Naxalites drill away at India's wealth
By Robert M Cutler
MONTREAL - The murder by Naxalite insurgents of 35 civilians and police in a
landmine attack on a bus in the eastern Indian state of Chhattisgarh on Monday,
a month after another attack killed at least 75 policemen, barely registered
among investors seeking to tap into the country's burgeoning economy.
That is a luxury that may not last. Such attacks by the rebellious Maoists have
already prompted delays in multi-billion dollar industrial projects, and with
Finance Minister Pranab Mukherjee seeking to deliver annual economic growth of
up to 10% over the next decade, the importance of the backward but
resource-rich area that is home to Naxalite insurgencies will grow in harness
with economic expansion.
"I am quite confident that we'll come back to our trend growth rate of 9% to
10%,” Mukherjee said last week, according to a
Bloomberg report. "My worry is that I must sustain it over a period of next 10
years." India's US$1.2 trillion economy may expand 8.5% in the current fiscal
year, the report said.
The so-called Naxalite "Red Belt", in parts of which the insurgents have set up
a parallel government, has expanded since the last generally available map
dating from 2007 was published. It is now reported to run from Nepal through
Bihar, Jharkhand, Orissa, Chhattisgarh, and Madhya Pradesh, to parts of Andhra
Pradesh, Maharashtra, and Karnataka.
Up to 40% of India's land area, with one-third of the population, is subject to
some sort of Naxalite activity. This is especially so in the poor, eastern part
of the country, where post-independence elites in the west, to whom such rural
regions have been economically unimportant, have historically paid little
Much of the recent upsurge of violence can be traced to state government
attempts to industrialize agricultural land that was originally the subject of
land reform legislation and had been earmarked to be given over to the rural
poor. Violent repression of the movement has also done nothing to decrease its
The Naxalite movement has been compared with the Sendero Luminoso ("Shining
Path") movement of Peru, in that it appeared first in a poor, largely
indigenous city (Naxalbari, rather than Ayacucho) and spread across an
economically underdeveloped region, targeting landowners, commercial interests,
and security forces.
After various transformations since its first appearance in 1967 in Naxalbari,
the insurgency was given new life when, in 2004, two Maoist groupings united to
form the Communist Party of India (Maoist) - not to be confused with the
Communist Party of India (Marxist) which is often abbreviated as "CPI(M)."
In 2006, Prime Minister Manmohan Singh called it India’s "single biggest
internal security challenge". By law, security is still in the purview of the
Indian states themselves and is not a national responsibility; yet six months
ago New Delhi was compelled to announce a national anti-insurgent strategy.
In a pre-globalization era, such an insurgency could remain relatively
neglected without affecting national economic growth. However, Chhattisgarh,
where the most recent attack occurred and which is considered the center of the
insurgency, is a mineral-rich state; indeed, most of the Naxalite strongholds
are rich in iron ore and coal. The insurgents attack railroads and mining
operations, impeding transportation of natural resources to processing centers
for production of electricity and capital goods.
Their strength lies now also in regions where some of the biggest domestic and
foreign investments are planned. In West Bengal, security concerns have
compelled India's JSW Steel Ltd to delay work on a projected US$7 billion steel
plant, for example, and Tata Group has abandoned plans for a Nano car factory
Investors in the country's equity markets have so far taken little notice of
the insurgency. The BSE Sensex 30's meteoric vault from 3,000 in May 2003 to
21,000 in January 2008 testifies that the national and international economic
elites regard it as no more than a minor disturbance. Likewise the Sensex's
recent recovery to 18,000 at the beginning of this year from 8,000 in March
2009 indicates that the insurgency so far has had no consistent or impressive
effects on the national economy.
Other concerns, local and international, can also be attributed to more recent
wobbling in stock values. The Sensex has been oscillating within a trading
range between 15,404 and 17,970 for the last eight-and-a-half months, declining
to 16,657 as of early afternoon local time Wednesday. There is a consensus view
that emerging markets as a whole may decline between 5% and 10% in coming
months. A decline of 10% in the Sensex would take it down to 15,000, where the
chart shows support, but breaking out of its medium-term trading range to the
However, from the standpoint of wave analysis, any significant move below
15,400 level (especially below minor supports at 14,875 and 14,600) would be
cause for alarm. There is another support at 13,500 and then a still unfilled
gap-up that starts at 12,200.
Since the Indian equity markets barely reacted to the terrorist attacks in
Mumbai at the end of November 2008, Naxalite activity in itself will not, at
present levels, measurably impede national economic growth.
It will, instead, grind away at the economy like a dentist's drill. Investment
decisions will be delayed or reversed, resources may have to be sourced at
greater expense from other regions or overseas, and rising security costs will
add to the government's already mounting spending bills.
Home Minister P Chidambaram believes that air power is essential to defeat the
Naxalites and the chief ministers of all of the worst-affected states also want
air support against the rebels, according to a report in London-based The Times
on Tuesday. A campaign launched last year with about 58,000 federal
paramilitary troops was doomed to fail without such air support, the report
said, citing "unnamed officials and experts".
India's public debt rose to more than 50% of GDP through 2009, and combined
central and state debt amounts to some 80% of GDP, which should be raising red
flags for the Indian Government, according to Anthony Harrington, writing on
the QFinance.com web site. The fiscal deficit is at 6.8% of GDP, which Harrington
points out is a lot higher than the European Union has mandated for its member
India's annual Economic Survey has recommended that the government should look
to cap state and federal debt at no more than 68% of GDP by 2014/2015,
Meanwhile living costs are rising steeply, higher food costs in particular
hitting the poor. Implementation of planned reforms of the taxation system,
especially the privatization of state-owned companies, will only increase
popular unrest, as rates inevitably increase and user fees are imposed upon
consumers. The Naxalite's appeal can readily grow in such circumstances, and
their influence is well placed to spread.
1. To see the original article on QFinance.com - Online Financial Resource, click here.
Dr Robert M Cutler (http://www.robertcutler.org),
educated at the Massachusetts Institute of Technology and The University of
Michigan, has researched and taught at universities in the United States,
Canada, France, Switzerland, and Russia. Now senior research fellow in the
Institute of European, Russian and Eurasian Studies, Carleton University,
Canada, he also consults privately in a variety of fields.