IndiaÕs latest high-profile marketing campaigns have all sought to hammer out one message: India is Òthe worldÕs fastest growing free market democracyÓ Ð investor-friendly and open for business. Yet for all the emphasis on the dynamism and rapid global integration of its economy, whatÕs increasingly left behind is the fact that India is still a largely agricultural country Ð and that a decade of growth has left half a billion people behind.
With its surging economy and a new middle class of about 300 million, the growing divide between urban and rural people is rousing political tensions too, as the downside of IndiaÕs economic boom becomes ever more acute. Growth has been restricted to a relatively narrow band of industries, and in the countryside, home to three-quarters of the population, living conditions have not, by and large, improved meaningfully.
Of course, none of this is lost on Manmohan Singh, IndiaÕs prime minister, and a leading economist in his own right. His Congress-party-led government swept to power in 2004, mainly because rural voters felt the previous administration had done little for them Ð despite the countryÕs fast overall growth.
Bottom line
ÒOur basic problem is to get rid of chronic mass poverty, ignorance and disease,Ó he told Emerging Markets in a wide-ranging interview at his New Delhi residence. ÒThis still afflicts millions of our people, and this [change] can be achieved only by a sustained increase in the overall growth rate of the economy,Ó says Singh, who believes a rising tide will lift all boats.
ÒWe have to create a more dynamic economy that can grow at an annual rate of about 8% to 10%. Simultaneously, we have to pay a lot more attention to basic social services like education, health and infrastructure. ThatÕs the main theme of our economic growth.Ó
For Singh, a Òcommitment to a dynamic economy in a framework of greater social justiceÓ is the central pillar of his governmentÕs philosophy, which saw the Congress party returned to power with much expected of them; it is also his political Ð if not moral Ð commitment.
The soft-spoken former academic, widely regarded as the architect of IndiaÕs original economic reform programme as finance minister in the early 1990s, argues that the Òsustainability of this rate of growth is beyond questionÓ. But, crucially, he believes continued economic liberalization is the only answer to IndiaÕs ills: ÒThere is no contradiction between our commitment to social justice and equity and our determination to build a more efficient and open economy,Ó he says. ÒIn fact, one will enable the other.Ó
He emphasizes the need to put in place social safety nets that Òtake care of the losers and give them the required support to find new sources of employment and income generationÓ.
Growth, says Singh, is Òa necessary condition of improving the human condition, but it is not a sufficient condition. It must be backed by credible measures to see that the fruits of growth accrue to the largest number of people, that the costs of growth are not borne excessively by those least equipped to bear those costs.Ó
The challenge is daunting. Amartya Sen, IndiaÕs Nobel prize-winning economist points out that a larger proportion of IndiaÕs children are undernourished than in Africa. According to a UN development report, inequality in India has grown faster in the last 15 years than in the last 50 years. The report also found that rural poverty alleviation schemes were often subverted in the interests of the wealthy. In a country where more than a third of the population lives on less than $1 a day, this matters Ð profoundly.
New beginnings
But progress is being made. In December, the government gave a boost to the its so-called ÒBharat NirmanÓ initiative, under which the government is set to earmark major investments for rural infrastructure in six areas: irrigation, drinking water and sanitation, roads, electrification, telecommunication and housing. Budgetary support for the scheme will jump by 54% in 2006. The World Bank is backing the scheme which Singh calls Òone of the most innovative interventions we have made in rural development in recent yearsÓ, to the tune of $3 billion.
The biggest hurdle to lifting living standards for many of the 260 million Indians surviving below the poverty line is, after all, poor infrastructure in rural areas. IndiaÕs per capita income is just Rs23,744 a year. In terms of purchasing power parity, this amounts to $2,880 per year, compared with $4,990 per year for China, $8,940 per year for Malaysia, and $37,500 per year for the US.
In February, the government also launched its new national rural employment guarantee programme, which is being widely touted as IndiaÕs most ambitious effort yet to combat rural poverty. The scheme aims to cut poverty and slow the movement to city by raising incomes: one member of every rural household will be given 100 days of unskilled work at a minimum wage. It will also provide much-needed jobs in a country where the working age population is set to expand to 762 million in the next five years.
But concerns remain: the jobs to be created in the countryside will be handed out by local officials, and there are fears this could lead to corruption. Critics also wonder whether IndiaÕs treasury will produce enough funds for rural development to reach the target of halving the number of Indians in poverty.
Anguish
Meanwhile, anger in the rural areas is growing, and even becoming violent: there have been waves of suicides by debt-ridden farmers, in many cases despondent over exorbitant interest rates on loans from city-based dealers. Meanwhile, militant anti-state movements, such as Maoist militias, are gathering momentum, spurred on in part by a growing sense of social injustice. As one prominent Indian development economist puts it: ÒThe problem with economic thinking in the government is that itÕs too macro-focused. Singh is a brilliant economist, but neither he nor his team have spent meaningful time in the villages Ð thereÕs a large disconnect with the reality of much of the country.Ó
At the same time, the reality of IndiaÕs political landscape means that being seen as a reformist can have a high electoral cost. There are concerns too that India has yet to win the intellectual argument for economic reform Ð an argument Singh believes has been won. ÒThis [economic reform] is not a once for all process. We are living in a dynamic world, and we are also in an increasingly globalized world in which we are not all the masters of our own destiny. The economy and economic policy also get affected in a globalized world. So there are constraints, but there are also enormous opportunities.Ó
Still, he acknowledges that Òpolitical differences and administrative inefficiency can slow down reform effortsÓ, although he downplays concerns over what many analysts see as one of the countryÕs most profound stumbling blocks: ÒI think political consensus (or lack thereof) could sometimes become a problem, but I donÕt see that being a problem right now.Ó
Electoral cost
On the high electoral cost of being seen as a reformist, Singh is philosophical: ÒReforms which do not have a human face, reforms which merely pay attention to the needs of a relatively small section of the population, reforms which do not address the problems of our farmers, reforms which do not have meaning or content, which do not reduce the burden and suffering of large-scale unemployment Ð I think thatÕs when they run the risk of becoming unpopular.Ó
He points out that as far as rural poverty is concerned, Òour experience has been uneven across the countryÓ, but he pledges to do Òwhatever is necessaryÓ to alleviate the problem Ð especially boosting investment in agriculture and in rural non-farm economy, where he believes the government can Òmake a sizeable dent in chronic povertyÓ.
Social spending is also under the spotlight. Under the previous right-wing Bharatiya Janata Party (BJP) government, social support networks were dismantled, and social expenditures dropped from 22.9% to 19.7% of GDP. Social measures under the Congress-led government are up in this yearÕs budget. But overall, the increase over the BJP era remains marginal. Social expenditures will rise just 1.2% of GDP. Education will jump by only 0.4%, and health funding will go from 4.4% to 4.9%, according to the 2006 budget forecast.
After bad loans to farmers, medical care is the second most common cause of rural debt. Close to 25% of the population do not seek medical care because they cannot afford it.
ÒWell I think we could do more,Ó admits Singh. ÒWe have to increase spending on education to raise it to at least 6% of GDP. Our commitment to public health is to raise it to at least 2% of our GDP. We are still not there.
Has the governmentÕs commitment to social justice borne itself out through economic policies of SinghÕs administration? ÒNo one can ever be satisfied, even if one has done oneÕs best,Ó says Singh. ÒWe have certainly taken many steps to address the problems of poverty, unemployment, agrarian distress and social injustice.Ó He points out that his government has Òwithout doubt done more than most governments in recent yearsÓ.
ÒWe are cautious reformers. We have taken care that, while moving towards reform, we must not add to the disparity from beyond the limits. I cannot say that we have succeeded entirely, but we are trying our best.Ó