India’s Runaway ‘Growth’

Distortion, Disarticulation, and Exclusion

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


Nos. 44-46 Table of Contents Note to Readers Introduction I. Economics as Mechanics II. How Capitalism Emerged in Europe III. Colonial Rule: Setting the Pattern IV. India's Runaway 'Growth' 1. Missing Links 2. The External Stimulus and Its Implications 3. Private Corporate Sector-Led Growth and Exclusion 4. The Condition of the People 5. The Agrarian Impasse and Its Implications V. Unlocking the Productive Potential of the Entire Labour Force

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


Introduction India’s economy has seen rapid growth since 2003-04. The scale of this growth was not anticipated by many of the critics of the neoliberal economic policies.1 In particular the following features were unexpected: (i) GDP growth has been sustained for five years at high levels, and is widely predicted to continue at high rates well into the future. (ii) Rapid growth is no longer restricted, as in the past, to the services sector, but has extended to manufacturing. (iii) There have been unprecedented increases in the rates of savings and investment. Among the proponents of the current economic policies, these developments seem to prove that India is on its way to join the ‘developed world’, indeed, even become an ‘economic superpower’. At the same time, the proponents of the present policies have been unable to explain why, amid this extraordinary boom, the following have persisted: (i) Mass malnutrition worse than that of sub-Saharan Africa prevails, with average calorie and protein consumption actually declining over the period of liberalisation. (ii) The growth and quality of employment have been abysmal. (iii) Real wages are stagnant/declining in the economy as a whole. (iv) Agricultural investment and growth are stagnating/retrogressing. (v) There is a profound crisis of the small peasantry (highlighted by their suicides).

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


Thus the present conjuncture poses more sharply than ever the question of the pattern of growth, and the meaning of ‘development’. In this issue of Aspects, we wish to explore this question. In doing so, we must take account of the conflicting approaches to understanding the economy.

1. Aspects too has been guilty of wasting energy questioning the levels of GDP growth, a red herring, rather than focusing on the nature of the growth. (back)

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion
I. Economics as Mechanics “Faster growth is the answer to poverty”


The current economic policies are based on the current orthodoxy reigning among economists worldwide. This view, called ‘neoclassical economics’, argues that growth will automatically spread from the current boom sectors to the backward sectors, and that all that needs to be done is to accelerate growth. The Finance Minister concluded his 2007-08 Budget speech thus: “our human and gender development indices are low not because of high growth but because growth is not high enough.... As Dr. Muhammad Yunus, the Nobel laureate, said, ‘Faster growth rate is essential for faster reduction in poverty. There is no other trick to it.’” How is growth to be accelerated? The neoclassical economists claim that Government intervention is harmful. According to them, all that needs to be done is to ensure that nothing interferes with the incentives for individual gain. The focus should shift, then, from macro-economics to the micro-economic environment, the level at which individuals make decisions. Thus, in the name of accelerating growth, the supporters of this approach demand that various subsidies, supports, regulations and restrictions concerning the backward sectors be removed. For example, they demand that, in agriculture, official procurement of crops be ended, restrictions on private corporate procurement and contract agriculture be removed, ceilings on land holdings be removed, new seed technology be allowed entry and patent protection be strengthened for it, restrictions on agricultural import and export be removed, restrictions on domestic trade in agricultural commodities be removed, restrictions on commodities futures markets be scrapped, and so on. For industry, they demand that labour laws providing security to workers be relaxed, and that the remaining sectors under the public

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


sector be privatised or ‘opened up’ to private capital. Restraints on the entry of foreign capital into various sectors should be removed. Tariffs on imports should be reduced to very low levels. Such subsidies as remain, hidden or open, should be scrapped. All such measures, they say, stifle the incentives for individuals – the incentives for investors to invest, for workers to work harder or learn new skills, for farmers to switch to growing crops for which there is demand, and for the under-employed to shift to sectors in which employment is growing. Once all restraints are removed, they say, capital will flow to low-wage regions and under-invested sectors, and raise the productivity of labour in them, thus improving incomes of the people in those regions/sectors. In fact, they celebrate the growth that has been taking place in the last few years as proof of their theories. The Economic Survey 200708 proclaims: “Faster economic growth is... translating into more inclusive growth, both in terms of employment generation and poverty reduction.” Whenever there is a sign that GDP growth is flagging, they demand that yet more neo-liberal ‘reforms’ be carried out along the above lines. Neoclassical theory Behind such arguments lies a certain conception of the economy and society. In the seventeenth century Isaac Newton discovered the laws of the action of forces upon material bodies, known as classical mechanics.1 Just as Newton’s mechanics spell out the laws of motion of objects, the reigning school of economics, known as neoclassical economics, imitates Newtonian mechanics to analyze human society.2 It sees each participant in the economy – each worker, peasant, big landowner, capitalist, and so on – as an independent actor. Each one acts on his/her own, striving to get the greatest possible satisfaction (termed his/her ‘utility’). Neoclassical theory claims human beings’ actions throughout history have been (and will continue to be) driven by individual, selfish gain. Yet the sum of their strivings, pushing and

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


pulling in different directions, brings about an ‘equilibrium’, a state of balance, which yields the greatest sum of ‘utility’ possible in the given conditions. (What exactly ‘utility’ is, and how, if at all, it is to be compared, measured or added up, was never meaningfully defined.) In this conception, every participant in the economy is, in a sense, a trader, and the forces driving the actions of all these individuals are fundamentally similar. It portrays each individual – worker, land-owner, industrialist – as possessing some resource: land, capital, or labour, which it calls ‘factors of production’. The worker hires out his labour; the landowner rents out his land; the capitalist gives the use of his capital. Each does so for a price (the price of hiring labour is wages; the price of hiring land is rent; and the price of hiring capital is the rate of interest). That price, according to the reigning theory, is determined by supply and demand in each market. According to the proportions in which these three factors – land, labour, and capital – are available in a particular society, their prices automaticallyand simultaneouslysettle at some equilibrium which makes full use of all of them. Where capital is scarce and labour plentiful, interest rates would be high and wages low. In that case, it would be attractive to capitalists to employ less capital-intensive methods of production, that is, hire workers rather than buy machines. If any of the three resources lay idle, its price would fall till it was fully absorbed. Full employment is a central assumption of this theory. However, say the neoclassicals, if prices are kept artificially low or high by outside intervention, all factors might not be employed fully: the gears become sticky, as it were, preventing the machine of the economy from running smoothly. For example, if wages were prevented from falling to ‘equilibrium’ level by minimum wage laws, or by trade union action, capitalists would tend to buy machines that replace labour; and so some labour looking for work would remain unemployed. Thus unemployment, according to this theory, is the result of wages not being allowed to sink low enough.3

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


Price plays the key role in this theory. Price not only signals how much
to use of each ‘factor of production’, but also how much to produce of each commodity. Every consumer, whether worker, peasant, capitalist, or landlord, whatever his/her income, is driven by the same considerations. Each consumer chooses what to spend on in a way that gives him/her the greatest possible satisfaction (‘utility’). This sends the required signal to the producer on what and how much to produce. When demand for a commodity grows, some consumers would be willing to pay more for it, and its price would rise. The higher price makes it profitable for producers to produce more of the good, and its production rises (with the increased supply, the price then falls, and further adjustments take place up and down till it settles at some equilibrium level). Again, any ‘interference’ with market forces is counter-productive: If the price of a good is kept artificially low (eg by price controls), it would deter capitalists from investing in producing that good, and hence it would remain in short supply.

This theory assumes that producers can shift their production seamlessly from one commodity to another. Each producer can adjust the quantity he/she produces. Each consumer too can shift his/her purchases from a given product to a substitute. No producer or consumer (or group of producers/consumers) can directly influence prices, since there is a large number of producers and consumers (if you price your goods higher than others, you will lose customers; if you price them lower, so will others, and you will not gain customers, but lose profits). Only when individuals increase or decrease their production or purchases do they affect prices, indirectly, by changing supply or demand. That is to say, perfect competition is assumed by the theory. Nor could there ever be a shortage of demand in relation to production. The orthodox theory assumes that all that is left after consumption goes directly or indirectly toward investment. So the whole of income creates demand for what is produced.

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


The beauty of this theory is that, given the different quantities of land, capital and labour individuals possess, and their demand for different commodities, the laws of supply and demand work to deliver full employment and the maximum ‘utility’ possible for consumers in the circumstances automatically. If a change takes place in the conditions – for example, if more land, or labour, or capital, becomes available – the system automatically adjusts its mix of the three to absorb fully all of them. Like a pendulum which, when pushed, rocks back and forth but ultimately comes to rest on its own, the equilibrium, when disturbed, gets restored automatically. Some aspects of classical theory appeal to us because they correspond to ‘commonsense’. We all know that if something becomes scarce its price goes up. And we also easily accept the notion that people are fundamentally motivated by the desire for individual gain, and that this cannot be changed; after all, is that not what we see around us every day? The obvious fact is that this theory serves to justify capitalism. It provides a justification for profit and rent – these are presented as just the prices of hiring capital and land. (The problem of where the capitalist’s capital come from is not answered; it is assumed that he was thrifty, and saved it up.) And at any rate, whatever the distribution of wealth, unfettered capitalism is shown to maximise the use of resources of society; it maximises utility (whatever that means) in society; every participant in the economy makes individual, voluntary decisions – about how much to work, how to spend, and so on. Innate, immutable human nature (which, in its view, is greedy and selfish) is not suppressed, but harnessed; no section is oppressed, but a harmony of interests is automatically achieved. Any attempt to run counter to this system harms the interest of the whole of society.

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion
Questioning this economic orthodoxy


With the onset of the Great Depression in 1929, certain economists (the best known among whom was Keynes) began questioning parts of the above theory. They showed how the system does not automatically create demand for the whole of production, or bring about an equilibrium in which there is full employment; rather, it spontaneously tends to break down. When for some reason capitalists do not anticipate enough demand in relation to production, they stop investing, and cut production. That in turn lowers demand further, making investment even more unattractive to them. And so the economy sinks to a level at which there is large unemployment and unused capacity. The insight of these economists undermined the entire structure of neoclassical economics. For now it was clear prices don’t play the magic balancing role accorded to them in neoclassical theory. Contemporary capitalists don’t keep cutting prices of their products till they are able to sell all they can produce, irrespective of whether or not they make a profit. Instead, they prefer to cut production. Capitalists who are already saddled with excess capacity don’t borrow money, even if the price of capital (i.e. the rate of interest) falls to very low levels. Moreover, a fall in the ‘price of labour’ (the general level of wages), far from making investment more attractive to capitalists, reduces aggregate demand, which makes investment less attractive, dragging the economy down further. All this would suggest that in the present era the underlying tendency of capitalist economies is towards stagnation and failure to realize productive potential. However, the situation of underdeveloped economies, like India’s, has a further dimension. The manner in which production is organised – the social and economic order under which production takes place – itself does not permit even an approach to full employment.4

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


The Indian economy has been deregulated over the last 15 years, labour laws have been given a de facto burial, and various sectors have been opened up to, or handed over to, private capital. If the prevailing economic theory were correct, one ought to have witnessed a more even spread of income growth and a steady rise in employment. Instead, the gap between the growth rates of different regions has grown; the gap between the growth rates of different sectors of the economy too has grown; the rate of employment growth has slowed, resulting in massive growth of unemployment; and employment in the organised sector, where wages and conditions meet some minimum norms, is actually falling. Inequality in incomes and wealth has grown. And the bulk of the workforce remains in agriculture, the sector that is stagnant or retrogressing. Thus the currently prevailing economic theory does not help us to understand the current state of affairs – boom on one side, and destitution and retrogression on the other. So this orthodox theory cannot help us change it, either. In fact, such change is the main concern of the vast majority of people. The view of classical political economy Before the rise of neoclassical economics in the late 19th century, the dominant stream was what is now called ‘classical political economy’. Its founders, stalwarts of the capitalist system, are now cited in textbooks for those aspects of their thinking which were later adopted by neoclassical economics. Adam Smith is cited for his belief that each person had a propensity to trade; that in the pursuit of selfish gain each person would advance the common good, “as if led by an invisible hand”; and that State intervention could only harm the natural harmony of social interests that arose from free competition. David Ricardo is cited for his theory showing how trade between two countries benefited both. However, important questions explored by them were cast aside by neoclassical economics.

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


In the work of Smith and Ricardo, the participants in the economy do not appear as independent, atomistic actors, but as classes – workers, landowners, capitalists – characterised by their roles in relation to production. They tried to work out the principles by which income created in the course of production is distributed among these three classes in the form of wages, rent, and profit. The discipline of political economy developed in a period of rapid change – the era of the rise of capitalism in Europe. Thus Smith and Ricardo were interested to find the driving force of development. They located it in the production of a surplus over the consumption of the labourer, and the accumulation of the surplus in the form of the growth of productive capacity. In the course of their investigations, it emerged that the interests of the three classes (workers, landowners, capitalists) are in conflict: The surplus over the consumption of the labourers is distributed among the other two classes (i.e., landowners and capitalists). Of course, in their view, the capitalist’s share of the surplus, i.e., profit, benefits society: for it goes toward accumulation, expanding the productive capacity – unlike the landlord’s share. Smith termed various sections other than labourers and capitalists as “unproductive” (he included among “unproductive labourers” the king, the armed forces, churchmen and lawyers). Ricardo was concerned with preventing a rise in either wages or rents, which would lead to a decline in profit and thus development. Thus, in their approach, struggle between classes played an important role in shaping economic processes. Marx developed aspects from Smith and Ricardo’s thought, while rejecting other aspects, in creating a comprehensive and consistent analytic system. His work marks the culmination of classical political economy. At the same time, he introduced aspects which went far beyond its frame.5

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


Historical approach Neoclassical theory sees the economy as a snapshot – in which supply and demand in all markets simultaneously and instantly arrive at equilibrium. Each successive change is a new snapshot, a new equilibrium. By contrast, Marx viewed the economy and society as a process. This approach allowed him to analyse development in the economy. It follows from this approach that in order to understand the present, we must trace the process back – that is, look at history. In Marx’s historical approach, classes in each society are stamped by their specific history. It is the character and strength of the contending classes that not only shape society itself, but determine that society’s place in the world economy. Only armed with this approach can we understand the vast diversities of the world: how some countries developed first, and colonised or otherwise dominated others; or how some countries today have developed so highly, while the bulk of them, containing the vast majority of the world’s population, remain underdeveloped and in misery. The source of wealth Neoclassical theory, as we saw, begins and ends with the market. Classical political economy too gave great importance to the role of market forces and the operation of supply and demand; but its account centred on the sphere of production. Drawing on the analysis of his predecessors, but taking it further, Marx showed that the whole of ‘civilized society’ rests on the surplus created by the working people in the course of production. The manner in which that surplus is generated, the level of the surplus, how it is distributed among different classes, how much of the surplus is accumulated (i.e., re-

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


invested), and in what manner it is accumulated – these give us the key to understanding the economy. Crucially, classical political economy located the source of society’s wealth in human beings’ interaction with nature in the form of labour.6 The wealth of a nation is measured by how productive its labour is, and what proportion of its labour force is employed in productive labour. Whereas in the currently dominant theory, the wealth of a nation is measured by how much capital a country has accumulated and production per unit of capital. By this measure, a nation grows wealthy by carrying out large investments and using the latest technology, even if this involves keeping a large proportion of its labour force unemployed or under-employed or engaged in work that does not yield it a subsistence. The approach of classical political economy implies that such a deployment of the labour force is a suppression of the nation’s potential wealth. In neoclassical theory, markets operate on their own; State intervention is represented only as a harmful phenomenon, preventing the markets from ‘clearing’ and arriving at equilibrium.7 And the use of coercion is missing in its account; indeed, it claims there is no need of coercion in a free market; in a free market, by definition, exchange must be of equivalents. By contrast, Marx and his followers pointed out that under exploitative societies before capitalism, such as slave society and feudalism, extra-economic coercion was a necessary part of surplus extraction: slaves and serfs toiled for the ruling classes of their times because laws, traditions and armed force compelled them to do so. No doubt, in capitalist society it is principally economic coercion that compels the worker to labour (he/she needs to labour in order to eat); but the use of organised force, and its highest form, the State, is essential to the operation of the social and economic order. If the workers set their hands on the capitalist’s private property (which after all has been created by the workers’ labour), they face the armed force of the State. (Indeed, they face it even when trying to

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


reduce the extent of surplus-extraction by fighting for higher wages and better conditions of labour – for example, the use of police against striking workers.) All this can be understood in the Marxist framework. And even the State’s own economic activity – its taxes, its expenditures and subsidies, its production of goods and services – can be understood with the class analysis of Marxism. Study of the social-economic formation Finally, neoclassical theory does not take note of the distinct social and economic relations within different societies; it merely talks of ‘advanced’ and ‘backward’ economies. In its view, the difference between the two is merely quantitative: the backward economy has less capital (for example, less industry). As the backward economy develops, it will eventually reach the condition of the advanced economies today. They believe that contact (in the form of free trade and investment) between the advanced and backward economies accelerates the development of the latter, benefiting both in the process. The increasing wealth of one economy (or of a class within an economy) will eventually percolate to the rest; there is no relation between the wealth of some and the poverty of the rest. Evidently, in such a framework it is impossible to understand why some countries took the trouble to colonise others, and why, centuries later, the gulf between the colonisers and the once-colonised persists in various forms. By contrast, Marx uncovered the character of different stages of social development, and further looked at the specific historical path each society has travelled. Later Marxists extended this to understand the phenomena of colonialism and its development into latter-day imperialism. With the Marxist approach, we can understand how social institutions like caste, race, and gender developed, and in turn their role in shaping particular patterns of economic development. In sum, Marxism does not make a separation between economics and sociology: both are aspects of study of the social-economic formation.

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


Amid the confusing processes we are now witnessing in the Indian economy, the neoclassical approach cannot explain the strange pattern of growth we are witnessing today. We all the more need the class, surplus-based and historical approach of political economy. Indeed, in order to understand the historical process by which the Indian economy has developed, we need to look, by contrast, at the process by which capitalism developed in Europe. Though this is a lengthy detour, the reason for our taking it will become evident when we return to look at Indian society.

1. It was later superseded by quantum mechanics. (back) 2. See Krishna Bharadwaj, On Some Questions of Method in the Analysis of Social Change, 1980. (back) 3. As wages sink, not only would capitalists hire more workers, but some workers would no longer find wages attractive compensation for the pain of working, and would voluntarily choose ‘leisure’ over work. (back) 4. What the government terms the ‘unemployment rate’ in India refers only to open unemployment. A much larger number of persons are under-employed – they do not have enough work, and whatever they occupy themselves with does not generate enough for their subsistence. And a large number of persons suffer disguised unemployment: they are not counted as unemployed because they are not looking for jobs, though they would be looking if they had any hope of getting a job. These two categories are larger than the official figure of unemployed. The total of the three categories – unemployed, underemployed, and disguised unemployed – is larger than the figure of those we can properly consider employed. (back) 5. We are not describing here Marx’s entire system, merely a few aspects relevant for this article. (back)

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


6. Nature is “the primary source of all instruments and subjects of labour”, that which labour works with and upon. (back) 7. For example, by enacting a minimum wage law which prevents wages from sinking low enough to be attractive to capitalists to start hiring. (back)

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion
II. How Capitalism Emerged in Europe


What capitalism is, and how it emerged in Europe over the course of several centuries, is a vast and complex subject. But in order to contrast that process with what occurred in India, it is useful to mention a few aspects. (A warning: we have not presented developments in chronological order, since the aim is to describe processes.) Some readers might find this a tedious digression, and others might find it over-simplified. Nevertheless, our reason for mentioning these aspects will become clear later, as we describe the pattern of development in India. Class struggle within feudal society propelled social development Capitalism in Europe was preceded by feudalism. Under feudalism, land was overwhelmingly the main means of production. Land was owned by feudal lords, and a large number of peasants bound to the land worked it in small farms. There was also a smaller number of artisans, who owned their meagre means of production. The surplus product of these peasants and artisans, the direct producers, was extracted by law, custom and force by feudal lords. The form in which the surplus was extracted ranged, depending on place and time, from serfdom with forced labour to the point of mere payment of tribute (in kind or cash). Secure in a stagnant society, these lords had little interest in improving technique and expanding output, which grew, at best, very slowly. The basic conflict in feudal society, the conflict that propelled society forward, was between these direct producers and the landowning lords. In order to maintain their class power, the feudal lords tried to maximise the rent they extracted from the peasants.1 The peasants struggled in various ways to end, or at least curtail, this extraction of the surplus, sometimes by open revolt, sometimes by fleeing the land.

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


In the course of these struggles many peasants were able to relax the stranglehold of the lords, to keep some surplus for themselves, and to improve and extend their cultivation. Additionally some artisans and merchants became wealthy enough to buy land in their own right, breaking the lords’ monopoly on land ownership. And so another process began: some producers improved their production faster than others, and were able to accumulate some capital within the petty mode of production itself; and over time there developed a class of relatively prosperous farmers alongside impoverished peasants. This polarisation helped lay the basis for the wage labour that would be needed under capitalism. Growth of merchant capital; decline of the old order Over the centuries of feudal society, as the surplus grew to some extent, trade also grew. Around that trade grew towns where merchants enjoyed some political power. These merchants chafed under certain feudal restrictions and irrationalities. Since trade suffered under the multiple authorities and taxes of various feudal lords, it was in the interest of the merchants to promote a strong central nation-state, as developed from the 15th century.2 Yet the merchants were hardly an anti-feudal force: they fed off the declining feudal order and prospered under it, enjoying official monopolies and high margins. Merchant capital did not lead to industrial capital through its own development. Nevertheless, the money power of the towns’ well-to-do, the relative political freedom of the towns, and the contact with ideas from distant lands (such as the vibrant Arab civilizations), helped germinate far-reaching changes in religious doctrines and philosophy, mathematics and science. On the one hand religious movements, known as the Protestant Reformation, arose against the authority of the Catholic Church (which, located in Rome, was itself a great feudal landlord throughout Europe, irksome to rising nation-states like England). Even more radical was the revolution in mathematics, science

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


and philosophy brought about by Francis Bacon, Copernicus, Galileo, Descartes, Leibniz and Newton: now men learnt that the universe did not revolve around the earth, rather the earth revolved around the sun, and the laws governing its motion were discovered and propagated. The associated change in the world-view of the intelligentsia has been termed the Enlightenment: in the new ideology, the force of human Reason now unseated established authority, such as the Church and the King. The State itself was now no longer seen as God-given, but the product of Man, a ‘social contract’ among men for their benefit. That implied that if the State were not functioning for their benefit, it was justified to overthrow it and replace it with a new one. While the broad masses of people, who bore the burden of the feudal order on their backs, had neither the education nor the opportunity to study all these theories, elements of such thought filtered down to them. When the bourgeoisie seized power from the feudal class, it was generally a violent affair in which the bourgeoisie needed the help of the masses, and so the masses were stirred up with slogans of liberation. Thus it was that the British waged a civil war and eventually chopped off the head of their King in 1649; and the French in 1789 began a far more profound revolution, not only decapitating their royalty but sweeping away feudalism much more comprehensively. The French revolution declared “liberty, equality, fraternity” as its motto. The creation of the working class, the rise of capitalism However, the bourgeoisie used the struggle of the masses against the feudal order not to put the masses in power, but in order to seize power for themselves. With the rise of capitalism the fate of the labouring poor was to be dispossessed, and have nothing to live by but by selling their power to labour. In England, as forward-looking landlords saw money to be made in farming in the new commercial way, they got around the feudal restrictions which prevented land changing hands, and ousted their numerous tenants, hiring a much smaller

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


number of landless labourers as wage labour. Moreover, small holders in economic distress could be got to sell their land cheap. And, eager to supply the growing market for wool, budding agricultural capitalists seized and enclosed the once-common lands of the village as their private pasture for their sheep, impoverishing and uprooting local peasants. These terrible upheavals were essential to the growth of industrial capitalism: First, the improved methods of agriculture introduced on consolidated, larger farms by the profit-oriented landowners multiplied output and made it possible to feed a much larger workforce outside agriculture; secondly, the huge numbers of peasants thus ousted from agriculture added greatly to the workforce available for manufacturing goods. Under feudalism, most household requirements – shoes, clothes, tools, furniture – were made at home. A limited number of goods were produced for the market by artisans/craftsmen employing, say, two or three men, working with their own tools and raw materials. But as trade grew, merchants, seeking to increase production, began supplying materials and purchasing the finished goods from the craftsmen; the latter still owned their own tools, but they largely lost their independence and were now working for the merchant. However, what definitively marked the emergence of capitalism was not simply production for the market, but the system in which all the means of production – the tools/machines, the raw materials, and the location – belonged to the capitalist,3 and the labourer had nothing to sell but his/her own labour power; labour power had itself become a commodity bought and sold on the market. Feudalism had needed the use of custom, law and force to extract the surplus from the producers, who possessed plots of land, or artisans’ tools/equipment, but under capitalism it was no longer necessary to rely on such noneconomic methods. The worker had the choice of working for the capitalist or starving. Surplus extraction now was carried out by the impersonal laws of the market.

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


The new capitalists demanded, and got, the abolition of monopolies and privileges in trade and industry on which merchant capital had fattened under feudalism, and thus established free competition at home. Primitive accumulation; the protection and acquiring of markets Setting up capitalist enterprises would require considerable investments; where did the initial sums come from? The religious sects promoted by the capitalists, such as Puritanism, preached that capital was accumulated by virtuous thrift (and some latter-day neoclassical economists preach much the same; they call the return on capital, for example, the “reward for waiting”). But in fact the initial capital was got largely by various types of plunder and forced labour. We have already mentioned the measures which ousted and destituted the peasants. Add to this the plunder of the territories overseas, the slave trade, and the use of slave labour in the colonies – all justified by the development of a racist ideology and backed by the European state powers. Marx described one aspect of what he called the “primitive (or primary) accumulation of capital” in a famous passage: The discovery of gold and silver in America, the extirpation, enslavement and entombment in mines of the aboriginal population, the beginning of the conquest and looting of the East Indies, the turning of Africa into a warren for the commercial hunting of blackskins, signalise the rosy dawn of the era of capitalist production. These idyllic proceedings are the chief moments of primitive accumulation.4 England, for example, generated huge trade deficits with its colonies (that is, it imported more than it exported to them), and in effect gave nothing to the colonies in exchange; it could do this only because it exercised military and extra-economic power over them. These amounted to giant, unrequited transfers. Even taking only England’s unrequited trade deficits with the West Indies and India, total investment in England was raised by between two-thirds to over four-

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


fifths by these transfers during 1770-1820 – the very period of the ‘Industrial Revolution’ in England.5 Apart from the initial capital, capitalists also needed to be assured of a market. While the new capitalists established free competition at home, they were happy to use State intervention against external competition. Once again the nation-state came in handy to capitalism. Large imports of cotton textiles from India not only threatened the market of English woollens manufacturers, but showed how profitable manufacture of cotton textiles in England could be – if only it could protect itself against imports of superior Indian cloth. And so, at the start of the 18th century, England passed laws banning imports of cotton goods, and even the wearing of such imported goods. Meanwhile, with the help of its military might, it opened up foreign markets. Not until the mid-19th century, when Britain was overwhelmingly the leading industrial power worldwide, did it dismantle protection and begin to champion ‘free trade’ – till it faced new challengers by the end of the century, whereupon it returned to protectionism. Industrial Revolution While productive forces developed to some extent before the bourgeois seizure of power (with the 17th century Civil War in England, or the French Revolution beginning in 1789), that seizure of power preceded the really dramatic development of productive forces. In England, (i) the creation of a large uprooted labour force (assuring capitalists a steady supply of workers at low wages even as production grew); (ii) the pillage from the colonies and the grabbing of the commons; and (iii) the protection of the domestic market and the forcible prising open of foreign markets, combined to create conditions for new technology. It was in the 18th century, and particularly after 1760, that the famous series of innovations began that are now termed the Industrial Revolution: the flying shuttle that increased the speed of weaving and the widths of cloths, and the

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powerloom that increased that speed further; the spinning jenny, water frame and mule that successively increased the speed and quality of spinning; and the steam engine, that was first applied in a cotton mill in 1785 and to a railroad in 1804. The factory system reorganized work, with much greater division of labour, supervision of work and specialization of function. Where land was overwhelmingly the main means of production under feudalism, under capitalism, the main means of production became industry. Massive expansions followed in the coal, iron and railroad industries, and thereafter in every sphere: “for the first time in human history, the shackles were taken off the productive power of human societies, which henceforth became capable of the constant, rapid and up to the present limitless multiplication of men, goods, and services.”6 So abnormal was the rate of change “as radically to transform men’s ideas about society from a more or less static conception of a world where from generation to generation men were destined to remain in the station in life to which they had been appointed at birth, and where departure from tradition was contrary to nature, into a conception of progress as a way of life and of continual improvement as the normal state of any healthy society.”7 However, it is mistaken to credit this transformation merely to new technology: “industrial inventions are social products in the sense that... the questions that are posed to the inventor’s mind as well as the materials for his projects are shaped by the social and economic circumstances and needs of the time.” Some innovations had to wait to be implemented till economic and social circumstances were favourable: for example, the smelting of iron with coal was probably discovered in 1620, but it was only a century later that it was put to successful use.8 Nor was innovation mainly a matter of scientific genius: “the practical problem of smelting with coal... was solved before the chemistry of metallic compounds was properly understood. The problems these men of industry and invention put to themselves were formulated, not a priori, but out of the fullness of their own experience.... [T]he qualities and experience needed for successful

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synthesis and application are often those of an industrial organizer rather than of a laboratory worker.”9 Innovation now became a compulsion: Each capitalist was driven to keep increasing the productivity of labour, failing which he would be swallowed by his competitors. Capital not merely reproduces itself, but it must do so on an expanded scale. The purpose of production under capitalism is to accumulate more capital. (Marx further foresaw that in this process the large number of small firms would be reduced to a handful by the action of the inherent laws of capitalistic production itself, by the centralisation of capital. “One capitalist always kills many.”10 But monopoly capital only emerged after an extended period of unfettered competition.) Capitalists of humble origin; competitive markets; technology easy to diffuse While the wealthy merchants financed these new enterprises, they were not the main agents of this change: “the personnel which captained the new factory industry and took the initiative in its expansion was largely of humble origin, coming from the ranks of former master craftsmen or yeomen farmers with a small capital which they increased by going into partnership with more substantial merchants. They brought with them the rough vigour and the boundless ambition of the small rural bourgeoisie; and they were more inclined than those who had spent their time in the counting-house or the market to be aware of the detail of the production process, and so to be alive to the possibilities of the new technique and the successful handling of it. Among the new men were master clock-makers, hatters, shoemakers and weavers, as well as farmers and tradesmen.”11 At this stage of capitalism’s growth, the number of capitalist enterprises was large, and each firm was relatively small, so markets were competitive. The technological advances were still at a level where they could be easily diffused, and could not be monopolized by a

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few firms; these advances were soon spread to the Continent – despite attempts by Britain to the contrary – by export of British machinery and British skilled workers. Belgium, France, Germany and the U.S. all developed with the help of British know-how.12 Massive shift of workforce to industry One might imagine that, since innovations like the spinning-jenny and the powerloom meant that the same amount of production could be carried out with far fewer workers, they would reduce the size of the working class. No doubt, such innovations ensured the existence of an army of unemployed workers, so that wages did not rise to the point where they hurt profits. But they gave so great a boost to investment in a whole range of industries (machinery, coal, iron) within Britain that they resulted in a net increase in the demand for labour. Further, the development of railroads attracted enormous investment. Thus, in countries which underwent capitalist transformation, not only did industrial output soon dwarf agricultural output in national income, but the industrial workforce soon overtook the agricultural workforce. This shift took place first in England, where the share of the workforce in agriculture sank to 14 per cent by 1871, compared to 55 per cent employed in ‘industry and trade’.13 Although the pace of the shift was slower in other countries, a similar process was a necessary part of capitalist development in all such countries. With urbanization, various items of mass consumption such as clothing and footwear were now no longer made at home, but had to be bought by workers. The sheer increase in the industrial workforce meant that the purchasing power of the masses multiplied. Thus industry gained a growing internal market for such goods, limited though it was by the fact that the workers were paid such low wages. The growth of capitalist agriculture too was sustained by demand from the growing number of workers absorbed in industry.

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In order to compete with one another, capitalists required the constant cheapening of production, one element of which was the cheapening of raw materials. Capitalism brought this about by industrialising agriculture. The differences between the productivity of workers in the two major sectors of the economy, industry and agriculture, tended to narrow in this process. Establishment of capitalist social values The change in the class structure naturally resulted in a change in the dominant social values – which are always the values of the ruling class. “The hand-mill gives you society with the feudal lord; the steam-mill society with the industrial capitalist.”14 As we mentioned, the social background of many first-generation men of capital was humble, and, while they bought up titles and ranks with their new money, they advertised the fact that they were ‘self-made men’. The bureaucracy now was thrown open to a wider social section: the French Revolution instituted this by a system of national examinations. In Japan, where till 1868 only the samurai (military nobility) could bear arms or hold public office, all such privileges were abolished, all classes could be conscripted into the army, universal public education was instituted, and education and ‘ability’ were made the basis for recruitment to public office. Hobsbawm indeed claims that “The crucial achievement of the two revolutions (the Industrial Revolution and the French Revolution) was thus that they opened careers to talent, or at any rate to energy, shrewdness, hard work, and greed. Not all careers, and not to the top rungs of the ladder, except perhaps in the USA. And yet, how extraordinary were the opportunities, how remote from the nineteenth century the static hierarchical ideal of the past!”15 The new ideology of course helped justify the miserable condition of the labouring masses, for evidently in such an open system poverty could only be the result of laziness or stupidity. However, while the capitalist class had defeated the old classes and established its supremacy in the economic, political and ideological

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spheres, it had created a new class, vast and growing – the proletariat. At the time of the Revolution of 1649 or the Revolution of 1789 the proletariat in England and in France was not yet formed as a class, and was not conscious of its existence as a class; workers followed the lead of the bourgeoisie without advancing independent demands. Yet within a short time after the French Revolution, workers began organising on class demands, both economic and political. The Chartist movement of 1838-48 in Britain was the first political organisation of the working class; in 1864 the first International Working Men’s Association was born; and 1871 witnessed the first, albeit short-lived, state power of the working class, the Paris Commune. The publication of Marx and Engels’ Communist Manifesto in 1848, followed by Marx’s Capital in 1867, provided what eventually became the dominant ideological basis for working class organisation. Thus capitalist society was marked by the sharp contention between two great classes, the capitalists and the working class. The above description is intended only to highlight a few aspects of the development of capitalism in order to bring out certain crucial linkages within it (they are not listed in chronological order; indeed they overlap): (i) Class struggle, accumulation and class polarisation: The class struggle of peasants helped restrict feudal extractions; this helped the accumulation of some capital within the petty mode of production, and this accumulation helped the development of productive forces; this development increased the polarisation of the peasantry into different classes. (ii) Ousting of peasantry, creation of working class and a mass market: A large labour force was ousted from agriculture by agricultural capitalists; the new methods then adopted in agriculture led to an increase in agricultural productivity, generating a surplus to feed the growing industrial workforce, and cheapening the raw materials needed by industry. Meanwhile the labour ousted from agriculture was substantially absorbed in capitalist industry; this

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increased the purchasing power of the masses and created a domestic market for mass consumption goods. (iii) Creation of a machine-building industry, increased productivity displacing workers, yet growing working class: The Industrial Revolution and the development of factory production led to the development of an industry producing machinery, coal, iron, and railroads. Since these heavy industries, particularly the machinebuilding industries, developed within the same country as the light industries, the size of the working class as a whole continued to grow despite labour productivity increases in the light industries – i.e., workers displaced by productivity increases in light industry got absorbed in the heavy industries. Industry emerged as the main means of production in the economy. It had the dominant share not only of the national income but also, crucially, of the workforce. (iv) Development of the nation-state as protector and capturer of markets: The development of the nation-state was spurred by the growing internal integration of the economy of a region. In turn, it promoted that integration. Both rise of the nation-state and the integration of its economy fueled the rise of national allegiance and national sentiment. Commercial interests stood to benefit, as the new State power worked actively to protect the domestic market and seize foreign markets. (v) Competitive capitalism, diffusion of technology, and the rise of monopoly: When competitive capitalism developed in Britain, technological innovation progressed at relatively elementary level (without a specialized research and development division). Thus in this phase it was relatively easy to diffuse technology to other firms and other countries. Monopoly capital emerged only after and through an extended phase of competitive capitalism. (vi) Ascendancy of different classes and their world-views: As the feudal order declined and new ideas germinated challenging established authority, the ground was prepared, at the ideological

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level, for the sharpening contradiction between the bourgeoisie and the feudal order. Society passed generally through violent mass upheavals before bourgeois hegemony could be securely established. It is through these upheavals that feudal consciousness and feudal allegiances declined and a bourgeois democratic consciousness was given birth. Triumphant, the capitalist class stamped society with its new social values. However, the same social developments also led to the formation and rise of the industrial proletariat. This class had the potential for conscious contention with the capitalist class and the capacity to advance its own world-view. The above are not separate strings. They are intertwined, interacting with one another. They do not represent simple chains of causation, but rather the links between the various developments. This was the classical pattern established in Britain; the course was not identical in any of the countries that industrialised thereafter. Upto the late 19th century, the later the entrant, the greater the advantage it had of being able to import the technology and to complete the process of industrialisation relatively fast; but, generally, the more it had to rely more on State intervention and subsidies to do so. The forced pace created certain strains and weakness of bourgeois democratic consciousness in countries such as West Germany and Japan. As the phase of competitive capitalism receded and was transformed into monopoly capitalism, this path of diffusion of capitalism was more or less closed to new entrants. India, under colonial rule, did not merely traverse a different specific path to capitalist development: rather, while individual elements of development here resembled the development of capitalism in the capitalist countries, crucial linkages were damaged or broken in a way that Indian society and its economy were stunted and deformed. We need to keep in mind the linkages mentioned above as we look at the processes imposed by colonial rule in India.

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1. This characterisation of feudalism is based on articles by Maurice Dobb and Rodney Hilton in The Transition from Feudalism to Capitalism, ed. Rodney Hilton, 1976. (back) 2. The rise of the nation-state, and the development of popular allegiance not to a feudal lord, but to ‘the nation’, over the long term helped to undermine feudalism and to establish bourgeois hegemony over society. (back) 3. Such establishments first came up on the basis of manual labour, improving handicraft technology with the division of labour (the ‘manufactory’); this paved the way for the emergence of the factory, which replaced the artisan’s tools with the machine. (back) 4. Capital, vol. I, p. 751. (back) 5. Utsa Patnaik, “The free lunch: transfers from the tropical colonies and their role in capital formation in Britain during the industrial revolution”, in Jomo K.S., ed. Globalization under Hegemony: The Changing World Economy,2006. (back) 6. E.J. Hobsbawm, The Age of Revolution, 1789-1848, p. 45. (back) 7. Maurice Dobb, Studies in the Development of Capitalism, p. 256. (back) 8. Dobb, pp. 268, 270. (back) 9. Dobb, p. 269. (back) 10. Capital, vol. I, p. 788. (back) 11. Dobb, p. 278. (back) 12. A section of the ruling class of Japan had witnessed the subjugation of China by western imperialism and apprehended a similar fate for their own country. Violating feudal restrictions, they organized a non-samurai army (including peasants and outcastes) to overthrow the existing rulers in 1868 and bring about Japan’s social and economic modernization. The new regime – the ‘restoration’ of the Meiji Emperor – promptly imported equipment and skilled workers from the Netherlands, England, France, Italy and other European countries, and set about systematically absorbing the imported know-how. Contrary to the pattern in Europe, it gave first priority to the heavy industries, particularly for military reasons, and only once it was firmly established in these did it move on to develop the light industries such as textiles; this was possible only because the State itself built the core industries with its own revenues. Japan was the last country that was able to

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perform this transformation before the rise of monopoly capital by the end of the 19th century. (back) 13. Michel Beaud, A History of Capitalism, 1500-2000, p. 97. (back) 14. Marx, Poverty of Philosophy, ch. 2. (back) 15. Hobsbawm, op. cit., p. 226. (back)

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I. Colonial Rule: Setting the Pattern of Distortion, Disarticulation, Exclusion1 India was no exception to the laws of historical development. Before colonial rule, the feudal structure of Indian society was in the process of being undermined. Production for the market formed a large segment of the economy (since land revenue was collected in cash or sold for cash); domestic and foreign trade grew, and merchant capital flourished, with some merchants acquiring fabulous wealth; a sophisticated financial system developed, geared to the needs of commerce; and the urban sector expanded, in which a high proportion of the population was employed in industrial/craft production. New elements began to appear – instances of private property in land (whereby land could be bought and sold like any commodity); the emergence of cultivation performed with hired labour; the setting up of some manufacture and mining enterprises worked with hired labour. Most importantly, in response to the increasing extraction of rent, there arose stirrings, revolts and movements of the peasantry and artisans of various regions, sometimes clothed as religious movements, sometimes led by local chieftains. These dealt blows to the Mughal Empire and accelerated its collapse.2 However, the new elements were still weak, scattered or sporadic; they were far from achieving the scale or cohesion to lead a social revolution. Whatever the reasons for the delay in the emergence of such a revolution (for which the tenacious caste system and the selfsufficiency of the village economy must have had some share of responsibility), it was forestalled by the arrival of colonial rule. Transfer of surplus from agriculture to the imperialist metropolis The effect of colonial rule can be glimpsed in two figures. In 1700 India’s share of world Gross Domestic Product was roughly the same as

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that of all of Europe – both were around 23 per cent; by 1952 India’s share was four per cent and Europe’s 30 per cent. India’s share of world manufacturing fell from almost one-fourth in 1750 to less than one-fiftieth in 1900.3 The new British rulers took the already excessive land revenue levels of their predecessors as a starting point, and increased them steeply by re-assessment and more efficient collection. Common to the two main systems of land revenue they introduced – zamindari and ryotwari – was the drive to maximise revenue. Thus even in the latter – in which, theoretically, the cultivator directly confronted the State – parasitic classes developed rights over the surplus, since the cultivator was forced to borrow to make revenue payments. Since land could now be bought and sold, it became a commodity – but of a peculiar type, subject to a heavy rent/revenue. This huge drain from agriculture was also a drain from the country itself, because the land revenue formed the main component of British drain from India. Agriculture, thus drained of its surplus, retrogressed: while agricultural technique remained virtually frozen at the levels of Mughal rule, per capita foodgrains output declined considerably. Peasants had no surplus to invest in maintaining productivity, let alone improving it. In one sense colonial rule superficially resembled classical capitalist development in that it forced an increase in the share of production for exchange; but this condition has aptly been termed a “deformed generalised commodity production”.4 The peasant now had to pay the (hiked) revenue in cash and that too before the harvest, when he was short of cash; this rendered him dependent on merchants and moneylenders. The merchants and the moneylenders had a stake in encouraging tradeable crops rather than subsistence farming, and brought about a shift in cropping patterns. The decline of subsistence crops and the expansion of cash crops served the process of transferring surplus from the colony to the imperialist metropolis: (i) these crops could be exported; and (ii) India was paid for these exports out of the taxes levied by the British rulers in India itself – in other words, India in effect received nothing in return. (Some writers

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talk of ‘export markets’ being opened up for India with British rule. This is similar to someone robbing one, and then paying for one’s goods with the money he has robbed.) Since the replacement of subsistence crops with cash crops depressed the consumption of the poor peasantry, it can be said that the ‘surpluses’ were transferred out of the very subsistence of the poor peasantry. The spread of cash crops went hand in hand with the spread of hunger. The late 19th century witnessed a series of devastating famines and epidemics that wiped out millions; even after that malnutrition persisted. Before British rule, a portion of the land revenues used to return to the region from which they arose, through the nobility’s purchases of goods from artisans; now, with the ousting of the earlier nobility and their replacement by the British, this source of demand for artisans’ goods vanished. The British imposed internal tariffs on Indian textiles and heavy tariffs or outright bans on their import into Britain, whereas British textiles were imported into India at low tariffs. India was converted from a leading manufacturer and exporter of textiles to a massive importer of them. This destroyed the section of the Indian textile industry producing fine fabrics for consumption by the earlier feudal elite. The industrial cities of the earlier period – Agra, Dacca, Surat, Patna, and others – declined in economic activity and population. Large-scale unemployment was thus a direct and enduring product of colonial rule. The share of industry in the workforce fell, as did its share in national income. The share of agriculture in workforce and national income grew, not thanks to any development in agriculture, but because of the shrinkage of industry. Deindustrialisation, pressure on the land, helplessness before feudal forces The artisans and workers once employed in the textile industry now had to fall back on agriculture. Under Mughal rule there was a great abundance of land, which allowed cultivators to cultivate only the more fertile land, and to cultivate only half their land in a given year, thus

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maintaining its fertility. However, as deindustrialisation took place under British rule, and ruined weavers fell back on the land as the only means of livelihood, land became scarce. W.W. Hunter wrote in 1893: “In Bengal there was in the last century more cultivated land than there were husbandmen to till it. The landlords at that time were competing for tenants.... A hundred years of British rule has reversed the ratio.... It is [now] the husbandmen who have to compete with each other for land.”5 This destruction of indigenous industry, and the retrogression of agriculture combined with its commercialisation, led to a new kind of distorted feudalism, or ‘semi-feudalism’. The peasants’ lack of any alternative to cultivation rendered them helpless before the landlords, merchants and usurers, who found it easy to increase their extractions to the point where they took away not only the surplus, but even a part of what was needed for the peasant to subsist and to reproduce the conditions in which he/she could produce again. The lack of alternative employment also meant that many landless or very small peasants preferred to tie themselves in ‘voluntary’ bondage to a feudal lord with the guarantee of some sort of subsistence. Finally, it meant that, however poor the returns from cultivation, however marginal the plot of land, the peasant would cling onto it tenaciously as the only defence against complete destitution. At the same time, those trying to eke out a living in all sorts of petty trade proliferated, since there were no ‘barriers to entry’ in this field. Thus the share of the services sector in employment grew, even as the income of those so-called selfemployed in such petty activities remained even lower than the income of those involved in production. No doubt the peasant was now linked with national and international markets, but these did not operate to stimulate greater production. First, the large revenue demanded of the peasant left him little or no surplus to re-invest. Secondly, taking advantage of the peasant’s need for cash before sowing, the moneylender-trader was able to tie the peasant in debt and force him to sell the crop to him at a depressed price. Thirdly, between these traders and the international market

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intervened large wholesale merchants, banks in India, and businesses and banks in the imperialist countries. Any rise in international prices could easily be retained by those links in the chain closer to the outlets in the imperialist countries; even if the peasant had information of improved prices, he lacked holding power to extract better terms in such a situation. (Thus any improvement in ‘terms of trade’ would not accrue largely to the peasant, but to these other links in the chain, including foreign ones.) On the other hand, any fall in international prices could be passed back down the chain to the peasant, who, as we mentioned earlier, lacked alternative employment, and was trapped in debt to the moneylender-trader, and hence had no option but to continue to produce on worse terms. The usurping of the forests Before British rule, the forests were to a large extent under the control of the tribals, for whom they were the source of their food, fuel, fodder, housing materials, raw materials for household needs, and medicines, and therefore an indispensable part of their social and religious life. Lacking ploughs and draught animals, the tribals practised ‘shift and burn’ cultivation on forest land. They also earned income from the sale of wood and forest products to other communities. From around the 1860s, the British began to monopolise the forests – then two-fifths of the country’s area – by a series of measures which classified most forests as ‘reserved’ or ‘protected’, set up a separate forest administration, placed restrictions on the tribals’ use of the forests and banned shifting cultivation (the typical method of agriculture among tribals, who could not afford ploughs and cattle), and extracted large tax revenues. At the same time, the British plundered the forests for timber and fuel, setting in motion the process of deforestation which continues to date. Attempts by tribals to reassert their rights over the forest were sparking-points for numerous violent tribal revolts against the Raj.

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The processes of imperialist penetration and trade in forest products brought to the forest areas non-tribal moneylenders and merchants, who soon alienated tribal lands on a large scale, and thus joined the government as a target of tribal revolt. The debt-ridden tribals were routinely forced to perform veth, or forced labour, on the fields of the usurers. Frequently the same usurer-landowners were also appointed forest contractors (given timber contracts) by the forest officials. In the later years of the Raj, the rich mineral resources of the tribal regions began to be developed, again by the displacement and exclusion of the tribals (even as a few would be hired as coolie labour). In the absence of any other source of livelihood, the tribals, now deemed encroachers in their own land, nevertheless clung on to the forests and forest plots; as such they remained available for exploitation by sundry forest officials, merchants, and usurers. There are a number of important common property resources (CPRs) apart from the forests: grazing lands, village commons, ponds, tanks, streams and rivers. Before British rule, a large part of the country’s natural resources were under the control of local communities, and were freely available to the rural population. As the British rulers extended State control over these resources, community control and management declined, and a dwindling share of erstwhile common property resources and forests remained available to the villagers. As a result, today, in almost all parts of the country, villagers have a legal right of access only on some specific categories of land and water resources. The process of extending State control over the common resources, which began with the declaration of ‘reserved’ and ‘protected’ forests in the closing years of the 19th century, has essentially been that of exclusion of villagers’ access to common resources by law. As a result, the systems of community management gradually disintegrated and are now virtually extinct. Today, in almost all parts of the country, the villagers have legal right of access only on some specific categories of land like ‘pasture and grazing lands’ and ‘village forests’, which are under the jurisdiction of the village or village panchayat. All other

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categories of land not under private ownership like barren and uncultivable land, culturable waste, land put to nonagricultural uses and forests belong to State Revenue department or Forest department. Nevertheless, the rural population, particularly the poor, depend greatly on the goods and services available from these categories of land. Besides, though only those resources are treated as CPRs on which no individual has exclusive property rights, there are systems of customary rights which support traditional practices, such as gleaning or grazing of cattle in the fields after harvest, which represent common rights on private property in certain situations.6 Introduction employment of modern industry – displacement without re-

Machine industry was introduced into India in the 1850s (in cotton and jute textiles), and grew faster from the late 19th century onward. It came, that is to say, after the destruction of much of native industry, but, unlike in Europe, it did not grow out of native industry. Whether the firms were owned by British entrepreneurs or (as in western India) by Indian ones, the machinery for these firms was imported, largely from Britain. As modern industry proceeded, it kept displacing more workers from traditional industry, such as the surviving spinners and handloom weavers who produced cloth for the lower end of the market (the higher end of the market was catered to for a long time by imports). The modern sugar and iron industries similarly ousted traditional producers. In Europe too traditional industry in consumer goods had been ousted by machine industry, which developed through continuous increases in productivity; but in India, thanks to continuous imports of machinery, employment was not created within India itself in a machine-making industry and other heavy industries as could have made up for the loss of employment in consumer goods industries. Thus the net effect on employment was negative. Given the nature of the transition to modern industry there was a large gap between the technology embodied in the imported machines

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and the know-how existing in India; indeed, even for running the machinery the mills imported technicians from Lancashire. Since the market was limited for many products, and the minimum size of the firms based on imported technology was large, Indian industry did not pass through a phase dominated by a large number of small firms competing for markets (with the winners growing into monopolies). Instead, a few firms between them could exercise monopoly control at the very outset, and did not face competitive pressure to reduce production costs and prices. As this practice proved profitable, technological dependence was continuously reproduced. The typical Indian industrial house did not develop through an extended period of unfettered competition through which capital was centralised in the technological leader. Rather, it was born as a monopoly house, closely linked to government policy, contracts, and subsidies, and with ties to feudal sections, for example for the supply of raw materials. The background of the entrepreneurs was finance (including usury) and trade, and they excelled in financial, mercantile and speculative operations (often devoting to them as much attention as to their industrial operations). These firms, known as managing agencies, controlled a number of firms, often in disparate industries. A survey of Indian monopoly houses from the 1930s till the late 1970s remarked that “monopoly capital in India bears a closer family resemblance to pre-industrial monopolies than to contemporary monopoly capitalism in the west”.7 Railways and irrigation: infrastructure for imperialist penetration, not development In his 1853 article on “The Future Results of British Rule in India”, Marx anticipated that when you have once introduced machinery into the locomotion of a country, which possesses iron and coals, you are unable to withhold it from its fabrication. You cannot maintain a net of railways over an

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immense country without introducing all those industrial processes necessary to meet the immediate and current wants of railway locomotion, and out of which there must grow the application of machinery to those branches of industry not immediately connected with the railways. The railway system will therefore become in India truly the forerunner of modern industry.... Modern industry, resulting from the railway system, will dissolve the hereditary divisions of labour, upon which rest the Indian castes, those decisive impediments to Indian progress and Indian power. Later, however, as he saw the actual process of colonial rule in Asia (in contrast to the history of colonial rule in North America), Marx revised his views: in an 1881 letter he referred to the railways as “useless to the Hindus” (i.e., the Indians), and one of the means for the British to carry on “a bleeding process with a vengeance!”8 And Lenin later remarked that imperialism had converted the building of railways, which “seems to be a simple, natural, democratic, cultural and civilizing enterprise”, into “an instrument for oppressing a thousand million people (in the colonies and semicolonies), that is, more than half the population of the globe inhabiting the dependent countries”.9 Indeed only a minute portion of the railway equipment was manufactured in India, and so the entire ‘multiplier’ effect of investment in the railways did not take place in India. On the contrary, the dividends on (inflated) British private investment in the railways were one of the major elements of the drain from India. Moreover, the route alignments and rate structures of the railways made it cheaper to transport goods from the ports to the interior and back rather than between points in the interior. Thus the railways “increased the relative distances between places in the hinterland, since very often the only connections they now had between themselves passed through the ports. The railway revolution thus turned the third world economies inside out and enormously increased the intensity of dominion of advanced capitalist countries over them.”10 They helped convert India into a supplier of raw materials and

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foodgrains for Europe and its colonies, and open up the country’s market to imported goods. The actual effect of such growth of exchange, in a situation where productive forces and associated purchasing power stagnated, can be glimpsed in the export of, and increased domestic speculation in, foodgrain in the midst of famines: As argued sarcastically by an administrator from a native state, “...In former famines only disjointed local areas were affected.... Now railways made it possible that we were starved to death as well as our neighbours.” Even an indigenous grain dealer of Calcutta was ready to concede that “...Prices rose throughout India during this famine largely due to operation of railways. In the previous (1878) famine there was little movement of crops due to good harvests in some parts. In this famine bad harvest is also equally spread.” Spread of telegraphs, according to the grain dealer, “...helped merchants in keeping up prices throughout India.”11 When the new rulers finally made investments in irrigation, they did so only in select pockets, on strictly commercial considerations, and in a distorting fashion. Their purpose was to stimulate high-value, intensively cropped, commercial crops in order to increase government revenues. In the United Provinces (U.P.), with the introduction of canal irrigation under British rule, merchants – who, as we noted earlier, had an interest in promoting crops in which they could trade – extended cultivation loans on the condition that the peasants grow sugarcane. The costs of sugarcane cultivation were heavy, and the peasants remained trapped in debt thereafter, often losing their land in the process. Since sugarcane displaced the crops peasants grew for their own consumption, the peasants now had to buy their subsistence needs from the market, and at higher prices (since the crops were now scarcer). Moreover, the pattern of canal development caused environmental damage, rendering large lands infertile.12 Thus the development of commercialised, ‘high-value’ agriculture did not result in accumulation within agriculture, but pauperised the poorer peasantry and drained surpluses into the hands of non-agricultural classes.

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


The process of spread of other cash crops, such as cotton or jute, was linked to a similar pattern of dependence on, and eventual nearbondage to, merchant-moneylenders. While physical coercion was used to impose certain crops such as indigo and poppy on the peasants, in most cases commercialisation was forced upon sections of peasants through the process described above, that is, through seemingly free exchange. At times the forced nature of this commercialisation showed up in the fact that, to the extent the peasant’s position improved (say, when he actually got the benefit of better prices), he would withdraw from the market – i.e., reduce the share of output sold.13 Stunted industrialization Because of the pauperisation of the peasantry and the small size of the working class and the middle class – largely as a consequence of British rule – the market for manufactured goods remained very restricted. Given the limited market and the absence of comprehensive tariff protection similar to that enjoyed by Britain before its Industrial Revolution (and for decades thereafter), investors did not find the Indian home market attractive enough to warrant large investments. Rather, speculation, hoarding, usury, and other such unproductive financial activities (for which the colonial economy provided much scope) proved more attractive. Later, tariff protection was introduced selectively by the colonial rulers when Britain was in decline as an imperialist power, and it wanted to protect its market in India against encroachment from other imperialist powers. Thus the Indian sugar industry was protected in order to shut out sugar imports from the Dutch colony of Java; this led to sudden growth of the Indian sugar industry, which in turn led to a sharp rise in demand for sugar machinery from Britain. (The big bourgeoisie did not miss the significance of this experience of government support, and in post-1947 India the ability to manipulate governmental levers was critical to the fortunes of various

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business houses.) By the 1930s multinational corporations (a new phenomenon) were setting up plants in India to take advantage of tariff protection and penetrate the Indian market. These were harbingers of a new phase, in which India would shift from colonial rule by one imperialist country to multilateral dependence on several imperialist countries. Industrial development was stunted, and yet the size of individual firms was relatively large in relation to the market (a scale dictated by the technology imported from advanced capitalist Britain). Industrialisation was thus, inevitably, lumpy and spread unevenly over the country. Till 1914, industry was concentrated in Bombay and Calcutta (apart from Tata Steel in Jamshedpur). While some industry did come up in Ahmedabad, Delhi, Kanpur and some other places in U.P., Coimbatore, Madurai and Madras after World War I, growth remained regionally lopsided. “The situation was also markedly dichotomous – reflecting the disjunction between agriculture and industry. The portenclave manufacturing centres, like Calcutta, were growing fast even as the hinterland agrarian and traditional industry was deteriorating. On the other hand, regions with relatively prosperous agricultural growth like Punjab had no major industrial centres.14 As late as 1948, the three Presidency-states of Bombay, Madras and Calcutta accounted for 77 per cent of the percentage of industrial workers, 77 per cent of industrial production, 82 per cent of engineering and electrical goods production, and 87 per cent of chemical goods production in the country. The corresponding figures for the minerally rich states of Bihar, Orissa, and M.P. were only 10, 10, 10, and 5 per cent, respectively, “showing how little the ‘natural endowments’ of the region mattered in this respect”.15 Distorted and arrested social development By the late 19th century the minimum capital required to set up a competitive industrial enterprise was substantial, and was only available to sections endowed with considerable capital of their own

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and the confidence of the financial community. The big industrial entrepreneurs were almost exclusively drawn from a tiny handful of commercial castes/communities – the Gujarati banias, the Marwaris, the Parsis, the Khattris, the Aggarwals, and the Chettiars prominent among them. (Among the Muslims, too, business was dominated by certain trading castes, but they were weaker, and flourished only after the formation of Pakistan.) The big business communities had their roots, and continuing activities, in finance and trade rather than production, and they maintained this separation even after turning to industry. They refrained from carrying out any technological innovation; the more enterprising among them applied their minds to choosing which technology to import. The education system the British set up in India cannot be criticised for not educating the masses, as it was not intended to do so; it was designed to create a class of Indians who would mediate between the colonial rulers and the ruled, as well as facilitate and reduce the expenses of their rule in India. (Macaulay, then a member of the Governor-General’s council, made this clear in the famous Minute he prepared for Bentinck in 1835: “I feel with them that it is impossible for us, with our limited means, to attempt to educate the body of the people. We must at present do our best to form a class who may be interpreters between us and the millions whom we govern, – a class of persons Indian in blood and colour, but English in tastes, in opinions, in morals and in intellect.”) No doubt, as a by-product of this education system, some independent-minded elements got access to European streams of scientific and analytic thought, but this was rare. The university system brought into being a class of professionals and upper white-collar staff which served the needs of colonial rule. Moreover, not only did the entire urban elite and a section of the middle classes learn English, but the Western education system, combined with the fact of British rule, established the intellectual and cultural domination of Europe over India. The urban elite and broader sections under their influence developed a mentality of subservience to all things European, an overpowering taste for European products, a sense

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


of shame about their Indianness and a yearning for approval by the white man. Secondary education too was shaped by the goal of entering tertiary education, reinforcing the status of English throughout of the educational system and consigning instruction in the native tongue to a second-class status. The real barrier to the fuller development of the numerous Indian languages was not any dominant Indian language, but the supremacy of English, just as the barrier to the development of the economic life of the various national regions was the imperialistdirected pattern of development. All sorts of reactionary and obscurantist thought, rather than diminishing, spread under the British umbrella. After the revolt of 1857, it was a matter of conscious British policy to ensure communal division: in the words of the 1879 Army Commission, “Next to the grand counterpoise of a sufficient European force comes the counterpoise of natives against natives.”16 Unlike in the capitalist countries, the system of electoral politics was not introduced through a long process of democratic and working-class struggle; on the contrary it was introduced by the British rulers as part of their effort to associate elite sections with their rule, and to set competing communal elites on one another. However, the impact of these manoeuvres was not restricted to elite sections, but had terrible repercussions among the masses. It was in the late 19th century that communal mobilisations and riots among Hindus and Muslims began making a regular appearance, finding their grim climax in the great massacres of Partition. The caste system, that “decisive impediment to Indian progress and Indian power”, far from being dissolved by the railways and the appearance of modern industry under British rule, survived in a somewhat modified but hardly weakened form. British administration created certain limited opportunities for members of castes lower in the hierarchy, resulting in a scramble among the various castes for these favours. The earlier Brahmin dominance in government posts and

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


social status was challenged to some extent by certain non-Brahmin communities with growing economic and social clout, and important nonBrahmin movements arose in the south. However, while there was a partial reordering of castes within the hierarchy, the institution of hierarchy itself was not threatened, and remained particularly oppressive to those at the bottom of the pile. The British resolutely abstained from interfering with the social prohibitions and economic exclusions suffered by the oppressed castes; indeed, as Ambedkar observed in an address to the All-India Depressed Classes Congress, August 1930: Before the British you were in the loathsome condition due to your untouchability. Has the British Government done anything to remove your untouchability? Before the British you could not draw water from the village. Has the British Government secured you the right to the well? Before the British you could not enter the temple. Can you enter now? Before the British you were denied entry into the police force. Does the British Government admit you in the force? Before the British you were not allowed to serve in the military. Is that career now open to you? Gentlemen, to none of these questions you can give an affirmative answer. Those who have held so much power over the country for such a long time must have done some good. But there is certainly no fundamental improvement in your position. So far as you are concerned, the British Government has accepted the arrangements as it found them and has preserved them faithfully in the manner of the Chinese tailor who, when given an old coat as a pattern, produced with pride an exact replica, rents, patches and all. Your wrongs have remained as open sores and they have not been righted....17 The abundance of land before British rule allowed some caste mobility, yet even under those conditions certain castes were kept landless; with the destruction of native industry and the enormous pressure on the land under colonial rule, there was even less scope for escape from caste oppression. Only an agrarian revolution, with all its political and social implications, would have created scope for a profound churning

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of the caste order; and such a revolution would have upturned the native classes on whom British rule itself was based. Distinct class structure Thus British rule created a class structure in India distinct from that of capitalist Britain. Parasitic classes – landlords, traders and usurers – maintained sway over the rural areas. There they found ample scope for fattening on parasitic extractions in landownership, usury and trading rather than on expanding productive forces. Their control over multiple markets – land, labour, credit, output – allowed them to increase extractions beyond the limits possible in any single market (for example, an indebted peasant would be compelled not only to pay interest but to sell his produce or his labour power cheaper to his creditor). The vast majority of producers fell in three groups: landless, very small, and small, who were not in a position to take advantage of market stimuli to accumulate. Though the middle and rich peasants were able to respond to market stimuli, they were unable to concentrate land in their hands, as small producers clung to their holdings, however uneconomic, as their only defence against destitution in conditions where employment in industry was stagnant.18 The big bourgeoisie, composed of big industrial and trading concerns with close ties to foreign capital and feudal forces, prospered under British rule. By contrast, a section of small industrialists grew in numbers, generally restricted to businesses such as cotton gins and presses, rice and oil mills, traditional sugar manufacture, and small powerloom or handloom factories. Some enterprising elements of this class ventured into pharmaceuticals, chemicals, and small engineering workshops. Lacking access to finance, linked too to feudal sections, denied any support from the colonial government, too weak to compete with the monopoly power of the big bourgeoisie, and most importantly hobbled by the meagre markets of poverty-stricken India, they were unable to unleash the necessary ever-expanding circuit of accumulation in industry.

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


Colonial rule in India also led to the development of an industrial proletariat associated with modern industry, thus creating the basis, as in Europe, for political organisation with the ultimate aim of the abolition of private property. However, far from emerging as the great majority of society, the proletariat in India remained a small island in a sea of peasants and petty self-employed. Several obstacles stood in the way of its developing class consciousness. As industrial employment stagnated and capitalist concentration of landholding failed to materialise, the workers retained strong ties to their villages and to the land; these ties proved useful for the industrial employers, as they could escape paying the worker a level of wages that would provide for security after retirement, or for the upkeep of the worker’s family (which would often remain in the village). This set-up allowed for the exploitation of women’s labour in reproduction, even more than in capitalist society.19 Further, workers tended to retreat to their villages at the times of strikes and mill closures, thus weakening the fight. Finally, the worker’s ties to the village imbued him with feudal consciousness, including subservience to social ‘superiors’ and fatalism. The recruitment of workers, especially of the most unskilled manual labour, often took place in gangs and through contractors with feudal ties, which also helped keep them in line. (Large numbers of Indian workers were despatched as indentured labour to Assam, Ceylon, Fiji, South Africa, the West Indies, and Iraq, often in conditions of semislavery.) A major division emerged between the organised sector workers (which corresponded roughly to the unionised) and the unorganised sector; this division was greatly strengthened in the post1947 period, and the second section was effectively kept beyond the pale of union organisation. In this environment, it is not surprising that reactionary influences, both caste and communal, retained their grip on workers to a large extent. Even after the end of British rule, the Indian big bourgeoisie did not exercise exclusive hegemony over the Indian State. First, they served the interests of imperialism in the new configuration: that is, no longer the interests of a single colonial power but of the multilateral

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domination of the multinational corporations of all the imperialist countries. Secondly, the big bourgeoisie shared hegemony with a variety of feudal forces, who remained (and remain) prominent in the political life of the country, indeed dominating it at the state level. Formally, intermediaries in agriculture (such as the zamindars) were abolished, ceilings were placed on landholdings and tenants were protected from eviction, but in fact only trivial amounts of land were distributed, and landlords took evasive measures to perpetuate their hold. True, in the changed situation a greater share of the surplus could remain with the producers, and agriculture recovered to some extent from its long decline under British rule. However, as long as industrial employment grew at best slowly, the mass of the workforce remained trapped in agriculture, and thus subject to semi-feudal exploitation; agriculture remained trapped in the pattern of surplus extraction and redeployment set by the class structure that emerged under colonialism. Important quantitative changes took place, such as those termed the Green Revolution, but they proved unable to break this mould. Industry, on the other hand, has grown within the frame of (i) the restricted scale and skewed nature of domestic demand (concentrated at the top), (ii) domination by domestic monopoly business houses drawing on its control of State policy, and (iii) the worldwide domination of monopoly capital. These conditions have ruled out the possibility of the Indian bourgeoisie carrying out industrialisation of the type that would generate mass employment. This sketch brings out the distinct historical process which has shaped the socio-economic formation of India today. The various sets of linkages described in the previous chapter, describing classical capitalism, are found here in a broken, distorted form. This helps us understand the nature of the growth taking place today, to which we now turn.

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1. As in the preceding chapter, the argument in this chapter is drawn from several wellknown works. Among them (in chronological order) are R.P. Dutt, India Today, 1946, Paul Baran, The Political Economy of Growth, 1957, A.K. Bagchi, Private Investment in India 1900-1939, 1972, and The Political Economy of Underdevelopment, 1982, and S.K. Ghosh, The Indian Big Bourgeoisie: Its Genesis, Growth and Character, 1985, though their perspectives that differ in many important respects. (back) 2. Irfan Habib, “Potentialities of Capitalist Development in the Economy of Mughal India”, Enquiry, Winter 1971. (back) 3. Angus Maddison, Chinese Economic Performance in the Long Run, 1998, cited in Mike Davis, Late Victorian Holocausts: El Nino Famines and the Making of the Third World, 2001, p. 293; and Mike Davis, op cit., p. 294. (back) 4. Krishna Bharadwaj, op cit, p. 90. (back) 5. Quoted in Utsa Patnaik, “Commercialization under Colonial Conditions”, The Long Transition: Essays on Political Economy, 1999, p. 260. (back) 6. National Sample Survey (NSS) Report no. 452, “Common Property Resources in India”. (back) 7. N.K. Chandra, “Monopoly Capital, Private Corporate Sector and the Indian Economy, 193176”, Economic and Political Weekly, Special Number, August 1979. (back) 8. See S.K. Ghosh, op cit, pp 91-113. (back) 9. V.I. Lenin, Imperialism, the Highest Stage of Capitalism,Preface to the French and German editions (1921). (back) 10. Bagchi, 1982, p. 34. (back) 11. Sunanda Sen, Colonies and the Empire,India 1890-1914, 1992, p. 174. (back) 12. Elizabeth Whitcombe, Agrarian Conditions in Northern India, Vol. I: The United Provinces under British Rule, 1860-1900, 1971. (back) 13. Krishna Bharadwaj, “A View on Commercialisation in Indian Agriculture” in Accumulation, Exchange and Development: Essays on the Indian Economy, 1994. (back)

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14. Krishna Bharadwaj, “Regional Differentiation in India: A Note”, EPW, Annual Number, April 1982. (back) 15. Ibid. (back) 16. Quoted in Sumit Sarkar, Modern India, 1885-1947, p. 16. (back) 17. Quoted in R.P. Dutt, op cit, pp. 243-244. (back) 18. Bharadwaj, “A View on Commercialisation”. (back) 19. That is, the greater the labour of the wife of a male worker in household activities and child-rearing, the less the capitalist needs to pay the worker. Thus it is ultimately the capitalist who exploits the household labour of the woman. Where the family could be maintained not in an urban setting but in semi-feudal agriculture, the wages paid to the labourer could be even further depressed. (back)

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


IV. How Distortion, Disarticulation, and Exclusion Are Built into India’s Runaway ‘Growth’ The Indian economy has no doubt been undergoing very rapid GDP growth for the past few years. However, the nature of this growth is such that it accentuates all the existing distortions in India’s pattern of development, to an extreme. Who can miss the most visible manifestations of these distortions – the grotesque gap between the rich and the poor, the metropolises and the countryside, the performance of the stockmarket and that of agriculture? Where views differ is on what, if anything, needs to be done about these disparities. An important section of ‘opinion-makers’, well-represented in the media, believe nothing at all need be done: economic growth is generating jobs and prosperity, and poverty is vanishing on its own. All that remains is to do away with the remnants of State intervention in the economy in order to give full latitude to the dynamic private sector. No doubt a section of people suffer in the course of this development, but that is part of the pain that accompanies all progress. Another influential section is less crass, and more sensitive to the turbulent political realities of India – even as they share certain fundamental premises with the first section. These humanitarians emphasise the need to make development more ‘inclusive’ by sharing some of the revenues of the current boom with the disadvantaged – through the expansion of public employment schemes, child welfare and nutrition schemes, public expenditure on education, health and other services, measures to uplift the socially disadvantaged, and so on. In the last few years the country’s rulers have picked up on these themes and have included higher ‘social sector’ allocations in the Eleventh Plan.

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


Hardly anyone can argue against larger expenditures on employment schemes, welfare, nutrition, education, and health. If carried out, they would partly reverse the damage done by more than 16 years of fiscal retrenchment and straitjacketing. But this ‘welfarist’ approach essentially views the process of bettering the lives of people as separate from the process of economic ‘growth’; the sphere of distribution divorced from the sphere of production. The only link it makes between the two is that some funds for people’s welfare can be raised thanks to the growth of the economy. The limitations of such a theoretical frame are particularly apparent in a country like ours, where the majority of people are in a pitiable condition. Demanding greater expenditure on people’s basic needs should not divert us from examining the underlying economic processes which generate and reproduce disparities, exclusion, disarticulation and distortion on an ever larger scale. It should not divert us from tracing these processes to basic social relations, in order to change them. The argument in brief In the first chapter we argued that we cannot attach much meaning to the phrase ‘economic growth’. Rather, we must investigate the pattern of development to know what it means for people. In order to understand that pattern, we need to approach it historically. Thus we briefly sketched the pattern of capitalist growth in Europe, characterised by a complex of linked developments in the economic and social spheres. We proceeded to describe the distinct course of colonial development of India: how colonialism used its political hold to drain surplus from India’s economy, and for this purpose ruptured important linkages between (and within) sectors of India’s economy. These were the linkages through which in the ‘normal’ course – that is, the course taken by the original capitalist countries – capital accumulates, expands itself over and over, and transforms every sector of an economy from within. While certain internal linkages were broken,

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


certain external ones were strengthened out of proportion. This prevented accumulation in some sectors, and diverted surplus to others for the purpose of the drain, stunting growth in large sectors and exaggerating it in select sectors. This pattern of development fostered certain native classes whose interests were linked with imperialism, and it is these classes that ascended to power with the departure of the British. Maintaining their grip on political power, these classes perpetuated a pattern of development along the same course, under the tutelage of the ‘developed world’, that is, the imperialist countries. There have been many obvious changes since the end of British rule, and these changes appear to have accelerated in the last decade; yet the economy is in crucial ways still shaped by the legacy of colonialism and the continuing hold of imperialism. As a result, the spectacular growth celebrated by the rulers is restricted to islands of the economy; the vast mass of people are trapped in miserable economic conditions and face unbearable social oppression. With this we reach our subject proper, namely, the current pattern of private corporate sector-led growth. First, we sketch the extremely distorted structure of the economy. The bulk of the workforce is crammed into sectors with very low income; a tiny section of the workforce is in the booming sectors. The links between the different sectors (and within the each sector) are missing or weak, allowing islands to flourish in a sea of backwardness and poverty. The gaps between these sectors and sub-sectors are expanding with the growing capital-intensity of the private corporate sector. Secondly, we link the current spell of rapid growth in India to certain developments in the world economy and large inflows of speculative capital from the developed countries. That is, the current high ‘growth’ is not essentially an internally generated phenomenon, but an externally induced one. Moreover, the increasing financialisation of

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


capital in the imperialist economies has brought some changes in the operation of imperialism here. Among the by-products of the changes in the world economy is the emergence of Indian firms as ‘multinationals’, powered partly by foreign capital. However, the increased integration of the Indian economy with the highly financialised global economy implies that the impending crisis in the latter, and particularly the long-term downturn in the trajectory of the leading imperialist power, may transmit both shocks and stagnation here. Thirdly, we sketch the pattern of growth of the private sector in this period of boom. We showed how foreign inflows have generated a boom in credit, which, given the structure of the economy, fueled a consumerist surge concentrated among the better-off; this in turn spurred growth in a range of industries catering to this demand. However, this market necessarily remained narrow. Inevitably, the push for rapid growth on such a narrow base took the form of ‘enclaves’ catering to export or the elite: the software and BPO industries, the SEZs, and ‘infrastructure’ projects fenced off from the requirements of the rest of economy. Fourthly, we describe a significant element in the economy’s ‘growth’: the large-scale capture of natural resources by the private corporate sector, using the State machinery. As this pattern of resource capture progresses, it results in large-scale destitution of the already depressed sections of the rural population – even as it shows up as growth in GDP. Fifthly, we illustrate the manner in which various flourishing industries – health care, real estate, organised retail, luxury industries – either caused or required economic exclusion of the working people as an essential part of their growth. Sixthly, we show how, while neo-liberalism talks of the need for the State to retreat from economic intervention, it actually requires active State intervention in order to transfer surplus to the private

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


corporate sector on a massive scale. Here we talk of various forms of privatisation and the array of subsidies provided to the corporate sector. Seventhly, as a natural outcome of this pattern of growth, extreme inequalities have developed in Indian society. They have progressed to the point where among ruling class circles, and even within international financial institutions, some have raised the alarm, pointing to the threat of grave social disorder. Yet these alarms have little meaning; the present order is quite incapable of moderating inequalities. Finally, we discuss the extraordinary growth of the financial sector within a small enclave of the Indian economy – a necessary consequence of integration with global financial markets even as the internal economy remains disarticulated. This integration has yielded foreign investors breathtaking returns; it has also placed the Indian economy on a precipice. The impending troubles of the world economy now will have a more direct impact here. Further, even in the absence of a crash, the demands of foreign speculative capital – such as the introduction of capital account convertibility and the transformation of Mumbai into an international financial centre – require the further subordination of the productive economy of the vast majority to the financial-speculative island. An alternative path of development must be based on transforming agrarian relations: This would be the prerequisite for accumulation in the vast agrarian sector, and in turn would create scope for generating manifold internal linkages in the economy – between sectors, within sectors. Growth rates would not seem so spectacular, but the growth would be meaningful for the people and be more reliable, because based on an internal dynamic. Moreover, the process of transforming agrarian relations would bring to the fore long-suppressed social forces capable of pursuing a development path in favour of the vast mass of people – whose productive energies too would be progressively unleashed in this course.

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India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion
IV. (1) Missing Links


Despite the clamour about the Indian ‘economic miracle’, the fact is that India has been unable to break decisively with its colonial past. Six decades after the transfer of power from British rule, the workforce remains predominantly agrarian. It is revealing that, in the sophisticated academic discussion going on regarding India’s take-off to high growth, the structure of employment (that is, in what sectors the workforce is employed), once a staple of development economics, is hardly mentioned. As we saw in the earlier chapter on the ‘classical’ process of capitalist development, the shift of economic activity out of agriculture was accompanied by a shift of workforce. In the following section, we will describe how GDP growth of different sectors in India is disconnected from employment growth. As a way of focussing on the peculiar pattern of India’s current economic growth, it is useful to look back at a celebrated paper of 1954 by W. Arthur Lewis1, in which he had described the ‘dual economy’ in economies such as India. Terming one sector ‘capitalist’ (broadly identified with industry) and the other sector ‘subsistence’ (broadly identified with agriculture), he predicted that the ‘capitalist’ sector would grow, and finally eliminate this dualism. Lewis pointed out that the vast under-employed labour force in agriculture was available to industry at near-subsistence wages. This would make it profitable for capitalists to expand production, and hire more workers, ploughing back their entire profits into further expansion, until the excess labour force in agriculture was fully absorbed. This expansion, however, was contingent on a growth in productivity in agriculture, allowing it to supply increasing quantities of food at prices favourable to industry. For if it did not do so, the growth of demand from the growing number of workers would lead to higher food prices, and as a result higher wages, which in turn would reduce profits; and reduced profits, in Lewis’s scheme, would mean lower investment by capitalists, and lower growth.

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


However, it is clear that dualism in the economy (whatever be the terms one uses to describe it) has persisted, even hardened. Contrary to Lewis’s expectations, the vast under-employed labour force in agriculture, despite being available to industry at subsistence wages, has not been, and is not being, absorbed in industry. This fact stands out particularly starkly against the current boom in corporate profits and investment. Of the population between 15 and 64, less than 60 per cent was ‘usually employed’ in 2004-05. More than half of India’s workforce remains self-employed, and the share of wage employment in the economy has actually declined during the last decade. Indeed the economy can be mapped as a number of overlapping types of dualism. For example: the non-agricultural sector and agriculture, organised and unorganised workers, large firms and small/household industry, developed and underdeveloped regions, urban and rural development, those with access to formal sector credit and those confined to informal sector credit, dominant and oppressed castes. The disparity between each of these two poles is being reproduced, even widened, by the prevailing economic processes. Thus it makes all the less sense to talk in terms of average incomes or rates of growth. We need to break up each whole into its parts in order to make sense of the reality. Missing links between, and within, sectors Conventionally, the economy is divided into three sectors: agriculture, industry, and services. ‘Industry’ is divided into manufacturing, mining, and electricity, gas and water supply. ‘Services’ is divided into trade, hotels, transport and communication; financing, insurance, real estate and business services; and community, social and personal services, with ‘construction’ sometimes grouped under industry, sometimes under services.

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


The purpose of dividing the economy into sectors is to aid analysis; it does not imply that the different sectors develop separately. Rather, one expects the different sectors in an economy to be linked to one another, such that the growth in one sector leads to growth in the others. However, when we divide the Indian economy into different sectors, what strikes us immediately is certain missing links between different sectors. Indeed, certain links are missing even within sectors: For example, ‘manufacturing’ and ‘services’ are each composed of sub-sectors that bear little resemblance to one another. Let us look at the sectors one by one. Agriculture: overcrowding and stagnation We saw in an earlier chapter that during the development of capitalism in the original capitalist countries, the decline of agriculture’s share of GDP was accompanied by a similar decline in its share of the workforce. However, a very different process is taking place in India. Agriculture’s share of GDP has nearly halved in the past two decades (see Chart 1); but its share of the workforce has fallen much more slowly.2 Its share of the workforce is now 2.7 times its share of the GDP. Thus average income per worker in the non-agricultural sector in 2004-05 is almost five times that in agriculture.

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


Moreover, agriculture is not performing the role that Lewis believed it would, namely, supplying increasing quantities of food at lower prices, and thus aiding industrial growth. No doubt agriculture’s terms of trade in the past decade have been favourable to industry, as Lewis wished, but not because agricultural productivity has improved and cheapened agricultural goods.3 In fact, agricultural production has slowed, to the point where it is falling in per capita terms. The disparity between the growth rates of agriculture and non-agriculture has sharpened. Earlier, one would have expected the poor performance of agriculture to hinder the corporate sector’s growth, since agriculture would be unable to supply growing quantities of raw materials for industry and food for growing numbers of industrial workers. However, the present distorted pattern of growth in the corporate sector, heavily dependent on elite consumption and on services sector growth, requires less agricultural raw materials, and less workers.4 And so the

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


corporate boom goes on even as agriculture – the sector which employs the majority of the workforce – languishes. It was once anticipated that with the spread of new technology from the original areas of the Green Revolution (Punjab, Haryana, western U.P., and pockets elsewhere) the rest of India would catch up with the growth in these original Green Revolution (GR) regions, and regional disparities in agriculture would diminish. However, the liberalisation period witnessed disparate trends: in the GR centres, growth slowed; in regions without irrigation but with heavy rainfall, crop prices collapsed and so farm incomes declined despite some production growth; and in dryland regions both production and incomes declined.5 Production in rainfed agriculture, which accounts for 60 per cent of cultivated area, is not only much lower than in the irrigated area, but is more or less stagnant. The bulk of growth has come from expansion of irrigated area and increased production of irrigated land; since the growth of irrigated area has come to a virtual halt under the neoliberal policy of restricting public sector investment, agricultural disparities have widened. Manufacturing: small unorganised sector organised sector workforce dwarfed by

The manufacturing sector’s share of GDP has hardly increased in the last two decades (see Chart 2). Similarly, its share of employment has risen only slightly, by 1.5 percentage points. Indeed, its share of employment has hardly changed over the last century. The historical shift in GDP and occupational structure has bypassed manufacturing.

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


Even this does not convey the full picture. The term ‘manufacturing’ conjures up the image of a modern sector with relatively high labour productivity and high wages. However, in fact the manufacturing sector in India is divided into the factory sector and the non-factory sector (the unorganised sector). The factory sector today makes up less than a sixth of manufacturing employment, and less than 2 per cent of total employment. (Further, the number of employees in the factory sector, instead of rising, fell 16 per cent between 1997-98 and 2004-05.) Moreover, the official definition of a factory – 10 or more workers using power, or 20 or more workers not using power – encompasses a section of small scale industries. Of 129,000 factories existing in 2001-02, 105,000 were in the small scale sector (units with investment in plant and machinery of less than Rs 10 million). Thus medium and big factories – what the Ministry of Labour designates as organised sector

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


employment – accounts for a very small amount of employment indeed, at best 1.5 per cent of total employment. The following diagram helps to conceive of the structure of manufacturing sector employment:

Most of the manufacturing enterprises in the unorganised sector are ‘own account enterprises’ (OAEs), that is, they have no hired labour; they generally operate out of household premises. Even of those with hired labour, most have less than six workers, and a large proportion operate out of household premises. In short, when we read the term ‘manufacturing workforce’ in official documents the first picture that should come to our mind is that of a worker making papads or rolling bidis in her own home. The overwhelming bulk of the workforce even in the manufacturing sector is working in primitive conditions, at very low wages, with backward techniques, producing traditional products like matches, bidis, handlooms, food products, and the like. Even as medium and large industry accounts for a fraction of industrial employment, it accounts for around 60 per cent of industrial production. In other words, we have a small island of medium and large industry in which value added is high, surrounded by a sea of small industry in which value addition is low. At the same time, certain medium and large businesses use the unorganised manufacturing sector as a site for surplus extraction: goods such as bidis are manufactured by home-based workers, collected by contractors and sold under wellknown brandnames.

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion
Services too marked by extreme dualism


The share of the services sector6 in GDP has grown dramatically, by 14.4 percentage points, and is fast resembling the share of the services sector in a developed economy. Nevertheless the share of services in employment has only inched up 7.2 percentage points over the same period.

Here, the growth in services’ share of GDP and the growth in its share of employment are two separate processes. For this sector too is marked by an extreme dualism: on the one hand, a low-income highemployment segment (e.g., petty retail trade), which contributes most of the growth in the sector’s employment; and on the other hand a high-income low-employment segment (e.g., the information technology, ITES, financial and real estate services and media sectors), which contributes most of the growth in the sector’s income. For example,

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


the category ‘finance, insurance, real estate and business services’ accounts for just 2 per cent of India’s employment, but earns 13.5 per cent of its GDP. The high-income segment has few backward linkages to the rest of the domestic economy; rather, it is linked to export of services and the elite market here. The low-income sector of services is largely what is called ‘refuge employment’, under-employment, and does not represent true diversification from agricultural employment. Merely because a peanut vendor is struggling to make ends meet does not mean his struggle should be termed ‘employment’. The income of the services sector – powered by the high-income sector – is growing faster than that of the sectors producing physical commodities. Many services are socially useful, and no economy can exist altogether without a services sector. A developed economy, in which productive forces have advanced so greatly that it is capable of meeting with ease the basic needs of all the people, can sustain at that stage a much larger growth of services. But in an economy where even the minimum needs of the vast masses are not met, the dominance of the services sector amounts to a form of parasitism. It means that (leaving aside the export of services, which earns income that can pay for imports of goods) the services sector claims a larger and larger share of the production of the sectors producing physical commodities. The island of the organised sector and the fall in the share of wages As an economy develops, one would expect the organised sector to replace the unorganised sector in industry and services. However, the overwhelming majority of India’s workforce remains in the unorganised sector, trying somehow to eke out a living. Indeed, the organised sector is able to draw on the unorganised sector as a method of exploiting workers: Since the 1990s, the purchase of finished goods has risen steeply in the overall costs of Indian organised sector firms,

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


even as the share of wages has fallen; this indicates the growth of sub-contracting. Further, employers have adopted a systematic policy of replacing permanent staff with contract or temporary workers. Thus within the organised sector, the number of organised workers (i.e., those who enjoy legal rights such as security of employment, minimum wages, sick leave, compensation for work-related injuries, right to organise, etc) has fallen and that of unorganised/informal workers has risen during 1999-2005. The share of organised workers in the total workforce has fallen from an already very low 8.8 per cent to 7.6 per cent during this period.7 The effect of these changes is to reduce the organised sector’s wage bill and increase its profits. This underlines the stake of organised sector firms in maintaining overall conditions which generate a large unorganised pool of workers. It is striking that the National Sample Survey (NSS) of 2004-05, during a corporate sector boom, shows a decline in real wages for urban workers (male and female, regular salaried and casual) over the previous Survey (1999-2000),8 which was carried out during an corporate sector slump. Wage levels of workers are declining not only in the unorganised sector but also in the organised sector. While employees in the information technology-related sectors are earning relatively high wages, and managerial and technical staff in organised industry have secured a large increase in wages, real wages for workers in organised industry stagnated or declined. According to one report, “The wage share in our organised industrial sector has halved after the 1980s and is now among the lowest in the world.”9 Correspondingly, the share of profit in value added in the organised sector is rising. The decline in wages, of course, is not the only contributor to growing profits: decline in interest payments and tax rates, and handsome subsidies provided under various guises by Governments, have boosted profits. The Economist10 puts Indian corporate sector firms’ average profit margins at 10 per cent, or more than twice the global average; the RBI’s sample of private corporate firms shows a rise in the ratio of gross profits to sales from 10.3 per

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


cent in 2002-03 to 15.6 per cent in 2006-07, and profits after tax to sales from 4.2 per cent to 10.7 per cent in the same period.11 On the other hand, small, relatively labour-intensive, independent or semi-independent small firms are being crushed under a multiple assault – such as the entry of large firms as well as imported goods into their markets (i.e., with the reduction of reservations for small scale industry and with trade liberalisation); the disappearance of already meagre bank credit for the small sector; the appreciation of the rupee with speculative inflows (which makes imported goods cheaper in rupee terms); and the growing poverty of the vast majority of the people, who buy the bulk of cheap, lower-quality goods produced by these firms. No wonder, according to the latest data the number of workers in unorganised manufacturing enterprises actually fell from 37.1 million in 2000-01 to 36.4 million in 2005-06.12 Despite these trends the unorganised sector – and within this the tiny/household sector – continues to employ the bulk of the nonagricultural workforce. Employment in unorganised non-agriculture has grown by 60 per cent, absorbing over 60 million new workers, since 1993. But this sector has been unable to increase significantly either its capital-labour ratio or labour productivity – in other words, it lacks the funds to improve its abysmally backward conditions of production.13 “These two disparate private sectors in non-agriculture, the unorganised and organised, now produce about 50 per cent and 25 per cent of all non-agricultural value-added respectively, with 87 per cent and 4 per cent respectively of the non-agricultural workforce.”14 Thus the ‘employment growth’ in the unorganised sector is deceptive: it is largely a form of under-employment. What makes this situation all the more remarkable is that the top section of Indian industry has in recent years displayed the technological resources and entrepreneurial ability to compete in international markets in high-technology fields such as pharmaceuticals, biotechnology, and engineering goods (including automobiles). There are indications that the software industry too,

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


once solely a provider of cyber-coolies performing low value-added tasks, is developing the capability to perform more sophisticated, higher value-added work. This corporate sector growth is no doubt increasing opportunities for well-educated urban middle and upper class youth, to the point where white collar salaries have risen sharply and the bureaucracy and armed forces complain of their inability to recruit officer cadre. But this growth is failing to draw the wider economy into its sphere. The advocates of the existing policies paint a rosy picture of India’s future on the basis of what they call its ‘demographic dividend’: the ratio of total population to working age population in India is low, and will shrink further in years to come. Hence, they argue, each working person will have to share her/his income with fewer dependents; on a larger scale, the economy will have a smaller number of non-working people to care for. However, this is meaningless if working age population does not get work! The official definition of ‘employment’ is being “engaged in any economic activity”, regardless of whether that activity yields a living. But even by this strange criterion, the NSS of 2004-05 reveals that less than two-thirds of the 15-64 age group is employed (and only 60 per cent is ‘usually employed’).15 Moreover, 56.5 per cent of the rural population and 43.3 per cent of the urban population is dependent on self-employment, up from 55.4 and 38.8 per cent a decade earlier. The growing share of selfemployment is a sign of the backwardness of the economy, its inability to produce sufficient jobs, and the desperation of the unemployed to eke out a living somehow or the other. Flood of investment, drought of employment The conventional view has long been that the key to India’s development is to increase its rates of savings and investment. According to Lewis, “The central problem in the theory of economic development is to understand the process by which a community which

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


was previously saving and investing 4 or 5 per cent of its national income or less, converts itself into an economy where voluntary saving is running at about 12 or 15 per cent of national income or more. This is the central problem because the central fact of economic development is rapid capital accumulation (including knowledge and skills with capital).” Lewis thus argued that inequality was useful in developing economies, since the rich saved more than the poor. The model of P.C. Mahalanobis, which became the basis for India’s early Plans, differed with Lewis’s model in major respects, but it too asserted that increasing the rate of investment was the only fundamental remedy of unemployment in India. Neither of them gave importance to change in agrarian relations, and indeed to the transfer of power to new class forces, as a pre-requisite for development. India’s rates of saving and investment stagnated during the 1990s, but has soared thereafter. Savings rose from 23.5 per cent in 2001-02 to 32.4 per cent in 2005-06 and an estimated 34.7 in 2006-07; investment rose from 24 per cent of GDP in 2001-02 to 33.8 per cent in 2005-06 and an estimated 35.1 per cent in 2006-07.16 Both look set to rise further. Even the figure for 2001-02 is much higher than Lewis’s cut-off point. Yet the pattern of employment and the standards of living of the vast majority in India in no way resemble those of a developed economy. The reason is that, while investment in the organised sector grew, so did its capital intensity (that is, the proportion of capital to labour). While the private organised sector grew at an annual rate of 10 per cent after 1993, employment growth was negligible, and in fact fell after 1998. Capital intensity in the organised sector grew so fast that the real capital stock per worker is now three times what it was in 1993. If GDP grows, as projected, at 9 per cent during the Eleventh Plan, it is estimated that the real capital stock in the private corporate sector will increase at about 13-14 per cent per annum during this period; but, assuming past trends of capital-labour ratio continue, the organised sector will absorb at most 2 million more during this five-year period.17 So the dazzling growth of investment is

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


largely useless for creating productive employment, which is the core of genuine economic development. Moreover, apart from the higher capital intensity within each sector, there is a growing disproportion in investment between different sectors. The vast majority of the workforce is trapped in sectors which are starved overall of investment: Agriculture accounts for the majority of the workforce and almost one-fifth of GDP, but accounted for only 6 per cent of total investment in 2005-6 (down from 9.5 per cent in 2001-2). Higher savings and investment on the basis of growing inequality How has the dazzling growth of savings and investment been achieved? Under a different social order, investment could be increased by suppressing wasteful consumption, achieving greater efficiency in production, and tapping under-utilised resources (most importantly by mobilising under-employed labour to create capital assets). However, the present rise in savings and investment is based on growing inequality; those flush with surpluses, even after engaging in enormous wasteful consumption, have plenty left over to save and invest. Moreover, the corporate sector has been generously supported by a reduction in effective tax rates18, a reduction in interest rates, and a host of give-aways by the Government. The boom in corporate sector profits has left it flush with funds for investment. It appears that the profits of the corporate sector (public and private) rose from around 9.8 per cent of GDP in 2001-02 to over 21.9 per cent in 2006-07, that is, from Rs 2.24 trillion to over Rs 9 trillion. The private sector’s share of total corporate sector profits in 2006-07 was nearly 73 per cent; that is, over Rs 6.57 trillion, or 15.9 per cent of GDP.19 The private corporate sector’s profits after tax, according to an RBI study, rose at an average rate of 35.6 per cent a year during 2000-07. Thanks to the boom in profits, the private corporate sector’s savings (i.e., the profits it did not distribute to shareholders, but retained for expansion) rose from 4.2 per cent of GDP to 8.1 per cent between

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


2002-03 and 2005-06, and is projected by the Economic Advisory Council to rise further to 9 per cent in 2006-07. Its investment rose from 5.8 per cent of GDP to 12.2 per cent during the same period. The boom did not extend to the whole of the private sector: the share of investment by the vast unorganised private sector shrank. The private corporate sector’s share of investment rose from 23 to 38 per cent in this period, even as the share of the unorganised sector, which employs the overwhelming bulk of the workforce, fell from 49 to 32 per cent. Regional disparity related to disarticulation between sectors The disparity between fast-developing and backward regions has been accentuated in the liberalisation period. On the one hand “there has been little change in the relative position of states in terms of rankings (in per capita income) during the past two decades. In particular, the composition of the top five states and the bottom six states have generally remained unchanged”20. However, gap between them has been growing: “the top five states, which accounted for 24.7 per cent of the country’s total population, had a share of 34.6 per cent of all-states Gross State Domestic Product (GSDP) during the early 1980s. This GSDP share increased to 38.2 per cent by the end of the 1990s. On the other hand, the bottom six states which accounted for a 41.6 percent share in the total population, have suffered a setback in their GSDP share, from 35.3 percent to 26.9 per cent, between these two periods. Even the middle five states, the composition of which remained the same, have suffered an erosion in their GSDP share over the last two decades.”21 Secondly, the urban-rural disparity too has sharpened during this period. The ratio of urban per capita income to rural per capita income grew from 2.34 in 1993-94 to 2.85 in 1999-2000; given the fact that agricultural growth fell further thereafter, and that growth was concentrated in the private corporate sector, this proportion would

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


have shifted much further in favour of urban areas thereafter. There appears to have been a dramatic decline in Government employment in the rural areas: Whereas in 1993-94 the rural areas accounted for 42 per cent of ‘community, social and other services’ GDP (largely the salaries of Government employees), in 1999-2000 they accounted for just 29 per cent of it.22 Significantly, it is not necessary that a state with large metropolises and high urban income rank have a high rural income. Nor is it necessary that a state with a relatively high rural per capita income have the largest and most prosperous cities. Punjab and Haryana are at the top of the rankings in per capita income because of their betteroff agricultural sector, whereas Andhra Pradesh and Tamil Nadu have large prosperous metropolises but merely average per worker income in agriculture. In Maharashtra, which stands first or second in per capita income, agriculture and allied activities still employ half the workforce, but GDP per capita in the agricultural sector has been falling continuously in per capita terms for more than a decade; remarkably, industrial GDP per capita too has stagnated; only services sector GDP per capita has risen rapidly, concentrated in the metropolitan pocket of Mumbai-Thane-Pune. The percentage of agricultural labourers in Maharashtra with wages below the national minimum wage is roughly the same as in the most backward states of the country – Bihar, Chhattisgarh, Madhya Pradesh and Orissa23 Neither is rural growth leading to urban growth, nor does urban growth get diffused to the rural areas. This reflects once again the lack of organic links between the agricultural and non-agricultural sectors. A study of some of the states at the centre of the current boom – such as Andhra Pradesh, Karnataka, Maharashtra, Tamil Nadu and Gujarat – would reveal a particularly sharp urban-rural disparity, uneven regional spread of growth, low employment growth, and so on. Further, even within backward states the disparity between agroecological sub-regions has worsened.24

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


We have sketched a picture of the different sectors of the economy as the economy undergoes dazzling growth. Let us turn to the impetus for the recent spell of rapid growth.

1.“Economic Development with Unlimited Supplies of Labour”, Manchester School, 1954. (back) 2. In this section we have used the ‘Usual Status’ measure for the various employment shares. There is a slight difference in the employment shares by the ‘Current Daily Status’ measure, which does not affect our point. The GDP figures used are for the triennium ending 1983-84 and the triennium ending 2004-05. The same applies to Charts 2 and 3. (back) 3. The reason for agriculture’s worsening terms of trade was that it was opened up to agricultural imports amid a global fall in agricultural commodity prices, even as various aspects of the neo-liberal economic policies raised input costs and depressed domestic demand for agricultural products. (back) 4. As noted by C.P. Chandrashekhar, “The Progress of ‘Reform’ and the Retrogression of Agriculture”, (back) 5. Planning Commission, Mid-Term Appraisal of the 10th Plan, p. 193. (back) 6. That is, trade, hotels, transport and communication; financing, insurance, real estate and business services; and community, social and personal services. We have not included construction. (back) 7. Calculated by the National Commission Enterprises in the Unorganised Sector (NCEUS) from NSS data (Report on Conditions of Work and Promotion of Livelihoods in the Unorganised Sector). However, using Ministry of Labour data for the organised sector with the figure for total usual status employment derived from the NSS, one would get 7.1 per cent and 5.8 per cent for 1999-2000 and 2004-05. (back) 8. Unni, J. & G. Raveendran, “Growth of Employment (1993-94 to 2004-05): Illusion of Inclusiveness?”, Economic and Political Weekly (EPW), January 20, 2007. (back) 9. National Commission on Enterprises in the Unorganised Sector (NCEUS), Financing of Enterprises in Unorganised Sector, April 2007, on the basis of Annual Survey of Industries

data; emphasis added. (back)

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion
10. “Marauding maharajahs”, March 29, 2007. (back) 11. Reserve Bank of India (RBI), Annual Report 2006-07, Table 1.16. (back) 12. National Sample Survey (NSS), Report no. 525. (back)


13. An OECD study found that while the ratio of fixed assets to labour rose in firms with 100 or more workers between 1998 and 2004, it actually fell by 14 per cent in smaller firms. That is, the drought of investment in small firms actually worsened in this period, which would have worsened their labour productivity. Alok Sheel and Sean Dougherty, “Constraining labour gains”, Business Standard, 28/10/07, citing OECD Economic Surveys: India, 2007. (back) 14. NCEUS, Financing of Enterprises. (back) 15. By the Current Daily Status measure, which captures the extent of under-employment better, total employed as a percentage of the 15-64 age group comes to only 56.5 per cent. (back) 16. The figures for savings and investment are somewhat lower if we ignore ‘valuables’ and ‘errors and omissions’, but the rise is still dramatic. (back) 17. NCEUS, Financing of Enterprises. (back) 18. The effective tax rate on corporate sector profits is now just 20.6 per cent, according to the Receipts Budget 2008-09. Within this, the effective tax rate on public sector firms is 23.4 per cent, and on private sector firms, 19.5 per cent. (back) 19. Taking GDP at current market prices and assuming the effective rate of corporate taxation in both years to be 20.6 per cent (see Receipts Budget 2008-09). The private corporate sector’s share of total profits is put at 72.75 per cent by the Receipts Budget. (back) 20. S.L. Shetty, “Growth of SDP and Structural Changes in State Economies: Interstate Comparisons”, Economic and Political Weekly (EPW), December 6, 2003. (back) 21. Ibid. (back) 22. EPW Research Foundation (EPWRF), “Net Domestic Product at Current Prices in Rural and Urban Areas”, EPW, 8/3/08. (back) 23. There is no mandatory national minimum wage. The recommendation of the Central Advisory Board on Minimum Wage was Rs 66 with effect from 2004; the National Commission on Rural Labour’s norm for rural minimum wage works out to Rs 49 at 2004-05 prices. In 2004-05, 97.8 per cent of agricultural labour in Maharashtra received less than Rs 66 per day and 77.4 per cent less than Rs 49. This was worse than Bihar or Orissa.

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


NCEUS, Report on Conditions of Work and Promotion of Livelihoods in the Unorganised Sector, August 2007, p. 124. (back) 24. See the collection of essays on Madhya Pradesh by Mihir Shah and others in EPW, November 26, 2005. (back)

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion
IV. (2) The External Stimulus and Its Implications


fueled by internal forces, but by the external environment. (All the regions of developing countries, including sub-Saharan Africa, saw an upturn in growth starting around 2003. Thus India’s surge, while sharper than most other developing countries’, is part of a broader phenomenon.) This expansion is not fundamentally transforming the Indian economy and society; rather, it has greatly accentuated its distortions. Moreover, given that the world economy is in a volatile state, and on the brink of a major crisis, the external stimulus to India’s growth may turn into a destabilising factor.

Essentially, the current phase of dramatic GDP growth has not been

Let us look at how this environment has been created. Over the years, the activities and behaviour of international monopoly capital have changed in significant ways. One thing is not new: Capital, as always, is driven by the need to accumulate more capital. Much as sharks must keep moving or sink, capitalists must keep accumulating or go under. However, since the rise of monopoly capital, the world’s chieftains of capital have been faced with a strange problem. They enjoy vast surpluses; but, as a long-term trend, they find less avenues to invest these surpluses profitably. If they put up more productive capacity, they would need to reduce prices in order for all that production to be absorbed; that would mean lower profit margins – which goes against the nature of monopoly capital. On the other hand, if they do not invest these surpluses, they cannot accumulate further. This peculiar disease of plenty gives rise to a long-term tendency toward stagnation. Within this long-term tendency there are bouts of hectic investment, such as the boom of dotcom-telecom investment of the late 1990s, but when these bouts of excess halt they leave business even more wary of investment. Rather than quote left-wing economists, we will rely in the following account largely on the Economist, perhaps the leading voice of international capital. It reported in 2005: “For the past three years, while profits have surged around the globe, capital spending has remained relatively weak. As a result, companies in aggregate have

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion


become net savers on a huge scale. Their thrift may explain why bond yields are so low [i.e., interest rates are low because firms are flush with funds]. Since 2000, the corporate sector in the developed countries have switched, as a group, from being big borrowers to being net savers: i.e., their profits exceed their capital spending. The total increase in companies’ net saving in the past four years has been more than $1 trillion, three per cent of annual global GDP and five times the increase in net saving by emerging economies over the same time period.... If company bosses recognise that the current consumer boom is built on shaky foundations – in particular, rising house prices – they are likely to be reluctant to invest.”1 In the U.S., business expenditure stopped falling in 2004 and began rising again, but it remained weak compared to earlier recoveries. This reluctance to invest has inevitable consequences: “America’s long-term potential rate of growth is falling, to perhaps its lowest pace in over a century”.2 And yet corporations must invest their savings somewhere. As a result international capital is on a constant hunt for new investment opportunities. In the course of this hunt international capital has been driven to rely increasingly on the growth of the financial-speculative activities, which have far outstripped the growth of the commodityproducing sector.3 The world’s financial markets of all types (stocks, debt, foreign exchange, commodities, and complex financial instruments called ‘derivatives’) have witnessed an extraordinary explosion of gambling. To take just one example, the actual ‘use’ of foreign currency is the import of goods or services; in the entire year 2006, world trade in goods and services was $14.5 trillion. But the buying and selling of foreign currency by international speculators in the same year averaged $2.7 trillion a day. In other words, trading in foreign currency was 68 times what would be required for international trade in goods and services. Similar explosions have taken place in all other financial sector activity, with new instruments being added at a hectic pace. In order for this financial activity to keep growing, it needs to create ever-increasing scope for itself. One way of doing so is by opening up

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economies hitherto closed or restricted for foreign speculative capital, and by removing restrictions on entering various sectors within those economies. The financial sector worldwide sits like a giant parasitic creature atop the commodity-producing sector, demanding complete freedom to enter all arenas and bleed that sector. Staving off worldwide slowdown At the heart of this creature is the U.S. economy. In recent years the world economy has been staving off an underlying slowdown by relying more and more on U.S. consumer demand. U.S. consumers have so far managed to keep buying because of an easy supply of cheap bank credit. This in turn is made possible by the policies of the U.S. central bank (the Federal Reserve, the equivalent of India’s Reserve Bank), which has kept expanding credit by lowering interest rates and relaxing restrictions every time the economy seemed to be slowing. The Federal Reserve has winked at all sorts of risky practices by the financial sector in order to keep credit flowing. However, the purchasing power generated by this cheap and easy credit is not spent on U.S. goods alone. Rather, U.S. consumers keep buying, importing from the rest of the world vastly more than the U.S. exports to the rest of the world. The huge U.S. trade deficit thus ensures a market for the rest of the world. How does the U.S. finance its giant trade deficit? In any other country, such a huge and ballooning deficit would have led to an immediate crisis. But the U.S. has so far been able to finance its deficit with capital inflows from the rest of the world, including from underdeveloped countries, and thus postpone the crisis. Why do these countries invest their capital in the U.S.? Because if they did not do so the dollar would fall against their currencies, their goods would become more expensive in dollar terms (i.e. to U.S. consumers), and their exports would fall, harming their own ‘growth’. Also because, as their own economies have been opened up to huge inflows of volatile foreign capital, they need to build up foreign exchange reserves to

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provide for the occasion when there may be a sudden outflow (as happened in Southeast Asia in 1997). Since the dollar is still the main currency used for international payments, countries keep a large proportion of foreign exchange reserves in dollars, in the form of U.S. government debt (known as U.S. Treasury securities). Such is the bewildering merry-go-round of flows to which the world economy is bound. A portion of the giant sea of cash generated by the U.S. in the course of this operation comes back to the rest of the world in the form of speculative capital seeking attractive investment opportunities. This in turn sends third world share markets soaring. While third world rulers are happy with high share prices, this inflow of foreign cash in turn tends to either bloat the money supply in those economies, leading to inflation and instability, or push up the value of their currencies, threatening their exports. To ward off the latter, the central banks of these countries buy up the incoming dollars and invest them – largely in U.S. government debt, funding another round of U.S. consumption. The current perverse trend of net financial transfers from the developing economies to the developed countries, which began in 1997 at $1.3 billion, reached $760 billion in 2007.4 We turn once again to the Economist for a description: Worldwide, an abundance of liquidity has lured investors into riskier assets in search of higher returns. Though there is no agreement on how to measure liquidity, using the global supply of dollars as a proxy, the Economist estimates that in the past four years it has risen by an annual average of 18 per cent, probably the fastest pace ever. Last year it washed through emerging economies in record amounts, pushing up their currencies. Between the start of 2006 and mid-December the Thai baht rose by 16 per cent against the dollar... The deluge of spare cash has two main sources. First, average real interest rates in the developed world are still below their long-term average. Second, America’s huge current-account deficit and the consequent build-up of foreign exchange reserves by countries with external surpluses has also pumped vast quantities of dollars into the

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financial system. A large chunk of Asia’s reserves and oil exporters’ petrodollars have been used to buy American Treasury securities, thereby reducing bond yields [i.e., interest rates]. In turn, low bondmarket returns have encouraged bigger inflows into higher yielding emerging-market bonds, equities, and properties, especially in Asia. Liquidity has been further boosted by the use of derivatives, and by carry trades (borrowing in currencies with low interest rates, such as yen, to buy higher-yielding currencies).... share prices in emerging economies have risen by 243 per cent on average from their trough in 2003.5 The Economist correctly locates the main reason for the tendency of the international financial sector to make riskier investment decisions, namely, the abundance of liquidity and the drive therefore to seek higher returns. It is this drive that explains the current ‘sub-prime crisis’, whereby, directly or indirectly, most of the international financial sector has invested in high-interest loans made by banks in the U.S. and U.K. to poor people (i.e., people who are ‘bad risks’) to buy houses. Flood of inflows beyond the control of Indian authorities As part of this pattern, India has seen a flood of capital inflows through various channels and under various labels – foreign institutional investment (FII) in the share market, foreign direct investment (FDI) (especially in the form of ‘private equity’, which behaves much like FII capital), and external commercial borrowings by Indian firms. There are also unexplained inflows in the balance of payments data (e.g. under the head ‘Other capital’) which indicate that individuals have been bringing in funds for speculation. As dollars become more plentiful than before, the value of the rupee tends to rise. This can have several harmful effects. First, foreign goods become cheaper in rupee terms, and so domestic producers find it harder to compete with imports. Secondly, Indian exports become

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more expensive in dollar terms, and find it harder to compete on world markets. Both these trends depress domestic economic activity. Thirdly, if the rupee is set on a rising course, it becomes even more attractive for foreign speculators to bring dollars into India; because even if they were to make no profit on their investments in India they would be able to take out more dollars than they brought in. (For example, let us say a foreign speculator brought in $1,000 at the end of December 2006. He would have exchanged it for Rs 44,110. Even if he did not earn a paisa of interest on this sum for a year, he could have bought $1,119 with it at the end of December 2007.) This brings in yet more speculative capital, and worsens the problem. In order to prevent this from happening, the country’s central bank, the RBI, buys up foreign exchange as it flows into the country, and this purchase becomes part of the country’s foreign exchange reserves, which are invested abroad in various types of interestearning bonds such as U.S. government debt. The scale of this phenomenon can be seen in the size of the RBI’s foreign exchange assets at end-March of each year: 2003, $71.9 billion; 2004, $107.4 billion; 2005, $135.6 billion; 2006, $145.1 billion; 2007, $191.9 billion – an addition of $120 billion in four years. Between end-March 2007 and end-December 2007, the rate of inflow broke all records, as another $66 billion poured into the reserves in just 9 months. Purely parasitic Only a trivial fraction of these inflows went into investment in the Indian economy: In fact, the average for 2002-07 is zero.6 In the words of the Prime Minister’s Economic Advisory Council (January 2008), “rising levels of investment have been financed from domestic sources – through a combination of higher retained corporate earnings and improved fiscal balances of government. There has been little absorption of net foreign savings... Thus, the capital inflows which were in excess of the current account deficit have in an accounting sense become part of the foreign exchange reserves of the central

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bank and [been] ‘re-exported’ overseas.” Nevertheless the Indian economy is compelled to accept these foreign inflows and drain out returns on them simply by virtue of having opened itself to capital inflows; their relation to the Indian economy is purely parasitic. `` While these inflows do not fund investment, they do fuel elite consumption. When the RBI buys up dollars, it pays out rupees to the seller of the dollars; this money winds up in bank deposits. On the basis of these deposits, banks make loans; in particular, they have recycled the surging foreign inflows as loans to individuals for housing, automobiles, and consumer durables. Thus the foreign inflows have to a large extent financed the boom in spending by the middle and upper classes. The RBI has tried to check the runaway growth of money supply caused by inflows by various means: it sucks money out of circulation by selling special bonds and directing banks to keep larger reserves with it. Despite this, the inflows are so large that it cannot mop them all up: for example, of the Rs 2.6 trillion that flooded in between endMarch and end-December 2007, the RBI was able to mop up only twothirds.7 The flood of foreign capital increases the instability of the entire economy by fueling speculative booms in the share market, commodities market, real estate, and so on. The easy liquidity in the economy as a whole, and high returns in speculative sectors, lead domestic investors to join in the casino. The Bombay Stock Exchange Sensex (index of the top 30 stocks) rose from 5591 at March-end 2004 to 12455 on April 2, 200; as if this were not steep enough, it rose at its fastest pace thereafter to close above 20,000 for the first time on December 11, 2007. The Reliance Power issue of shares in January 2008 was the largest-ever initial public offering (IPO) in India. Yet it was fully subscribed within one minute of its opening, and was subscribed 72 times by the time of its closing; the portion reserved for ‘high net worth investors’ was subscribed 208 times. The issue received Rs 7.52 trillion of bids – astounding, considering that

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Reliance Power is a completely new company with no assets, and without record of having executed a single project. Turnover in the commodity futures markets rose by 1570 per cent between 2003-04 and 2005-06, rising from 4.7 per cent of GDP to 76.8 per cent; it soared further in 2006-07. As the speculative boom proceeds, foreign investors may decide at some point that assets are now overpriced (for example, prices may be out of alignment with those of their similar investments elsewhere in the world). They would pull out till prices collapse to an attractive level. India’s share market has seen several steep falls in the last month. The Economist warned in July 2007 that India’s real estate was set for a fall: The only country where a bubble leaps out from these charts [of rise in real estate prices] is India, where average prices have risen by 16 per cent a year over the past four years, well ahead of average income. It is the only country where house prices have surged by more than in America. In Bangalore and Mumbai prices doubled during 2005 and 2006. According to Global Property guide, a research firm, equivalent apartments in South Mumbai now cost three times more than in Shanghai, and not much less than in Tokyo – even though Indian incomes are much lower.8 In November 2007 the Economist ranked India as one of the riskiest ‘emerging economies’ in the world, saying “Those with current account deficits [like India] are vulnerable to a sudden outflow of capital if global investors become more risk averse.”9 In the calendar year 2007 the Indian rupee was among the three ‘emerging market currencies’ that appreciated the most, after the Brazilian real and the Thai baht. But India is very unusual in that the rupee has appreciated despite its current account being in deficit,10 i.e., despite it having to cover its current foreign exchange requirements with capital inflows. So the entire appreciation in the rupee was not the result of surpluses on trade in goods and services; rather, it was despite deficits and because of capital inflows.

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Shifts in the global economy and their impact here


A second trend in the global economy has also had a major impact on the Indian economy: the successful drive, since the 1980s, by transnational corporations to increase the share of profit in their income (and to correspondingly reduce labour’s share). The rise of profit’s share, which began in the 1980s, has now reached historically very high levels;11 the Economist candidly admits that “in the rich world labour’s share of GDP has fallen to historic lows, while profits are soaring”.12 In the course of their quest to drive down the share of labour, armed with new technological developments, transnational corporations have sought out pools of skilled, white-collar labour in countries such as India as replacements for the more expensive whitecollar labour of the imperialist countries. This has spawned a section of employees in India with incomes that are relatively high for India. This section is culturally under the same influences as the urban ruling class sections, and has a similar pattern of expenditure. While this section is sizeable in relation to the erstwhile ‘middle class’, and the demand generated by it is sizeable in relation to the existing constricted market, it is tiny in relation to total employment; and even long-term projections of its growth show it to be of no relevance for reducing overall unemployment. Again as part of this drive to increase the share of profit worldwide, and making use of technological developments in production, transport and communications, transnational firms have increased their imports of goods from sites in low-wage countries. (Even so, the maximum ‘value-addition’, such as the retailing margin, accrues to firms in their own countries.) This shift has allowed goods made in India, whether by Indian or foreign firms, to enter world markets in certain sectors hitherto closed to them, such as the automobile parts sector. Moreover, several large Indian firms have improved their production standards and are emerging as competitive exporters.

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However, this process cannot continue expanding till the point where the export sector would absorb a major share of the labour force, and thus eliminate, or even substantially narrow, the wage differential between the developed countries and India. First, demand in the developed world is limited, whereas the unemployed/under-employed labour force in India is vast; second, the technology used in such export industries is not labour-intensive; and third, a large number of third world countries with large reserves of unemployed/underemployed are similarly attempting to export to the limited developed world market. Continuing success in exports requires that wages be held down, and the Indian State has been ensuring this by changing the environment for labour – i.e., simply refusing to implement workers’ legal rights, using State machinery against struggling workers, creating an openly anti-worker climate among the judiciary, and so on. (Moreover, volatile capital flows either way tend to build downward pressure on wages: With large capital inflows the rupee appreciates, making India’s exports less competitive; in response exporters try to reduce costs by reducing wages. With large capital outflows the rupee depreciates, prices of imported commodities such as oil rise, and inflation eats into workers’ real wages.)13 Thus, even as the share of wages in value-added in the developed world declines, its share in countries like India does not rise; rather it too falls. It is important to note here that foreign trade has not boosted demand in the Indian economy: Net exports (exports minus imports) is a negative figure. In other words, the market India loses because of imports is larger than what it gains by way of exports. The Economic Survey 2007-08 notes: “The contribution of net exports of goods and services to overall demand also declined between the two plans to a negative 5 per cent. Thus the external trade has had a dampening effect on aggregate demand during the just completed Plan (200207).” The contribution remains negative in 2007-08. It is worth pausing and noting a significant point here. Two of the most important claims made regarding the benefits of ‘globalisation’ are that foreign capital boosts investment and foreign trade opens

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expands markets and thus boosts demand. We have seen that in fact (i) foreign capital has not gone into investment, and (ii) under ‘globalisation’ India’s foreign trade has actually wound up depleting its markets and depressing demand. However, it is not as if the inflows of foreign capital have had no effect at all. They have helped foreign capital capture more and more of the Indian economy, as we shall see below. Indian multinationals: the global context The rise of Indian firms capable of making sophisticated goods such as automobiles and pharmaceuticals for world markets is a new phenomenon, apparently marking a shift in the clout of the Indian capitalist class in the world economy. This impression is further strengthened by the fact that virtually all the top Indian firms have been busy buying firms abroad during this period. In 2006 Indian firms announced foreign takeovers worth $23 billion; by March 2007 they announced another $10.7 billion. It was estimated then that 60 per cent of India’s top 200 firms were planning to make foreign acquisitions. “This shows the new-found respect that India commands in the global arena”, claims Kumar Mangalam Birla, chairman of the Aditya Birla group.14 However, this is misleading. For this development has been accompanied by another development, namely, the increasing shift of the developed economies to the financial sector. Around a third of the profits growth in the U.S. economy in the last decade has come from the financial sector, which along with the fall in labour’s share, does much to explain the high profit rates in the economy as a whole. The leading financial firm Goldman Sachs remarks that “margins in many non-financial industries remain at historically unremarkable levels.”15 The increasing financialisation of the world economy implies a shift in the centre of gravity away from the production of goods or nonfinancial services, a shift to financial sector activities. Where non-

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financial transnational corporations once played the dominant role in shaping the world economy, a greater role is played today by the financial and speculative firms; although giant firms often combine both functions, where the interests of the two conflict the financial sector prevails. (This is not to write a premature obituary of the nonfinancial transnational corporation, but merely to take note of a partial change.) Increasingly it matters little to international financial capital whether a car is produced by a European firm or a Korean or an Indian one, as long as financial capital is able to invest in whichever would be more profitable and to reap the profits of such investment. Indeed if a European firm is likely to do better after being taken over by the Indian firm, international financial capital would support and finance the takeover (this may not hold for firms in strategic sectors such as oil, infrastructure, arms, etc). It is important to keep in mind that FIIs now own very large stakes in the major Indian firms. At the end of December 2007, FIIs held around 37 per cent of the ‘free-float’ shares (i.e., shares held by those other than the promoters) in the top 1,000 firms of the Bombay Stock Exchange (BSE).16 In 147 firms listed on the BSE FII holdings are 20 per cent or more. In 24 of the top 200 firms in the BSE, the FIIs’ combined shareholding is higher than that of the promoters (the controlling shareholders). Whereas net inflows of FII investments between 1992 and December-end 2007 stood at $70.78 billion,17 the market value of FII holdings in listed companies on the Bombay Stock Exchange stood at well over $251.5 billion on that date; the returns are staggering. In other words, international financial capital has greatly increased its hold on the Indian corporate sector.18 This financial presence now represents the most prominent form of imperialist capital in the Indian economy. This phenomenon is not restricted to India. For example, after the Asian crisis of 1997-98, Korea was invaded by foreign capital, including FIIs. By May 2004 foreign investors owned nearly half the shares in South Korea’s top 10 publicly traded conglomerates; of these foreign holdings, FIIs

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accounted for about two-thirds. Foreigners owned 55 per cent of Samsung, and 47 per cent of Hyundai.19 Take the South Korean steel giant Posco, which is in the process of making the single largest foreign direct investment in India ($12 billion). The Bank of New York, a U.S.-based investment firm, is reportedly Posco’s largest shareholder, holding 22 per cent of its shares, and another such U.S.based firm, Capital Research and Management, holds another 4.4 per cent.20 Another 4 per cent is reportedly owned by the famous U.S. investment firm Berkshire Hathaway. Thus, even as new multinational corporations have emerged from the ‘emerging’ countries, encroaching on the markets of multinationals of the imperialist countries, financial capital of the imperialist countries has invaded the new emerging multinationals. Moreover, given the “deluge of spare cash” internationally and the Indian corporate sector’s high profitability in recent times, Indian firms have been able to borrow large sums abroad at interest rates lower than those prevailing in India. There has been a surge in external commercial borrowing by Indian firms, rising from $2.5 billion in 200506 to $16.2 billion in 2006-07 and to $10.6 billion in just the first six months of 2007-08. For acquiring firms abroad, too, Indian firms generally have drawn on large foreign borrowings; it appears that not all of these may appear in India’s balance of payments. Thus total foreign borrowings by Indian firms in calendar year 2007 were estimated at $42.1 billion, up from $28.8 billion in calendar year 2006. The surge in borrowing took place throughout Asia; “acquisition financing... comprised the biggest chunk in overall activity in 2007.”21 The strange phenomenon of Indian firms’ investment abroad should be seen against this larger background of the financialisation of capital worldwide. Rather than marking a basic change from the earlier subordination of the Indian economy by imperialist capital, it remains within the frame of a new, more complex, form of the same.

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The phenomenon of Indian firms’ investment abroad is also a striking expression of the distorted pattern of the Indian economy. Outflow of foreign exchange on account of Indian direct investment abroad (IDIA) rose from $4.5 billion in 2005-06 to $11 billion in 2006-07,22 and is expected to rise steeply in 2007-08. Whereas the bulk of the economy (in the sense of the sectors in which the bulk of the workforce is employed) is crying out for investment, the private corporate sector, with active encouragement from the State, has been busy exporting capital. As Indian firms are allowed to stage takeovers (even hostile ones) of foreign firms, it will be politically impossible for the Indian State to block foreign takeovers of major Indian firms. The rapidly rising FII stakes in Indian firms may facilitate such takeovers. (Indeed, in certain cases large over-capacity is developing worldwide. In such a situation, ‘consolidation’ usually starts – i.e., giant firms start taking over other firms. Indian firms expect to become targets of large foreign firms on the prowl for takeovers. One strategy for Indian firms to avoid this fate is to become large and/or debt-laden, using the greater access to international capital markets. Thus, with the help of giant foreign borrowings, Tata Steel has taken over an AngloDutch firm much larger, and possessing more sophisticated technology, than it. Whether or not the acquisition turns out to be profitable, the large debt will have to be serviced; and this fact may make Tata Steel, and the precious natural resources it controls, vulnerable to foreign takeover in the future.) Political power of international financial capital The political power of international financial capital in India has tremendously increased. At first it demanded the ‘independence’ of the Reserve Bank of India (RBI) from domestic political authorities; but this was merely in order to free monetary policy from domestic political pressures so it could be fully subjugated to international financial capital. Insofar as the RBI showed any resistance to

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destabilising financial inflows, it was made to buckle. The power of the FIIs was strikingly demonstrated in a well-known episode. On the evening of January 12, 2005, Y.V. Reddy, the Governor of the RBI, while releasing a publication, remarked on the fact that much of the FII capital inflows could be from dubious sources: “There is a scope for enhancing quality of FII flows through a review of policies related to eligibility of registration of FIIs... price-based measures such as taxes could be examined though their effectiveness is arguable.” These extremely mild and tentative remarks, which if anything expressed the helplessness of the RBI in the face of foreign inflows, sparked fury from the FIIs. They contacted the Finance Minister, who promptly called the press to rule out any move to tax FII inflows; “I have spoken to the RBI governor now, and he means the exact opposite of what has been understood.” He said these ideas are thrown up from time to time, but they have been rejected. “I reject them now again”. Reddy himself was compelled to call a hurried press conference later the same evening to clarify that a tax on FII inflows was not under consideration, and the version of his speech on the RBI website added the phrase that measures such as taxes “may not be desirable”. This episode reveals the political weight of foreign financial capital in India today. Whatever its qualms, the RBI has had to implement increasing capital account convertibility – in which the freeing of investment by Indian firms abroad is a very important step. The further the economy moves toward full capital account convertibility, the greater will be its vulnerability to speculative inflows and outflows. In anticipation of this, the greater will be the rulers’ need to subordinate domestic economic activity to financial interests: Witness the inability of the RBI to check inflows even of the most suspect variety, despite the consequent rupee appreciation throwing millions of Indian workers out of work (the minister of state for commerce has put export sector job losses at two million), and despite the State having to incur huge subsidies on ‘sterilising’ foreign inflows (i.e., absorbing them to prevent them from increasing the domestic money

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supply). The Indian State has in fact given primacy to maintaining a favourable environment for FIIs. On the one hand, given the limited supply of free-float shares (i.e., shares held by those other than the promoters), large foreign inflows have made share prices soar; and so FIIs have put pressure on the Indian rulers to make available for purchase a steady flow of fresh shares through disinvestment. At the same time, the Indian rulers have also been finding ways to channel more domestic finance to the share market in order to allow foreign speculative capital a cushion to sell without making a loss. All such measures are being termed giving the market ‘depth’. High cost of outflows Finally, even with the limited capital account convertibility India already has implemented, there could be very large capital outflows. While, as we have seen, the large capital inflows that occurred earlier did not benefit India’s economy, large capital outflows would have devastating effects. This is a familiar pattern by now in the world economy. The classic instance is the 1980s debt crisis, which developed from a great global financial rotation that has certain similarities with the current one. After the 1973 rise in oil prices, the oil-producing countries of the third world, lacking broad-based economies and financial infrastructure of their own, deposited their new influx of dollars in the banks of Europe and the U.S.. These banks, now flush with funds, needed to find large borrowers. With the help of the third world ruling elites, they managed to get various third world countries, particularly in Latin America, to borrow large sums, at initial low rates of interest (with provisions for later hikes). They created the impression that these countries could go on borrowing forever, paying off loans with fresh loans. The foreign loans did not really serve development in these countries. But they financed large projects which created business for multinational corporations, and the elites of these countries skimmed off a good portion of these loans, depositing

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them back (illegally) in the same western banks. By 1982, the underdeveloped countries had piled up a mammoth debt of $827 billion. At this point, the U.S., facing high inflation due to a fresh round of oil price hikes, hiked interest rates steeply. The hiked interest rates on U.S. government bonds attracted some capital away from third world countries. Now debtors such as Mexico found themselves unable to meet their foreign debt payments; whereupon all foreign banks stopped extending fresh loans to Latin American and African debtors. Thus began the great third world debt crisis of the 1980s. The International Monetary Fund agreed to provide foreign exchange loans to the debtors (in the bargain, of course, saving the developed-world banks that had lent to these countries), on the condition that they accept what it called ‘structural adjustment’ packages – slashed Government expenditure, massive privatisation, opening of the economy even further to imports, dismantling of efforts to get better terms for agricultural and mineral exports, opening of various sectors to foreign investment and takeover, and so on. These amounted to a great bonanza for the imperialist countries’ corporations. Latin America’s per capita GDP sank in the 1980s, and poverty grew steeply in what became known as its ‘lost decade’. Mexico studiously implemented this programme. The Economist noted in March 1995: “Only a few months ago, Mexico was one of the third world’s stars”: zero fiscal deficit, removal of import barriers, massive privatisation and foreign investment, capital account convertibility to assure foreign capital complete ease of entry and exit. All this was accomplished in the face of mass distress; popular resentment found militant expression in the uprising in Chiapas in January 1994. To a chorus of praise from the IMF, World Bank, and so on, the Mexican government also piled up high-interest short-term debt subscribed to by U.S. investors. Mexico’s exemplary adherence to IMF policies did not save it, however, when the U.S. hiked interest rates from 3 per cent to 6 per cent over the course of 1994. Capital took the next plane out of Mexico in December 1994, sending the value of the Mexican

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currency plunging, and prices soaring. Mexico was thus thrust into crisis again, and into yet another ‘austerity’ programme – with further gains for foreign capital. The 1997 crisis in East and Southeast Asia offers fresh evidence of the devastation caused by such capital outflows, the ground for which was laid in these countries’ opening up to capital inflows in the earlier period. The countries affected by the 1997 crisis had to suffer soaring inflation as their currency values plummeted. The IMF provided foreign currency loans on severe conditions, which resulted in the stalling of domestic economic activity, takeovers of domestic firms by foreign investors at bargain prices, and an increase in poverty. Thus the harm done by large, sudden capital outflows is not limited to the losses to speculators on the stock exchange; rather it brutally affects the vast masses. As Brecht observed, Those who had no share in the Often have a share in their misfortunes. fortunes of the mighty

Impending slump in the world economy and India There is now a further threat: the impending slump in the world economy, at the heart of which is the ailing U.S. economy itself. A significant aspect of the current U.S. recession is that it coincides with a striking downturn in the career of the U.S. as the principal imperialist power. This latter fact reduces the scope for the U.S. to fund its recovery with inflows of capital from the rest of the world. In the absence of a firm U.S. recovery, and amid the uncertainty accompanying any such major transition in the correlation of leading imperialist powers, the world economy faces the prospect of a protracted bout of stagnation. Global investors, having made major losses, may be particularly wary about investing in third world countries in such a climate; the more so in countries like India, where prices of shares and real estate are perceived to have risen too far. Given that the stimulus to India’s economic boom has come from

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inflows of external capital, such a change in the global economy would depress the domestic economy as well.

1. “The corporate savings glut”, Economist, 9/7/05. (back) 2. “Slow road ahead”, Economist, 28/10/06. (back) 3. Harry Magdoff and Paul Sweezy were perhaps the first to analyse this phenomenon, in their journal Monthly Review. (back) 4. United Nations, World Economic Situation and Prospects 2008. (back) 5. “The global gusher”, January 6, 2007. In this paragraph, the Economist contradicts its earlier piece (9/7/05), in which it ascribed low U.S. interest rates in the main to the reluctance of corporations to invest. (back) 6. Economic Survey 2007-08. This is the average gap between domestic savings and domestic investment, which is filled by foreign savings, i.e., net capital inflows. The average figure is zero because in the first two years of the Plan there was actually an export of capital from India. The average for the Ninth Plan (1997-2002) too was quite low: of an investment rate of 24.3 per cent of GDP, foreign inflows accounted for only 0.7 percentage points. (back) 7. Economic Advisory Council, Review of the Economy, 2007-08, January 2008. (back) 8. “Home truths”, 7/7/07. (back) 9. “Dizzy in boomtown”, 17/11/07. (back) 10. Economic Advisory Council, op. cit. (back) 11. Ellis, Luci and Kathryn Smith, “The global upward trend in the profit share”, BIS Working Papers no. 231, 2007. (back) 12. “Rich man, poor man”, Economist, 20/1/07. (back) 13. Generally workers’ wages catch up with price rise at best with a delay; and given that a large percentage of workers in export sectors are in the unorganised sector (textiles,

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garments, leather goods, marine products, etc), they would be unlikely to get fully compensated for price rise. (back) 14. “Marauding maharajahs”. (back) 15. “Profit mirages”, Economist, October 14, 2007. (back) 16. By market capitalisation, that is, the market price of the shares multiplied by the number of shares. We have converted at the rate of Rs 39.4/US $. The share holding data is from the Prowess database, CMIE. (back) 17. Net inflows of FII capital from Economic Survey 2002-03 and RBI Bulletin, February 2008. (back) 18. Another form of such capital, what is called “private equity”, is officially classified as foreign direct investment, but actually is speculative and volatile like FII investment. According to the firm DataSource, total private equity deals in India announced in 2007 amounted to $19 billion. (Economic Times, 18/2/08). (back) 19. “A quiet foreign invasion of Korea’s giants”, New York Times, 20/5/04. (back) 20. Wysham, Daphne, “Blood Money: U.S. Bank Funds Korean Project that Will Destroy Native Community”, 21/4/07, (back) 21. “India overseas loans hit record $42 billion”, Business Standard, 4/1/08. Thomson Financial is cited as the source for the data. (back) 22. RBI, Annual Report 2006-07. (back)

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IV. (3) Private Corporate Sector-Led Growth and Exclusion Till the 1990s public sector expenditure gave some stimulus to demand for the production of large industry. The private corporate sector also soaked up cheap finance from State agencies, and enjoyed partial protection from imports of finished goods. Despite this comfortable environment, the underlying paucity of domestic demand – reflecting the condition of the vast majority of people – restricted the rate of industrial growth in India. And the nature of demand (i.e., for what types of products) skewed the pattern of growth, away from items of mass consumption such as cheap textiles, and toward elite consumption. This skewed, import-dependent pattern of production restricted employment creation by industry; and the sluggish growth of industrial employment in turn restricted the market for mass consumption goods. Thus when spells of rapid growth occurred, they were distorted and self-limiting. The high industrial growth rates of the 1980s were unleashed by the relaxation of controls on industry, imports, and external borrowing. Given the Indian elite’s insatiable desire for foreign goods, and the propensity of Indian big business to operate as merchants rather than as industrialists, this relaxation was accompanied by a surge of foreign collaborations; this resulted in large imports and large trade deficits; this was in turn funded by foreign debt (not coincidentally, international banks in this period were hunting for borrowers). This culminated in the debt crisis of 1990-91. The further liberalisation post-1991 unleashed another bout of growth in the mid-1990s oriented toward elite demand; this petered out by the late 1990s, and was followed by another bout of stagnation. It is yet to be seen how long the present bout of growth can be sustained. The proponents of the current policies argue that it is broad-based compared to earlier such bouts, that Government finances are in better shape, and that long-term trends in the

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international economy (in particular the growth of outsourcing) imply that growth of services exports will continue indefinitely. Let us assume there is some merit in these arguments. Regardless of whether or not growth continues, however, the pattern of industrial development taking place has some striking features which we need to note. These features help us understand whether, either now or in the future, the present trends will translate into the betterment of the people of India. In fact the pattern of corporate sector growth, whether in industry or services, not only fails to pull up the rest of the economy; the present pattern of growth is based on exclusion, the fencing-off of the ‘growth’ sectors from the rest of the economy.

A. Bank Credit: Strengthening Dualism Explosive credit growth – turning from production to upper-class consumption Encouraged by Government policy, and fed by massive foreign capital inflows, bank credit grew 227 per cent between 2001-02 and 2006-07, nearly three times as fast as GDP at current prices. This explosion has played a key role in the current expansion; and nowhere is the dualism of the economy more striking. The ‘liberalisation’ of banking marked a major shift of finance from productive sectors to consumption. The RBI Annual Report 2006-07 notes that “the share of personal loans [i.e., loans for housing, education, automobiles, consumer durables, credit card expenditures, etc] in total bank credit extended by scheduled commercial banks increased from 6.4 per cent at end-March 1990 to 23.3 per cent at end-March 2006, driven by housing as well as non-housing loans. While the share of housing credit in overall credit rose from 2.4 per cent to

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12.0 per cent, that of non-housing retail credit rose from 4.0 per cent to 11.3 per cent.” By contrast, over the same period, the share of agriculture in bank credit fell from 15.9 per cent to 11.4 per cent, and that of small scale industry plummeted from 11.5 per cent to 6.5 per cent. The sectors employing the vast majority of the workforce in production now received less bank credit than the well-heeled received for consumption.1 Booming credit-fuelled consumption triggers industrial boom The really explosive growth in bank credit to housing and the real estate sector has taken place in the last five years. Outstanding bank credit to housing rose from Rs 894.49 billion at end-March 2004 to Rs 2.25 trillion at end-March 2007. The real estate boom has in turn spurred a boom in other sectors such as cement, steel, tiles, glass, various types of fittings (electrical, plumbing, furnishing), elevators, and consumer durables such as fans, air conditioners, and kitchen ranges. Average and peak capacity in the cement industry rose from 79 and 92 per cent in 2001-02 to 94 and 108 per cent in 2006-07, a historic high.2 Automobile manufacture (or assembly) has emerged in a few years as what the Economic Survey 2006-07 describes as “one of the key segments of the economy” (emphasis added). The production of passenger cars (including multi-utility vehicles) has grown from 0.67 million in 2001-02 to 1.5 million in 2006-07, and two-wheelers from 4.3 million to 8.2 million. Outstanding credit for the purchase of cars and two-wheelers has risen from Rs 460.2 billion in 2002-03 to Rs 1.09 trillion in 2006-07; 89 per cent of the new cars sold in 2006-07 were bought with credit, with loans covering 79 per cent of the value of the purchase.3

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As industries catering to credit-fueled demand began using more of their capacity, they began to place orders for plant and equipment; thus the growth rate of capital goods production rose from -3.4 in 2001-02 to 18.2 per cent in 2006-07. The linkage between consumer credit and the economic boom has been confirmed by the recent slowdown in industrial growth. In an attempt to control inflation, the RBI increased interest rates in six steps during 2006-07, and, with a lag, the automobile, real estate and consumer durables sectors all slowed down, bringing down overall industrial growth. Automobile sales growth halved in the first ten months of 2007-08 over the corresponding period of the previous year.4 Consumer durables production growth fell from 11.2 per cent in April-December 2006 to -1.3 per cent in April-December 2007. Cement growth slowed from 10.3 per cent to 7.2 per cent, and finished steel from 11.4 per cent to 5.6 per cent over the same period, signalling a slowdown in the construction sector. Thus overall manufacturing growth slowed significantly from 12.2 per cent to 9.6 per cent.5 The linkage between foreign capital inflows, consumer credit to the middle and upper classes, and an industrial boom catering to that narrow market is significant. It brings out how the spectacular growth of the economy is on a narrow and unstable foundation. Strengthening the walls between different credit markets There has never been a unified credit market in India: credit from banks and even cooperative societies was available only to limited sectors of the economy. Despite bank nationalisation and the considerable geographical and sectoral spread of formal banking since the 1970s, most of agriculture (and the rural areas in general), smallscale/household industry, and even the urban poor continued to rely for their production needs on the informal sector (moneylenders, traders, chit funds, and the like), the size of which has been grossly

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underestimated in official surveys. And for consumption loans, of course, the poor had to turn to moneylenders. However, the advent of ‘liberalisation’ in 1991 arrested and reversed even the slow increase that had been made since the 1970s in the share of the formal sector. ‘Liberalisation’ froze the division between, on the one hand, the credit-starved producers who make up the bulk of the workforce and pay usurious rates, and, on the other, a small, credit-gorged, urban elite sector. The total number of borrowal accounts nationwide rose a paltry 7.1 per cent between 1991 and 2004. Within this, small borrowal accounts plummeted; within small borrowal accounts the share of agriculture and handicrafts fell, and consumer loans soared; and the share of Dalits and Adivasis fell to half its preliberalisation level. The total number of rural borrowal accounts fell from 32.5 million in March 1991 to 25.4 million in March 2004.6 The number of rural bank branches fell even as that of metropolitan branches grew. In March 2007, the rural population (75 per cent of the total population) accounted for 9.9 per cent of bank deposits and 7.9 per cent of credit; whereas the metropolitan population accounted for 55.9 per cent of deposits and 66.1 per cent of credit.7 Within banks’ agricultural lending there has been a massive shift away from small borrowers and small cultivators, to large borrowers and large cultivators.8 Thus, in the name of ‘freeing’ credit of ‘financial repression’, the vast mass of borrowers (who are also the vast mass of producers) have been thrown in the dungeon of usury. Usury is a parasitic extraction which prospers from the weakness of the borrower; it prevents productive investment and the growth of productive forces. Far from attempting to unify the credit market, the authorities have now made clear that formal banking services will not be extended to the vast majority: an official RBI committee has now charted out methods whereby instead rural moneylenders can be provided funds by the banks, and “incentivised” to reach credit to the financially excluded.9 The rulers have also been trumpeting microcredit as the answer to financial exclusion. But this sector meets only a trivial fraction of credit requirements,10 and is irrelevant for

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productive purposes – it largely goes toward consumption loans, current capital for petty retail, and the repayment of informal sector loans (correspondingly, borrowers frequently take informal sector loans in order to repay microcredit loans). In the peasantry’s situation of isolation and credit-starvation, microfinance is able to charge high rates of interest and recover loans through extra-economic coercion. These firms claim that borrowers are more concerned about the availability of funds than the rate of interest, as evidenced by their paying high rates to usurers; but it is far-fetched to imagine that the economic activities of small borrowers yield returns high enough to justify such rates. That they pay them nevertheless is a sign of their helplessness. The microcredit sector’s handsome returns have now attracted investment by foreign private equity firms – a happy marriage of international speculative capital and domestic usury. The banking system has operated as a channel for the outflow of such meagre savings as accumulate in the rural areas. The ratio of credit disbursed by banks to deposits received (the C/D ratio) fell sharply in the rural areas between 1991 and 2004, and rose sharply in the metropolitan areas. (The C/D ratio also fell or stayed the same for relatively backward regions – the northeastern, eastern and central regions, while it has improved for the western region.) So great has been the urban credit explosion that within a few years the banks have found the urban sector ‘saturated’, and have been resorting to ‘subprime’ lending (ensuring repayment through thuggery). As striking as the exclusion of peasant agriculture from formal credit has been the exclusion of small scale industry, a major employer. Its share of bank credit has fallen to 6.5 per cent – less than half the level of 1972, which was before the setting of targets for priority sector lending. According to one columnist, “So underserved is this segment, and so acute is its hunger for credit, that at least one finance company is able to charge annual interest rates of 20 per cent or more while restricting the loan amount to a third of the value of the collateral.” When loans extend to only a third of the value of the small collateral, one can imagine the restriction on growth of assets of this

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sector11 Micro-enterprises account for 99 per cent of small scale industries and the overwhelming bulk of employment in the sector, but, as revealed by a recent report of the National Commission for Enterprises in the Unorganised Sector (NCEUS), they are completely shut out of bank credit.According to Rakesh Mohan, deputy governor of the RBI, banks’ cost of lendable funds in 2005 was 7.5-8.5 per cent, but “The interest rates vary from 3-4 per cent on the lower side to 24-25 per cent on the higher side.”12 Who was getting funds at below cost? RBI governor Y.V. Reddy stated bluntly that banks were underpricing the risk of loans to large borrowers and overcharging small businessmen and farmers.13 Little has changed since then: Almost 79 per cent of the lending by scheduled commercial banks was at below the benchmark prime lending rate (BPLR) at end-March 2007.14 An official committee remarks that “small and micro enterprises get credit above Rs 2 lakh [Rs 200,000] at a rate 2 per cent higher than the PLR. In addition, there are several service charges, which further escalate the cost of credit. The result is that large enterprises receive credit at almost half the rate levied for the unorganised and small enterprises...”, i.e., 6 to 7 per cent as compared to 13 to 16 per cent.15 In effect, the capital-starved sectors of the economy have been subsidising the sectors gorged with capital.16 The deposits and outstanding credit of scheduled commercial banks (SCBs) by region and state also reveal extreme regional inequality, as can be seen in Table 1. The C/D ratios are abysmally low for the northeastern, central and eastern regions, which account for half the country’s population. Maharashtra and Tamil Nadu, on the other hand, have C/D ratios of over 100 per cent. However, even this does not bring out the extent of inequality; as the deposits are also higher in the better-off states, their share of total credit is even greater.17 Thus credit/person in the northeastern, central and eastern regions is between one-fourth and one-third of the all-India average; whereas in the western region it is more than two and a half times the all-India average. One should also remember that even within the western region it is only pockets that are flooded with credit: for example, in

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Maharashtra virtually all bank credit is concentrated in Mumbai-Thane and Pune.

Table 1: Disparity in Credit-Deposit Ratios and Credit/Person of Scheduled Commercial Banks across Different Regions, 2006
CreditDeposit Ratio (%) Northeast Region Central Region Eastern Region Credit as ratio of % of all-India Population credit per person 0.24 0.30 0.35 1.53 1.19 2.55 1 3.7 24.9 22.1 13.7 21.8 14.5 100

40.7 44.2 49.2

Northern Region 64.6 Southern Region 84.4 Western Region All India 92.0 72.4

— Source: Calculated from RBI, Basic Statistical Returns. Population is of 2001 Census. While the regional chauvinist leader Raj Thackeray has whipped up riots in Maharashtra demanding that migrants from U.P. and Bihar leave the state, he has not raised any objection to capital from U.P. and Bihar migrating to Maharashtra. The difference between bank deposits and bank credit in U.P. is over Rs 900 billion, and in Bihar is almost Rs 320 billion; whereas in Maharashtra, as we noted, credit is higher than deposits. The migrants from U.P. and Bihar are merely following the capital that has flowed out of their states; were there

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sufficient investment in their own states, they would surely stay there. Thus the banking system is working to reproduce and strengthen all the dualities we named earlier – between agriculture and nonagriculture, rural and urban areas, backward and relatively developed regions, small and large industry, dominant and oppressed castes, etc.

B. Enclave Development The ‘New Economy’ The information technology (IT) and information-technology enabled services (ITES) sectors have been at the forefront of growth in the last decade. One of India’s principal advantages in this field is a colonial legacy: the dominance of English in secondary and higher education, as well as in various important aspects of society and the economy. The educational system that once produced clerks for the Raj now excels in producing a cheap skilled labour force for multinational corporations. Of course, this means that the historical disparities in Indian society get reinforced by the success of these industries: one survey-based study finds that “one of the reasons for the IT industry’s success is that it has been able to tap the existing cultural capital of the urban middle classes (which consist primarily of high and middle castes) – including their educational attainments, knowledge of English, and some degree of westernised social orientation and habits. The IT workforce is drawn mainly from this section of society, and by providing new and lucrative employment opportunities it is in turn contributing to the reproduction and consolidation of middle class/upper caste domination.18 Another study calculates that “somewhere between 4-7 per cent of all Indians have the kinds of educated parents that characterise successful new entrants to the software industry”.19

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By 2006-07 the IT/ITES sector (including engineering services and R & D and software products) accounted for 4.3 per cent of GDP, of which four-fifths was from exports. Yet it accounted for about 0.3 per cent of the country’s employment. Some reports project employment in this sector to double by 2010; in that case it will account for something like 0.7 per cent of total employment at that point. Whereas it will account for more than 6.5 per cent of the country’s GDP in 2010: In other words the IT/ITES share in GDP will be nine times its share in the workforce – an enclave within the Indian economy. While IT/ITES employees save a much larger share of their incomes than ordinary workers, their expenditures are nevertheless sizeable and generate some further employment. But their spending patterns are very different from those of ordinary workers, who spend their wages on items such as foodgrains, textiles, footwear, and cheap industrial goods. By contrast, the growth of IT/ITES incomes will continue to boost demand for urban housing, automobiles, organised retail, hotels, air travel, mobile telephony, entertainment, foreign holidays, credit cards, banking services, insurance, and share marketrelated firms. All this elite expenditure will no doubt result in some indirect job creation in various activities such as domestic help, security, construction of residential accommodation/commercial space/roads, organised retail, hotels, transport, financial services, and so on; and spending by these sectors in turn will generate some further jobs. Nevertheless, in comparison with the same rupee expenditure on a wage good such as textiles which has extensive backward linkages, a large proportion of elite expenditure leaks abroad, and at any rate the additional domestic employment generated is very low. This helps explain why genuine employment growth has been so slow despite high GDP growth. The operations of the firms themselves have strong external linkages, but weak linkages with the domestic economy: they purchase few inputs or capital goods from the domestic economy, and three-fourths of their output is exported. Their most important expenditure in the

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domestic market is on real estate. The effects of this can be seen in the extraordinary real estate boom. While this has boosted demand for steel, cement, and construction, most of all it has unleashed huge speculation in real estate. Hitherto little-known real estate sharks have become among the richest tycoons in the country: of the 54 Indian dollar billionaires listed in 2007 by the U.S. magazine Forbes, 7 are real estate developers, and one – Kushal Pal Singh, unknown a decade ago – is the fourth richest. More importantly, huge foreign funds have flowed to the real estate sector, directly and indirectly. Much of the real estate owned by these tycoons – and indeed directly by IT firms as well – has been acquired at relatively low prices from peasants in the vicinity of major cities. Even if we assume that each IT/ITES job generates an additional 1.5 jobs in other sectors,20 given that the sector itself will continue to employ less than 1 per cent of the workforce for a long time to come, its impact on the overall employment scene in India will be restricted (while its impact on the job market of college-educated youth may be very large). Moreover, when seen as part of broader processes in the economy of which it is a part, the net addition to employment is less clear. For example, the acquisition of vast tracts of land for the IT/ITES firms and for housing their employees will reduce agricultural employment. The IT/ITES sector has also demanded, with increasing assertiveness, that urban planning be fashioned according to its interests, as opposed to the interests of the mass of ordinary urban citizens. With the peculiar, isolated boom in the IT sector, the economy as a whole becomes more disarticulated: the organic links between different productive sectors of the domestic economy are broken in the course of strengthening external links. For example, by one estimate the IT sector will pick up 80-85 per cent of India’s “employable” engineers, and nearly 60 per cent of its “IT-employable” graduates;21 that is, the best academic performers will be absorbed by an industry that largely caters to foreign demand for software and services, much of it “cyber-coolie” work. This diverts skilled workforce (much of it educated at a public subsidy) away from the development

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of all-round technological capability in India. In the event of a major disruption in outsourcing, the hordes of IT employees will be of little use for the specific requirements of India’s development. The employment of call centre workers is even more of a dead-end in skills, useless to the domestic economy. It is true that several Indian firms have displayed high-tech abilities, and that the cream of Indian engineers are considered to be among the world’s best. However, this fact merely highlights the missing links in the chain of technological development. For example, the Government made some efforts in the 1980s to develop telecom technology indigenously, but these were later abandoned and disbanded. Now the entire explosion in telecommunications in India since the 1990s has merely yielded a massive harvest for foreign producers of telecommunications equipment. In just the period 2005-08 the estimated capital expenditure of telecom service providers is put at Rs 1.5 trillion,22 for which the equipment overwhelmingly imported.23 Further, India produced 31 million mobile handsets in 2006, which is estimated to rise by 68 per cent in 2007; the components are very largely imported.24 An interesting new pattern is of sophisticated research and development (R & D) being carried out in India on contract for multinational firms, for example in telecom and semiconductors. Several multinational telecom giants such as Alcatel and Cisco have established R & D facilities in India to tap the excellent and cheap engineering talent available in India. This is not to suggest that the growth of exchange between the Indian economy and the world economy as such generates dependence and disarticulation (rupturing of organic linkages) in the former; its effect depends on the character of relations within the Indian economy. We have seen in the earlier chapter how the Indian ruling classes have developed historically through a process of disarticulation of the domestic economy, parasitic drain from the productive sectors, and dependence on imperialism. The mercantile activities of big business (in the real estate and financial sectors, marketing of imported goods, and export of cheap labour services) continue to occupy a prominent

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place in their overall operations, often predominating over their industrial activities. Parasitic classes continue to rule agriculture. Within this framework the growth of exchange with the world economy exacerbates all these regressive features. Enclave development as official policy: the SEZs An even more striking manifestation of enclave development is the Special Economic Zones. This is enclave development as official policy. The process of enclave development is not accidental; it is the inevitable consequence of an attempt to generate rapid growth on the base of a narrow market. The rulers’ argument is as follows: India cannot grow fast without foreign investment; foreign investment will not come to India as long as it lacks ‘world-class’ infrastructure; it is impossible to provide such infrastructure throughout the country in the near future; hence private capital should be invited to develop such infrastructure first in pockets of the country, insulated from the conditions around; as reward for this, both developers of SEZs and the units operating in them should obtain generous tax concessions. Given that SEZs are to be insulated from the conditions of India, infrastructural investment for their needs will have little or no benefit for the rest of the economy. H.W. Singer’s remarks of six decades ago still hold true: “the productive facilities for export from underdeveloped countries, which were so largely a result of foreign investment, never became a part of the internal economic structure of those underdeveloped countries themselves, except in the purely geographical and physical sense.”25 The profits of SEZ developers will be particularly attractive since the zones include elite real estate development such as hotels, malls, entertainment, and the like (the present rules stipulate a minimum of 25 per cent of the SEZ area be used for industrial processing, leaving the bulk of the area for real estate development). The most important inducement to invest is that both industrial investors and real estate

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developers will be given massive tax breaks – in the apt language of an earlier draft of the Act, the SEZs will be considered “foreign territory” for tax purposes. The finance ministry estimates that, for a total investment of Rs 3.6 trillion in the SEZs, the loss in taxes to the exchequer will be Rs 1.74 trillion. A large share of the SEZs are to be of the IT industry (indeed, two-thirds of the SEZs notified so far), which has already been growing rapidly without SEZs: it is obvious that these IT SEZs will not attract investment beyond what was coming anyway, but will merely divert investment to a tax-holiday area. The reason is simply that tax concessions for existing IT firms are due to expire in 2009; by this shift they will extend another 10 years. (The present minister of state for commerce has candidly termed this a “bypass surgery” for the relevant provisions of the Income Tax Act.26) While this diversion is more blatant in the case of the IT SEZs, it is likely to be true of most SEZ investment. To the extent SEZ investment is merely diverted from other areas, it cannot create net employment; and given that in many cases fertile agricultural lands are being acquired for the purpose, the net employment generated would be negative. The government is putting out contradictory and dubious estimates of the employment that would be generated. The RBI Annual Report 2005-06 says that eventually 0.5 million jobs would be generated with an investment of Rs 2 million per job; the Economic Survey 2006-07 says that by December 2009 0.89 million jobs would be created at Rs 660,000 investment per job (and if all 237 SEZs become operational 4 million jobs would be created at Rs 750,000 investment per job). Given that fixed investment per employee in the organised manufacturing sector (which encompasses all manufacturing firms with 10 or more workers using power, and hence includes firms with very low capital-intensity) was Rs 600,000 in 2003-04, these claims of employment creation in SEZs appear extremely far-fetched. The entire surge in corporate sector investment over the past decade failed to create any jobs, since it was so capital-intensive. The proposal by the Salim Group of Indonesia for an SEZ in West Bengal

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(including a technology park, a knowledge park, a hotel complex, a health park and a golf course) claimed that 30,000 jobs would be created with an investment of Rs 440 billion, or nearly Rs 15 million investment per job. As we saw above, two-thirds of the SEZs are IT SEZs, which would have a pattern of investment similar to the Salim Group proposal. The Posco SEZ in Orissa is projected to create 13,000 jobs with Rs 510 billion of investment, or nearly Rs 40 million per job. One could generously guess that one job might be created per Rs 10 million investment in the SEZs; in which case, Rs 3.6 trillion of investment in SEZs might create only 0.36 million jobs. This is negligible by any measure – whether as a percentage of total employment (385-457 million by different measures in 2004-05) or of the addition to the labour force over the next few years (45-50 million over the next five years). At the same time, as we mentioned earlier, the finance ministry estimated that taxes lost as a result of SEZ exemptions would be Rs 1.74 trillion. Even a portion of this sum, if spent on employment-generation schemes or loaned to small producers, could generate vastly greater employment than the SEZs. A recent study found that workers in existing SEZs work 5.3 per cent more hours than workers in non-SEZ areas, at hourly wages which are 34 per cent lower.27 Indeed, to the extent SEZs are export-oriented, wages and labour conditions in SEZs must be depressed, since the aim is to compete with SEZs of other countries offering labour on equally depressed terms. To facilitate this, the SEZ Act permits the state governments to delegate powers under the Industrial Disputes Act to the Development Commissioner of the SEZ, and to declare SEZs as ‘public utility services’ (this would make strikes illegal). Moreover, the Centre’s model SEZ Act for the state governments contains a list of exemption clauses in labour laws, including the Minimum Wages Act and the Contract Labour Regulation and Abolition Act. The functions of a Grievance Redressal Officer in an SEZ may be performed by the Development Commissioner – that is, there is no separate labour machinery (thus workers employed by the SEZ Authority would appear

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before the person against whom they would be lodging their grievance). The SEZ Authority, which governs the zone, is chaired by the Development Commissioner, and includes three officers of the Central Government and two entrepreneurs or their nominees; there is no provision for representatives of workers (even if such provision were made, of course, we know how easy it is to select pliable ‘representatives’). The powers of various wings of the State machinery – police, judiciary, municipal – will be concentrated in the hands of the Developer of the SEZ and the Development Commissioner. Evidently, the SEZs are not only economic enclaves but political enclaves as well, to be run as so many princely states, with no pretensions to democracy. Under the banner of ‘infrastructure’: Fencing off ‘development’ SEZs are also only one example of the much broader process of enclave development. It has become part of official policy in a number of sectors to fence off investment from the rest of the economy. In the transport sector, the policy is to direct investment to serve the developed regions and the elite. For example, the Railways plan to focus on building high-speed rail corridors between metropolises. Land along these corridors is slated for commercial development (supposedly for industry, but we have seen how the SEZs have been used as a cover for real estate activity); just the initial land acquisition for the first corridor would be 8,800 hectares. Huge funds have been spent on the National Highway Development Project, most of all on the Golden Quadrilateral connecting the major metropolises, facilitating a massive expansion of automobile travel and other road transport between these points. This is India’s largest infrastructure project since 1947; by comparison the expenditure on rural roads is paltry and behind schedule, preventing the development of local markets. Similarly, the hundreds of flyovers which are being constructed across the metropolises at gargantuan cost, may benefit

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automobile owners, automobile manufacturers, and construction firms, but they are generally out-of-bounds for public transport and useless to the inhabitants of poorer, congested areas. Tellingly, the BangaloreMysore Infrastructure Corridor Project expressway is elevated and literally fenced off from the surrounding rural areas, in order to prevent villagers from crossing them and holding up inter-city traffic. The transport sector thus continues along the pattern of the development of railways under the Raj. And further in line with the same pattern, the highway, flyover, metro and railway projects offer huge bonanzas to foreign consultancy, engineering and equipment firms. The dedicated freight corridor between Mumbai, Delhi and Kolkata is to come up on fresh rail infrastructure, naturally, with Japanese aid tied to purchases from Japanese firms. The Japanese estimate of the cost is twice that of the Railway Ministry. The NHDP has been partly financed with loans from the World Bank, the Asian Development Bank and the Japan Bank for International Cooperation, and foreign engineering firms are major participants in it. The first line of the Mumbai Metro, to be built by a consortium of Reliance Energy and two foreign firms, is to be built on what is called ‘standard gauge’. Since broad gauge, on which the Indian Railways runs, was rejected for the Mumbai Metro, all equipment and spares for it now and in the future will have to be imported. The corporate sector, sundry official committees and the media have long been been building up a drum-beat about the need for ‘infrastructure’. The Prime Minister has appealed to foreign investors to fill a purported $300 billion gap in infrastructure; without it, we are told, growth itself is threatened, and since the need for such ‘growth’ is beyond question, there is no discussion about what the infrastructure is for. If there were, it might reveal the distorted pattern of development associated with this infrastructure. For example, the expansion of airports, to provide for a staggering 25-30 per cent annual growth in air travel, is taken as indispensable; the Jawaharlal Nehru National Urban Renewal Mission has shelled out additional public funds to connect the privatised Mumbai airport to the

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express highway with a wide flyover; and those whose homes lie in the way must console themselves with having sacrificed their lands for national development. In fact, however, the entire infrastructural project is in the service of luxury consumption. ‘Infrastructure’ cannot be viewed in the abstract. It can serve either the productive sphere or purely mercantile activities; its significance depends on the economic environment in which it operates. Paul Baran cogently said that the effect of creation of infrastructural facilities would still remain nil (or negative) as long as they constitute alien bodies in a socio-economic structure into which they have been artificially injected. For it is not railways, roads, and power stations that give rise to industrial capitalism: it is the emergence of industrial capitalism that leads to the building of railways, to the construction of roads, and to the establishment of power stations. The identical sources of external economies, if appearing in a country going through the mercantile phase of capitalism, will provide, if anything, ‘external economies’ to merchant capital. Thus the modern banks established by the British during the second half of the nineteenth century in India, in Egypt, in Latin America, and elsewhere in the underdeveloped world became not fountains of industrial credit but large-scale clearinghouses of mercantile finance vying in their interest charges with the local usurers. In the same way, the harbors and cities that sprang up in many underdeveloped countries in connection with their briskly expanding exports did not turn into centers of industrial activity but snowballed into vast market places providing the necessary ‘living space’ to wealthy compradors and crowded by a motley popultion of petty traders, agents, and commissionmen. Nor did the railways, trunk roads, and canals built for the purpose of foreign enterprise evolve into pulsing arteries of productive activities; they merely accelerated the disintegration of the peasant economy and provided additional means for a more intensive and more thorough mercantile exploitation of the rural interiors.28

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C. Capture of Natural Resources The land grab by SEZs is only one example, albeit a major one, of a much broader process under way of seizure of land and other natural resources by the private corporate sector and foreign investors. State governments are vying with one another for such predatory ‘investment’, offering large subsidies in the process (for example, the West Bengal government’s massive subsidising of Singur land for the Tatas’ car factory). State policy has embraced the private capture of natural resources, both directly in the form of inviting investment in extractive industries, and indirectly by permitting industrial projects based on captive mines. The public sector Oil and Natural Gas Corporation (ONGC) is the corporation with the highest profits in India, thus it would have had easy access to funds for a major exploration drive. However, throughout the 1990s ONGC failed to carry out major investments in deep-sea exploration (clearly on direction from the Government, which has always closely controlled its functioning). Thereafter successive governments have carried out seven rounds of the New Exploration Licensing Policy (NELP), under which foreign and Indian corporations, including the ONGC, bid for various Indian fields. Among the major gainers of this privatisation have been Reliance and Cairn Energy. Meanwhile ONGC is making large investments abroad (the largest being its $2.7 billion investment in the Sakhalin oilfield in Russia). Perhaps the largest foreign direct investments (FDI) in India are to be made by steel firms like Posco and Arcelor Mittal aiming to capture India’s rich iron ore reserves, which are considered to be of high quality. According to various estimates cited in the press, the provision of captive iron ore mines by the Orissa government will benefit Posco by Rs 540 billion, Rs 960 billion or Rs 2 trillion over the life of the project (this being various estimates difference between the market cost of ore and the cost of mining it over the life of the project).29 The Orissa government is also acquiring 6,000 acres for the project, including for the captive port being set up by Posco. Although some 10,000 cultivators earn their livelihood on part of the land to be

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acquired, growing betel, much of the land is recorded as wasteland or forest land, belonging to the State; hence the government claims that only 471 families will be displaced, since only 471 have title to their land.30 The Central Government has done its best to accelerate the opening up of mining to foreign investment. The Anwarul Hoda Committee set up by the Planning Commission is based on the tenet that increasing investment in mining and extraction of minerals is as such beneficial, and must be accelerated. It has recommended eliminating the requirement of public hearings in the case of mines smaller than 50 hectares. It calls for an increase in the upper limit for a single mine lease from 10 sq km to 50-100 sq km – implying massive displacements. If, on the basis of a permission to survey, explore, or prospect, a firm finds minerals, it should be granted a lease to mine without a detailed environmental impact assessment. Similarly, lease renewals should be virtually automatic. It further recommends that the Centre have the right to allot a mining lease to any firm in case the state government fails to decide within the stipulated period. Interestingly, the chief ministers of Orissa, Chhattisgarh, Jharkhand, and Rajasthan, the very persons who have been promoting the great handover of natural resources, have now voiced certain reservations in a memorandum to the Prime Minister in December 2007. This is of course a hypocritical exercise, and their motives are limited to ensuring that they too have a say in the decision-making process (and thus a share of the cream); nevertheless their comments are revealing. First, they demand that value be added to raw materials in the state in which they are extracted (the Hoda Committee has recommended that there should be no compulsory value-addition within the mining state, as it would deter investment in mining). Further, they demand that the states should be adequately compensated for the extraction of the minerals through a royalty based on value, the export tax on these minerals should be credited to the states, and five per cent of the profits from mining be set aside for social and economic development. Finally, they urge that the management and development of certain

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minerals of national importance continue to be reserved for state public sector units. They warn that the present trend “If followed to its logical conclusion... may result in a few multinational mining companies acquiring control over the vast mineral resources of the country that are essentially required for the domestic manufacturing industry.” Indeed this is the typical pattern of extractive investment in a third world country. Jamshedpur, run by the Tatas as a model town, is often cited as evidence that mining brings ‘development’ to a region; but what is striking is that a century of Jamshedpur’s existence has not brought development to the broader region around it, which is as backward as ever. In the memorandum’s telling phrase, “It is an irony that the mineral-rich states are the poorest states of the country.”31 This precisely echoes the titles of two recent reports brought out by NGOs. The Centre for Science and Environment’s Rich Lands, Poor People – Is Sustainable Mining Possible? reports that of the persons displaced between 1950 and 1991 for mining, not even 25 per cent were rehabilitated; of the displaced, 55 per cent were tribals. ActionAid’s Resource Rich Tribal Poor reports that in four states – Andhra Pradesh, Chhattisgarh, Jharkhand, and Orissa, 7.9 million hectares have over the years been acquired under the colonial (1894) Land Acquisition Act, displacing a population of around 10 million, more than two-thirds receiving nominal or no compensation, let alone rehabilitation. As for the claim that mining and mineral-based industries would create more employment, the CSE report brings out that the workforce in both sectors has actually declined by 20 per cent in recent years. On the other hand, the CSE report describes the devastation of the environment by the existing pattern of mining – the clearing of forests, the failure to dispose of waste properly, the pollution of water sources. Between 1980 and 1997, permissions for clearing forests for mining were granted at an annual average of 20 projects and 2,030 hectares; between 1998 and 2005, the annual rate went up to 125 projects and 8,650 hectares. The Indian Bureau of Mines

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inspects 80-90 per cent of officially operating mines annually; it finds about 50 per cent of them violating environmental laws; it prosecutes about 10 per cent of the violators; and less than one per cent of the violators have operations suspended. Whether for mining, for locating large industry, or simply for real estate, these giant grabs of natural wealth such as land, forest and minerals generally meet resistance from those whose land is to be acquired. This resistance is especially fierce because those whose land is to be acquired know how scant are the prospects for making a living in any other sector, whereas they are able to obtain at least subsistence from the land. Moreover, with displacement, their social networks are broken; without these networks, they are left even more defenceless against exploitation by sundry predators. Thus the acquisition of land, even where seemingly sizeable compensation is offered, requires coercion. Even if the State does not acquire lands under the Land Acquisition Act, and leaves it to private parties to carry out, the situation is grim for those facing acquisition: in the rural areas and parliamentary life of India it is easy enough to find various middlemen and toughs who divide, cajole, and finally terrorise villagers into parting with their land. Thus the last few years have been marked by violent clashes between villagers and the State, or the armed thugs of private firms, at a number of places: Kalinga Nagar, Kashipur, the Posco project, Singur, Nandigram, and various proposed project sites in Bastar have all witnessed serious clashes, some even massacres. It is even argued that the State-sponsored private militia in Chhattisgarh, the Salwa Judum, was organised in order to overcome opposition to a large number of private corporate mining projects to come up in the state.32 Aside from the fact that the effects of these resource-captures are frequently devastating to people’s agricultural employment, their nutrition, and the environment, even the supposed benefits to the broader economy are transient. The natural resources being extracted are limited and irreplaceable; once they are exhausted, the investor

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can move on, leaving neither lasting assets nor employment, but only an environmental mess for the people to suffer. The calculation of GDP, of course, does not take into of these aspects into account. Since the subsistence activities of the villagers, especially if they are tribals, are at such a low level that they do not contribute much to GDP, and the profits and salaries of the corporate sector are high by comparison, the elimination of the tribals’ subsistence and the seizure of natural wealth by the corporate sector shows up as an increase in GDP. This giant capture of land and natural resources by the corporate sector is superficially similar to the ‘primitive (or primary) accumulation’ of capital which served as a necessary stage of capitalist development in Europe. Indeed it resembles that stage in its brutality and venality. But whereas the capital thus accumulated in the original countries of capitalist development was deployed in manufacturing activity that absorbed the bulk of the dispossessed rural labour force, such absorption is very restricted here. Nor is agricultural land being concentrated in the hands of agricultural capitalists farming with improved methods and supplying the market of the new factory labourers. Thus the country suffers the pains of primitive accumulation without its progressive effects.

D. ‘Development’ as Exclusion The notion that growth of manufacturing or services industries is per se desirable is a form of fetishism. We need to ask questions such as “Does it create net employment (i.e., does it create more jobs than it destroys)?”, “Does it meet mass consumption requirements (either directly or by developing the capacity to meet these requirements)?”, “Does it squander the economic surplus on luxuries? Does it divert resources from more pressing priorities?” “Is it environmentally sustainable? Does it exhaust natural resources?”, “Does it uproot

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people?”, and so on. In fact one can cite several industries which, not as an avoidable by-product of their development, but as an essential part of it, harm the masses of people, and benefit only a small class. True, the so-called ‘value added’ by these industries contributes to the GDP; but this fact merely underlines the irrationality of using GDP as a measure of development. Let us take a few examples of these industries. Healthcare (i) The value added of certain industries actually grows with the exclusion of people from the market. The private sector in health has surged in the period of ‘liberalisation’. A study by the international consultancy firm Ernst and Young and FICCI estimates private hospitals’ revenue at Rs 620 billion in 2005-06, and projects it to exceed Rs 1.3 trillion in 2012.33 A CII-McKinsey study puts current revenues from the entire healthcare sector at 5.2 per cent of GDP, and projects that revenues could reach 6.5-7.2 per cent of GDP by 2012. To bring this about, it wants Rs 1-1.4 trillion to be invested in hospitals and medical personnel (particularly as the share of inpatient care is projected to rise to almost half of total revenues). Of this investment, 80 per cent is to come from the private sector. The study expects that the private sector’s current share of revenues, about 80 per cent, would rise with the rich and middle class buying health insurance. Coupled with the expected growth of the pharmaceutical sector, it projects that the total healthcare market in the country could reach as much as 8.5 per cent of GDP.34 One major opportunity for the corporate sector is the outsourcing of healthcare by the developed world: An earlier CII-McKinsey study projected that medical tourism (whereby foreign citizens visit India for treatment at corporate hospitals) could account for Rs 100 billion by 2012. The trend is already pronounced, with 150,000 medical tourists visiting India in 2004, a figure which is growing at an annual rate of 15 per cent.35

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However, medical tourism and the corporate healthcare industry divert scarce domestic medical manpower and resources from the requirements of the vast majority of people. This in a situation where the dominance of the private sector has already made healthcare unbearably expensive for the vast majority. In India 80 per cent of expenditure on health is out-of-pocket spending by patients; public health spending is among the world’s lowest as a proportion of GDP (0.9 per cent, falling from 1.3 per cent in 1991). Remarkably, the share of the health sector in India’s GDP, at 5-6 per cent, is double that of comparable countries such as China, Sri Lanka, and Malaysia (2.4-3 per cent); yet the latter countries have much better health indicators than India.36 Internationally, countries with a smaller public sector in health wind up devoting a larger share of GDP to healthcare than comparable countries, and yet experience worse health indicators; the classic case among developed countries is the United States. In a sense, then, the very growth of the private sector in healthcare both leads to the growth of the sector’s share in GDP and the worsening health of the people. The trend toward corporate healthcare in India would accelerate the shift of medical resources to the private sector and further prevent the poor from getting medical care. (Further, salaries of public sector medical staff would have to be raised in order to prevent them from leaving for the private sector; this would reduce the amount left for other heads of expenditure.) Even before the large-scale entry of the private corporate sector, the overall direction of neo-liberal policies has led to increasing exclusion of the poor from healthcare: NSS data show the share of persons “not taking treatment due to financial reasons” in the rural areas rising from 15 per cent in 1986-87 to 25 per cent in 1995-96, and from 10 per cent to 20 per cent in the urban areas over the same period.37 Since 1991, and particularly since the mid-1990s, there has been a steep growth in the share of “medical care and health services” in total consumption expenditure38; yet in the same period, the rates of decline in infant mortality ratio and under-five mortality have stagnated or slowed.39

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The case of certain other services such as education, is similar: their value added (their contribution to GDP) is measured by the wages and profit of the institutions in the sector. Thus the growth of the private sector at the cost of the public sector is reflected in a rise in the GDP share of that service – even as it may mean the worsening of conditions for the majority of people. Real estate (ii) The development of the urban real estate industry requires the eviction (‘re-location’) of slumdwellers, the closure of manufacturing firms, and the eviction of hawkers from the areas to be gentrified or beautified. All these measures affect the employment and income of vast numbers. Let us take the case of Mumbai. Here well over a million slumdwellers have been or are being ‘re-located’ in various drives (over 400,000 lost their homes in the brutal demolitions of 2004-05 alone, and over 450,000 are to be re-located for the expansion of the airport). A large number of small industries of Dharavi, perhaps the world’s largest slum, will not survive the impending ‘re-development’ plan, as they will be allotted a space too small for production activities. Of the city’s 300,000 hawkers, it is proposed to provide only 17,000 licenses to hawk in 196 hawker zones. These zones must be further than 100 metres from religious and educational institutions and hospitals, and 150 metres from railway stations; nor are they to be in residential areas or on footbridges. At any rate, the license is to be valid for only one year. Whether or not this can be implemented, the harassment of hawkers will affect their employment and income. Hundred of thousands of industrial workers have lost their jobs in the liberalisation (ie. post-1991) period in order for the land of their factories to be converted into real estate. To take the case of Mumbai’s textile mill lands alone, it was reported in 2005 that 585

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acres (234 hectares) of mill land in central Mumbai was available for redevelopment; none of this will go to creating industrial employment. Since many of these lands were given on lease by the British Raj on the specific terms that they be used for textile mills, it would have been particularly straightforward for the Government to have taken over these lands, rather than treat them as the property of the millowners; it goes without saying that it did not do so. The development of urban real estate also increasingly spreads beyond the earlier city limits and encroaches on agricultural/fishers’ land, further destroying employment. Even as the cities and their immediate vicinity witness large-scale conversion of industrial land to malls, luxury flats, hotels, and the like, state governments argue that industrialisation requires the large-scale acquisition of agricultural land. Perhaps the most vociferous exponent of this ‘industrialisation-needs-agricultural-land’ theory is the Government of West Bengal – the same government which spent two decades watching with with folded hands as factory after factory in the urban areas of West Bengal stopped industrial production and locked its workers out. Retail industry (iii) The development of the organised retail industry eats into the market of the unorganised retail sector, which is already precarious. It is estimated that 35 to 40 million people are employed in petty retail; encroachment of large retail firms on this sector will thus have a very large impact on employment. A recent Governmentcommissioned study by ICRIER, while endorsing big retail, reported that the sales of 50 per cent of small retailers surveyed, and 61 per cent of all retailers, had suffered as a result of the entry of big retail firms. According to Technopak, a consultancy firm, the share of organised retail firms in India’s total retail market will grow from a few percentage points at present to 20 per cent in five years.

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It is true that the workforce in the retail sector is unproductively employed; vast numbers of the unemployed take to the retail sector as a ‘refuge’ employment when all else fails. But no one has claimed that the share of the retail sector in GDP – which is the same as the sum of wages and profit of the sector – will decline with the entry of large firms; rather, it is projected to grow (Assocham claims that it would grow from about 8-10 per cent of GDP at present to 22 per cent by 201040). In that case, the entry of organised retail firms in the present context merely serves to concentrate retailing margins in fewer hands, and renders small retailers unemployed without any alternative. Environmentally damaging industries (iv) What we mentioned earlier in the case of mining holds true more generally, namely, that GDP by its nature cannot reflect environmental costs (which among other things are also costs to the well-being of people). This is particularly strikingly illustrated by certain industries which in effect import destruction of the environment for the people at large, for a fee earned by the local industrialists. There are firms with directly import various types of harmful waste for dumping; others import ships or equipment (such as computers) to be scrapped, bearing harmful substances. A 2002 report of the Basel Action Network estimated that 50 to 80 per cent of the electronics waste collected for recycling in the U.S. was being disassembled and recycled under unregulated and unhealthy conditions in India, Pakistan, China and other developing countries. A 2005 report by Greenpeace, Recycling of Electronics Wastes in China and India found such recycling activities contaminated both the workplace and the surrounding environment, but there was virtually no Government regulation of these activities. Half the world’s ocean-going ships end their sailing lives in India, most in Alang of Gujarat. Another Greenpeace study of 2005, End of Life

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and photographs, the horrific conditions at Alang. The authorities maintain no proper records of workers; indeed it is clear they do not want any record to be kept. Records of deaths are kept only by the employers, who naturally understate the number greatly. The workers fear for their jobs, and the employers do not tolerate trade unions. There is of course no monitoring of toxic waste-related diseases; sampling of the environment shows that workers exposed to deadly asbestos fibres 24 hours a day. All this is made possible by the feudal conditions in the rural areas. Local (Gujarati) workers are a minority; the bulk are migrant workers drawn from backward regions of Orissa, U.P., and West Bengal. It is estimated that there are about 800,000 workers from Orissa in Gujarat, 90 per cent of them in hazardous industries such as ship-breaking. A particular recruiting-ground is Ganjam district, which, despite its fertile paddy land and water resources, is marked by unemployment due to landlessness. It is estimated that one man in each household leaves the district in search of work, many traveling to Gujarat and Maharashtra. Adapada village, for example, has as many as 22 Alang shipbreaking widows and many Alang cripples. In the words of a worker from Khaling village, “If I go to Alang maybe one person will die, but if I stay five people will die.” The connection between feudal conditions and the conditions of labour in Indian industry could not be more concisely stated. We cite these industries merely as instances, to illustrate once more the broader point that devastation of the environment and physical damage to workers and other people do not get reflected in the calculation of ‘growth’. Perhaps the state with the fastest-growing industrial sector in India is Gujarat, but it is also the most polluted; pollution is greatest in the two belts in which industrial investment has been concentrated since the 1980s, the so-called ‘Golden Corridor’ and ‘Silver Corridor’. We may also take note here of certain other industries which, using the country’s backwardness, use the human body itself as a site for surplus extraction. India’s giant pool of poor and unemployed forms the

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basis for the boom in such strange industries as clinical trials, rent-awomb, and illicit (but quite organised) organ export. For example, the factors that attract clinical research organisations (CROs) to India are telling: the low costs of conducting trials, the availability of trained humanpower and infrastructure, the ease and rapidity with which patients can be enrolled, and the abundance of people in India with health conditions of interest to the international drug market. A particular attraction to drug firms is that many potential participants in trials are ‘treatment naive’ – they have never received treatment for their illnesses. In the words of the website of one CRO, part of the “India Advantage” is “40 million asthmatic patients, about 34 million diabetic patients, 8-10 million people HIV positive, 8 million epileptic patients, 3 million cancer patients”.41 The Indian Government has recently decided to allow clinical trials in India simultaneously with other countries, despite the difficulty in Indian conditions of monitoring the health of participants in such trials – drawn largely, if not exclusively, from the poor. This is part of the Government’s effort to promote clinical trials as a ‘growth’ industry: according to Union health secretary P. Hota, “India has the potential and a great opportunity to emerge as a global centre for clinical trials. We need to have the right kind of institutions, right legislation, human skills and budgetary and other administrative support.”42 The number of externally-sponsored clinical trials in India reportedly has risen sharply after certain legislative changes in January 2005. The Maharashtra government reportedly plans to assist CROs in using its public health infrastructure for clinical trials. The Centre has allowed drug companies to fund trials through registered research trusts; they would receive 100 per cent tax exemption for their donations to such trusts.43 Luxury industries (v) There has been explosive growth in luxury consumption industries – airlines, automobiles, high-end mobile instruments and services, a multitude of other electronic gadgets, furnishings, designer clothing,

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malls, five-star restaurants and hotels, jewellery, art galleries. Indeed, there are now two tiers of luxury consumption: only the higher tier is demarcated as ‘luxury’ by the media. exclusively to such luxury spending: for example, the India Today group magazine Spice (“Redefining Lifestyle”), Splurge (“The HT Luxury Magazine”), T3 India (“The World’s No. 1 Gadget Magazine”), the Business Standard publication How to Spend It (now re-named, more simply and forcefully, Spend). The universe of ‘lifestyle’ magazines is larger: for example, Vogue is to launch an Indian edition soon. Conferences are held of the luxury industry as such: The Hindustan Times has organised two conferences on luxury, and the Economic Times joined in with its “Dialogue on Luxury” conference in 2007. In October 2006 the Luxury Marketing Council (LMC), an international organisation of 675 luxury-goods firms, opened its India chapter. According to the head of the Indian chapter, much of its activity is educational, such as “instilling in the Indian public a proper understanding of luxury. ‘How do you educate them’, she asked, ‘about the difference between a designer bag that costs $400 and a much cheaper leather bag that functions perfectly well?’”44 This explosion in luxury expenditure is depicted by the reigning orthodoxy as a positive sign of the growth of the economy. However, luxury consumption diverts a sizeable part of the economic surplus from re-deployment in productive uses. Moreover, while the luxuries of the Mughal era too diverted a large share of the surplus from productive uses, they did generate demand for a domestic industry manufacturing luxuries; whereas the post-colonial luxury market of third world countries is heavily import-oriented, and thus gives a far, far weaker boost to domestic demand – rather, it operates as a drain of surplus from the country. For example, the number of private jets (which according to one report cost $12-56 million45) has risen from 50 in 2005 to 120 in 2007, and is projected to reach 300 by 2010.46 Assuming the average

Top bracket: There are a number of magazines now devoted

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cost to be $20 million47, the annual cost of purchase alone would rise from $700 million in 2005-07 to $1.2 billion in 2007-10. Sales of luxury cars such as Mercedes-Benz, BMW, and Porsche, imported fully assembled, have risen from 2,500 in 2006 to 4,500 in 2007.48 Prices range between Rs 2.5 million and Rs 50 million. Luxury real estate is a booming sector. The concept of ‘gated communities’ (luxury housing estates self-sufficient in facilities, separated from the surrounding area by physical barriers and policed by private security) has been introduced in India, and many returning non-resident Indians find their lifestyle there no different from that in the U.S.. For the top tier, of course, even this will not do. For example, Mukesh Ambani is building himself a 27-storey house (with the height of a regular 60-storey building) in one of Mumbai’s most expensive neighbourhoods, at a reported cost of $1 billion (Rs 40 billion – the size of a major industrial investment, or the combined annual budget of all the five Union territories). Equipped with three helipads and an air traffic control room, six floors for parking 168 imported cars, theatres, gyms, and various other necessities of life, the building is to house 6 family members and 600 staff. As noted by the India head of the LMC, the satisfaction derived by the consumers of such luxury goods is based on their being demarcated as luxury goods. As larger numbers now drive cars, take flights, use mobile phones, and so on the rich need to shift to goods and services which are out of bounds for these new entrants. However, from our point of view, the luxury sector is much wider in the conditions of a poverty-ridden country like India, and includes various non-essential goods and services which can be afforded by a only a small fraction of the population. These are not produced to meet existing demand; rather, demand has to be created by means of advertising and other forms of promotion. While they are adopted at first by the wealthiest sections, wider social sections soon feel compelled to join in.

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travels by air.49 Yet not only has air travel become a major industry in India: the Government has taken up promotion of the sector as a mission. Domestic and international air passenger traffic (combined) has almost doubled between 2004 and 2007. The latter is growing particularly fast; indeed, at 32.5 per cent in 2007,50 reportedly faster than in any other country. The Railways have been reducing their airconditioned class fares to recover customers who have shifted to air travel. This growth requires huge imports. In 2004 airline operators in India had only 125 aircraft;51 now, according to the Economic Survey 2007-08, the country’s 14 scheduled airline operators have 334 aircraft, and were given permission during 2007 for import of another 72. Further, the ministry has given “in-principle” approval for import of 496 aircraft, of which more than 250 aircraft are likely to be acquired in the next five years by scheduled airlines. In short, the Indian aviation sector has emerged as a gold mine for the world’s duopoly, Airbus and Boeing: the two have 400-450 aircraft on order from India.52 The price tag averages around $100 million per aircraft. The growth of domestic private airlines has been fueled by foreign funds: for example, Goldman Sachs, BNP Paribas, and the Dubai government’s private equity fund have invested in SpiceJet, and HSBC in Jet Airlines. Private equity funds have also invested in the firms which have taken over Mumbai and Delhi airports. The rapid growth of the sector is one of the factors in ‘transport’ becoming one of the fast-growing heads of GDP. Yet, to return to the broad theme of this section, its contribution to GDP does not make it desirable per se: rather, it is a luxury enjoyed by a trivial percentage of the population, causing drain of foreign exchange in multiple ways (on import of planes and their servicing; on fuel; on profits of foreign investments in the sector), appropriating large areas in cities and their vicinity, and causing environmental damage. Far from being promoted, air travel should be minimised, particularly in a poverty-ridden country.

Automobilisation: Automobilisation too is a harmful luxury in India. At

present car ownership is roughly seven persons per thousand; even if

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we assume there to be only one car per car-owning family and five persons to a family (neither assumption holds true for upper-income urban families), this represents less than four per cent of the population. Even if the market were to double with the production of cheaper cars like the Tata Nano, car owners would remain a small minority of the population. (The market for two-wheelers is five to six times as large as for cars; not only are their prices a fraction of car prices, but they are also much cheaper to run and maintain, and easier to park. Tata’s explicit aim with the Nano is to take market share away from two-wheelers.) On the other hand, the growth of cars and two-wheelers (particularly the former) actually worsens conditions for those who do not own personalised transport: For the condition of bus transport is worsened by the growth of traffic. In the last five years, there has been a 43 per cent increase in vehicles on India’s roads, but only a 9 per cent increase in road space. As a result the speed of traffic in cities has slowed to 10-15 kilometres per hour.53 This in turn means that a given number of public buses can make less trips per day, and thus transport less passengers than they could have with less traffic. Indeed, a part of the middle class is driven to buy two-wheelers and even cars precisely because of the decline and crowding of public transport; this winds up reinforcing the trend toward crowding. (We are ignoring here the pollution effects of automobiles and two-wheelers.)The failure to check the growth of passenger cars and to promote public transport exemplifies the gross class bias in all of India’s urban planning. According to one writer, cars in India “occupy the lion’s share (75 per cent) of road space but meet less than 5 per cent of the travel demand. Buses, by contrast, occupy a mere 5 per cent of road space but deliver up to 60 per cent of commuter trips.”54 Far from checking the growth of passenger cars, the Government subsidises the use of automobiles, and thereby boosts demand for the automobile industry in a number of ways and burdens public transport. It is important to realise that without these large subsidies, maintaining an automobile would have been prohibitive for all except a

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trivial section of the population, which is to say the market would have been far, far smaller. Secondly, the Government provides a number of direct subsidies to the automobile industry, through tax concessions, provision of cheap land, and even interest-free loans. We have dealt with these subsidies later in this essay.

The mall phenomenon: Only a small fraction of even urban India can

afford to shop at malls, which largely house upmarket brands, and generally have to be reached by car. Some others come to gape at the displays and hang around, adding to what in marketing lingo is referred to as ‘footfalls’, but not to purchases; however, these are seen as nuisances by the mall-owners, who do their best to keep them out or prevent them from hanging around. It is possible that the market for malls has been over-estimated, but the frenzied growth in their construction has at least created a market for the real estate/construction industry. In 2002 India had 6 malls with 1 million sq ft; it had 90 with 19 million sq ft in 2007; and these figures are expected to triple in 2008.55

India’s ‘middle class’ It is true that the market for luxury industries in India now includes what are called the ‘middle classes’. However, the term conjures up a misleading analogy to the sizeable ‘middle class’ of the U.S., Europe and Japan. By comparison this class is a small segment of Indian society. The media frequently uses a figure of 200-250 million for India’s middle class, but it is difficult to imagine the basis for this. The international consulting firm McKinsey uses a figure of 50 million for India’s middle class, or less than 5 per cent of the population.56 According to the NSS 2004-05, about 89 per cent of the population spent less than Rs 37 per day (which was $0.83 at the then exchange rate).

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Table 2: Distribution of Rural and Urban Population by Monthly Per Capita Expenditure (Rupees) during 2004-05

Rural Population (72.2 Urban %) (27.8%) MPCE Population Class (Rs.) (%) <235 235-270 270-320 320-365 365-410 410-455 455-510 510-580 580-690 690-890 890-1155 1155 over & 3.4 3.8 8.8 10.5 10.6 10.0 10.8 11.3 11.6 10.1 5.2 4.0


MPCE Population Class (Rs.) (%) <335 335-395 395-485 485-580 580-675 675-790 790-930 930-1100 4.4 4.5 9.5 11.4 11.1 10.0 10.1 9.1

1100-1380 9.7 13801880 18802540 2540 over & 9.7 5.6 4.9

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MPCE: Monthly per capita expenditure Source: National Sample Survey, 2004-05, Report no. 515. India has a strange official definition of poverty, whereby those spending over Rs 12 per capita per day are considered ‘not poor’. The National Commission on Enterprises in the Unorganised Sector (NCEUS), has correctly highlighted the fact that the overwhelming majority of the population – which it estimates at 77 per cent, or 836 million people – are living on Rs 20 or less a day. It terms these the “poor and vulnerable” sections of the population. However, it is on shakier ground when it terms the entire remainder as “middle and high income”. The segment which it classifies as “middle income” is a large one (19.3 per cent of the population in the NSS 2004-05), with an average daily expenditure of Rs 37. However, Rs 37 per day was just $0.83 at the nominal exchange rate at the time, and less than $2.50 at revised Purchasing Power Parity rates for 200557 — far below the level that would be described as “middle income” in developed countries. Per capita income in the U.S., for example, was over $40,000 in PPP terms in 2005, or over $110/day. As we discuss later, the really wealthy in India appear to be missing from NSS surveys; this distorts their findings. Those who are described here as “high income”, with a reported daily expenditure of Rs 93, are what in common parlance would be referred to as ‘middle class’. According to the NSS 2004-05, they constitute some 4 per cent of the population. Together with the wealthy – who would constitute two or three more percentage points – they would constitute the booming consumer market that is the darling of global investors. It is the vast size of India’s population that makes even such a small segment of it constitute an attractive market for international firms. Certain luxury goods industries, such as mobile telephony, air travel and automobiles, have managed to stretch their market downward by

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extending credit and reducing prices (or introducing cheaper versions). Mobile instruments and telephony have managed to reach even a large section of the urban working class and other urban poor.58 However, this expansion of the market for luxury goods is very different from the expansion of the market that follows from the growth of wage employment. The latter expands demand for wage goods like food and textiles, which have many backward linkages, further expanding employment and demand for wage goods. At any rate, the bulk of luxury spending is carried out by a tiny elite. Growth of luxury consumption a manifestation of growing inequality The growth in luxury consumption is generally portrayed as a manifestation of India’s rapid economic growth. However, it is actually a manifestation of increasing inequality: it has occurred during a period of redistribution of income away from the base and toward the summit. The suppression of the consumption of the vast masses of people is most visibly evident in the decline of their basic nutrition: in the rural areas, per capita calorie and protein consumption levels have declined by 5 per cent and 5.3 per cent between 1993-94 and 2004-5, and in the urban areas the former has declined by 2.5 per cent while protein consumption has stagnated. Rampant undernutrition is confirmed by appalling nutritional outcomes, which are refusing to improve. Half of India’s children are measurably undernourished, and the figures are high even in urban areas; two-fifths of rural women and one-third of rural men too are measurably underweight. Conditions of widespread poverty have posed a fundamental obstacle to India’s industrial growth since the departure of the British. Equally, they have acted as a brake on the wishes of foreign investors. Foreign corporations and large Indian firms are in general not interested in trying to reach the vast, widely dispersed market of low-income consumers, for this is a market with very low profit margins. Thus

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they, and the institutions which represent their interests (such as theWorld Bank), are not interested in pushing about broader, longterm development on the expectation that it would yield them markets eventually. For (i) the time frame of such firms is short – their investments should yield profits in three to five years; (ii) there is no guarantee that even after a length of time it would be a high-profit market; and (iii) there is no guarantee that they would capture the market created by such development – some other local, smaller entrepreneurs might capture it. Thus they press, both directly and through institutions like the World Bank, for policies which concentrate income further among the elite, and in developed regions and urban areas, for these are the markets that they can reach easily, and which are highly profitable. The growth of the luxury industry in India is linked to the growth of economic exclusion of the vast majority.

E. State Intervention to Transfer Surplus to the Private Corporate Sector Privatisation and the concentration of wealth Among the factors accelerating the concentration of wealth in this period has been the privatisation process. Privatisation has taken various forms: for example, the disinvestment of shares of public sector firms (or raising of capital by such firms from the share market); the sale of public enterprises with handover of management control to private firms; ‘public-private partnerships’ in the infrastructure sector; and the opening up of profitable sectors such as telecommunications hitherto closed to private firms. (i) Virtually all partial disinvestment of shares in public sector firms has been carried out consciously at prices which are ‘attractive’ to investors, namely, at prices which yield investors a bonanza. This was deemed to be necessary to ensure the ‘success’ of privatisation. As a

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result, from the very first disinvestment, these sales have attracted wide criticism, including from the Comptroller and Auditor General (CAG). Gross irregularities in the very first round (1991-92) allowed a handful of buyers to depress prices to below the reserve price set; the CAG put the loss at Rs 34.42 billion on receipts of just Rs 30.38 billion. Going again by the need to ensure the ‘success’ of the disinvestment, only shares of profitable public sector units have been sold. The largest bonanza took place in March 2004, during the last days of the National Democratic Alliance (NDA) regime, when the Government earned Rs 153.32 billion from the hurried sale of shares of six firms, including the hugely profitable Oil and Natural Gas Corporation (ONGC). The Disinvestment Minister admitted that shares were being sold at a discount, but said “There’s very little that we can do as the disinvestment proceeds are required by [the Finance Ministry] by the end of the current fiscal to arrive at the magic figure of the fisc.”59 Little wonder that FIIs keep pressing for further disinvestment. (ii) Virtually every sale with transfer of management to private firms has handed over assets at scandalously depressed prices. Various disinvestments and outright sales have attracted sharp criticism from official bodies. Between 2000 and 2002 the Government sold and transferred nine firms to the private sector, among them Balco, Hindustan Zinc, VSNL and IPCL. The CAG found that the valuation of the firms’ assets was done without adequate time or “due seriousness”, riddled with irregularities. In several cases it found that substantial “surplus land” was sold along with the company; this suggests that real estate gains were the key motive to some of the deals (eg., Hindustan Lever’s takeover of Modern Foods). In some cases major assets (mines in the case of Hindustan Zinc!) were arbitrarily excluded from the valuation.60 This report came on the heels of the CAG’s strictures against the Department of Disinvestment for the manner of sale of two five-star hotels in Mumbai. In brief, the entire process constituted a huge private plunder of State-owned assets.

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(iii) The opening up of the telecom sector has been executed in such a fashion as to allow private firms to occupy the most profitable arenas – urban areas, mobile telephony – and leave the responsibility of extending landlines to the rural areas to the public sector. In fact, not only have private firms utterly failed to extend telephony to the rural areas in the circles awarded to them, but the meagre cesses collected from them to compensate the public sector for the costs of extending rural telephony are being wound up by the aggressively proprivatisation Telecom Regulatory Authority of India. For several years the Universal Service Obligation Fund (USOF) was deliberately not disbursed to the public sector firms for its stipulated purpose (extending inexpensive landline telephony to the rural areas); as a result, around Rs 150 billion has accumulated and lies idle in the USOF. In a remarkable twist, this amount is now to be given as a subsidy to private mobile service providers to help them extend their operations to the rural areas. The Electricity Act will allow private firms in generation to sell to select large consumers, rather than the grid; this will reduce the costs of the industrial consumers, boost the profits of the private generation firms, and worsen the financial condition of the public sector firms. The latter will be saddled with the losses of extending electricity to far-flung, low-consumption rural areas. (iv) The Eleventh Five Year Plan envisages Rs 20 trillion (or $500 billion @ Rs 40/$) investment in physical infrastructure (electricity, railways, roads, ports, airports, irrigation, urban and rural water supply and sanitation) during the period 2007-12. This is estimated to be 9 per cent of GDP, up by 4 percentage points over the figure for the Tenth Plan (2002-07). India’s savings rate surged by 11.3 percentage points between 2001-02 and 2006-07, and is projected to rise further in 2007-08 (to reach 35.6 per cent). Given this abundance, one would have thought it no problem for the public sector to find finance for the projected growth in infrastructure, either from its own surpluses or by borrowing. It

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should be noted that much of this activity is already profitable within the public sector: for example, airports, ports, and now railways are all profit-spinners. (Not all such infrastructure is desirable for genuine development; however, we shall not go into that question here.) The Government, however, constituted a committee headed by a private bank chairman to produce a list of reasons why the public sector could not carry out the necessary investments, and argue that “public-private partnerships” (PPPs) were required. With such alibis, the Government has decided to promote PPPs to fill the alleged gap in infrastructure financing. Foreign direct investment up to 100 per cent is invited. Contracts have been awarded and projects are under way for 221 PPPs with an estimated cost of Rs 1.30 trillion ($32 billion). If ‘user charges’ do not sate private firms’ appetite for revenues, the Government would provide ‘Viability Gap Funding’ – which is simply another phrase for a Government subsidy to guarantee an agreed rate of return on investment. Further, infrastructure PPPs would enjoy generous tax concessions. State assistance is on the way to step up the PPP drive. The publiclyfunded India Infrastructure Project Development Fund would provide up to 75 per cent of project development expenses as an interest-free loan. The Government plans to set up an India Infrastructure Finance Company Limited to provide long term loans (no doubt, on generous terms) to infrastructure projects. The Central State governments and Central ministries are being provided with “technical assistance in the form of in-house PPP experts, financial/risk experts, Management Information Systems experts, and access to a panel of legal firms.” “Transaction advisers” from the Asian Development Bank are to steer the process. (v) The tacit privatisation of health care and education with the retreat of the State from these sectors (expressed in the form of decline of State expenditure as a percentage of GDP on these heads) similarly widens disparities. The worsening state of nutrition (which we discuss later) is due not only to the deterioration in agricultural

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production but also to the Government’s tacit policy of privatisation of health, education, and transport: for this has forced the poor to spend more on these services, leaving less for food. The Planning Commission, in its Approach Paper to the 11th Plan, notes that “A very large shift, of at least five per cent of total private consumption, has occurred over the last decade from food to health, education and conveyance,” and expresses the hope that increased public expenditure on health and education can reverse some of this shift. This is the nearest it can get to saying that the privatisation has suppressed consumption of food.

Subsidies to big industry While the neo-liberal programme condemns subsidies such as those on food and fertiliser, and the supposed subsidy on petroleum,61 it promotes an array of subsidies to the private corporate sector. These subsidies take various forms. First, there are large transfers disguised in form of sums owed to the State by the corporate sector which the State makes no serious attempt to collect. Large borrowers with 11,000 individual accounts accounted for as much as Rs 400 billion of total bad debt of banks by 2001-02. Among public sector banks too high-value defaults involving 1,741 accounts over Rs 50 million amounted to Rs 228.66 billion. (Even these may be understatements, since banks tend to ‘evergreen’ corporate loans, providing fresh loans in order to prevent default.) Whereas banks frequently attach the entire property of defaulting peasant borrowers and even have them arrested, no such stringent measures have been taken with the big borrowers, and, unsurprisingly, efforts to recover bad debts have met with little success. Banks’ bad debts have been reduced over the last few years not largely by collection, but by lengthening the schedule of repayments, making provision for bad bad debts out of banks’ profits earned elsewhere, and infusion of capital by the Government into the public sector

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banks.62 Large uncollected tax arrears, amounting to about Rs 390 billion on corporation tax and Rs 200 billion on customs duty, excise, and service tax,63 amount to another implicit transfer to the corporate sector. A second major subsidy is tax concessions. One should keep in mind that a tax concession is no different from a subsidy: it is the equivalent of the Government returning to the tax payer a portion or the whole of tax payable by him/her. The total of tax revenue forgone on corporation tax, excise duty and customs duty was estimated at Rs 2.36 trillion in 2007-08, which was over half the total revenues actually connected under these heads in that year. (Apart from this revenue forgone on personal income tax was Rs 421.61 billion, which was 35.5 per cent of the revenues from individual tax payers.) The State makes large land acquisitions on behalf of the private corporate sector, using the colonial-era Land Acquisition Act (1894). Even where the State pays what it calls the market rate for such land as it acquires, private firms stand to benefit greatly: for the market rate is calculated on the basis of sale prices of land in the previous period. Not many land sales take place in the period leading up to acquisition, and such sales as take place may understate the price in order to avoid stamp duty. Moreover, once the private firm’s project is announced market prices for land rise sharply: by acquiring it on behalf of the firm at pre-project prices, the State saves the firm huge costs. Frequently the acquisition price does not even correspond to preannouncement market prices: for example, in the case of Manimajra village, on the outskirts of Chandigarh, the difference between the open auction rates of land (bought by builders Uppals Housing and DLF) and the rate at which 626 acres has been/is being acquired by the Chandigarh administration for the Rajiv Gandhi Chandigarh Technology Park comes to Rs 53.78 billion. The beneficiaries include Infosys, Wipro, Bharti Telecom, and others. Automobile industry: an instance of State subsidy

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The State also extends loans, grants, and supportive infrastructure to the private corporate sector. Let us take the example of the automobile industry. (i) State policy deliberately promotes the use of passenger automobiles against public transport. According to one study, the tax burden on buses in India is 2.4 times that on passenger cars. In Mumbai, cars make a one-time tax payment to the municipality of 4 per cent, whereas buses pay a 17.4 per cent tax annually.64 (ii) Unlike the case in many developed countries, in India free parking space is made available for cars on city roads; and even municipal parking lots charge Rs 10 for 12 hours. According to the Centre for Science and Environment, transport regulators calculate the amount of land required to park a car at an average of 23 sq metres (which includes the space occupied by the vehicle as well as the minimum space needed to move it into and out of the space). At this rate, even paid parking comes at Rs 26/sq metre per month, or Rs 600 per month per vehicle. This is a tiny fraction – perhaps a few percentage points – of the rent for an equivalent space. (It is worth comparing this space to the standard space allotted to evicted slum families in rehabilitation projects: 21 sq metres, or 225 sq ft.) More to the point, it does not begin to meet the costs of road construction and maintenance in proportion to private automobiles’ share of road traffic. (iii) Innumerable flyovers, bridges, elevated corridors, and so on are built in cities for the benefit of car owners; as mentioned earlier, these are generally out-of-bounds for buses. In 2005 Delhi was reported to be in the process of building 50 flyovers, at an average cost of Rs 400 million per flyover; the budget for a super ring road and elevated corridor on the existing ring road was put at Rs 40 billion. Mumbai has constructed an even larger number of flyovers, but much more expenditure is to come: for example, major bridges across the

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sea are coming up, with the Bandra-Worli sea link alone to cost Rs 13 billion. (iv) We have already mentioned the National Highway Development Programme (NHDP). The estimated cost, at 2004 prices, of Phase-I and Phase-II of the NHDP, is Rs 650 billion (about half of this is complete); the estimated cost of Phase-III, which has been approved, is Rs 806.26 billion; and so on. The NHDP is funded by a cess on fuel as well as Government borrowings. It may be objected that road and highway construction cannot be considered a subsidy to automobile users, and thereby the industry, since all road traffic benefits from it. However, this would be so if the costs of road and highway construction were recovered from private automobile users in proportion to their use. This is not done; instead the burden falls on public funds. Particularly in the case of urban roads, the overwhelming share of usage is enjoyed by private automobiles. Significantly, the Automotive Mission Plan, drafted by the private automobile industry and rubber-stamped by the Government in 2006, calls for highway development and urban flyovers as a measure of promotion of the automobile industry. (We describe this plan further below.) If the full costs of road infrastructure were collected from automobile users, a very large percentage of them would find it impossible to maintain automobiles, and hence the market of the auto industry would shrink. Thus the auto industry is critically dependent on these indirect State subsidies. (This is particularly so because in the auto industry, bringing down costs per unit depends on achieving a certain minimum scale of production.) The Government also directly subsidises the automobile industry in various ways, and is planning to expand this further. It has steadily brought down the rate of excise tax on small automobiles, from 24 per cent to 16 per cent and now 12 per cent in the latest Budget. (By comparison, the rate of excise on soaps and detergents is 16 per cent.)

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It is reported that 70 per cent of the cars sold in India qualify for this concession. The rate of customs duty on raw materials for the auto industry is now 5-7.5 per cent; and it receives a tax deduction of 150 per cent for R & D expenditure. In 2006 the Government launched a 10-year Automotive Mission Plan (AMP) to develop India as a global manufacturing hub (i.e., an export base). The AMP was drawn up by the auto industry itself, with each sub-group chaired by the head of a top auto firm (Tata, Mahindra, Maruti). It was released by the Prime Minister as the plan of the Ministry of Heavy Industries. The AMP envisions a much larger programme of subsidy (see Box). Subsidies to the Auto Industry under the Automotive Mission Plan 1. Tax concessions: (a) A tax holiday for auto industry investments exceeding Rs 5 billion. (b) 100 per cent tax deduction on export profits. (c) Deduction of 30 per cent of net income for 10 years for new auto industry undertakings. (d) Zero taxes/levies on technology transfers for the automobile industry (products, features, etc.) (e) An increase in the deduction for R & D expenditure from 150 per cent to 200 per cent, whether the deduction is carried out in-house or externally. (f) An excise duty concession for ‘Made in India’ products to all companies, regardless of ownership. 2. “State governments [are] to be urged to offer” concessions such as (a) preferential allotment of land “as is given to IT sector by different state governments, and (b) exemption of electricity duty for five years “as is done for biotech industry in some states”, to promote captive generation of electricity. Of course, state governments have already been providing land to industry well before the AMP. 3. Outright expenditure by the Government: (a) 100 per cent grants for fundamental research, 75 per cent for pre-competitive technology/application, and 50 per cent for product development. (b) The Government has already set up, under the AMP, a National

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Automotive Testing and R & D Infrastructure Project at a cost of Rs 17.18 billion to enable the industry to usher in global standards of safety, emission and performance. It would require a large exercise to calculate total State subsidies to the automobile sector. Ashok Mitra, former finance minister of West Bengal, has calculated the subsidies offered by the West Bengal government to the Tata Nano. Close to 1,000 acres of land has been acquired from peasants by the state government for Rs 1.5 billion and handed over to the Tatas, who are to pay trivial sums on the 90-year lease. Secondly, the state government has extended a loan to the Tatas worth Rs 2 billion at a nominal interest rate of 1 per cent (against the 10 per cent charged by banks); “the principal, one suspects,” says, Mitra, is never intended to be returned”. Finally, for the first 10 years the entire value-added tax on the Nano in West Bengal will be returned as a similar 1-percent-interest loan to the Tatas.65 The total subsidy comes to Rs 8.5 billion from the state government alone. Subsidies from the Centre would be beyond this. How significant is the subsidy element in total costs? According to news reports, the Tata Nano was developed at a cost of Rs 17 billion, “including the cost of the plant that will build it”.66 The AMP justifies generous tax concessions and promotional measures on the basis that India is to become an international “hub” for automobile production, thus expanding markets, GDP and domestic employment. However, according to its own projections, even at the end of the 10-year scheme, 71-78 per cent of sales would be domestic. Given the heavy foreign exchange costs of the auto industry, even if exports fulfilled the AMP’s projections for 2016, the industry might remain a net spender of foreign exchange. As for claims regarding GDP and employment, they are far-fetched and unsubstantiated.67 Privatisation and subsidies have transferred giant assets and income streams to the private corporate sector during the ‘liberalisation’ era. The neo-liberal State has been a crucial support to the growth of the

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private corporate sector – the same corporate sector that calls for reduction of State intervention insofar as that intervention protects the poor and sectors such as agriculture and small-scale industry. The ruling circles are well aware of this dichotomy. Inaugurating a campus in May 2007, Manmohan Singh aired his anxieties: “I was struck recently by a comment in the media that most of the billionaires among India’s top business leaders operate in oligopolistic markets and in sectors where the government has conferred special privileges on a few. This sounds like crony capitalism. Are we encouraging crony capitalism? Is this a necessary but transient phase in the development of modern capitalism in our country?” Referring to the problems being faced by small-scale domestic enterprises, Mr Singh asked “Whether we, in the name of protecting them (big industry), encouraged crony capitalism? Do we have a genuine level playing field for all businesses?” He left his own question unanswered.

F. The Growth of Inequality and the Fear of Social Unrest There can be little doubt that the period of ‘liberalisation’ has witnessed a sharp growth in inequality. One need not turn to Leftist economists: Even those working for FIIs and the International Monetary Fund (IMF) have pointed this out in blunt terms. Of course, their concern is that the widespread perception of inequality will lead to political instability, and thus derail the ‘liberalisation’ train. Chetan Ahya, executive director of Morgan Stanley (MS), raises the alarm: “We believe the rise in inequality, when absolute poverty levels are still very high, poses a major political challenge.... in the long run, a high level of inequality can hurt growth on account of socio-political tensions.” Ahya says MS analysis “indicates that India has witnessed an increase in wealth of over $1 trillion (over 100 per cent of GDP) in the past four years – and that the bulk of this gain has been concentrated within a very small segment of the population.” He cites three measures:

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1. Between March 2003 and May 2007, as share prices rose, the value of domestic shareholders’ holdings (i.e, excluding holdings of the Government and foreign shareholders) rose by $570 billion. According to the Securities and Exchange Board of India, only 4-7 per cent of the population owns equities. Even within this group, the ownership is likely to be highly concentrated as almost $350 billion of the increase is accounted for by promoters (controlling stakeholders of firms). 2. MS estimates the value of residential property to have risen by at least $300-500 billion. However, only an estimated 47 per cent of the population own a ‘pucca’ house (a house with walls and roofs made of stable construction materials). Even within this segment of ‘pucca’ housing, the higher-income classes own a large proportion of the area in terms of square feet. (Ahya could have added that the price rise has been highest in high-income areas, such as the well-off localities of metropolitan cities.) 3. MS estimates that the market value of India’s stock of gold has increased by approximately $200 billion since March 2003 to $370 billion currently. This too is concentrated in the top third of the population.68 Further calculations of growing inequality have been made by an equally unlikely source. A recent IMF paper69 warns that “the ability of the government to pass and sustain reform momentum depends on popular support. If large parts of the populations are left behind, even if only in relative terms, the viability of future reforms may be threatened.” On the basis of National Sample Survey (NSS) results, it shows that “Overall consumption inequality increased in the 1990s, particularly in urban areas, and within almost all states according to a variety of measures. While inequality was stable (in urban India) and declining (in rural India) in the 1980s, this trend was reversed in the 1990s. As real consumption growth was significantly higher in urban areas, the urbanrural gap widened.” Indeed, as the NCEUS has pointed out, consumption by the top 4 per cent of the population recorded in the

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NSS grew at more than six times the rate as consumption by the bottom 36 per cent of the population.70 However, NSS data may fail to capture the real extent of inequality. Indeed, over the years the gap between national income data and NSS data for household consumption has grown sharply (see Table 3). National income data on household expenditure is generated by estimating the output of goods and services consumed by households; NSS data is gathered from asking people about their consumption of those goods and services. If respondents to the NSS are understating their consumption, this would show up as a gap between the total figure for consumption arrived at through the two methods.

Table 3: Annual Average Growth Rates of Household Consumption Expenditure by National Income Data and National Sample Survey Data, 1983-94 and 1994-2005
Period 1983 to 1993-94 National Income Data 1.84 NSS Data 0.91 1.31

1993-94 to 20043.30 05

Source: India: Selected Issues, IMF, 2008. In constant prices. Which section of respondents would understate their levels of consumption, or would tend to be left out of an official survey? It is unlikely that the wealthy would reveal to official surveyors their real levels of consumption expenditure. Indeed it is unlikely that the rich would cooperate with a time-consuming survey in the first place, as a result of which their consumption would not be captured in the NSS data at all. Thus according to NSS 2004-05, the top 4 per cent of the population have an average per capita expenditure of just Rs 93 per day, or Rs 2800 per month, which is scarcely credible; as we mentioned

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earlier, this corresponds to what we would normally call ‘middle class’ by Indian standards. Table 3 depicts a growing divergence between the NSS and national income data. Taking the 1983 figure as 100, the national income figure would have reached 161 by 2003-04, whereas the NSS figure would be less than 125. This gap could be accounted for by the unsurveyed rich. A recent study71 based on income tax returns calculates that the share of the top 1 per cent of Indian households in national income doubled between 1981-82 and 1999-2000; this increase in the reported income of the rich could account for around 40 per cent of the above-mentioned gap. (Interestingly, the steepest increase was in the income of the top 0.01 per cent of the population during the 1990s, ending the decade at 150-200 times average income for the entire population.) Given that the rich have ways of hiding a large share of their income from the income tax authorities, and that landlords pay no tax at all, it is likely that the gap between the national income and the NSS figures could be largely explained by the failure of the NSS to capture the income of the rich. Thus inequality is likely to be far, far greater than even the grave levels depicted in the NSS. This picture of a very skewed distribution of income or expenditure fits in with press reports of an even more skewed distribution of assets: namely, lists compiled by Forbes and Business Standard of the number of billionaires in this poverty-stricken country. Among the 10 richest persons in the world listed by Forbes (as of February 11, 2008), 4 are Indians – 3 if we exclude Lakshmi Mittal (who does not reside in India). In all there are 53 Indians on the list, with a combined net worth of $334.6 billion (about Rs 13.38 trillion). Their combined wealth increased by 75 per cent over the previous year. The number of billionaires in India was higher than China (42) and Japan (24), though slightly less than Germany (59). It is true that the size of the wealth of Indian billionaires might fluctuate sharply with share

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prices (much of the growth in the number of Indian billionaires and the size of their assets appears to be linked to the surge in share prices during the previous year), but that might be true of billionaires from many other countries as well. The average wealth of these 53 Indian dollar billionaires was $6.3 billion, or over Rs 250 billion each. Let us take an illustration to get an idea of how large this amount is. In 2002-03, the average assetholding per Indian household was around Rs 300,000 (in current rupees).72 If we (arbitrarily) assume that the asset-holding per Indian household has doubled in current rupees by February 2008, each of India’s 53 billionaires would have assets equivalent to those of over 400,000 Indian households; the combined assets of the billionaires would be worth almost 9 per cent of the assets of all the households in the country.73 We have taken this merely as an illustration, not as an actual estimate; but it gives one a sense of scale of inequality in assetholdings. of August 2007 comes up with a rather lower figure, perhaps partly because Indian share prices had risen steeply between the date of its list and that of the latest Forbes list. Nevertheless, the top 50 in the Business Standard list had combined assets of Rs 8.89 trillion, and the complete set of 533 rupee billionaires had assets of Rs 12.14 trillion. Again, for illustration’s sake, if we assume assets of Rs 600,000 per Indian household, the top 50 each owned assets equivalent to 300,000 Indian households. The 533 rupee billionaires would have combined assets of almost 8 per cent of the assets of all the households in the country. Another way to get a sense of the size of the wealth of the billionaires’ wealth is by comparing it to India’s GDP. The wealth of the Forbes 53 would be around 28.5 per cent of India’s 2007-08 GDP; that of the Business Standard 533 would be around 29.3 per cent of India’s 2006-07 GDP.

Business Standard’s list of Indians with assets of over Rs 1 billion as

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Contrary to propaganda in the media, this proliferation of Indian billionaires is not an indicator of development but of underdevelopment. So skewed a distribution of assets is indeed the hallmark of third world countries. The narrow employment base, narrow markets, and stifling social order prevalent in these countries are capable of grinding vast masses to abysmal levels of poverty even as a handful of parasitic monopolists flourish at unimaginable levels. The “four big families” of China in the 1930s and 1940s, and similar coteries in various Latin American countries, pre-1975 South Vietnam, Indonesia, Philippines, and so on are familiar to students of history. Not all the members of the establishment are ignorant of this history, or its significance: Namely, that all such countries have suffered acute political instability, in some cases leading to revolution. The Prime Minister gave vent to his fears at a May 2007 conference organised by the Confederation of Indian Industry (CII) on “inclusive growth”. First, in line with his statement earlier the same month on “crony capitalism”, he emphasised that free competition, not cartels, should reign: “Profit maximisation must be within the bounds of decency and greed (sic). The operation of cartels by groups of companies to keep prices high must end.” Secondly, moderation and discretion should be observed in top salaries and in expenditure; “In a country with extreme poverty, the industry needs to be moderate in the emoluments.... Rising income and wealth inequalities, if not matched by a corresponding rise of incomes across the nation, can lead to social unrest...” Pointing to ostentatious weddings, he said that “Vulgar spending insults the poverty of the less privileged... and plants the seeds of resentment in the minds of havenots.” He quoted Keynes to suggest that Indian capitalists, like the early capitalist class of Europe, should eschew accelerated consumption in favour of ploughing their surpluses back into their businesses. Thirdly, he requested the corporate sector to display “corporate social responsibility”, without which it would be hard for him to introduce

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further pro-capital ‘reforms’: to be globally competitive, “you must work in a harmonious environment, an environment in which all citizens feel actually involved in economic growth and in which each citizen sees hope for a better future.” Unless workers felt they were cared for, “we can never evolve a national consensus in favour of more flexible labour laws aimed at ensuring that our firms remain globally competitive.”

do not act in a more socially responsible manner, our growth process may be at risk, our polity may become anarchic and our society may get further divided. We cannot afford these luxuries.” (emphasis added)
The speech created a brief commotion, but no one mentioned its most curious aspect: It is traditionally expected that the State would act to check such developments as threaten the existing social order, by taking, if necessary, actions that restrict even the wealthy and powerful, in their own long-term interest. Evidently this option is not open to the Prime Minister. Under the present order, all the engine driver can do is plead with the speed-hungry passengers that the train is hurtling toward disaster – even as he shovels the coal. The UPA government, he assured the CII, would continue to create a friendly environment for the growth of manufacturing industry; corporates must facilitate more employment. “The Government has its role and responsibility but so do the better-off sections of our society. This is where I look to the CII for leadership.” (emphasis added)

Finally, he issued a grim political warning: “If those who are better off

G. Financial Sector Subordinates the Productive Sector Even as a tiny domestic elite has flourished in this period of rapid ‘growth’, foreign speculative investment has enjoyed dazzling returns: whereas net inflows of FII investments between 1992 and Decemberend 2007 stood at $70.78 billion, the market value of FII holdings in listed companies on the Bombay Stock Exchange stood at well over

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$251.5 billion at December-end 2007. One year earlier (December-end 2006), the market value of FII holdings was $128 billion. In the course of 2007, FII net inflows into India were $24.45 billion. In other words, the total of FII net inflows increased by 53 per cent during the course of 2007; but the market value of FII holdings doubled. FII inflows are highly volatile, as admitted by the Economic Survey 2007-08. One gauge of the volatility is the proportion of net flows to gross flows of FII capital. That is, if FIIs invest $10 billion during the year, and during the same period remit $5 billion out of the country, gross flows are $10 billion + $5 billion = $15 billion; net flows are the surplus of inflows over outflows, namely, $5 billion; and net flows as a proportion of gross flows is 33 per cent. In the seven-year period from 2000-01, FII net flows/gross flows have generally remained below 13 per cent; in 2006-07 the proportion fell to just 3.3 per cent – that is, gross flows were $212 billion, and net flows were $7.1 billion. The frenetic pace of FII trading is also evident in other measures of volatility given in the Economic Survey. A variety of investors operate on international capital markets, including individuals, banks, corporations, mutual funds, pension funds, and what are called ‘hedge funds’. The last are funds which invest the money of a small number of wealthy people seeking much higher than average returns. Manned by professional economists trained in the fine art of gambling, they engage in particularly risky and volatile activity across many markets. For this purpose they resort to ‘leveraging’, that is, they borrow heavily, sometimes 30 times their own capital. This also means that when their gambles fail they are much more likely to collapse, or to sell all their holdings in an attempt to pay off their debts, jolting the share market and the banks which have lent to the hedge funds. Hedge funds are not regulated by the authorities in their home countries, on the assumption that those who place their money with these funds are well aware of the risks of their investments, and the markets in those countries are large enough that they cannot be destabilised by such operators. (Of course, the latter

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is questionable, given that hedge funds are reported to manage assets of over $2 trillion; the U.S. authorities have had in the past to use public funds to bail out the hedge fund Long Term Capital Management, and more such cases are imminent.) In India, where the share market is small by international standards, the operations of such funds can easily destabilise the market. In order to moderate the volatility of capital flows, the Indian authorities initially allowed only institutions which are regulated in their home countries, i.e., excluding hedge funds, to invest in India. However, hedge funds found a simple way to bypass this. Let us say a hedge fund wished to buy shares of an Indian firm. It would invest the money with a firm which was registered as an FII in India (the bulk of such business is controlled by five U.S.-based FIIs). The FII would issue it a ‘participatory note’ (PN), underlying which were shares of the Indian firm. Any dividend on the underlying shares would be passed on to the hedge fund (after subtracting a fee); and when the hedge fund instructed the FII to sell the shares, the capital gains on the sale would be similarly passed on to it. The hedge fund could even sell its PN to any other investor on the international market. In the last three years, such PN investments have been estimated to account at various times for between 40 and 52 per cent of all FII investment in India. PNs were used not only by hedge funds, but by any investor who was not registered to trade in the Indian stock market. It is common knowledge that Indian business families have stashed large funds abroad illegally; some of these were brought back via PNs either in order to enjoy high returns or to strengthen their control over their own companies. The same route could also have been used by any other type of shady investor, since it offers complete anonymity to the investor. All this, of course, made complete nonsense of the attempts to regulate inflows, and the RBI repeatedly called for a ban on PNs. The RBI’s proposal was stoutly resisted by the Finance Minister until the end of October 2007. In the interim the massive surge in inflows destabilised the entire economy. On October 25, 2007, the Securities

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and Exchange Board of India (SEBI) finally brought in certain restrictions on PNs (the details of which we will not go into here), but at the same time liberalised the direct entry of hedge funds into Indian markets. Since then several of the world’s largest hedge funds (including the largest, fifth largest, and seventh largest), have received SEBI approval to operate as FIIs on Indian markets.74 The returns on hedge fund investment appear to be even higher than for remaining FII investments. According to SEBI estimates, by July 31, 2007, PN holders had invested a total of $17.5 billion; the market value of their investments on that date was $86.3 billion.75 Foreign investors enjoy an astoundingly generous tax regime in India. There is zero tax for Indians and foreigners on ‘long-term’ capital gains – that is, if one buys a share and sells it after one year, one pays no tax on any gain one makes on the sale. (All one has to pay is a transaction tax of 0.15 per cent of the value of the transaction.) On short term capital gains, too, much of FII investment pays no tax, since it comes in through the ‘Mauritius route’. India has had a ‘double tax avoidance treaty’ with Mauritius since 1983, whereby, among other things, capital gains on sale of shares in Indian companies by residents in Mauritius would be taxed only in Mauritius and not in India. Mauritius does not tax capital gains. Thus, with the operning up of the Indian economy after 1991, foreign investors made a bee-line for Mauritius, set up companies on paper there, and routed their investments to India through these conduits. Reportedly the largest foreign investor in India, in terms of both foreign direct investment and FII investment, is Mauritius, with the U.S. a distant second. Of course, if one took into account the ultimate source of funds, Mauritius would not be in the picture, and the U.S. would move to first place. There is a separate category of foreign investor called ‘private equity’ (PE) firms, whose pattern of ownership is similar to that of hedge funds. PE firms do not operate on the share market, but directly invest in certain existing firms, or acquire them outright; for this reason they are classified as FDI. However, by and large they invest in

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order to sell out later, making large capital gains. To take just one example, the American PE firm Warburg Pincus invested $292 million between 1999 and 2001 in Bharti Tele-ventures; it sold the bulk of its stake in August 2004-March 2005 for $1 billion, while retaining a stake worth $700 million.76 (This example underlines how, while Indian firms have emerged as important gainers from the privatisation process, foreign financial investors have been able to corner a large share of the rewards by investing in such Indian firms in the privatised sectors.) During January-December 2007 PE investment in India (excluding outright acquisitions) was reported to be over $8 billion.77 Foreign investors have lobbied successfully for more sectors to be opened to them, such as the real estate and debt markets; commodity futures markets are soon to follow. In 2006, the growth in real estate rentals in four Indian cities was among the fastest in the world: Mumbai and Delhi, with 50 per cent and 33 per cent growth, respectively, ranked second and third. Bangalore and Hyderabad, with 25 per cent and 23 per cent growth, were in the top 12.78 Returns are reportedly 20-25 per cent a year. Naturally, this attracted large foreign capital. J.P. Morgan estimates that an annual $2-3 billion is committed for the next several years from PE investors for Indian real estate projects.79 Nearly two dozen U.S. private equity funds are reported to be raising money for investment in Indian real estate. Indian firms have also been making large external commercial borrowings for the real estate sector; when this route was shut off by the authorities, who feared a speculative bubble in the sector, the firms began disguising the borrowings as FDI. Foreign investors would borrow at low interest rates in the international capital market and lend to Indian real estate firms at interest of 13-15 per cent; the latter, earning much higher returns, could easily service this debt. Assocham claims that the turnover of the real estate sector will rise from $15 billion at present to $90 billion in 2015, at which point it expects FDI to be $15 billion.

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The summit of the entire financial network is Mumbai, which is now being promoted officially as an international financial centre (IFC). The project of making Mumbai an IFC is a striking example of the fetishization of ‘growth’, and of the parasitic relation of this ‘growth’ to the economy as a whole. In 2003, the U.S. consultancy firm McKinsey put out a 32-page paper chalking out the changes required in Mumbai’s urban infrastructure, lay-out, and urban policies to make it a suitable host for international finance. The plan called for some Rs 500 billion to be provided by the exchequer, and the remainder from private investors; it envisioned a block-by-block demolition and reconstruction of the city. On the basis of this unsubstantiated document, the state government appointed a secretary-level officer to coordinate the work of various departments and agencies in implementing the McKinsey Vision. Various elements of the Vision have been implemented since: for example, the Urban Land Ceiling and Regulation Act, 1976, has been repealed. More importantly, the Central government appointed the High Powered Expert Committee (HPEC) on Making Mumbai an International Financial Centre. The HPEC argues that the aim must be to make Mumbai a Global Financial Centre. Today, a firm (or even a Government) anywhere in the world wishing to raise funds from the world capital markets generally goes to merchant banks headquartered in London, New York, or Singapore. Housed in these cities are also firms that offer a range of services: international consultancy, tax management and accounting, management of assets and personal wealth. In these cities’ share markets, investors trade the shares of firms from around the world; in their foreign exchange markets the world trades in currency, including in complex instruments called currency derivatives. All these activities earn fat incomes. The HPEC argues that India can earn these incomes by making sweeping changes not only in Mumbai but in the entire economy in order to attract the full range of operators in international financial markets to set up shop in Mumbai and provide the range of international financial services. The HPEC envisions a

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large influx of expatriates, with Indians accounting for just 25-30 per cent of the employees in the sector. In 2007, the HPEC laid down an elaborate and extravagant set of 48 requirements for making the city an IFC. Among them: i. Achieve and maintain an average GDP growth rate of 9-10 per cent (from 2009 it is to be maintained at 10 per cent). ii. Reduce the consolidated fiscal deficit of the Centre and states from over 8 per cent to 4-5 per cent of GDP by 2009. Reduce the debt-to-GDP ratio from 80 per cent at present to 65 per cent by 2009. iii. Implement full capital account convertibility by the end of 2008. iv. Eliminate the securities transaction tax by 2007 and stamp duties by 2008. v. Open up investment in Government debt to foreign buyers without restriction. Remove the requirement that banks must invest a certain proportion of their assets in Government debt (the Statutory Liquidity Ratio). vi. Open up Indian capital markets to hedge funds and other such speculative, unregulated foreign funds immediately. vii. Focus the monetary authorities (the RBI) exclusively on managing the key short-term (‘base’) interest rate by 2009-10. viii. Transfer all regulation/supervision of any type of organised financial trading from the RBI to the Securities and Exchange Board of India (SEBI) by 2008. ix. Allow unrestricted entry of global legal and accounting firms operating in international financial centres by 2008.

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x. Withdraw Government from ownership of financial firms, including public sector banks (PSBs); by 2008 its stake in PSBs should fall below 49 per cent, and 33 and 26 per cent in the following two years. xi. Decontrol the opening of bank branches by domestic banks (immediately) and foreign banks (by mid-2008). xii. Appoint or arrange to elect a City Manager, bring the governance machinery of the city under his/her full control, and establish an independent financial base for this post. The scale of the HPEC’s demands is breathtaking. Its head, an exWorld Bank official, explained in an interview: “If I have to give one piece of advice to Prime Minister Manmohan Singh, I would ask him to let go of Government control over the financial sector”.80 In fact, however, the HPEC’s recommendations demand that the entire economy be subordinated to the needs of the international financialspeculative sector; these changes indeed extend to the political sphere (the creation of an all-powerful City Manager). All Government financial sector activity for the purpose of developing or protecting the rest of the economy is barred – for example, Government borrowing (fiscal deficit) for any developmental need. With the exit of the Government from bank ownership, it would be impossible to direct any of these banks’ lending toward sectors such as agriculture, small scale industry, and depressed social sections. Revenue could not be raised from the booming speculative activity in shares or real estate. Most of all, all Government control on capital flows would be abolished. The entire economy would be left the mercies of the activities of a handful of speculative operators. The HPEC went far beyond its brief (which was to draw up a plan to make Mumbai a regional financial centre, like Dubai), and it is not clear how many of its recommendations will be implemented, particularly in the context of the current slowdown in the global economy and the Indian economy. However, the Finance Minister in his 2007-08 Budget speech said that “It is my hope that we would be able to build a

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consensus on the key recommendations of the Committee, promote a world class financial centre in Mumbai, and realise the objective of making ‘financial services’ the next growth engine for India.” (emphasis added) Prime among the HPEC’s recommendations is the implementation of complete capital account convertibility (CAC), treating foreign capital on identical terms with domestic capital and giving both complete freedom to flow in and out of the country. Of course, international financial capital wants CAC, and whether or not Mumbai succeeds in becoming an IFC, the project will succeed promoting the idea. Already there is a considerable extent of CAC: most restrictions on foreign investment in India have been removed, restrictions on Indian firms borrowing abroad have been relaxed, most restrictions on foreign remittances have been removed, individuals have been allowed to send out $200,000 a year, and most importantly, Indian firms have been allowed to invest vast sums abroad. Even this partial CAC has subjected the economy to buffeting by volatile flows of foreign capital, as we have discussed earlier. Once a country has an open capital account, it loses control of either its exchange rate or its money supply. Either way, it loses control over its domestic economy. To repeat the earlier discussion, there have been huge inflows of foreign capital in different forms. These inflows tend to make the value of the rupee rise vis-a-vis the dollar. When this happens, the dollar price of Indian exports increases, and the rupee price of its imports falls, hurting India’s exports and increasing its imports. So the RBI has been trying to prevent the rupee from appreciating by buying up dollars from the foreign exchange market. These purchases have swollen the foreign exchange reserves from $107 billion in March 2004 to $265 billion at end-November 2007. These reserves are invested abroad in instruments such as U.S. government debt; that is, they become part of the giant net financial transfers worldwide from

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the developing economies to the developed countries. Since the return (to India) on such investment of the reserves is far lower than the return to foreign investors on their investment in India, this amounts to a bleeding of the country. In a period of rising foreign investments this may not show up as a net outflow of capital; instead it will show as a growing foreign ownership of domestic assets. Further, when the RBI buys foreign exchange, it releases a corresponding amount of rupees into the economy. Banks, flush with funds, increase their lendings. Worried that foreign inflows could lead to inflation, the Government has been spending huge sums on ‘sterilising’ these inflows (i.e., selling debt instruments that soak up the addition to the domestic money supply created by these flows). The Government has to pay out vast sums as interest on these debt instruments: a sum of Rs 139.58 billion has been budgeted for interest payments on these instruments in 2008-09. This sum, a burden imposed on the country by foreign inflows, is comparable in size to the Rs 160 billion that the Government has allocated for the muchtrumpeted National Rural Employment Guarantee Scheme in 2008-09; yet it has attracted virtually no comment. Even after issuing these instruments, as well as compelling banks to hold some of the inflows as cash, the RBI has neither been able to mop up all the inflows nor to mop up the entire increase in domestic money supply. This has led to steady appreciation of the rupee as well as a surge in bank credit over the past few years. Apart from these costs, there is the continuous possibility of a sudden flight of capital from the country – the catastrophe experienced by so many countries in Asia and Latin America. Even under the existing foreign exchange regime, the effects of a sudden flight of capital would be severe: the rupee value would plummet, the consequently soaring prices of imports would jack up domestic prices, the central bank in a desperate attempt to stem the outflow would hike interest rates steeply, stalling economic activity. The overwhelming majority of the people, who have never had anything to do with share markets, and

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never enjoyed a paisa from the boom, would find themselves plunged into economic depression by forces outside their control. At the reduced rate of the rupee, and with the overall depression of domestic economic activity, Indian assets would become wonderful bargains for foreign investors, strengthening foreign domination over the Indian economy. All this would be so even under the partial CAC existing; under full CAC, the outward flight of capital would be even greater, as the Indian elite could then quite legally send the their entire assets abroad, and foreign investors could speculate on the value of the rupee more directly and to a much greater extent. While the current downturn in the economy might slow the march toward CAC, in the existing framework it is not simple for the Indian authorities to reverse that march. For any attempt to check inflows or outflows would be taught a swift and brutal lesson by foreign investors. The manner in which the stock market crashed with the entry of the UPA government in 2004 (only to revive once the new government propitiated foreign investors with massive gifts such as the scrapping of long term capital gains tax), and the manner in which FIIs humiliated the RBI governor when he talked vaguely of mild checks on foreign inflows, are a foretaste of the treatment foreign speculative capital will mete out to any attempt to restrict its movements. The larger the stock of foreign speculative capital in the country, the larger would be the effect of its flight. The present value of the stock of such capital is well over a quarter of India’s GDP. Hence only a State and social order prepared to accept such shocks as the temporary price of longer-term growth would be able to act against foreign speculative capital. Unlike the commodity-producing sector or many services, financial sector activity as such creates nothing of use to the people; one cannot eat a financial service or enjoy it for its own sake. Its only rational role is to serve the sectors producing useful goods and services. Yet we find that the dominant school of thought treats the growth of the financial sector as an end in itself, to be promoted

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without reference to the benefit to, or effect on, the rest of the economy. The disproportionate, indeed frenzied, growth of the summit of India’s financial sector, even as the bulk of the producers in agriculture and small industry are kept out of the formal financial sector and starved of capital, strikingly illustrates the disarticulation of the entire economy and the continued subjugation of the productive sphere to mercantile and speculative capital.

Notes: 1. At the same time, in recent years the corporate sector has increasingly relied on their retained profits, the share market and foreign borrowings for its requirements of funds; this has deprived banks of a large share of the credit market, and driven them further in the direction of lending to consumers. (back) 2. Economic Times, 23/4/07. (back) 3. Business Standard, 16/3/07. (back) 4. Times of India, 13/2/08. (back) 5. Another factor in the slowdown was the appreciation of the rupee, which led to a slowdown in exports. (back) 6. EPW Research Foundation, “Increasing Concentration of Banking Operations”, Economic and Political Weekly, March 18, 2006, Table 5. The number of accounts in semi-urban areas too shows a fall. (back) 7. Reserve Bank of India, Annual Report, 2006-07. The semi-urban and urban population accounted for the remainder of the deposits and credit. (back) 8 .R. Ramakumar and Pallavi Chavan, “Revival of Agricultural Credit in the 2000s: An Explanation”, EPW, December 29, 2007. (back)

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9. RBI, Report of the Technical Group to Review Legislations on Moneylending, 2007. (back) 10. Bank credit for micro-finance in 2005-06 was just one-fortieth the institutional credit disbursed to agriculture that year. Economic Survey, 2006-07. (back) 11. Andy Mukherjee, “High interest rates to hit demand for investment”, Bloomberg, 7/2/08. (back) 12. Quoted in Times of India, 26/10/05. (back) 13. “Banks in no hurry to hike rates for large companies despite RBI’s prodding”, Economic Times, 17/10/05. (back) 14. RBI, Annual Report, 2006-07. (back) 15. NCEUS, Financing of Enterprises. (back) 16. Indeed, small businesses which are vendors to big firms are generally forced to extend them interest-free credit; the big firms extract this by simply not paying their bills for months. (back) 17. Deposits would be higher because the head offices of the major firms would be in places such as Mumbai; hence even if profits were made on the basis of activity in Jharkhand or Orissa, funds would flow into a Mumbai bank account. It is true that credit may also be issued in Mumbai for investments that are to take place in Jharkhand or Orissa; nevertheless economic activity in Mumbai would stand to gain from the entire flow. (back) 18. Carol Upadhya, “Employment, Exclusion and ‘Merit’ in the Indian IT Industry”, EPW, 19/5/07. (back) 19. Anirudh Krishna and Vijay Brihmadesam, “What Does It Take to Become a Software Professional?”, EPW, 29/7/06. (back)

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20. One research report based on a survey estimates that each IT job generates an additional 1.4 jobs in other sectors. CLSA Asia-Pacific Markets, Chain Reactions:Indian IT’s Impact on Economy, Consumption and GDP, February 2007. (back) 21. CLSA, op. cit. (back) 22. Business Standard, 30/9/07. (back) 23. A Department of Telecommunications study of 2004 found that most of the domestic telecom equipment manufacturers, and even the state-owned undertaking ITI, which till recently was the major equipment manufacturer, had become merely ‘traders’ by importing the equipment and supplying it to the service providers. – Sunil Mani, “The Dragon vs the Elephant: Comparative Analysis of the Innovation Capability in the Telecom Industry of China and India”, EPW, 24/9/05. (back) 24. Economic Times, 27/6/07. (back) 25. Quoted in Paul Baran, The Political Economy of Growth, Indian edition, 1958, p. 229. (back) 26. Economic Times, 18/2/08. (back) 27. Sunanda Sen and Byasdeb Dasgupta, “Labour under Stress: Findings from a Survey”, EPW, 19/1/08. (back) 28. Baran, op. cit., pp. 230-31. (back) 29. These figures are cited in Special Correspondent, “Posco deal: uneven playing field?”, Hindu, 19/8/05; Shankar Gopalakrishnan, “Posco: blessing or curse?”, Economic Times, 24/12/07; Aditi Roy Ghatak, “Posco venture: capital investment or exodus?”, Hindu, 23/8/05. (back) 30. Gopalakrishnan, op. cit. (back)

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31. “MNCs can’t get mines on a platter: States”, Business Standard, 20/12/07; emphasis added. (back) 32. People’s Union for Democratic Rights, Delhi, Through the Lens of National Security, January 2008. (back) 33. Rahul Goswami, “Outpatient Inpatient”, Hindu, 27/1/08. (back) 34. “India’s healthcare spending to cross Rs 200,000 crore [Rs 2 trn.] by 2012”, Business Standard, 6/3/07. (back) 35. “Medical tourism: Heartburn in the U.S.”, Times of India, 18/12/05. (back) 36. Ravi Duggal, “Public Health Expenditures, Investment and Financing under the Shadow of a Growing Private Sector”, in Gangolli, Leena, Ravi Duggal, and Abhay Shukla, Review of Healthcare in India, 2005; citing a study by Indian Council for Research in International Economic Relations (ICRIER). (back) 37. Duggal, op. cit. (back) 38. Private final consumption expenditure from National Accounts data. (back) 39. Duggal, op. cit. (back) 40. Hindu, 12/1/08. (back) 41. Sandhya Srinivasan, “India as a research site”, paper presented at meeting of Centre for Social Medicine and Community Health, 2007. (back) 42. Times of India, 22/10/05. (back) 43. Srinivasan, ibid. (back) 44. “Maharajahs in the shopping mall”, Economist, 2/6/07. (back)

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45. Times of India, 8/2/07. (back) 46. Business Standard, 9/3/07. (back) 47. This is a low figure: the Ambanis are said to have spent $250 million on six private jets. – Business Standard, 25/11/07. (back) 48. Economic Times, 25/5/07; Business Standard 1/2/08. (back) 49. The Economist (10/3/07) puts the percentage at 1 per cent; the New York Times (reproduced in the Hindu, 9/5/07) quotes an official of GMR Infrastructure who puts it at 3 per cent. (back) 50. Economic Survey, 2007-08. (back) 51. Economic Times, 15/11/07. (back) 52. “India’s airlines: losing money, buying planes”, New York Times (reproduced in the Hindu, 9/5/07). (back) 53. Sreelatha Menon, “Cars or scars?”, Business Standard, 24/1/08. Average speed in Delhi fell from 20-27 kmph in 1997 to 15 kmph in 2002 and 10 kmph now; in Mumbai it fell from 38 kmph in 1962 to 1520 kmph in 1993; in Chennai, it is 13 kmph; and in Kolkata 7 kmph. -Praful Bidwai, “Small cars, big problems”, Frontline, 15/2/08. (back) 54. Bidwai, op. cit. (back) 55. “Booming economy gives rise to mall mania”, Financial Times, reproduced in Business Standard, 23/12/07. (back) 56. McKinsey Global Institute, “The Bird of Gold: The Rise of India’s Consumer Market”, cited in “The coming boom”, Economist, 5/5/07. (back) 57. With Rs 45, one can buy more goods in India than one could buy of equivalent goods in the U.S. with $1 (which was worth Rs 45 at the exchange rate in 2004-05). Thus the purchasing power of Indian

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incomes is not reflected when they are converted into U.S. dollars at the exchange rate. To make international comparisons, figures are converted into an invented measure called Purchasing Power Parity dollars, on the basis of internationally comparable price levels. In December 2007, the International Comparison Programme released its latest estimates of PPP for 2005, on the basis of which India’s nominal GDP of $778.7 billion was estimated to be $2.34 trillion in PPP terms. (back) 58. The classification of mobile telephony as a luxury may be questioned on the ground that it has been adopted by large numbers in the urban areas: the number of mobile subscribers has reached 234 million by the end of 2007. However, unlike the case of commodities and services such as food, clothing, fuel, lighting, housing, education, and medical care, it is a service for which demand as such is generated by the suppliers themselves through heavy advertising, promotional schemes, ‘peer pressure’, and the like. The spread of mobile telephony in India is a complex social phenomenon worth study (the reasons for various sections becoming subscribers are diverse; hardly any mention is made of the pressures, economic and social, to own a mobile phone). The number of connections is not an accurate gauge of the actual usage: Much of the recent addition to the subscriber base has been of sections with low average revenues per user. The ratio of connections in urban areas to rural areas remains very high: with three-fourths of the population, rural India has less than one-fourth the telephone connections. The most profitable segment to the service providers is, of course, those with large disposable incomes, particularly among the youth. (back) 59. Quoted in C.P. Chandrashekhar, “To the market this March”, Frontline, 26/3/04. The minister also acknowledged with disarming candour that market manipulators had driven down prices of public sector shares in the days before disinvestment, in order to pick up the disinvested shares at low prices. When asked who the manipulators were, the minister said, “I have told them not to reveal. They realised what they were doing was not right.” He implied that some of the

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financial advisors to the disinvestment were themselves involved. However, he ruled out punishing them: “Punishing will lead to the collapse of the market.” – Outlook, 22/3/04. (back) 60. V. Sridhar, “Scam accounts”, Frontline, 6/10/06. (back) 61. In fact there is no subsidy on petroleum products as a whole. Central and state governments taxes on petroleum products amounted to around Rs 1.8 trillion in 2007-08. Petroleum marketing companies thus receive only a portion of the retail price of petroleum products. The loss that these companies make on sale of petroleum products could be eliminated simply by reducing the tax on them. Instead, this marketing loss is displayed by the Government as a ‘subsidy’ being paid to benefit the common man. (back) 62. Independent Commission on Banking and Financial Policy, Interim Report, April 2005. (back) 63. Receipts Budget 2008-09. (back) 64. Menon, op. cit. She cites a 2004 World Bank study as its source. (back) 65. “Santa Claus visits the Tatas”, Telegraph, 30/3/07. (back) 66. P. Sangameshwaran, G. Seshan, Bijoy Kumar, “What drives Tata Motors?”, Business Standard, 22/1/08. (back) 67. The AMP claims that the automotive industry employs 200,000 in vehicle companies, and 2,50,000 in component companies; no details are provided, and both figures look dubious. It goes on to claim vaguely that another 10 million are employed “at different levels of the value chain – both backward and forward linkages.” This remains a mystery; at any rate the claimed proportion of indirect to direct employment is over 22:1, surely fanciful. The GDP claims are inflated by using a figure of industry sales, rather than value added in the industry. (back)

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68. “Globalisation, capitalism and inequality”, Economic Times, 9/7/07. (back) 69. “Inclusive growth”, India: Selected Issues, International Monetary Fund, February 2008. (back) 70. NCEUS, Report on Conditions of Work, p. 7. (back) 71. A.V. Banerjee, Thomas Piketty, “Top Indian Incomes, 1956-2000”, June 2003. (back) 72. NSS Report no. 500. As mentioned above, the households covered under the NSS evidently do not include the billionaire households. S. Subramanian and D. Jayaraj, “The Distribution of Household Wealth in India”, UNU-WIDER, October 2006, estimates that the Business Standard list for 2003, containing 178 richest households, accounted for 2 per cent of the country’s estimated wealth. (back) 73. That is, the sum of the assets of the NSS households and those of the billionaire households. (back) 74. “World’s largest hedge fund firm now in India”, Business Standard, 26/2/08. (back) 75. Statement in Lok Sabha by the Union Minister of State for Finance, quoted in “Five FIIs now account for 60 per cent of PNs”, Business Standard, 8/9/07. (back) 76. “A new frontier”, Economist, 10/9/05. (back) 77. James Winterbotham and Sridar Swamy, “M & As: A year of adventure for India Inc abroad”, Hindu Business Line, 7/3/08. (back) 78. Economic Times, 16/4/07, quoting a survey by the firm Cushman and Wakefield. (back) 79. Business Standard, 6/4/07. Emphasis added. (back)

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80. Business Standard, 6/4/07. Emphasis added. (back)

IV. (4) The Condition of the People Market reproduces and reinforces skewed pattern of distribution The structure of India’s economy permits ‘growth’ to proceed even as the condition of the vast majority declines. As we have seen in earlier chapters, market forces do not lead to the automatic spread of development across wider social sections. Rather, they can operate to reproduce, and even strengthen, the existing exclusion of the vast masses from the market: (i) The present pattern of development creates a distorted pattern of employment, with the bulk of the workforce crowded into low-income sectors, and a small section in high-income sectors. (ii) This in turn gives rise to a skewed distribution of income, concentrated at the top. (iii) The different income groups constitute distinct markets. Workers, peasants, and other working people rely to a large extent on the unorganised sector for their needs. By contrast, the high-income groups rely more on the organised sector (including, now, organised retail); they identify with an international elite, and their tastes are shaped, indeed their very wants are generated, by the sales effort of international firms. (iv) The organised sector (that is, in the main, the private corporate sector) creates less jobs per unit of investment, of which a higher proportion are high-income jobs. On the other hand the weak purchasing power of the working people depresses demand for the production of the unorganised sector, which is a relatively employment-intensive sector. In this way the skewed distribution of

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income gets reinforced. That is, the pattern of distribution is inextricably linked to the pattern of production and employment. The dominant school of thought today ignores the consequences of the pattern of production on distribution. This fracturing of the economy is embodied in the media’s use of the term ‘consumer’. We are told from time to time that x or y policy may hurt one or the other section of working people, but is good for ‘consumers’. The section hurt is presented as a vested interest, trying to defend its turf against the interests of the whole people. But the overwhelming majority of consumers are those who must earn by their labour in order to consume; they are workers, peasants, fishers, petty retailers, employees, and so on. Their employment determines their consumption; hence they are fundamentally characterised by their employment – and not as abstract, homogenous ‘consumers’. Of course, for the ruling class media, these low-income working sections are not ‘consumers’ at all, since their consumption is low and is dominated by items or services produced in agriculture, the small scale sector (such as textiles), or the public sector (public transport, public education). By contrast, the consumption of the high-income sections consists largely of products and services produced in the private corporate sector. Depression of consumption of the vast majority: undernutrition The sharp growth of inequality, and the depression of the living standards of the vast majority, are most clearly evidenced in the depression of food consumption. Calorie consumption per head per day has fallen between 1993-94 and 2004-5 by 106 calories, or nearly 5 per cent, in the rural areas; by 51 calories, or 2.5 per cent, in the urban areas.

Table 1: Changes in Per Capita Intake of Calories, 1993-2005
1993-94 19992000 2004-05

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Rural Urban 2153 2071 2149 2156 2047 2020

Source: NSS Report no. 513. The original basis of the poverty line was a basket of goods which contained at least 2400 calories per capita per day in the rural areas, and 2100 per capita per day in the urban areas. This basis yields very high levels of poverty: Utsa Patnaik calculates that 87 per cent of the rural population was unable to obtain 2400 calories per day in 200405.1 But even if we accept the norms and calculations NSS itself has adopted, two-thirds of the country’s population in 2004-5 had a calorie intake below the nutritional norm. Around half the population is more than 10 per cent below the norm. (Again, going by the NSS’s own calculations, there has been a clear deterioration between 1993-94 and 2004-05; see Table 2.) The NSS results also show that it is not the idle rich, but the labouring poor, whose consumption is below the norm: Calorie consumption rises with income level, with the highest expenditure class consuming double that of the lowest in both rural and urban areas.

Table 2: Percentage of Population More than 10 Per Cent Below NSS ‘Norm’ of Calorie Intake2
1993-94 Rural Urban 42.0 48.8 2004-05 49.1 53.6

Source: NSS Reports no.s 405 and 513.

So distorted is the Government’s method of calculating poverty, that from the same National Sample Survey data which depict such

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widespread under-nutrition, the Government has concluded that only 27.5 per cent of the population is below the poverty line in 2004-05 – down from 36 per cent in 1993-94. This would mean that in 2004-05 another 39 per cent were not officially defined as ‘poor’ but were nevertheless undernourished. The percentage below the official poverty line is declining even as calorie consumption is declining. Indeed the official poverty line, even as a calorie-based measure, has become meaningless. The army of neo-liberal economists has laboured to produce arguments to explain away the decline in calorie consumption, but the simple fact is that in the developed world average calorie intake is much higher than in India: in 1994, the world average was 2718; the developed world average was 3206; and even the developing country average was 2573.3

Table 3: Changes in Per Capita Protein Intake, 1993-2005
1993-94 Rural Urban 60.2 57.2 19992000 59.1 58.5 2004-05 57.0 57.0

Source: NSS Report no. 513. The neo-liberal economists also claim that the decline in cereals consumption is not worrying, as people are diversifying their diet, and eating more ‘high-quality’ foods like milk, meat, fish, eggs, and so on. It is true that a larger percentage of total consumption is composed of such foods. However, as can be seen from Table 3, not only has calorie consumption declined, but so has protein consumption, falling 5 per cent in rural areas during 1993-94 to 2004-5 while remaining at the same level in urban areas. Indeed, even more than the fall in calorie consumption levels, it is the fall in protein consumption levels that

conclusively proves the involuntary nature of the deterioration in nutrition. Of course, both calorie and protein measures arise from a

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single reality, namely, that the consumption of cereals, the main source of both calories and proteins for the vast majority, is declining.

Appalling nutritional outcomes This is in line with the appalling nutritional outcomes, as brought out by the National Family Health Survey of 2005-6: Almost half of children under five years of age (48 per cent) are stunted, that is too short for their age, an indicator of chronic malnutrition, and 43 per cent are underweight. The proportion of children who are severely undernourished is also notable – 24 per cent are severely stunted and 16 per cent are severely underweight. Wasting, defined as an abnormally low weight for the child’s height, is also a serious problem in India, affecting 20 per cent of children under five years of age. Since NFHS-2 (1998-99), there has been only a slight improvement in the percentage of young children who are stunted and underweight, and the percentage who are wasted has actually increased slightly. Moreover, the incidence of anemia among children under three years has actually risen from 74 to 79 per cent. The incidence of anaemia among women (ever-married women aged 15-49) has risen from 52 to 56 per cent between 1999 and 2006. Among pregnant women (aged 1549) the incidence of anaemia has risen from 49.7 to 57.9. The decline of calorie and protein consumption is a telling indicator the actual state of consumption of the vast majority of people. underlines the fact that the surge in luxury consumption is not indicator of a general rise in incomes and living standards, but possible because of extreme inequality. of It an is

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Given the large extent of semi-starvation, a certain number of hungerrelated deaths is inevitable; yet such a phenomenon is rarely reported. Does it exist? It would be difficult to gauge this from official statistics, since the authorities have a strong interest in underplaying the extent of this phenomenon. The authorities lay the cause of death at the door of one or the other disease, or merely fail to record the death at all. The former is quite simple, since a man, woman or child weakened by hunger usually succumbs to one or the other illness. Nor is the latter difficult, since such deaths are concentrated in regions which are backward and hidden from the gaze of the mass media. The Child Death Measurement Committee (CDMC, better known as the Bang Committee) set up by the Maharashtra Government, in its report of August 2004, noted the yawning gaps between different estimates of under-five mortality in the state: According to the state government, under-five mortality in the state was 25,000-40,000 per year; according to the Central Government’s Sample Registration System, 120,000; according to a large-sample two-year study carried out by the Child Death Study and Action Group (an NGO group), 175,000 per year. According to the CDMC, the overwhelming majority of under-five deaths are the result of the combined effect of under-nutrition and bacterial infections. It points out that between 1988 and 2002 there was virtually no improvement in the rate of acute malnutrition (Grade III and IV) among children in the state. The rate of Grade III and IV malnutrition among tribal children is an alarming 15 per cent – double the rate for rural Maharashtra as a whole.4 Nor does sporadic press attention have any lasting effect. Melghat in Amravati district came to prominence in 1993 when it suffered hundreds of child malnutrition deaths; according to a writ petition filed by two doctors of Melghat in September 2007, 640 children from the region had died of malnutrition since the start of the year.5 A proper tabulation of all such hunger-related deaths in India would probably yield a startling figure, a telling comment on the Indian political system. Rural-urban divide

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In colonial times, port cities created by British rule, such as Bombay, Madras, and Calcutta, grew with colonial trade, with hardly any spread of industry from these nodes into the interior. While the number and size of cities has grown since then, the contrast between the major cities and the surrounding regions remains glaring even today. The huge investments being made in the urban areas, particularly in the metropolises, stand in stark contrast to the condition of the rural areas in the most basic facilities, such as education, health care, sanitation, drinking water, electrification, rural roads, and communications. To take a particularly striking example, according to official figures, in April 2005, 42 per cent of habitations more than 100 in population did not have access to potable drinking water within 1.6 km. The Bharat Nirman scheme, announced with much fanfare in 2005, aims at clearing only 72 per cent of this shortfall by 2009; the Eleventh Plan document released in December 2007 admits that there has been a huge shortfall in the implementation of even this scheme. The targets, even if achieved, are no guarantee of continued supply of drinking water: Over 360,000 habitations reported in 1999 to have been “covered” were reported by 2005 to have “slipped back”, and no longer had drinking water. Given the State’s failure to guarantee such an elementary requirement of life, the gaps in other facilities6 are hardly surprising: — Nearly half of rural households did not have electricity in 2002. — With regard to three elementary facilities – drinking water, electricity for lighting, and a latrine – only one in nine rural homes enjoyed all three within the premises. — Nearly two-thirds of rural homes were made partly or wholly of katcha materials (i.e., unstable construction materials such as mud, grass, reeds, bamboo, etc.). — More than half the villages were more than 5 km away from the nearest Primary Health Centre (PHC), and more than one-fourth were more than 10 km away from it; and so on. (Nor is the existence of a

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PHC any guarantee of medical care: for example, other surveys have shown that only 38 per cent of PHCs have all the critical staff and medicines; only 20 per cent have a telephone; and 31 per cent do not have even a single bed7) Dualism in education Neo-liberal economic policy reinforces the urban-rural divide. The World Bank-funded ‘District Primary Education Programme’ in the 1990s relied on the use of ‘para teachers’ (contract teachers of varying qualifications, hours of work and service conditions), rather than regular teachers, in the rural areas. By 2002 their number had risen to 280,000, and by 2005, 400,000. Recruitment procedures and service conditions of these teachers, variously known as ‘Shiksha Karmi’, ‘Guruji’, ‘Vidya Sahayak’, ‘Shikhan Sevaks’, ‘Vidya Volunteers’, ‘Sahyoginis’, ‘community teacher’, ‘voluntary teachers’, etc. vary considerably across the states.... [In Madhya Pradesh], the regular teacher cadre is being done away with. Gradually, the exception appears to become the ‘norm’ all over the country. Often such a move is justified in financial terms as for one regular teacher’s salary, 3 to 5 para teachers can be appointed, and government liability does not extend beyond salary.8 Given that the qualifications for such teachers are lower than for regular teachers, and indeed are arbitrarily decided, this shift is part of a general pattern of informalisation of services for the poor – in which the school system with a network of para-schools. Thus dualism in education has been strengthened in the name of extending education. The Government’s claims regarding literacy and education have more to do with fulfilling well-publicised targets than actually delivering education. The Census figure for literacy is 65.4 per cent of the population aged seven and above. However, this figure merely reflects

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the replies given by households to the question “How many persons in the household are literate?” It does not reflect whether they actually are able to read. A study by the Indian Institute of Management, Ahmedabad, carried out in four Hindi-speaking states (Rajasthan, U.P., M.P., and Bihar) compared the responses to queries using the Census approach with the results of a reading test. By the Census approach literacy of the 20,000 sample was 68.7 per cent; but by the reading test, only 26 per cent could read properly. Another 27 per cent could read only parts of it, or took recourse to sounding syllables before putting together words. The remaining 47 per cent could not read at all. Thus the gap between the Census approach and a proper definition of literacy was 42.7 per cent; even using a much looser definition of literacy, the gap was 15.7 per cent.9 Adult literacy in the sense of the regular practice of reading is perhaps better reflected in the readership of newspapers and magazines. The total readership of newspapers and magazines in India is about 212 million,10 or about 19 per cent of the population. The National Common Minimum Programme (NCMP) of May 2004, which is the basis of the United Progressive Alliance government and of the support extended by the CPI and CPI(M), states that “The UPA Government pledges to raise public spending in education to at least 6 per cent of the GDP.... This will be done in a phased manner.” However, as can be seen from Table 4, there has been only a slight increase in spending on education as a percentage of GDP by the Centre and state governments over the tenure of the UPA government; the percentage is indeed lower than in 2001-02. The 2008-09 Budget shows that the Centre’s expenditure will rise by only an additional 0.1 per cent of GDP.

Table 4: Expenditure on Education (by Centre Governments Combined) as a Percentage of GDP11
200102 2.98 200304 2.74 200405 2.67 200506 2.69 200607 2.88



2007-08 2.91

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Source: Economic Survey, 2006-07 and 2007-08, Union Budget, 2008-09 and RBI Bulletin, February 2008. State governments’ budgeted expenditure and has been taken for 2007-08. During the same period there has been a sharp rise in private final consumption expenditure on education as a percentage of GDP (see Table 5).

Table 5: Expenditure on Education (by Centre Governments Combined) as a Percentage of GDP
2003-04 4.0 2004-05 4.3 2005-06 4.5 2006-07 4.9



Source:Economic Survey, 2007-08 Much of this rising share of private expenditure on education is involuntary. There is a general perception that lack of education is a disadvantage in the scramble for the meagre jobs available. Given this, and given the shortcomings of the public education system (the result of inadequate public expenditure), the lower income groups are virtually forced to pay for private schools, private colleges, and private tuition (the latter, an expression of the extreme distortions in India’s educational system, has become a significant service industry). The situation of health expenditure is similar. Here the NCMP pledged that “The UPA Government will rise public spending on health to at least 2-3 per cent of GDP over the next five years”. In fact the combined spending of the Centre and the states has remained at 0.9 to 1 per cent of GDP in these years.12 Health expenditure in the 2008-09 Central Budget is just 0.34 per cent of GDP, more or less the same as the previous year. As a result, the common people will continue to be forced to turn to the rapacious private sector for their health care needs.13

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Within the urban areas The rural-urban divide is only part of the story: within the urban areas, particularly within the metropolises, slum life is sub-human. With regard to drinking water, electricity for lighting and latrine, only 15 per cent of urban slum homes have all three facilities within the premises. One-third of urban homes are made of katcha materials. The huge investments in the urban areas are directed to the better-off. In the country’s financial capital, Mumbai, more than 60 per cent of the population lives in slums. Here living conditions are sub-human, and health statistics resemble those of the rural areas. The National Family Health Survey 2005-06 revealed that 40 per cent of Mumbai’s children are underweight; a similar percentage are stunted; and as many as 14 per cent are classified as ‘wasted’, with abnormally low weight for height. During 2006 and 2007 a number of private surveys by social work organisations discovered alarming levels of malnutrition in slums of Bhandup, Mankhurd, Govandi, and Aarey. A number of children were admitted into hospitals with Grade IV malnutrition. 14 To the ordinary citizens of Mumbai, the cost of Mumbai becoming an IFC is massive, brutal displacements; closure of productive firms; huge land grabs. All these are imperative for attracting massive foreign speculative capital to the city. Both the World Bank and the Central Government demanded the scrapping of the Urban Land Ceiling Act, an Act which, at least on paper, required the public acquisition of thousands of acres of vacant urban land hoarded by a few families. Indeed, the World Bank made future lending to the state government contingent on it, and the Centre made it a condition of provision of funds for urban renewal. Among the other elements of the transformation of the city are the privatisation/closure of public health institutions and the privatisation of utilities such as water. The link between the entry of foreign capital and the ruin and exclusion of the people is starkly apparent. Similar processes are under way for other cities.

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Since the second half of the 1980s, and more aggressively since the 1990s, big employers and the State have dismantled the earlier environment of organised labour. Units with sizeable workforces have been broken up as far as possible; within units the workforce has been broken up as far as possible, placed under various contractors and diverse statuses. Historic industrial centres such as Mumbai, Kolkata, Ahmedabad, and Kanpur, with their specific histories of working class movement, have been dismantled. Their industrial workforces have been dispersed into unorganised employment or unemployment, and industrial land converted into real estate. The labour force is more fragmented and insecure than ever before; even the unorganised workers are affected, as the scope for their entering the organised sector, a key demand of earlier struggles, is virtually shut off. This fragmented, insecure existence strengthens their ties to the village, which offers a fallback in times of distress. The greater use of contract labour, frequently hired through the use of village or caste ties, reinforces these ties. In these complex conditions, the traditional type of trade union movement has disintegrated. Only a very different type of working class movement can expect to survive and extend its influence over the rest of society: in particular, its links with the peasantry would be crucial. Where and how the vast majority labours The life of the people is shaped principally by their employment, and thus a brief description of the state of employment is in order. (We have touched upon this subject earlier in this essay from the angle of describing the structure of the economy; here we do so from the angle of portraying the life of the people.) First, most employment is isolated, and its relation with the whole economy is obscure to the workers; secondly, the incomes of workers in the bulk of such employment are apallingly low.

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Were we to confine ourselves to the impressions conveyed by the mass media, we would doubtless believe that there is a labour shortage in India; that employers are scrambling to offer jobs to those entering the job market; and that wages are soaring. The truth is otherwise. The overwhelming majority toil in informal/unorganised employment, where earnings are miserable, security non-existent and conditions of work appalling. The following facts and figures from the recent report of the National Commission on Enterprises in the Unorganised Sector (NCEUS)15 provide a portrait of the labour of the overwhelming majority. The NCEUS puts total employment in 2004-05 at 458 million; of this, 394 million were unorganised/informal (i.e. unprotected) workers in the unorganised sector, and 29 million were unorganised/informal workers in the organised sector.16 Thus total informal employment was 423 million, or 92 per cent of total employment.17 Of these workers, 256 million (61 per cent) were in agriculture, and 167 million (39 per cent) in non-agriculture.

Wage workers: There were 77 million wage workers in the unorganised

sector outside agriculture. These workers are concentrated in manufacturing, construction, trading, transport, and (in the case of women) domestic services. The NCEUS report provides some details regarding the wretched conditions of work in these occupations: the poor ventilation, temperature, humidity, lighting; the lack of safety and commonness of occupational diseases; the non-availability of facilities such as drinking water, washing facilities, rest rooms, creches, canteens, sanitation, and housing; the extended hours of work and absence of paid holidays. The manner in which this workforce is recruited – frequently through a network of family/caste/community, or through labour contractors who operate through similar channels – deters labour’s self-organisation. The concept of a ‘minimum wage’ hardly exists in India except on paper, and even there it is obscure. What defines the ‘minimum’? Several states have statutory minimum wages well below even the

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official poverty line; those who determine these levels do not take into account the minimum requirements of a family of three consumption units. State governments fail to notify minimum wages for a large share of the workforce: one study found that in Ahmedabad only 30 per cent of the workers in the unorganised sector were covered by the schedules notified; and even those for whom wages were notified did not receive the stipulated minimum. Significantly, the wages of both regular and casual wage workers in the urban areas declined in real terms (i.e., after discounting for price rise) in the period 1999-2000 to 2004-05, as shown by Table 6.

Table 6: Growth in Urban Average Real Daily Wage Rates, 20002005
Men Regular Casual Women Regular Casual -4.8 -2.8 -21.4 -4.0

Source:Jeemol Unni, G. Raveendran, “Growth of Employment (1993-94 to 2004-05): Illusion of Inclusiveness?”, EPW, 20/1/07. Figures here are for non-agricultural wage employment in urban areas. Apart from those officially classified as wage workers, of those classified as ‘self-employed’, about 12 per cent18 are ‘homeworkers’, or home-based workers; they receive raw materials from contractors and receive payment (usually on a piece-rate basis) for the finished goods. In effect they are disguised wage workers. Unlike other wage workers, however, they have to bear various costs of production – they purchase, repair and maintain their own tools/machines; the costs of some inputs (eg thread), transportation to and from the

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contractor/firm, and infrastructure (space, lighting, water, etc); and the costs of current capital (frequently falling into a debt trap). A higher proportion of homeworkers are women; the subjugated social status of women, along with homeworkers’ isolation from other similarly placed workers, makes it more difficult for them to organise; thus they are a particularly exploited section. As the NCEUS puts it, homeworking “can be clearly identified as a system of production within a global or domestic value chain”, one which contains a number of intermediaries between the homeworker/producer and the final consumer: the greater the number of intermediaries, the lower the bargaining strength of the homeworker and the lower the share she receives of the final consumer price. Contractors use their dominant position to depress the real price paid to the homeworker by making arbitrary deductions in the name of deficient quality and delaying payment. It should be noted that ‘homeworking’ is merely another name for the ‘putting-out’ system, a form of mercantile capital that preceded industrial capital in the countries of original capitalist development. The mercantile capitalist does not transform the production process, but merely takes advantage of his access to markets and finance to exploit labour working in the old way. The persistence of this mercantile form on a significant scale in India today, and its coexistence with advanced industry, underlines the stunted and distorted character of development here. Employers use the social institution of gender as a method of depressing wages. They construct a hierarchy of jobs, in which particular jobs are classified as women’s work. The latter jobs are described as low-skilled even if, as in hand-embroidery in the garment industry, they involve considerable skill acquired over a long period of informal training. The beneficiaries of this division of labour are not the male workers – the savings on women’s labour are not transferred to them; rather, it is the employers who benefit. This is evident in the low earnings of both men and women: In 1999-2000 the gross earnings of homeworkers came to Rs 870/month for men, and Rs 462/month for women.

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion 186 Self-employment: However, the bulk of unorganised employment

outside agriculture is self-employment. According to the NCEUS, there are 92 million self-employed workers outside agriculture. Similarly, in agriculture, 64 per cent of the workforce are cultivators (i.e., self-employed), and the remainder agricultural labourers. Thus the Indian economy is dominated by self-employment. Outside agriculture, self-employment is largely ‘own account’ (i.e. purely self-employed) workers and their unpaid family members. ‘Own account’ enterprises (OAEs), i.e., with no hired labour, account for 87 per cent of the informal sector enterprises and 73 per cent of the labour of such enterprises. The condition of the OAEs is dismal. In 2000, the average value of their fixed assets was just Rs 39,000 per enterprise; their earnings per worker were just Rs 2175 per month in the urban areas and Rs 1167 per month in the rural areas. Assuming a family size of five, this would put them below even the official poverty line of that year.

The above provides a glimpse of the complex web of employment outside agriculture in India. The character of the employment is precarious, and earnings from it may not even meet bare subsistence needs. Most of it is isolated, and it is difficult if not impossible to organise against the employer, if any. That very isolation also makes it difficult for the workers to unite to make demands of the State. Underlying this rickety edifice of isolated, ground-down employments are agrarian conditions, to which we will turn in the next chapter. In turn, this pattern of subsistence employment offers no escape from agricultural stagnation and bondage, but becomes merely an urban mirror-image of it; thus it perpetuates the overcrowded misery of agriculture as well. Retrogressive social divisions and the pattern of employment This pattern of employment also provides the basis for the perpetuation of retrogressive hierarchies and divisions among the

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people. As under British rule, so also after their departure, economic processes lent support to the stratification of the people of the same broad economic classes into different castes and communities. The deindustrialisation carried out under British rule, and the paucity of industrial employment thereafter, combined with the absence of serious land reforms, condemned various castes and communities to remain in traditional occupations. While the pattern of employment provides fertile soil for social divisions, these divisions in turn help maintain economic partitions and discrimination. The post-1991 neo-liberal economic policies further strengthened these partitions. It has been widely pointed out that the decline of public sector employment and the consequently greater share of private sector employment, where there are no caste-based reservations, have further whittled down the meagre opportunities for members of the oppressed castes. However, such opportunities, while helpful in improving the social position and voice of the oppressed sections, were never very significant in relation to the labour force. More sweeping have been the effects of liberalisation policies on the unorganised sector, in which the vast majority of oppressed castes, scheduled tribes, and Muslims are employed – agriculture (including the forests), handicrafts, small and micro industry, and petty retail. The social sections facing discrimination or oppression are concentrated in the stagnant or retrogressing sectors of the economy. On the other hand, the relatively advantaged social sections, which make up the minority of the population, were better positioned to take advantage of the opportunities created by the current pattern of ‘growth’. Such boom sectors as engineering, the financial sector, medicine, and so on are overwhelmingly dominated by those from upper caste, non-Muslim households. These strongholds of seeming modernity are actually strongholds of caste consciousness, expressed in the deceptive form of upholding ‘merit’ and ‘equality’ (ignoring the tremendous inequalities on the basis of which the ‘successful’ have advanced). When medical, engineering or business school students pretend to sweep streets or shine shoes as protest against caste-

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based reservations, they reveal their attitude toward manual labour and the castes whose fate this is. Such offensive gestures receive wide appreciation from the media, and, more subtly, from the corporate sector, which can brook no restraints on profitability or freedom to hire and fire. Large corporate firms have been protesting a Government proposal to extend the system of caste-based reservations to the private sector. “A large quota system”, says the human resources director of Infosys, “inevitably hurts merit.”19 The Sachar Committee20 has recently documented the condition of the Muslim community. Muslims are more concentrated in the unorganised sector than any other socio-religious community; in particular they are concentrated in self-employment (53-61 per cent of Muslim men of different castes, and 72 per cent of Muslim women). They are also more urbanised than other communities, and in the urban areas they can be found in activities such as street vending, petty trades (as plumbers, electricians, carpenters, etc) and small manufacture. Among workers outside agriculture, Muslims were the least likely of all communities, including scheduled castes and scheduled tribes, to get jobs in the organised sector. Further, as mentioned earlier, there is a distinction between employment in the organised sector, which includes casual/contract workers employed by organised sector firms, and organised/formal employment, which enjoys legal protections. The percentage of Muslim non-agricultural workers who got organised employment was half or less the percentage for all socio-religious groups. Thus the social interface between Muslims and other communities is restricted by the pattern of employment, a pattern that is perpetuated by discrimination and in turn perpetuates it.

Table 7: Percentage of Non-agricultural Workers in Organised Employment: OBC Muslims, Other Muslims, and All Socio-Religious Groups
Muslim OBCs Other Muslims All SocioReligious Groups

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Men Women 4.4 5.5 8.4 5.5 16.2 12.2

Source:NCEUS, op. cit. Considering their dependence on self-employment, access to credit would be particularly important to Muslims. Yet, although they constitute 13.5 per cent of the population, and 12.2 per cent of priority sector loan accounts of scheduled commercial banks, they account for only 4.6 per cent of the amount outstanding under priority sector amount outstanding. This type of enduring partition or stratification among the mass of working people is typical of a stunted economy such as India’s. The capitalist transformation in the original capitalist countries tended to break down the barriers among various social groups and sharpen their class demarcations (though never comprehensively, for the ruling classes needed to maintain these non-class differentiations as a tool against the struggling unity of the working people). However, the isolation and backwardness of economic activity in an economy like India’s preserves the non-class barriers, and indeed preserves the uneveness between the multifarious social groups. Thus it poses an obstacle to a person of the exploited classes (whether hailing from a social group higher or lower in the hierarchy) becoming conscious of his or her class position. And in turn, as we have seen above, the differences in social status tend to perpetuate the unevenness in economic status. Thriving caste system and medieval oppression Far from weakening over the course of six decades since the transfer of power from British rule, the caste system thrives in India today, and is indeed strengthened by the prevailing economic processes. We describe below the condition of Dalits, but they are not the only victims of the caste system.

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The condition of Dalits, or scheduled castes (SC) is one of acute poverty and social oppression. Both poverty and oppression are linked to the question of land. In the rural areas, 57 per cent of the SC households cultivate no land at all; 21 per cent cultivate under one acre (0.4 hectares); and another 13 per cent cultivate between one acre and two and a half acres (1 hectare). That is, 91 per cent of the SC households in the rural areas are either landless or operate what are termed ‘sub-marginal’ or ‘marginal’ holdings. In urban areas, 51 per cent of SC households spent less than Rs 675 per head per month; whereas only 28 per cent of all classes (including SC) spent below that level. Literacy and enrolment levels too were lower for Dalits than for ‘all classes’.21 With the post-1991 liberalisation of banking, Dalits were swiftly excluded from bank credit. (In other words, they experienced a somewhat sharper form of what the poor and middle peasantry had to undergo in this period.) The credit per capita of small borrowal accounts of Dalits fell from Rs 495 in 1993 to Rs 225 in 2004. Dalits’ share of the amount outstanding on such accounts fell from 12.4 per cent to 4.6 per cent. Thus the share of rural Dalits’ loans from informal sources (such as moneylenders) rose from 36.6 per cent in 1992 to 55.2 per cent in 2002. Unsurprisingly, debt with a high interest rate (20 per cent or more per year) soared from 27.8 per cent to 45.5 per cent of their total debt.22 The Public Distribution System (PDS) has been to a large extent dismantled over the post-1991 period. This process accelerated with the introduction of the Targeted PDS in 1997, which divided consumers into so-called Below Poverty Line (BPL) and Above Poverty Line (APL) households. Prices for the latter were raised to virtually the level of market prices, effectively driving them out of the PDS. By various methods, including the use of the fraudulent official poverty line, the majority of the poor were simply excluded from the BPL category; being the poorest sections, the Dalits and Adivasis were particularly affected. By 2004-05, less than 40 per cent of Dalit households in rural areas had either a BPL card or an Antyodaya card

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(a scheme for the ‘poorest of the poor’). Among landless households (which describes the majority of rural Dalit households), 51 per cent did not have a ration card at all, and another 24.5 per cent had an APL card.23 The actual social condition of rural Dalits, however, is hardly conveyed by such statistics. The Dalit settlement is situated outside the village; it is frequently without a water source, and without electricity. Dalits frequently do not even have land of their own on which to relieve themselves, but must use the fields of the dominant communities with their consent. They are still compelled to perform traditional services, including the skinning of dead animals and manual scavenging (cleaning and disposal of excreta from dry latrines). According to a recent study by a study team from the Massachusetts Institute of Technology and a Gujarat-based NGO, the number of manual scavengers in Gujarat is actually increasing, even as their social segregation remains intact.24 Crimes against Dalits are not properly captured in official statistics. Many are not reported to the police for fear of reprisal, and because the police are almost uniformly partisan with the dominant social sections. Moreover, the caste character of many of these crimes is often ignored.25 At a recent national consultation of the National Commission on Scheduled Castes in Delhi, office-bearers of the Commission admitted the State’s complete failure to bring down atrocities against Dalits despite the existence of two legislations for the purpose; even untouchability, ‘abolished’ under Article 17 of the Constitution, persists. The police let off the culprits, and those tried are not convicted; indeed the conviction rate is going down in some states.26 Significantly, caste oppression appears to be perfectly compatible with liberalisation and runaway growth. Far from being restricted to extremely backward states such as Bihar and Orissa, it thrives even in relatively prosperous regions such as Punjab and Haryana; the latter was the site of the Jhajjar massacre (October 2002) and the burning

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of Dalit houses in Gohana August 2005) and Salwan (March 2007). Casteism flourishes too in the ‘boom’ states, such as Maharashtra, Tamil Nadu, and Gujarat. On the campus of India’s premier medical school, the All India Institute of Medical Sciences, Dalit students are beaten, physically tortured, humiliated, insulted, and segregated into separate hostels by upper caste students, and the top faculty encourage anti-reservation agitations.27 The social life of India – marriages, festivals, homes, secular gatherings, even cuisine, dress and language – are still dominated by caste and clan. The caste system rides roughshod over the grand parliamentary edifice, from the Lok Sabha to the village panchayats. Parliamentary politics in India is in reality conducted largely in caste and communal terms, not in bourgeois-democratic terms. True, the aspirations and churning among the oppressed castes are reflected, in a sense, in the rise of parliamentary parties claiming to represent them, as in the case of the Bahujan Samaj Party. However, there is no tangible improvement in their condition even where such parties come to power. A Dalit may become president of a Tamil Nadu constituency reserved for scheduled castes, but he/she will not run the panchayat: one panchayat president must still perform his caste duty of beating the drum to inform villagers of news, another is forced to clean the village tank, and all are treated as untouchables without any power. In the reserved constituencies doctors still refuse to touch Dalit patients, Dalits must drink from separate tumblers at tea stalls, and local temples, community halls and even main streets are out of bounds for Dalits.28 The focal point of caste oppression lies in India’s agrarian society. Where Dalits are too terrorised to resist oppression, apparent ‘peace’ reigns. Caste atrocities take place when those at the bottom of the social hierarchy begin to assert themselves. A common form of such assertion is the demand for either individual or collective temple-entry (or related demands, such as being allowed to pull the temple chariot). This is not essentially a religious demand, but a demand for social equality. Eight decades after Ambedkar’s Nashik satyagraha for

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temple entry, and six decades after the end of colonial rule, restrictions on Dalits praying at temples remain quite widespread. This fact forces its way into the public view when Dalits in one or the other village decide to challenge the unwritten ban, braving the wrath of the upper castes. Within the last year, such incidents have been reported at Bhivargi (Maharashtra), Keredagada (Orissa), Kandampatti (Tamil Nadu), among others, but these are just the tip of the iceberg: according to a recent survey, in just a single district of Maharashtra (Sangli) Dalits are not allowed to enter 116 temples.29 Other forms of social assertion which bring the wrath of the rural gentry on the heads of Dalits are such seemingly innocuous acts as wearing certain clothing or footwear, refusing to perform certain humiliating caste ‘duties’ (one recent instance was the refusal to wash the feet of guests during a caste Hindu marriage in Puri, Orissa; the Dalits’ wives were beaten and one was paraded naked30), riding a cycle or a two-wheeler, obtaining college education, and of course marrying members of the upper castes. What accounts for the violence of the response of the dominant social sections to these relatively mild forms of social assertion by the oppressed? Whatever be the consciousness of those committing such acts, they would have the effect of deterring the Dalits from any broader assertion. Thus they pre-empt any challenge to the socially dominant sections’ control over land and other assets. This becomes explicit when Dalits attempt to assert their rights to ‘common’ property resources from which they are excluded – for example, a plot of land, or a public tank, or some other water source. Such an assertion is usually met with the most comprehensive weapon of the dominant sections, the social and economic boycott. The boycott mobilises all the non-Dalit villagers (on pain of ostracisation) under the hegemony of the socially dominant. All employment in the village, all supplies of food and other mundane needs, are shut off; Dalits are even denied access to ground on which to relieve themselves. One can hardly imagine a more striking reminder of the

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role of non-economic coercion, including religious authority, social sway and physical force, in India’s agrarian economy. This situation, however, is not static: there are signs of simmering discontent among the Dalits. This finds greater scope for expression in urban areas, but it is not limited to the urban areas. The sudden wave of protests by the Dalits across Maharashtra in the wake of the September 2006 Khairlanji massacre took the entire political leadership of the state by surprise, and pointed to the emergence of a new, potentially explosive social force. All forms of stratification such as caste, clan, community or tribe complicate the formation of class consciousness of the working people – the consciousness of the place they occupy in the system of social production. For example, it is true that scheduled tribes (STs), scheduled castes (SCs), and other backward classes (OBCs) are the most deprived, and constitute the bulk of the agricultural labourers and small/marginal/sub-marginal peasants. However, four-fifths of the non-ST/SC/OBC cultivators are also small, marginal and sub-marginal peasants, that is, they belong in class terms with the other exploited sections. Their caste identity, on the other hand, makes them susceptible to mobilisation by large landholders, and thus hinders their identification with other exploited sections. Among the socially oppressed, too, non-class identities get reinforced with the withdrawal of even meagre welfare measures by the State, since family, caste and community appear to be the only visible ‘safety net’ in the struggle for survival amid insecurity and want. Indeed, amid the growing misery and want, divisions and clashes take place among the oppressed: many of the attacks on Dalits have been carried out by members of OBCs. Is this the fate of Indian society? Are the Indian people doomed to lead wretched, divided lives, segregated from those condemned similarly to isolated drudgery, unable to unite to become masters of their destiny? Before we attempt to answer this, we must examine the agrarian scene, where most Indians live and labour.

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Notes: 1. “Neoliberalism and Rural Poverty in India”, EPW, 28/7/07. The official cut-off for calculating poverty today is the spending level required to buy the particular basket of commodities which in 1973 would have contained 2400 calories (for rural areas) or 2100 calories (for urban areas). However, the actual pattern of consumption has changed – not voluntarily, but because of circumstances beyond the control of the consumers (employment may be further off, hence spending on transport would rise; firewood may no longer be available from the forest, hence fuel costs may rise; and so on). As a result, persons above the official cut-off level of spending are not actually obtaining those levels of calories. The official cut-off level is therefore meaningless. (back) 2. The NSS has been using a ‘norm’ of 2700 calories per consumer unit per day, and comparing the actual intake with this norm. One ‘consumer unit’ is defined as the calorie requirement of a normal male person doing sedentary work and belonging to the age group 20-39; the calorie requirements for males and females of different ages are expressed as percentages of this norm, and the requirements for the population are worked out on the basis of the age and gender break-up of the population. The original calorie basis for defining the poverty line was not in consumer unit terms, but per capita terms, and used differentiated norms for rural and urban areas. Here we are merely reporting the NSS’s own calculations. (back) 3. Cambridge World History of Food, vol. I, ed. Kenneth F. Kiple and K.C. Ornales, p. 899. (back) 4. CDMC, 1st Report (Marathi), August 2004. (back) 5. “Malnutrition deaths: Centre, state get notices”, Times of India, 9/9/07. (back)

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6. NSS Reports 487 and 488. (back) 7. Surveys by Jan Swasthya Abhiyan and Indian Institute of Population Sciences, cited in Access Denied, Infochange Agenda, April 2005. (back) 8. Praveen Jha, “Withering Commitments and Weakening Progress: State and Education in the Era of Neoliberal Reforms”, EPW, 13/8/05. (back) 9. Brij Kothari, “Literate but cannot read”, Times of India, 22/2/08. (back) 10. According to the National Readership Survey: “Daily newspapers reach over 200 million people, says NRS 2006”, Hindu, 30/8/06. (back) 11. The Ministry for Human Resources Development reports higher figures for expenditure and uses lower figures for GDP (i.e., at factor cost, rather than at current market prices); as a result it calculates public spending at 3.39 per cent of GDP in 2004-05 and 3.58 per cent in 2005-06. – Answer to Lok Sabha question, 20/11/07. (back) 12. Calculated from RBI, State Finances – A Study of Budgets of 2006-07, RBI Bulletin¸ February 2008, and Union Budget, various years. The Economic Survey 2006-07 reports higher figures for combined health expenditure and state governments, amounting to 1.4 per cent of GDP in 2006-07, but they do not tally with the figures given in the sources we have used. (back) 13. It is worth noting in passing that, apart from education and health, the third major promise of the NCMP, namely, “a legal guarantee for at least 100 days of employment, to begin with... for at least one ablebodied person in every rural, urban poor and lower-middle class household” has been comprehensively dumped in the 2008-09 Budget, the last Budget of the UPA government. (back) 14. Times of India, 10/6/06, 16/6/06, 18/6/06, 22/7/07. (back)

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15. Report on Conditions of Work and Promotion of Livelihoods in the Unorganised Sector, September 1997. (back) 16. The NCEUS uses the terms ‘unorganised’ and ‘informal’ interchangeably. It defines unorganised or informal employment as “those working in the unorganised enterprises or households, excluding regular workers with social security benefits, and the workers in the formal sector without any employment/social security benefits provided by the employers.” The distinction is not related to whether or not the particular section is unionised (workers enjoying legal protection may have no union; and workers without such protection may form a union). (back) 17. That is, organised/formal employment was 35 million in 2004-05 according to the National Sample Survey (NSS) data, which is based on a sample. However, according to Labour Ministry data, based on reporting by firms, organised/formal employment in 2005 was only 26.5 million. (back) 18. In 1999-2000. (back) 19. T.V. Mohandas Pai, “Is reservation for OBCs in IITs and IIMs justified?”, Economic Times, 17/4/07. (back) 20. Social, Economic, and Educational Status of the Muslim Community in India: A Report, Prime Minister’s High Level Committee, chaired by Justice Rajinder Sachar, November 2006. (back) 21. NSS Report no. 516. (back) 22. Pallavi Chavan, “Access to Bank Credit”, EPW, 4/8/07. (back) 23. NSS Report no. 510. (back) 24. B. Rajagopal, “The caste system – India’s apartheid?”, Hindu, 18/8/07. (back)

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25. For example, according to one investigation, the child victims of rape and murder in Nithari were largely Dalit or of other oppressed communities. The murderers, aware of the children’s social background, knew the police would not actively probe their disappearance. (Hindu, 20/1/07) Similarly, it was not accidental that the teachers of the Patan Teachers’ Training College in Gujarat picked a Dalit student to gang-rape repeatedly over six months. (Times of India, 5/2/08) (back) 26. Asian Age, 7/2/07. (back) 27. See the report of the Thorat Committee, May 2007. (back) 28. Hindu, 5/3/07, 16/4/07, 23/4/07, 21/9/07, 5/10/07; Frontline, 18/5/07. (back) 29. Times of India, 14/2/07. (back) 30. Times of India, 23/9/05. (back)

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IV. (5) The Agrarian Impasse and Its Implications1 We need to consider the state of agriculture most carefully for several reasons. First, the most severe effects of the distortion in the current pattern of development are visible in agriculture, which has slowed as the other sectors have soared. Secondly, agriculture is the sector that ‘employs’ the bulk of the workforce, and so directly concerns the maximum number of India’s people. Finally, the agrarian economy is the base on which the entire distorted structure of the economy and society is constructed; and so in its transformation lies the key to changing that structure. This is elaborated below. Agricultural slowdown The growth of agricultural GDP has plunged, from 3.3 per cent in 1980-95 to just 2 per cent 1995-96 to 2004-05.2 That is, the slowdown came in the wake of domestic liberalisation and the establishment of the World Trade Organisation. More telling than the slowdown in agricultural GDP growth is the much sharper slowdown in crop production. (GDP refers to value added, namely, the value of output minus the value of inputs; crop production refers to physical output. GDP calculations are more subject to statistical jugglery, especially in sectors where the data are dubious.) We see a fall in physical output per head during 1996-7 to 2003-4. Indeed, if we leave out horticulture (for which at any rate the data base is acknowledged to be very poor) the growth rate is negative in absolute terms, that is, there was an actual fall in crop output during this period.3

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The growth in yields of all crops has plummeted (see Chart 1 above)4, and in some cases has turned negative. The slowdown not only spans all crop sectors – cereals, coarse cereals, pulses, oilseeds, sugarcane, fruits and vegetables; it even extends to livestock and fishery, which experienced lower growth. Despite the very varied conditions across India, the deceleration was witnessed for almost every state individually, although the pattern varied from region to region. This is the longest deceleration in agricultural growth in the post-colonial period. Declining food security, deteriorating nutritional condition The agricultural crisis has grave implications for the country’s ability to feed itself. In order to maintain the per capita production level of

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2001-2, foodgrains production should reach 240 million tonnes in 2010. Given that foodgrains production was only 219.3 million tonnes in 20078, this is highly unlikely. In the present ‘globalisation’ era, questions about food security have been greeted with the glib response that the country can import its requirements of food. This is of course a disastrous policy given that India’s requirements are very large and world grain trade is narrow: any major import sends the price of grain soaring. We have seen the results of this during the last two years: Between May and September 2007 international wheat prices rose from $200 per tonne to $400, and the cost of India’s imports doubled. Moreover, international grain stockpiles are low (dropping by 53 million tonnes in 2007), and supplies will remain under pressure for three reasons.5 The first, and long-term, reason is the neo-liberal slashing of public investment in agriculture in countries like India. In India, the share of agricultural investment in GDP has slid over the last 25 years, and is now just 1.9 per cent. This has depressed production to the point where prices are rising despite the meagre purchasing power of the masses. Growing meat consumption worldwide too has taken a larger share of grain, since it takes 8 kg of grain to produce one kg of beef. But the immediate reason for the crisis is the massive diversion of grain to subsidized bio-fuel by the developed countries. One-third of U.S. maize production is now going to bio-fuel (rising from 15 million tonnes in 2000 to 85 million tonnes in 2007); not surprisingly, international food prices have jumped 75 per cent since 2005.6 The slowdown in India’s agriculture has been accompanied by a decline in food consumption per head (as described in the earlier chapter). Per capita net availability of foodgrains (a rough measure of consumption) in 2004-2006 was 7.8 per cent lower than in 1994-1996. Indeed it was lower than in 1954-1956, when Indian agriculture had just begun to recover from British rule.7

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The crisis in cereals production has a direct impact on total calorie consumption: 68 per cent of calorie intake in the rural areas and 56 per cent in the urban areas comes from cereals. Moreover, it has an equally large impact on protein consumption: 66 per cent of protein intake in the rural areas and 56 per cent in the urban areas comes from cereals. Another 9 and 11 per cent of protein intake in the rural and urban areas respectively come from pulses, production of which has also declined8 Any improvement in nutrition would require a large increase in foodgrains production. Deteriorating productive base The poor performance of agriculture points to a deterioration in agriculture’s productive base itself: in the quantity of agricultural land and its productivity. In recent years, according to Ministry of Agriculture data, the net sown area9 has actually fallen, from 143 million hectares in 1990-91 to 140.9 million hectares in 2003-04. One reason for this may be the increasing encroachment by nonagricultural interests (such as urban real estate) on agricultural land. There is even a decline in the net irrigated area, from 57.1 million hectares in 1999-2000 to 55.1 million hectares in 2003-04.10 As a result, the cropping intensity has stopped growing, at around 1.35 (i.e., 35 per cent of the area is cropped more than once). This in a country in which other conditions permit most of the sown area to be cropped three times. Among the reasons for the decline in sown area and irrigated area are the mindless over-exploitation of groundwater (leading to a fall in the water table), and, again, the diversion of irrigated farmland to real estate. In the post-WTO period, the terms of trade for agriculture have worsened. That is, agricultural prices relative to non-agriculture prices have fallen by 1.7 per cent a year between 1996-97 and 2003-04.11 With the prices of inputs rising steeply and those of output

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stagnating, peasants have tried to cut costs, and the growth of input use has slowed. Nevertheless, as a result of the worsening condition of the soil, the soil’s response to inputs has been decreasing too. Thus, at the same time that input growth is slowing, the capital-intensity of output is growing (i.e., more and more capital is required for a unit of output). The combination of these two trends implies stagnation of output. The decreasing response to inputs points to the degradation of the land itself as a result of the decline of organic carbon and microbial activities. The present pattern of agriculture is taking an enormous toll of the natural resource base: nearly two-thirds of India’s agricultural land is degraded or sick.1 Moreover, the over-exploitation of groundwater, integral to the present pattern of agriculture, has pushed the water table down in 264 of the country’s 596 districts. As the water table falls, cultivators invest larger sums in boring deeper wells (and this expenditure is duly reflected in national income statistics as ‘agricultural investment’!). Indian agriculture is speeding toward environmental disaster.Despite the stagnation of output, the workforce in agriculture continues to grow; so the growth of valueadded per worker in agriculture has ground to a near-halt (0.28 per cent per year during the decade 1993-94 to 2003-4).13 Indeed, valueadded per worker in 2004-5 was lower than in 1999-2000.14 The income of agricultural labourers also remained stagnant between 2000 and 2005: what little growth took place in wages was cancelled out by the reduction in days of employment.15 Is the solution new technology? The rulers respond that what is needed is new technology and bulky investments – the technology to be provided, no doubt, by firms such as Monsanto, and the investments to be made by the corporate sector through contract farming. But it has been demonstrated by public sector agricultural bodies that their agricultural technology, already

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demonstrated on Indian fields, could raise crop yields by huge margins in the major producing states for most crops. For example, in U.P., which has the largest area under wheat, yields could be increased by 50 per cent; in Bihar, by over 100 per cent. Similarly, rice yields in Chhattisgarh could be raised 150 per cent on unirrigated land and 169 per cent on irrigated land.16 However, these available technological improvements are not being implemented because of (i) the backward and isolated conditions in which cultivation is actually taking place, (ii) the gross inadequacy and dismantling of public sector extension services, and (iii) the deliberate policy of the Government to leave the field open for the private sector. Even accepting that new technology may give improved yields, and even acknowledging that large investments are required in agriculture, the question remains, what kind of technology and what kind of investment? That will depend on for whom, and for what objectives we want the technology and investment. The current orthodoxy (the establishment) view treats all cultivators as essentially homogenous participants in a single market, differentiated only by the size of their land. They are all driven by the same drive, and they act in a similar way, with similar effects. According to this view, all the participants in the market respond to price signals by determining how to maximise their profits and minimise their outlays, shifting from one crop to another, and increasing/decreasing their output or their use of labour with the aim of maximising profit. However, as we shall see, to understand the real processes taking place, we have to abandon the notion of all cultivators being profitmaximising operators. We need to take note of the different classes actually existing in agriculture, and the relations they enter into for the purpose of production, in order to understand what drives the actions of each class. We need to look at the process by which these class relations are reproduced, and further place this within the overall relations in the Indian economy as part of the world economy.

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Without such an approach, we would find it difficult to understand various social phenomena. For example, we would find it difficult to follow why peasants are driven to suicide – why they do not abandon agriculture and take up other employment. In the absence of the broader frame we would be driven to some sort of banal psychological explanations, as the rulers are wont to trot out. A full picture of India’s agrarian relations is beyond our scope here, but our points are made keeping in mind the need for such a broader frame. The land In line with their theory that the existing social relations pose no hurdles to agricultural growth, and that all that is required is new technology, the rulers give the impression that extensive growth in agriculture is no longer possible, and that only intensive growth (raising the productivity of the existing net sown area) is possible. While the need for intensive growth is beyond doubt, the claim that extensive growth is not possible is not borne out by land utilisation statistics, which show large fallows (26 million hectares), as well as substantial culturable waste land (13 million hectares). Of course, the fallows and waste land are also in use in many places as grazing lands for livestock, so in that sense they are in some use; but nevertheless it would appear there is considerable scope for increasing the net sown area in the country. What prevents this from taking place? It is notable that the fallows are especially high in regions where agriculture is backward (in Jharkhand the fallows are larger than the net sown area) and low where there is irrigation, infrastructure, and a historical background which has favoured a measure of accumulation within agriculture. Indeed the reasons for the existence of such large fallows are neither the scientific practice of regenerating the soil, nor the impossibility of cultivating it. They lie elsewhere: the non-availability of irrigation, the poverty of the cultivator alongside of his/her lack of access to working capital, the unremunerative prices of output, the decision of

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landowners not to cultivate their land (whether because of the unremunerative nature of cultivation, or social turmoil), the lack of organisation among poor peasants to take over uncultivated land, and so on. In other words, there are social reasons for failure to extend cultivation, or even to prevent the reduction of sown area. The enormous inequality in land ownership in India has not diminished in the last five decades. Even according the National Sample Survey (NSS, which, as an official survey, is unable to capture the reality fully) the top 5.2 per cent of rural households today own 42.8 per cent of the area, and the top 9.5 per cent own 56.6 per cent of the area. The remaining 90.5 per cent of households owned just 43.4 per cent of the area.17 Among these are the 41.6 per cent of rural households who own no land other than their homestead (10 per cent do not own even homestead land).18 Since small and landless peasants in parts of India operate land rented from landowning sections, the inequality of operational holdings has been less than that of ownership holdings. (In fact much of such tenancy does not get recorded, since landowners do not want to create tenancy rights; and even tenants do not reveal the facts to official surveyors, since they fear the landowners will evict them if they learn of it. Studies of states such as Bihar, Orissa and A.P. reveal the incidence of such tenancy to be 2 to 4 times the rate reflected in NSS data.19) On the other hand, in certain regions such as Haryana and Punjab those with large holdings are adding to their holdings by leasing-in the land of small peasants; thus the concentration of operational holdings too is on the rise, with 7.4 per cent of the holdings operating 42 per cent of the area. The percentage of rural households with nil operated land rose from 22 per cent in 1991 to 28 per cent in 2003, indicating that the economic processes of the intervening years has deprived large numbers of their holdings.20 A further dimension to the land question is that of common property land resources (CPLR), from which nearly half the households in the country collect materials, and common property water resources

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(CPWR), from which two-thirds of the households which use irrigation draw water. According to land utilisation statistics, 22 per cent of the country’s geographical area consists of de facto CPLRs. While 62 per cent of the households in the rural areas use fuelwood, more than half of this fuelwood – half a tonne a year per household – comes from CPLRs. More than half the households in the rural areas own livestock, and perhaps more than half of these households use CPLRs as a source of fodder. All these ratios are higher in hilly regions, many of which are also home to the tribals. The dependence on common property resources rises with the backwardness of the village and the poverty of the household. The NSS21 finds that even taking a narrow, de jure, definition of CPLRs, there has been a definite reduction in these resources over the preceding five years, as private interests have encroached on them. More importantly, the bulk of the de facto CPLRs are forests in which villagers do not enjoy legal rights, and hence are more easily subject to the arbitrary actions and extortions of officialdom. These extractions by officialdom amount to a peculiar form of extraction of land rent. According to the 2001 Census, Scheduled Tribes (STs, or Adivasis) number 84.3 million, or 8.2 per cent of the country’s population. Almost nine out of 10 Adivasis depend on agriculture for their livelihood; this is more than any other social section. However, not only is the quality of their land poor, but part of it is suspended in a legal limbo, rendering them vulnerable to various types of exploitation. Driven to moneylenders for consumption loans in order to survive, they frequently are forced to part with their lands: In the words of the draft National Tribal Policy (NTP), “Land is the most important source of livelihood for STs. However, and in spite of State enactments to prevent alienation of tribal land, wrongful alienation of tribal land is the single most important cause of pauperization of tribals....” Further, they are prevented from exercising their traditional rights over the forests, even as the forests have been opened up to all sorts of plunder and destruction by the process of so-called development. According to one calculation, more than 500,000 hectares of forests

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were destroyed between 2001 and 2006 for ‘developmental’ projects, more than during the previous 20 years together.22 Suggesting that the “deep sense of exclusion and alienation” among tribals was responsible for unrest in certain tribal areas, the NTP states candidly: “A situation is thus developing where the STs view the state as their exploiter and enemy, and the preachers of violent actions as their protector and friend. Tribal people tend to support these violent movements as they feel that it would help them get their rights, protect them from exploitation and redress their grievances.” The Prime Minister has declared “Left-wing extremism” to be the country’s “single biggest security challenge”; it is this security challenge alone that has forced the rulers to pay attention to the condition of the tribals. The recent draft National Tribal Policy and the Scheduled Tribes Act are evidence of this anxiety among the ruling circles. Increase in agricultural workforce despite falling incomes: peasants tied to the land Over the last four decades, the net sown area has remained virtually the same, while the number of holdings has steadily risen; thus the average size of holding has halved since the 1960s, falling from 2.63 hectares in 1961-62 to 1.34 hectares in 1991-92. What is most significant is that, despite the retrogression in agriculture, 57 per cent of the workforce continues to be ‘employed’ in this sector. Indeed the total workforce in agriculture has continued to grow even during this period, rising from 191 million in 1993-94 to 257 million in 2004-5. The income per worker in agriculture depends on the land per worker, the productivity of the land, and the price the output fetches (in relation to the prices of commodities purchased by those engaged in agriculture). In recent years the land per worker in agriculture has fallen, the per hectare yields have stagnated, and the terms of trade have deteriorated. This situation translates into falling incomes.

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Why do more and more workers crowd into agriculture, in the face of falling incomes? The answer lies in the absence of employment opportunities outside agriculture. This in turn is the outcome of the particular historical process of India’s industrial development (which we have described elsewhere), and its continuation today in capitalintensive growth. Such capital-intensive growth maximises profit per unit of investment for big capital. Within the existing frame of class relations in India, and the consequent character of India’s relations with the world economy, this pattern of growth of industry will not change, and hence the overcrowding of agriculture will continue. As mentioned earlier, multifarious petty economic activities barely yielding a subsistence (if that) do not really constitute an escape from agriculture. Much of the growth of ‘employment’ in these sectors merely reflects the desperation of the unemployed to eke out a living (eg. in petty retail); and this in effect merely redistributes a small portion of the value generated in the agricultural and industrial sectors. Neither is the income attractive in such employment, nor can it keep expanding endlessly. Thus peasants are tied to, trapped on, the land for lack of alternative

employment. This helpless situation is what enables various parasitic forces (landlords, usurers, officials, traders in inputs and produce, and the private corporate sector) to feed on them, even to the point of
driving them to suicide. Despite the very great disparity of conditions in India, this trapped condition is a common feature throughout.

Remittances from outside agriculture to the peasants – whether from family members working in urban areas or abroad, or even engaged seasonally as agricultural labour in regions of relatively commercialised agriculture – merely help prevent the small peasantry from going under, but do not fund investment. Small peasant agriculture is thus in continuous crisis but refuses to die out. Indeed, between the latest two NSS employment surveys, the share of wage labourers in the agricultural workforce has declined, and that of cultivators has increased; the share of cultivators, at 64.2 per cent, is higher now

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than in 1983. The likely reason for the increasing share of cultivators is that, as the terms of trade turned against agriculture, cultivators have attempted to reduce costs by substituting family labour for hired labour. This widespread persistence, indeed dominance, of small peasant agriculture, despite the extensive penetration of commercialisation, stands in striking contrast to the process we described earlier in the classical form of capitalist development. It underlines the need to distinguish between the form of commercialisation and the capitalist mode of production.23 Backward, stagnant, isolated The enormous media hype about the share market should not distract us from the reality brought out by the All-India Debt and Investment Surveys, namely, that land remains the dominant asset of households in rural India (63 per cent); housing runs a distant second (24 per cent). These two together account for 87 per cent of rural assets. In this respect there is hardly any difference over the last three or four decades. The shares of livestock and poultry and agricultural machinery are small, and have declined over the decades.24 The Situation Assessment Survey of Farmers (SASF)25 was an unprecedented survey by the NSS, conducted at the request of the Agriculture Ministry. It has brought out the situation of backwardness and isolation in which the majority of cultivators are surviving: the non-availability of agricultural inputs and veterinary services at the village level; their poor literacy and education levels; their ignorance of the very existence of the statutory Minimum Support Prices in most of India, let alone their being able to obtain them; their ignorance of (and lack of access to) insurance; and, most strikingly, their lack of access to information on improved agricultural technology. The SASF revealed that only 40 per cent of “farmers” had obtained information on improved technology in the previous year, and of these, most had turned to either “other progressive farmers” or “traders in inputs or

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output”; a negligible number had turned to public sector extension workers. (Little wonder, since India is said to have only one village or block level agricultural extension worker for every 2,200 holdings;26 and even this seems an overestimate.) The term “farmer” used by the SASF is misleading, because it encompasses very diverse classes, from landless peasant households with minuscule farms to landlord households with large ones; but in so far as we are merely reporting the SASF findings, we have retained the term. Earnings from cultivation fail to meet consumption expenditure The SASF brings out another very important finding: cultivators’ earnings from agriculture were insufficient even to meet their consumption expenditure. For average “farmer households”27, net receipts from cultivation28 covered only about 35 per cent of their consumption expenditure. If we were to add to the “expenses on cultivation” a provision for the depreciation of equipment and buildings (which the SASF fails to do), the net receipts from cultivation would be even lower. The SASF gives a figure for expenditure on productive assets used for farm business, but this figure (Rs 1920 per year) is so low that it would not cover even depreciation, let alone net investment. The farmer household also engages in other economic activities – agricultural labour, other labour, care of livestock, and small businesses. However, even these prove insufficient to meet the household’s consumption expenditures. The sum of the average farmer household’s earnings from cultivation, wages, farming of animals, and non-farm business (Rs 2115) is still less than the consumption expenditure of the household (Rs 2770). That consumption expenditure, it should be noted, is very low: Rs 503 per capita per month, or less than Rs 17 a day.

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It is true that 2002-03 was a poor agricultural year. Let us assume an average year’s income on all heads (net receipts from cultivation, receipts from farming of animals, wages, and non-farm business) to be 20 per cent higher than the figure reported in the SASF.29 Even this higher figure for total income does not meet the consumption expenditure of the average farmer household; rather, it would still run a deficit of about Rs 232 a month, or nearly Rs 2800 a year. Presumably this gap is met either (i) by taking loans, (ii) by sale of assets, or (iii) from remittances sent by family members working outside the rural areas. To the extent it is met by (i) or (ii), the income of the household would further deteriorate in future. The figures we have given for farmers’ incomes are averages: there are households which are much deeper in deficit, households which manage to meet their consumption expenditure from their earnings, and those which have an income in excess of their expenditure. At the all-India level, the deficit farmer households are those with holdings below 2 hectares, accounting for 88 per cent of the farmer households surveyed. The households with 2 to 4 hectares ‘break even’; and those with over 4 hectares have an income in excess of consumption expenditure. (Of course the size class of cultivators which breaks even varies from state to state.) It should be noted that income from rent and interest, which accrues in general to those with larger holdings, is not included in the sources of income of farmers in the SASF. If included, it would further bring out the gap between the small and marginal households and the well-off ones. Furthermore, the consumption expenditure varies widely: from Rs 2297 per month per household in the lowest size class (possessing less than 0.01 hectares) to Rs 6418 in the highest size class (over 10 hectares). Hence looking only at the ‘income minus the consumption expenditure’ understates the gap between the different size classes. For example, a rich person not only saves more than a poor person, but also consumes a number of luxuries; the gap between the two is reflected not only in the rich person’s savings, but also in that part of his/her consumption expenditure beyond subsistence requirements.

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Finally, we must remember that as in other NSS consumption expenditure surveys, it is difficult to imagine that the top section of agrarian society would tolerate detailed and time-consuming interviews by NSS surveyors. And so the surpluses of the landowning elite may not be reflected in this survey. However, data are provided for households operating 10 or more hectares, i.e., relatively wealthy households. Such respondents may have provided answers, but not wholly truthful ones: For example, the monthly consumption expenditure of farmer households operating 10 or more hectares is said to be Rs 6418. This modest consumption level hardly accords with one’s casual observation of the lifestyles of large landholders. Marxist approach The Marxist approach provides a deeper insight into the entire process. It divides the value of the product into the ‘means of production’, the ‘means of subsistence’ of the producers, and the ‘surplus’. Expenditure on the means of production includes not only inputs (seed, fertiliser, pesticides, irrigation, energy) but also an allowance for the depreciation of the means of production. As these wear out, an amount must be set aside for replacing/renewing them, without which the conditions of labour would not be reproduced. The ‘means of subsistence’ in industry are the wages of the workers; in agriculture, we can take the means of subsistence to be the consumption expenditure of the poor peasant/agricultural labourer household, which also broadly amounts to its income. Without this income, the labour force would be unable to reproduce itself; it would starve to death.30 Hence the means of subsistence are as necessary to production as the means of production.31 These two costs – the means of subsistence and means of production – must both be met from the value of the product in order for production to take place, again, at the same level, i.e., what is called ‘simple reproduction’.

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The remaining value of the product after subtracting these two is called the surplus. It includes the rent paid on land, the interest paid on loans, and the profit of the direct producer or the merchant. The surplus may go toward consumption expenditure or be re-invested in expanding production. In contrast to industry, where the worker is separated from the means of production and receives only wages and no part of the surplus, in India’s agriculture, not only landlords but different classes of peasants possessing land too obtain some part of the surplus. Thus there is scope for a section of peasants to re-deploy part of the surplus in order to expand production. As we saw in the earlier chapter on the rise of capitalism, the peasants of feudal Europe waged many struggles against their feudal lords in order to retain some share of the surplus for themselves. In the process, a few of them were able to accumulate some capital within the petty mode of production itself, and develop into relatively properous peasants, who are elements of agricultural capitalism. As accumulation takes place, whether by the landlord or the peasant, more land is brought under cultivation with more workers, or the productivity of the existing cultivated land increases as a result of investment; in either case the surplus increases. A greater portion of this larger surplus is available to deploy once again in cultivating more land or improving productivity. We saw earlier that when production merely covers the means of subsistence and replaces the used up means of production, what occurs is ‘simple reproduction’; correspondingly, when it generates a surplus, and that surplus is redeployed in increasing productive forces, what occurs is a cycle of expanded reproduction. With the limited and general information we have from the SASF, we cannot properly calculate the figures for the three Marxist categories, means of subsistence, means of production, and surplus, for which a different type of inquiry would be necessary. However, it is useful to look at certain figures even as we keep this qualification in mind.

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We can take, as an approximation of means of subsistence of a peasant family, the consumption expenditure of the smallest size class of farmers, namely, those with less than 0.01 hectares of land. This section earns only a negligible sum from cultivation and the bulk of its income comes from wages, with non-farm business a distant second. In other words, these are landless peasants who survive principally on agricultural labour. The monthly consumption expenditure of this section is Rs 2297 per household. Let us treat peasant households’ consumption expenditure above this level as consumption from the surplus.32 (It could be argued that the consumption expenditure of this section is below subsistence level, and that a higher level should be taken as the means of subsistence; but this would only strengthen further the point that we make below.)At an all-India level, the households able to meet the means of subsistence out of their net receipts from cultivation are those possessing 2 to 4 hectares of land. Their net receipts from cultivation are Rs 2,685 per month. Those below this level constitute 86 per cent of ‘farmer’ households as defined by the SASF.33 As mentioned earlier, in calculating the net receipts from cultivation, the SASF does not make any provision for depreciation; if we made such provision, the net receipts would be somewhat lower, eliminating the difference between the net receipts of even this size class and the means of subsistence. Hence even the households possessing 2 to 4 hectares, at an all-India level, merely break even (of course, some portion would be above the break-even level, and some below it, but our aim is to get a broad picture). Let us term these households the ‘break-even’ households. If we make provision for the survey year being a bad agricultural year, and adjust income of all households up by 20 per cent to reflect the ‘normal’ situation, the picture does not change much. It remains the case that households possessing less than 2 hectares cannot meet the means of subsistence from their net receipts from cultivation. No doubt, the 2 to 4 hectares size class now has a little more surplus in hand. However, it is unlikely to be a sum substantial enough to redeploy in agriculture, and it may merely result in slightly increased

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consumption. In fact, we find that the actual monthly consumption expenditure of a break-even household is Rs 3685, which is less than its (adjusted) net receipts from agriculture of Rs 3222. This picture varies from state to state, as both the level of subsistence and the net receipts from cultivation vary.34 While this indicates that the level of surplus in Indian agriculture as a whole is low, it does not mean that there is no surplus, even from holdings in the lower size classes; the forms may not be evident in the SASF data. As mentioned earlier, it is difficult to use the data from such a survey for the purpose of a Marxist analysis. For example, the price received by the peasant for agricultural output is depressed by the grip of usurer-traders and the entire system of agricultural marketing; in other words, a portion or the whole of the surplus may be drained off in this process from the hands of the direct producers to those of parasitic classes.35 The broad facts, then, are that (i) the overwhelming majority of the ‘farmers’, operating over one-third of the area, are able to meet only a portion of the means of subsistence (i.e. the minimum consumption expenditure for a peasant family) from cultivation, while another small section, operating about one-fourth of the area, are barely able to meet it; and, (ii) even after taking into account earnings from other sources and making adjustments for the poor agricultural year, the overwhelming majority of the ‘farmers’ are unable to meet their actual consumption expenditures from their income from all sources. It is evident that these ‘farmers’, that is, the peasantry, do not have

surplus in their hands for accumulation, and are thus unable to carry out expanded reproduction.
Surplus-appropriating sections

The section of ‘farmers’ with income in excess of expenditure would not be uniform. There would be a section with sizeable lands, keenly seeking ways to maximise profit (including by getting the most work

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out of labour), responding to market stimuli, and changing cropping patterns in response to changes in prices; yet unhappy with the terms imposed on them in markets for credit, inputs, and output. This section often takes the lead in agitations for higher prices for agricultural commodities. Then there are the large or dominant land holders who exercise the clout to set the terms in the various markets (land, labour, credit, produce). They have the holding power to wait for prices to rise before selling their crop. They are able to get loans at subsidized rates from the formal sector, and to get them written off periodically. Their gains are greatest from their interlocked operations in more than one market: for example, by extending loans to labourers or by renting land to peasants, they are able to hire their labour at depressed rates: thus the real interest rate or rent they charge is higher than the nominal one. Those with large landholdings would rely wholly on hired labour for cultivation. Since they own the means of production, and the labourers have no means of production of their own, the large landholders are able to extract surplus labour from their labourers. That is, after setting aside an amount for the costs of raw materials and for the wear and tear of the means of production, and another amount for the subsistence of the labourer (the wages), the remainder is the surplus, which goes to the employer. We can imagine the working day of the labourer as being divided into two parts: first, the part in which she/he reproduces the value that is paid as the wage, and second, the part in which she/he works for the owner of the means of production. The ratio between the hours spent working for the owner of the means of production and those spent working to reproduce the wage is called the ‘rate of surplus value’. As we mentioned, the SASF is not designed for calculations in Marxist terms. Nevertheless, the following calculation gives us an idea of the proportions: According to SASF figures the surplus accruing to those who possess over 10 hectares was Rs 84,600; the total wages paid to

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agricultural labour by such households was Rs 16,800; thus the rate of surplus would have been around 5. A labourer working for, say, 10 hours would have earned her/his wage in only 1 hour 40 minutes. The remaining 8 hours and 20 minutes would be to create surplus for the landowner; this the latter is able to extract by virtue of his ownership of the means of production. Of course the rate of surplus value varies widely from region to region, with the rate rising in more prosperous regions: thus, by a similar method the rate would be over 6 in Punjab but much lower in, say, Orissa or Bihar.36 (One should also note that the growth of agricultural wages in Punjab is checked by importing labour from Bihar – thus boosting the rate of surplus value in Punjab.) Significantly, in the case of households possessing over 10 hectares (all-India), ‘net investment in productive assets’ was only 10.5 per cent of the surplus. That is, the overwhelming bulk of the surplus is not redeployed in productive assets. The rate is somewhat higher in Punjab (22.3 per cent), but still only a minor portion of the surplus. Surplus extraction by non-agrarian classes There is another class which is not engaged in farming, and hence is not covered by the SASF, but whose operations are indirectly visible in its findings. This is the class of usurer-traders, who lend money for inputs or for consumption needs, and purchase the output of the same persons. Again, the same holds regarding their interlocked operations in the credit, input and output markets, namely, that their extractions are much greater than would be possible in any single market. For example, they are able to sell inputs at much higher than market prices to peasants in debt to them, who are unable to freely choose their inputs (this explains why peasants are driven to buy spurious inputs despite long experience of such practices). Usurer-traders can similarly buy produce at much below the market price from those indebted to them, since the latter are not free to sell it to anyone they choose. The real rate of interest, again, is much higher than the

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nominal rate stated by the usurer; this in turn is much higher than the formal sector (banks, cooperatives) rate of interest. In the past decade there has been considerable reporting in the press regarding the phenomenon of peasant suicides, in which the suffering of the peasants has been vividly portrayed. In the great majority of such cases it was indebtedness to private usurer-traders, and the resulting harassment, threats, and ignominy, that led to the peasants taking their lives. In other words, the usurers were guilty of abetment to suicide. Yet, remarkably, it is very difficult to find reportage regarding the moneylenders; even their names almost never figure in press reports, let alone a broader description of their activities and wealth. How many peasants from the same village or nearby are indebted to that particular usurer? Has he alienated any peasant land through usury? What are his other businesses, if any? How has his usury business fared over the last decade? How does he enforce payments from bankrupt peasants – for example, does he maintain musclemen? What are his political connections? A rare instance is the reporting regarding the Sananda family of Khamgaon, in Buldhana district. Congress MLA Dilip Sananda and his family are among Vidarbha’s biggest sahukars (usurers). Dilip’s brother is leader of Congress in Khamgaon Nagar Parishad, and another brother is chairman of Khamgaon Janata Commercial Bank. Over 40 criminal cases have been registered by peasants against the family for illegal moneylending, land-grabbing, kidnapping, manhandling, and torture. It appears to be a common pattern that, despite the borrower having paid back the principal as well as interest twice the size of the loan, the Sanandas refuse to return the land documents, and instead take it over. On May 31, 2006, the Moneylending Prevention Committee (headed by Buldhana District Collector) registered a First Information Report (FIR) against Sananda’s father, after receiving a complaint from a peasant that they had robbed and kidnapped him. Within hours, the Chief Minister’s office intervened to get the FIR withdrawn. There are increasing instances of peasant mobilisation, with the help of politicians currently in the opposition, to re-occupy their illegally

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alienated land, and in 2006 a demonstration was held outside the Khamgaon tehsil office against the Sanandas. However, the Sanandas continue their reign of terror: In August 2007, a poor vegetable merchant from Khamgaon was killed by Dilip Sananda’s brother and two others over the repayment of a loan.37 Recently, in response to criticism that the Government’s scheme for writing off peasant loans did not address the large peasant debts to the informal sector, the Union Agriculture Minister called upon peasants to repudiate such debts. When one considers the actual situation of humiliation, intimidation and violence, and the lack of organisation among the peasantry, the frivolousness of the Agriculture Minister’s suggestion becomes clear. It is a telling comment on the socio-economic milieu of rural India, and the money-making opportunities that it throws up, that private microfinance institutions (MFIs) have operated in a fashion very similar to other usurers. They routinely charge interest rates of 24-36 per cent, which no productive activity can sustain; they also use the sahukar’s weapons of harassment, public humiliation, and threats. In Andhra Pradesh, the bastion of micro-finance, such semi-feudal practices led to an estimated 200 suicides in Krishna, East Godavari, Guntur, and Prakasam districts; the resulting protests forced the Government to intervene and shut down a large number of branches of MFIs.38 Were our ‘free’ press to report not only on rural borrowers, but on lenders as well, a very different picture would emerge, of the social power of the rural elite and their extra-economic coercion. The need to clear debts helps explain why, as an official report has revealed, virtually all sales by small peasants are distress sales, with cash payments routinely at a 10-15 discount on the market price.39 The Commission on Agricultural Costs and Prices has shown how the prices recorded for a number of crops in a large number of agricultural markets are below the Minimum Support Price (MSP);40 and the prices

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paid to peasants by their own creditors would certainly be lower than the market prices. The trading class is also the interface of the agrarian economy with the other sectors of the economy. It is thus a necessary part of the indirect exploitation of the peasantry by other non-agrarian classes. Industry buys cheap and sells dear to the peasant through the operations of the usurer-trader class. The patterns of agriculture, and of exploitation, vary a great deal not only from state to state, but even between regions of a single state. However, broadly speaking, in regions of less commercialised agriculture, rent on land and interest on consumption loans play a greater role in extraction of the surplus from the direct producers; in the regions of more commercialised agriculture, usury linked to trade in inputs/produce predominates. There are of course many combinations of these two forms. Whatever be the exact mix of forms, parasitic classes operate to extract surplus from the direct producers. These parasitic classes do not have a stake in expanding productive forces; indeed they may even make greater gains when the direct producer is in distress, such as when the peasant is forced to part with his/her land in order to clear relatively small debts. Real scale of agricultural debt and interest payments The condition of peasants is also brought out by the scale of indebtedness and interest payments. According to the SASF, 49 per cent of farmer households are indebted. The level is particularly high in certain states such as A.P. (82 per cent), Kerala (64 per cent), Punjab (65 per cent) and Tamil Nadu (75 per cent). On the face of it this could be read either way: some might argue that indebtedness reflects access to credit, and is a good thing. However, as we have seen above, the vast majority of the peasantry are in deficit; in which case they would be driven into a vicious circle of debt and loss of assets.

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How large are interest payments on agricultural debt? The SASF puts the average debt per farmer household at Rs 12,585, of which 57.7 per cent was owed to institutional agencies, 30.9 per cent to moneylenders and traders, and the remainder to others. Taking the SASF’s estimate of farmer households, the total ‘farmer’ debt would be thus in the region of Rs 1.12 trillion. The AIDIS reports that interest rates on rural institutional debt in the AIDIS are clustered in the ranges 12-15 and 15-20 per cent; let us put the average at 15 per cent. On non-institutional debt, 40 per cent of the loans bear interest rates of “30 per cent and above”, with no further details given of the break-up within that category; we know from press reports and studies that the interest rates can range upto 150 per cent per annum. We can put the average rate on non-institutional loans at 24 per cent without fear of contradiction. At this rate the interest payments on the farmer debt would be over Rs 200 billion. However, we know from other sources that the SASF does not reflect the real scale of indebtedness, specifically in relation to the noninstitutional sector. It would appear respondents are afraid or ashamed to reveal debts owed to moneylenders, traders, and the like. A number of other studies indicate that debts to the non-institutional sector are at least twice the size of those to the institutional sector.41 Indeed, if the debt were only as large as reported in the SASF or the AIDIS, how cultivators carried on cultivation would be a mystery: for the majority of cultivators, as the SASF shows, are in deficit, and the flow of bank/cooperative credit meets only a fraction of their working capital needs. In the year of the SASF, institutional sector lending amounted to only 15 per cent of the value of inputs in agriculture,42 indicating the size of the gap to be filled by the non-institutional sector. In this context, it can be seen that the UPA government’s muchtrumpeted scheme to write off the bad formal sector loans of cultivators possessing less than two hectares does not address the bulk of the problem – quite aside from the scheme’s other deficiencies. 43 If we take the non-institutional sector to be twice as

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large as the institutional sector, indebtedness per farmer household comes to around Rs 22,000, and total farmer debt rises to around Rs 1.95 trillion. Interest payments on this figure (at an average interest rate of 21 per cent44) would be around Rs 410 billion. This comes to nearly 10 per cent of agricultural GDP for 2002-03. Let us compare this figure of interest payments to investment in agriculture. Gross investment in agriculture in 2002-03 was Rs 33,5.08 billion, and net investment (i.e., net of depreciation of assets) was Rs 78.74 billion. Thus the figure of interest payments was larger than

gross investment in agriculture, and more than five times net investment. It is clear from this that interest payments constitute a
major item of drain preventing accumulation within agriculture. This is an indication of what would be possible when this drain is ended.

What would happen if the average interest rate on total farmer debt (which we have put at Rs 1.95 trillion) were lower, at 8 per cent? In that case the interest payments would be Rs 250 billion lower. If these amounts were directed to investment, gross investment would be 75 per cent higher and net investment would be more than three times higher. These are very crude calculations; more complete data and a more careful study would reveal our rough calculations to be, if anything, underestimates.45 However, such a study can only be carried out thoroughly by peasant organisations to which the peasants would be willing to reveal details they would not reveal to official agencies. In particular, when the lender also supplies inputs to the borrower, buys his/her output, employs or rents land to him/her, the real interest rate may be much higher than the nominal interest rate; but it is difficult to capture this without a study in depth. The largest gains to the lender arise when the borrower is unable to repay the loan, and is forced to part with his/her land. As we saw earlier, returns in agriculture as a whole are uncertain or worsening (given the deteriorating terms of trade for agriculture, and

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the weak demand for agricultural produce due to the low purchasing power of the masses); yet peasants have little choice but to carry on cultivation on any terms. In such a milieu of helplessness, parasitic forces can thrive by grinding the peasant down further and further; thus the returns to usury become much more attractive than on investment in agriculture. Commercialisation intensifies debt-bondage In discussions on agriculture in the mainstream media, it is more or less taken for granted that commercialisation is beneficial to peasants. Indeed the Government’s strategy for agriculture explicitly aims to orient agriculture even further towards the market. However, it is striking that the peasant suicides since the late 1990s have been concentrated in the regions of greater commercialisation, and particularly among peasants growing commercial crops such as cotton. From the SASF data we can calculate the share of crop which is sold in different states, which is a measure of commercialisation. We can also obtain the percentage of farmers who are indebted in different states. Significantly, the higher the share of crop sold, the higher the indebtedness. And, as we noted earlier, this indebtedness has grown in the context of peasants’ inability to meet their consumption needs from farm income. In other words, greater market orientation, instead of improving the position of the cultivator and enabling him/her to carry out accumulation, is trapping him/her in debt. On the other hand, we find there is no correlation between percentage of indebted farmers in different states and the net state domestic product from agriculture. In other words, it is not that indebtedness is the result of a higher or lower development of agriculture; rather it is related to commercialisation, which can exist in relatively prosperous conditions such as Punjab and Haryana, as well as in the backward agriculture of Karnataka and Maharashtra. Revealingly, in most of the states for which the press has reported a large number of peasant suicides – Andhra Pradesh, Karnataka, Maharashtra, Punjab,

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Kerala and Gujarat – the share of crop sold is relatively high (ranging between 69 and 81 per cent, compared to an average of 57 per cent all-India). Even assuming all cultivators were in a position to respond to price signals by changing crops and increasing/decreasing production, these signals would be mediated by the existing market, dominated by large traders and, increasingly, the corporate sector. As a result these signals are transmitted in an asymmetric fashion: Increases in farm prices, if any, are completely transmitted to retail level (for example, a rise in the price which peasants receive for wheat leads to an even greater increase in the price for consumers), but increases in retail prices are not fully transmitted to the farm level (the cultivator himself/herself benefits very little from, say, the rise in retail prices which takes place when there is a short onion crop). Moreover, declines in retail prices are more than completely transmitted to the farm level (for example, when cheap imports lead to a fall in edible oil prices, this leads to a collapse in edible oilseeds prices). If there is a crisis the peasant is made to bear the burden of it; but any windfall gain is pocketed by the traders before it reaches the peasant. This is a pattern we have described earlier in the context of the British Raj: the peasantry is compulsively involved in production for the market, but is neither able to carry out accumulation nor able to exit an over-crowded agriculture. Given this helpless condition of the peasantry, the dominant agrarian classes, with control over land, credit and the market for inputs and produce, are able to extract surplus without re-deploying the surplus to expand productive forces. A crosscountry traveler cannot help but observe how this surplus in the hands of the dominant agrarian classes is diverted to luxury consumption, usury, acquisition of land fragments, trading/hoarding/speculation, sundry businesses (for example, construction contracts, labour supply contracts, truck/bus transport, cinema theatres, hotels, engineering/medical colleges, marriage ‘palaces’), criminal activity, and the consolidation of social and economic power through expenditure on elections. Significantly, the surplus from agriculture in the hands of

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the dominant rural classes fails to get deployed in small-scale industry, which everywhere is visibly starved of funds. Entry of the corporate sector It is in this context that there is now a major drive by the corporate sector, domestic and foreign, to enter the agricultural sector. Will it set off a process of accumulation in agriculture? Will it bring about a transformation of agriculture, with rising productivity? The answer is no. First, as we saw earlier, the surpluses in agriculture are small. On the other hand, the corporate sector’s expectations of profit, set by the standards of its overall operations, are large. Hence it must focus on certain high-profit activities within agriculture, and push the risks and unprofitable activities onto others. For one, it must cater to the better-off segments of the market, largely the urban market (through organised retail) and exports. (To the extent that it broadens its market beyond the elite, it may in fact depress mass consumption, as has happened in Mexico, where the corporate sector now monopolises the marketing and processing of corn, resulting not only in lower farmgate prices for the peasant but also higher consumer prices of corn tortilla, the staple of the Mexican diet.) Given the limitations of the market for corporate agriculture, only a portion of cropped land would be devoted to corporate requirements. This has the advantage for the corporate sector of allowing it the option of shifting from region to region, depleting natural resources such as groundwater as it goes, and making it impossible for any set of suppliers of produce to extract better terms from them. The overcrowding of agriculture enables the corporation, like the usurertrader (indeed, even via the local usurer-trader working on behalf of the corporation), to grind the peasant down to unbelievably low levels. We have ample experience of precisely such practices by jute mills and sugar mills, which for over a century have been carrying on ‘contract farming’ on the basis of semi-feudal conditions.

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Of course, the corporate sector will concentrate on those regions which already enjoy superior infrastructure such as irrigation and roads: for example, the biggest investments implemented or announced so far – by Reliance, Bharti (Wal-Mart), Pepsico, and ITC – have been in Punjab. This tendency will only heighten the existing unevenness in agricultural development. No doubt the firms will also invest in infrastructure, but obviously only for their own operations, not for agriculture at large. Strikingly, the state governments are being roped in to make infrastructural investments tailored to firms’ requirements, provide land to the firms free or at depressed rates, and exempt these firms from taxes. Thus another source of surplus for the corporate firms will be State subsidy. Banks are being roped in to provide credit tied to the corporate activity, which no doubt will qualify as priority sector agricultural credit, at lower interest rates. Contrary to the notion that the State is ‘retreating’, it is actively promoting and subsidising the private corporate sector. Given its dominant position, the corporate buyer can shift the risks entirely onto the cultivator. The tying is effectively one-way; given the vast imbalance of resources and power between the suppliers and the buyers, and the given the withdrawal of even the limited State procurement, no legislation to regulate contract farming can in practice to prevent the buyer setting his terms. The supplier is locked in by contract to a single large buyer, and is legally forbidden from selling the produce to another buyer if, say, market prices rise. On the other hand, the corporate firm maintains all its options. For one, it locks in an excess of suppliers, so that it is free to switch from one to the other. Moreover, it sets (and interprets) standards for the produce it will buy. If the produce does not meet the standards, or even if the firm merely says it does not, it will be rejected, and the peasant has little choice but to dump it at any price on the open market, further depressing rates there. In the case of certain exotic produce for foreign or elite markets, the supplier may not have access to any market if the produce is rejected by the corporate buyer, especially as it requires special transport, cold storage, etc. If the

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agricultural practices required by corporate firms are input-intensive, and damage the productivity of the soil in the medium term, it will be the cultivator, not the firm, who will be left with a depleted asset. This domination by the corporate buyer is possible precisely because of the fundamental character of the Indian economy, in which there is overcrowding of agriculture and a narrow market. Had the market of the corporate sector been large (requiring supplies from the bulk of the cropped area), or had there not been a vast pool of underemployed, the corporate sector would have found it more difficult to set its terms in this fashion. The Government and foreign financial investors have been promoting the notion that the development of commodity futures markets will help peasants. Peasants, we are told, will be able to determine what crop to grow on the basis of the price of, say, six-month commodity futures contracts (i.e., a contract to supply a particular commodity six months hence; such contracts are traded on commodities exchanges, just like shares are traded on the share market). In passing, we should note that contract farmers do not stand to benefit, since their prices are locked in by contract with the corporate buyer, and they cannot take advantage of any change in prices. Secondly, even in the U.S. few farmers turn to commodity futures markets to decide their crops; and given what we noted above about the actual conditions of ignorance and helplessness in which peasants actually labour in India, it is extremely far-fetched that the majority can use commodity futures. Thirdly, commodity markets, and the entire structure of warehouse receipts, are based on standardised produce; non-standard produce will obtain a depressed price. India’s agricultural produce is overwhelmingly non-standardised. Standardisation of produce requires more expensive inputs and equipment, as well as certification of sanitary/phytosanitary requirements, especially if the markets are foreign. Even if the provision of inputs and certification are arranged by the corporation, given the present agrarian relations the costs will be borne in one form or the other by the produce supplier. It is evident that larger farms will be more able to bear these burdens.

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At any rate, prices are only one of the considerations on which the peasant chooses what to grow. He/she must weigh other considerations, such as knowledge of the crop (including the extent to which it is grown in the vicinity), suitability of local conditions, availability of irrigation, access to seeds, access to markets for the particular crop, the size of investment required, the extent of risk, his/her family’s own subsistence requirements, and finally the stipulations placed by the person supplying credit for inputs or for consumption (who is frequently also a trader in produce). Devout preachers of the magical powers of communications technology, the media routinely claim that the spread of mobile phone usage to the rural areas would help peasants get better prices. Perhaps an individual producer could find out the prices in different markets via the mobile phone, and take his/her produce to the market in which better prices are offered; but that would not change the total amount paid to producers in all the markets. Assuming competition prevails, and all producers have mobile phones, the prices would merely even out across different markets (when more producers flock to a market in which better prices are offered, prices would fall in that market and rise in other markets). Export-oriented agriculture and accumulation The ruling circles are set on orienting Indian agriculture to exports. The Prime Minister has spoken of India “becoming a new granary of the world”. Along the same lines, Sunil Mittal of Bharti Farm Fresh, which has leased 1,860 hectares of land, declares that “India has become the back office of the world. What we are trying to create here is BPO in the agricultural sector. We will grow for the world.”46 The greater integration of Indian agriculture with international markets may be an opportunity, but for the foreign and domestic corporate sector, not for Indian peasants. Here too, the operation of India’s agricultural markets is asymmetrical: when international prices

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rise, the supply line created by corporate agriculture draws out produce from India, but corporate firms are able to obtain the lion’s share of the profits; when prices fall, imports drive prices down. Not only is this confirmed by India’s own experience under the British, but the same experience has been taking place ad nauseam to third world exporters in international commodity markets. There are no longer even efforts by third world governments at defending their agricultural producers through large-scale procurement, stabilisation funds and powerful combinations of exporting countries in any particular commodity (eg., cocoa, coffee, sugar, rubber); in the absence of these, exporting countries are in the medium term not able even to maintain existing price levels, let alone reap any benefits. Further, the shift to horticulture, meat, shrimp, other high-value foods demanded by foreign markets and the Indian elite whittles away further the subsistence of peasantry, which depends so critically on foodgrains. Indeed this process has already been under way for more than a decade, with the opening of India’s agricultural sector after the WTO Agreement on Agriculture via the removal of non-tariff barriers and reduction of tariffs. The effects are plainly visible: it has been in precisely this period that the performance of Indian agriculture sharply deteriorated. With the opening to the import of edible oils and oilseeds, India’s near-self-sufficiency in oilseeds has been demolished, and imports now meet nearly half of domestic demand. The price of highly subsidized U.S. cotton on international markets has been used by the cotton trade as a weapon to drive down domestic cotton prices, leading to the continuing series of cotton-growers’ suicides in Vidarbha. Far from gaining larger markets through exports, the peasants have lost part of their domestic market: Agricultural imports have grown faster than exports, so that the ratio of agricultural exports to imports has fallen to less than half its pre-WTO level. The neo-liberal (expenditure-cutting) policies of successive governments have been an essential part of integration with the global markets. The Government has been dismantling the Food Corporation

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of India (FCI). First, the new Targeted Public Distribution System (TPDS) effectively removed the majority of consumers from the rationing system, leading to a decline in calorie consumption. Secondly, giant foodgrain stocks lying with the FCI (for lack of purchasing power with the undernourished masses, particularly in the rural areas) were exported at a massive subsidy between 2000 and 2004, profiting multinational agribusinesses. Thirdly, domestic and foreign private firms have been allowed to procure directly from the peasant and even to set up private agricultural markets. Finally, procurement prices were hardly raised for several years, depressing foodgrains production and driving producers to sell to corporate buyers. All this was against the background of deep cuts in State expenditures on agriculture, as a result of which the spread of irrigation stalled and the agricultural extension system, by official admission, virtually collapsed. The dismantling of the FCI and the cut in State expenditure helped to dismantle Indian agriculture’s remaining defences against the effects of global market forces. Meanwhile, the production of horticultural crops has increased, but not by increasing per hectare productivity; rather it has done so by grabbing land away from foodgrains. Fruit yields (tonnes/hectare) declined at an annual average rate of 1.6 per cent between 1993 and 2003, and vegetable yields grew at an annual average rate of less than 1 per cent; but area under horticulture grew a massive 7.27 million hectares between 1990 and 2004, at the expense of foodgrains (see Table 1).47 Ironically, despite this low or negative growth of horticulture yields, the diversion of land from low-value foodgrains to high-value horticultural crops is likely to be recorded as ‘growth of agricultural GDP’48 – allowing the rulers to claim success in tackling the agrarian crisis. Quite to the contrary, this shift will only deepen the food security crisis in the country, without guaranteeing a stable income to even those growing horticultural crops.

Table 1: Change in Cropping Pattern in India, 1990-2004
Crop Gain

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(million hectares) Cereals Pulses Foodgrains -5.50 -2.19 -7.68

Horticulture +7.27 Source: See footnote no. 47. What we have described above indicates that with the further and further entry of corporate investment in agriculture the scope for accumulation by the direct producers, the peasants, will only be further undermined, and the productive forces in agriculture as a whole will be further depleted. It is important to note that the effects of the growth of commercialisation, and of exchange with the international economy, are governed by the character of production relations in Indian agriculture and in the Indian economy as a whole. The frame of the Indian economy is one in which industry provides paltry employment, a vast under-employed labour force is therefore crowded into agriculture, the market is narrow in relation to the potential market, and powerful parasitic forces exercising social and economic power are able to flourish even as productive forces stagnate. In these conditions integration with the international economy, even if superficially it appears to open up foreign markets for domestic producers, does not actually stimulate productive forces as it did in economies where the direct producers were already on the path of accumulation and expanded reproduction (as in the original countries of capitalist development). Rather, integration with the international economy here operates through the parasitic forces, the forces which are preventing accumulation. Operating through such forces allows international capital to grind the peasant down to extraordinarily low levels and to extract rich returns; but it

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intensifies the drain of the surplus from agriculture and thus suppresses productive forces.

Notes: 1.This is a greatly abridged version of our original draft. We may later bring out the original version as well, as a handy collection of facts and figures. (back) 2. Report of the Steering Committee on Agriculture and Allied Sectors for Formulation of the 11th Five Year Plan (2007-2012), Planning Commission, April 2007; hereafter “Report of the Steering Committee”. (back) 3. Report of the Steering Committee. (back) 4. Source: Report of the Working Group for the 11th Five-Year Plan on Crop Husbandry, Agricultural Inputs, Demand-Supply Projections and Agricultural Statistics, December 2006. (back) 5. In future, climate change may join the list. (back) 6.“Cheap no more”, Economist, 8/12/07. (back) 7. Economic Survey 2007-08. (back) 8. NSS Report no. 513. (back) 9. Total area sown with crops and orchards, counting area sown more than once in the same year only once. (back) 10. Area irrigated through any source once in a year. (back) 11. Report of the Steering Committee. (back)

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12. Department of Land Resources in the Ministry of Rural Development, cited in ibid. (back) 13. Report of the Steering Committee. (back) 14. Taking agricultural employment as 237.5 million and 258.9 million in 1999-2000 and 2004-5 respectively. (back) 15. NCEUS, Report on Conditions of Work and Promotion of Livelihoods in the Unorganised Sector, September 1997. (back) 16. Appendix Tables II.1-9, Report of the Steering Committee. (back) 17. NSS Report no. 491. (back) 18. Vikas Rawal, “Ownership Holdings of Land in Rural India”, EPW, 8/3/08. (back) 19. Study by National Institute for Rural Development, cited in Report of the Working Group on Land Relations for Formulation of the 11th Five Year Plan, Planning Commission, 2006. (back) 20. In the 1991 NSS of operational holdings (Report no. 407) 22 per cent of rural households are shown as without operational holdings, which appears to be an underestimate. The 2003 NSS of operational holdings (Report no. 493) puts the figure at 32 per cent, but as this survey covered only the kharif season, it can be adjusted downward to 28 per cent, as the NSS itself suggests. (back) 21. NSS Report no. 452, January-June 1998. (back) 22. Statement of the Campaign for Survival and Dignity, 2/11/07. (back) 23. Perhaps the most insightful essay on this phenomenon is by Krishna Bharadwaj, “A View on Commercialisation in Indian Agriculture and the Development of Capitalism”, in Accumulation, Exchange and

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion 235 Development: Essays on the Indian Economy, 1994. We have also drawn

on its insights elsewhere in this note. (back)

24. NSS Report no. 500, and S. Subramanian and D. Jayaraj, “The Distribution of Household Wealth in India”, World Institute for Development Economics Research, 2006. (back) 25. NSS Reports 495-499. (back) 26. Indira Rajaraman, “Reforming our agriculture”, Economic Times, 2/11/06. (back) 27. The NSS definition of “farmer” is “ a person who operates some land and is engaged in agricultural activities [sometime] in the last 365 days”. The term “farmer” is misleading, because it encompasses very diverse classes, from predominantly agricultural labourer households with tiny farms to landlord households with large ones, but here we are merely reporting the SASF findings, and hence have retained the term. (back) 28. “Net receipts” in the SASF are the value of output minus the expenses on cultivation. The expenses on cultivation are listed as fertiliser, pesticides, seeds, irrigation, hired labour, lease rent, interest payments, and other expenses. -- NSS Report no. 497. (back) 29. We adjusted the value of crop output in the SASF upward to the level of the average output of the five years 2000-05, and further assumed that expenses on cultivation remained the same as in 200203; and finally assumed that all other sources of income in the SASF would rise similarly. If anything, this crude adjustment would overstate the income of farmers. (back) 30. What constitutes the means of subsistence is not fixed. While it must allow, at minimum, for the physical reproduction of labour, the exact amount is determined by specific historical circumstances (including cultural factors as well as class struggle), and varies across different societies. (back)

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31. Thus the distinction made by official studies between peasant loans taken for ‘productive purposes’ and ‘unproductive purposes’ (i.e., consumption) is irrelevant in the case of the toiling peasantry, since they themselves are the labour force: Their consumption is part of the costs of production. (back) 32. It is true that taking the consumption expenditure per household does not bring out the extent of inequality, since the poorer the household, the more members it has. (back) 33. Data for break-up of operational holdings from NSS Report no. 492. Even if we exclude households which are principally agricultural labour (i.e., for whom wage income is larger than net receipts of cultivation), households possessing less than 2 hectares would constitute roughly three-fourths of the remainder. (back) 34. The size class of the break-even households (after adjusting net receipts up by 20 per cent to adjust for the bad crop year) is 1 to 2 hectares in Assam, Bihar, Jharkhand, Kerala, and West Bengal. It is 2 to 4 hectares in A.P., Chhattisgarh, Gujarat, Haryana, Karnataka, M.P., Maharashtra, Orissa, Punjab, Tamil Nadu, and U.P. (back) 35. Further, the ‘expenses on cultivation’ in the SASF include elements of the surplus, namely, interest payments and rent; however, the amounts reflected are too small, particularly in the case of interest, to be taken seriously. (back) 36. The rate for Orissa works out to just 0.5 per cent. However, production in unirrigated regions would have been particularly low in a bad agricultural year like 2002-03. (back) 37. “Suicide belt’s key moneylender is Congress leader”, Indian Express, 30/6/06; “Rebellion against moneylender” Times of India, 5/7/06; “Trader killed by Congress MLA’s moneylender brother”, Times of India, 8/7/06. Another signal of the intensity of the peasant-usurer conflict is the incident in Pimpalgaon Chambhar, Akola district, in which a moneylender and his henchman slit the abdomen of

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a peasant trying to re-capture his land; peasants gathered and retaliated, killing the attackers. “The rising in Maha’s Naxalbari”, Times of India, 8/7/06. (back) 38. Sudhirendar Sharma, “Death by microcredit”, Times of India, 16/9/06. (back) 39. Report of the Inter-Ministerial Task Force on Agricultural Marketing Reform, cited in National Commission on Farmers, Report II. (back) 40. The MSP itself is often set very low. A study has shown how the MSP for 12 foodgrain crops is below the full costs of production (which include the imputed costs of family labour and rent of land) for most states. See NCF, Report V. (back) 41. H.S. Shergill report, Rural Credit and Indebtedness in Punjab, Institute for Development and Communication, 1998; Anita Gill, Lakhwinder Singh, “Farmers’ Suicides and Response of Public Policy”, Economic and Political Weekly, 30/6/06; N. Shyam Sundar, “Nature of Rural Credit Markets: An Investigation of Eight Villages in A.P.”, and R.S. Rao and M. Bharathi, “Comprehensive Study on Land and Poverty in Andhra Pradesh: A Preliminary Report”, 2003, cited in Report of the Commission on Farmers’ Welfare, Government of Andhra Pradesh, 2004; Report of the Farmers’ Commission of Experts on Agriculture in Andhra Pradesh, 2002; Rural Finance Access Survey, World Bank and National Council for Applied Economic Research, 2003. (back) 42. Rakesh Mohan, “Economic Growth, Financial Deepening and Financial Inclusion”, RBI Bulletin, November 2006. (back) 43. Its other deficiencies include the fact that in rainfed regions such as Vidarbha cultivators owning more than two hectares are also poor; and that in the absence of any attempt to address the agrarian crisis as a whole, the peasants will soon be back in debt. (back)

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44. That is, 15 per cent on the institutional sector loans and 24 per cent on the non-institutional sector loans. (back) 45. It is true that we should separate the debt and interest payments of large landholders from those of peasants, and that within peasants we should separate landless labourers from landed peasants. Nevertheless the crude picture we have sketched will not be far from the truth. (back) 46. International Herald Tribune, reproduced in Business Standard, 31/5/06. (back) 47. Surabhi Mittal, “Can Horticulture Be a Success Story for India?”, ICRIER Working Paper no. 197. (back) 48. It is well-known that the statistical base for horticulture is very weak, leading to a tendency to overestimate horticultural GDP. The greater the shift of land to horticulture, then, the greater would be the impact of this tendency on agricultural GDP as a whole. (back)

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V. Unlocking the Productive Potential of the Entire Labour Force Productive employment is the key to real development The core of our argument is that the questions of employment, betterment of the material conditions of people’s life, the development of the market, and social emancipation are intricately intertwined, indeed organically linked. Attempts to address one or the other in isolation can proceed only up to a point, whereupon they get stalled or take distorted forms. An integrated approach is required, centering on the question of employment. The question of employment is not limited to the official definition of employment – which is limited to whether the existing labour force is engaged in any activity in the hope of somehow surviving. By the official definition, (i) if a person stops seeking work because she has no hope of getting work, she is not part of the labour force and therefore not unemployed; and (ii) if two workers are working where one worker could get the same output, they are still both considered employed. This official definition merely serves to understate the rate of unemployment, and is otherwise meaningless. A proper discussion of employment must concern (i) productive employment of the total potential labour force (those of working age), and (ii) how productive their activity is. For the wealth of society is the sum of the productive activities of the entire labour force. While a small class can become wealthy by maximising profit per unit of investment even with a large part of the labour force kept unemployed, the wealth of society is restricted in the process. The maintenance of a large pool of workers out of the labour market, unemployed, or under-employed, is a sign of the great inefficiency of the social-economic formation.

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Consequences of separating ‘growth’ from employment In a society like India, when the process of economic ‘growth’ is divorced from productive employment of the entire potential labour force, a number of consequences follow. First, much of the growth itself is illusory, in that various activities are proliferated which may add to the GDP but do not add an iota to the betterment of life even in the broadest sense of the word. Secondly, to the extent growth does deliver material benefits, these benefits and the material wealth of society get cornered by a small section. Thirdly, the top segments of society develop into a distinct market, which further distorts the pattern of growth: for investment shifts to high-profit sectors catering to these top segments of the market; such investment generates fewer jobs per unit of investment than in industry geared to the lower segments of the market, and a higher share of these fewer jobs are unproductive high-income jobs; this process in turn reinforces the same skewed pattern of income and demand. Meanwhile, what is called the ‘unorganised’ sector, which predominantly makes items consumed by the poorer sections (agricultural goods and most of small-scale industry output) stagnates for lack of demand, as a result of which incomes in this sector are constricted; this further depresses the demand for the unorganised sector’s products, since such demand originates largely from within the unorganised sector itself – i.e., from the workforce in agriculture and small-scale enterprises. (To the extent that the workforce in the unorganised sector imitates the purchasing pattern of the better-off, for example by buying mobile phones, this diverts some of the marginalised sections’ purchasing power to the organised sector and further depresses the demand for the unorganised sector.)

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In the entire process, the dualism of the economy gets reinforced and the existing social divisions and hierarchies get congealed, preventing the development of human potential and demoralising the subjugated social sections. This in turn suppresses overall social development. The resolution to this problem would involve unlocking the productive possibilities and scope of the entire potential labour force – both creating employment for it and enabling it to develop its capabilities in an all-round way. It would involve employing the bulk of the potential labour force in producing the material needs of the vast majority, despite the relatively low rates of profit in such activities. Employing these vast numbers would simultaneously create a vast, widely dispersed, market for these goods. Such an unlocking of productive potential would require a vast struggle by the subjugated masses themselves for social emancipation. And it would in turn enhance the material conditions for continuing that struggle. However, this breakthrough is impossible in the given social order. We have described how the constellation of class forces in power, and the specific historical process through which they have emerged, pose an obstacle to such a resolution of the problem. At the heart of such a resolution is the transformation to be wrought in agriculture. For it is there that the social process must begin which can lay the base for all-round development. Land still concentrated in a few hands It is the abysmal poverty of the rural masses that constricts the market. For about two decades after the Green Revolution of the mid1960s, it appeared to some people that a dynamic agrarian class would emerge from among India’s rural elite. These expectations have been belied; with the withdrawal of State support the Green Revolution’s boost to production has petered out even in its select pockets of concentration. India’s rural elite is not a dynamic class driving the

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growth of productive forces in agriculture, but is in the main a parasitic class flourishing off the helplessness of the vast peasantry. Without releasing the stranglehold of these sections agricultural development is impossible. Six decades after the formal end of British rule, land, the principal means of production in the rural areas, remains concentrated in the hands of a small section. As we noted earlier, the top 5.2 per cent of rural households in India today own 42.8 per cent of the agricultural area, the top 9.5 per cent 56.6 per cent of the area. At the other end, the bottom 60.2 per cent of the rural households own just 5.8 per cent of the area. By way of fitting comparison, the top 6 per cent of the households in pre-revolutionary China (classified as landlords and rich peasants) owned 46 per cent of the cropland, and the remaining 94 per cent of households owned 54 per cent of the land. In the course of the land revolution in China of 1946-52, the share of the top 6 per cent of households fell to 8 per cent, while that of the erstwhile poor peasants and farm labourers rose from 24 per cent to 47 per cent. In all, some 300 million peasants, nearly two-thirds of the rural population, won 47 million hectares, 44 per cent of all arable land, formerly owned by just 10-12 million persons. Two-thirds of the redistributed land was taken from landlords and one-third from rich peasants (largely the land rented out by them); two-thirds of the redistributed land went to poor and landless peasants, and one-third to middle peasants.1 The staggering scale of this transformation can be set beside the paltry achievement in India: As a result of the implementation of ‘land ceilings’ in India since the 1960s, a total of 3.01 million hectares has been declared surplus (of a current net sown area of about 140 million hectares). About 2.31 million hectares (less than 2 per cent of the cultivated land) has actually been taken over; and 1.76 million hectares (about 1.3 per cent of the cultivated land) has been distributed among 5 million beneficiaries. Much of the area declared ceiling surplus is

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unfit for cultivation – for example, such is the case with 57 per cent of the declared surplus lands in Uttar Pradesh.2 Some would argue that the small size of holdings in India makes any large-scale programme of land redistribution impractical: According to them, redistribution would break up the ‘viable’ (i.e. large) holdings into ‘unviable’ or ‘uneconomic’ holdings. This argument has been around a long time. Indeed, at the time of the First Five-Year Plan itself the Planning Commission argued that too little land was available for distribution. If ceilings were applied to large farms, the Commission said, production would fall. Since then, subdivision of holdings has further and further shrunk the average size of holdings. In other words, the course chosen in the name of maintaining the economic size of holdings has actually resulted in greater fragmentation. What the arguments against redistribution miss is that, first, in India’s existing political economy, large land holdings are by and large not a superior form to small holdings, but merely a larger one. Secondly, without land redistribution and the associated democratisation of agrarian society, no genuine cooperation or collectivisation is possible; and so the absence of agrarian reform is ultimately an obstacle to the emergence of superior large units. As part of China’s land revolution, the peasants also won draught animals, tools, grain, and control over water resources. Further, all debts incurred in the countryside prior to the reform of the agrarian system stood cancelled. By contrast, in India, as we have seen, usury has flourished under various garbs, and is stronger than ever, with total interest payments draining at least one-tenth of agricultural GDP. Staunching the bleeding of agriculture As the grip of the non-productive classes was broken, the bleeding of China’s agriculture was staunched, and the surplus from agriculture

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was made available for reinvestment. Calculations by one scholar3 revealed that land rent accounted for 10 per cent of national income in pre-revolutionary China; together with the interest on rural debt and the surplus above wages paid to labourers, the total surplus available with the rural propertied came to 17 per cent of national income. Another 2 per cent of national income was paid as taxes by peasants, bringing the total to 19 per cent. However, this surplus was not redeployed in investment. Instead, investment was a mere 1-2 per cent of GDP, and the rest was dissipated in the consumption of the ruling class. Following China’s land revolution, about half of this surplus remained in the hands of the peasants, and half went in taxes to the State. Moreover, unutilised land was brought under cultivation and the unemployed gained work, increasing the surplus further. As a result, by 1953 itself investment had soared to 20 per cent of GDP. Moreover, in the following years rural employment, both farm and non-farm, grew rapidly, as did grain production, consumption and well-being. We have mentioned the barest outlines of China’s land revolution here not to suggest that India can copy its development pattern blindly, but merely to indicate how an upturning of India’s land relations is a precondition to re-directing the surplus from agriculture into productive avenues. The change in land relations plays a critical role in expanding the market. When the rural masses, who are barely subsisting, and indeed are not able to obtain minimum calorie requirements, are able to improve their consumption, they would constitute a vast source of demand, stimulating the entire productive economy. First, of course, demand for food would be generated within the countryside itself; while some of this would be satisfied from household production, some would be purchased, improving agricultural incomes. (Indeed the Planning Commission itself has recently noted that the decline in demand for food has depressed agricultural incomes.)

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Vast, widely dispersed growth in demand for industrial goods Further, with the change in land relations, the market would grow for innumerable ordinary needs: clothing, bedding, footwear, soaps and detergents, utensils, household implements, furniture and fixtures, bicycles, stationery items, and so on. Today these expenditures are abysmally low: To take just one example, per capita expenditure in the rural areas on all types of clothing and bedding is just Rs 304 per year; on footwear, Rs 51.4 The term ‘clothing’ is defined as including, besides clothing proper, bedding – pillows, quilts, mattresses, mosquito nets, etc. –, as well as rugs, blankets, curtains, towels, mats, cloth for upholstery, etc.) One struggles to imagine how these sums suffice for a human being. And these are averages: 70 per cent of the people in the rural areas live below even this level. The per capita fibre consumption of India, the self-anointed budding superpower, is onethird of the world average. The Government makes strenuous efforts to gain foreign markets for Indian goods; for that it assists exporters with various open and hidden subsidies, and helps them suppress wage levels here. Indeed, the SEZ policy promotes exports as the engine of economic growth, for which it provides the SEZs vast hidden and open subsidies. Even critics of the present policies stress the need to grab the opportunities for, say, textile exports with the phasing-out of the Multi-Fibre Agreement (whereby developed countries earlier placed restrictions on their textile imports). Revealingly, there is a complete absence of discussion regarding the vast potential domestic market for textiles and other industrial products contingent on growth in domestic demand. There is, of course, a class rationale for this. First, serious and sustained growth in domestic demand would require changes in the agrarian class structure, which the present social order cannot tolerate. Secondly, such demand would be widely dispersed, and would be for goods of relatively cheap quality; given the dispersal of this demand, and the low profit margins involved in catering to it, it

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would be attractive only to small local producers, not to the corporate sector. It is important to note that all of these humble goods require very low technology, and most can be manufactured in the small scale sector (indeed, large firms’ reigning practice of outsourcing many products to small units amply confirms this). Such industries can be widely spread over the rural areas and small towns. Thus as demand is created for these goods, scope is created for generation of vast employment – on

the condition that the direction of investment and choice of technology are determined by social priorities.
Employment potential of industry It is difficult to get a sense of the vast employment potential of such industry, because all we have before us is the current distorted pattern of industrial development. However, it is worth noting that the small scale industries and traditional industries, which at present account for about half of industrial production, employ 70 million persons (both full-time and part-time). And small scale industries alone, which account for 39 per cent of industrial production, employ 29.5 million persons full-time. By contrast, all of organised private sector manufacturing employed just 4.5 million in 2005. This gives us a clue as to the vast scale of employment and industrial activity that could develop via the ‘unorganised’ small-scale industry. Starving the small scale sector of capital has damaging effects on not only employment but output as well. Again, illustrations from the present do not adequately convey the potential of a different social order. Nevertheless it is useful to note the following calculation: If small scale and traditional industries had received in 2006 the same percentage of net bank credit they received during the period 199495 to 1999-2000, credit to the sector would have been more than double its actual level, and accordingly employment and output in the sector too would have doubled.5 Most of this output would have been

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consumed by the working people; and the additional employment in the sector would have generated a portion of the demand for the output. Superior economic efficiency There are various other tangible economic advantages to a pattern of development which generates this type of dispersed demand and promotes these sorts of labour-intensive consumer goods industries. Employment could be generated locally for the unemployed/underemployed labour force in agriculture, and peasants would be able to find work near their villages. Given the local nature of the markets of such units, large costs in transporting goods around the country would be saved, and the geographical spread of industry would be more even. Extravagant, wasteful advertising budgets on the lines of the corporate sector would hardly be required for such units, given the nature of the articles they would produce, and their customers. A national system of technical help, assistance in obtaining inputs/equipment, standardisation (rather than the frivolous product differentiation created by the corporate sector units) and certification would help these units reach broader markets.6 Given the smaller size of operations and the local span of markets, such factories ought not to require large contiguous lands, nor lands located near metropolises and highways; even in the rural areas, there would be greater flexibility to locate them on available patches of noncultivable land. Because of the smaller scale of these units, the construction period and the ‘gestation’ period of investment would be reduced, enabling faster returns. In many cases industries would be able to draw on locally available raw materials, thus stimulating agricultural production. Moreover, not only would the consumers of these units’ goods be less demanding of quality (as we know from the actual consumption patterns of the poor today), but the units too would be willing to accept poorer raw materials in both construction and production. Indeed, these difficulties would spur the units, in particular, their workers, to innovate in order to

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overcome these problems within the given constraints, often by substituting locally available products for the normally used ones. New technological solutions would be devised to reduce costs, and new uses would be devised for materials which are otherwise treated as waste. Further, since such units could make do with poorer materials than the organised sector, their activities would create demand for other small units whose output was similarly not of the top quality. The scope of such units is not restricted to agro-based industries such as food processing, textiles, and leather, but would extend to chemicals (including fertiliser, soaps, pharmaceuticals), metal products, small machines, and so on. Many of these patterns are visible in an embryonic form in the efforts of a wide range of small scale industries in the country today to survive in the face of great odds. Given the large unemployed/underemployed labour force in agriculture, these units need not divert labour force already engaged in more productive activities; rather they would mobilise labour that is unable to find productive employment. (Indeed, if these units ran up against labour shortages, that would testify to their success in absorbing unemployed labour.) Crucially, such industries would be able to mobilise the labour of women much more than is possible at present. The location and character of work would make these units much more accessible to rural women for their employment. Links between small scale and medium/large industry All this has nothing to do with romanticisation of the small scale. It is true that such industries would generate low levels of surplus, and thus their rate of accumulation and growth would be slower than in the case of capital-intensive industries. Wages, inevitably, would be lower than in large industry (however, they would be above incomes in the farm sector from which these units would draw their labour supply). It is also clear that the growth of medium and large industries would be essential even for the small units to grow, since the larger units would supply many machines and inputs to both the small units and to

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agriculture. And of course there are economies of scale and minimum scale of operations in several industries which would require or warrant their being in the large sector. Indeed the large units would remain the backbone around which the larger structure of the economy could develop; a planned balance between the different sectors would be needed. But the small units would play a vital role in increasing both employment and output. Moreover, this situation would not be a static one: Within an overall planned framework, small units have scope to evolve continuously to more advanced forms, according to the requirements of society. As long as there are unemployed/underemployed workers, the activities of the small units need not divert resources from the development of productive and socially useful medium and large industry. Rather, they could supplement the production of medium and large industry greatly, and indeed generate further demand for the latter’s products. (However, resources could indeed be diverted from large industry to small industry, or, what is not necessarily the same thing, from capital goods to consumer goods, as a conscious choice of slower and more equitable growth, keeping in mind other social priorities. For example, a society may decide on a somewhat slower rate of growth than what is possible in order to improve, side by side, the very low levels of consumption.) markets of small industries are protected, the small units would be able to develop intricate backward linkages for inputs and equipment. This growing web of interconnections, some with large industry but also with other small units and with agriculture, would further boost employment. For example, imagine the setting up of a small unit processing some fruit and vegetables grown locally (we could have chosen any number of other examples – say, a small unit manufacturing soaps out of locally available oils). Much of the production of fruits and vegetables in India tends to get wasted for lack of storage and because of the long

If the choice of technology is determined by social priorities, and the

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distances to markets or processing points. A unit near the point of production could eliminate much of such waste, improving peasant incomes and allowing them to improve agricultural production. Let us say the unit employs machinery of a relatively low technological level, and adopts only selective mechanisation, using more labour instead. It would also require bottles, lids, labels, and other packaging materials, which would generate demand for other local units making these items. Further, workers of the unit might find a use for what used to be treated as waste – say, peels, rinds, husks, residues – and set up another unit linked to the first, improving the surplus from the whole operation and employing more workers. The fruit/vegetable processing unit would not have the financial muscle to market its goods at distant places, with fancy packaging, large retailing margins and advertising; it would have to rely on keeping prices down to sell its goods in nearby markets. Given the low profitability, the number of supervisory, management, and marketing staff would have to be kept to the minimum, and their salaries would have to be kept close to those of workers; they would not develop into a separate elite market. Such a unit could only flourish if (i) a large number of local consumers had enough purchasing power to buy such products, and (ii) the local market were not invaded by large units with large advertising and marketing budgets. That is, it would depend on completely different macro-economic priorities and environment than those which prevail today. As this web of units and agriculture begins to run into labour shortages, they would invest in machinery to reduce their labour requirement. In such conditions improvement of labour productivity would not result in the gross social inefficiency of rendering workers unemployed, but would permit the release of workers for expanding activity. This example shows how the questions of employment, output growth, the connections between sectors, and markets are interrelated. When development takes place through an internal dynamic of accumulation, rather than an as externally imposed process, organic links develop within the economy, enabling expanded reproduction.

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Developing the capabilities and the authority of the people Apart from the measurable benefits of such a pattern of industrial development, there would be others, harder to measure but no less important. For example, when peasants shift from agriculture to industry at a technological level which takes them one step forward, technology does not confront them as something beyond their grasp. Rather, they are able to relate to it, analyse it, contribute collectively to its development in the specific conditions, and in the process develop their own capabilities. This allows them to take the next step forward, improving labour productivity further. As both employment and productive capacities of the workforce develop, so too does the wealth of society. We do not mean to suggest by this that consumption must expand without limit, as is necessary under capitalism. Rather, once basic necessities (which includes a healthy and flourishing environment7) are met, the growth of productive capabilities expands the possibilities of a richer social life. This is a never-ending process. Indeed, in our society today there is a deeply irrational, fetishistic attitude to technology: rather serving as a tool of social aims it dictates them, with the ‘latest’, ‘highest’ technology blindly adopted in all spheres, and no attempt to even adapt it. There is a need for engendering a rational, questioning attitude to technology: Why should we adopt this method, rather than another? Is it suited to our particular needs? Can it be improved? What are the implications of being dependent for this technology on a particular source? Can we develop it ourselves? What are the losses and gains of doing so? And so on. Such an attitude should not be inculcated merely among technical experts (who are indeed most prone to technology fetishism); it must start at the level of the mass of working people. And the pattern of industrial development we have described would provide a vast school for inculcating such an attitude.

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Another such benefit which cannot be measured quantitatively is the change in the status of women, who are nearly half the working people. The better mobilisation of women’s labour, by integrating them in a planned way in the productive stream, would be indispensable to the industrialisation process; and in turn would have an impact on women’s social position. It would increase women’s economic strength, allow them greater social interaction, and create greater scope for them to organise. Of course this would not spontaneously guarantee women a better position in society; that, as always, would require conscious struggle. But this would create circumstances much more favourable to that struggle. Further, such a process would enable, over a length of time, the allimportant shift of workforce from agriculture to industry. Not only would this relieve the overcrowding of the land, but the greater weight of the industrial working class in society would open up a range of new social possibilities. Existing land relations and social order obstruct agricultural development We have talked at some length about the development of industry with the change in land relations; let us turn back to the changes in agriculture itself. Today, attempts to improve the condition of agriculture run up against the existing land relations. For example, there are large lands which have been degraded for diverse reasons. The productivity of much of this degraded land can be restored through a variety of means. However, most of this land is privately held or, in the case of forest plots, privately cultivated. Whose land is to be restored? Who will pay the bill? Who will reap the benefits? For example, the corporate sector has been projecting that vast sums are required, which are assumed to be beyond the scope of the Government; therefore, it argues, degraded lands, particularly forest lands, should be handed

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over to it to restore and use for commercial crops. This is resisted by the poor peasants, particularly tribals, for whom even these lowproductivity lands are crucial to their subsistence, providing fodder for their livestock, fuel, and even crops which require few inputs. They would surely welcome the restoration of the productivity of these lands if ownership would rest with them. But only if the gains of improving land go to ruling class interests will restoration of degraded land proceed at more than a snail’s pace. A similar problem exists in extending land under cultivation through measures such as terracing of hill land. One of the most pressing questions in Indian agriculture today is that of groundwater. During the last two or three decades, irrigation has been added almost entirely through tubewells, which are depleting the underground aquifers faster than they can be replenished. Those with greater financial clout, that is, the landlords and rich peasants, can bore deeper and extract water; as they do so, the water table falls and poor peasants’ water sources dry up. It is glaringly evident that there must be social control of groundwater resources, not only on grounds of equity but in order to prevent irreversible damage to the environment, threatening life itself. The question is, how is social control to be enforced? No authority exists that would compel the rural propertied to obey such a law, were it to exist. And so society will continue to watch groundwater resources get depleted, much in the same way as the world helplessly watches the advance of global warming. But the social control of India’s groundwater ought to be much more within our grasp than the world environment. The question of peasant indebtedness, of which the largest portion is the debt to usurers, is another most pressing problem of Indian agriculture. No less than the Union Agriculture Minister expressed the helplessness (or lack of will) of the Government to do anything about this question when he said that peasants should themselves repudiate their debts to usurers. Such a repudiation, were it effective, would strike at the heart of the rural social order; but it would be possible only in the course of a sweeping social transformation, including the

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redistribution of land and other rural assets. Further, peasants would tend to slide back into debt unless guaranteed favourable terms of trade; and ensuring that in turn requires a planned economy. Indeed, let alone the control of land and other rural assets, the rural propertied classes’ grip on political power ensures that even the crumbs of the social surplus fail to reach the poor and landless peasants. Every Government scheme purportedly for the interests of the poor becomes an instrument of further enrichment of the propertied. While there are large diversions by the rural propertied from the public distribution system (PDS) and virtually all rural schemes, the poor are by and large unorganised, cowed, and in no position to enforce their rights to rations, work, health care, or education. (Ironically, these diversions are being used by the international financial institutions and the Indian ruling classes to argue for the winding up of the PDS – that is, the violation of a right is being made the ground for doing away with the right itself.) In short, without a change in production relations, and the emergence of a new social order, it is impossible to either bring about a fundamental improvement in agriculture or fundamental betterment in the lives of those in the rural areas. Social emancipation and change in economic institutions two aspects of a single phenomenon Further, we can see here how social emancipation and change in economic institutions are two aspects of a single phenomenon. The peasantry have been suppressed for millennia, and cultural institutions have developed to condition them to accept this suppression with fatalism. For objective economic reasons, too, peasants find it difficult to conceive of changing their destiny: each peasant household toils on its plot of land in isolation from the others, and so its worldview tends to be individual; an individual cannot take on the powerful forces suppressing the peasants. In India, these features of

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suppression, isolation and fatalism are strengthened manifold by the caste system. As we have seen over the course of history, when the peasantry itself carries out the redistribution of land and other rural assets, it undergoes a profound transformation; indeed society itself is transformed. The grip of the parasitic classes on the consciousness of the peasants is released, and the enormous social energies of the poor and landless peasants are liberated. They begin to believe that they can change their destiny, and seek out ways to do so. Moreover, they can only win the battle against the parasitic classes through their collective efforts. And in the course of this collective battle elements from among the poor and landless peasantry (who are also generally of the socially oppressed castes) come to the fore. By breaking the stultifying grip of feudal consciousness and shaking off the social inertia of centuries; by overcoming the isolation of the peasantry and bringing them into collective action; and by bringing forward a new leadership from among the most oppressed sections, this process lays the first real basis for democracy among the agrarian classes. Not only is the social domination of the landlord over his tenants and labourers laid low; the hierarchy of caste too is dealt a decisive, though far from final, blow. (Note that in our society, the trigger for caste atrocities in villages is frequently that an individual Dalit family has gained some economic independence, either on the basis of a plot of land or employment outside agriculture. If even an individual case is taken as a threat to upper caste domination, imagine the strength of the blow when the entire oppressed social section wins economic independence from the socially dominant sections.) Democratisation in turn clears the way for steps toward cooperative farming, for it is only among free and equal persons that there can be genuine cooperation. Paul Baran wrote that if agrarian reform comes about in spite of obstruction on the part of such a government, as a result of overwhelming pressure of the peasantry – in other

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words, if it assumes the character of an agrarian revolution – it represents a major advance along the road to progress. Indeed, it is indispensable in order to eliminate a parasitic landowning class and to break its stranglehold on the life of an underdeveloped country. It is indispensable in order to satisfy the legitimate aspirations of the peasantry and to secure the foremost prerequisite of all economic and social development: the release of the creative energies and potentialities of the rural masses held down and crippled by centuries of degrading oppression and servitude. And it is indispensable because only through a distribution of land among working peasants can the political and psychological conditions be attained under which it is possible to approach a rational solution of the agrarian problem: cooperative, technically advanced farms operated by free and equal producers.8 Once peasants begin to cooperate, a new world of possibilities opens up. They are able to undertake various types of projects which require a large number of workers at a time, without worrying that their own farms will suffer for lack of labour. These projects would boost agricultural output, through works such as irrigation, land improvement, afforestation and grain storage; they would house rural industries; and they would house schools, health posts, creches, and other necessary community services. These assets would be created relatively cheaply, with the labour of the peasants who would otherwise be unemployed: it is, after all, labour that creates capital. The number of labour days in the countryside would double in this process. The peasants would be interested to contribute this labour because it is they who would be the immediate beneficiaries. At the same time, as opportunities develop for the productive employment of labour outside agriculture, mechanisation of agricultural activities becomes a socially efficient choice. (By contrast, under the present conditions, even though mechanisation may be profitable for a landlord, it is socially inefficient, as it renders labour power idle with no alternative employment.)

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We shall not proceed further in describing this world of possibilities, which deserves much more than these few sentences. Our aim here is only to suggest how the first step – the democratisation of the agrarian scene – is a precondition to the rational development of India’s agriculture, and of its society. Finally, the process of the socially oppressed and exploited sections themselves carrying out anti-feudal reforms in the face of fierce resistance by the propertied classes would propel new social forces to dominance in Indian society. It is these social forces that would be able to put a stop to the maldevelopment of our country, and carry out genuine development. Such a momentous agenda would require that the drain of surplus from the economy, as well as its dissipation in luxury consumption, which we have described in previous chapters, be halted. It would require that, instead, the surplus created by the labour of hundreds of millions be garnered and husbanded for redeployment in the interest of Indian society. This process would require a genuinely socialist planned economy (not the travesty of planning that India has witnessed) and the reversal of the process of ‘globalisation’. Essential detachment from the world economy would be a necessary prelude to establishing relations with the world economy on a new, independent, footing. At the same time, the changes described above would create the social, economic and political basis for India’s economy to chart an independent path. That subject, of course, requires elaboration which we cannot undertake here.

Notes: 1. Mark Selden, ed., The People’s Republic of China: A Documentary History of Revolutionary Change, 1979. Selden cites Peter Schran, The Development of Chinese Agriculture 1950-59, 1969. (back)

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2. Report of the Working Group on Land Relations for the Formulation of the 11th Five Year Plan. (back) 3. Victor Lippitt, Land Reform and Economic Development in China, 1974. (back) 4. NSS Report no. 508. (back) 5. National Commission on Enterprises in the Unorganised Sector, Financing of Enterprises in Unorganised Sector, Report of the Task Force on Access to Finance, Raw Materials and Marketing, April 2007. (back) 6. Incidentally, it is worth noting that the reduction in transport costs and in advertising would reduce GDP to that extent; this underlines how misleading it is to take GDP as a measure of material betterment. (back) 7. Only an economy planned according to social priorities can resuscitate and protect our wounded and ailing environment. This topic requires serious discussion, which we cannot attempt in this piece. (back) 8 .Baran, Political Economy of Growth, p. 202. (back)

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