The Perplexing Tale of India's Two Faces


By Eric Ellis The family name of Laxman evokes ambivalent feelings in India during these difficult days. The name Vangipurappu Venkata Sai (or V.V.S., for short) Laxman elicits a reaction of typical Indian exuberance. He's the 26-year-old from Hyderabad who has just become New India's emblem of "the possible." His feats at the cricket wicket in February led India's low-ranked team to an unlikely victory in Calcutta against world champion Australia.

But there's another Laxman -- Bangaru -- whose name elicits sneers and disgust, evoking a well-entrenched political culture of cronyism that speaks to the old saw that India is a country of great potential -- and always will be. Bangaru is, or rather was, the 61-year-old president of the Bharatiya Janata Party, the Hindu revivalist party that has led India's governing coalition for the last five years.

While V.V.S Laxman was making glory for India at its national sport in Calcutta, his unrelated namesake -- also from Hyderabad -- was caught red-handed on videotape pocketing a $2,000 kickback for arranging a defense deal. It was all a sting put on by journalists from a Web site, tehelka.com, posing as London-based arms dealers.

GREASED PALMS. The Tehelka sting has so far implicated 32 senior officials-cum-bribetakers in the BJP, the military, the civil service, the BJP's coalition partners, and in the Cabinet. Defense Minister George Fernandes, the veteran politico who had stewarded India's 1999 arrival as a nuclear power, also resigned in disgrace with Laxman.

It wasn't just the brazenness of it all. The piddling amounts involved as inducements remind Indians, once again, of the stubborn, palms-out arrogance of Indian bureaucracy. But this scandal has larger consequences: Laxman's actions have put slow-but-sure economic reforms on the back burner again for one of the world's most hidebound economies.

The BJP-led coalition government's raison d'etre was staunch opposition to Western cultural pollution when it took office in 1996. Since then, it has confounded the doubters by throwing out a welcome mat to business and foreign investment. The irony hasn't escaped Indians: The country has boomed despite -- or perhaps because of -- its most introspective government of recent times.

Rather than roll back the modest early-'90s reforms that were kickstarted by the Congress Party, which had ruled India virtually uninterrupted since its 1947 independence from Britain, the BJP has instead extended them. It kept the rupee afloat, stayed in the World Trade Organization, and freed up the so-called License Raj -- India's stifling import-export bureaucracy that infamously required approvals from dozens of government departments.

STURDY RESERVES. A telling indicator has been the sturdiness of the country's foreign-exchange reserves. Struggling at barely $10 billion in 1995, foreign reserves have quadrupled in the last five years. Since the BJP came to power, India's economy has grown by an average of 6% to 7% each year, and the Bombay stock market has tripled.

Cooler, moderate heads in the administration recognized that India must embrace globalization and indeed, could even benefit from it. Borderless technology like the Internet has helped. Places like Bangalore have become global IT brand names (see Reporter's Notebook, 3/30/01,

"These Tech Oases Aren't Transforming India") -- and all this while wider Asia languished in economic misery.

True, India is no China, which has seen its reserves grow to $170 billion in 20 years, and is the developing world's largest recipient of foreign direct investment.

But big companies like General Electric and AOL Time Warner are no longer complaining about India. GE recently claimed it would earn $400 million from its Indian technology outsourcing operations in 2001, while AOL plans a $100 million customer-service call center in Bangalore. The mostly American emblems of the New Economy are evident across the country -- Sun, Oracle, Motorola, Microsoft, and IBM. Some of the Old Economy symbols are visible, too. After being kept out of the massive market for decades, Pepsi now sponsors Indian cricket.

THIS YEAR'S MODELS. The BJP's boom is also evident on the chaotic roads. For many years, India's version of the Cadillac was the creaking but charming Ambassador, cranked out at Calcutta plants from the template of a 1950s-era British Austin. It had the dubious distinction of being the world's heaviest car, an indictment of India's antiquated engineering. Hindustan Motors still makes Ambassadors, but today they vie for road space with lighter models from General Motors, Daewoo, Fiat, Honda, Suzuki, Hyundai, and Ford -- all assembled in India.

Just weeks before the Tehelka scandal, there was more good news from New Delhi. Finance Minister Yashwant Sinha handed down a stunning budget promising privatization, deep structural reform of the economy, and a breaking down of the massive subsidies afforded profitless state enterprises (see Daily Briefing, 3/30/01,

"India's Finance Minister: 'We'll Hold to the Reforms'"). Even the protected labor market, a holdover from Congress' decades of Fabian Socialism, was to be liberalized.

Now those reforms are under threat, and the BJP-led coalition is fracturing. The sectarian Hindu organization, the Rashtriya Swayamsevak Sangh, or National Volunteer Corp., an influential Mason-like group that shadows the BJP, has turned on the government machinery, railing that corruption is a byproduct of India's new openness. It wants India's doors firmly shut.

That scares the more secular, outward-looking members of the BJP coalition, some of whom have seen their regions boom from foreign direct investment and are just single-term flirts with the Hindu nationalists.

COALITION RIFTS. Curiously, the future could be decided again in Hyderabad, hometown of the two Laxmans -- the heroic cricketer, V.V.S, and the disgraced Bangaru.

Chandrababu Naidu, the popular and reformist chief minister of Andrha Pradesh state, has seen his capital become one of India's wealthiest cities, a major technology center. It is Naidu's secularist party that is the key member of the coalition government in New Delhi. But he has been distancing his 29 MPs -- the government needs nine of them for a parliamentary majority -- from the BJP.

Prime Minister Atal Bihari Vajpayee, who, until the scandal, was growing in national stature and looked to be the man who would carry a resurgent India forward, now seems hamstrung by political paralysis. An election is not due until 2003, but the parliamentary numbers could swing against him at any time.

So what to expect from India in coming months? At best, sclerosis. At worst, a rollback of the reform effort to placate the well-entrenched RSS. Foreign investors already are treading carefully. This mess is unlikely to sort itself out anytime soon. Ellis, who writes about Southern Asia for BusinessWeek Online, filed this report from Madras


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