In 2006, Foreign Affairs, among many other periodicals, proclaimed India to be “a roaring capitalist success story.” This story, we are now increasingly told, is over. The rate of growth in India’s gross domestic product has slowed to slightly more than 6 percent from the peak of about 10 percent that once excited fantasies of India overtaking China. The rupee is plunging. Standard & Poor’s India’s credit-rating outlook to “negative” from “stable.” The next stage is “junk,” if it loses its BBB- grading.

Corruption and India’s threat of retroactive taxes on companies, most notably the government’s attempt to recoup as much as $3.72 billion from Vodafone Group Plc, the U.K.-based telecommunications company, on its 2007 acquisition of an Indian company are scaring away foreign investors. India’s own captains of industry are looking for abroad.

Still, is it premature to bring down the curtains on the “India Growth Story”? To be sure, foreign investment in India sparked a retail credit boom -- and visions of hundreds of millions of middle-class Indians achieving the purchasing power and consumption patterns of their European and American peers. Total GDP grew, even though employment had no corresponding increase, and a terrible agrarian crisis caused by high indebtedness, drought, failed crops and international competition -- which compelled some 200,000 farmers to commit suicide -- didn’t rapidly boost mass consumption.

Fragrant Cliches

The glossy services sector, such as information technology and back-office operations, boomed. The rise of financial services -- and its accompanying foreign and local business media staffed with innumerable short-termist analysts and reflexive boosters -- also helped make India appear to be “the story of unusual national advancement,” as Amartya Sen put it recently, making “an alleged reality out of what is at best a very partial story.”

Some fragrant cliches came to be lavished on the chronicle of “India Rising.” This is how it went: Since its introduction in 1991, free-market capitalism has been liberating India from the darkness of “socialism” and a mindless regulatory regime (aka, the License-Permit Raj), sparking a consumption boom that is lifting hundreds of millions out of poverty and making India a superpower in our newly flattened world.

This account of India’s past always mystified those who actually knew the country before and after 1991 -- a place very far from socialism, as I have pointed out in a previous column, and even further from free-market capitalism. For India in the previous decade witnessed what Raghuram Rajan, formerly the chief economist of the International Monetary Fund and now an adviser to Indian Prime Minister Manmohan Singh, calls “the Resource Raj.” This is a polite euphemism for crony capitalism, whereby, in the Financial Times’ gloss, “an alliance of well-connected industrialists and public officials…carve up the permissions and licenses that have in the past underpinned India’s growth.”

Looking around my own village in Himachal Pradesh, I could see that economic growth and the related change in consumption patterns were due mostly to real-estate speculation by the already rich and powerful. In the absence of industrialization, adequate education and employment, and indeed plucky entrepreneurship, the main source of capital was land, almost invariably acquired illegally by a nexus of businessmen and politicians.

No Horatio Algers

My experience was admittedly very narrow. But, magnified many times, this was also the “success story” of economic growth heavily dependent on easy access to and privatization of national resources; information technology, which still employs only 2.5 million of a workforce of more than 400 million, played a tiny role. There are very few Indian Horatio Algers. Many of the country’s long-established companies, often assisted by foreign partners, maintained their dominance with their unmatched ability to acquire mining leases, infrastructural contracts, property-development rights and mobile-phone spectrum.

A series of scandals beginning with the Commonwealth Games fiasco in 2010 and peaking with a reportedly $210 billion coal-mining racket exposed the influence of business over politics and, more alarmingly, the media. The larcenies of “socialist” India suddenly seemed small-time compared with the massive plunder of public money and resources under the auspices of free-market capitalism.

Caught red-handed in many instances, the government froze, shamefully aware of betraying its left-wing rhetoric. Heavy electoral defeats -- punishments by the poor for intolerably high inflation -- have further impaired its policy-making mechanism, which was always prone to eccentric behavior. Desperate to reassert their power, some bureaucrats and politicians have taken to prosecuting corporate offenders in the lucrative sectors -- telecoms, coal, power and gas -- that are most tainted by corruption scandals.

Detailing the woes of India’s business barons, the newsmagazine India Today recently expressed shock at seeing high-profile businessman Mukesh Ambani being harassed by the government. “If that is the fate of Mukesh Ambani, India Inc. ought to be very scared,” the magazine said.

So it should be after the easy run enjoyed in the previous decade by well-connected corporations. Could it be that, as the Financial Times wrote, “India’s democracy is responding to the administrative inefficiency and impropriety of the old system, albeit slowly and imperfectly?” Will India’s oligarchs be reined in by politicians who draw votes by posing as protectors of the weak?

Falling Behind Bangladesh

We shall see. In the meantime, a politically shell-shocked government is unlikely to risk appearing too business-friendly. Faced with widening fiscal deficits and probably a balance-of-payments crisis, the government seems, as in the Vodafone case, to have resorted to shaking down foreign corporations.

The government is clearly betting that as Western economies flounder, foreign corporations seeking a decent return have no option but to invest in India, agreeing to pay taxes that are, in the end, a small fraction of their revenue. It may be proved right: Ikea Group is again in play in India after the single-brand retail sector was opened to foreign companies. Vodafone shows no signs of pulling out.

In any case, those who noticed how India, in the previous decade of record GDP growth, slipped behind Bangladesh in life expectancy, child survival, fertility and immunization rates and allowed Nepal to catch up were never much swayed by the histrionic narrative of an inexorably rising country.

One must remain wary of yet more giddy distortions of India’s multifaceted reality. As Robert Zoellick, the outgoing president of the World Bank, points out, India’s shrunken growth rate of less than 7 percent can only cause envy in European and American hearts. Incremental reforms in agriculture, education and public health will do more to shape India’s future than the moods and whims of foreign investors today. Certainly, the story of India must be wrested back from the cliche-mongers, who, having once circulated the most garish fantasies, seem now to be peddling melodramatic despair.

(Pankaj Mishra, whose new book, “From the Ruins of Empire: The Revolt Against the West and the Remaking of Asia,” will be published in August, is a Bloomberg View columnist, based in London and Mashobra, India. The opinions expressed are his own.)

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author of this story:
Pankaj Mishra at

To contact the editor responsible for this story:
James Gibney at