 percent growth we had was not real growth. It was bubble growth. And this led to two things: one, it took our eye off the ball in terms of the fundamental structural reforms that we needed, and two because it created a fiscal robustness due to higher tax collections, a lot of the money was spent on populist schemes. These are the two negative consequences of the bubble. Now the bubble is gone and our growth rates will come down to normal, and now it is becoming increasingly apparent that we cannot continue without fundamental structural reforms: that broaden access to education, employment, infrastructure. The message to us that it is back to basics. It is very clear that we can’t afford to have an indefinite number of populist schemes because we can’t afford it, and we have to use the money for old fashioned things like building roads and sending children to school. Whether it will happen or not depends on the politics of the situation, but it’s a strong message to go back to basics.

On the issue of terrorism, the Mumbai attacks have demonstrated very clearly that we really cannot ignore the need to have a strong, secure and a well-governed state. It’s not as if we have our markets and the stock exchange, we make some money and we go home. The reality is that we must have a well-governed state, secured borders, a good police, law & order. Those points have come through very strongly, especially for the middle class. And to the extent this will galvanise the middle class, which has by and large abdicated, and motivate it to engage with the political process and demand better accountability and governance, then from this tragedy we could have a good consequence in the long term.

What lessons does the success of Infosys have for Indian governance?

Obviously running a company and running a country are two different things—running a country is infinitely more complex. Having said that, Infosys is a story of common people aspired to do something on a big scale and were able to accomplish that.

If you look at the founders and even the current senior management, they all come from very prosaic, middle class backgrounds. But because we had a larger vision of what is possible, we were able to take ordinary people and make them achieve extraordinary things. India can do the same. India is at such a phenomenal position that if it can set its vision high, and provide leadership that can motivate people, then the 21st century can be an Indian century.

Intellectual infrastructure for the 21st century

From Bombay Plan to Bombay Club to Bombay House—we’ve seen the entrepreneurial shift from outward-looking Indian businesses. Yet, Indian businesses invest precious little in improving the overall public policy and public management capacity. Can the Indian entrepreneur continue to be globally competitive in the face of poor governance at home? How can corporate India be made to invest in thought leadership (think tanks, endowed chairs in Indian universities), training of public officials (policy schools and scholarships) and indeed in clean politics. Arun Shourie, for instance, recently suggested that shareholders require corporations to set up trust funds for politicalcontributions, and ensure that these are spent only on candidates without criminal records.

It’s a little early to say whether that will happen. I’ve been involved with a large number of initiatives to set up institutions, think-tanks and so forth, and while the response is improving, a lot more can be done. If you compare the 21st century India with the US in the 20th century, the Americans really built huge intellectual infrastructure through philanthropy—the Ford and Rockefeller foundations, and Brookings, to name a few—many great institutions were set up and they do it to the current day. We haven’t done it—barring the Tatas and some of us who are doing it—it’s not widespread. That needs to happen very rapidly.

I think the terrorist attacks have woken up people to the strategic risks of not focusing on a strong and secure state. That might translate into multiple kinds of things: more political activism, or more demand for de-politicisation of the security agencies, or more initiatives on governance reforms. I believe it should also translate into providing the intellectual infrastructure for the 21st century.

What I’ve done with my book, is to lay a roadmap for what are the ideas that we need to think about. We really don’t have a roadmap from any other part of the world: we have to learn from the mistakes made in the developed countries and chart out a whole new plan. To do that we need a lot of introspection and I don’t see that level of thinking happening. So my book is a broad agenda and it’s time we got into the details of each of these things and create the intellectual infrastructure to take it further.

Things are not going to change overnight. Indian politics will change over the 10-12 years. In 2020 we will have 500-700 million people under the age of 25, 90 percent of them literate, with a functional knowledge of English, we’ll have 35-40 percent urbanisation, and media and technology an order of magnitude greater than today. If the seeds of that are laid today they will become the basis for huge changes in the way political parties function and governance improves. At some point the politics of competitive development will overtake the politics of caste, religion and creed, which is what we have today. That shift will occur over the decade.

Engaging China

Will India modernise its infrastructure before the Chinese learn English? What if it is the latter? More generally, how do you see the India-China relationship evolving over the next few years.

It’s more than that. If the Chinese had their way, they’ll make Mandarin one of the global languages, if not the global language. That way, the playing field moves to their strength. India is a swing country in this because our embracing English in a big way will be an important reason for English to continue being a dominant global language. India is in a strategic position. One of the things I have been advocating is that not only should India learn English internally, we should actually spread English globally. The more strongly we do this, the more strongly we secure our own strategic position as opposed to someone whose language is not English. We have to make sure that remain the dominant business language of the world and global communications.

And yes, we should modernise our infrastructure before China catches up on the language front.

With China, we will collaborate in some areas, compete in others and partner each other in yet others. There are areas where we have common interests: for instance, on trade and environment. Both countries have an interest in keeping global markets open, in getting an efficient, effective and equitable deal on climate change, in getting a larger say in international organisations like the World Bank, IMF, G-7 which have to recognise the shift from West to East. The interests are not 100 percent common but broadly in the same ball park. There are some places where we compete: as economies and for natural resources. And there are are areas we can be partners—like in bilateral trade. So we will need to deal with China differently, depending on the issue.

What’s next for Nandan Nilekani? In one year, and in five years?

I certainly would like to engage in the change process of India. I strongly feel that I am fortunate to be in the right time, at the right place, and with perhaps the right position to contribute. That sense of history is very much in me. But I don’t believe that you have to necessarily be a formal politician to bring about change in India. I am involved with a whole number of initiatives—and some of them will succeed, and some will not. But even if a few of them do then I would have made a reasonably material contribution to the direction where India is headed. So I think that’s good for a day’s work—a good decade’s work.


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