The challenge of the future
India shining? Hold on a minute, writes Prem Shankar Jha. It is true that India's economic growth in recent years has been impressive, but this has come at the cost of increased inequality and injustice
In the 1960s, Indians used to be accused of having a "post-dated" image of themselves. By this their detractors meant that although their country was militarily and economically weak, beset by problems, and racked by poverty and disease, Indians behaved as if India had already become a big power.
That criticism cannot easily be levelled at India today. Its per-capita GDP of $550 at official exchange rates puts it among the poorest countries in the world, but in purchasing power parity terms, its GDP of $3.611 trillion makes it the fifth largest economy in the world. Its per-capita GDP (PPP) of $3,600 puts it a third of the way up the ladder of nations. And the proportion of the population below the poverty line declined from 54.9 percent in 1973-74 to 28.6 percent in 1999-2000, and has declined further since then.
Its growth rate has risen steadily from 3.6 percent between 1956 and 1975, to 6.2 percent between 1993 and 2003, to 8.1 percent in the last four years. The time it takes for the per capita income to double has, therefore, shortened from 40 years in the fifties and sixties to 11.5 years today.
Despite the very sharp rise in oil prices over the past three years, India's external deficit remains well within tolerable limits, at 1.3 percent of GDP. This is well within the universally accepted safe limit of two percent. The external account is in balance because of the very rapid increase in the export of services. Today, software and IT enabled services and remittances from Indian workers abroad bridge all but $10 billion of the $51 billion gap in commodity trade. Foreign investors, therefore, feel a high degree of comfort with the Indian rupee -- comfort reflected in India's rising foreign exchange reserves, now exceeding $170 billion.
The qualitative change in the economy is even more impressive. From being mollycoddled in a completely protected economy and forced to produce at uneconomic scales of production for a small domestic market, the steel, chemicals, and engineering industries have transformed themselves into globally competitive players in as little as a decade. In these sectors several Indian companies are bidding fair to snatch the lead from established producers in the older industrialized countries. This is particularly true in the pharmaceuticals industry, but India is also becoming a favoured outsourcing destination for the more sophisticated engineering industries, notably the automobile industry and its ancillaries. Its IT-enabled industry is second in size only to that of the US and is growing at almost twice the speed.
Most important of all, India has managed to combine rapid economic change with expanding democracy and civil rights in a manner that has few parallels in the twentieth century.
So if Dr Manmohan Singh had allowed himself a bit of self-congratulation when he spoke from the ramparts of Delhi's historic Red Fort on India's 60th Independence Day, August 15, 2006, most Indians would not have grudged him that.
But he chose, instead, to emphasize the challenges that India still faces: persistent poverty, a widening gap between the rich and the poor, the economic marginalization of a large segment of the population, and the persistence of corruption and divisiveness at every level of government.
Dr Manmohan Singh's warning was necessary because the euphoria that has replaced the anxiety of earlier years is hiding the persistence of old threats, and the emergence of new ones, to India's future. The principal economic threats from the past are the high level of unemployment and under-employment in the country, a severe financial crisis, a resulting near-crisis of infrastructure, a deepening distress in agriculture, and serious under-performance by state-run institutions in health and education. The new threats are a rapidly widening gap in incomes and a sharply accelerated marginalization of tribal groups and forest village dwellers who are being displaced in ever larger numbers, and with ever less sympathy, by a new capitalist state that is hungry for growth.
Last but not the least, capitalism is dissolving traditional bonds within families and communities and giving rise to hitherto unknown forms of insecurity. The weakening of the joint family and of traditional concepts of duty and obligation to its older members, widows, and the disabled, is creating a terrifying new insecurity among older people in particular, who can no longer count on their children to look after them when they become too old to work.
As usually happens, economic problems are transforming themselves into political threats to the stability of the Indian state. A number of small insurgencies in the north-east of India have acquired their staying power from economic misery and displacement. But the most potent of these threats is arising in the central tribal belt which accounts for one fourth of the country, where economic problems are feeding a Maoist movement that is steadily becoming more violent.
The unemployment crisis has been concealed by misleading data on employment. This shows that although the rate of growth of employment has fallen by more than half, from 2.04 percent in the eighties to 0.98 percent in the nineties, by an extraordinary stroke of luck, the growth of the labour force has also slowed down equally dramatically from 2.29 percent to 1.03 percent. Unemployment has, therefore, grown only marginally in the nineties.
A closer look shows, however, that five-sixths of the decline has taken place in the rural areas because farmers withdrew their children from the fields and sent them to school instead. The question to which no one has an answer is: where will the non-farm jobs they
covet come from? As a result, the fear that haunts every older couple today is: how will my children find jobs? And if they do not, who will look after us when we become too old to work?
The problem is not insurmountable. The experience of the mid-nineties, and of the last two years, shows that a 7.5 to 8 percent rate of growth can create enough employment to absorb all the fresh entrants to the job market. But how long can India run in order to stand still?
The fiscal crisis of the Indian state grows worse with every passing year. The consolidated fiscal deficit of the central and state governments has risen from approximately three percent of the GDP in 1970-71 to 8.15 percent in 2005-06. The economic reforms of 1991 and later years have fought shy of touching the all-pervasive subsidies and under-pricing of state-produced services that lie at the root of the problem.
As a result, the national debt has risen from 55.3 percent of GDP in 1990-91 to 62.2 percent in 2005-6. The interest burden on this debt now regularly consumes 48 percent of the annual revenue receipts of the central government.
Together, interest, defence, administration, pensions, and subsidies account for 86 percent of annual revenue receipts. There is little left over for health, education, roads, ports, and urban renewal.
The infrastructure crisis is starkly visible wherever one looks. China built 41,000 kms of modern highways of international standard in five years, starting in 1998.
This comes to 22 kms per day. In the same period, India built only 3.2 kms of a vastly inferior highway network per day. The country is in the grip of a power crisis that grows worse by the day. On an average, supply falls ten percent short of demand. But this figure hides more than it reveals. In peak hours, the shortages are up to three times as high, and load-shedding goes on for hours on end. The quality of power supplied is so poor that no factory owner feels safe using it. Not surprisingly, industry now meets almost a third of its power needs from captive generators. Most of the flight from the state grid has occurred in large, modern industries. Increasingly, it is the small and struggling firms that remain dependent upon the state electricity boards.
These challenges are understood and can be met. But there is another category of threats that has arisen from the acceleration of growth itself. They are hard to discern, much less acknowledge, because they are products not of failure but of success.
In the days of the command economy, growth was slow but society was far more egalitarian than it is today. The unfreezing of salaries and reduction of tax levels has caused income differentials to widen dramatically in the past ten years.
At the bottom of the pyramid, the pressure of job-seekers has kept entry-level wages, at best, constant. But at the top, managerial salaries, which had for decades been constrained by socialistic regulations, have been increasing by thirty percent or more a year since the late nineties. There are now more than a thousand managerial executives in Indian firms who earn salaries of more than a crore of rupees (more than a million dollars in purchasing power terms) a year.
This increase is the main cause of a new burst of conspicuous consumption, in which foreign luxury cars, foreign brands of clothing, footwear, jewellery, and foreign trips loom large. The desire to acquire these, among those who fix their own salaries and perquisites, has led to a spiral of rising incomes.
It is also, without a doubt, feeding increased corruption in the bureaucracy. These developments have laid bare the conflict between the rich and the poor in capitalism as nothing had before.
But the most distressing development has been the immiseration of the rural poor. These people, who already live on the margins of society, face further impoverishment. The Manmohan Singh government has identified 342 hydro-electric dam sites. Thousands of hectares of forest land have been earmarked for sinking coal, bauxite, iron ore, and uranium mines. The state governments have notified 140,000 hectares of land for China-style Special Economic Zones. The National Highway authority is building 35,000 kms of four-lane highways. All these will gobble up land. But as sixty years of past experience has shown, those who are forced off it will almost certainly end up as paupers.
Some of them are not taking it lying down. The last two years have seen a qualitative change in the Naxalite movement in India. Naxalism is no longer a revolt on the margins of society. Today there are armed groups waging war against the Indian state in 156 districts in 13 states.
These make up roughly a quarter of the entire country. In several states, like Punjab, Haryana, Rajasthan, and Himachal, they are still insignificant. In West Bengal, where the Naxalite movement began, it went into eclipse for almost two decades, and has only recently shown signs of revival. But there is now a contiguous core area at the centre of the country where they rule the rural areas at night, if not, as yet, during the day.
This area shares several common features: first, it is one of the poorest parts of the country -- not only in terms of income but in the quality of governance, for its people have been virtually abandoned by the state. Second, it is relatively rich in both mineral and forest resources.
Third, its agriculture is, for the most part, rain-fed and precarious. Lastly, a disproportionately high share of the population is tribal. Put these features together and one begins to get an inkling of where the Naxalite movement draws its sustenance from. It is not poverty; it is not even political disempowerment. It is the victimization of an identifiable segment of Indian society by the forces of capitalist development.
India may have solved the problem of growth, but it still does not know how to combine it with justice.
Prem Shankar Jha is a former editor of The Hindustan Times.