India a mirage of high growth and appalling poverty

New Delhi, Dec 31: With nothing on the horizon to upset the Applecart, the growth party, including the one at the bourses, witnessed in2006 is expected to continue in the new year, though there is little toshow that the age-old problems of poverty and hunger will be banishedin the near future.

The buzz words during the year in the cities were -- bulls,buyouts and buoyancy. In the year that has gone by, Indians investedmore abroad than the country received by way of FDI, despite persistentpoverty and the widespread belief that income disparities were growing.

India then emerges at the end of the year as a tale of twocities-- one for the rich and another for the poor. Extreme affluenceco-exists with appalling poverty and the sun shines only for a few.

While this--more or less--has always been the state of affairs,the fact of the matter is that rapid growth does not seem to bepercolating down in any decipherable manner to the man on the street.

Villagers, who still form the bulk of the population, do not seemto have benefitted from any government scheme in any significant way,notwithstanding the official rhetoric to the contrary. More than 400million countrymen are still under-employed, under-productive, notadequately fed or educated, under-clad and without a proper roof overtheir heads.

Suicides by farmers in various parts of the country repeatedlyappeared in the headlines along with the news that the BSE SENSEXbreached 14 K and continues to hover in the region.

For the first time in independent India, the economy has grown byan average 8 per cent a year. This makes it one of the fastest growingeconomies in the world. The high growth rate in the current fiscal isseen to be due to domestic consumption spending, high privateinvestment and exports.

There is talk of overheating of the economy as well as speculationthat growth may be slightly less next year due to the 'Investmentcycle'--coming at the end of three years of an investment boom. 'TheInvestment Cycle'--a Text Book concept--has some reflection in theIndian case. Upswings after three years are followed by a downwardmovement.

Businesses have expanded capacities across a range of sectors inthe last three years. But others, however, argue that past experienceis not a great guide because the current growth pattern is itselfunprecedented. Investment spending could well continue into the nextyear and beyond.

Prime Minister Manmohan Singh has set a formidable target of a tenper cent growth per annum in the next few years and the Eleventh Plan(2007-11) targets a growth rate of nine per cent per annum.

The fact of the matter, however,is that even if GDP growth dropsbelow eight per cent next year, India will still be a firm number twoin the global growth hierarchy and global investors cannot and will notignore this. Capital inflows have been healthy and to the extent theyare being driven by positive growth prospects of the economy, they willcontinue to remain high.

The year witnessed the incredible march of 'Brand India' in theglobal mart. Mergers and Acquisitions were not just confined to a bigcorporates, like the Tata's and Mittal's, but a host of small andmedium companies are becoming Multinationals. Many software companiesare taking over companies in the West, with the pharma sector takingthe lead. Two outstanding examples relating to the latter are DrReddy's Labs taking over Betapharma of Germany and Ranbaxy buying outRomania's Terapia.

A medium-sized company like Bharat Forge made acquisitions in manycountries and is poised to become number one company globally by 2008.

In the era of a quota free regime, textile companies were also in the forefront of M&A news.

The Financial Times estimated two months ago that Indian margersand acquisitions overseas had crossed seven billion. If Tata Steelsucceeds in acquiring Corus it will be the senior partner. And after afierce battle in Europe, L N Mittal eventually succeeded in acquiringArcelor. The quantum of money that is expected to be invested by localcorporate bodies outside India is expected to exceed eight billiondollars during the current calender year. It appears that the overseasparty of India Inc has just begun.

The popular Sensex rose 43 per cent over the year marking what maybe the crescendo of an astonishing three year bull run--one based onrapid economic growth and excellent corporate performance acrossmanufacturing and services sectors.

There are, however, areas of concern. One of them is highvolatility, the extraordinary enthusiasm that has overtaken the realtyand infrastructure businesses and the poor participation of retailinvestors.

A workable agenda should include introducing grading of IPOs,focussing on even distribution of basic market infrastructure such asbroker network across the country and legislation to strengthenregulation and inspection of intermediaries such as stock exchanges anddepositories. The strength of a capital market needs to be judged bythe extent of participation by domestic investors, not merely byforeign investment interest--as is the case at present.

It is unliklely that Finance Minister P Chidambaram will throw aspanner into the growth story or the boom in the stock exchanges inBudget 2007-08, if his reformist credentials are anything to go by.Besides, this is the big story the UPA government can tell investors inIndia and abroad. Indian professionals are making a mark in the West.Indra Nooyi originally from Chennai now heads Pepsi, an iconic brand inAmerica.

On the other hand, Expats are now working in Indian companies, starting biz and joining at middle and entry levels.

In a global world, Indian companies are getting more integratedwith their global peers. It is no longer possible for a Fortune 500company anywhere in the world not to have India in its strategy. Thestrategy component is not just about tapping Indian market. It is aboutleveraging the massive talent base in Information Technology, BPO,pharmaceuticals and product development.

Indian talent is helping global companies build and manage theirIT networks, do their cost finance, marketing and other operations.

The regret among Indians, almost harbouring on a guilt, however, is that growth has not been even nor inclusive.

Whereas manufacturing industry and services have been growingannualy at ten per cent or faster, agriculture has grown by niggardly1.5 to 2 per cent a year in the recent past. In addition, economicgrowth has not been accompanied by a reduction in inequality norregional imbalances.

One out of every four people in India live below the internationally defined poverty line of a dollar a day.

Much of the Northern and Eastern parts of the country have beenlagging behind the West and South, which experts feel, can causeenormous social and political problems.

Reforms are perceived to have only added to widening the gulfbetween the rich and poor States. A new phenomenon in the era ofliberalisation has been wooing investors, both domestic and foreign, bythe State governments. Investments moved to States which followed thegood old principles of fiscal prudence and created a conduciveenvironment for the investing community.

Planning Commission Deputy Chairman Montek Singh Ahluwalia saysstagnation in agricultural productivity is the foremost constraint onthe future growth propsects of the economy. Besides, any anti-povertystrategy has to create enough jobs in agriculture and generate enoughnon-farm employment in rural areas itself.

Or else, experts say, migration from rural to urban areas would beunceasing, creating unbearable stress on creeking urban civic amenitiesand would be potent with law and order problems.

The UPA government pumping large resources for the development ofsocial sectors, like health and education, as well as rural developmentprogrammes was seen by some as throwing money down a bottomless pit, inthe absence of any meaningful institutional reform.

A recent study by the World Institute of Development Economics ofthe United Nations University highlights the sharp inequalities thatexist in India. The top half of the population owns 92 per cent of thecountry's wealth, while the bottom half owns only eight per cent.Likewise, the top ten per cent of India's population is the owner of 53per cent of national wealth.

Inflation, which is often regarded as a tax on the poor, hoggedthe limelight for much of the year. Officials said the culprit was thehigh world crude prices and the government took recourse to supply sideeconomics by augmenting stocks of agricultural commodities by affectingimports. And despite three years of high world prices of crude oil,inflation has been kept more or less under check with the WholesalePrice Index peaking at 5.5 per cent.

Economists regard this as significant as the country imports 75 per cent of its crude requirements.

The contrast that is India has led to the search for alternatives.

There are various shades of this. But basic to these is the beliefthat the elite has little inkling of the true social costs of theWestern success story that it now feels constrained to emulate. It payslittle head to the crime, violence, cynicism, social dislocation andbreakdown of family values which afflict the West.

The West appears to a majority in Indians as the source of allhope, a place of all luxury, affluence and ease. ''What is suppressedin this traffic is the endurance, courage, heroism of the people intheir daily uncelebrated struggles against injustice and insufficiency,the sacrifice and altruism of popular movements,'' says Dr AshwaniMahajan, Reader in Economics at the PGDAV College, Delhi University.

At the end of it all, it is critical to acknowledge that thechoices that people make today will crucially impinge upon the future.India has amply demonstrated that democracy is not enough, norincidentally, is economic growth. Development is more than economics.

UNI