The Leeward Side

Thirty-year-old Mallika Basu steps into her chauffeur-driven Ford Ikon clutching a Nokia phone to her ear, dressed in the latest brands that crowd the ever-increasing number of malls of Delhi, flips through a pink paper crowing over yet another historic run on the stockmarket. She sways to the beat of a remix number as her car speeds over a freshly constructed flyover.

Mallika is happy. Strange. For she has not got an increment in over a year, does not play the stockmarket and was deprived of watching Rahul Dravid bat like God because she refused to buy a set-top box. So why is there a spring in her step and a smile on her face? Well, it's the feelgood factor, stupid!

After years of looking at the glass half-empty, Indians have finally decided to rejoice in the positives...and there are enough of these. The sensex is at its highest ever and still moving up, the economy grew at more than 8 per cent in the second quarter of 2003-04, foreign exchange reserves are above $100 billion, and since the new year, the finance minister has been doling out gifts to all of us. Air travel, laptops, mobile phones, they will all be cheaper, and our two-wheeler companies may soon be selling in Pakistan! India is on a roll.

But. Gripped by this feelgood frenzy, could we be overlooking another reality? The not-so-shining side of India? Says social anthropologist Shiv Visvanathan: "This is a very selective celebration, only 20 per cent of Indians are part of it. The feelgood reflects middle-class amnesia on issues like poverty. It is a completely urban phenomenon." He argues that all the positive indicators, like the sensex or forex reserves, are middle-class benchmarks. There's no room in it for the poor and the dispossessed; the Muslim craftspeople displaced after the Gujarat riots, the tribals who lost their land to the Narmada dam, the fishing communities who disappear after each cyclone. "On the Millennium Development Goal areas like infant mortality, homelessness, poverty, health and education, India's performance is definitely not 'shining'," says the World Bank's country director for India, Michael Carter.

Economist Abhijit Sen agrees that the middle class has never had it so good, but says the bottom 80 per cent have never had it so bad either. "The disaster zone is 80 per cent of the rural population, incomes for them have not grown at all since 1989." Even the middle class realises that it is sitting on a volcano, he feels. "Just like you hire security guards, they (the middle class) look for assurances from politics to make sure their good run lasts."

Of the 100 million people expected to join the labour force in the next 10 years, 66 million will do so in the rural economy. And there's very little thought being given by economic planners on creating jobs for the rural workforce. "In the organised sector, we talk of growth without jobs, and in the 'bullock-cart' class, there is employment without income," says Sundeep Waslekar, who runs Mumbai-based think-tank The Strategic Foresight Group.

Of course, the just-concluded year has been very feelgood for the farmer because of the great monsoon. "It is thanks to the forces of nature rather than due to our economic policies that rural India might be shining today," says a cynic. But one bad monsoon, and the picture changes. When rural youth see incremental farm income drying up, they look to the government for jobs. And the government is in no position to offer any. The result could be social unrest, like the recent anti-Bihari rioting in the Northeast. Indeed, the employment situation is grim. Even with all the new call centres and the boom in services, employment in the organised private sector grew by only 1 per cent last year. So when and how will the 40 million jobs the prime minister keeps promising be created?

While cellphones and white goods have become cheaper, rice and dal have become more expensive.Inflation is at 5.8 per cent and much of its rise is due to rise in food prices. "There is no trickledown effect from this economic growth. Many people even today earn less than $2 a day. In Delhi, you can hire a driver for as little as Rs 2,500 a month...and he is a skilled worker," says Abusaleh Shariff, chief economist, NCAER.

The much-touted one-quarter growth of 8.4 per cent in 2003, says Jairam Ramesh, head of the economic affairs cell of the Congress, "is just a statistical feelgood. The last four years have been so bad that this year is bound to look good". He adds that real growth has come only in the last six months. Between 1999 and 2003, the economy grew at 5.7 per cent, while between 1992 and 1996, growth was actually higher at 6.7 per cent. He argues that the feelgood factor is completely due to the monsoons: "Before June, where was the feelgood?"

Industrialist Rahul Bajaj too admits that it's agriculture growth that has spurred the GDP. "We need to grow consistently at 8 per cent. Industry is growing at 6 per cent, it won't get us anywhere. It has to grow at 12 per cent."

In 1988-89, there was a quarter when the economy grew at a whopping 10.87 per cent! But did it last? Today, there's widespread hope that the next quarter may even see 9 per cent, but Subir Gokarn, chief economist, Crisil, feels that the 8 per cent-plus growth could be a blip and it'll possibly settle at 6-7 per cent in the coming months. While agriculture has triggered this growth, industry will be required to sustain it. Meanwhile, manufacturing growth of 8 per cent in November, as per the Index of Industrial Production, was less than the 10 per cent anticipated by many analysts.

And even as the sectors are growing, jobs are not. Says ex-finance minister P. Chidambaram: "As a thumb rule, 8 per cent growth should generate 80 million jobs. But we've not even had 20-30 million jobs created despite high growth."

As far as industry goes, the growth song, many economists believe, is being sung by just 70-80 companies which are on a roll; the lot of a large majority of Indians remains unchanged. India's per capita income may have gone up from $370 to $480 (China's is $900) in just four years but inequalities have increased too. Recent National Sample Survey data also showed an alarming rise in the number of people below the poverty line (up by 33 million in 2001-02), mainly due to a sharp rise in the consumer price index for agricultural labourers.

Consumer spending is of course soaring. Up by more than 12 per cent in 2002, the 2003 figures are expected to be even higher. No jobs and few salary hikes, but the malls and multiplexes across the country are still overflowing.

The sensex is also a great mood lifter. It can excite even the most staid and safe investor. And this time round, the bull run seems much more robust, based on strong fundamentals. Assures Gokarn, "We have seen the stocks of companies from the old economy like steel and auto go up, and these are consistent with the drivers of recovery." But Ramesh counters that the markets have always reacted more on sentiment. "The markets are not linked with economic health. In the past, the markets have done well when the economy has not," he argues.

Shariff feels that the markets are reacting more to the recovery in the US than celebrating the Indian economy. He even calls the $100-billion-plus forex reserves somebody else's money. FIIs and NRIs have basically parked their money here. "It is funny money. Why is the government going ga ga over other people's money? It's not money that has come in thanks to greater tax collections or from PSU profits," he insists.

Ila Patnaik, senior economist at NCAER, points out that our forex reserves in March 2002 were $54 billion, sufficient to meet current and capital account liabilities.Since then, another $50 billion have been added to the reserves. "This is not FDI, nor is it largely FII money. It's mainly short-term capital inflows based on rupee expectations and coming through banks as 'other banking capital'," she says. "If rupee expectations reverse, $20-30 billion could leave the country in a week's time."

The feelgood about the dollar reserves can be debated, but what about the fiscal deficit? We are looking at a combined fiscal deficit (states plus Centre) of above 10 per cent. We were touching this figure in 1991 too, just before kicking off the reforms process. Alarmists call it dangerous, while others describe the situation as serious but not critical. But when the debt-GDP ratio starts growing, the government's interest expenditure rises and this could crowd out other necessary investments.

The FM's mini-budgets announced last week will cost the government more than Rs 12,000 crore. Given the high fiscal deficit, does this make economic sense? Well, the government is banking on high growth, cut in expenditure, and money to be made from the sale of its stakes in psus to cover the deficit. "When industry is buoyant, governments tend to get comfortable in the short term because they are huge contributors to revenue and also make up 25 per cent of the GDP," says Gokarn, who believes that the current series of economic measures aren't just election gimmicks nor ad hoc, but based on sound economic logic. The exception is the higher interest rate promised to dada and dadi (grandparents). This, many economists agree, runs contrary to the spirit of reforms.

But again, when we talk of reforms, we only talk of the middle class. The farmer has never been central to the reform agenda. Last week, the FM did announce the setting up of a Rs 50,000-crore Agriculture Infrastructure and Credit Fund but sceptics say that such grand gestures have been made many times, but where are the more critical reforms? Says Waslekar: "Farmers have no freedom to sell their produce in a liberalised economy. They can either sell to the Food Corporation of India, or to licensed agents. There is no market reform here."

Even economist Surjit S. Bhalla, who is extremely bullish on India Shining, feels that our fertiliser policy and food distribution and procurement systems are very inefficient and "since they don't help anybody, they should go".

In the end then, are we celebrating only the 200 million-strong middle class and their dreams, their flyovers, their malls? No doubt 200 million is a big number, but it's still only 20 per cent of a billion. Is feelgood then the mood of the nation that lives only in Bangalore, Hyderabad, Delhi and Mumbai?

Conversely, haven't we had our share of pessimism and bad times? Everyone needs a happy story and finally we have one of our own. Conventional Indian wisdom would advise caution even in celebration, but the party is nowhere near ending. L.K. Advani, inaugurating the Auto Expo in Delhi on Thursday, was euphoric: "Today people are talking about feelgood, but it won't be long before they will be talking of feel-great."

Poll rhetoric or ground reality? Says Visvanathan: "This feelgood factor is just the flavour of the week. Finally, the Chinese will overrun us happily." Writer Gurcharan Das warns that confidence has to be based on performance and not bombast. But a day before Advani's comment, Peter Drucker, the father of modern management theory, speaking to Bloomberg News Service, warned that China was heading towards massive social unrest due to its iniquitous economic growth, and said: "India's progress is far more impressive." May his reading be true.