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Chapter No. 1
The India Miracle

Material things are not to be despised — without them there can be no manifestation in the material world.

Sri Aurobindo

Dear Graduates of 2040:

You have all come a long way since you entered college. You have matured in ways that you could not have imagined just a few years ago. In four years you have prepared for yourself a sound foundation upon which you will continue to build for a lifetime. You have a lot of building to do and this foundation will serve you well.

Like India, You’ve Come a Long Way

You have the ability and the opportunity to do such things that neither you nor I can foresee. The world has been changing at an ever accelerating pace and this will only increase as you go through life. You have to be prepared to meet that change enthusiastically with an attitude of courage, hope and dedication.

The major theme of our talk today is change and economic development. Let me begin by reminding us of the changes that we have seen.

When I stood in your shoes in 2010, thirty years ago, I lived in an India that was not the India you see around you today. India 2040 is totally and unrecognizably different from India 2010. India has changed in the last few decades much in the same way that you have changed: developed and become more able to meet the future.

As you can see around you, India is a developed country of 1.5 billion people. But back in 2010, it was an extremely poor, impoverished, underdeveloped country of 1.2 billion. We will talk about why and how that transformation happened. We will talk about how that change took place in a short time — in less than a generation. In our brief inquiry into that question, we will touch upon many ideas. We have exciting things to talk about.

Now India is free from poverty, malnutrition, illiteracy, under-employment, and civil strife. Most importantly, India is a country of free people. In 2010, Indians were really not free in all senses of the word. They had a degree of political freedom but economic and personal freedoms were denied to all in principle, and only the rich had economic freedom in practice.

India is Rich

In India today, material deprivation is a thing of the past. But in 2010, half the poor people of the world lived in India; half of India’s children below the age of five were malnourished; illiteracy was 40 percent; around half of the working population was underemployed; agriculture related labor accounted for around 60 percent of the employment, and agricultural wages were so dismal that tens of thousands of farmers committed suicide. Organized labor was only 7 percent, as opposed to today’s 70 percent.

India today has a highly urbanized population. Seventy percent of Indians live and work in cities and towns, and only 30 percent in rural areas. In 2010, those numbers were inverted. As a consequence, most Indians work in the manufacturing and services sectors. In 2010, sixty percent of the labor was in agriculture, as I mentioned before. Now only ten percent of labor is in agriculture, and their productivity so high that India is not only food sufficient but is a net exporter of food around the world.

India is an Economic Giant

India today is a manufacturing hub for sophisticated products — from high technology such as computers and spacecrafts, to hand crafted goods such as jewelry and high fashion clothes. India’s labor is highly productive and therefore their income in real terms is over sixteen times what it was in 2010.

In simple arithmetic, with 10 percent annual growth rate, income doubles in seven years. So in 26 years, starting with a $1,000 per capita annual income, Indian per capita annual income became $15,000. The poorest people in India today have the standard of living that only the upper middle class could afford in 2010.

World-class Infrastructure

Today India’s infrastructure is not just world-class, it is a class apart. We have the best public transportation system of any major country in the world. Our cities are not congested with pollution-spewing vehicles like before.

Our railways, which is the backbone of long distance transportation of goods and people today, leads the world in speed, efficiency, and safety. Our passenger trains average 250 kms an hour, and our express trains take you from Mumbai to Delhi, a distance of 1000 kms in four hours flat. I remember when I graduated, the average speed of Indian trains used to be 40 kms an hour, and it used to take 16 hours by the fastest train between Mumbai and Delhi.

Abundant Power

I am certain that none of you have ever seen the lights fail due to a shortage of power. You may find it hard to believe that in 2010, power shortage was so severe that around 98 percent of Indians did not have uninterrupted 24x7 power supply.

The poor — which by our standards of today means 90 percent of the population of 2010 — had to just take what they could get and those of the rest who could afford it had diesel generator sets. Today electricity is universally available, abundant and the supply is totally reliable. Electric power in India is cheapest in the world and it powers our globally competitive manufacturing sector.

Our Cities are Green

Today every Indian takes clean drinking water and sanitation for granted. But did you know that in 2010, only five out of 100 Indians had indoor plumbing and 800 million Indians did not have access to reasonable toilets? Cities were choked with garbage, water was undrinkable, and the air was polluted with exhaust and the use of dirty fuel for cooking.

We created new cities. Indian cities today are clean, pollution free, and green. Our cities are healthy and so is our population. Life expectancy matches those of the richest nations. In our cities, parks and recreational areas are scattered around within walking distance. Our small towns and the few remaining villages are tranquil places for relaxed living. Crime is not an issue in the country.

Our Education System is Excellent

India’s educational system has changed, to say the least. Every Indian — young and old — has equal opportunity to attend school and college today. Everyone has the opportunity to have life-long learning. Life-long learning is critical for two reasons: first, the world is changing so fast that there are always more things to learn. Second, life expectancy has increased so much that multiple careers are common.

When you entered college four years ago, you took an entrance test. That test was designed to help you assess your strengths and weaknesses. It helped you decide which discipline you should enter and which subjects you should study. It was a test to help you, not to keep you out of college.

But in 2010 and before, the test were “weed out” tests. The supply of college seats was so limited that only a small percentage of students could be accommodated. The tests were designed to keep people out of college. The Indian Institutes of Technology rejected 98 out of 100 who wanted to study in them.

Our Education System Was Hell

There used to be coaching classes to help students pass those “entrance exams.” What boggles the mind is this. The most successful coaching classes had their own entrance exams. So there were coaching classes to help students pass the exams of the coaching classes which helped students to pass the entrance exams of colleges.

Even getting into kindergarten was a problem. Only the rich and those who had influence could get into good pre-primary schools. People had to give “donations” to get their children into schools.

Peace and Tranquility

We live in a peaceful India today. There are no civil unrests. India’s 30 states are more or less equally prosperous. It is unimaginable today that any state would even think of leaving the union. But in 2010, it was a different story. The country was divided along many fault-lines that India had the misfortune to have: caste, religion, language, and so on. These were cynically used by vested interests in India and abroad to fracture the country.

A Country of Honest People

India’s economy continues to be one of the most rapidly growing and modernizing today. It has maintained an average annual GDP per capita growth rate of around 10 percent for the last 26 years. India is today near the top of the Human Development Index but in 2010, it was stagnating in 124th position.

Transparency International rates India as one of the least corrupt countries today. It has come a long way since then when it was rated as one of the most corrupt. Around 2010, corruption was so rampant that it used to be measured in billions of dollars, and it was estimated that the around $1,500 billion of black money was stashed away in Swiss and other off-shore banks.

Today India is financially secure. Its bank balance looks good. In terms of external trade, the figures are exciting. India’s share of world trade today stands at an impressive 20 percent — that’s up from 2 percent in 2010. India’s foreign reserves are $1 trillion dollars. India’s public debt is among the smallest in the world.

Proud to be Indian

You and I are extremely proud to be Indians. You are lucky that you were born in India. Aside from the economic prosperity of today, you are the inheritors of one of the world’s most enduring and deep civilizations. India’s cultural treasures are second to none. It is all yours to enjoy, cherish and preserve for your children. India is a great place to live in today. What is more, India is one of the favorite destinations of the world. More than 100 million people visit India annually for vacation and for understanding first hand our deep and ancient culture.

We will leave out the details of how much India has changed since the time I graduated from college 30 years ago. You know what India is today and some of you must have read the modern history of India. I have only touched briefly on just a few of the amazing positive changes that have happened in India over the past quarter century.

The Start: Quest for Freedom

Now let’s briefly ask when the changes started and how. They began just a few years before most of you were born. Those changes are therefore just about as old as you are. We all appreciate that our material conditions have improved beyond the expectations of those who brought about the change. But that is not all.

The greater and the more important change is the freedom we enjoy now. Then people were not really free and what was worse, people thought that they were free when in fact they were not. As Ram Dass pointed out, “If you think you’re free, there’s no escape possible.” The illusion of freedom is as good a prison as ever constructed.

In the past, Indians had to get permission from the government to do things. Free people do not have to seek permission from their government. People are not the servants of the government but rather the government is their servant. To put it in other words, the people are the principal and the government is their agent. The Indian government during the British Raj was of course the principal and the people its agents. It was a master-servant relationship. That relationship did not change after 1947 and the government continued to be the master. But after 2014, there was a revolution in the people’s perception of their situation.

Realization of the Truth

The revolution began when people finally understood that they were in bondage. That’s always the first step to freedom. While freedom is in itself an end, it is also a means to material prosperity. No country has ever prospered without its people being truly and comprehensively free.

Freedom allows change, and consequently growth and development. You are the children of freedom and change, and growing up free in a world of change is what makes you so wonderfully adapted to grow and prosper. So it is natural for you to ask this question. How was it possible that within just one generation, a country which had stagnated for so long, both before and after political independence, that India changed so radically?

Economic Policies Matter

Pause for a bit to consider the real import and meaning of that question. India is a very large country. It is larger than all the Western European countries combined. How could it change so fast? What happened? And why did it happen when it did rather than in the mid-20th century, closer to the time of its political independence from Britain? What was it that was keeping India chained?

What kept India chained for so long were bad economic policies. Milton Friedman said in a speech in 1963 — just a few years after the British left and into the “British Raj 2.0” — that “the correct explanation for India’s slow growth is in my view not to be found in its religious or social attitudes, or in the quality of its people, but rather in the economic policy that India has adopted; most especially in the extensive use of detailed physical controls by government.”

Policy Changes Led to the India Miracle

Therefore it was policy change that led to what is now called the India Miracle. It was a transformation the likes of which the world had never seen before. We will have to talk a little about history, and a little about economics, and a little about technology. But most of all we will have to talk about the transformational power of a handful of motivated people. People just like you and me but powered by a special drive for freedom. That’s where we will find the answers to those questions. It is important for us to know this since our ability to succeed in a world of change depends on how well we learn the lessons from our past.

India has changed so much that you probably never heard the word “liberalization.” The word has at its core the idea of freedom. Once upon a time just a generation ago, it was a much used word in the context of the Indian economy. There were people crying out for the liberalization of the economy. Strange thought it may seem to you today, they were opposed by many. You may marvel that there were people who opposed “freedom” — remember that is what liberalization means — and who were determined to keep people from economic freedom. The people who opposed freedom were the people who stood to gain by continuing to keep India in bondage.

Comprehensive Freedom

Free people like yourselves don’t have to fight for freedom. Therefore you take all your freedoms for granted and don’t have to cry out for freedom. The answer to the question about what changed that transformed India in one word is “Freedom.”

There are different kinds of freedom. Broadly speaking, they can be classified as personal freedom, economic freedom, and political freedom. A few sufficiently advanced societies enjoy all three. Their prosperity is both a consequence and a cause of these freedoms. Other countries deny some or all of these freedoms to their citizens, and usually the consequences are understandably negative.

Only Political Freedom in 1947

India gained political freedom from British rule in 1947, nearly one hundred years ago. But India continued to be chained and denied economic and personal freedoms even after independence. India had to wait till 2014 for them. The economic liberalization of India is a story that will be cited by historians for centuries to come.

India’s political freedom after 1947 was real enough in principle but it was not real in the practical sense. When a very large segment of the population is denied economic freedom, they become materially impoverished. Materially poor people subsisting on public handouts are not free in any meaningful sense of the word. They had the political freedom to exercise their franchise but in truth, they were constrained by their material needs to be subservient to those who promised to give them hand-outs.

The relationship between human rights and economic freedom is inseparable. Economic freedom flows from human rights, such as the right to property, to enter into voluntary transactions, the right to economically compete and cooperate freely with others, and so on. Human rights are, of course, an end in themselves but additionally they lead to economic prosperity because they are consistent with economic freedom.

It is easy to understand why economic freedom was denied to Indians during the colonial period. What is remarkable is that even after independence economic freedom was not a reality.

Poverty Due to Policy Mistakes

India was poor because the governments made wrong policy choices. Policy mistakes are not mere academic abstractions. They have real world implications. Think for a moment about the immense suffering those mistakes caused. Hundreds of millions of people were born in India who did not have a chance to have a decent, humane existence.

Hundreds of millions of children were born under-weight, tens of millions of children died as infants. Think of the terrible anguish of the parents. Hundreds of millions of children grew up malnourished and stunted, hundreds of millions never saw the insides of a school, never had access to any of the wonders of the modern world, and passed away into the great beyond after leading Hobbesian lives: nasty, mean, brutish, and short.

In 2010, our estimate of the number of malnourished underweight uneducated children in India would be of the order of about 100 million. They did not grow up to be productive members of society, if they grew up at all. Think about it: 100 million. To put that number in perspective: that’s more than the population of many large countries around the world today.

Political Freedom Follows Economic Freedom

In an economy which produces too little to provide adequately for the material needs of all its citizens, the desperate need to keep body and soul together trumps all other needs. Political freedom is merely an abstract notion for people who are hungry. It was economic development — which itself is a consequence of economic freedom — that made the political freedom of India real. India gained economic freedom in 2014 and only after that did political freedom became meaningful and a practical reality for the masses.

Personal Freedom

India’s personal freedom followed soon after. Personal freedom is the freedom to live your life the way you want to. It encompasses such notions as the right to be left alone, the right to privacy, the right to determining who you wish to associate with, whom you marry, where you live and what you work at. It means you decide what you wish to read, what you wish to watch and listen to. It means that someone in the government does not decide what you are allowed to watch or read.

Personal freedom must include the freedom to express your own views and listen to others’ views. India had freedom of press – meaning specifically the printed word — even during the British colonial rule, and it continued after independence. Curiously though, there was a prohibition on the use of radio for the dissemination of news and the government had a monopoly in that regard.

One explanation could be this. The majority of Indians, as late as in mid last century, were illiterate. Freedom of the press is an abstract concept with little real world meaning to people who cannot read or write. The government could rest easy that a free press really could not get the people stirred up. But even illiterate people can be persuaded by the spoken word broadcast over radio. Therefore they disallowed the use of radio for anything other than songs and loose chatter.

You all enjoy these personal rights but the generations before yours did not have them. They were treated by the government as if they were immature, irresponsible children. The government frequently banned books and movies clearly implying that the people lacked judgment.

People were denied the right to choose in many spheres of their personal lives. The laws were out-dated and irrational. Most of the laws were made during the British Raj 1.0 and continued to be in force during British Raj 2.0. The laws were such that the balance of power was with the government and stacked against the people. More about the genesis of that in a bit.

Struggle to Get Government Handouts

Since the government held most of the power and the people were dependent on the government for handouts, there was a constant struggle by various groups to gain favors from the government. The groups competed for government handouts and the token of exchange was their votes.

It was the politics of divide and rule, a strategy that the British had employed with enormous success, and those who inherited the government from the British saw obvious benefits for themselves in continuing that tradition. Politicians cynically calculated which vote groups were most valuable to them and would favor certain groups over others — which inevitably led to two mutually reinforcing bad outcomes.

Engineered Social Divisions

The first unfortunate outcome was that the country was socially divided. The government routinely pitched groups based on caste or religion against one another. This led to frequent clashes and sometimes violent riots. The second outcome was economic division. The government would tax the productive segment of people – which was of course small – and give handouts to the unproductive segment of the people – which was large. This created a divide between those who worked hard to create wealth and those who did not.

The government kept the poor trapped in their poverty since it was an easy way to ensure their support at the elections. It takes very little material goods to bribe extremely poor people. Governments find poor people much more pliable than people who have the means to manage on their own. In a sense, the government engineered poverty so that the ruling class — namely the politicians — could have control over the people. But the consequences of this scheme for the welfare of the country were dire and heartbreakingly tragic.

Planned Perpetual Poverty

You have no idea what it feels like to be chronically hungry. If you ever skipped a meal, you knew you will make up for it within a few hours. Hundreds of millions of Indians, especially tragically children, used to be chronically hungry. Hunger among children in their formative years meant that they grew up mentally and physically stunted, and consequently could not reach their productive potential. India’s poverty was on an endless cycle of hunger and stunted growth.

The government planned perpetual poverty. We called it “PPP” in short. Poverty in the 21st century is not a natural state of any economy. It has to be engineered. This they did successfully, as evidenced by the fact that for around 70 years after independence, poverty was India’s most enduring defining characteristic.

You may ask why did the government engineered poverty on such a large scale? Wouldn’t it have been better for them to engineer prosperity? The answer is simple. Engineering prosperity is a long-term endeavor in the sense that the effort has to be in the present but the payoffs appear years, often decades, into the future. People who are elected into office for short terms don’t have an incentive to look ahead when doing so would mean losses in the short term. Politicians have to make money in the short time that they have in office. Let us talk about that next.

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