Thursday, September 25, 2008

Tata Nano and paddy fields: Lewis dual sector model at stake in India

David Pilling argues that it is vital that more labor from low-productivity farm sector migrate to higher-productivity industry so that India achieves an economic growth rate that has power to reduce poverty and increase prosperity in a large scale. He draws out a recent day dichotomy: the tussle between Tata’s Nano factory in West Bengal and protests by farmers displaced from land where the factory is to being built. He argues that if there is to be large scale industrialization, then India better solve these problems and let the process of prosperity roll forward.

…As many as 600m people, or about 47 per cent of China’s population, live in cities, at least 100 of which have swelled to more than 1m inhabitants.

In India…of the 406m labour force in 2000, 78 per cent lived in rural areas against just 22 per cent in towns and cities. The structural transformation from low-productivity farm labour to higher-productivity industry has been painfully slow. Today, agriculture employs about 60 per cent of the workforce but accounts for a measly one-fifth of national output. The predominantly urban, “organised” sector produces 40 per cent of output with just 7 per cent of the workforce.

…India’s information technology and service sector, no matter how dynamic, simply cannot absorb enough labour. To truly shine, India will need millions, perhaps tens of millions, more manufacturing jobs.

…More fundamentally still, as the dispute over land in West Bengal shows, it is hard to engineer mass migration in a democracy. In contrast to 18th century Britain and 21st century China, the vote of a dispossessed Indian peasant is worth the same as that of a would-be industrialist. Collectively, it is worth more. “You have to hand it to Indian democracy,” says Mr Hasan. “It does give you a voice. But that makes it very difficult to negotiate change.”

It is really hard to solve these kind of problems because the poor farmers can easily vote out the party which takes decision in favor of industries trying to displace people from their land to make factories. Term it ironical or whatever, the reality is that this is democracy. The poor farmers have no choice. Same applies for the manufacturing industries because if they cannot get land, then they will not invest.

This is very tricky problem for the politicians. The leftist parties take advantage of these situations and win election on the back of popular slogans. Though low quality or even absence of education and healthcare are one of the roots of these problems, I don’t think they are as important as Pilling thinks in creating this kind of deadlock. A major problem lies in the century old caste system and the scourges associated with it. Remember, India is a very culturally, ethnically, and politically divided country. Let short, quick judgment not overshadow other important constraints!