India: The Great Divide


Rana Ganguly

Last month the Indian Government projected an economic growth rate of 8.1% for the fiscal year 2005-06. This is significantly higher than the previous year (7.5%). It has exceeded the expectations of the Finance Ministry and the Reserve Bank of India. The drivers of this growth are a 9.4% growth for the manufacturing sector and over 8% growth in the services sector, which now has a dominant share of the GDP (54%). A good monsoon has pushed up the growth in the farm sector to 2.3%, up from a dismal 0.7% in the previous year. The stock markets are buoyant and salaries are expected to rise by about 13.8% compared to 14.7% in the previous period indicating stabilization of wages. Flow of Foreign Direct Investment is expected to cross US$7 billion.

The higher income levels have spawned a consumption-oriented culture especially in the urban areas in a marked departure in trend from the previous decades. Liberalisation of the markets and the availability of a tremendous variety of consumer goods from all over the world has led to a profusion of large shopping malls and supermarkets that spells inevitable doom for small specialty shops. The purchasing power of India's upwardly mobile middle class is visible and almost every major global enterprise is in India now to carve for itself a slice of the large Indian market.

In the previous decades a large portion of the disposable income was always devoted towards building a savings portfolio and accumulating assets. While the tendency to save and accumulate assets still persists, the creativity and competitiveness of financial services companies that provide funds for purchase of myriad items including cars, consumer dubles, higher education and houses has significantly contributed to the consumption trend co-existing peacefully with asset accumulation. However, the publication of the results of the recent decade-long survey by the National Statistical Survey organization show that the average value of assets in urban India was significantly higher at Rupees 420,000 which is 57% higher than the corresponding figure for rural India (Rupees 270,000). Most of the investment has been in assets like land and buildings. Noteworthy, however, is the fact that growing levels of indebtedness have been noticed with the rising accumulation of assets. Some 27% of rural households are in debt compared to 18% in urban areas.

The problem has now reached serious proportions in several states. Maharashtra, one of India's most progressive states for many decades, has reported several hundred cases of suicides by indebted farmers in its cotton-growing belt. The apathy of the state administration is appalling. Some critics have condemned the state's chief minister who is sighted at every major Bollywood awards function. But he does not appear to be doing much towards solving the problems of farmers in his state. While the euphoria in the urban middle class is palpable and always gets amplified by the local and global media, the appalling stories of poverty in urban shantytowns and rural backwaters often get ignored. The state of road and rail transport is yet to show improvement. Growth in the resource-starved infrastructure sector is still very nominal, especially in the rural areas. Grass roots development continues to be ignored despite being the main election promise of current federal government led by the Congress party. The rural rich get richer at the cost of their majority brethren by wielding absolute power through political connections and exploiting the illiterate and powerless village folk. There is no social security net to protect the vulnerable sections of the society. The growing menace of Maoists or Naxals and the grassroots support they enjoy in many states is symptomatic of the growing discontent of the rural poor with the state of governance in many parts of India. The majority of the urban population is under the opiate of consumer goods and cable television. The voice of the intellectual elite is at best muted.

Poverty fuels unrests and violence. The skewed pattern of development within and between regions and the deepening of the divide between 'haves' and 'have-nots' does not augur well for the coming decade unless the political elite address themselves to this problem in earnest.

WATCHPOINT: India's economic growth will be difficult to sustain if the benefits of a buoyant economy do not percolate down to the grassroots level very soon.


About our company:

AFG Venture Group is an Asia and Australia based corporate advisory and consulting firm with over 20 years experience in creating alliances, relationships and transactions in Australia, South East Asia and India; including a 15 year history of corporate and equities advisory in Australia, undertaking merger, acquisition, divestment, fund raising and consulting for private and public companies.

Go to top