In this episode of The Dialectic, Editor-in-Chief Atul Singh and FOI Senior Partner Glenn Carle, a retired CIA officer, deliver a rigorous analysis of the Indian economy under Prime Minister Narendra Modi. Their conversation explores how centralization of power, excessive bureaucratization and competitive populism are hollowing out growth, entrepreneurship, private investment, savings, public finances and institutional credibility in India.

The authors begin by defining “Vegetarian Stalinism,” which is a metaphor for a system where anyone opposing the Modi government faces repression, not in the form of being packed off to a Siberian gulag, but oppression through regulators, taxmen and even the police. This can lead to years of legal limbo, much like waiting for Godot. Vegetarian Stalinism avoids the violence of the Soviet Union but tortures citizens through Kafkaesque processes that suck up time, money and energy.

Like the communist Soviet state, the Indian state controls the commanding heights of the economy. Instead of nationalization of all private enterprise, an unholy nexus of babus (Indian term for bureaucrats), big business and Modi’s Bharatiya Janata Party (BJP) dominates the Indian economy. This rent-seeking and corrupt system favors oligopolies and monopolies that are unchallenged by competition, leading to consumers paying too much for too little.

While Pakistan is a garrison state, a term coined by the scholar Ishtiaq Ahmed, India is a babu state. Babus still rule India in an arbitrary, extortionate and draconian way. The roots of this bureaucratic oppression lie in the past. India’s British imperial masters ruled through the Indian Civil Service (ICS), elite bureaucrats who came from Oxford and Cambridge, to extract revenue from India, the jewel in the crown. Once India became independent in 1947, the ICS was renamed as the Indian Administrative Service (IAS) and acquired even greater powers under the license-permit-quota raj — a system where you need an insane amount of bureaucratic approvals for any economic activity.

This crazy license-permit-quota raj only receded when the Gulf War and the weakness of the Soviet Union in 1990–91 led to a balance-of-payments crisis and the 1991 liberalization of the Indian economy. Modi has turned the clock back. Like Indira Gandhi, Modi has centralized all power in the BJP and in the country. Hence, he relies on babus to enforce his writ. They have brought in protectionism, often through the backdoor and a compliance raj that terrifies anyone doing business. In India, the IAS occupies the commanding heights of not only the state but also the economy. As during the pre-1991 times, Indians have political freedom but no economic freedom.

To be fair to Modi, he has done a good job on infrastructure, digital payments and delivering micro welfare benefits directly to the people. The provision of women’s bank accounts, electricity, sanitation and cooking fuel has improved the lives of millions. No less than 810 million Indians get five kilograms of foodgrains for free every month.

However, the economy is facing a crisis. India had a massive black economy that many estimate might have been 60% of the GDP. Modi’s shock therapy of demonetization and introduction of a nationwide goods and sales tax in the middle of a financial year destroyed millions of small and medium enterprises. There are hardly any jobs, especially for the youth.

A dumbbell economy that gives subsidies to big business and freebies to the poor is causing great strain on the middle class. Note that subsidies have not led to increased manufacturing. Modi’s policies have led to deindustrialization instead with manufacturing falling from 17% to 13% during his 10+ years in power. Tax terrorism has become the name of the game for Modi’s babu state, where citizens are threatened with imprisonment to make payments and then languish in court for years to seek redressal. The Indian system is not Kafkaesque; it is Kafka.

The Modi government’s oppressive actions are forcing Indians to vote with their feet and leave the country. An exodus of talent and capital is underway to escape what an astute business executive calls “rupeeization of incomes and dollarization of expenses.”

Three scenarios emerge from this: a 1991-style crisis forces India to reform, India meanders along in mediocrity or the country disintegrates in the case of a major shock. The future of the country depends on the decisions of its policymakers.

00:00 What is Stalinism?

09:00 Modi’s Vegetarian Stalinism

14:30 Infrastructure & Micro Welfare

18:00 Farce Economic Growth

26:40 Dance With Socialism

38:00 Bureaucracy & Red Tape

53:00 Modi’s Sanatan Socialism

1:00:00 India’s Political Populism

1:05:00 Modi’s Tax Terrorism

1:13:00 Evils of India’s Past

1:20:00 India’s Future