It is notable that India does not have the “left vs right” or “capital vs labour” confrontation embedded in its political landscape. Political parties, with the exception of the ruling party, represent either people from a specific region (eg. the Shiv Sena or the DMK) or from a specific caste (eg. the Janata Dal or the BSP) or a religion (no names required). Whilst India does have leftist parties (most notably the CPI(M)), the Left has rarely been a force to reckon with on the national stage. Hence the grievances of the 350mn strong underclass do not seem to have a clear political outlet beyond the obvious hijacking of these grievances for caste or religion based vote banks.
However, over the past 30 years a disturbing pattern has become apparent in Central and Eastern India, two parts of the country which have not participated fully in the “India story” and in which 40% of India’s 1.1bn people live. This pattern of growing violence from Maoists or Naxalites has come in three broad phases:
Origins in the 1960s: led by two CPI(M) activists, sharecroppers in the village of Naxalbari in West Bengal sparked off a revolt against landlords in that state. This revolt soon spread to other parts of eastern India and was followed by a forceful crackdown by the authorities in the early 70s.
Consolidation in the 80s & 90s: after staying under the radar during the 70s, the Naxalites used the 80s and 90s to regroup and consolidate their strength. Arms were procured from neighbouring countries. Extensive rural networks were built as the movement gradually spread outside eastern Indian and into central and southern India.
Powerful re-emergence in the noughties: over the past decade, the Naxalites have re-emerged as a powerful rural anti-establishment force willing to use any means possible to overthrow the Government. The Indian state’s inability to foster sustainable rural development obviously plays into the hands of the Naxalites. Unsurprisingly, the PM has called Naxalism the “biggest single internal security challenge faced by India.”
Despite the confident rhetoric emerging from the Home Ministry at present, I expect Naxalism to gain further momentum over the next decade driven by:
The re-emergence of food grain inflation, currently running at double digits, which disproportionately hits the poor relative to the more affluent. The stagnation in Indian agriculture (rarely does the sector grow more than 2-3% p.a.) and its depressing impact on opportunities for and standards of living of the rural poor.
The rise in income inequality in India not just across the population but across states. Economists have repeatedly shown that the faster growing states such as Gujarat, Delhi and Haryana leaving the poorer states far behind.
The “demographic dividend” which will create a large scale youth unemployment problem in the slow growing central and eastern states as 120 million Indians join the labour force over the next 10 years.
Whilst in rural eastern and central India, this revolt by the underclass looks likely to take coalesce into the Naxalite movement, in urban India it is likely to turn into a law & order problem with eastern and central Indian cities increasingly being characterised by high crime (something that is already true in cities like Ranchi where denizens fear to go out after dark).
So why does any of this matter for investment professionals? Much of India’s iron ore, tin, coal, limestone, manages and bauxite comes from central and eastern India. As a result, corporates have either invested heavily in these regions or are planning to do so. My back-of-envelope totting up of the investment proposals I have seen centred on this region suggests that around $70bn is being lined up for this region with most of the capital being directed at power plants, steel plants, aluminium smelters and natural gas. Many of these projects are already running into problems (eg. POSCO, the Korean steel company, has given up in Orissa).
Whilst an escalation in the law & order problem in central and eastern India obviously creates jeopardises industrial investments, what such a scenario should gives succour to is the domestic private security and surveillance industry which is currently in its infancy. So if you know of promising listed plays in the security and surveillance space you might want to have a very close at.
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