Article 2014 The Year in Review

2014: a turning point for India?

Narendra Modi was elected earlier this year with an overwhelming mandate - can he put India on the path to realising its massive potential?

Between 7 April and 12 May 2014, the largest ever election in the world took place in India with an eligible electorate of just over 814 million people. For the first time in 30 years, a single party won an outright majority; the Bharatiya Janata Party (BJP) led by Narendra Modi (as part of the wider National Democratic Alliance which won 336 seats overall) won 282 seats out of 543. The Indian National Congress (considered to be one of the big two parties along with the BJP) came second with 44 seats, falling short of the required 10% of total seats to even be declared the official opposition. This indicates the massive mandate given to the BJP, heightening the expectation that the current government will finally allow India to realise its massive potential.

IMF figures show that the Indian economy in terms of GDP is the 10th largest in the world, but only 130th when considering GDP per capita. There is a similar disparity in China, where total GDP is extremely high but per capita GDP is relatively low. Indeed, India’s proximity to China, both geographically and politically (via BRICS), as well as billion-plus populations, has led to comparisons between the two great nations. In 1987, India’s economy was larger than China’s; however, since then China has experienced rapid growth, increasing its influence and representing the type of global power that India has the potential to be.

There is no doubt that India has this potential - it has a large population and diaspora, respect for human rights and democratic institutions, massive value as a trading partner and is in the envious position of maintaining beneficial relations with many Western powers and China. However, extreme poverty has significantly hindered this potential.

Looking specifically at China, it lifted 680 million people out of extreme poverty between 1981 and 2010, reducing the percentage of people living in extreme poverty from 84% to less than 10%. Understandably, this is one of the greatest achievements of the Chinese administration in modern times. The idea is that as people move out of poverty towards the middle class (associated with internal emigration from rural to urban areas) they boost the economy through domestic consumption, a policy that China is currently reorientating towards, following years of export-dominated growth.

To realise its potential, India will have to undergo a similar transformation to that seen in China. Currently, World Bank figures show that around 25% of the population lives in extreme poverty (less than $1.25 a day) while just over 60% live in moderate poverty (less than $2 a day). India has the largest concentration of poor people in the world and the problem becomes more acute in rural areas where almost a third live in extreme poverty, of whom 80% are those from scheduled castes and tribes, yet who comprise only about a quarter of the Indian population. This historically disadvantaged group also experiences higher than average levels of poverty within urban areas.

Caste divisions

The social stratification of the caste system is based on the division of labour, with different castes assigned different occupations and, therefore, different associated entitlements and duties. The Indian activist Arundhati Roy wrote an in-depth feature about caste for Prospect Magazine, while a more basic description can be found here. The caste system adds a different dynamic to the issue of poverty, as pro-poor economic measures may not be able to transcend the cultural and social barriers of the caste system.

A lack of resources and services is a major cause of poverty, particularly inadequate healthcare and high illiteracy linked to poor school facilities, particularly in rural areas. A literacy rate of 74% recorded in 2011 lags behind the global average of 84% and other regional powers such as China (95%), Indonesia (93%) and Thailand (94%). There is also a substantial gender gap, partly due to entrenched stereotypes between men (82%) and women (65%), with knock-on effects for family planning, infant mortality and the economy.

A report by the IMF earlier this year highlighted that income inequality hinders economic growth, suggesting better access to healthcare and education for low-income families as one policy that could help developing countries promote growth and stability. Poor healthcare and education are at the heart of the development problem in India and it is these two crucial areas where the Indian government must focus.

A connected problem is that the growing middle class increasingly views public institutions with suspicion because of widespread political corruption and inefficiency within the sectors of health and education. The 300m strong middle class is an important demographic in India and their growing pivot towards the private sector has the potential to undermine the state to the extent that it will further entrench the idea of “two Indias”, where hundreds of millions lack the opportunities or assistance to be lifted out of poverty. Improving public services tackles both these problems, reconnecting the relationship between the state and middle class, and improving the lives of those in poverty.

100 smart cities

After Modi’s election, he immediately prioritised economic growth. Year-on-year GDP growth has fluctuated wildly between 3% and 10% since 2000, averaging just over 5% since 2011; 10% is considered a reasonable long-term aim, with 7-8% more likely over the short term. Restoring high economic growth was a prominent part of Modi’s election campaign and on his recent trip to the US he assured international investors that he would restore India’s economic potential.

However, implementing reform to improve economic growth is one thing, lifting millions out of the complex trap of poverty is another. In terms of improving the economy, Modi aims to implement a range of infrastructure projects, including the development of at least 100 “smart cities” to accommodate rapid urbanisation in addition to high-speed rail projects designed to connect major cities.

Taking a wider view, Modi also plans to replicate China’s boom by increasing manufacturing, utilising a weak rupee that cheapens exports and a young population providing accessible labour. If these measures are to reduce poverty then strong labour laws will need to be enforced, removing the potential for sweatshops and banishing the associated reputation that India has. A balance needs to be struck between economic liberalisation, which Modi will inevitably promote, and protecting the interests of workers.

This is also true when looking at the bigger picture. Modi will need to balance tax reform and encourage foreign investment with policies that proactively reduce poverty, rather than rely solely on a neoliberal trickle-down approach that doesn’t address fundamental problems. Issues such as lack of internet access to over a billion people, neonatal mortality (30/1,000 births) and open defecation (550 million people practise this) hit home the message that India is still very much a developing country and will require an extensive effort from the government to solve.

Regarding poverty, Modi has talked the talk, stating that preventive care is a priority and, unusually for an Indian leader, expressing his intention to eliminate open defecation in his Independence Day speech. During this speech, he also bemoaned the “poison of casteism and communalism”, saying that India needed “peace, unity, goodwill and brotherhood” to move forward, showing that he understands the various problems hindering Indian development.

Modi’s appeal to disillusioned voters

It’s easy to see how a blinkered focus on GDP growth could exacerbate India’s development problems in the future and if Modi is too pro-business then income inequality, quality of life and labour wages/conditions will be unlikely to improve; growing inequality in Western societies should serve as a warning here. Growing defence spending, a growing economy (whether 3% or 10%), the rise of BRICS and calls for India to have a permanent seat on the UN Security Council mean that India will maintain its position as a potential global leader for a considerable amount of time, but a plethora of challenges remain before India can be considered in the same echelon as the likes of the US, China and Germany.

Modi and the BJP were elected by appealing to a wide range of voters, including 39% of first-time voters, primarily young people voting for the first time but also disillusioned voters who felt compelled to vote on this particular occasion. Given the large mandate that the BJP received, it will be expected to act upon their election promises and Modi’s subsequent speeches.

There is perhaps no government anywhere in the world that faces such a complex set of economic, cultural and social issues and on such a large scale. However, there has been a lot of positivity since the last election and the administration has generally given off the right signals, suggesting that 2014 will represent the turning point for a more successful India. Increased foreign investment, a growing manufacturing sector and fulfilling stalled infrastructure projects can improve the economy but the heart of India’s development problem - education and health - needs to be solved before India can realise the potential it has promised for so long.

Photo: Dharavi Slum by Jon Hurd / CC BY 2.0

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