Wednesday, February 1, 2012

>POLITICAL CORRIDOR: Bharat Versus India - "Inclusive growth "; exclusive benefits

Bharat vs. India – a gap to be bridged…

Global economies now face a radically altered economic canvas in the ongoing crisis and a “two-speed” world is emerging with a slower rate of growth in developed regions such as Europe and the US and much faster growth in emerging economies. Even within Euro zone states, a two speed world is likely to emerge as stronger states may move towards closer integration while the rest may end up in a loose “confederation”. Ironically, within our country, a two-speed India exists with rural Bharat continuing its long wait for basic social infrastructure while urban India is reaping the benefits of economic growth and still crying out for more.

Taking a leaf out of socialist flavours in the pre-1990s era, India changed its focus big-time to corporate/urban growth. In the last two decades, the stature of corporates and the urban middle class has grown multi-fold. However, with the growing economy, the gap between urban (India) and rural (Bharat) income has increased significantly.

In an ideal economy, capital and labour between rural and urban economy moves freely. However, we have seen that labour from rural India has moved to urban areas for higher income but capital to rural India has not moved to a great extent. Consequently, vast migration resulted in the proportion of the rural population declining to 68% in 2011 from 75% of the population in early 1990.

With the government’s revenue foregone in FY11 at more than | 5 lakh crore, benefits to Corporate India through tax holidays and exemptions have increased extensively. Whether it is state level exemptions or tax holidays for multi years or minimum alternative tax (MAT) credit to certain industries, we have seen that Corporate India has benefited tremendously. This policy of incentivising India Inc. has favoured growth in urban areas at the expense of rural India and somehow ‘inclusive’ growth has ‘exclusively’ been for urban India.

Over the last few years, the government’s focus has also moved towards rural social schemes; be it increasing spend in the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA) or promoting various rural schemes under ‘Bharat Nirman. Social spend through budget allocations has surpassed | 3 lakh crore in 2012. This is almost double the amount government allocated in 2008 budget.

We believe corporate benefits would continue to be part of the government’s Budget but moving forward, the focus is most certainly more towards social spending and rightly so. Even considering the content of the proposed important bills in Parliament like Food Security Bill, Mineral & Mining Bill and Land Acquisition Bill, most of them mainly focus on the growth of rural people and the socialistic flavour seems to be back on track. Some of the data used for our analysis may be not be an absolute value but is indicative of the scenario. We have analysed various parameters across sectors ranging from banking exposure to rural India or government spending on rural road projects, budget expenditure on rural health and education. Despite this budgetary expenditure increasing at a faster pace, per capita expenditure of the rural population has been very low and needs a leg up.

To read full report: POLITICAL CORRIDOR