US-India Global Review

71 US-INDIA GLOBAL REVIEW JANUARY-MARCH 2018 bining to create what can be called neo-illiberalism. Third, the weak quality of Indian institutions is increasingly a problem, and without better institutions, India will be unable to sustain high growth. Consider each of those three trends in further detail. The private sector has performed outstanding- ly in the past 25 years, taking advantage of new opportunities created by liberalization and glob- alization. Indian companies more than held their own against foreign newcomers, and the vast majority of big Indian companies have become multinationals, making acquisitions globally. The computer software and business services sector has been outstanding and has become India’s largest and most famous export sector, fetching $110 billion in 2015-16 against India’s entire merchandise exports of $261 bil- lion. The auto industry, highly pro- tected for decades, has opened up and become world-class: India is now a global hub for the pro- duction and design of small cars. The pharmaceutical industry feared being wiped out by the acceptance of drug patents after the creation of the World Trade Organization in 1995. But in fact it flourished in the new climate and now supplies 20 percent of the U.S. consumption of generic drugs. Most Indian pharmaceutical companies export more than they sell at home, and dozens have become multinationals through foreign acquisitions and organic expansion. Reliance Industries Ltd. has set up the biggest export-oriented oil refineries in the world and has higher refining margins than the famed refineries of Singapore. Dozens of completely new corpo- rations have emerged out of nowhere and have soared to the top (the latest being e-commerce giants like Flipkart). India has become a global hub for R&D and for frugal engineering. India has also witnessed sever- al private-sector failures, notably of companies in public-private partnerships in infrastructure. Crony capitalism has become a problem in many areas where political discretion flourishes. However, both cronyism and pub- lic-private partnerships could be called examples of government failure rather than private-sector failure. On balance, India’s private sector has done a world-class job of transforming India. By contrast, government failure has been widespread. All tiger economies witnessed a big improvement in the provision of public goods, which was needed to encourage private dynamism and sustain growth. But in India, the provision of all government services remains poor, and so India has slipped in social indica- tors compared with its slower- growing neighbors in South Asia. Even remote Indian villages have an adequate supply of shops pro- viding cigarettes and tea. But they have no adequate supply of edu- cation, health, public safety, or judicial redress. Why? Because the sellers of tea and cigarettes are account- able to the consumers they serve, and their income depends on sat- isfactory service provision. But government services are provided by salaried, unsackable staff, who are not accountable to those they serve, and who are justly notori- ous for corruption and callous- ness. They are accountable only to ministers in state capitals, where powerful trade unions ensure that there is no penalty for nonperformance. India needs new laws and institutions to ensure accountability of government ser- vants of all consumers: this alone will raise the quality of govern- ment services. Cash transfers to the needy can be a vast improve- ment over leaky, corrupt subsidies for items ranging from food grains and fertilizers to farm credit and rural electricity. India needs new laws and institutions to ensure accountability to consumers. In education, two obvious remedies are vouchers to poor families and honest licensing of private schools to empower parents. The second area of concern is the emergence of neo-illiberalism. Wherever the government has created competitive, globalized markets, the outcomes have been outstanding. In the 1990s, the government gradually opened up the economy, abolishing industrial and import licensing, freeing for- eign exchange regulations, gradu- ally reducing import tariffs and direct tax rates, reforming capital and financial markets, and gener- ally cutting red tape. Those changes enabled India to boom and become a potential economic superpower. But some areas were never liberalized, such as land and natural resources, and those areas have been marked by mas- sive scams and crony capitalism that have created widespread public outrage. The resulting uproar has hugely slowed deci- sionmaking. New rules, however, are making it mandatory to auc- tion some natural resources rather than to allot them by ministerial discretion. That is a major improvement, but the reduction of ministerial discretion needs to be extended much further. Many old price and quantitative controls should be abolished, and yet more are being enacted. Extensive controls permeate the