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Inequality Threatens India’s Economic Boom
By Jo Johnson
Financial Times
October 31, 2007
It is a fair bet that when the ruling elite of a poor developing country
ignores a non-violent protest by 25,000 desperate citizens, it will
soon face a violent one. When a 25,000-strong army of landless workers,
indigenous tribespeople and “untouchables” from the bottom of Indian
society marched 320km to Delhi to highlight the growing divide between
haves and have-nots, they were met with crushing indifference. Admittedly,
their timing was bad: Mumbai’s Sensex index on Monday punched through
the 20,000 mark for the first time, triggering orgiastic self-congratulation
by the English language media and eclipsing all other national news.
“The first 10,000 took over 20 years. The next came in just 20 months.
Superpower 2020?” rhapsodised the front-page headline of the Economic
Times, the cheerleader for a phenomenon it calls the ”global Indian
takeover”. In their excitement, several other newspapers double-counted
the value of all Mukesh Ambani’s stakes in various listed Reliance
entities and erroneously concluded that he had overtaken Bill Gates
and Carlos Slim to become the wealthiest person in the world, with
investments valued at $63bn. Although that joyous moment may not be
far off the elder Ambani is worth nearer $50bn it has not come
yet.
As first-world India cheered the stockmarket, there was scarcely mention
of the visitors from third-world India who had camped overnight in
the old city. Feet swollen, mouths parched and hair matted, the protesters
were physically detained in a gated enclosure throughout the day,
denied the satisfaction of completing the symbolic last leg of their
march down Parliament Street. The city’s police force had instructions
to keep the capital spruce for visiting dignitaries, among them Angela
Merkel, the German chancellor, Henry Paulson, US Treasury secretary,
and dozens of chief executives in town for a lavish conference organised
by Fortune.
The chief executives cocooned in the sandalwood-scented splendour
of the Imperial Hotel would have learnt far more from the marchers
than from the predictable fare on offer at the conference. From the
stunted and wasted frames of the landless, they would have observed
how malnutrition rates, already higher than in parts of sub-Saharan
Africa, are rising in many places, as wages lag behind soaring food
prices. They would have learnt how the 120m families who depend on
the land for subsistence agriculture, generating no marketable surplus
from one season to the next, live in terror of expropriation by state
governments operating land scams in the name of development.
Fobbed off with promises of a committee to discuss land reform, the
Gandhian leaders of the protest march sent a warning to the government:
advocates of non-violent struggle are losing the argument to those
with more radical ideologies. “Forty per cent of Indians are now landless
and 23 per cent are in abject poverty,” said P.V. Rajagopal, vice-chairman
of the Gandhi Peace Foundation, which co-ordinated the rally. “Such
conditions have bred Maoist insurgency in 172 of India’s 600 districts
and farmers are killing themselves in 100 other districts. So we want
to ask the government: where are the fruits of the reforms in these
districts?”
It is in interests of western investors to listen. The capacity of
Naxalite groups to disrupt the India growth story, by deterring investment
in vast, resource-rich swathes of the country, is real. Posco, the
South Korean steel group, knows from experience. Its plans to invest
$12bn in a new plant in the Naxalite-infested state of Orissa, potentially
the largest foreign direct investment in Indian manufacturing, have
been stalled by protests for nearly four years: four of its officials
were even kidnapped by locals deeply sceptical of promises of compensation
and rehabilitation. They have been released, but the company is no
nearer to taking possession of the several thousand acres needed.
Posco’s story highlights a much deeper crisis. It should raise important
doubts about whether India will be able to attract the investment
required to sustain its recent growth rates of more than 8.5 per cent.
Investment as a share of gross domestic product has indeed risen sharply
over the past three years, but it is skewed towards services. Attempts
to start an industrial boom have backfired: a plan to promote Chinese-style
special economic zones degenerated into a real estate racket. It displaced
hundreds of thousands from their land, many of whom went uncompensated.
The protests are becoming more violent: two people were shot this
weekend as they fought plans for a chemical plant on 9,000 acres in
West Bengal.
As no image-conscious investor wants blood on their hands, it is hardly
surprising that FDI in Indian manufacturing has recently been declining.
During the 12 months to January 2007, it fell to just $1.5bn from
$1.8bn the previous year, according to Morgan Stanley. Manufacturing,
notwithstanding pockets of excellence, is struggling to become globally
competitive and failing to play its traditional role as a sponge for
surplus rural labour. It is a vicious circle: until the hundreds of
millions who eke out a subsistence existence in the villages are given
reason to believe they will receive fair compensation for the loss
of their land and incomes, and not just hot air, they will fight tooth
and nail for the status quo, miserable as it is.
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