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Democracy Sees Off Investors, For Now

Six years ago, Time magazine commented that India is an imperfect destination for investment, because "multiparty democracy handicaps it -- a communist government like China's doesn't have to worry about building consensus for economic policies." That observation has proved prescient. To the dismay of politicians and executives alike, Indians have stalled hundreds of billions of dollars worth of projects by refusing to surrender the necessary natural resources.

After India liberalized its economy in 1991, investment poured in to spur an unprecedented wave of industrialization. Dams rose, submerging villages; minerals were excavated, turning mountains into rubble and dust; and power plants belched toxic ash that smothered fertile fields. Every year, some 800 square kilometers of forests are being cleared for mining and other industries -- threatening the survival of even such emblematic species as the tiger. "Growth at any cost" has become the norm, says environmentalist Ashish Kothari, and the poor are paying the price.

The World Bank recently calculated that nearly a quarter of India's child mortality derives from environmental damage. The country now has the world's most toxic air and ranks 125th out of 132 countries in overall ecological indicators. Ironically -- given that it routinely funds such polluting projects as coal-fired power plants -- the World Bank also found that India is annually losing 5.7 percent of its GDP to environmental decay. The cost of liberalization is wiping out all the economic gain.

Close to three-quarters of Indians depend for their survival on the clean water, fruit, tubers, fish, firewood, and medicinal plants that they garner from the streams, meadows, coastlines and forests among which they live. "Dispossession amounts to pushing them off a platform on which they can stay alive," says Binayak Sen, a pioneering doctor who spent more than a year in jail for publicizing the plight of refugees created by such development.

When Europe industrialized in the 18th and 19th centuries, tens of millions of people were thrown off the land and ended up in the Americas and Australia, hastening the extermination of indigenous peoples there. No one knows how many people are being similarly evicted as India develops, but the figure could be as high as a million a year. The refugees have nowhere to go but the horrific slums in and around Mumbai and other metropolises, where mortality rates are even higher than in rural areas.

Unsurprisingly, the people are rejecting such damaging development. In the forests of central and eastern India, for instance, the ranks of Maoists have swelled in response to the state's attempts to clear the land for mining. In 2009, Prime Minister Manmohan Singh signaled a paramilitary initiative against the guerillas with the observation that the region's enormous mineral wealth made it imperative to get rid of Maoists and thereby improve "the climate for investment."

Thousands of indigenous peoples have already died in the ongoing conflict, and hundreds of thousands have been displaced. To the dismay of executives who pledged $145 billion of investment in this region, however, the bulk of the minerals remains underground. The "insurgency is hampering efforts to open up east India's mineral-rich forests to business," complained the Economist in 2010.

Elsewhere in India, creative nonviolent resistance, such as standing for weeks in neck-deep water as a new dam slowly but inexorably raises the water level, is the norm. Although the police and armed thugs have repeatedly broken up such protests, and arrested or killed the leaders, activists have publicized many of these assaults -- typically causing an outcry and a temporary halt to overt repression. A $12 billion iron and steel complex by South Korean giant Posco has been delayed in such manner for eight years.

Democracy poses limits to the use of overt violence on nonviolent protestors. "At any given time at least a hundred projects are stalled because of local resistance," says Kothari. In recent judgments, India's Supreme Court has also ruled against companies, halting iron ore mining because of rampant corruption and environmental damage, and, in a separate case, protecting a sacred mountain from a London-based miner, Vedanta.

Belatedly responding to popular anger, earlier this month India's parliament passed a bill that will increase compensation for displacement, and also require four-fifths of those affected by some projects to provide their consent before the government will use force to acquire the rest of the land required. In an article entitled "Indian Land Deform," the Wall Street Journal fumed that the bill will make it harder to invest while empowering "a long list of bureaucrats, not to mention neighbors, activists, sociologists, economists and environmentalists to nix land deals."

For the moment, however, politicians are more apprehensive of upcoming elections in 2014 than of investor sentiment. After that massive exercise is over, and no matter who wins, "I suspect there will be a major thrust" toward actualizing stalled projects, warns Kothari. The new land bill contains many loopholes that will enable the largest players to evade its restrictions.

Moreover, to fund their election campaigns -- which often involve literally buying votes -- the major political parties rely heavily on donations from the most powerful companies. These firms will have to pay back a foreign debt of $140 billion next year, in no small part by aggressive mining and land acquisition. Democracy may be granting Indians a reprieve, but not for long.