Tuesday, May 09, 2006

The Stark Divide: The Pitfalls of Unequal Growth in India

Siliconeer, News Feature, Siddharth Srivastava, May 08, 2006

There is an India that is looking to grow at over 10 percent per annum. Prime Minister Manmohan Singh, on a recent visit to Mumbai, reiterated his Mumbai-as-Shanghai dream and talked about full convertibility of the rupee. However, there is another India that is witness to the growth and prosperity without any participation in its fruits. And the tensions are beginning to show.

China recently closed one of its longest debates on economic reforms as Beijing approved a five-year plan that seeks to address the income inequalities that separates cities and the countryside. This gap has been related with corruption, land grabs, rise in unrest in the countryside that is home to more than 700 million people who earn a third of the wages of the urban average. India too is simmering, with close to 700 million still out of the ambit of rising incomes.

Only recently there has been widespread rioting in New Mumbai, the new outsourcing and information technology hub, in the suburb of commercial capital Mumbai. Though the immediate cause seems to be an incident of sexual harassment of a woman, discontent has been simmering within the local community which has been witness to the economic boom in the area without entirely being a part of it. Employment has been garnered by migrant labor that is a cause for angst. High paying executives driving fancy cars are housed in spanking new buildings that was once farmland. Local residents, mostly young boys, attacked several passing vehicles.

As India progresses, so have crimes related to what are considered flashpoints of a consumerist existence. Recently a 29-year old employee of software giant Infosys was killed on way from Pune to Mumbai. His murderers took away his credit card (one of the killers ostensibly shopped for his girlfriend with it). In Delhi, two prominent lawyers, a mother and daughter duo, were found murdered inside their upmarket flat. The police are working on they hypothesis that robbery or a property dispute are possible motives.

Car thefts are on the rise, so are credit card frauds and other forms of financial embezzlement. Women have increasingly become targets, with Delhi being declared the rape capital of India, with a record of over 700 reported cases last year.

Crime is not just an urban phenomenon. Elsewhere, while the focus is on terrorist attacks in Indian Kashmir, north eastern states and other parts of India, a bloodier battle is being waged in the hinterlands of several Indian states (Andhra Pradesh, Madhya Pradesh, Bihar, Jharkhand, Chhatisgarh, Orissa), where the Maoists and Naxalites rule with the gun. Close to a hundred deaths have been reported this year from just one district of Dantewada in the central Indian state of Chhatisgarh due to Maoist violence.

Recently, communist rebels captured a train with over 60 passengers in a remote part of Jharkhand. The passengers had a miraculous escape as it seems that the Naxals only wanted to convey a message of the extent of damage they can inflict. In February, Maoists attacked a truck convoy in Chhattisgarh, blowing up one of the vehicles and setting two on fire. Twenty-four people were killed, and 32 injured.

To be sure, many conflicts are results of local issues, but one of the main reasons for the festering of the Naxalite problem has been the absence of land reforms. The Maoists feed on the cadres of tribals and dalits (considered to be of the lower castes) who have been dispossessed of their lands with the indifferent state machinery adding to the alienation. The police and landlords remain the two biggest targets of the Maoists.

A study by the federal home ministry study said murders of police personnel by the guerrillas jumped 53 percent to 153 in the year to March 31, 2006, while 516 civilians were killed, an 11 percent increase on the previous year. “As many as 76 districts in nine states ... are badly affected by Naxal violence although in a varying degree,” the report said, adding that the banned groups have also established inter-state logistics and communications links among its cadres.

Since 1991 India has been following a path of economic reforms and industrial liberalization, unshackling what was called the license permit raj. The reform process included the free entry of private players in areas hitherto controlled by the government, invitation of foreign direct investment and divestment of public sector behemoths that were set up as the commanding heights of a planned Indian economy, as envisaged by India’s first Prime Minister Jawaharlal Nehru.

In the past decade, a broad consensus has developed about the entry of private players who now play an active role in sectors ranging from telecom, banks, health, automobiles, airlines, consumer durables, computer hardware, finance, retail, property development and more. The consumer has been the beneficiary due to competitive pricing and better customer service. Airline fares, telecom rates, prices of consumer durables have been on a downward spiral the past few years.

However, India’s recent political history is strewn with leaders who were at the forefront of economic reforms and yet lost in elections. These include former Prime Minister Atal Behari Vajpayee and former chief ministers of Karnataka and Andhra Pradesh, S.M. Krishna and Chandrababu Naidu, respectively. Their successes in engendering growth and changing the lives for some created resentment among the many more who witnessed tall buildings, flashy cars and swanky lifestyles, but had no access to any of this.

Although China has announced its intention to look at the countryside now, New Delhi has been looking at this aspect for close to a year now. Keeping the angst of those left behind in mind the Manmohan government launched a rural upliftment project last August that will cost over $40 billion per year. The aim is to provide a human face to India’s economic reforms. As per the contours of the anti-poverty scheme, the government will provide a minimum wage of close to $1.5 per day to all rural households in 200 districts for a period of 100 days. 90 percent of the expenditure will be borne by the center and the remainder by the states.

New Delhi has also announced an urban renewal scheme in December that has a provision for disbursing funds to upgrade the infrastructure of 63 selected cities. Over $12 billion has been earmarked for the project and will be disbursed over seven years.

Both the schemes translate into a cost and scale the government believes it can pull off by cross-subsidizing via taxation from the high-growth areas. This is one of the reasons that the government has hiked the service tax from 10 to 12 percent. The service sector now contributes more than 50 percent of the GDP.

Indeed, the sobering realization has dawned on both policy makers as well as India’s political bosses that no matter how good the growth rates look on paper, there is a severe price to be paid in terms of social harmony and economic stability if at least some of the fruits of economic growth do not reach all sections of society.

That’s not a very fashionable viewpoint in these days of market-worshipping free-market ayatollahs of the Washington consensus, but India’s political leadership knows better, because to India’s eternal credit, it is a democracy with real teeth, where the poor actually vote, and have a disconcerting habit of throwing out the government if all the fruits of growth accrue to the wealthy and they are obliged simply to watch the tamasha.

Growth cannot be uni-dimensional. In order to guard against social unrest, every effort has to be made to spread out the gains through institutional reform and decentralization.

Siddharth Srivastava is India correspondent for Siliconeer. He lives in New Delhi.

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