Goodwill is a politely mendacious courtesy which accountancy pays to the financial markets. Such amiable fictions populate financial economics in which the function of financial markets, to facilitate sale and purchase of financial assets, is ennobled by an ability to determine the true value of those assets. Because the prices in financial assets rarely express the true value of anything, a dignified name that confirms the correctness of the market's judgement must be given to the deviation of market value from the assets represented by that market value. Goodwill is one such dignified expression.

Goodwill is the value placed on the expectation that the clients or customers of an established company will continue to patronise it out of habit or confidence in the conduct of its business. In practice, it is today simply the amount by which the price of a going concern exceeds the sum of fair values of all of its other net assets. In other words, it is the amount of money that may be paid to the owners of a business over and above the costs of merely buying the assets that the company use. When financial markets are inflated, the scope for goodwill is correspondingly expanded.

The origin of the term lies in changes in accounting practice that accompanied the rise of the capital market in the second half of the nineteenth century.

India has been on the move, changing from within and without in multifarious ways. These changes have been sincerely as well as glibly dubbed a ‘new’ India, which has surreptitiously and unwittingly swept away the ‘old’ India. Any casual observer would notice that the ‘new’ no doubt coexists with an ‘old’ India, although where one begins and the other ends is difficult to mark. It is equally vexing to separate an earlier modernizing, idiosyncratic India from its traditional past, the ‘other’ India, and from the current globalizing, modern India. That there are multiple Indias is an oft repeated cliché, but it cannot be denied. To put it differently with another cliché, is there a unity of Indian change in all of this diversity?

This volume acknowledges that India, as a social system, mimics, mocks, and reinvents itself continuously – in real and imagined ways. There are new forces at work, gnawing at and pushing out the old even as the old reinvents itself in a changing India. To capture these multiple, multilayered, centripetal and centrifugal shifts remains a daunting task. This volume should be seen as a modest and selective attempt to begin the intellectual quest to unravel a ‘new’ India in its complexities.

This project had its genesis at the end of 2007 when I founded the book series India and Asia in the Global Economy with Anthem Press in London. In March 2008 I organized two academic panels with the theme A New India?

Introduction

The labels ‘new India’ and ‘new Indian’ are now commonplace. Businesses hawking products or journalists and social commentators reporting on contemporary India use the label lavishly. There is a new India, which is different from what it was before, an unstated ‘old India’. Presumably there is also a new Indian, who is assumed to enjoy the fruits of a modern, industrial, dynamic India, neither bound by the past nor by provincial thinking. India and Indians are now modern and global. A street advertisement in the up-andcoming Salt Lake residential area outside Kolkata shows high–rise apartment buildings and makes no bones about exhorting passers-by to ‘live like the world does’, an oblique reference to the nouveau riche, whose financial standing is seen as no different from that of the citizens of affluent countries.

What reads like a caricature has been repeatedly reported by the popular and business press, nationally and internationally. The New York Times has made liberal use of the prefix ‘new’ to describe India, as in ‘the high life of young, exuberant New India’ (Sengupta 2008). The new India refers to the country's stirring middle class, its new-found wealth, changing consumption patterns that mimic Western lifestyles, and India's technological sophistication (Simmons and Kahn 2009a, 2009b).

As the financial crisis spreads out from its crucible in the US and UK, it has given rise to considerable discussion about its impact on developing countries. The situation itself is novel because previous international financial crises, the Third World Debt Crisis of the 1980s and the emerging market crises of the 1990s, spread from developing or emerging markets, so that developing countries were incriminated and affected from the start.

In the present crisis, the developing countries, for once, were not in the room when the crisis broke. Given the immense range of economic circumstances and exposure to international financial markets among the developing countries, the manner in which they are being affected is inevitably going to be more complex and indirect than in previous crises.

Current economic theory gives little guidance as to how the crisis will impact upon the developing countries. This is partly because the starting point of mainstream economic theory is optimization based on setting policy parameters that will secure internal and external equilibrium for a given country. It is more realistic to use a stock-flow analysis that places developing countries within a given structure of international economic and financial flows which are largely determined by expenditures in rich countries. Within this framework, assets and liabilities are largely determined by the history of past market disequilibria, rather than saving or portfolio preferences.

In the discussion about the financial crisis since 2007, one important factor has been overlooked, namely the distribution of income and wealth. It is obvious that the social consequences of the financial crisis have been made so much more painful by the growing inequalities of income and wealth in the US and the UK that preceded the crisis. But there are also connections between such inequalities and financial instability. These have been highlighted by many critics of finance. For example, John Hobson, most famous for his 1902 classic Imperialism: A Study, argued that inequalities of wealth and income gave rise to over-saving, and hence economic stagnation. More recently, the late John Kenneth Galbraith noted the connection between tax cuts for the rich and asset inflation. Nevertheless few critical observers1 have been able to go beyond the obvious and odious facts of increasing hardship alongside the conspicuous consumption and display of housing assets by the beneficiaries of financial inflation. Asset inflation and income and economic inequalities are intimately linked. Asset inflation means rising values of financial assets and housing. Such inflation allows owners of such assets to write off debts against capital gains, buying an asset with borrowed money, and then repaying that borrowing together with interest and obtaining a profit when the asset is sold. Hence the proliferation of borrowing by households and consumption ultimately financed by debt.

Modern finance is about ‘convenience money’, that is, having a store of liquid assets that allows firms and households to meet unplanned expenditures, or unexpected declines in income, without the bother of having to sell possessions (labour or inanimate property) or borrow in an emergency. Such convenience money is part of accumulated wealth. As globalisation has linked up local and national markets for wealth, so too it has changed the kind of money that we use.

As every textbook reminds us, to the point of tedium, money is a social convention which makes trade easier because prices are set in amounts of the money-commodity (‘unit of account’), and because the proceeds from selling commodities may be held as money until the desired commodity comes into the market (‘store of value’).

The terms ‘leverage’ (or its UK equivalent ‘gearing’) and ‘deleveraging’ have acquired renewed currency with the crisis that broke out in 2007. Leverage is the indebtedness of a company, or the process of increasing the indebtedness of a company (as in the phrase ‘highly leveraged company’ or ‘acquiring leverage’). It is usually measured by one of two ‘gearing’ ratios. Capital or financial gearing is the amount of debt that a company has relative to its total capital. Alternatively, income gearing is the ratio of a company's debt to its total income.

Until the twentieth century, income gearing was the common measure of leverage. This reflected a corporate practice in which the only possible gainful use of debt, that is, aside from its traditional unproductive use in financing consumption or government, was to finance commerce or industry. It followed that the key indicator in determining the amount of borrowing was the possible income that it might generate in trade or production.

With the emergence of active markets in corporate finance, towards the end of the nineteenth century in Britain and the United States, the scope for the gainful employment of leverage extended beyond commerce and industry, and into the capital market itself. Once that market became sufficiently large, the return from profitable trade in it was determined by the total amount of capital that could be turned over in that market.

Financial inflation leads to bigger balance sheets, both assets and liabilities. This creates a sense of prosperity, and selfcongratulation on the part of bankers, financiers and finance directors of firms. Disillusion sets in when financial inflation fails. When deflation sets in it reveals the self-delusion of markets, habituated to apparently endless capital gains from asset inflation, and the self-delusion of economists, habituated to convenience thinking that attributed such inflation to a prosperous equilibrium among rational optimising agents such as they conceive themselves to be. Effective understanding must look beyond the delusions created by markets to the structural shifts in the markets that account not only for the crisis (which excludes most theories of equilibrium among rational, optimizing agents) but also for the years of financial boom (which excludes most disequilibrium/euphoria-based theories of financial crisis).

The crisis that broke out in 2007 is a crisis of asset inflation and collateralised lending. Asset inflation involves the rise in asset values. In the past this has been attributed to expectations of higher future earnings (in the case of capital market assets such as stocks or shares), or the scarcity of the asset (in the case of housing assets). Neither of these factors can satisfactorily explain the long boom in asset values that has affected the US and UK markets, and their abrupt end in 2008.

The NRI between Neo-liberalism and Diaspora

The non-resident Indian (NRI) is a ubiquitous term in communities of speakers of Indian languages living in India and abroad. It denotes the nonresident Indian classes, those citizens of India and sometimes their offspring who live in the United States and Europe, in Australia, other parts of Asia, and elsewhere. In many ways, the non-resident Indian helps make India new by expanding membership beyond state territories and reorienting economies towards border-crossing individuals, developments I describe below as neoliberal. The NRI announces a new relationship between the world and India. Its importance to the conception of a new India may be measured by the large number of services offered to NRIs, from rupee investment accounts to Bollywood films released specifically with this audience in mind. These services cater to and raise awareness within India to the Indian population abroad, often referred to as the Indian diaspora. In many ways, the NRI is a term that encapsulates globalization in India and its ambivalence to Indian citizens. To wit, NRI is sometimes understood to mean non-resident Indian; sometimes it is ironically twisted to mean not-really Indian, or even, a new resident of India.

This chapter tries to understand the significance of the NRI to a new India through unpacking its historical, legal and financial origins. Although in popular discourse, NRI and Indian diaspora are used interchangeably, this chapter separates the two analytically.

Introduction

High rates of growth have characterized developments in the Indian economy over the last few years, with a growth rate of close to 9 per cent for three consecutive years from 2005–6 to 2007–8, surpassing all expectations (Government of India 2007). Whereas GDP growth amounted to less than 4 per cent per year during 1965–74 (in fact since Indian independence in 1947), it has been close to 6 per cent per year since 1985, an increase in the growth rate by one-and-a-half times. Even more significant is the increase in the annual rate of GDP per capita growth from 1.4 per cent during 1965–74 to 4.3 per cent during 1995–2004, a threefold increase, resulting partly from a slowing down of population growth (Rao et al. 2008).

This remarkable growth, often claimed as evidence for the success of a pro-market strategy that has led to an expansion of choices and opportunities, is viewed as a key characteristic of the ‘new India’. Yet concerns about the inclusiveness of the growth process remain, pointing to the persistence of an ‘old India’, with not all sectors, states or sections of the population able to equally access these new, market-based opportunities. The interests of urban private capital (big business) and rural social elites (often newly emergent caste-based groups) continue to be met at the cost of providing education, health or extension services to the poor, confronted with both rising prices and exclusion from the new regime of accumulation (Corbridge and Harriss 2000; Kohli 2006; Bardhan 1998).

Introduction

At independence, there was significant expectation about India's economic performance, both among its own population and externally. This expectation of strong economic performance in the post-independence period was largely disappointing. After an initial period of rapid growth just after independence, the Indian economy went into a protracted period of slow growth in per capita income from the mid-1960s to the late 1970s. Growth in per capita incomes during this period was less than 1 percent a year, less than most other comparable economies of the developing world (Bhagwati 1993). India's standard of living fell behind that of many countries such as China and South Korea, when in fact, at independence, India's standard of living had exceeded that of those countries. In the last two decades of the twentieth century there was a perceptible break from the economic stagnation of the previous decades and the Indian economy grew at rates that far exceeded the average growth rate in the first few decades after independence.

What was particularly new about India's economic growth in the last two decades of the twentieth century? How was it different from earlier growth episodes both in the colonial and post-colonial periods? A revisionist view has argued that India's growth in recent decades is not particularly distinctive as compared to average Indian economic growth since independence or with growth rates of other comparable countries or regions (De Long 2003; Nayyar 2006).

On the 19 February 1986 the Financial Times published my article ‘Why the World Economy Needs a Financial Crash’. That article had a devastating effect on my career, leading to my virtual blacklisting in the financial institutions of the City of London. The loss of my job imposed new stresses and insecurities on my young family. It also changed the course of my intellectual development and transformed my outlook on the discussions of policy and theory that are supposed to be the vehicle for the progress of reason in economics and politics. The article was written in the belief that, in contrast to the engaged writer in an authoritarian regime, we live in an intellectual democracy in which ideas and analysis are evaluated on their merits. Publication of my article marked the turning point to my realisation that the market-place for ideas is the playground of coteries vying for or exercising power. In that playground, a special place is reserved for the media whose function is ‘as an opinion board telling individual agents in the market what average or conventional opinion is at any one time’. (Josef Steindl went even further and suggested that the particular coteries, or ‘opinion-leaders’ dominate that playground, forming the expectations of participants in financial markets to maintain a certain speculative enthusiasm or deflationary temper in those markets. Arguably financial economics functions in much the same way.)

The question of newness, of the production of a ‘new’ India or The New India, must consider the centrality of the ‘new’ within the context of architectural history. Art and architecture often comprise an attempt to create the avantgarde or the constantly and forever new, characteristic of northern Atlantic modernist art movements. In South Asia during the twentieth century, artists and architects struggled with the difficulty of balancing ‘Indianness’ and the new, engaging with the problem of absorbing and reacting to a hegemonic and ever-present European visual culture. Because the northern Atlantic appeared to have a lock on ‘the new’, South Asian expressions felt always behind, always derivative. The relation to the new was thus fraught with the simultaneous resistance to its putative source in Europe – a force carried along to India with modernization and Westernization.

Thus for architectural and artistic works, the question of a New India means grappling with a continual suspicion of and redefinition of the new after 1947. Kabir's epigraph above gives voice to the politicians' package of adjectives associated with the independent state and marks the need for their reassertion in the decades after independence: new, free, democratic.

Contemporary financial economics, like alchemy, is a calculating pre-science. It aspires to scientific status, but fails to achieve it because financial economics is driven by a search for its own philosopher's stone, and its theorists are distracted by the pursuit of red herrings. The philosopher's stone of finance is a method to forecast stock prices or, what amounts to the same thing, a way of speculating risklessly. This search is documented in a recent book edited by Geoffrey Poitras. The volume is concerned with the twentieth-century ‘discoveries’ of Markowitz, Merton, Miller, Black, Scholes and other legends of academic finance who converted ‘a collection of anecdotes, rules of thumb, and manipulations of accounting data’ into ‘a rigorous economic theory subjected to scientific empirical examination’. By a process of restricting the arguments until a determinate algorithm for forecasting stock prices or determining risk emerges, modern quantitative finance offers the philosopher's stone, but substitutes for it ‘optimal’, ‘riskadjusted’ portfolios that are only optimal or risk-adjusted in such a limited sense as to be impractical. Nevertheless, since only a saint or a subversive would ever settle for anything less than an optimal or risk-adjusted portfolio of wealth, the prospectus for quantitative finance inevitably wins out over more modest and more practical approaches. Our heroes secured valuable Wall Street consultancies. But they were employed largely for marketing purposes and were rarely allowed to influence actual investment practice and strategy.

Cross-border credit and money capital transfers, and international money in the sense of cross-border payments, have always played a key role in the worldview of economic liberalism. Frequently international money and financial activity have been regarded as proving that, without any government or social direction, trade can reach all corners of the globe and foster capitalist business enterprise everywhere. Behind this view is a nostalgia for the era of the gold standard, approximately between 1870 and 1914, when world currencies were convertible into gold at a fixed rate. The breakdown of that system during the First World War was associated with suspensions of international payments and capital flows. Its return in 1925 was welcomed by Oliver Sprague, adviser to the US Government and the Bank of England, in the following terms:

Financial instability had come to be associated with the absence of a gold standard for money and exchange rates. Suchinstability gave rise to and continues to foster the delusion that the international financial system can provide an automatic mechanism to deal with economic problems.

An unrecognised merit of Rosa Luxemburg's The Accumulation of Capital (London Routledge and Kegan Paul, 1951) is that its theory of international finance is of startling relevance today.

In this book, which could still be read with profit by many City economists, Rosa Luxemburg analysed the process of capital accumulation (i.e. economic development) in colonial territories around the turn of the century. Lacking their own sources of finance, the major capital projects of those times were paid for by floating shares and stocks on the London Stock Exchange or international loans.

Inevitably, the engineers and sponsors of the development schemes tended to be over sanguine about their projects' future profitability. Too often costs exceeded projected expenses and initial borrowings proved insufficient, so that, even if completed, the projects were over-loaded with debt repayments and interest. Non-payment of these would precipitate a financial crisis on the part of both lenders and borrowers. The resulting crash would so devalue the claims of the lenders on the project as to enable it eventually to be completed, or continue in operation. In this way, many banks and financiers were ruined, but the projects themselves (like railway construction in Britain) were rarely altogether abandoned. Thus, the accumulation of capital proceeded, developing the relatively backward parts of the world and the developed countries themselves, using the money hoards of rentiers to pay for investment, and then defaulting to avoid meeting the claims of those rentiers.