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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