Implosion (7 page)

‘Total inadequacy of our politico-administrative apparatus to our needs is our single worst peril,’ says K. Shankar Bajpai.
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‘It comes from the sort of considerations, or thinking, that nowadays shape our decision-making and behaviour – what Marx called
kleinburgerlich
– ignorant, pettily self-seeking, parochial, inappropriate if not wholly irrelevant, of course with no thought of India.’
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Gautam Ahuja, professor of business administration and strategy at the University of Michigan, has suggested that India’s ‘limited institutional capital and inadequate or poorly functioning institutions’ have boosted the development of jugaad. By institutional capital he means formal and informal organizations, rules and norms that have ‘broad acceptance in a society and that facilitate and enable the productive activities of that economy’.

In a speech in Delhi in 2011,
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he painted a picture of modern India without naming it, saying: ‘When the ordinary people in a society adopt an approach that is openly dismissive of those rules and laws, or if the government applies the laws in a fitful, selective or capricious manner, you have a society in which institutional capital is lacking. In such a society, contracts are not binding, corruption and bribery are an accepted fact of social life, and the laws and norms are followed when it suits an individual. It is in such a society that teachers do not teach, students are not trained, and health-care is not provided because the resources “leak” away before they reach their intended recipient ... If unchecked, this lack of institutional capital spreads from one sphere of activity to another – from business to education to politics, the society becomes a nonchalant accepter of this way of life.’ This links with the fact that the way to get things done in India – especially if a government is involved – is not to follow a process or a procedure but to find someone who can fix something.

Ahuja acknowledged that India had learned to innovate frugally but said that ‘quick fix’ represented three failures. The first was the system not working. Second, the more often a system failure was solved through a jugaad, the more likely it was that the system would completely break down. ‘Systems work through processes and routines being followed, not by exceptions being created,’ he wrote. ‘Every jugaad introduces an exception into the system. With sufficient jugaad over time, there is no worthwhile process left and the system eventually collapses to ineffectiveness.’ The third failure was that ‘a person who gets used to jugaad, or short-circuiting one given system, often then moves down the slippery slope and loses respect for other systems too’, and that led to the collapse of other systems. ‘Thus the practice of jugaad can lead to a vicious cycle, in which institutions are steadily undermined.’

‘Master of Jugaad’

In the private sector, the licence and quota-based controlled economy introduced by Nehru after independence in 1947 made it inevitable that companies would look for jugaad-style ways around the controls, setting Ahuja’s ‘vicious cycle’ trend that continues today in a partially liberalized economy. The Reliance conglomerate, which was founded in 1966 by Dhirubhai Ambani and is now run by his sons Mukesh and Anil as two separate businesses (Reliance Industries and Reliance Group), has been a leading practitioner in Ahuja’s cycle of using jugaad to undermine institutions.

Reliance Industries is one of India’s biggest groups with interests stretching from polyester, petrochemicals, oil and gas exploration and refining to retail stores. It has thrived through well-placed contacts, as Hamish McDonald, an Australian journalist, has recounted in a revealing book,
Ambani and Sons.
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By 1980, Dhirubhai Ambani ‘had a close and sympathetic friend as minister of commerce, the Bengali politician Pranab Mukherjee’.
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(Mukherjee became finance minister in 1982, a post he returned to between 2009 and 2012, having also been external affairs and defence minister in a career that culminated in him becoming President of India in 2012.) Earlier, McDonald reported, Prime Minister Indira Gandhi had given ‘a parting gift’ to Ambani just before her government lost power in 1977 when she exempted all polyester yarn imports from customs duty. That was ‘a gift of Rs 37.5m to Dhirubhai’.
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McDonald also wrote that Dhirubhai had ‘put his resources’ behind Gandhi’s efforts to split India’s coalition government that took office in 1977. In the late 1980s, he ‘swung the appointment’ of a Reserve Bank of India deputy governor. The book revealed how the government was suborned and policies bent, stock markets manipulated, competitors unethically harassed and undermined, opponents pursued with vendettas, and business partners and suppliers treated roughly.
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Dhirubhai Ambani combined this with excellent project management, which has been widely recognized, but he also enjoyed displaying his inside knowledge. A public relations executive told me how he had once offered him a job, saying that a major part of the role would be to discover in advance what big stories were being prepared by leading newspapers and magazines. When asked why, he replied, ‘So that I can say to someone when I meet them at an airport, “I hear that so-and-so magazine is doing a big article on you – congratulations.” He will then be impressed with my good information.’ A parallel story is told by Anand Giridharadas, an American journalist, in
India Calling.
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He recounts how a former Reliance manager told him that a woman executive from Enron, the now-defunct fraud-ridden American power company, told Dhirubhai in the 1990s that Enron had become as powerful in India as Reliance. Dhirubhai’s reply, according to the manager, went something like this: ‘Yesterday at 2.19 p.m., you arrived at the finance ministry to meet so-and-so official. You talked about this issue and that issue. You left the office at two-thirty-? ve.’ The Enron official, stunned, muttered, ‘OK, maybe almost as powerful.’ (The reference was presumably to Rebecca Mark, a flamboyant executive based in the company’s Houston head office, who was in charge of Enron in India.)

Mukesh Ambani stressed to Giridharadas that the focus was on continuity of relationships when doing business, rather than being ‘transactional’ on individual deals. Asked about helping bureaucrats’ children find and pay for places in American colleges, he acknowledged that an executive or a company foundation could have paid. Giridharadas was told by an unnamed source that, with Reliance, ‘once you join, you’re there for life’. This included both active and retired journalists and bureaucrats. When I was researching an article for
Fortune
magazine in 2002, shortly after Dhirubhai Ambani had died, a rival businessman told me, ‘They don’t listen to stories about their bad public image because they think they can buy their way out of any problem.’ I tackled Mukesh on the allegations in an interview and he claimed there was ‘a difference between image and reality’ and added: ‘In the ‘80s I used to get upset – now I realize they [the criticisms] are natural in a democracy where people are going to say this sort of thing – this is not China.’

The fixing has been lauded by at least two leading writers – Arun Shourie, originally a campaigning newspaper editor and then an MP and BJP government minister, and Swaminathan Aiyar, a leading political commentator and journalist. At a meeting in 2003 to commemorate the first anniversary of Dhirubhai’s death, Shourie paraphrased Friedrich Hayek, a Nobel prize-winning economist. Previously a critic of Reliance’s business ethics, Shourie surprisingly praised the Ambanis for undermining government policy. ‘By exceeding the limits in which restrictions sought to impound them’, companies such as Reliance had ‘helped create the case for scrapping regulations’, he said.
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(There are many other examples of companies ‘exceeding limits’ in this book, but few of them can be seen in the same pioneering light as Reliance.)

Aiyar perceptively tied what the Ambanis did directly with jugaad, and applauded them because they broke through restrictions that were impeding their business growth. In an article headed
‘
Jugaad Is Our Most Precious Resource’,
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Aiyar wrote in 2010 that ‘Dhirubhai Ambani was the master of jugaad. The licence-permit raj made it impossible for him to progress legally, so he exploited the corruption and cynicism of the system. He exported junk to get profitable import entitlements. He created industrial capacities vastly in excess of licensed capacity. He imported huge textile machines as “spare parts”. He engineered highly profitable changes in rules for polyester imports and telecom licences. The jugaad he used to overcome hurdles was not distinguishable from crony capitalism.’ Yet, Aiyar added, when the licence-permit raj gave way to a more open and deregulated economy, Dhirubhai used the same jugaad ‘to scale dizzying heights of productivity’ and become world class. ‘He showed that manipulation and world-class productivity are two sides of the same coin called jugaad. If governments create business constraints through controls and high taxes, jugaad will be used to overcome those hurdles. But if deregulation abolishes these hurdles, the main business constraints become lack of quality and affordability, so jugaad shifts to improving productivity, quality and affordability. That ultimately makes you world class.’

Using jugaad to become ‘world class’, of course, also undermines basic ethics as well as institutions, so once companies had less need to bypass controls after 1991, many moved on to bribing politicians and officials for favourable allocation of natural resources, sometimes investing jointly with them. As Ahuja wrote, ‘the practice of jugaad can lead to a vicious cycle, in which institutions are steadily undermined.’

In an era of growing corruption and collusion between politicians and businessmen, this reduction in the role of institutional systems weakens accountability, notably of parliament and the government. This was particularly evident in 2011 and 2012 when popular anti-corruption movements led by two social rights campaigners, Anna Hazare and Arvind Kejriwal, challenged the authority of the government and, backed by access to right to information legislation, began to expose the depths to which the ethics of the country had sunk.

The erosion of institutions and the practice of fudge have also contributed to an absence of strategy across many areas. George Tanham, who was a respected South Asia and security specialist at America’s Rand Corporation policy think tank, controversially wrote in 1992 that ‘Indian elites show little evidence of having thought coherently and systematically about national strategy’.
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He suggested that the situation might have been changing, but what he went on to say is as true today as it was then: ‘Few writings offer coherent, articulate beliefs or a clear set of operating principles for Indian strategy. Rather, one finds a complex mix of writings, commentaries and speeches, as well as certain actions that cast some light on Indian strategy. The lacunae and ambiguities seem compatible with a culture that encompasses and accommodates readily to complexity and contradiction. They also seem more confusing to Westerners than to Indians who accept the complexities and contradictions as part of life.’

He was referring mainly to foreign policy and security strategy, but the point is valid far more widely. On foreign affairs, few people – or foreign countries – understand where India stands, and there is no think tank of a top international standard. On economic and industrial policy, there is little overall strategy or consensus covering, for example, economic liberalization or foreign investment. ‘One of the biggest weaknesses affecting India’s economic liberalization is the way that industrial and allied policies are made,’ I wrote on my blog in 2009.
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‘Changes affecting industries that range from telecoms and banks to aviation and retail stem far more from the pressures of vested interests and lobbies than from reasoned analysis and debate.’ The reforms of 1991 were introduced because of a financial crisis and, though they have not been reversed, widening them is highly controversial and they are not underpinned as part of an overall strategy of public policy.

There has also been no clear view on the role of dynasty in politics, and in particular on the role of the Nehru-Gandhi family at the top of the Congress party. Sonia Gandhi, as president of the Congress and head of the ruling UPA coalition after the 2004 general election, pulled strings, jugaad-style, from behind the walls of her Delhi house at 10 Janpath without any clear institutional delineation of her powers in relation to the prime minister. The official line was that Gandhi was in charge of party politics while Manmohan Singh was in charge of the government, but in practice Gandhi dictated government policy when it suited her. Would such a vague, undemarcated relationship have been possible at the top of a democracy with a strong institutional base?

The leadership vacuum from 2004 was in marked contrast to the previous government when Atal Bihari Vajpayee, the BJP prime minister from 1998, presided with the stature of a statesman and with strong central authority. A brilliant orator but slow speaker who was not given to discursive interviews, Vajpayee did not lead in an outgoing, inspirational sense, but he ruled with authority, mainly through Brajesh Mishra, his national security adviser and principal secretary. Vajpayee was 73 when he became prime minister and relied on Mishra to implement his wishes. Part of his strength was that he always seemed to know what was happening, says Arun Shourie, who was disinvestment and telecoms minister in the Vajpayee government.
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‘If something was stuck, sometimes Mishra would speak to the Minister concerned directly – a mere indication from him would be enough. But in general, Mishra worked through the secretaries,’ says Shourie, referring to the top-ranking civil servants at the top of ministries. ‘People heeded him because they knew he was speaking with the full backing of his boss. They knew that he would almost always have sought the prime minister’s view before intervening and that, in the rare case in which he may not have done so, would do so the very day he had talked to the minister or secretary.’