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Poverty. Riches. The world's largest democracy. An ancient caste system. Bollywood. India is a land of contrasts, a booming new power that remains baffling to outsiders and insiders alike. The Shiva Rules is a year-long GlobalPost series that decodes the many mysteries of India's uneven rise in the 21st century.


The Shiva Rules: Is growth enough?

India's economic boom has widened the gap between rich and poor – and now it's slowing down.

larger, not to change the way you slice it up — especially where government programs are hampered by corruption and inefficiency.

“This is inequality in outcomes, either in terms of consumption expenditure or in terms of income,” said economist Bibek Debroy, a professor at the New Delhi-based Center for Policy Research.

“If you are talking about inequality in terms of access to health services, education, financial products, technology, the law and order system, then I'm prepared to buy the argument that we should be concerned. But that's not what this inequality is about.”

It's not that the benefits of economic growth don't trickle down at all. Debroy believes, for instance, that the biggest reason for the increase in inequality is geography, not class or caste.

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While the trickle has missed some parts of India altogether, he would argue, poor people like Indu Devi have seen marked improvements in their lives over the past 20 years. The trouble is that rapid growth and runaway consumption by the burgeoning middle class has simultaneously increased the aspirations of the poor and driven up prices.

“If I perceive that inequality is increasing, but I also perceive that over a period of time the prospects of my standard of living improving are getting enhanced, then I think I'm less concerned about inequality,” said Debroy. “But if I perceive that inequality is increasing, but my standard of living is not improving, then I tend to be more concerned.”

Right or wrong, many of those at the bottom see the glass as half empty.

Despite a shortage of skilled labor, for instance, 25-year-old machinist Rajesh Kumar, who lives a few houses away from Devi, earns only about $150 a month. Based on India's erstwhile economic forecasts, he should be poised for great changes. Yet he's pessimistic about his prospects.

"Even if the number of companies are rising, unemployment is also on the rise,” Kumar said. "If the country progresses, the poor will only become poorer, as things will get more expensive. We can never progress."

Now, India's booming economy is slowing down, perhaps dramatically.

With inflation hovering around 10 percent, the central bank has raised interest rates 13 times since March 2010. But today India Inc. faces a drop in foreign investment and skyrocketing fuel costs resulting from a 20 percent plunge in the value of the rupee.

As a result, a manufacturing sector that had only just begun to take off is gearing down — as signaled by a 5 percent drop in industrial output for October, the last month for which data is available. And, at least in private, investors and entrepreneurs are beginning to think the unthinkable: That GDP growth might just dip below 6 percent.

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Inequality problem solved, you might be tempted to say. But it looks like the poor will likely bear the brunt of the slowdown, too. They lack savings to carry them through bad times, of course, and they fight for work where competition is the toughest.

But the downturn has also resulted in new criticism for the current government's social welfare programs, such as a planned expansion of the distribution of subsidized grain to cover two-thirds of the population.

“If I am able-bodied and in the working age group, I am not voluntarily poor,” said Debroy. “I am poor because I don't have access to the roads, I don't have access to health [care], I don't have access to education. So the right public policy intervention to me is the provision of those goods and services.”

In terms of access, too, however, the vast gulf between India's rich and poor appears to be acting as a multiplier, worsening the country's long-standing problems while preventing action from being taken against them.

The rapid growth of high-quality, private hospitals in India's cities means that the most vocal and influential citizens no longer complain about public facilities. All but the poorest Indians have abandoned the government's free schools, even as the current administration strives to make education a basic right.

And though wealthy and middle-class Indians carp about “leakages” in the welfare system that distributes subsidized grain to the destitute, they do so primarily to argue against spending increases, without taking much interest in fixing the problem — even amid Anna Hazare's anti-corruption fervor.

This vast difference in perspective, incidentally, may also explain why none of the many Indian papers that reported on the OECD study mentioned its conclusion about the main reason for the dramatic increase in income inequality over the past 20 years: A widening gap between the regular, salaried workers protected by the country's labor laws and the so-called “contract workers” outside the system.

So, too, that difference in outlook may explain the silence on the OECD's recommended course of action: more flexible labor policies and higher spending on education and social welfare — funded by progressive taxes.

“There's a pervasive problem in public policy of lack of attention to the underprivileged and insensitivity to their needs, which is not necessarily out of hostility to them,” said Dreze. “It's just that the people who run the show don't relate very closely to these people.”

The result of India's gross inequity, therefore, is a vicious cycle. India spends less on social programs than the world's other large emerging economies, according to the OECD study.

Brazil and Russia spend nearly three-fourths as much on social programs, as a percentage of GDP, as OECD member countries like the Netherlands, Spain and the United Kingdom, for instance. India spends only a fourth as much as the OECD average.

The biggest reason for the discrepancy is that it has virtually no safety net for the aged or unemployed, apart from the recently created National Rural Employment Guarantee Scheme, a program that is often criticized locally as expensive and corrupt, and yet one that the OECD recommends expanding.

“It could go either way. Depending on the politics, you could see India moving toward more extensive welfare provisions and reconstructing the health-care system,” said Dreze.

“You could also see the schooling system being privatized. There's a huge lobby of insurance companies that would like to see the health-care system go in the direction of health insurance. Nothing can be taken for granted.”