Can Congress Rise to the Challenge in India?

The convincing victory of Congress party in India has been an embarrassment for the pollsters and the pundits. They predicted a close contest between the Congress-led UPA and BJP-led NDA coalitions. With all but two results declared, the Congress-led alliance is projected to win 260 seats with the BJP on 157. They also said that the Third Front of regional and caste-based parties would determine the ultimate winners in Delhi. In fact, the Third Front has fallen apart, with its main components, the leftists, suffering a huge defeat, according to media reports. The BJP leadership has gracefully conceded defeat and congratulated Prime Minister Manmohan Singh on his party's success in the world's largest democracy.

Congress routed BJP in the major cities of Delhi and Mumbai while the states of Karnataka and Gujarat remained in the BJP column, indicating a split verdict from India's middle class. Unlike Pakistan's ruling PPP whose vote bank is almost entirely rural, it seems that Congress has succeeded in putting together an effective coalition of the urban middle class and rural voters.

Congress made significant gains in the Hindi heartland of Uttar Pradesh, where Nehru dynasty's heir apparent Rahul Gandhi campaigned energetically, winning plaudits and establishing his credentials as the next leader of Congress party. But UP Chief Minister Ms. Mayawati's Bahujan Samaj Party is still ahead of Congress. Her BSP remains a powerful force as it came in a close second for as many as 50 seats in UP.

Voters appear to have backed Congress for pro-farm policies like the $5bn rural work scheme and a waiver of loans for indebted farmers. Five consecutive year of good monsoons, a booming rural market and pay increases for millions of government workers seem to have swung both the urban and rural voters towards the party that led India to its independence. As analysts and Congress party workers point out, there have been no major religious riots in the past five years, and so a vote for the party seemed to be a "vote for peace and harmony".

While Prime Minister Manmohan Singh and his party engaged in angry rhetoric and issued verbal threats to Pakistan after Mumbai attacks, they did not act hastily in spite of the hostile Indian media and the BJP's attempts to take political advantage of the situation. Hopefully, the election results will also mean continuity in India's relations with its neighbors and the US, and early resumption of dialog with Pakistan to ensure peace and stability in South Asia. This is specially important as Pakistani military is in the middle of an offensive against the Taliban.

With a strong mandate in hand, Congress faces a serious challenge in delivering to its urban middle class and rural constituents in the midst of global economic slowdown. According to an OECD report published in 2007, India generated 11.3 million new jobs per year on an average during 2000-2005.

India’s phenomenal growth and job creation of the last five years were fueled in large part by huge inflow of cash and investment. Investment accounted for about 39 percent of the country’s gross domestic product in fiscal year 2008, up from 25 percent five years ago. At its peak, more than a third of investment came from abroad, according to Credit Suisse. But in the last three months of last year, foreign loans and direct investment fell by nearly a third, to their lowest level in more than two years, according to a report in New York Times.

The decline in foreign investment has taken a big toll on sectors like real estate, manufacturing and infrastructure. In the last quarter of 2008, the economy’s growth rate plummeted to about 5.3 percent, the lowest in five years. While consumer demand has kept the economy growing so far, the sudden slowing in the flow of foreign funds and rising unemployment will make it harder for the country to grow fast enough to pull hundreds of millions of people out of grinding poverty. Widespread poverty, chronic hunger, non-existent sanitation facilities, poor infrastructure and lack of opportunity continue to be a cause for serious alarm for India's democracy.

India, often described as peaceful, stable and prosperous in the Western media, remains home to the largest number of poor and hungry people in the world. About one-third of the world's poor people live in India. More than 450 million Indians exist on less than $1.25 a day, according to the World Bank. It also has a higher proportion of its population living on less than $2 per day than even sub-Saharan Africa. India has about 42% of the population living below the new international poverty line of $1.25 per day. The number of Indian poor also constitute 33% of the global poor, which is pegged at 1.4 billion people, according to a Times of India news report. More than 6 million of those desperately poor Indians live in Mumbai alone, representing about half the residents of the nation's financial capital. They live in super-sized slums and improvised housing juxtaposed with the shining new skyscrapers that symbolize India's resurgence. According to the World Bank and the UN Development Program (UNDP), 22% of Pakistan's population is classified as poor.

There is widespread hunger and malnutrition in all parts of India. India ranks 66th on the 2008 Global Hunger Index of 88 countries while Pakistan is slightly better at 61 and Bangladesh slightly worse at 70. The first India State Hunger Index (Ishi) report in 2008 found that Madhya Pradesh had the most severe level of hunger in India, comparable to Chad and Ethiopia. Four states — Punjab, Kerala, Haryana and Assam — fell in the 'serious' category. "Affluent" Gujarat, 13th on the Indian list is below Haiti, ranked 69. The authors said India's poor performance was primarily due to its relatively high levels of child malnutrition and under-nourishment resulting from calorie deficient diets.

India might be an emerging economic power, but it is way behind Pakistan, Bangladesh and even Afghanistan in providing basic sanitation facilities, a key reason behind the death of 2.1 million children under five in the country.

Lizette Burgers, chief of water and environment sanitation of the Unicef, recently said India is making progress in providing sanitation but it lags behind most of the other countries in South Asia. A former Indian minister Mr Raghuvansh Prasad Singh told the BBC that more than 65% of India's rural population defecated in the open, along roadsides, railway tracks and fields, generating huge amounts of excrement every day.

With the economy expected to slow to about 5%, employment generation in India has fallen by 49 percent during January-March this year, largely due to a slow growth of services industries like IT and banking, according to an industry lobby survey.

"The Assocham placement parameter (APP) Index (the body’s index for measuring employment generation) has shown a steep fall of 49 percent and has came down to 509.72 from the base value of 1,000," the Associated Chambers of Commerce and Industry (Assocham) said in a statement.

The APP index Series consist of 26 sectoral indices and a composite index giving an overall picture. The composite index is developed on the principle of weighted average quarterly job creation and has a base value of 1,000.

The study, which tracked employment generation across various sectors throughout metro and non-metro cities, said most of the highest employment generating sectors have curtailed their hiring.

The worst performer in terms of job creation is the IT sector, with its share in the overall index falling to 34 percent from 41 percent, the original allocation for the segment in the base value.

"The IT sector is facing major challenges with contracted demand due to recession in the primary client countries of the US and Europe. The value of the APP IT index has substantially declined by 50.8 percent," the report said.

The sectors that have recorded maximum decline in employment generation include education, hospitality, IT and IT enabled services, real estate, banking, media, textiles, auto, construction, and engineering.

However, some sectors like telecom and fast moving consumer goods (FMCG) have bucked the trend and created more jobs during the same period.

The telecom sector was a leading job generator with its share in the composite index rising from 3 percent to 3.35 percent during the period.

"The pressure on employment, confidence and price levels would be more burdensome than in the past... Moreover, India could be impacted by the return of migrant workers or declining remittances," Citigroup India economist Rohini Malkani said in a recent report.

Citi further said that the Ministry of Labor has indicated that over 5,00,000 jobs were lost during October-December 2008, with export-oriented sectors such as gems and jewelery, autos, and textiles being most impacted.

However, the Citi report stated that this statistic only covers the organized sector, which comprises just 10 per cent of the country's workforce of close to 385 million.

Pakistan, too, has a huge youthful population as India: roughly 105 million out of 170 million Pakistanis are under 25 years old. It will be these people who drive Pakistan's economy in the decades ahead, according Pakistani economist Salman Shah, who talked with the Wall Street Journal recently.

Like India, Pakistan had an economic boom led by construction, manufacturing, telecom, banking and consumers during 2001-2007, under Musharraf-Aziz administration. With annual economic growth approaching 7-8%, it created about 2.5m jobs a year during this period. Talking about foreign direct investment (FDI) in emerging economies, former US Federal Reserve Chief Alan Greenspan said in his book titled "The Age of Turbulence" : “But clearly the Licence Raj (in India) has discouraged foreign direct investment. India received $7 billion in FDI in 2005, a sum dwarfed by China’s $72 billion. India’s cumulative stock of FDI at 6 per cent of GDP at the end of 2005 compares with 9 per cent for Pakistan, 14 per cent for China, and 61 per cent for Vietnam. The reason FDI has lagged badly in India is perhaps no better illustrated than by India’s unwillingness to fully embrace market forces. That is all too evident in India’s often statist response to economic problems. Faced with rising food inflation in early 2007, the response was not to allow rising prices to prompt an increase in supply, but to ban wheat exports for the rest of the year and suspend futures trading to ‘curb speculation’ — the very market forces that the Indian economy needs to break the stranglehold of bureaucracy.” (p. 322 of "The Age of Turbulence" by Alan Greenspan.)

While Indian economy has experienced strong growth during this decade, the majority of its people have not been touched by it. Recently, British Minister Alexander contrasted the rapid growth in China with India's economic success - highlighting government figures that showed the number of poor people had dropped in the one-party communist state by 70% since 1990 but had risen in the world's biggest democracy by 5%.

In spite the recent Congress efforts in rural areas, the rural landscape in India still remains troubled. On its inside pages, the Times of India in 2007 reported Communist Party leader Sitaram Yechury's as saying that "on the one hand, 36 Indian billionaires constituted 25% of India’s GDP while on the other, 70% of Indians had to do with Rs 20 a day". "A farmer commits suicide every 30 minutes. The gap between the two Indias is widening," he said. Over 1500 farmers committed suicide last year in the central state of Chhattisgarh alone.

According to the new UN-HABITAT report on the State of the World's Cities 2008/9: Harmonious Cities, China has the highest level of consumption inequality based on Gini Coefficient in the Asia region, higher than Pakistan (0.298), Bangladesh (0.318), India (0.325), and Indonesia (0.343), among others." Gini coefficient is defined as a ratio with values between 0 and 1: A low Gini coefficient indicates more equal income or wealth distribution, while a high Gini coefficient indicates more unequal distribution. 0 corresponds to perfect equality (everyone having exactly the same income) and 1 corresponds to perfect inequality (where one person has all the income, while everyone else has zero income).

Violence is rising in India because of the growing rich-poor gap. Prime Minister Manmohan Singh himself has called the Maoist insurgency emanating from the state of Chhattisgarh the biggest internal security threat to India since independence. The Maoists, however, are confined to rural areas; their bold tactics haven't rattled Indian middle-class confidence in recent years as much as the bomb attacks in major cities have. These attacks are routinely blamed on Muslim militants. How long will Maoists remain confined to the rural areas will depend on the response of the Indian government to the insurgents who exploit huge and growing economic disparities in Indian society.

With the clear mandate for his Congress Party, Prime Minister Manmohan Singh has huge challenges in front of him. Being a sincere man of intelligence and integrity, I expect him to make a serious effort to confront those challenges. I congratulate him and wish him well. If Mr. Singh succeeds, a prosperous, self-confident India under his leadership can become a positive example in South Asia that India's neighbors can look up to and follow.

Related Links:

Mumbai's Slumdog Millionaire

Can India Do a Lebanon in Pakistan?

Poor Sanitation in India

Stable, Peaceful, Prosperous India

No Toilet, No Seat in India

Poverty Tours in India, Brazil and South Africa

South Asia's War on Hunger Takes Back Seat

Grinding Poverty in Resurgent India

Pakistani Children's Plight

Poverty in Pakistan


Riaz Haq said…
Here's more from Financial Times:


India has failed to use a period of high economic growth to lift tens of millions of people out of poverty, falling far short of China’s record in protecting its population from the ravages of chronic hunger, United Nations officials said on Tuesday.

Unicef, the UN’s child development agency, said India, Asia’s third largest economy, had not followed the example of other regional economies such as China, South Korea and Singapore in investing in its people during an economic boom. It said this failure spelled trouble as the global economy deteriorated, while volatile fuel and food prices had already deepened deprivation over the past two years.

The stinging criticism of India’s performance comes only two weeks after the Congress party-led alliance was overwhelmingly voted back into office. Its leaders had campaigned strongly on their achievement of raising India’s economic growth to 9 per cent and boosting rural welfare.

An unfavourable comparison with Beijing’s development record will rile New Delhi. Manmohan Singh, India’s prime minister, has argued that the country’s economic development is more durable than that of China because it is forged in a democracy rather than by a one-party state.

In a report on the impact of the global financial crisis on women and children in south Asia, Unicef said that food and fuel price shocks had increased the number of people suffering chronic hunger by 100m to more than 400m people. Of these, 230m are in India, where 76 per cent of the country’s 1.2bn people live on less than $2 a day. Among many households, as much as 80 per cent of income is spent on food, making them highly sensitive to rice and wheat price fluctuations.

Aniruddha Bonnerjee, an economic and social policy consultant for Unicef, said there had been “stagnation” in the fight against malnutrition and that stubbornly high food prices posed a growing threat to poor families. He warned that with India’s growth rates now almost half what they were two years ago, New Delhi would find it more difficult to boost spending on health, education and food to nurture its human capital.

“If there was no progress against malnutrition and hunger when growth was higher, how are you going to do it now?” he asked.

Mr Bonnerjee said some Asian countries had managed to halve poverty over five years during times of high economic growth; India was falling far short of that achievement. Mr Singh’s championing of “inclusive growth” was electioneering and had left large swathes of the population untouched, he said.

Unicef was also critical of high military budgets in the region at the cost of social protection. India is modernising its armed forces and projecting its power more widely than in the past.

“A number of countries in south Asia decide to invest in the military and not to increase investment in their people.” said Daniel Toole, Unicef’s regional director “Budgetary allocations can be more than 10 per cent in the military, while education is only 2 per cent.”

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