SPECIAL REPORT

THE TWO INDIAS

The country still juxtaposes almost unimaginable extremes—beauty against ugliness, wealth next to squalor

THOMAS HOMER-DIXON January 22 1996
SPECIAL REPORT

THE TWO INDIAS

The country still juxtaposes almost unimaginable extremes—beauty against ugliness, wealth next to squalor

THOMAS HOMER-DIXON January 22 1996

THE TWO INDIAS

SPECIAL REPORT

THOMAS HOMER-DIXON

Prime Minister Jean Chrétiens visit to India last week in the company of300 Canadian business leaders was only the latest sign of growing interest in the subcontinent on the part of Western investors. But while India is undergoing a rapid economic transition, it is still a Third World country with many impediments to development. Thomas Homer-Dixon, director of the peace and conflict studies program at the University of Toronto, has travelled extensively in India and recently spent a month touring through four northern states along the Ganges River. He cautions that potential investors should not let the excitement generated by the opening Indian economy distract their attention from the problems that remain.

As the late-night train from Delhi pulls into Howrah Station, across the river from Calcutta, the traveller enters a world that seems— to a Westerner at least—like a dark and frenetic delirium. The station, a cavernous remnant of the British Raj, is bathed in a feeble fluorescent glow. The platforms are packed with hawkers, porters and passengers. Outside, exhaust fumes and smoke shroud everything in haze. Battered taxis and trucks plug the streets and creep up the ramps to Howrah Bridge, leading to Calcutta. Rickshaws weave through and around the jammed traffic, while shadowy figures in rags appear and disappear into the gloom. The noise of horns and engines is overpowering. And on every scrap of pavement not choked with traffic, people are living. Within a metre or two of truck tires and belching exhaust pipes reside whole families, sometimes out in the open, sometimes under cover of a few bits of burlap and tin.

This is one India—an India of poverty and crowding, often disparaged, occasionally feared and usually ignored by the rest of the world. There is another India, however, that is receiving much more attention now, especially from Western business leaders. This India has a rapidly liberalizing economy, a six-per-cent GNP growth rate and a booming middle class estimated to be 150 million strong. This second India—the “new” India as many optimists see it—is visible in all the country’s urban centres. It is seen in the stacks of Windows 95 manuals on the sidewalks of the twisting alleys of Old Delhi, in the billboards that proclaim the advantages of “fuzzy logic” washing machines and in a prime-time TV schedule that now features Baywatch, The XFiles and Canada’s Street Legal.

Exploding in the wake of an economic liberalization program begun in the early 1990s, the new India is characterized by entrepreneurs, consumers and a surprisingly Westernized pop culture. A recent poll of middle-income Indians by the newsmagazine India Today showed a remarkable convergence with middle-class attitudes elsewhere in the world. These Indians are concerned about crime, inflation, unemployment and immigration. They rank travel and the environment near the top of their list of personal interests. In fact, between 1991 and 1993, the most recent year for which figures are available, the number of Indians taking domestic holidays grew from 67 million to 86 million, a 28-per-cent increase.

This new India may attract most of the attention and excitement in the West, but the other—still desperately poor—India simply cannot be ignored. The consequences of mass underemployment, overpopulation, a still-debilitating caste system and an overstressed infrastructure twist their way like black threads

The country still juxtaposes almost unimaginable extremes—beauty against ugliness, wealth next to squalor

through the fabric of Indian society. Fully 74 per cent of India’s 930 million people live in the countryside, and at least 250 million have insufficient income to meet their basic food needs of 2,200 calories a day. In the farms and villages of the densely populated northern “Hindi belt” along the Ganges River, the current economic boom is much less visible than in the big urban centres. Yields of rice, wheat and vegetables have increased markedly in recent decades in these regions, and family incomes have risen significantly as a result. But much of the field work is still done with human and bullock muscle power, grain is often threshed by hand, and cow dung and branches scavenged from bushes and trees are still main sources of energy. Children scramble in dusty village streets in grubby clothes and with no shoes. Female illiteracy is above 60 per cent, and female infanticide is distressingly common.

In some parts of rural India, poverty has combined with a market-driven breakdown of traditional feudal relations between landowners and peasants to produce despair and rampant violence. In the “badlands” of southwestern Uttar Pradesh, the most populous Indian state, banditry and gangsterism are rife. In past years, travel on back roads after

dusk invited robbery; the local police and politicians have been thoroughly criminalized. Sunday, a leading commentary magazine, noted recently how this social strife is linked to constraints of northern Indian rural life that are especially oppressive for the young: “For the majority of people, there is little to do. No entertainment, no social mobility, no movement beyond the confines of the area, no great interaction with people from different walks of life.” In this dull and confused existence, Sunday suggested, the only thing that keeps some people going is the sense of power derived from dominating and terrorizing other members of the community.

The gulf between these two Indias is the central fact of India today. It is a result, in part, of choices made by the country’s economic planners and political leaders going back to the modern nation’s birth in 1947. Since that time, three economic world views have struggled for preeminence in the Indi-

an debate over the best strategy for the country’s development. The first, most powerfully advocated by Mahatma Gandhi before and at the time of independence, emphasizes the economic role of the Indian village and stresses the need for a variety of small labor-intensive low-technology industries in rural areas.

Gandhi’s village-based strategy was never vigorously pursued by the Indian government. Instead, Jawaharlal Nehru, the country’s first prime minister (from 1947 to 1964), emphasized state-directed heavy industrialization, with investment in basic industries, such as steel production, and massive infrastructure projects, including dams and power plants.

By the 1980s, economic planners both inside and outside India recognized that this strategy had failed. Many of the grandiose infrastructure projects had not come close to meeting original expectations and had siphoned off vast amounts of capital. More important, the intrusion of the state into every corner of economic activity had stifled entrepreneurship and provided countless opportunities for graft. India seemed locked into a chronically low economic growth rate of one to three per cent annually, barely enough to keep up with population growth, let alone alleviate the desperation of places like Calcutta and Uttar Pradesh. By 1991, the country faced a debt crisis. It was clear that a radically different economic approach was needed.

That year, the new prime minister, P V. Narasimha Rao, with the help of his extraordinarily able finance minister, Manmohan Singh, began a sweeping program of economic liberalization. This third strategy of economic development emphasizes greatly reduced state interference in the domestic market, increased foreign investment and the integration of India into the world economy.

Although begun with a burst of activity—focused in particular on the lifting of some of the more onerous licence requirements for industry—the liberalization program has slowed to a crawl, especially in the run-up to national elections in April. Nationalist groups have rallied against multinational investment. In August, the new Hindu fundamentalist government of the state of Maharashtra suspended a contract with a U.S.-led consortium to build a power plant outside Bombay; state officials now say the deal can proceed only if the consortium agrees to a 22-percent cut in power rates. Similarly, anti-American nationalists have rallied to stop the opening of Kentucky Fried Chicken outlets in Bangalore and Delhi.

Moreover, the economic liberalizers have found it extremely hard to privatize major state-run corporations. Many of these industries, from railways to coal mines and fertilizer plants, are so inefficient that huge layoffs would occur if they faced the rigors of the marketplace. Since India’s relentless two-per-cent annual population growth rate expands the country’s workforce by more than 10 million people a year, any policy that threatens to make unemployment worse is imme-

diately attacked by left-wing parties representing lower castes and classes.

Despite those difficulties, there appears to be a broad and deep commitment among the country’s political and economic elites to continued reform. Even the 82-year-old Communist chief minister of West Bengal, Jyoti Basu, has begun a modest market liberalization and is seeking overseas investors. Reform has brought major economic gains, most noticeably in the high-technology centre of Bangalore in the southern state of Karnataka, and in the financial heart of the country, Bombay, but also in rural areas and urban squatter settlements where some residents are now able to afford amenities such as TVs and refrigerators. Impressively, the Rao government has managed this liberalization process without severe inflation: last month’s rate was 6.9 per cent, down from 10 per cent a year earlier.

But the economic boom has been volatile. The surge of consumption and business expansion has driven up the trade deficit, which soared by 50 per cent last year. This deficit has combined with a rapidly rising external debt (now nearly $135 billion, compared with Canada’s $110 billion) and with the political uncertainty caused by the forthcoming elections (which no single party seems likely to win decisively) to force down the value of the rupee. That, in turn, has sapped some of the enthusiasm of foreign investors, who were previously pouring money into Indian stock markets. After a sustained bull run, the Bombay Stock Exchange declined steeply in 1995. In November alone, the benchmark Sensitive Index of the BSE dropped about 15 per cent

Weakened foreign investor interest, heavy government spending to protect the rupee and an inadequate domestic savings rate have produced a credit crunch and sharply higher interest rates. As a result, many corporations are thinking twice about going ahead with major investment plans. Some analysts suggest that the Indian economy will grow only modestly in the coming year.

The troubles facing India, though, are much more than economic. For one thing, all levels of government are riddled with corruption. At the district and state levels, politicians routinely hire local gang leaders or thugs to act as political enforcers. In some districts, ballot boxes are stuffed or stolen, and voters are scared away from polling stations. T. N. Seshan, India’s tough and outspoken chief election commissioner, writes in his new book, The Degeneration of India, that “politicians have discovered that in order to keep returning to office they need to obtain votes on the basis of intimidation.” At the national level, kickbacks and bribes have become common in an economic system still constrained by licences and quotas. Seshan concludes: “The terrible twins that have degraded politics—thuggery and illegal money—have now become institutionalized and respectable.”

Sometimes it is hard to tell whether the problem is corruption or outright government incompetence. Delhi recently solicited bids to operate telecommunications services in 18 regions of the country. But bad planning, unclear wording of the tender documents and changes to the bidding rules in midstream reduced the process to chaos. Many foreign multinationals—including Bell Canada International, which had hoped to win a licence to provide basic phone service in Maharashtra state—lost out in the process, and one largely unknown Indian company, Himachal Futuristic, was the big winner. Suspecting that money passed under the table, opposition parties in the Lok Sabha—the lower house of India’s parliament— brought proceedings to a halt for days at a time. Last week, Bell signed a less lucrative deal to provide basic service in the much poorer state of Andhra Pradesh.

Although the most visible manifestations of political crisis in India are corruption and incompetence, most analysts agree that the underlying cause is the chronic weakness of state institutions, which include the legislative, executive and judicial branches of government both in Delhi and at the regional level. In some parts of the country, such as the northeastern state of Bihar, legitimate government authority has largely ceased to exist. Instead, Bihar is under the sway of mafialike criminal groups and armed cabals of landowners who milk government institutions for everything they can get. The results are appalling: road, water and power systems are in a shambles, easily controlled diseases such as cholera are common and the overall economy has scarcely improved in decades.

Given the complexities of the transition to a modern, open economy, India urgently needs strong, honest and competent leadership at all levels of government. Liberalization is boosting expectations and producing unprecedented upward mobility for tens of millions of people. The country’s steady population growth and rising personal consumption are severely taxing the underlying natural resource base of cropland, water and forests (two southern states, Karnataka and Tamil Nadu, are in the midst of a heated dispute over the scarce waters of the Cauvery River). In search of a better life, countless poor people are flooding from z resourceand opportunity-scarce § rural areas into teeming squatter I settlements in major cities. Bottle-

0 necks in the transportation and en-

1 ergy systems are critical and getting g worse: in fact, the entire western ^ electricity grid has failed five times

in the last six months.

The conjunction of these myriad stresses with chronically weak government is aggravating conflict among regions, religions and castes—the age-old fault lines in Indian society. Extremists such as Bal Thackeray, chief of the rightwing Hindu Shiv Sena movement in Maharashtra, are using the volatile situation to infuse political debate with ever-stronger communal connotations, in Thackeray’s case by politically mobilizing Hindus against Muslims, who form 12 per cent of the national population.

The key to success of India’s economic transition, and to social stability, is the ability of its political institutions, especially its political parties, to moderate this extremism. Surprisingly, a major reason why India has avoided disintegration since independence—despite ferocious internal pressures—is the very heterogeneity of its society. Political parties, in particular the Congress Party (which has dominated Indian politics), have had to construct bargains and compromises across multiple groups in order to win and retain power. Myron Weiner, a leading American expert on India, puts it this way: “The political necessity of coalition-building often transcends programs, ideologies, and class and ethnic differences.” Unfortunately, there are signs that India’s parties are relying more upon narrow sectional support and engaging less in the coalition-building that sustains moderate politics. Also, Congress has been debilitated by factional fights at the top and organizational breakdown at the grassroots.

In this tumultuous period, much is going right in India, but much remains gravely wrong. The country still juxtaposes almost unimaginable extremes: beauty against ugliness, wealth next to squalor, and kindness and generosity beside violence and oppression. The cleavages that plague the country will persist for decades at best. Whether India makes a successful transition to a new economic order crucially depends on the country’s political leaders and parties, and on whether they continue the coalition-building that has served India so well up to now. □