Poor Little Rich Country

In May, the Indian government announced that it was giving $5 billion in aid to African countries in the interest of helping them meet their development goals. "We do not have all the answers," Prime Minister Manmohan Singh said, "but we have some experience in nation-building, which we are happy to share."

The British could be forgiven for being annoyed with Singh’s largesse. Britain, after all, currently gives more than $450 million a year in aid to India, and has plans to continue doing so for at least the next few years. The British economy is bumping in and out of a recession, while India’s gross domestic product is growing at more than 8 percent a year. This has put the British government in the rather bizarre position of having to sell bonds in order to donate money to Asia’s second-fastest-growing economy, even as the latter is itself getting into the philanthropy business.

The policy is unpopular with most of the British press, which argues that because India has a space program and some flamboyant billionaires, it does not need aid — especially when Britain cannot really afford it. (When the Labour government was voted out at last year’s general election, the departing Finance Minister Liam Byrne left a one-line note on his desk for his successor: "I’m afraid there is no money." It was a joke — but it was also true.) Nevertheless, Britain still sees itself as a donor nation, with all the obligations and international prestige that entails. This comes in part from a sense of postcolonial guilt: Prime Minister David Cameron spoke recently of a "sense of duty to help others" and the "strong moral case" for giving aid.

The situation suggests just how dramatically the economic rise of Asia has undone centuries of experience, and the expectation that the West will retain the hegemony it has had for the past 400 years. It is increasingly difficult to classify whether a nation is rich or poor, and terms such as "the Global South" and "the Third World" have to be heavily qualified to take into account the fact that large sections of the population in countries like China, Brazil, and India now have a purchasing power matching that of people in "the West."

In 1951, the American diplomat Bill Bullitt described the condition of India in Life magazine: "An immense country containing 357 million people," he wrote, "with enormous natural resources and superb fighting men, India can neither feed herself nor defend herself against serious attacks. An inhabitant of India lives, on average, 27 years. His annual income is about $50. About 90 out of 100 Indians cannot read or write. They exist in squalor and fear of famine." Today, it would be hard to make such an absolute statement about India. Poverty certainly remains a chronic problem, but it exists alongside pockets of substantial wealth. An Indian’s life expectancy at birth now stands at 67 years, and continues to rise. It is necessary perhaps to think in a different way, and to see that a country like India, like Schrödinger’s cat, exists in at least two forms simultaneously: rich and poor.

The most important change of the last two decades, since the beginning of economic liberalization, has been the transformation of middle-class Indian aspiration. Although the stagnant days of the controlled economy and the "Permit Raj" — when important decisions depended on a bureaucrat’s authorization — had their own stability, they also stifled opportunity and individual talent. Members of the professional middle class frequently preferred to seek their fortune in more meritocratic societies abroad.

The modern Indian middle class has a new chance to shape its own destiny in a way that was not previously possible. You can move to your own house using a home loan and live outside the joint family; you can buy a car that is not an Ambassador or a Fiat; you can travel abroad and see how people in other countries live; you can watch your politicians accept bribes or dance with prostitutes on television in local media sting operations while surfing your way to Desperate Housewives or Kaun Banega Crorepati, an Indian adaptation of Who Wants to Be a Millionaire? Businesspeople who have succeeded on their own merits overseas, such as PepsiCo CEO Indra Nooyi, are presented as national heroes.

In the 20th century, the world’s personal wealth was held in American, European, Arab, and occasionally East Asian hands. By 2008, four of the eight richest people alive were Indian, and 2011 is the first year in which more billionaires have come from the BRICs — Brazil, Russia, India, and China — than from Europe. In earlier times, India’s rich were princely rulers or members of extended business families who had made a fortune in textiles or manufacturing. Industrialists would hoard capital, and there was a limited expectation of seeking to outbid your neighbors in gross ostentation. Since liberalization, many of the new flock of billionaires who have made fortunes in areas such as construction, real estate, steel, and technology are no longer the scions of well-connected families. An unbound social elite has grown with extraordinary speed.

At times this new wealth has provoked intense resentment. In Mumbai, the industrialist Mukesh Ambani recently built the world’s most expensive private residence, a 27-story confection housing three floors of gardens, swimming pools, a "cool room" (which, in the ultimate Himalayan dream, blows flurries of fake snow), three helipads, a six-story parking garage, and several "entourage rooms" — because who travels without an entourage? The steel tycoon Lakshmi Mittal, who lives in London and is presently the richest person in Britain, is today the only Indian richer than Ambani. In 2006, Mittal Steel’s hostile bid for Europe’s largest steelmaker, Arcelor, was met with dismay on the continent. The head of the latter firm, Guy Dollé, said sorrowfully that the predatory company was "full of Indians" and his own Luxembourg-based operation had no need for "monnaie de singe" — an expression meaning "money without value," but a phrase that has the unfortunate direct translation of "monkey change." Lakshmi Mittal won the battle, Dollé was ousted, and Arcelor Mittal is now the world’s largest steel company.

During this global financial shift, about one-quarter of India’s population has so far gained almost nothing from the country’s economic transformation. Those who live outside the cash economy, in hills and jungles and on land that is increasingly sought after for its natural resources, have not shared the benefits of national growth at all. The journalist Mark Tully, who has been reporting on India for nearly 50 years, once said that the crocodile tears shed over India’s poor would flood the Ganges. Today, as inequality grows and some Indians become exceptionally rich, the arguments over the country’s poverty — its extent and depth and the best means of alleviating it — are fiercer than ever. Surjit Bhalla, who runs an economic research and asset management firm in New Delhi, has argued that the numbers of India’s least fortunate are massively exaggerated: In his analysis, a "conservative estimate" suggests the poverty level in India in 1999 was under 12 percent, and is surely even lower today. But a first-time visitor to India will notice at once that many people there are painfully poor, and that the suggestion that they number scarcely 1 in 10 of the population — or lower — is absurd.

Doubtful statistics are also used by those who dislike liberal economic policies and the effects of globalization. It is commonly claimed that 77 percent of Indians live on less than 20 rupees (about $0.50) a day. This figure has an interesting lineage, and first came to public notice in a report issued in 2007 by the left-wing economist Arjun Sengupta, which he claimed was based on data from India’s National Sample Survey Organisation (NSSO), an official body. On closer inspection, it would appear Sengupta used average monthly per capita consumer expenditure for the year 2004-05, which came out at 559 rupees for rural India and 1,052 rupees for urban India. But what commentators who widely circulate this data do not point out is that consumer expenditure figures collected by the NSSO have consistently been low — possibly because of under-reporting — and are very difficult to square with the fact that other measures of consumption in India have grown steadily over the past few years.

Using more current data, the Indian government’s Planning Commission announced a few weeks ago that in fact, 41.8 percent of the rural population and 25.7 percent of the urban population now live on 20 rupees a day or less — suggesting either that India’s poverty has been more than halved in just six years, or (more likely) that Sengupta’s original figure was wrong, and should never have been publicized without extensive qualification. But obtaining accurate data on poverty and interpreting it reasonably is a difficult task; an additional problem is that India’s state governments routinely overestimate their poverty levels in order to get more money from New Delhi.

In any case, even cautious figures suggest that a substantial portion of India’s population remains desperately poor. The basic argument about whether economic liberalization has been good or bad for India is today largely conducted outside the country. In India itself, the debate ran itself into the ground in the late 1990s, when it became apparent that growth rates were higher even than the reformers had expected. All major political parties are now in broad agreement that it would be a mistake to return to centralized, socialist planning; after all, back in the 1970s per capita GDP in India was growing more slowly than at any point in the preceding 100 years. The crucial question now is, how to narrow the gulf between the rich and the poor? The Indian government has made some progress with social programs in recent years, but is moving interminably slowly, and corruption and weak governance at the centre remain a pressing problem. In the short term there is no harm in countries like Britain continuing with their aid projects, but India has the money to fund its own poverty alleviation programs. Whether it will choose to do so, is another question.