Make no mistake, the bell tolls for everyone

Updated: Nov 15 2005, 05:30am hrs
To most of us in India, the riots in Paris had a sense of the unreal about them. Riots are so quintessentially Third World. They happen in India, in Bangladesh, Pakistan, Sri Lanka, Indonesia, sub-Saharan Africa...But Paris And in 2005

All the more reason, then, for us to try and understand the underlying causes, to see whether there are any lessons that we in India need to learn from them. To be sure, the reasons are far more complex than can ever be distilled into a single sentence. According to an editorial in the London Financial Times, the riots were in part, at least, a revolt by a marginalised section of society cut off from the opportunities in the rest of the country.

One could argue, of course, that just as every problem appears as a nail to a carpenter, so too, for the financial daily, the unrest in France had economic, more than social, underpinnings. But even so, the fact is economic deprivation did play a major part.

Now juxtapose that with what Robert Shiller, professor of economics at Yale University has to say. In a remarkably prescient article, Who do you feel is richer, you or I in this paper (FE 10/11/05), Shiller says comparisons are inevitable. As people in the interiors increasingly compare themselves with richer people in urban centres in their own country, who they perceive as more successful, there is a potential risk of unrest and instability.

He points to how the economist Albert Hirschman once likened a society with recognisably distinct groups to a multi-lane highway where people are unable to change lanes. If the traffic is stalled for hours and no one else is making progress, we tend to relax and accept the situation. If the traffic then starts moving in another lane, everyone is happy. Even if we are still stationary, we dont hold it against those getting ahead, thinking that we too will soon be moving forward. But if the other lane keeps moving and we do not, our happiness is eventually replaced by anger.

The same, he says, is true of economies that begin to grow rapidly. If people dont feel they will eventually benefit, it is an invitation for trouble.

Richer states have gained far more from the reform process than poor states
We must address this growing gap if growth is to be sustained
But without turning the clock back on the reform process
Is there a common thread running through the FTs explanation of the riots in France and Shillers analysis And does it have any relevance for India

Most emphatically, yes. Because, as a host of studies, including most recently by M Govinda Rao has shown, the post-reform period has been marked not only by faster growth, but distressingly, by a widening of inter-state disparities. According to Rao, the acceleration in growth rate seen in the 1990s has occurred mostly in the high and middle-income states of Gujarat, Maharashtra, Karnataka, Kerala, Tamil Nadu and West Bengal, while the growth rate actually decelerated in Bihar, UP, Orissa and Rajasthan. (see table)

Thus, liberalisation and the opening of the economy during the 1990s have benefited states with a stronger industrial base and better access to markets far more, with the result that inter-state disparities have widened sharply. Worse, if the Indian economy continues to globalise, as indeed it must, chances are the gap between the haves and the have-nots will increase further.

To be sure, regional disparities have always been with us and to some extent are inevitable in a federal republic. But when such disparities widen rather than narrow over time and, more important, leave vast sections of the population (UP and Bihar are the most populous states) trailing, we ignore the danger signals at our peril.

The Centre, through the Finance Commi-ssions, and to a lesser extent through the Planning Commis-sion, has tried to correct this horizontal imbalance through transfer of resources to the poorer states. But its efforts have not met with much success.

The problem is compounded by the fact that experience has shown merely increasing the resource flow does not automatically translate into provision of better infrastructure, since poor states, typically, are also characterised by poor governance, leading to poor outcomes.

Unfortunately, in the euphoria generated by our neo-Hindu rate of growth, the BRIC report and the western worlds new-found fascination with India, the issue of widening regional disparities has not received the attention it deserves. To assume, however, that we can continue to be a two-speed economy indefinitely is to delude ourselves. Schemes like the National Rural Employment Guarantee Scheme and Bharat Nirman are also not a solution in states where governance is almost non-existent.

So do we wait till economic deprivation in these states spills out onto the streets Or do we act now There are no easy answers. Federalism limits what the Centre can do. At the same time, there can be no going back on the reform process, either.

So, we do need to seriously introspect. There is a limit to how long people will be content to be stuck in traffic when those in other lanes begin to zip past. And the longer those in the fast lane drive past with blinkers on, the greater the danger of all of us coming to a grinding halt, sooner rather than later.