James Crabtree has been the Mumbai bureau chief for the Financial Times, a senior policy advisor in the UK Prime Minister's Strategy Unit and was a Fulbright Scholar at Harvard's Kennedy School of Government.
Today, the journalist and author is an Associate Professor in Practice at the Lee Kuan Yew School of Public Policy.
His latest book, The Billionaire Raj: A Journey Through India's New Gilded Age takes an in-depth look at the ""…billionaire class in a radically unequal society" where the country's top 1% now own nearly 60% of its wealth.
I asked him how he first became interested in the subject.
James Crabtree: I lived in Mumbai in India for five years and I covered the financial markets, companies, businesses and I became fascinated by the world of the Indian Super Rich. When I moved to Mumbai in 2011, I could see this enormous wealth being created particularly at the very top of Indian society, the country that traditionally people think of as being quite poor, but it now has some of the richest people in the world.
The richest person in Asia, Mukesh Ambani is an Indian and he has an extraordinary home that is a towering skyscraper in downtown Mumbai that I used to drive past. And so, both the topic of how this wealth has been created, was it being created honestly through the creation of competitive businesses or was it being created through crony capitalism, began to interest me a lot. And then, subsequent to that the question of what this was doing to Indian society and particularly the question you raised about inequality.
I suppose the point that I tried to make in the book was that I think it's quite hard for people to understand that inequality can be rising in a country like India because we all think of India as a very unequal country to begin with, that [is] partly financially unequal because there are still tens of millions of people at least who fall below the very minimum poverty line.
But also unequal in other ways - inequalities of caste, of religion, of region, of language. And so, India seems to be a very stratified country for all of its many strengths, and I think that's made it hard to see that over the last 20 or 30 years as India has re-engaged with globalisation in a very rapid way after its reopening economically in 1991. But particularly as I argue in my book The Billionaire Raj, from the mid-2000s, the era of peak globalisation before the financial crisis, that India became much more financially unequal.
So, everybody was doing reasonably well including at the bottom, but the top did best of all by miles and particularly those at the very top, and so that was how I came at this problem of inequality.
What did it mean for India that it was becoming much, much more unequal as the top raced away from everybody else?
David Austin: And then what did you find? Let's just the first question that you were thinking of that is it due to honest competition or crony capitalism?
James Crabtree: It's a mixture of both. So, you do get in India, entrepreneurs who have built world-class businesses in areas, like IT services or generic pharmaceuticals or some of the parts of the automotive supply chain. Those people as in other countries when they globalise their businesses often get very, very rich.
So that's one of the things that globalisation does that creates wealth. It means that if you, as has been the case all over Asia, if you can create a successful exporting business then that is a route to huge financial success and there's no particular problem with that.
But India also clearly does have problems of crony capitalism.
And so, there were a number of sectors with close ties to the government: mining telecommunications, property, industrial development, where a good portion of the money that was being earned by these tycoons was coming because they had good connections with government.
That's not unique to India. It's true in many Asian economies, including some of the most successful like South Korea that this period of early industrialisation, in which countries are moving from being rural and underdeveloped to being urban and much more developed, often does come with a degree of crony capitalism in which the political and business elite work out of each other's pockets, but that did create problems in India.
So as long as well as the problem of rising inequality, there have been problems of huge corruption scandals that had broken in India around the time that I arrived in the country and the aftereffects are still being felt today.
David Austin: Is this problem being addressed, is it recognised as a problem domestically in India? Are political parties making this a campaign issue?
James Crabtree: So, India's Prime Minister is Narendra Modi who just won another thumping re-election. He won his first election victory in 2014. And the reason he won that election victory was in part that he came to embody a great upswell of public anger about corruption and so the period that I write about initially in The Billionaire Raj, the middle of the 2000s, the boom years saw as happened in other Asian economies, when they boomed for instance before the Asian Financial Crisis in the mid-90s, saw a lot of corners being cut, a lot of favours being given.
And in the aftermath of the Global Financial Crisis, and for some other reasons that were unique to India, before the 2014 election you had this slew of corruption scandals and Modi capitalised on that and came into office as somebody who was promising clean government, an end to corruption, and to crack down on the nefarious influence of some of these big business tycoons who for a while, in the 2000s were giving India a reputation which wasn't that different from Russia, the idea that Mumbai, the financial capital owned Delhi, the political capital. That the tycoons were really in charge and that the government was in their pocket.
I think that has rebalanced a little bit under Modi's years. He has reasserted the power of politics and he himself has never really been questioned as a personally honest leader, but there are all sorts of reasons why it was unrealistic to think that India would jump away from this period of questionable governance to be able to develop a sort of Danish or Singapore-style model of corruption-free governance.
It's very, very hard to do that and so there's still plenty of problems of governance and corruption in India that will take a generation to work out.
David Austin: How about the taxation system as far as redistribution of wealth and honesty or the effectiveness of their government tax system?
James Crabtree: The big problem with the Indian tax system is not enough people pay tax. So, the way the Indian economy is structured, you do have this creamy layer at the top where you have people working in Bangalore and Hyderabad in world-leading technology companies, but the number of people who actually pay income tax is very tiny. This is a country of 1.3 million people and estimates vary but
David Austin: billion -
James Crabtree: 1.3 billion, sorry, but estimates vary, maybe let's say 20 million people pay income tax. And so, what that tells you is 20 million people have a kind of taxpaying white-collar job in a city and a huge proportion of the economy is in a sort of grey middle area.
And so, India's tax system is reasonably progressive. It could probably be slightly more progressive at the very top end, but the real challenge is formalising the economy and getting lots more people into the tax system so that you're earning more in tax that can then be spread around more fairly.
David Austin: What about the condition of people at the bottom the economic scale?
James Crabtree: At the bottom India is doing much better. If you look at surveys of support for globalisation, then countries in emerging Asia, particularly poorer countries like India or Vietnam, tend to be the most positive about the last 20 or 30 years of globalisation. And that's because for most people in India, they have done a good deal better.
And so this leads to a debate in India where some people say, "Well as long as the people at the bottom are doing okay doesn't really matter what happens at the top as long as the rising tide is lifting all boats", the argument that I tried to make was that actually the gap between the top and the bottom does matter. That if you look at countries that as they develop become very, very unequal, you know the bottom, the poorest earn a little bit more and the rich take most of it, then that's a pattern that you see in Latin America, in South Africa, some of the most unequal countries in the world.
And there's been a lot of good research in the aftermath of the financial crisis which suggests that's not the best way to develop economically and it's in stark contrast to what happened in East Asia where countries like Japan, South Korea, Singapore, Taiwan in the earlier stages of development had a very egalitarian model of development and that seems to be a better thing to aim for.
So none of these countries are going to be like Denmark, I mean we're not talking about egalitarian socialism here, but I think given how unequal India now has become, and it is one of the most unequal countries in Asia quite early in its development path, the risk is that if it continues to develop in the same way, it's going to become hugely unequal as it gets richer and that's very difficult to turn around later. Just look at Brazil and South Africa. Once you have these huge gaps between the rich and everybody else, it's very difficult to close that later on.
David Austin: Is there anything that's being done right now that makes you think that they can close that gap?
James Crabtree: I don't know. My book is not a pessimistic book. I mean, I think the subtitle of my book it's called The Billionaire Raj: a journey through India's new Gilded Age. And so, I make a specific comparison with the United States in the late 19th century after the Civil War the era of robber baron capitalism and corrupt crony-istic city government in cities like New York and Chicago.
There was a time in the history of the United States, or let's say the United Kingdom in the 1820s, or South Korea in the 1960s, where you would think that these countries were just irredeemable where the rich were making out like bandits, the political class was utterly corrupt and then you know over a 20, 30, 40 year period, good governance can have a remarkable effect.
And so you had following the Gilded Age in the United States, the Progressive Era where all sorts of different types of progressive reforms of the sort that we might advocate at the Lee Kuan Yew School, were introduced and it made a great difference, and I think the same is perfectly true in India.
There are things that need to happen across all fronts. So, India is trying to introduce more basic public services to support those who are at the bottom of society; better health care, better basic education systems, to help people move off farms and work in jobs in manufacturing or in the service sector.
That's very important. So is building state capacity, trying to improve the workings of India's government, which is patchy at best. It's very good in some levels right at the centre, but often completely absent in other areas. I mentioned the tax system. So formalising the tax system, expanding the tax base is a myriad of things that need to happen, but I don't think one should be too pessimistic about it just because India is going through this phase of early economic development, which often comes with and has come in other countries with these issues.
David Austin: How would you characterise India the way they reacted after the Global Financial Crisis and kind of after the boom days. What did you see from your vantage point?
James Crabtree: It's a slightly contradictory story because on the one hand, India escaped the worst of the financial crisis and was quite pleased about its government model because of that. There was a sense that India had a quite conservative model of banking regulation for instance and that had helped it avoid some of the worst of what happened in America or Britain or Iceland.
I think that turned out to be a little bit complacent because what had happened in the years prior to the financial crisis, not directly related to what happened in the crash in the UK and the US but very intimately related to the pattern of hyper globalisation that swept across the world, was that suddenly Indian companies were able to borrow lots and lots of money, more than they'd ever been able to borrow before. They also had lots of foreign investment coming into the country, people were very excited about India as an investment destination. And so that meant there was money to be had and to be spent on all sorts of things that the governance systems which regulated all that, be that the way the banks lent money themselves or the way in which particular industries invested were very poor.
And the result of that was the same as happened [in] Southeast Asia in the mid-90s that there was a huge speculative investment boom. Lots of money was siphoned away. The banks lent money that they shouldn't have lent and didn't get it back. And so in the years after the financial crisis, there was a reckoning with this in which suddenly all these companies couldn't pay particularly industrial companies, companies building steel mills and roads and dams and power stations, suddenly began to admit that they couldn't pay back all the money that they borrowed they couldn't build the things that they had promised.
And India is still today working its way out of this problem of bad debt that has weighed down the balance sheets of the conglomerates that make up the backbone of the country's industrial economy and the public sector banks which are the heart of its banking system.
And so, India's development path and the promise that it has to become a future superpower, a great economic power in Asia, for the moment is being held back really by the hangover that followed this this wild boom that happened in the mid-to-late 2000s.
David Austin: Speaking of industry, Modi had this huge push, his Make in India campaign, and I know they spent quite a lot of money on trying to get people to move their factory to India most of the comments have been fairly critical that it hasn't paid off. Do you have an opinion on the Make in India campaign and was Modi's effort in a way to address that problem that you just described?
James Crabtree: It's a slightly separate issue but a very important one. So, when you think about economic development in Asia, most of the success stories have followed a particular model. So, Singapore, Japan, South Korea, Taiwan, the Asian tigers, all of them specialised to some degree in export focussed manufacturing.
It's a very efficient way of taking people from farm labour, moving them into low-skill factories and then gradually you move up the value chain.
So, you start out with toys and garments and then you go to semiconductors and then more advanced materials, and in a sense, that's one of the ways that Asia has become rich very rapidly.
India has a problem in this respect. So, if you look at China, China followed that path almost perfectly. But India has a very traditionally weak manufacturing sector for all sorts of reasons and isn't very good at exporting except in certain sectors like automotive. And so, Modi recognised this, and he launched this big glitzy campaign called Make in India, to try and both boost Indian domestic manufacturing but to invite in foreign global manufacturers to use India as a base as they have done for China for most of the last 20 years.
And so that was a good idea. I mean, it was one of the best ideas that Modi had. And in a sense, it's very much still a good idea because in fact maybe even more so now with the trade war between the US and China, it should be the case that India is the big winner from that process that lots of the manufacturing that has been in China from European, Japanese, American companies should be moving to India because of the perfect time.
But it isn't. Or it isn't in very large numbers and that's partly because while Modi had a high-profile marketing campaign for Made in India, many of the underlying issues which make it hard for large global companies to set up labour-intensive factories in India have not yet been solved. It's hard to get land, very hard to hire people. Hard to just get bureaucratic say-so's and ticks in boxes, a little bit easier than it used to be but not easy enough to suddenly convince the Apples and Foxconns of this world to move lock stock from China to India. And so, this remains a big challenge for India because one of the main routes to fast inclusive development in India isn't working quite as well as it has in other countries.
David Austin: That brings us back to governance which you've mentioned a few times already. What do you think is the prospect for improving governance in India?
James Crabtree: You have two different things going on here. You have as I mentioned, an issue about the probity of governance, the honesties, their corruption. And then you have the capacity of governance. And so, there's a lot of literature about what's called state capacity. So, if you look at China, lots of corruption in China, but you have a state with very high capacity, it's able to get things done, even though there is corruption.
India's problem is that its government has had a corruption problem but a lot of the time it has quite low state capacity and state capacity is positively associated with all sorts of good things in rapid development. It's very hard to develop quickly if you don't have high-quality public institutions, and if you don't have high state capacity.
The Indian government is something of a contradiction. If you meet civil servants from the heart of India's government in New Delhi, they're some of the smartest and most capable people that you'll ever meet in public service. Brilliant minds dealing with extraordinary problems. And there are some parts of the Indian state which function very well. It has a reasonably good central bank, has some public institutions, the upper levels of the court system work pretty well but there are all sorts of problems.
At the lower level the state is often absent. There are huge problems in the provision of basic services like health care and primary education. The Indian government is in lots of areas where it probably shouldn't be. So, it runs a very bad airline. It's still owns a whole bunch of rather hopeless banks and industrial businesses that it probably shouldn't own in the way that it does.
And so, there are all sorts of ways in which improving the capacity of the Indian state to operate, investing in that, offer very high returns in terms of India's potential future development.
David Austin: The individual states in India have quite a bit of power as well. Is that is that another issue that some states are doing better than others or maybe playing ball better than others?
James Crabtree: Yes, so India is a federal system. It has 29 states of which maybe a dozen are significant from an economic point of view that are either large or they are coastal. They have more of the exporting industries. And so, India is a very diverse country in all sorts of ways, but particularly the south and west of the country is richer and more prosperous, more connected to the global economy, more like Southeast Asia. And then the north and east of the economy is much poorer, tends to be landlocked, has worse governance.
In a sense, the way that people hope this will work, is that this is a bit like what they talk about in the United States, that the States become laboratories of democracy in which the best pioneer new systems of working and the others then copy them, and there's a bit of that in India, but perhaps not as much as there could be.
But certainly, the diversity of India's states is an opportunity. It provides a bed for innovation, but it's also a challenge particularly for foreign investors because one of the problems that you face in India is that the regime that you have in Tamil Nadu for instance, one of the industrial states in the South, can be quite different from Uttar Pradesh, the most populous state in the Northern heartlands.
And so, it's just an extra level of complexity both in running India's government if you're Narendra Modi, but also investing in India if you happen to be a big foreign investor.
David Austin: What do you foresee happening, let's just say in the next five to 10 years as far as inequality in India?
James Crabtree: In the book, I tried to be fair and optimistic and to say that there is no particular reason why India cannot follow a reasonably rapid development path. The fact that it is in a position that looks troubling, with this recent history of corruption, rising inequality and a state that has quite low capacity doesn't necessarily mean that it can't fix that. And indeed, India has some advantages because it's going last - not just all of the rich countries the you know, America and Germany and Japan but more recently Asian countries like Malaysia or China provide it with templates.
So it has much more to look at to see what's working. That said, I think it's almost certainly unrealistic to expect that India can do anything like what China did. China has had this extraordinary period which is now ending. For 30 years it was growing at 10% a year or more, that has been a very unusual economic phenomenon that almost no other country has managed to copy in human history.
And so, I think India's development path is going to be more up and down, partly because of the kind of country that India is. It's a democracy. It has particular problems it has to challenge. But also the global environment is now slightly less friendly to India. China prospered in the era of rapid unfettered globalisation.
India is now going to have to come of age in an era in which the US and China, the world's two most important economies are fighting with one another and that's sort of playing havoc with all sorts of issues.
So, I think there isn't any particular reason why India, if it makes the right decisions, can't have a very bright future ahead of it, but the global environment, and to some extent there are complexities of the Indian system mean that that's not a given.
David Austin: What about climate change? Because that's a question that I think has to be applied to everything at this point looking in the future. I would suspect that India has quite a big vulnerability to climate change and how do you think that they will cope with that?
James Crabtree: Yeah, I'm glad you asked that it's not something I dealt with in the book and it's something I felt rather guilty about because I think in the future everyone will judge us for whether or not we thought seriously about this.
And India is critical to the global challenge of the climate crisis. If India develops on a carbon intensive path that is comparable to China, then without wanting to be too dramatic, we're all doomed. And so, given where India is at and the early stage of its development, at something like $2,000 per capita, if it doesn't pioneer a new low carbon development path in all sorts of different ways, then it's going to be incredibly difficult to meet anything close to the two degree warming target.
That said, that can provide some cause for optimism in terms of simply doing things differently. If you look at solar power in India and the rollout of solar power, it's been a very impressive story. One of the most impressive developments under Modi, the rapid rollout of solar and the price at which solar can now be produced has exceeded people's expectations.
But as you say India is very vulnerable to climate change. I mean, it has coastal low-lying cities. It's very reliant on water from four or five very large rivers, which create geopolitical conflicts from its neighbours. Its population is poor.
It's the classic case of the problem with climate that, although countries like Singapore are going to struggle, they have hundreds of billions of dollars to spend on sea defences and helping their populations adapt. India, although it has many fewer abjectly poor people than it used to, is going to struggle with that and it also at the same time as coping with climate, is coping with a rapid process of urbanisation in which two and 300 million people roughly are going to move from villages to cities in the next 20 or 30 years.
And so I think the way the world should think about this is that India is a really mission critical battleground in the challenge of globalisation and that working with India by providing partnerships, developing new technologies, providing money, is going to be one of the most important things that we can do if we're going to have much hope of meeting the challenge of climate change.
David Austin: So now that being said, are you still cautiously optimistic about India's prospects?
James Crabtree: Yeah, cautiously optimistic. I think you don't want to underestimate the size of the challenge whether that is on climate or urbanisation or governance. All of these things are what some of my colleagues in the school call "wicked problems", they're incredibly difficult to solve, they're multifaceted. It's not entirely clear even to smart people at schools like our own exactly what the answer should be.
Nonetheless, I go back to the example of history, previous developing economies be that here in Singapore or around Asia or in the West, is that development can happen much more quickly than you think. And while it's hard for public policy to change a lot in the short-term from one year to the next, it often seems the levers that you pull are ineffective. From one decade to the next, good public policy can have a dramatic effect on the way that countries develop.
And so, for that reason I think have to be cautiously optimistic that a country like India can achieve its potential.
(Photo credit: Isabell Schulz)