Surprised? Welcome to India’s bubble economy. Under the bubble phenomenon, the dissonance between the country’s real economy and its financial sector has scaled dizzy heights. Growth has become more lopsided and unevenly distributed, always notorious in hierarchical India, it has worsened. Agriculture, central to people’s survival, has stagnated. And the structure of industry has become more skewed, with the information technology sector absorbing huge speculative investment while infrastructure decays. The term ‘growth’ hides more than it reveals in India. Similarly, the statistics add to growth negative contributions such as pollution, which alone is estimated to cost the economy 7 to 10 percent, or more than its annual growth rate.

As the economy registers an artificial boom, India’s savings and investment rate decrease by three percentage points and the government’s profligacy reaches new peaks. The combined fiscal deficit of the central government and the states now exceeds nine percent of GDP or the same level as the entire tax revenue of the central government. Each Indian is indebted through the government to the extent of 50 percent of his/her annual income. The government has become increasingly parasitical. Its spending upon itself exceeds its entire revenue income by 3.6 per cent of GDP which would be considered wholly unacceptable in most countries. Macro-economically India is back to the critical situation of 1991, which triggered severe neo-liberal restructuring. The fiscal deficit then reached an alarming 8.2 percent of GDP.

Income growth in rural areas where 70 percent Indians live averaged 3.1 percent in 1980 has sharply declined to 1.8 percent. Real wages of rural workers decreased in the previous year by more than two percent. Infant mortality rates are rising even in states such as Kerala and Maharashtra which have relatively good social indicators. But luxury consumption is booming within the upper crust. These contradictory economic features were further accentuated in the national budget two weeks earlier

The bubble economy has created the illusion of wealth and progress, first by concentrating high incomes in the hands of a small number; and secondly by hyping up the IT sector. Today, young graduates from management school command salaries as high as $120,000 a year. Such huge disposable incomes are being spent on luxury items, consumer goods and cars. Automobile sales have recently risen at 30 percent plus in a year. Following this class in its aspirations but with lower incomes are hundreds of thousands of people with a stake in TV entertainment and telecommunications who too are on a spending spree lubricated by liberal credit.

India’s information technology sector has burgeoned into a six billion dollar business which scripts now account for a third of total market capitalisation. Typically, their price earning ratio is 200 to 300, about ten times higher than the average. This can only be premised upon the new economy company’s future profits growingly steadily at 50 percent a year, an unrealistic assumption.

For the moment, this speculation acts like a self fulfilling prophecy. The sub-index of information technology scripts has risen 40 percent in the past two weeks while the prices of shares of bricks and mortar or old economy companies fallen by a similar magnitude. This growth cannot last. Sooner or later, the bubble will burst. The reality will then dawn on widespread deprivation, backwardness and persistence of regional and class disparities in India. Until then, however, the bubble will create and be inflated by illusions about shortcuts to development which bypass most people and their basic needs.