Social and Economic Indices,
Internal Governance and National Security

What are the worrying statistics of our nation?

India has over 250 million people below the official poverty line which is benchmarked by the Government of India at 300 rupees a month. It is revealing that the World Bank, after factoring various indices for less developed nations, has marked the poverty line for India as Rs 1400 a month. By this token there are over 700 million Indians below the poverty line. 700 million people are also, incidentally, below 35 years of age.

The numbers who are unemployed is rising every year; it is now over 300 million. We need to create approximately 10-15 million jobs per year if we want our burgeoning youth to be constructively engaged and occupied. We are presently creating less than 5 million jobs a year and those too mainly white-collar jobs in the service sector in urban areas. The youth of India don’t have enough work in the hinterlands where the majority of India lives. It is not difficult to see where the Naxals are getting their recruits.

52% of our population is dependent on the agricultural sector and less than 10% on the service sector. The economic liberalization and simultaneous globalization of the world’s economy has created an immensely successful service sector which has earned us huge foreign exchange reserves and jobs for the youth in the major metros of India. This has actually cast a veil on our lack of growth in employment both in the agricultural and in the manufacturing sector – where the real growth in the job market for the semi-urban and rural Indian youth is needed. Only if that happens will the economic fruits of our commendable growth be spread evenly among the masses.

In this context, it is disturbing that there the all-pervasive euphoria over the benefits of economic liberalization in India is apparently restricted, to the urban, English educated, rich and the middle class. A pointer to how unrepresentative this euphoria is among the majority of Indians is evidenced by the results of the general elections in 2003. While many politicians, most of the media and the intelligentsia believed that the economic well being of the nation, purportedly reflected in the GDP growth rate, the foreign exchange reserves and the upward movement of the Stock Market was enough to propel the last government to victory once again – the election results delivered by the masses was a rude reminder that everyone in India may not have quite felt that way. The vast economic disparities apparently found expression in those results in-spite of the good standing of the last Prime Minister and what the opinion makers, especially in the English language media, thought was good economics and good governance.

As an aside, but a relevant one, is the changing face of our policy makers and opinion makers. While there are huge benefits from the Harvard University and St Stephens college educated politicians sitting in our parliament and our assemblies, their feel of Bharat is limited to the few days they travel in a year, to rural India - fettered too by their self imposed security rings which makes it impossible to for them to get a first hand feel of the concerns of the vast majority of Indians. Their only recourse then is to depend on the opinion makers of India - the media networks. The transformation of the media professional from the the kurta wearing, jhola carrying person to the suave good looking TV presenter has made the the divide even more glaring. The concerns we now hear are the concerns of the middle class, the fog at the airports and how tiresome it is when flights get disrupted, or the quality of the latest Bollywood film, at best the concern of rising dal prices!

Today, the startling severity of the Maoists insurgency is once again a pointer to how this disillusionment among the masses is finding expression in the serious revolution that is developing.

In this context, an excerpt of a speech delivered by the U.S. President Franklin D. Roosevelt, during the period of the Great Depression, in April 1932, in an address called The Forgotten Man, is revealing:

“These times call for the building of plans that rest upon the forgotten, the unorganized but the indispensable units of economic power...that build from the bottom up and not from the top down, that put their faith once more in the forgotten man at the bottom of the economic pyramid.”  - Radio address by President Roosevelt Apr 07, 1932

What can we do?

From a security perspective it would be necessary for the government to look for urgent reforms on three specific issues - among others - that would greatly contribute towards a more stable society. These two aspects - the urgent need for land reforms, a review of the credit distribution policy of the banking sector – and better governance, need greater elaboration.

Land Reforms

Inspite of a rapid decline in the share of agriculture to the GDP, nearly 58% of India's population are still dependant on agriculture for livelihood. However what is of deep concern is that more than half of this percentage (nearly 63%) owns smallholdings of less than 1 hectare while the large tracts of 10 hectares of land or more are in the hands of less than 2%. The absolute landless, and the near landless (those owning up to 0.2 hectares of land), account for as much as 43% of the total peasant households.  [www.landaction.org - Land Research action Network]

On Independence, we inherited a semi-feudal agrarian system. The ownership and control of land was highly concentrated among a few landlords who extracted rent, either in cash or as produce, from tenants. As a result not only did agricultural productivity suffer with no tradition of adopting modern techniques of cultivation, but also oppression of tenants resulted in progressive deterioration of their plight which further enhanced the economic inequities.

Inspite of promises enshrined in the Constitution, a fact conveniently forgotten by the power elite of India, there has been minimum effort to implement land reforms in most States, since our Independence. Problems related to land such as concentration, tenancy rights, access of land to the landless have continued to challenge us.  This reality, however, had come to notice rarely during the first fifty years of our Independence. It is only now, with the initiation of  economic reforms that the issue of land holdings has resurfaced, unfortunately with a different objective and motivation. The new land reforms agenda seems to be market-driven, as is everything else in this phase of economic growth, and has at its heart certain other kinds of objectives. It is a matter of debate if the contemporary emphasis on land reforms are being promoted and guided by various international financial institutions and seek to fulfill the macro-economic objectives of these multilateral economic institutions.

The adivasis, in particular, have historically been subject to discrimination and displacement by large development projects and the government has failed to ensure minimum food security for them. Of the 20 million Indians displaced by development projects between 1960 and 1995, 56% have been tribal people, though they make up only 8.1 percent of the population.

In such a setting, the Naxalites seem to have easily found support among them who apparently feel stranded by India's surging modernization.

As a study in contrast with the rest of India, the Kerala experience in land reforms is particularly revealing. One of the first States to be affected by the initial wave of the Naxalite movement in the late 1950s and 1960s, Kerala saw dramatic land reforms initiated by the first democratically elected communist government in the world. The land reforms of the 1960s and 70s were so all encompassing that vast numbers of tenants became landowners benefiting over 1.5 million poor households. The land reform initiative abolished tenancy, and as a natural fallout, landlord exploitation. Along with this was a push to improve public food distribution that provides subsidized rice to low-income households; protective laws for agricultural workers; pensions for retired agricultural laborers; and a high rate of government employment for members of formerly low-caste communities. Over 5 lakh persons, mostly agricultural laborers, many of them belonging to the Scheduled Castes, have since received allotments of house sites and dwellings.

It is revealing today that Kerala, inspite of being a bastion of the Indian Marxists, is paradoxically among the few States of India where the Naxals do not have a presence. The peasant and the poor have apparently little reason to feel distraught as the majority are landowners and feel rooted to their land. More importantly, apart from the direct benefits of land reforms, the movement had led indirectly to a series of successful struggles against caste oppression, mass education, public health, and public distribution of food and essential commodities. It can be argued that a person who has a sense of ownership of land will have a feeling of well being which will dissuade him from joining movements like the Maoists. The urgency of land reforms in the heart if India in states like Jharkhand, Bihar, Madhya Pradesh, Andhra Pradesh and Maharashtra cannot be overstated. It is an issue that the government of India must pursue relentlessly with the States as an urgent measure to reduce the threat to our internal security.

Two recent events have also fuelled the Maoists' new ascendancy which we must take cognizance of. Firstly, several internal factions, including the People's War Group, who were previously preoccupied with fighting each other, united in September 2004 to form the Communist Party of India (Maoist). Secondly, the success of the Maoists in neighboring Nepal has raised morale and increased recruitment. The warning signs are well upon us-the month of July 2007 have witnessed a Naxalite strike virtually every day. [For more details visit www.satp.org]

Viable Financial Institutions

The other issue that will have a major impact on alleviating the turmoil among the poor and underprivileged is the availability of effective financial institutions in rural areas and the availability of credit among the landless and the poor.

The fundamental logic of nationalization of banks in 1970 was to improve the availability of banking facilities to the lay Indian and in many ways – to help speed up the trickle down effect of the growing economy towards the poorer sections of society.

One telling change post liberalization of India in the early nineties, apart from deregulation, was to make changes in the macro economic policy in the movement and availability of credit. It is this easy availability of credit and deregulation that corporate India flourished. While it has worked well over the short term of about 15 years, triggering by the revival of the Indian economy and the impressive growth rate - the movement of credit downwards, primarily from our banks, needs a serious review. While nationalism was intended to give expression to the socialists concerns of the State by making available credit among the less privileged, it has increasingly been seen over the last decade that the banking sector is keen to distribute the ample credit it now has, only among those who they perceive are reliable and to those from whom loans are easily recoverable. So while we see the persistence of banks to offload its excess cash with unsolicited credit cards offers and unsolicited loans to the urban rich and the middle class – the availability of credit in the rural areas from the organized banking sector has not improved substantially.

As part of the strategy of nationalization, a multi-agency rural credit delivery structure comprising Commercial Banks, Regional Rural Banks and Cooperative Banks, with a large network of more than 1,50,000 retail credit outlets (one for every 4,000 people) was established across the country. Yet, reaching the poorest, whose credit requirements are very small, frequent and unpredictable was found to be difficult. Further, the emphasis was on providing credit rather than financial products and services, including savings, insurance, etc, to the poor to meet their simple requirements.

It is also fairly well known that banking credit became an instrument for the local political leaders to distribute credit among their supporters and then later have those loans waived off.

There was also a mismatch in perception - regarding how the poor actually use and value financial services by these nationalized banks resulted in an adverse impression in the minds of those running banking institutions regarding the credit worthiness of the poor. The systems and procedures of banking institutions with emphasis on complicated qualifying requirements, tangible collaterals, etc., has also resulted in a large section of the rural poor shying away from the formal banking sector.

At the same time, it is unthinkable that a population of close to 300 million - even if poor - remains outside the fold of the banking business where huge banking opportunities have traditionally existed as seen by the age old village money lenders and the recent success of rural micro credit organizations. In a recent survey done by the Times of India (July 27, 2007) it was revealed that 40% of rural India still depend on the money lender. The startling success of the new micro credit organizations like SKS*,  which in a period of six years has over 6 lakh clients and is growing apparently at 65,000 clients per month, with business in 8 States of India, is indicative of the poor orientation and performance of the nationalized and cooperative banks over the years. The nationalized banks, like any governmental institution have remained rule bound and not purpose oriented with no personal stakes in either development of the rural population or in running a profit oriented and efficient banking institution. In these circumstances, it can be concluded that the spirit of nationalization of banks have been seriously buried in these liberalized and globalized times.

What constitutes agricultural credit for the banks is also revealing. We have believed for long that credit is easily available to the poor Indian farmer for agriculture at very attractive rates of interest. Agricultural credit today includes credit to the rich farmer, credit for setting up cold storages and credit for those involved in cash crops like rubber, tea, and vanilla. Credit to the poor farmer with limited land holdings is still difficult to come by. He depends therefore on the local moneylender and the private micro finance companies. Of course many people who receive agricultural loans are also using it to fund the desires of the new world - mobile phones, television sets and marriages! The reference the PM made to vulgar displays of wealth of the rich and ostentatious marriages insulting the poor, can be seen in this context!

So where does the extra credit flow? It is obvious that if business houses and businessmen can make greater profit from investing in stocks based on easily available credit as opposed to say, investing in the manufacturing sector, the more marginalized groups would not benefit due to the lack of availability of credit to them due to their limited creditworthiness. The less privileged will also suffer from the lack of employment opportunities by the reluctance of the corporate houses to set up new industries. This puts the poor in a never ending spiral – not enough education to rise beyond the circumstances of their birth, not enough land to toil and be self sufficient and not enough credit to venture into private enterprise.

We need to restructure our revenue generation and utilization - there is obviously enough money - but the key issue will be the ability to control and regulate where wealth is headed. Our ability to link issues like the lack of credit flow among the poor with increasing economic inequities leading to social unrest will determine our ability to combat the threats to internal security.

Threats to National Security

National security concerns were earlier limited to external threats and were linked to a nations foreign relations. There was no direct relationship with internal governance of a nation. In the 21st Century this can no longer be true, especially in developing countries. National security shall be increasingly linked to internal security, the quality of governance and the nature of the economic policies governments pursue, and it shall directly impact the nature of stability within the nation state.

Unleashing market forces in the form of reforms and liberalization may have shored up the national economy at a critical period for India, but as is now increasingly evident, divorcing the economic model from the socialistic foundations of a nation of the largely poor, will lead to dangerous pitfalls and shall impact national security. Adverse fallouts on the national economy will then be inevitable.

Measures like vigorous pursuit of Land Reforms and a freeing of credit to the rural poor will need to be an integral part of the many steps that the national government and state governments must undertake to address this socio-economic problem. Any dithering shall lead to a spiraling of violence that India shall be unable to control.

A major danger will be the temptation to treat the situation as a law and order problem and counter it purely with force. The attempt to counter the threat by raising and supporting counter terrorism organizations like the Salwa Judam will only compound the problem. It is already quite obvious that the police in remote districts of Chattisgarh is quite ill equipped to meet the Naxal threat.

With linkages through the Maoists in Nepal, it may not be too far fetched to believe that foreign nations inimical to India, would easily be able to foment the violence. There is much evidence of the ISI in Nepal having its linkages with the Maoists of Nepal. It is well known in intelligence circles that the ISI was giving subtle support to the Maoists with tacit connivance of the Chinese intelligence during the emerging political crisis in Nepal. **

With the new political dispensation in Nepal unlikely to view India with the same respect this is an issue we must view very seriously considering the very large and porous borders with Nepal. Greater availability of arms and munitions in the heartland of India will make it almost impossible for the ill equipped State police departments to counter this threat.

If major initiatives are not put into place soon, the violence will further escalate in the coming years. The first attacks now are on the symbols of State authority like the State police forces in rural and semi-rural areas. In the next phase these attacks will shift to the towns and the cites. The national government will soon be tempted to deploy the better-trained Armed Forces to counter the threat. The consequences of such an action shall naturally impact on the ability of the Armed Forces to counter threats from external aggression.

Governance

A major concern in our governance model will remain prioritization of development in terms of sectors, regions and the target population it addresses. The other concern will remain the loss in revenue and time, between allocation of funds and implementation of various multi crore programs. When Prime Minister Rajiv Gandhi admitted that for every rupee allocated by the government only 15 paisa reaches where it is intended to, he highlighted the problem of our losses due to corruption and inefficiency. It is even more telling that two decades later, Rahul Gandhi has said again that it is about 10 paise that reaches the masses!

Governance, macro economic policies and security will continue to be intricately linked and this must be appreciated while formulating national policies. The neglect of Defence by the government in the initial years after Independence led to the fiasco of the 1962 War. The fallouts of the War not only caused huge psychological damage to the nation and to our national leadership, but also caused an economic downturn, which took years to recover from.

Paradoxically, imbalanced economic growth today can cause huge social unrest within India, which will overburden the existing security apparatus - the police, the para-military and the military at huge costs. The Indian Army has increasingly been committed on internal security tasks over the last two decades. This constant redefinition of the role of the Armed Forces will be critically put to test every time an external threat manifests itself. This happened during the last threat from Pakistan in 2001. We must avoid committing our military to tackle internal mutinies, as it will adversely impact its role of defending the borders and tackling external threats. This can only happen if the internal policies and governance are equitable and benefit all sections of society. However, in the current situation, it seems inevitable and only a mater of time before the first units of the Army move soon into Naxal affected areas.

Simply put, if our existing developmental model is to work effectively there is an imperative need for great political wisdom and discretion among the political class, honesty and speed among the bureaucracy in executing plans and greater sensitivity among our opinion makers to bring to light the inadequacies of state sponsored programs. If this does not happen, the alarming economic inequities will inevitable lead to widespread spiral of violence which India will find difficult to control.

* www.sksindia.com