DIRTY MONEY : INDIAN ECONOMY’S ACHILLES HEEL

August 19, 2013

Sitting beside me at the Independence Day function at the Red Fort last week was Admiral R.H. Tahiliani, India’s 13th Chief of Naval Staff, who retired in November 1987. Last year also we were seated together at the same function, and my daughter Pratibha promised to send him her TV documentary on our National Flag, titled Tiranga. He thanked her for the D.V.D., and expressed great appreciation for her film.

 

raymond-bakerHe then asked me casually: “What book are you reading these days, Mr. Advani?” “Only yesterday, I have received a book on ‘Dirty Money’ which I have commenced reading”, I told him. The book’s author is Raymond Baker. Baker is an American businessman, who is the Director of Global Financial Integrity. He has been for many years an internationally respected authority on corruption, money-laundering, growth and foreign policy issues, particularly as they concern developing and transitional economies.

 

Baker is an enthusiastic champion of the Free Market Economy, generally called Capitalism, as opposed to Communism. As I am writing this blog, I have before me this morning’s papers of New Delhi (August 17), one of which carries prominently a two-page article on the sick state of the Indian economy. This article is publicized on page one of the issue alongside the Prime Minister’s picture with the announcement “Free Market in Free Fall”. In fact, all papers have highlighted how the Rupee has plunged this week to a lifetime low of 62.03 against the Dollar. Similarly, the drop in the BSE index last Friday was 769.41, the sharpest single day fall since July, 2009.

 

As mentioned earlier I am presently reading a book on Dirty Money. The book is titled “Capitalism’s Achilles Heel: Dirty Money and How to Renew the Free-Market System.” The title itself sums up the theme of the book.

 

Achilles was the hero of Homer’s epic poem called the Illiad. He was a brave and relentless warrior. Legend has it that his mother Thetis was a Sea-goddess who dipped him into the mythological river Styx when he was just born, to make his body invulnerable. The legend goes that when Thetis put him into the water she was holding him by his heel, which therefore remained vulnerable. Achilles met his death when an enemy shot an arrow into his heel. 

 

According to this book, a free market economy is highly desirable, provided it is scrupulously protected from the evil of dirty money, which afflictions like corruption and money-laundering generate.

* * *

pmHalf a dozen states are to face their five yearly poll before the year 2013 is out.

 

And early next year Dr. Manmohan Singh will be completing his second five year term in office.  Last week, New Delhi’s leading English magazine India Today has published an elaborate opinion poll on the Mood of the Nation, in which a full page picture of the Prime Minister carries the caption “HONEST BUT  INEFFECTIVE : It is time for the PM to step down, say voters.”

 

On the same page, the replies given to the question: “What are Manmohan Singh’s failings?” read as follows:

 

  • He doesn’t communicate at critical junctions                                        27%
  • He presides over the most corrupt government despite being honest       21%
  • He lacks authority                                                                              20%
  • All of the above                                                                                  20%

***

The Harvard University’s Kennedy School of Government sometime back produced an interesting paper on India in which while it describes Afghanistan, Pakistan, Nepal and Sri Lanka as ‘failed or failing states’, the writer says about India:

 

“India’s democracy, by any measure, continues to astound, as despite all kinds of pressures free and fair elections are held and control of the government changes hands regularly. Unlike all its neighbours no one can argue that India is a failing or failed state.”

 

lant-pritchettThe paper has been written by Lant Pritchett who is a Professor at the Kennedy School. He has served also with the World Bank, and was for some time based in New Delhi.

 

Lant Pritchett writes in this paper:

“The Government of India and its personnel at the top levels in the elite institutions are impressive indeed. The Indian Supreme Court, the Indian Institutes of Technology, the All India Institute of Medical Science, India’s nuclear program, to name a few, are all world class institutions. The IAS is full of officers who have passed an entrance examination and selection process that makes getting into Harvard look like a walk in the park….

 

“And yet, as I describe more fully below, the capability of the Indian state to implement programs and policies is weak – and in many domains it is not obvious it is improving. In police, tax collection, education, health, power, water supply – in nearly every routine service – there is rampant absenteeism, indifference, incompetence, and corruption. This is true of even relatively routine services, even more so for more sophisticated ones like networked irrigation or groundwater management.”

 

Lant Pritchett goes on to add that for India we need a new category. He then describes India as “a flailing state.” The Dictionary meaning of the word ‘flail’ runs as follows: “wave your arms or legs in an uncontrolled way.”  Pritchett defines a “flailing state” thus:

 

“a nation-state in which the head, that is the elite institutions at national (and in some states) level remain sound and functional, but that this head is no longer reliably connected via nerves and sinews to its own limbs.”

 

TAILPIECE

The 46-page Harvard paper on India carries the title: Is India a flailing State?”

 

The paper begins with a synopsis of the Indian novel Q&A in which an uneducated working class waiter wins a billion rupees in a game show, a novel later converted into a successful movie, Slumdog Millionaire. 

 

After opening his piece with this reference to Slumdog Millionaire, Pritchett sarcastically comments:

 

“As one reads the novel in each instance in which the hero’s life intersects with agents of the government – he is treated with the same mix of venality and casual brutality. This is especially striking for two reasons. First, the bad behavior of the government is not a theme of the book nor is it ever remarked upon, rather these descriptions are there to provide verisimilitude of a real person’s life – to make the book seem realistic and in-touch with the “true” India.  Second, the novel was written, not by an estranged radical, but by an active duty member of the Indian Foreign Service.

 

To understand the Indian state today one has to read fiction because non-fiction, the streams of government reports and commissions and documents produced by official agencies (including those of foreign agencies working with the government) are truly fiction.”

 

 

L.K. Advani

New Delhi

August 19, 2013

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