More development = fewer violent deaths in India

March 4, 2014

A recent report highlights the importance of economic development for India and indeed for all developing countries. It also shows why we should worry about the slow pace of reform in India and how that has hit growth rates.

Bank of America/Merrill Lynch analysts have picked up a report from the Institute for Conflict Management, a New Delhi-based think tank, showing that terrorism-linked deaths in India last year were 6 times lower than in 2001, a development they ascribe to the rapid growth the country enjoyed in this period. The graphic below shows the link:

ICM data showed 885 people died last year in various conflicts around India – from cross-border skirmishes, North Eastern insurgency, Kashmir violence and Maoist attacks – compared with 5,839 back in 2001. And U.S. state department data shows the average number of people killed per attack in India at BofA/ML at 0.4 compared to a 1.6 global average in 2012.

While geo-political risks in India remain pretty high, higher growth and living standards are resolving many internal disputes and making violence a less attractive option, BofA say:

A better standard of living is increasing the opportunity cost of terrorism, in our view….The spread of inclusive growth through the extension of Panchayati raj (local elected councils at district, block and village levels) also allows quicker redressal of local grievances.

BofA/ML also cites the mushrooming of microfinance institutions as a factor that offers relatively cheap credit to the rural poor seeking to open small businesses. A push to extend banking services into rural areas has also seen bank outlets in Indian villages increase by more than 200,000 in the past three years, BofA notes.

If this is indeed the case, the slowdown in annual Indian growth to under 5 percent – half the rate of the boom years -  is worrying.  Those looking on the bright side will point out that stuttering growth has recently galvanised the government into finally approving some vital reforms. But the gestation period of such projects tends to be long which means another growth boom may be some distance away. Other emerging economies can draw their lesson.

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