Nothing captures the irony of India's economic boom better than some elementary statistics. While the annual growth rate of India's economy has been 7 per cent in the last 10 years, agriculture, which still supplies livelihood to more than a majority of Indians, has grown only at 2.2 per cent annually since 1995-96. Moreover, close to 50 per cent of Indian children under three years of age are clinically underweight, a sure sign of malnourishment. Thus far, the Indian media has grossly under-reflected on the dark underbelly of India's massive economic transformation.
India's economic boom is real, and is being widely noticed all over the world as the nation's economic growth rate soars above 9 per cent; as India's corporate houses acquire Western companies worth billions of dollars; as an economy of India's size begins to have an investment-GDP ratio in excess of 30 per cent; as the nationwide sale of cellphones, an unmistakable emblem of 21st-century modernity and comfort, touches over five million per month.
But the overall neglect of the "other India" in mainstream media can only be called thoughtless and myopic. A booming middle class and corporate affluence alone cannot possibly run a democratic polity, when the countryside, home to over two-thirds of the country, is lagging far behind the dazzling growth of urban incomes, when the rising income disparities are obvious to the low-income households because of television.
Theories of political economy have repeatedly noted that the coexistence of markets and democracy generates inevitable tensions. The tensions arise due to the well-known difference in the organising principles of democracy and markets. For democracies, the masses are citizens; individually, they have the same weight in franchise as those privileged or part of the elite. But markets deal with commodities, not citizens. On the whole, the masses appear in capitalism as consumers of goods or suppliers of labour. As consumers, they matter if they have the purchasing power. And as suppliers of labour, their value will be determined by the forces of supply and demand. In a market-based economy, no assumption of equality of all is made. That assumption, however, is intrinsic to elections, a vital principle of democracy.
On how to deal with poverty, the standard market-based economic perspective is quite straightforward: expansion of markets will conquer poverty better than any other method. As markets create opportunities, they will increase incomes all around, and more and more of those who did not previously have enough incomes will acquire assets and purchasing power. Markets release remarkable entrepreneurial energies, which can be harnessed for the larger good of society.
These statements are true but only in the long run. If a polity is democratic, dependent on political mandates in elections, a great many short-run realities tend to surface politically. How the masses view the markets depends to a great extent on whether the markets are gainfully employing them, thereby increasing their purchasing power and welfare. If not, despite the long-run promise of markets, they may react with reservations, if not with downright resentment and anger.
It is manifestly clear that India's boom has not created enough employment for the masses. Moreover, if agriculture for the last 10 years has grown only slightly above 2 per cent per year and the economy at 7 per cent annually, simple arithmetic will show that urban incomes have been growing in all probability at 14-15 per cent per year, and urban middle-class incomes at a higher rate. Compared to China, India now has more billionaires, but it also has twice as many people below the poverty line.
The recent shifts in India's reform politics—a rural employment guarantee scheme, and a greater allocation for agriculture, education and health—should not only be considered politically necessary in a democracy, but also highly desirable. India's economic challenge continues to be bi-focal: markets must be allowed to flourish where they work best, namely in production of manufactured goods and services, but government resources must increasingly concentrate on areas that are typically ill-served by markets: mass education, public health, rural roads, irrigation and agricultural research. Neither a more vigorous embrace of markets alone, nor a return to pre-1991 policies, will do the job.
(The author is professor of political science, University of Michigan.)