2010 was the year when India stopped eating economic growth, though the flattering numbers came out with monthly regularity – record export growth, record industrial growth, rapid recovery of GDP growth, record automobile sales, record monsoon and then a record harvest; even (in one month) 65 per cent growth in the production of capital goods, over the same month a year earlier. Sixty-five whole per cent! Let the Chinese beat that, or eat it for breakfast.

Much of India barely noticed. Though the year-end saw some of the steam going out of the numbers, the country now takes economic growth for granted. Speaking at a function in Delhi in mid-November, the prime minister even talked of 10 per cent GDP growth in 2011. There is long-term optimism too, as most commentators have internalized the story that Goldman Sachs spun out in 2003, that two decades of rapid growth would see India emerge as the third largest economy in the world by 2025 or thereabouts. It seemed a bit over the top at the time, given the country’s history of under-achievement, but five years of 8.8 per cent average growth from 2003-04 to 2007-08 gave credibility to the rosy future that had been laid out. And now a quick recovery after the Great Recession forced a two-year slowdown has reinforced self-belief – helped along by the surge in stock prices and the boom in the real estate market. The facile assumption made by many is that there is inevitability about the rosy future, and that Great Power status beckons.

When the unlikely is predicted, it catches the headlines. But when what has been predicted becomes the expected, it is assumed to be the ‘new normal’ and, therefore, mundane fact. Achieving 8.5 per cent GDP growth has therefore become a bit like ‘dog bites man’. Not a big deal, even though in this case it does happen to be a very big deal; one only has to look at China’s emergence on the world stage to see the impact that a rising power can make on everything from commodity prices to negotiations on the global commons (like the environment), and from trade flows and balances to regional power equations.

 

Though only the 10th largest economy, with under 2.5 per cent of global GDP and accounting for around six per cent of global growth, India has already emerged as the second fastest source of foreign investment into the United States and the ninth largest destination for all foreign investment. To look ahead to 2020, simply treble the macro-economic numbers and you have another China in the making. On the other hand, if growth were to slip back to (say) the 5.8 per cent that prevailed in 1980-2000, the country would quickly regain its under-achiever tag, and be less able to keep a lid on its multiple internal tensions. Domestically, poverty would become an even more intractable problem, and internationally, China would be walking all over us. So a great deal hinges on sustaining rapid economic growth, even if critics from the Left and from civil society don’t like to admit it.

The temptation when you are presented with a great story is to check for dirt under the carpet. And because India is a messy story at the best of times, and ever willing to wallow in its own dirt, even a cursory look under the carpet can deliver rich pickings. In recent months, we’ve had the spectrum scam boil over, the Commonwealth Games loot go unchecked till it was too late, an illegal 31-storeyed Adarsh (‘ideal’ indeed) building go up in South Mumbai, and the Yeddyurappa family saga unfold (‘But all chief ministers have done it’, and ‘It was a land scheme available to all MPs’ – which raises questions about what else exists only for Members of Parliament). For a media that suddenly became bashful about naming names, there were also the Radia tapes, which exposed the unpretty sight of how exactly journalists schmooze but also how active companies and their lobbyists are while seeking to get chosen people to become ministers in ministries that matter to them. Earlier, we saw mining barons hold the Karnataka chief minister to ransom, and emerge the winners; so are the capitalists the cronies of politicians, or is it the other way round?

 

The scale jump in corruption (imagine a $40 billion scam – or nearly four times the losses to Enron shareholders when that company collapsed – as well as the brazenness of the heists (why bother with cloak and dagger stuff when you can do it in broad daylight?) point to the enormous spread of crony capitalism; the dam had to burst at some point, and it did. We don’t yet know whether it will lead to systemic correctives, or merely mean pressing the ‘pause’ button before the loot begins afresh. But what became clear, if it wasn’t clear enough before, is that economic growth is not enough. A properly functioning system needs other attributes too. If they don’t exist, it is because India (like China) is what commentators like Shyam Saran and Martin Wolf have called a ‘premature superpower’. Premature because it is still only a lower-middle-income country, with many of the problems of poverty and under-development still to be tackled, and with institution-building only half done. Yet, the world can’t stop admiring the India story, putting money in its stock market, and getting ready for the ‘re-balancing’ that is to come.

 

The dissonance between a harsh economic present for the majority and the expectations of a new emerging reality that would change the world was captured in the long-running domestic argument about choices between growth per se and the quality of that growth (like protecting the environment while building a new airport, or not throwing people off their land). Externally, a ‘premature superpower’ is expected to make more concessions than the US when it comes to climate change talks, even though its per capita emission of greenhouse gases is among the lowest in the world. And President Obama thinks India should help create jobs in the United States (which one of our TV shows did by hiring Pamela Anderson)! Even those who should know better seem to forget that India’s GDP is a tenth of the US, and its imports of goods and services about 30 per cent of that 10 per cent, of which about a fifth is stuff bought from the US. That sieves down to 0.6 per cent of US GDP. Asking us to create US jobs on that base is like asking the country’s flower growers to solve India’s unemployment problem!

The unfairness of loading ‘premature superpowers’ with the weight of correcting global ills was one issue. Another, and this reflected the domestic debate, was the fact that India features at the 119th spot in rankings based on the Human Development Index (China ranks 89th), put out annually by the UN Development Programme – a ranking that reflects poor performance on literacy, sanitation and other basic parameters. It doesn’t help that India’s ranking has improved by just one notch in the last five years. One could of course drill down into the HDI numbers to try and answer the questions figuring in the domestic debate, for it is not enough to know the rank and find ways to improve it, one must also understand why the ranking is low. Critics of ‘neo-liberalism’ argue that the growth pattern in the country has been all wrong, that there has been growing inequality of income and wealth (not just as reflected in billionaire wealth, but also unequal land holdings), and even greater inequality of opportunity because of highly unequal access to education – as the economist Pranab Bardhan has pointed out.

 

The various listings of billionaires provide for some easy pickings in the inequality debate. In the annual listing by Forbes, for instance, India has 69 out of Asia’s 333 dollar billionaires, while Mainland China has 128 and Hong Kong 25. Japan, whose economy is about as large as China’s, has only 22 billionaires, and Taiwan 18, while South Korea (whose economy is only slightly smaller than India’s) has just 11.

There is no gainsaying the fact that the tax laws in India favour the rich; there are no taxes on dividends in the hands of those who receive it, no long-term capital gains taxes on shares, and no death taxes. But it is also true that an entrepreneur-driven system will generate more billionaires than an economy which is dominated by large corporations – as Japan’s and South Korea’s are. Most billionaires in India (and probably China) have first-generation wealth, and this fact points to the individual-driven dynamism of a system which does not yet have global-scale enterprises – just as much as it points to crony capitalism and a nexus between ambitious businessmen seeking favours and those with political power who dispense them. So while the presence of so many billionaires in a society dominated by the poor poses many questions, it could be argued that these questions have more of a social, political and ethical dimension than an economic one. The economic issue of inequality is more relevant lower down the greasy pole, and has to do with the unequal provision of basic services.

 

This is where the reform-walas have their counter-narrative: it is the failure of the state, not of the market, which has led to inequality, and to ‘non-inclusive’ growth and to failures in ‘human development’; the state has failed to provide public health (which includes providing safe drinking water), an effective public school system, proper sanitation and the like. They take the argument a step forward and say that it is also the failure to do economic reform that continues to hold back the country. The World Bank group’s ranking of countries on the ease of doing business, for instance, places India 134th, and the Heritage Foundation uses its Index of Economic Freedom to rank India 115th.

While these arguments are not new, both viewpoints in the ‘inclusiveness’ and inequality debates contain underlying truths that merit attention. But what should be obvious from the numbers is that human development indicators usually reflect per capita income, and there isn’t much point breast-beating on one issue if you ignore the other. India, for instance, has an HDI rank that is six notches lower than its ranking on the basis of per capita income (113th). This convergence of the two rankings is not a universal rule. Countries like Saudi Arabia and South Africa have a much better ranking on income than on human development, just as there are examples of the opposite: many ex-Communist countries (Vietnam, Kazakhstan, Hungary) have a better ranking on human development than on income. So, patterns of development do make a difference. But the norm is convergence – and makes the conclusion all but inescapable, that the most important factor that promotes human development is a rapid growth of incomes. Get rich, and human development will usually follow.

In any case, India has not been doing too badly on its human development index, which has climbed from 0.320 in 1980 to 0.519 in 2010. That performance is better than the average for low HDI countries (whose score has moved up over the same 30 years from 0.271 to 0.393). However, it is not as good as the record of the medium HDI countries (whose score has moved up from 0.361 to 0.592) – a performance influenced by the inclusion of China as the star performer, with its HDI going up from 0.368 to 0.663. The World HDI score moved up in the same period from 0.455 to 0.624. Crucially, in a ranking of which countries have improved their HDI the most, India comes in at a creditable 6th. That does not lend credence to the critics’ view that India’s pattern of economic growth has been all wrong.

 

What about other correlations? India’s PPP per capita income is shown as $3,337, and the country gets an HDI score of 0.519. The medium HDI countries have PPP per capita income of $5,134, and an HDI of 0.592. This would seem to lend further weight to the argument that, for its stage of economic development, the country is not doing too badly on human development. A comparison with China is also useful. With per capita income (PPP) of $7,258, China’s HDI score is 0.663 – fractionally short of the 0.670 cut-off level when a country moves into the High HDI category. China, as the fastest growing economy in the world, has also improved its HDI the most since 1980, taking up its score from 0.368 to 0.663. If India maintains its present rate of progress, ie an improvement in HDI by 0.079 in the last decade (the best performance so far being co-terminous with the decade of fastest growth), it should cross into the High HDI category in just under two decades – or 80 years after Independence. It would seem that there are no quick fixes here.

 

Could India’s HDI performance have been better? The only possible answer is ‘yes’, because its HDI rank is lower than its income rank, and also because it does not score well on equality. It is important for the country to address the gap in rankings between income and human development – which means focusing attention on improving public health, spreading education, providing sanitation, etc. But the equally urgent issue is the inequality question. In an innovation this year, the UNDP has introduced an inequality-adjusted HDI; in this, India’s index drops 29.6 per cent, while for all medium HDI countries, the drop is only 24.8 per cent.

If human development depends critically on rapid economic growth (and India hopes to move from 7.3 per cent annual growth during 2000-10 to at least 8.5 per cent in the coming decade), equal attention should be paid to the issues that get highlighted in the World Bank group’s periodic ranking of countries on the basis of the ease of doing business – especially because India’s ranking here is less defensible than its HDI ranking, and easier to change.

 

There is no particular reason why India should rank 182nd out of 183 countries when it comes to enforcing contracts, or 177th when it comes to dealing with construction permits, or 165th for starting a business. On some indicators, the score is of course much better (32nd when it comes to getting credit, and 44th when it comes to protecting investors), but the overall rank is a miserable 134th. More than anyone else, this affects small and medium businesses that should be the engines of growth and providers of employment. Also, unlike in the case of HDI (where India leads South Asia other than Sri Lanka), India’s South Asian neighbours uniformly do better on the Doing Business ranking – Pakistan is at 83, Bangladesh is at 107, and even Nepal is at 116. All the other BRIC countries also score better – China is at 79, Russia at 123 and Brazil at 127.

It does not help that, on five of the eight indicators used, India has been actually dropping its rank (what price reform?). In terms of making it less difficult to do business in the country, the only improvements recorded for the past five years are the introduction of electronic payment of taxes, online VAT registration, electronic data inter-change for more efficient customs clearance of goods, and a new securitization law that is said to make it easier to close a business. That makes for pretty slim pickings over five years, and points to how little the government has focused on the issues that would facilitate faster economic growth. Is this really all that the ministers in charge of finance, commerce, industrial policy, and corporate affairs could have done?

But then, 2010 wasn’t about any of these ‘business’ issues; it was more about short-term economic management questions, and more substantively about the inclusiveness issue. In the first category, there were the defiant inflation numbers, which resolutely refused to toe the line laid down in official forecasts – five per cent inflation by December 2009, sorry make that December 2010; correction, March 2011. Towards the end of the year, there was growing concern about the yawning deficit in trade (goods and services combined), which threatened to climb to an unprecedented four per cent of GDP in 2010-11. Those in charge made soothing noises about dollar inflows on the capital account paying for the trade deficit, but even Goldman Sachs finally sat up in November and fired a warning shot, telling investors to watch the deficit number. If foreign investors worry about the deficit hitting the exchange rate, they could start taking out their money, and accelerate a rupee fall.

 

Then, of course, there was the continuing challenge posed by Maoism, and the growing suspicion that the state has no effective answers – if it were otherwise, we would have been hearing more from a media-hungry Mr Chidambaram. There was also the mess that is Kashmir, where educated, ordinarily career-oriented young professionals are so alienated that they take to a second profession: throwing stones at men in uniform. When more than 100 lives were lost in the stone-throwing, for the first time you had voices in the Indian establishment begin to question the country’s record in Kashmir – the beginning of a shift away from viewing the valley through the India-Pakistan prism.

But more than any of these (and, let’s face it, neither Kashmir nor Maoism has affected the economy to any noticeable degree), the most consequential challenge to the establishment was the open resistance to ‘development’ as personified by industrial and infrastructure projects. You could say that it started in 2007, with Nandigram and Singur in West Bengal; a longer battle has raged in Orissa, at Lanjigarh (Vedanta), Jagatsinghpur (Posco) and Kalinganagar (Tata Steel) – with none of the projects finding it easy-going. Further south, at the site of a power project in Andhra Pradesh, police have fired on farmers who want to hang on to triple-crop land that is watered by the Godavari. And up north, farmers spilled over from their fields on to the highways and then marched on a suddenly paralysed Delhi, protesting the acquisition of 1.4 million farmers’ land in the name of a highway and associated development.

 

In state after state, at project site after project site, the battle has been between those who would deliver the hoped-for nine per cent economic growth, and those who seek nothing more than to protect their homes, livelihoods and lifestyles. Since Independence, according to one count, something like nine per cent of the population has been displaced by various projects. Some have been displaced twice, even thrice. In the majority of those cases, they have not got alternative land, the compensation has been a pittance that did not last, and their lives have been blighted. And it seems they have had enough; now they are ready to stand and fight – and there is no shortage of civil society activists ready to lend a shoulder and a voice.

The battle is not just over land, but also over what is under the land, and on the land – mineral resources in the first case, forest cover in the second. Both have belonged to the government in different ways, or the government behaved as though it did. Until things began to change. The government opened up mining to the private sector, primarily but not solely for captive use. And Parliament passed a Forest Rights Act that recognized, retrospectively from 1980s, the rights of forest-dwelling tribal people to patches of the forest where they lived. Both were guaranteed to cause complications once people began taking these laws seriously – as Jairam Ramesh began to do when he was made the minister for environment and forests.

If there are questions to be asked and answered about India’s development model, these are the most pressing ones. As Ramesh kept saying, if you overlay a map of India with a map of its forest cover, the places where its mineral wealth lies buried, and where poor tribal people live, there is massive overlap. Tribal land tends to be forest land which tends to sit on top of mineral resources. How do you extract the last without disturbing the first two? And if you do extract it, what are the consequences?

 

The contradictions have begun to take their toll on business. Vedanta has been stopped from mining for bauxite at Lanjigarh, and from expanding its refinery nearby. Posco is said to have violated forest rights laws and seems in danger of being told to stop its project. The new airport at Navi Mumbai was cleared only after it was modified to meet environmental and coastal regulations.

Many issues would be resolved quite easily if governments were to be more generous in their compensation packages to those who get displaced – and it is not that they can’t. If Vedanta’s expanded aluminium project were to go through, the Orissa government would gain Rs 1,200 crore annually in tax revenues. And if the Posco steel plant were up and running, the government would get Rs 2,200 crore annually. Add Tata Steel’s Kalinganagar plant, and Orissa tax stake in the projects is well over Rs 5,000 crore per year. Royalty payments from mining leases are over and above these figures. So it is hard to understand why compensation for a few thousand families who are being displaced should be quite so niggardly; paying even 20,000 families a lakh a year will cost no more than Rs 200 crore, or four per cent of what the state hopes to get as revenue from these projects.

 

The same goes for the companies. In large capital-intensive projects, the cost of land can be no more than 2-3 per cent of the total project cost. So land payments could be doubled, without noticeably affecting project finances or viability. Once again, there is nothing to prevent a more equitable deal being offered to farmers whose land is being taken over forcibly.

For reasons that are hard to understand, neither companies nor many governments are willing to do the obvious thing: pay more. Some governments seem to have worked out acceptable solutions – like Haryana, which offers displaced farmers an annuity, on top of a lump sum payment. Meanwhile, the Centre has prepared new bills, one on land acquisition and the other on mining.

In the latter, it is proposed to reserve 26 per cent of mining profits for the benefit of people who get displaced by a mining project. Business is up in arms; it argues that this will make mining unprofitable (and well it could, for minerals and metals other than coal and iron ore which enjoy buoyant prices just now). There would also be a potential principal-agent problem: who would receive the money on behalf of the displaced people? Bodies manned by politicos? And how (well) would it be spent? Also, in some mining projects, it has been calculated, every displaced person might stand to get Rs 45 lakh a year, if the bill becomes law! Rest assured, then, that the money will find its way elsewhere.

The land acquisition bill, more sensibly, seeks to get industry to buy land directly from farmers, without the help of the state as an intermediary except to mop up hold-out pockets needed for contiguity. But this is stuck because Mamata Banerjee wants it made even less friendly to business. In any case, with Parliament not functioning through much of the winter session, what will emerge and when, remains a matter of opinion.

 

Two other official responses also beg questions. One is the right to food, and its articulation through the promise of officially procuring perhaps 40 per cent of the marketed surplus in a harvest, distributing it through a government distribution system that does not yet exist in tens of thousands of villages, and reaching subsidized wheat and rice to over 500 million people without wholesale leakages along the way. Sane voices that ask whether all this is doable, and whether cash transfers might not be a simpler idea, have been ignored by the NGO cabal that populates Sonia Gandhi’s National Advisory Council.

A second ‘inclusive’ agenda, to guarantee a right to education, also provides for an expansionist state programme – and threatens trouble for lakhs of private schools that people increasingly turn to, in both town and countryside, because they are seen as the better alternative. Once again, the ‘make or buy’ question is apparently not asked, and therefore not weighed in the balance.

These massive entitlement programmes will not take up too much of the country’s resources – perhaps three per cent of GDP. So the issue is not affordability, rather it is the distortion of factor markets, the wisdom of expanding the tentacles of a corrupt and under-performing state, the rejection (or suspicion) of privately provided services, and the disinclination to check whether technical fixes (using the unique identity programme) might provide at least some of the answers. The issue, in other words, is not the ends sought to be served, but the best means of serving them.

 

For all those who are uncomfortable about an expansionist but incompetent/corrupt state, the most important ‘contradiction’ in government plans is the decline of the state’s capacity for action and effective delivery at a time when it is going to be asked to do much more. You could argue with reason that something is better than nothing; if 500 million have (on paper) taken advantage of the right to rural employment programme, it would be hard to argue that the programme has not met a felt need (five years after the launch of the programme, any debate on possible alternatives is superfluous), especially when a new employment survey reports 9.4 per cent unemployment in the country. In reality, of course, the real unemployment is even greater (you don’t need half the workforce tilling the land and tending cattle to produce a sixth of the country’s GDP; many could shift to other occupations without negatively affecting agriculture). But it is a long time since anyone debated how this picture could change if labour-intensive industries were to be encouraged.

To be sure, these are the kind of grand questions that will get posed quite sharply within the framework of a democratic development paradigm. And it is vital to find the right answers because, while rapid economic growth over the next decade does seem assured by today’s high savings and investment rates, it is important to achieve the growth within an acceptable social framework, and also to think ahead to what might come after 2020; in short, how to ensure further rapid growth. Even in 2020, per capita income in India will likely be barely 5-6 per cent of what it is in Germany. You need a further decade of rapid growth after 2020 to get India’s numbers to look more respectable, and for its per capita income to approach the global average (currently $10,000 per head, which compares with India’s $1,100 last year and perhaps $2,500 in 2020). But when one looks beyond 2020, the questions multiply.

 

Since World War II, i.e., over the last 65 years, there are only 13 countries that have achieved average annual growth of seven per cent or more over any 25-year period; and half of them got stuck in a middle-income trap, unable to do what it took to continue on a rapid growth curve and reach the high-income category. Japan and South Korea did; Brazil and South Africa did not. Brazil’s story provides a cautionary tale. Its per capita income in 2005 was no higher than it was in 1978 (which few would have forecast, since it had achieved 9.6 per cent annual growth in the decade to 1978)! Would India want its per capita income in 2050 to stay where it might reach in 2025? If not, the big questions have to be asked, and the right answers found.

So, ultimately, it does come back to economic growth and how to ensure its continuation. However much the country may have come to take rapid growth for granted, it is not guaranteed; and without it, the country’s future will be crisis-ridden. The hard work lies ahead.