Wednesday, June 29th, 2022 18:09:35

Economic Implications

Updated: December 19, 2009 12:35 pm

While the economic impact may be small compared with India’s trillion-dollar economy, the insurgency and the sense that it is worsening, signals that India does not fully control its own territory. This would add risk significantly to companies mulling investments in affected areas, and worsen the overall investment climate. The Lalgarh incident worried the country’s third-largest steel producer, JSW Steel, which is setting up a $7-billion, 10-miliion tonne steel plant near Lalgarh. The effect of the Maoist insurgency has already taken its toll on business. In mineral-rich Orissa state, bauxite production at National Aluminium Co Ltd (NALCO) has fallen by 20 per cent since an April 2009 attack by Maoists in one of their mines. The company has now reduced the storage of explosives at its mines, fearing attacks from the rebels.

A recent special report from the Planning Commission, detailed the extent of the danger and the “ collective failure” in social and economic policy that caused it. The report comes after Prime Minister Manmohan Singh said in a candid [including] vital infrastructure so as to cripple transport and logistical capabilities and slow down any development. We cannot rest in peace until we have eliminated this virus.”

Why this alarm bell? One reason is the widening reach of the Naxalites. Today they operate in 30 per cent of India, up from 9 per cent in 2002. Almost 1,400 Indians were killed in Naxal violence in 2007, according to the Asian Center for Human Rights.

The other reason for sounding the alarm stems from the increasingly close proximity between the corporate world and the forest domain of the Naxalites. India’s emergence as a hot growth market depended at first on the tech outsourcing boom in Bangalore and elsewhere. Now the world is discovering the skill and productivity of India’s manufacturers as well. Meanwhile India’s affluent urban consumers have started buying autos, appliances, and homes, and they are demanding improvements in the country’s roads, bridges, and railroads. To stoke Indian manufacturing and satisfy consumers, the country needs cement, steel and electric power in record amounts. In steel alone, India almost has to double capacity from 60 million tonnes a year now to 110 million tonnes. There is a need for a suitable social and economic environment to meet this national challenge.

Instead there’s a collision with the Naxalites. India has lots of unmined iron ore and coal-the essential ingredients of steel and electric power. Anxious to revive their moribund economies, the poor but resource-rich states of eastern India have given mining and land rights to Indian and multinational companies. Yet these deposits lie mostly in territory where the Naxals operate. Chhattisgarh, a hotbed of Naxalite activity, has 23 per cent of India’s iron ore deposits and abundant coal. It has signed memoranda of understanding and other agreements worth billions with Tata Steel and Arcelor Mittal (MT), De Beers Consolidated Mines, BHP Billiton (BHP), and Rio Tinto (RTP). Other states also have similar deals. And US companies such as Caterpillar (CAT) want to sell equipment to the mining companies now digging in eastern India.

The appearance of mining crews, construction workers, and truckers in the forest has seriously alarmed the tribals who have lived in these regions from time immemorial. The tribals are a minority-about 85 million out of India’s population of over a billion. The Naxalites know the tribals well and have recruited from their ranks for decades.

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