These days with older terms being replaced by new ones, like "decoupling" by "imbalances" one feels justified in seeing practices like "microfinance" in terms of the old one we used to call "loan sharking." Reports of suicides in increasing numbers in India and the strong-arm tactics being used by microfinance "agents" leave little for the imagination to fill in. With India's banking system and that of foreign banks like ICICI and Citibank with exposures of about $6 bn and the equivalent of 20% of the Reserve Bank of India's daily clearing volume at stake, we are likely to see little change even with the so-called moratorium on collections.
Professor Kurapati Venkatnarayana, a Kakatiya University economics professor who has studied overindebtedness in Andhra Pradesh, one of the hardest hit areas by microfinance, should step in to prevent a greater crisis. It seems every time we are told India is taking a step forward what we actually see in results is the same old outcome.
Perhaps a glimmer of hope can be seen in the facts gathered by G.G. Coulton in his study of the passage of Europe from feudalism to capitalism. At first when serfdom passed from legality to custom the lords replaced the fetters of serfdom with debt. The road from serfdom to liberal democracy was still a long and crooked one.
Little Investment in Infrastructure
Continuing patterns of social structure are a drag on India's progress as this crisis in microfinance is just one example. A report in 2007 concerning the energy situation, especially oil, the New Exploration Licensing Policy (NELP) was criticized for the lack of infrastructure to move oil across India and low levels of production in existing fields (see Joe Leahy, June 18th 2007 Financial Times)This relates to the chronic shortages of electricity damaging India's industries. Blackouts are frequent while consumption demand grows Refining is another problem with the state-owned oil refiner the largest and no new plants underway. Problems of investment by outside investors in hampered by the lack of free convertibility of the rupee. While most of the world's criticism is focused on Chinese controls on their currency, India's restrictions are also problematic. This has affected direct foreign investment where we see less than 10 Billion in 2005 compared to over 70 bn in China.
The main problems in India, however, center around infrastructure and corruption. This can be seen in the differences in comparison with China. In 2006 India accounted for less than 2% of the world's manufacturing while China produced 13%. Social policies of the ancien regime are party to blame as has been shown in such problems of sexual slavery and child labor which hinders educational advancement. Katherine Sayre associated Press reporter cited statistics from the US State Department in 2007 showing over 600,000 people, 80% females, are trapped n the human trade. The status of women is a serious corollary where even a senior cabinet minister in 2007 was found to demand dowry payments that are outlawed. The lack of infrastructure and internal investment keep India at a low manufacturing level with less than 20% of GDP According to Shankar Acharya's book, Can India Grow Without Bharat?, Academic Foundation, 2007, Bharat means "India" in Hindi. more than 200 million Indians live in desperate poverty and more than half of all children under 5 are malnourished. 70% of the population is involved in agriculture. With about 5 million people in organized manufacturing out of a labor force of 350 million the lack of investment in education and local industry is striking. Chinese factories employ more than 100 million by comparison.
Patwant Singh's recent book, The Second Partition, Hay House, 2007 focuses on the growing inequalities. India's wealth is being wasted in luxury and prestige with the off-shoring of incomes to other parts of the world for the safety, tax-avoidance and enjoyment of a tiny elite. A study financed by the Asian Development Bank in 2009 found that India has 50 billionaires who together control 20% of the gross domestic product of India and 80% of the stock market capitalization. On the local level there is a near complete "trickle down" to the poor. Where India is doing well is in service industries as in IT for example, Mumbai-based Tat Consultancy Service. Revenues are up 40%. But roads are in very poor condition where they exist and new roads are unlikely as Jo Johnson notes from a summary of India sources in an article in the Financial Times in May, 8th 2007. Traffic in the cities is destructive to work and movement of freight or food is hampered by poor docks at ports and gridlocked roads in the rural areas so that much of India's food can not be distributed efficiently and rots instead. This is made worse by the lack of storage facilities for grain and other food stuffs as reported by Ashok Gulati, New Delhi-based Asia director of the International Food Policy Research Institute noted in an article in the Financial Times in July of this year.
Both China and India have problems with unrest, but in India there are large organized rebel movements, some motivated by land claims, others by the vast wealth inequality and lack of freedom of the lower castes. India is often called the world's largest democracy but his is difficult to defend as the majority of the people have no voice at all and are still controlled by traditional caste overlords. India's skills shortages may be filled by plans to turn over its aging vocational training centers to companies in everything from construction to chemical engineering a reported by Amy Kazmin in the Financial Times in August, 31, 2010. But unrest over the microfinance frauds is creating disturbing conditions in rural areas and may disrupt India's fragile food situation as Amy Kazmin reported on Oct. 30, 2010 in the Financial Times. Grow and land speculation are also creating tension as Heidi J. Shrager reported for the Chronicle Foreign Service in September 2007 where land claims were invalidating herders' rights and creating political problems in states like Rajasthan.
Simmering in some areas but fed by corruption, injustice and poverty rebel attacks have become more frequent and deadly in the past two years. The Naxalites have grown in numbers and power with the brazen actions of the powerful economic forces owned by India's elite class like Tata Steel's actions in Chhattisgarh and the now famous attack that killed 74 policemen in April of 2010. With inflation in food prices running 22% higher this year, a 17 year high for most essentials, the situation is becoming explosive across the country. While the western media has concentrated its reporting on such titillating subjects as the legal battles between the Ambani brothers and the billion dollar empire they inherited from their father, the plight of the common people is ignored.
India needs a comprehensive transformation, another Gandhi, or perhaps more appropriate, another Akbar, grandson of Baber, the descendant of Timur who came out of Afghanistan and created the Mogul Empire. Akbar was energetic, learned and tolerant, the three qualities India needs most today.