"If we can take opportunities to rural India, there's no reason why rural India would wish to come like lemmings to urban India". Mani Shankar Aiyar, Minister of Panchayati Raj and Youth Affairs and Sports of India

There are two types of poor in India: the millions packed into India's growing urban slums and the even greater number eking out life in its rural heartland. The conundrum the country faces is that improving the situation in the countryside will likely make matters worse in the city.

"What do migrants want?" asked Anand G. Mahindra, Vice-Chairman and Managing Director, Mahindra & Mahindra, India; Co-Chair of the India Economic Summit. "They want diversity of income, sanitation, drinking water, power, roads. But even when they get those, they will still want the life they see on their televisions. Human beings like to live in cities; they have done so for thousands of years".

It is no secret that India needs to make its tremendous economic growth more equitable, to spread it more fairly among society - not just wealth, but infrastructure and educational opportunities. Roughly one quarter of Indians live below the poverty line, and almost 70% of Indians live in rural areas, where desperate farmers too often find solace in suicide.

The rising discontent of these have-nots has already produced a political backlash. A radical Maoist insurrection, Naxalism, has spread through some states while, across the country, regional political parties are growing in strength, upsetting the dominance of national parties and forcing them to cobble together coalition governments - like the one now in power in New Delhi (see Figure 1).

While these new political parties offer an important voice for those disenfranchised or displaced by economic development, they often base their appeal on caste and the personality of their leader, making them divisive and raising concerns about corruption. "They can muster big crowds but they are perceived to be not very honourable", said Arun Jaitley, Member of Parliament and General Secretary, Bharatiya Janata Party, India.

Ben J. Verwaayen, Chief Executive Officer, BT, United Kingdom; Co-Chair of the India Economic Summit;
Mani Shankar Aiyar, Minister of Panchayati Raj and Youth Affairs and Sports of India; Anand G. Mahindra, Vice-Chairman
and Managing Director, Mahindra & Mahindra, India; Co-Chair of the India Economic Summit and Mohamed A. Alabbar,
Chairman, Emaar Properties, United Arab Emirates listen to Nik Gowing, Main Presenter, BBC World, United Kingdom

The proliferation of coalition governments that rely on consensus decision-making could also have a diminished ability to formulate and implement effective policies. "Coalition government has its own compulsions and its own limitations", said Vilasrao Deshmukh, Chief Minister of Maharashtra, India. "It can delay decisions".

To achieve a broader mandate and regain political momentum, national parties need to boost regional chapters to embrace local interests; likewise, regional parties need to develop more robust national agendas.

Achieving inclusive economic growth is a priority for India's current government. Its latest budget includes a 31% increase in spending on rural infrastructure - 15% of public infrastructure funds are expected to be allocated to rural irrigation (see Figure 2) - and broadens access by farmers to credit. In doing so, it is helping to plug a gaping hole in funding for connecting rural Indians to the mainstream economy.

The private sector is also making great strides through microfinance, providing rural development capital while freeing many rural people from the grip of moneylenders. Instead, microfinance offers the rural poor a way to leverage their own industry and thrift by popularizing not only debt but also savings accounts. "The bank account has become a status symbol in the villages", said M. R. Rao, Chief Operating Officer, SKS Microfinance, India.

To realize the potential microfinance has tapped, however, India needs greater deregulation. Existing rules, for example, prevent bankers from tying up with telecommunications companies to use established cellular customer networks to distribute financial services.

Palaniappan Chidambaram, Minister of Finance of India and Sunil Bharti Mittal, Chairman and Group Chief Executive Officer,
Bharti Enterprises; President, Confederation of Indian Industry (CII), India

Transformation - Sustainable City Development and Inclusive Urban Growth

Ajit Gulabchand, Chairman and Managing Director, Hindustan Construction Company, India, speaking at the SlimCity private session At a session on the new SlimCity initiative of the World Economic Forum, business leaders concluded that farreaching change is imperative in order for India's cities to achieve sustainable development and provide inclusive growth for its citizens. Accountability, coordination and resources were identified as the three core areas in need of transformation. Participants underlined the success of the Delhi Metro development as a widely recognized example of the overwhelming advantages of clear accountability in city governance and transparent, coordinated public sector project management. Participants highlighted the fact that India possesses world-class resources, but its economic and inclusive growth can only continue if leaders from the public and private sectors rise to the challenge of putting these resources in the hands of those who need them. The World Economic Forum's SlimCity initiative is a global partnership of leading city mayors and private sector board executives, supported by the World Bank, the International Energy Agency, UH-Habitat and ICLEI. The initiative provides a risk-free, dynamic, multistakeholder environment within which cities and the private sector can pursue the development of energy and resource efficiency in cities.

Bankers concede, however, that their industry is also guilty of holding back. Microfinance typically charges relatively high interest rates, yet default rates among micro-borrowers remain near zero, indicating what bankers say is excessive caution on the part of micro-lenders. Part of that caution, they say, stems from the fact that there is no credit bureau to keep track of rural borrowers, nor a reliable way - such as driving licenses or birth certificates - to even identify them. Some have called for the government to issue national voter registration cards.

Bankers also have an important role to play in filling the rural education gap, by teaching rural Indians the basics of finance. To be sure, education often serves as a politically correct panacea in debates about poverty relief, but this year's Summit broke from the platitudes by outlining practical areas where education can have an immediate impact. Improved vocational training was singled out as a critical necessity for India that would address its growing shortage of skilled trades workers while recognizing that a higher degree may not be a realistic aspiration for the bulk of the country's youth. Vocational training is an area, moreover, where companies can get more immediate returns on their investment, either by conducting their own training, financing vocational programmes or helping to develop curricula.

The good news for India is that its economy is largely driven by domestic demand as opposed to exports. The rural population, therefore, represents a critical source of new labour for India's services-led growth.

But solving the riddle of how to raise income levels in the countryside without accelerating the rush to the cities requires new thinking on what urbanization means. In short, convincing rural Indians not to move to big cities will require moving the city closer to them. "If we can take opportunities to rural India, there's no reason why rural India would wish to come like lemmings to urban India", said Mani Shankar Aiyar, Minister of Panchayati Raj and Youth Affairs and Sports of India.

Industries that rely on rural inputs - food processing, biofuel production and handicrafts - should move closer to their production centres. Doing so will encourage the creation of new urban centres, turning villages into towns, and towns into small cities. Technology can also be used to turn rural India into a service centre for urban India in the same way that India has become a service centre for the world. "The war for talent is such that we have hundreds of millions of people who cannot monetize their skills today because we haven't connected them", said Ben J. Verwaayen, Chief Executive Officer, BT, United Kingdom; Co-Chair of the India Economic Summit. "It's in everyone's interest that we unleash that capability and that talent".

Ultimately, it may take a more concerted push by government to make this shift out of the cities happen. Regulations and incentives may be needed to encourage companies to "ruralize". But it is clear that India can no longer afford to let investment and commerce remain confined within the city limits. "Rural and urban are not separate; both are connected, said Aiyar. "Until we see that, India will become prosperous and Indians will remain poor".

"What do migrants want? They want diversity of income, sanitation, drinking water, power, roads. But even when they get those, they will still want the life they see on their televisions. Human beings like to live in cities; they have done so for thousands of years".
Anand G. Mahindra, Vice-Chairman and Managing Director, Mahindra & Mahindra, India; Co-Chair of the India Economic Summit

"The war for talent is such that we have hundreds of millions of people who cannot monetize their skills today because we haven't connected them. It's in everyone's interest that we unleash that capability and that talent".
Ben J. Verwaayen, Chief Executive Officer, BT, United Kingdom; Co-Chair of the India Economic Summit