Growth For Whom: Choice or Dilemma?

Dr. Ashok Mitra

I was a bumpkin from the backwoods of mofussil Bengal at about the time of independence. Mr. Prem Bhatia was then Special Representative with the Statesman, and we youngsters would eagerly wait for his regular I contributions to the newspaper on unfolding national events. His prose was precise, the syntax smooth and the weightiness of his views would be matched by the elegance of style. I consider it a great honour that, some six decades later, I am invited by the Prem Bhatia Memorial Trust to give this year’s Annual Lecture in his memory. I hope what I have to say during the next forty minutes or thereabouts will not disappoint too greatly this evening’s distinguished gathering, at least some of whom cherish memories of the standard of excellence Mr. Bhatia had set.

The theme I have chosen concerns the emergence of certain anomalies in the economic growth process currently on in the country and the dilemmas they pose. These are, I believe, of such grave import that society could ignore them only at its own peril.

To underplay instances of failure and concentrate attention on areas where achievements are eye-catching is nothing unusual. The Human Development Report of the United Nations presents an ordinal ranking of its member-countries with weights given to a number of parameters such as provisions for food, nutrition, health and education facilities. India occupies the lowly place of 127 in that list. This is apparently of no concern to our politicians or the media. For we have recently discovered that our gross domestic product has been growing at a rate approximating 9 per cent per annum? This is a world-beating performance. Only China has been able to maintain a rate of growth that is higher. India, there is near-unanimity in our media, has arrived. Are not newspapers such as the Economist and the Financial Times now giving us the same attention as they had accustomed themselves to give to China? A seat on the United Nations Security Council could not be far off.

But problems keep nagging. Consider the composition of the gdp growth we are excited over. It is full of anomalies. The annual rate of growth in the services sector has averaged around 15 per cent during the past few years. Since services account for more than one-half of our gross domestic product, an annual rate of growth of 15 per cent in this sector itself ensures an overall gdp growth of 7.5 per cent. Even if agriculture and industry together — that is, the entire spectrum of material output — grew at an annual rate of 3 per cent, it would still be possible to attain an overall rate of gdp growth of 9 per cent. What is actually happening is not far different. Output of services has taken off, industrial activities are also expanding, but at a lower pace. Agricultural growth is however frighteningly lagging behind. Growth is unevenly distributed over the producing sectors.

There are other facets of this unevenness in growth. Services contribute to one-half of gross domestic product and are growing at an extraordinarily fast rate. But they do not provide employment for much more than 20 per cent of the nation’s working force. At the other end, agriculture and allied activities are the source of livelihood for close to two-thirds of the working population. Since the annual rate of growth in agriculture is skirting round 2.5 per cent, the rate of population growth being what it is, per capita growth in the farm sector is niggling. Here we hit against another facet of reality. Whatever income growth is taking place in agriculture is not getting spread evenly. Arable land was already horrendously unevenly distributed at the time of independence. Things have worsened over the past sixty-odd years. Almost 40 per cent of those dependent on agriculture, estimates indicate, do not own any land at all. This segment of the rural population, mostly farm workers, remain outside the orbit of: growth; many of them do not find any work for most of the year; those who find some work hardly experience any rise in their wages. The benefits of whatever growth is occurring in agriculture are apparently being cornered by the owners — or occupiers — of relatively big-sized holdings. Estimates of the proportion of the rural population living below the so-called line of subsistence — at around 30 per cent — lend credence to this conjecture. Besides, some might live above the level of subsistence and yet be awesomely poor. A team of economists has recently come up with a startling conclusion: never mind the heady rate of gdp growth, about three-quarters of the nation continue to be poverty-stricken. Another economist, who does not believe in mincing words, has chosen to describe our country as a ‘republic of hunger’.

Even our sense of satisfaction with the performance of the services sector calls for a certain restraint. The major breakthrough in this sector is in such spheres as telecommunications, banking, insurance and the entertainment and tourism industries. Given the capital-intensive nature of most of these activities, the rate of growth in employment tends to be low even when activities are growing at a brisk pace. The Information Technology industry has been expanding at the rate of 35 to 40 per cent in recent years. But it has all told only 1.6 million employees, less than 0.4 per cent of the country’s total working force. We are not allowed to forget the fact either that the services sector is a catch-all category: itinerant hawkers, men and women selling snacks in roadside stalls, other similar species of retail traders, as well as rail porters and rickshaw pullers, are also engaged in service activities. The condition of many of these mostly self-employed individuals is akin to what John Maynard Keynes had described as the state of ‘disguised’ unemployment. They include persons who have been either squeezed out of agriculture because of landlessness, or who are displaced from industry because of growing mechanisation. Those engaged in such informal activities could well constitute as much as four-fifths of the number counted as belonging to the services sector. The fabulously high income-earner in the IT industry and the emaciated little fellow selling candles or sandalwood sticks in the street corner are both servicepersons.

The picture is hardly different in the industrial sector. Small-scale industries, which had a sheltered existence in the past, are currently in deep distress. A few big or moderate-sized industrial units too, relics of the past, have been unable to stand the heat of global competition. New units have of course taken their place; the organised industrial sector has developed and widened. To survive in competition, though, industrial entities need to opt for state-of-the-art technology, often calling for reduction in workforce. Low interest rates, encouraged by the U.S. Federal Reserve System for domestic reasons, but the impact of which is inevitable on us because of globalisation, help installation of labour-displacing plant and equipment. The rate of displacement of labour is not being matched by the rate of absorption of labour in the growth-recording units. Official data on employment sum up the story of the past decade. Total employment in manufacturing, electricity, gas and water works as well as in construction industries has dropped in both public and private sectors between 1995 and 2005. That apart, since the bulk of industrial workers are in small-scale units, as these decline because of the surcease of State-assisted measures, the crisis of worklessness is aggravated.

These are uncomfortable facts, but they fall in place in the context of the liberalised economy. We have been sucked into the tide of global developments. A pressure group advocating economic liberalisation was always there; it had encouragement from the international financial institutions. The collapse of the Soviet Union in the early 1990’s set things moving. Further momentum was provided by China’s relaxed policy towards private, including foreign, capital. Our policy-makers have been quick learners. The withdrawal of the State from major economic spheres has been complemented by drastic overhauls in trade, fiscal and monetary policies. Business Process Outsourcing by the United States and a few other Western countries has led to the serendipitous discovery of a lush export sector. Direct tax rates are lowered, industrial and exchange controls have been kissed good-bye, the Fiscal Policy and Budget Management Act has been put into the statute book to curb government spending. The public sector is henceforth expected to tuck itself in into a demure corner and look after only, internal security, defence and a few essential social services. It may, in addition, build such economic infrastructure as would not yield enough profit to private enterprise. The rest of the arena of economic activities would be left to private exploitation. Such exploitation would naturally imply cornering of larger and larger profits by entrepreneurial types who have skill and resources to beat down competition in the free market economy. Induction of new technology, again to survive in the global market, would put the squeeze on employment. If corporate bodies are permitted to enter the farm sector and engage in, for instance, contract farming, displacement of labour will be hastened there too.

No scope really exists for ambiguities Neo-liberal economic policy has its basis in the ideology of profit maximisation, which in turn puts emphasis on the need to weed out inefficiency. The policy of import substitution in a closed — or regulated — economy could afford to wink at traces of incompetence. But a system which has crossed over to the stratagem of export-led growth cannot allow that luxury. To survive in competition in the global market, cost effectiveness has to have the highest priority. The brightest, the best and the most resourceful capture the larger share of the market in their area of activity. They in due course also attract investible funds, which, when added to their own accumulated funds, lead to further expansion of activities. A liberal economic arrangement is therefore coterminous with an uneven distribution of income and wealth. Since growth is engineered by the few who either possess greater efficiency or are endowed with better capital assets, the fruits of growth accrue to these few. This is what has come about in our country too. Lop-sided growth has taken over. Not surprisingly, we have now several billionaires in our midst. The 10 to 15 per cent at the top of the income pyramid are monopolising the bulk of the growing income flow. They are generating a demand for consumer goods and services that would tantalize the constituents of the middle class in quite a few Western countries. At the other end, we have to accept the datum that three-fourths of the nation live in dire poverty.

The unevenness of growth, let me add, is reflected in the phenomenon of growing regional disparities as well. If State A at the point of economic liberalisation was, in terms of capital-and skills-endowment, way ahead of State B, the free competition milieu would ensure that A sprints further ahead of B and stays that way.

Our policy framers, I dare say, know what is what. They have opted for a form of economic development which has its awkward aspects, particularly given the Directive Principles of State Policy in our Constitution and its Preamble. They have nonetheless chosen the particular policy package obviously because certain other compulsions too were at work.

For some with left-over memories of the pledges undertaken in the epoch of the freedom movement, there can perhaps be a feeling of uneasiness in watching the unfolding manifestations of income inequalities. Even otherwise, the policy turns into a dilemma. We are still a functioning democracy; a multiplicity of political parties keep themselves busy, periodic elections take place to decide who will be in charge of the administration. Since the poor constitute a clear majority of the electorate, to ignore them altogether could be a risky venture. At the same time, any large-scale intervention on their behalf might queer the pitch of free market activities and stifle gdp growth: the el dorado we have almost reached cannot be allowed to disappear like a mirage.

Hope springs eternal in the human heart. Policy makers — at least some amongst them — would repose faith — again at least for a while — on the good old Malthusian medicine of conspicuous consumption. In the early part of the nineteenth century, some British economists were exercised over the possibility of over-production or glut in society. Thomas Robert Malthus, who taught political economy in the East India Company’s College, was not one of them. The consumption habits of the feudal classes, he was sanguine, would prove to be a bulwark for Britain’s economic stability. The rich feudal lords spend their unearned income on various forms of consumption, such as engaging domestic servants and buying rich food, drinks, textiles and jewellery. Spending of this nature leads to diffusion of income among various sections, thereby shoring up aggregate demand in society and preventing any economic depression. There is always something to be learnt from the classics. Some optimists in our neighbourhood may nurse the hope that those benefiting from neo-liberal growth will spend a considerable part of their earnings on the purchase of durable and non-durable consumer goods, which will have a chain effect on the economy: as spending on goods and services percolates down the layers of groups and classes, it will result in growing demand for goods and growing employment. Growth will then cease to be exclusive; the impulse of development will reach down to the lowest stratum of society.

Will it really? Has such a happy sequence of events taken place as a spin-off of the neo-liberal process of growth over the past decade. Among the largest gainers in terms of income accretion in this period are those associated with the Information Technology sector, banks, insurance, share markets and tourism and entertainments industries. They have without question spent hugely from out of their sky-rocketing earnings and on a large assortment of durable and non-durable consumer goods. As one watches the current Indian landscape, it becomes difficult to determine where consumerism ends and hedonism begins. But — and here is the disturbing part of the narrative — an overwhelming proportion of the consumption of this crowd of nouveux riche has an extremely high import content. Apart from direct import of luxury commodities from overseas, even goods they pick from the shopping malls in the metropolitan cities, produced in Indian plants and factories, call for inputs that need to be imported. One is tempted to conclude that, for instance, the jump of the country’s import of petroleum and petroleum products from barely 8.6 billion U.S. dollars in 1991-92 to 83.3 billion dollars in 2005-07 — a ten-fold increase — is to a major extent explained by the demand for fuel by industries which produce goods catering to luxury consumption. The export-led growth we are experiencing has actually brought about a corresponding increase in the import content of both consumption and investment. Very little of the extra income that is being generated is trickling down to the country’s poor.

Such a development is not exactly a new phenomenon; we have been here before. Some decades ago, following the induction of high-yielding seeds of wheat and rice, a section of land-owners and tenant-farmers in the north-western region came to accumulate extraordinarily large wealth, which however had little impact on the state of well-being of the rest of the farming community in the States concerned. Even agricultural wages remained sluggish. A significant part of the newly acquired farm earnings was spent to build imposing-looking mansions in South Delhi.

The dilemma in policy-making is not resolved. Any shift from the neo-liberal framework is seemingly impossible. Too many influential quarters have a stake in the trajectory of high gdp growth rates the economy has of late attained. Those who have garnered the fruits of growth constitute the most vocal elements of society. They have already got into the global mould. They have powerful international backers, and will resist fiercely even a partial return to the ancient regime of State regulation. And yet, the problem will not go away. It is still a practising democracy: the electorate matters, very large sections of the electorate are banished from the growth process. On the face of it, no way exists for bringing the weak and the dispossessed within the mechanism of growth, for example, by slowing down the introduction of labour-saving technologies, since any move towards that direction would apparently be at the cost of economic efficiency and affect exports. The realization, that the trickling-down thesis is a non-starter intensifies the dilemma. Neo-liberalism precludes the State from playing the role of income equaliser via fiscal and monetary policies. The authorities have lowered personal and corporate income tax rates, got rid of the capital gains tax, refused to tax share market transactions, turned the other way whenever proposals have been made to unearth black money. Agriculture is stagnating at least partly because public investment has petered out with consequent progressive deterioration of rural infrastructure. Public distribution and other kinds of subsidies are under pressure. Above all, the tenets of neo-liberalism do not approve of the return of the State in the area of direct investment whether in agriculture or industry. Given the magnitude of landlessness the eradication of rural poverty depends on extensive and thoroughgoing land reforms. That however implies a return to State involvement. Or consider the matter of farmer suicides, which are a consequence of the gradual dismantling of tariff barriers on farm imports — an imperative of neo-liberal economics. Any reversal of present policies would seem to be not on. On the contrary, further tariff relaxation to enable freer entry of farm imports is very much on the cards as this step would, so it is hoped, be reciprocated by more liberal entry of India’s industrial products in the Western markets.

The lay of the land being what it is, massive State intervention to eradicate poverty, reduce income inequalities and create employment has to be ruled out. But realpolitik demands that a few gestures are offered which could help to keep the majority of the electorate reasonably quiet at least for some time. A series of measures in the nature of ‘soft’ involvement on the part of the State have thus been decided upon. These programmes, initiated during the past decade under different nomenclatures, include the ‘total’ literacy campaign, the national rural health scheme, the national rural electrification programme, the national highway programme, et al, ending with the rural employment guarantee scheme. With most of these programmes, success however has been indifferent. But could it be otherwise? The general impression created across the country is that these schemes are in the nature of missions of charity, with stress heavily laid on the political content. The funds are controlled by the Centre, and there are too many administrative rungs to be negotiated to ensure even minimal implementation. To this litany of near-empty gestures there is a more recent addition: waiver of loans that in any event were irrecoverable.

The dilemma persists. The authorities are conceivably not averse to standing aside and letting the capitalist paradise emerge in its fullest glory. The emerging middle class would not at all mind such a dénouement. Widespread joblessness should have fostered equally widespread urban discontent. But joblessness also weakens the trade union movement, so the situation has not yet gone out of hand. In the countryside too, while problems related to hunger deprivation and joblessness continue to multiply, things have not yet reached the point of crisis. Some of the negative aspects of globalisation are increasingly coming under the glare. Short-term capital funds have helped to shore up the share markets for a continuous number of years, recent uncertainties in the United States are however having an impact on our bourses. At least part of the reason for the sharply rising price level is attributable to our crossing over to an open economic system. Rising prices tilt the scales further against the nation’s poor.

The basic issue is both simple and complex. Even as some classes and groups outdistance some others in the race of competitive growth, and some regions grab the advantage of an earlier start to further go ahead of other regions, a more generic phenomenon gradually takes shape. The efficient in society become supra-efficient, the income and wealth their competence allows them to acquire ensure their even faster growth in future. Since the State will not proceed beyond ‘soft’ interventions — which many may regard merely as tinkering with the real problem — those denied the spoils of growth will continue to feel left out. Their grumbles are yet to assume a fearsome form. The occasional outbursts of discontent have been containable. But although these outbursts have been superficially in the nature of ethnic or linguistic or communal or caste clashes, the underlying factor, one fears, is the issue of economic alienation.

We are, so to say, on the periphery of a social divide. Some observers will consider the random explosions of discontent as instances of nuisance which should not be put up with. Their point of view could not be more straightforward. Neo-liberal policies have ushered in unprecedented gdp growth. True, growth has not spread evenly; anomalies exist. A way has to be found to take care of these little local difficulties. It will however be, in their need, folly to think in terms of any radical departure from the pursuit of neo-liberal policies; we must not throw the baby out along with the bathwater.

The authorities are in a tizzy state of mind. While there can be no question of abandoning the neo-liberal policy framework, the political exigencies have compelled low-key interventions. Unfortunately, these have not been a resounding success. As the poll season nears, the dilemma of reconciling liberal economic policies with the compulsions of multi-party democracy threatens to loom larger.

Neo-liberal policies will foment inequalities and result in social discontent. The purpose of ‘soft’ interventions is to defuse such discontent. But doubt is not easily dispelled. Even if these programmes are satisfactorily executed, given their sketchy nature, social tension might not abate. The prior task should still be to ensure their effectiveness to the extent possible.

Reports prepared in the office of the Comptroller and Auditor-General and by other agencies suggest that these ‘soft’ intervention schemes are indeed not going anywhere. The reason is not far to seek. The Centre now presides over these projects only because it controls the funds. Such kind of remote control however elongates the chain of bureaucratic command and prevents the optimum utilisation of the funds. Irrespective of whether Centre-State financial relations are fundamentally re-structured or not, for raising the effectiveness of ‘soft’ interventions, overall control over them should be transferred to the States and further down along with the transfer of funds necessary to execute them. To stall transfer of command on the ground that the Centre is per se more competent than a State administration is, let me say it, a fatuity. Personnel from the same roll of civil servants serve at the Centre as well as in the States. Politicians ruling the roost at the Centre and those in the States also belong to the same social stratum. It is not the calibre of administration and the quality of leadership which set the Union government apart from the States; what does is the vastly larger financial clout the Centre enjoys. And who can deny that the Centre is physically too far away from most parts of this big, wide country to monitor near-to-ground relief or development schemes?

True, mere decentralised administration of the schemes may not suffice. I have here one radical suggestion to offer. Why not depute the seniormost administrative officers in a State to the districts where poverty is grimmest and let them take charge of the various development programmes? Why not offer them the sama salary as is drawn by a Secretary to the Government of India, provide them with the monetary equivalent of all the creature comforts that they could expect to enjoy at the advanced stage of their career, and, in case necessary, even pay the officials a hardship allowance? As trade-off for these perquisites, it would then be obligatory for these officers to change their way of thinking. Their outlook must be district-ward, not New Delhi-ward. Also make similar arrangements to post the senior-most engineers, medical officers and agronomists in the most poverty-ridden districts. The purport of my suggestions, cynics may comment, is to effect a miniature cultural revolution. But should not the luckier ones in society exclusively enjoying the carnival of neo-liberal growth, prefer it to circumstances which invoke a grisly ritual of blood-letting?

This brings to the last bit of what I wanted to submit for your consideration. Growing economic inequalities can make us feel uneasy for three separate reasons. There is, first, the issue of aesthetics. It may appear obscene that a handful in society flaunt a luxurious mode of living of the most lurid kind while the nation’s overwhelming majority struggle for bare subsistence But since, like beauty, ugliness too depends on the eye of the beholder, the aesthetic argument against lop-sided growth and income distribution may not sound terribly convincing. So too could be the fate of the moral argument. Neo-liberal economic philosophy has a Darwinian ring about it; only the most competent will survive and prosper, the inefficient lot will wither away. There is, it will be maintained, no space for any morality crap here.

What about a practical consideration though, such as the possible threat of an internal combustion engineered by the army of the discontents? A couple of years ago, the supreme boss of one of a leading IT outfits in the country, located in a major metropolis, was requested to provide some assistance so that the fast deteriorating infrastructural conditions in the neighbourhood, where the city’s poor were concentrated, could be improve. His reported response was tart: 97.5 per cent of his firm’s profits came from the United States, Germany and Japan; the country’s poor are not on its agenda. Presumably what he meant was that his plate was full with his company’s problems and he has little time to spare for the problems of the poor. A question nonetheless pops up. Does he expect the nation’s poor to disappear in gentlemanly manner, or does he think they do not matter? What if either assumption is wide of the mark? Such is the dilemma latent in uneven growth.