Tuesday, April 11, 2006

Paran Balakrishnan: India is 'shining' for far too few

Could things get rosier? It's barely two months since Mumbai's stockbrokers pulled out the champagne to toast the stock exchange index, the Sensex, crossing into magical five-figure territory. But if anyone thought the Sensex would pause for breath after shooting past 10,000, they were way off the mark and are probably now counting their losses.

A tidal wave of money is still pouring in from foreign funds that have suddenly discovered India and which are rushing to reverse their earlier neglect of the subcontinent. So the market's moving like greased lightning and closed last week at 11,589. It moved from 11,000 to Friday's figure in just 11 trading sessions.

On an entirely different stage, the bold and beautiful of India's modelling world were sashaying down the ramp for the Wills India Fashion Week in Delhi. One week earlier, similar scenes had played out in Mumbai, where the fashion scene was pepped up by the presence of the country's top movie stars.

Wherever you look, India's middle class is having a rollicking time. The markets are booming and so are sales of everything from mobile phones to cars and two-wheelers.

Look at it another way and the world has discovered India: French President Jacques Chirac breezed in and out of town, followed by US President George W. Bush and Australia's John Howard. There was even a touch of royalty when the King of Saudi Arabia was the chief guest at the country's annual Republic Day Parade. Traditionally, India and Saudi Arabia have not been diplomatic buddies.

Simultaneously, the hedge funds and other money men have been pouring cash into the country's markets. Analysts, who once barely gave the subcontinent a second glance, now often talk about the rise of China and India in the same breath.

So, everything should be hunky-dory, right? Not quite. For the middle classes, it's champagne season. For the poor - well, the poor are still poor. And in some parts of India a US dollar a day is still a lot of money.

It was this cruel dichotomy that led Pakistani columnist Ayaz Amir to pass a caustic verdict (on India and Pakistan): "Scanning TV or newspaper ads can lend itself to the same optical illusion that has had India in its thrall since the onset of economic liberalisation: the prosperity of the few seeming to be the prosperity of the many.

"In Delhi, you can hurtle between two time zones; riches to poverty in the time it takes to drive from one part of the city to another."

Amir is right in more ways than one. This is, of course, a country of extraordinary extremes. At one level, there's a fast-growing middle class that could be anywhere between 100 million to 500 million strong. OK, there's a big gap between those two figures, but Indian statistics are notoriously unreliable. Also, remember that anyone who earns about US$200 a month is reckoned to be middle class. Keep that figure in mind and you'll understand why low-priced goods and services can be a winner in this country.

But there's another more dismal side to the India story. About 25 per cent of the population still lives in dire poverty, getting by on slightly over one US dollar a day. And, as Nobel Prize winner Amartya Sen recently pointed out, there are other forms of deprivation: more than 40 per cent of the population is still illiterate.

That's not very different from sub-Saharan Africa. But it should be pointed out that most extreme poverty is concentrated in states like Bihar and Orissa and that the other parts of the country have moved ahead.

The mix of extreme poverty and sudden middle-class affluence presents a rare political dilemma for India's politicians. When former Prime Minister Atal Bihari Vajpayee called an election in 2004 he was mesmerised by the growth-rate figures and his Bharatiya Janata Party (BJP) went to the polls with the upbeat slogan "India Shining". The result was an unmitigated disaster and the BJP was turfed out of office because it had got the political mood entirely wrong.

The Congress coalition that now rules in New Delhi is determined not to make the same mistake, so it's trying to perform an uneasy tightrope act. At one level, it wants to be a reformist government and push ahead with opening the country's economy. It has been trying, for instance, to open the country's retail sector to foreign investors such as Wal-Mart and Tesco, which are waiting eagerly for the chance to to launch their retail behemoths in the country.

At another level, Congress has poured money into rural development schemes like never before. It has, for instance, put billions into a scheme that guarantees 100 days of employment to one person in every rural household. Money is also being channelled into schemes to improve infrastructure in the countryside.

Inevitably in a country like India, it's tough to ensure that such projects work. One calculation found only three rupees in every 10 spent on rural development reach the people they are intended for. The rest vanishes into the pockets of corrupt officials and small businessmen. It should, of course, be said that the Government's finances have improved recently and it has, therefore, more money to fling at rural schemes and subsidies.

Also, that populism can be effective at times. Take for instance, Tamil Nadu's midday meals scheme. Everyone heaped scorn on the project when it was introduced in the 90s, but the promise of a free lunch ensured that poor children went to school and stayed there.

Congress has tried to project its pro-poor image in other ways. Party president Sonia Gandhi made herself the chief of an organisation called the National Advisory Council and gathered a clutch of rural economists and NGOs around her for advice on how to spread prosperity to the rural areas. (She has, as a result, fallen foul of the Indian constitution which says that parliamentarians mustn't hold outside offices of profit.) The country's top economists, however, worry loudly that Congress is throwing good money after bad and that rural subsidies are simply bad economics.

Does Congress have any other new ideas on how to spread affluence? Sadly, even though Prime Minister Manmohan Singh is a top economist, there's no sign of radical or innovative thinking at the top. The bright side is that the poverty is concentrated in pockets and that may make it easier to tackle. And, while India is an emerging economic superpower, its act still needs a lot of cleaning up.

* Each week the Business Herald's columnists track the latest developments in the world's two emerging economic superpowers. Paran Balakrishnan is the associate editor of the Telegraph, Kolkata.

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