For the bureaucrats, the reforms signaled an end to what eminent Indian economist Raj Krishna had sardonically referred to as the "license-permit-quota raj" -- a labyrinthine set of regulations, rules, and restrictions over which they had exercised considerable discretion. With the advent of these reforms, they lost their ability to extract rents from hapless businessmen and industrialists. Not surprisingly, in an attempt to protect their entrenched interests, they sought to stall the implementation of new rules at every turn.
The post-reform generation of politicians was pleased with increased revenues that ensued from greater growth and productivity. However, they showed scant regard for fiscal rectitude as large segments of the population, which were hitherto economically disenfranchised, sought improved living standards in a booming economy. To ensure continued political support, the political class resorted to a host of populist schemes without the slightest regard for their financial soundness. These included the creation of guaranteed work schemes for individuals below the poverty line. In principle, such an assurance of work was a desirable public policy goal. However, without mechanisms in place to ensure that this system actually benefited the targeted population, its actual implementation became yet another source of corruption and a drain on the exchequer.
Despite the highly uneven impact of this work scheme, the present regime is now in the midst of debating new legislation that would assure access to a minimal caloric intake for every Indian citizen. The goal of this proposed legislation is laudable, but a number of prominent economists have warned that the government simply cannot afford it. Nevertheless, because of the program's political popularity, the regime remains committed to implementing it, even though the fiscal deficit already stands at nearly 5 percent of the country's gross domestic product. The exigencies of winning elections are now making populism run amok with disastrous economic consequences.
One other feature of the political landscape helps explain India's current straits. Even as the economy dramatically expanded between 1991 and the present day, only piecemeal efforts were made to develop new institutions, mechanisms, and procedures for dealing with the ramifications of its expansion. Consequently, well-connected businessmen could still find ways to corner critical resources as the state withdrew from or opened up new economic vistas. The growing need for campaign funding in a political arena increasingly dominated by electronic media also led politicians of all stripes to turn to commercial elites for money. Not surprisingly, this nexus resulted in endless questionable deals. When, thanks to India's watchdog institutions and a feisty press, at least some came to light -- for example, the decision to purchase Agusta helicopters from Italy was allegedly influenced by bribes -- political cynicism and distrust with the government grew. Meanwhile, the permissive environment that enabled high-level scandal had also encouraged corruption among petty officials who believed that only an unfortunate few would actually face punishment.
This virtual collapse of probity at practically every level of governance has afflicted other critical sectors. Owing to the long history of shady defense contracting, the current minister of defense, A.K. Antony, has actually instituted a series of internal checks to ensure that money does not routinely change hands as the country purchases huge amounts of military hardware from abroad. These regulations, however, have proven so draconian that they have now made it exceedingly difficult to execute a single defense contract. Despite the Indian air force's acute need for a strike fighter, final stage negotiations to acquire the French-built Rafale remain suspended in mid-air. Meanwhile, India's domestic defense industry, largely free from competition, is faced with vast cost overruns, interminable delays, and consequent technological obsolescence. A combination of these factors is leaving the country dangerously vulnerable to threats from China and even Pakistan.
Finally, thanks to a weak national government and a constitution that splits law enforcement responsibilities between federal and state authorities, the country has abjectly failed to develop a clear-cut strategy to combat terror in all its forms. Despite the creation of a new organization, the National Investigation Agency, in the wake of the Mumbai terrorist attacks of November 2008, it remains understaffed, underequipped, and lacks clearly defined jurisdictional powers. Consequently, the country remains acutely vulnerable to yet another terrorist strike.
The fond hope of some Indian political commentators is that next year's national elections will end much of the policy paralysis that has currently gripped the nation. Yet such hopes may be little more than mere wistfulness. The problems that the country now confronts are the result of years, if not decades, of institutional slackness and neglect, dubious political choices, and flawed policies. Fixing them will require more than a changing of the guard.