The South Asia Channel

Why India’s Culture of Handouts Is So Harmful

A couple of years ago, I travelled through one of the most undeveloped places in India, and therefore the planet. It is a place where most transport is a bullock cart, a beige dust coats everything, and moisture feels impossible. Bundelkhand in the state of Uttar Pradesh - known for bandits and farmer suicides - feels forsaken by every last god.

I was there to see what development had come to this desperate corner of the country ahead of an upcoming state election. I was not impressed. Some local officials, taking advantage of the government's rural employment scheme, had decided to build a large pond. It meant paid work for the villagers and possible help with the frequent droughts. Sadly, no one checked whether the land could hold water. It couldn't. Their response was to get more money and build another pond down the road. It, too, failed. The village now boasts two massive holes.

There are no doubt places where India's rural employment scheme has worked brilliantly, building useful micro-projects and possibly keeping many families above the threshold of total desperation. In many places, however, it has not.

And in today's aspirational India, mere survival doesn't cut it anymore. During that visit, I followed the young scion of the Congress party, Rahul Gandhi, as he led his party to a catastrophic defeat in the state election. He looks set to repeat the trick on a national scale at the general election in April and May.

Part of the reason for the Congress party's failures of late is that its obsession with hand-outs - rural work programs or subsidies on food, fuel and fertilizer - have done to nothing to address the critical lack of opportunity for those who want to escape mere subsistence. In the meantime, these policies have also distorted prices, wrecked the environment and discouraged investment.

Meanwhile, growth has slowed and debts have soared. Even during the boom years of the late 2000s, few jobs were created. In the five years to 2010, India created just 2.7 million jobs - this in a country where 1 million people turn 18 every month.

Those numbers ought to worry every Indian politician, but strangely they are never mentioned - not even by election frontrunner Narendra Modi of the primary opposition Bharatiya Janata Party (BJP), supposedly the pro-business candidate.

Modi has achieved wild success merely by pointing out that he is not the Congress party. He paints himself as the former tea-boy-done-good who runs a well-managed state in Gujarat, in contrast to the privileged and corrupt dynasty of the ruling party. This has overshadowed his previous image as a rabid nationalist, blamed for inciting - or at least failing to control - anti-Muslim riots in his state in 2002.

Yet, what is most striking about Modi's policies is that they seem to be sung straight off the Congress hymn sheet: continued subsidies and more hand-outs. He focuses on what he will give his people - fiber-optic cables, universities, and bullet-trains - with little mention of how he will pay for it.

When Modi finally gave some insight into his economic policy in late February, there was precious little to chew on. Observers pounced upon his statement that "[Indians] do not have to be afraid of global challenges to trade" as evidence that he might - perhaps - be open to more foreign investment in the retail sector. He also called for a unified tax code. Ironically, both are Congress policies he vehemently opposed in the past.

On the question of those missing jobs - nothing. Like most Indian politicians, Modi seems unwilling to consider the solution that has worked for every other successful developing country in history: a large-scale manufacturing sector.

Indian manufacturing is currently dominated by tiny, off-the-radar workshops - the so-called informal sector. An unbelievable 85% of textiles workers are employed in firms of seven workers or less, compared with only 0.6% in China. India captured only 5% of the global growth in manufacturing exports from low-cost countries between 2001 and 2010, while China hoovered up 45%.

The biggest obstacle to change are India's insanely rigid labor laws that, among other things, mean that any firm with more than 100 workers requires government approval to fire a single worker. The chief result is not better protection for employees, but a dearth of large factories and a huge shadowy world of unregistered workers with no protections and no welfare.

Modi has so far avoided this subject, kicking labor law reform down to individual states. Unfortunately, the states have no interest in stirring the hornet's nest of reform when they can simply continue to administer development funds and enjoy the enormous accompanying kickbacks.

Across the political spectrum, a crippling condescension toward voters prevails. This style was perfected by Congress leader Sonia Gandhi, whose maternal devotion to the huddled masses was so great that she literally broke down in tears last year when sickness kept her from voting on more handouts for them.

Where does this attitude come from? Some see paternalism as a facet of the ruling class's elitism. Others point to the socialist legacy bequeathed by India's founders.

But perhaps good old political self-interest is more to the point. In 2004, the BJP suffered a shocking defeat after years of promoting big business through its "India Shining" campaign. The Congress party - which had only ever embraced reform when there was a gun to its head - retreated back into the welfarism of its past. And a chastened BJP - rather than focusing its attention on jobs and opportunities - followed suit.

This was a mistake. It was the BJP's pro-business reforms - not least the privatization of the IT sector - during its tenure up to 2004 that made possible record growth levels that ultimately paid for development programs. Without jobs and rapid growth, this progress is threatened.

The hope is that the rhetoric will change once the election and horse-trading with coalition partners is over. For now, Indian voters are being asked to make a leap of faith.

Eric Randolph is an Asia analyst and principal for Thesigers research and consultancy firm. He blogs at subcontinental.net.

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