INDIA’S beleaguered Prime Minister seems desperate to blame everybody else for the waning of India’s shining growth story and for the loss of legitimacy of his government. He now periodically reiterates an argument he has presented in many forms in the past. That argument starts from the assumption that what really matters for India is growth, as measured by movements in the not-too-robust official estimate of gross domestic product (GDP). Ensuring growth, it is assumed in turn, requires continuous “reform” or liberalisation of a kind that expands the space and boosts the profits of domestic and foreign investors. So any opposition to the reform that does just that amounts to restraining the GDP growth that is all-important for the country.
In his Independence Day speech, the Prime Minister extended this line of reasoning in two ways. First, he argued that that growth is important for national security. This extension would imply that those opposing the “reforms” are not just anti-growth but anti-national as well. Second, he argued that the task of “creating an environment within the country for rapid economic growth” had not been completed “because of a lack of political consensus on many issues”. This was an obvious reference to the opposition in Parliament and on the streets, which was not willing to go along with his specific reform agenda on the grounds that it was no good for the nation. In terms of the Prime Minister’s logic, then, that opposition was least concerned about India’s security and, therefore, was, unconsciously or otherwise, anti-national.
But does the evidence suggest that the growth that has occurred over the past two decades and especially during the 2003 to 2008 period has been good for the nation as a whole? Or have the benefits of reform bypassed much of the nation? This being the Prime Minister’s ninth Independence Day speech, the United Progressive Alliance’s (UPA) reform agenda has been implemented long enough for its actual character to be assessed. Judged in terms of content and not just outcomes, economic reform under the UPA has involved reshaping the role of the state. Earlier, especially during the post-Independence years until the 1970s, the role of the state was seen as that of using the tax-cum-subsidy regime as a means to raise the rate of investment in the economy and ensure that such investment was allocated across sectors in ways considered appropriate for maximising growth. This not only made the state a growth-leader of sorts, but required it to regulate and also engage in economic activity, including production.
REFORM & THE STATE
Under the reform, the state is seen not as leader but as facilitator. Its role is, therefore, presented as one of ensuring that the private sector makes large investments. The choice of sectors in which such investment is made is to be left to the private sector and its perceptions of profitability. To ensure that investments are made in some sectors, such as infrastructure, ways must be found to enhance the profitability of such activity. The state must cajole the private sector into investing larger and larger sums in different sectors crucial to growth by influencing the profits to be earned from such investment. And if the domestic private sector is unable or unwilling to exploit the opportunities offered, foreign capital must be wooed. As the Prime Minister made clear, foreign capital must be sent the right signal. “To attract foreign capital, we will have to create confidence at the international level that there are no barriers to investment in India,” he reportedly said. Incentivising private investment, especially foreign investment, seems to be the essence of the reform strategy.
Unfortunately, the outcome of this strategy pursued relentlessly by UPA I and II despite the “lack of consensus” has been quite divisive. While growth has boosted profits and delivered some benefits to a small upper-middle class, it has failed to ensure employment and livelihoods for the majority. The results from the National Sample Survey with reference year 2009-10 suggest that while the deceleration of employment growth recorded during 1993-94 to 1999-2000 had been partially reversed in the period 1999-2000 to 2004-05, the record over the five years after 2004-05 is even worse than it was during the 1990s. Over the five-year period 2004-05 to 2009-10, employment declined at an annual rate of 0.34 per cent in rural areas and rose at the rate of just 1.36 per cent in urban areas. In the aggregate, the volume of principal and subsidiary status employment rose by a negligible 0.1 per cent. This period included the years when GDP growth was at its highest. But that growth did not generate livelihoods for the unemployed and the underemployed in the country.
INCOME INEQUALITY
There is also evidence to suggest that income inequality has increased significantly during the reform era. One difficulty in assessing the inequalising effects of post-reform growth is that the only large-scale survey available to analyse inequality in India focusses on consumption expenditure. Such surveys, by the National Sample Survey Organisation (NSSO), tend to exclude the very rich and the very poor and therefore are inadequate indicators of even trends in consumption inequality. Further, since the rich are known to save a significant part of their income, these consumption figures fail to reflect adequately the underlying income inequality.
Some researchers, such as Sonalde B. Desai, Reeve Vanneman and Amaresh Dubey, have attempted to estimate the extent of income inequality on the basis of evidence from independent sample surveys. Those estimates indicate that income inequality is very high in India, with the Gini measure of inequality being around the same as Brazil’s. Such estimates only confirm the impressionistic evidence of increasing inequality, especially in the metropolitan cities and larger urban centres of India.
Moreover, with growth focussed largely on the services sector, which accounts for around two-thirds of the increase in GDP under the UPA’s watch, an unusual form of rural-urban inequality has come to characterise the country. While segments of the non-agricultural sector thrive, agriculture is in long-term decline and the viability of crop production is under challenge. Even where the state intervenes with support prices, more often than not the increases in costs paid exceed the increases in the prices garnered by cultivators, resulting in an agrarian crisis in many parts of the countryside.
C.P. CHANDRASEKHAR