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Naxalites drill away at India's wealth

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.

May 20, 2010

Naxalites drill away at India's wealth
By Robert M Cutler

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 attention.

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 popularity.

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 at Singur.
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 downside.

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".

While 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, the fiscal deficit is at 6.8% of GDP, higher than what the European Union has mandated for its member countries. 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 Naxalites' appeal can readily grow in such circumstances, and their influence is well placed to spread.

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URL:  http://www.robertcutler.org/blog/2010/05/naxalites_drill_away_at_indias.html
First published in Asia Times Online, 20 May 2010.

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