Say goodbye to growth: Crumbling social harmony hinders economic progress

By most estimates, 2023 is going to be a year of slower growth. This is on the back of severe economic setbacks in the form of Covid-19 and the conflict in Ukraine, which have had the domino effect of spike in inflation, disrupted supply chains and triggering fears of an imminent energy shortfall. But the greater long-term threat to economic stability and growth in India is the increasing lack of social harmony—engineered rather than congenital.

Institution after institution, observer after observer has pointed out that development cannot be separated from internal peace; that’s because it’s the latter that creates an enabling environment for economic progress. This is true of all pillars of the economy, from a functioning legal system to contract enforcement and efficient markets to human capital. In its absence, societal structures break down, government services cannot be delivered effectively and markets are disrupted.

Peace leads to progress. We know this instinctively—the more peaceful the society the more prosperous it is. But I’m not sure if we give enough thought to understanding the economic cost of internal conflict. There are several examples of it across the world. For example, over the past decade, Brazil lost 5 per cent of GDP due to violence and crime while El Salvador lost 25 per cent.

A 2014 study showed that countries with fewer social conflicts and restrictions on freedom of religion did better in education, health, modernising technology, transport, markets, business, financial markets and labour efficiency. The study added that religious freedom also lowers corruption.

In India, freedom of religion is guaranteed by the Constitution. However, there is a wide chasm between this guarantee and the ground reality. Not only is the right to practice religion by minorities under constant pressure, there is active targeting of Muslim public figures, from actors to politicians. Under the Narendra Modi government, communalism has been normalised with Muslims often being asked to prove their patriotism and citizenship as well as accept being the targets of violent attacks. Dalits, too, have been the subject of much humiliation and violence.

The courts have proved to be utterly ineffective in reversing this trend while the legislature has either done nothing or watched mutely. This is convenient for the government as it seeks to draw attention away from its shocking failures in handling the Covid pandemic and its botched management of the economy. It has had limited or no answers to critical challenges such as climate change, poor healthcare delivery and untamed inflation.

Numbers don’t lie. According to one estimate, the economic cost of violence in 2021 was $646 billion—an amount that could have funded all its budget expenditures and welfare programmes with money left over. India is ranked a low 135 among 163 countries in the Global Peace Index. The economic cost of violence is as much as 6 per cent of our GDP. Other estimates are even higher. The Institute for Economics and Peace, based in Australia, calculated that violence cost the Indian economy $1,190.51 billion in 2017, which is 9 per cent of the GDP. That works out to $595.4 (just over Rs 49,000) per citizen.

There is also the question of foreign investment. A fissure-ridden society makes investors worry about its stability and its ability to generate long-term returns. More than one investment firm has expressed worry about rising social tensions and their impact on the economy.

Let’s take the lynchings of suspected cow smugglers and how it has hurt the leather industry. India wanted to increase leather exports to $9 billion by 2020 from $5.86 billion in 2015-16. However, an analysis by IndiaSpend in 2018 showed that leather exports shrank by 3 per cent in FY 2016-17 and by 1.3 per cent in the Q1 2017-18. Cow vigilantism played a huge role in this decline. In FY 2021-22, India exported leather and leather products worth $4.87 billion—way off the stated target.

Consider this, too: the leather industry generates massive employment—4.42 million people, mainly the poor, with roughly 30 per cent of them women.

There is a direct corelation between business and peace. In a 2008 study, the United Nations Global Compact found that 80 per cent of senior managers recorded the size of their markets growing and 79 per cent saw costs decreasing as peace increased there. So, peace is a key component of a healthy business environment.

In conflict-ridden communities, businesses are hurt due to lower consumption, frequent shutdowns, property damage, etc. This forces businesses to shut or move to more peaceful locations, pushing the people they leave behind into further unemployment, hunger and poverty.

So, internal peace is an economic necessity, one that India needs urgently, especially given the challenges of climate change, water scarcity and slowing global growth—all of which have the potential to exacerbate conflict and political instability. One example of this are the water riots in Bhopal in the past few months.

There’s little doubt that in a peaceful society, businesses are better able to pay competitive wages and have sustainable operations. Workers, in turn, have a better standard of living. This is a positive cycle, ensuring even greater profitability for businesses. Therefore, promoting internal harmony reduces poverty and leads to better delivery of social services.

When India was born, its cultural and religious diversity was seen as its foundation. Without it, the edifice of India will crumble and so will our economic future.

Ashraf Engineer is a journalist and hosts the All Indians Matter podcast