Thursday, August 23, 2012


Disruptions leads to weak economic conditions

Internal peace and economic development share an uncanny correlation. But then, it is quite rare when a policy maker correlates these two discreet variables, while making plans for inclusive growth, whereas these conventional indicators are deeply inter mingled in our societal framework. Recently, both the Growth Domestic Product (GDP) of the nation and our ranking in the Global Peace Index (GPI) has gone down. And why not, with perpetual social and political turmoil, the economy has been on the brink. With more political and social turmoil, the economy is also seen experiencing tremors. Be it the latest Assam mayhem or the on-going naxal problems or the recent labour-corporation friction at Manesar – almost all these event had a strong impact on our economy.

The challenges India faces, in terms of threat of a peaceful existence by riots, are well known as modern India has never been a peaceful coexistence between communities and religious groups. Between 1950 and 1995 an estimated 1,186 separate riots have spooked the population killing approximately 7,052 individuals. However, it is being vetted that higher growth rates and satisfactory economic performance has an inverse relation with incidence of riots. In times of economic gloom it is to the advantage of politicians to stir communal tension which raise new specter of confrontation between religious groups. For example, the ultra-right wing majority communal groups have often blamed the minority community for India’s economic woes. Further, during economic downturn, with dead end opportunities, there is a tendency of greater competition between ethnic groups. In a cigarette factory in Jabalpur, which had largely been controlled by Muslims, competition between Hindus and Muslims led to widespread violence. In Aligarh, similar economic competition propelled Hindu businessmen to increase ferocity of attacks against Muslims in a politically charged tailspin. Th is was carried out so that Muslims are compelled to sell off their properties at low cost to the Hindus.

If we perform an empirical state-wise analysis, we find out what we have been advocating for. In the period 1981-1995, Punjab with 3.11 per cent growth rate and Haryana with 4.13 per cent had been some of the highest growth story in India – and it has been supplemented with lowest number of riots of 0 per cent. On the contrary, Bihar with a reasonably high riots average of 2.71 had an abysmal growth rate of 0.63 per cent. A seemingly anomaly to it is Maharashtra with a very high riot incidents of 8.14, was also being one of the highest growth states with 4.64 per cent SDP growth. However, its poor peace record is because of a single communal riot in 1992, while otherwise it had been largely peaceful. The same is true in the case of Gujarat. Therefore, even though in large periodicity of about 15 years one riot had caused dent in its peace record.

It gets far more important for our policy makers to consider peace keeping efforts as a vital part of economic growth. A riot or a violent turmoil creates negative externalities for the state and nation at large, thus decreasing the investor confidence and investment in the state. Even a small businessman would be able to explain the loss he/she faces because of one day shut down during these scenarios. Riots not only create one day economic loss but also leave the entire society and business paralyzed for weeks and even months and lingers in minds for a lifetime.


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