Lessons from the Indian Experience

India’s economic experience since the beginning of economic liberalisation constitutes a resounding refutation of “mainstream” (bourgeois) development theory.  On the basis of official data during this period there has been a remarkable acceleration of the growth rate of GDP, together with a striking increase in the incidence of absolutepoverty, a combination which no strand of bourgeois theory can explain.  Let us look at the data first, and here we need not spend time on the growth rate data since there can be no two opinions about the conclusion that the growth rate has accelerated.  There may be problems with the data, but none whatsoever with the inference from the data.

But on poverty data the government (Planning Commission) has been so dishonest in drawing inference that a brief discussion is in order.  Right from the beginning of poverty estimates in India, the definition of poverty has been the following: those who access an energy intake of less than 2400 calories per person per day in rural areas and less than 2100 calories per person per day in urban areas are poor.  Now, every year for a small sample and every five years for a large sample, we have direct information on this.  On the basis of that information we can directly estimate poverty (this is an estimate of absolute poverty), and this has been going up precisely during the period when growth rate is estimated to have accelerated.

The government however wants to fudge this issue.  So they devise all kinds of indirect measures of poverty that show the poverty ratio to be going down!  And when they are asked: why should people be accessing less food grains and less calories if they are becoming less poor, the answer they give is that precisely because they are becoming better off they are diversifying away from food grains to other expenditure items and hence accessing lower calories.  In their argument in other words lower calories are a reflection not of impoverishment but of betterment, which not only runs contrary to the very assumption underlying the poverty measure devised originally by the Planning Commission itself, but flies in the face of common sense and of all international experience.

International experience clearly shows that if we plot per capita real income on one axis and per capita foodgrain consumption on the other, taking both direct and indirect consumption together (the latter via processed food and animal feed), then foodgrain consumption rises with income until a fairly high level of income (much higher than what the bulk of Indians earn) and then flattens out.  And the same is true of calorie intake as well.  And what is more, income seems to be the main determinant of foodgrain consumption, explaining the bulk of observed differences across countries; no other variable (except by inference income distribution within countries) appears to matter much.  It is a clear law therefore, observable everywhere in the world, that if people’s income rises their total foodgrain consumption, and calorie intake, also rises, until it flattens out at a high level of income.  It follows that if we find in some country over some period a decline in calorie intake and also in foodgrain consumption per capita (on which we have unambiguous official data in India), then the bulk of the people must be actually becoming worse off, i.e. poorer, in that country over that period.

Putting it differently, if we have a country where the rise in per capita real income is accompanied by a decline in per capita foodgrain intake, then it must be that the income distribution within that country is worsening over that period, to a point where the bulk of the population is becoming absolutely worse off even as the per capita income, which is a mere average for all, is rising.  This is exactly what has been happening in India during the last twenty years.  And this constitutes a puzzle which bourgeois development theory simply cannot explain.

This theory, in its crudest form, states that as per capita income rises there is a “trickle down” such that everybody becomes better off, in which case absolute poverty must decline with rising per capita income.  This same conclusion is often drawn from a more sophisticated version of the theory, which sees poverty as a “trap”.  Countries and peoples get “trapped” into poverty and cannot get out because in their state of poverty there are forces of circular and cumulative causation which prevent such getting out.  For instance if the capital per head in a country is low, then labour productivity is low and hence the wages of the working people are low which makes them poor.  But they cannot get out of this poverty, because, there being a floor to per capita consumption (subsistence), a low output per head (labour productivity) entails minuscule savings and investment, and hence a continuously low level of capital per head and hence of output per head.  Poverty in short breeds poverty; it constitutes a trap from which countries cannot get out.  This argument is often used as justification for “foreign aid” which, it is claimed, constitutes an external force applied to countries to get them out of the poverty trap.  This argument too however states that if output per head could rise, then the country in question could get out of the poverty trap, a conclusion exactly analogous to what the crude “trickle down” theory states.

Neither of these versions however can explain the co-occurrence over time of an acceleration of the growth rate and an increase in absolute poverty.  Of course the poverty trap argument, instead of being applicable to countries, could be extended to groups inside the country, in which case an argument may be constructed to explain the co-occurrence of increasing growth and persisting poverty in the following manner: within a country there may be particular groups that are stuck in a poverty trap, so that even as the country as a whole may be escaping from such a trap these groups continue to remain poor.  But there are three obvious problems with this argument: First, while it may explain the coexistence of increasing growth with persistent poverty, it cannot explain increasing growth with increasing poverty (unless increasing poverty has been a long-term trendwith these special groups, which however is not true of the groups getting impoverished over the last two decades in India).  Secondly, this argument may hold at best for some small isolated groups but not for the bulk of the population of a country.  (In rural India it must not be forgotten for instance that the proportion of the population with intake less than 2400 calories per person per day increased from 74.5 per cent in 1993-4 to 87 percent in 2004-5, which indicates mass impoverishment and not just impoverishment in pockets).  Thirdly, the argument does not explain why in a period when the country as a whole is growing and yet some groups continue to remain poor, the government does not intervene to release them from the poverty trap in which they are caught.  This therefore brings us back to the basic point we started with: no version of “mainstream” development theory can possibly explain the Indian experience over the last two decades.

For an explanation of our experience we have to turn necessarily to Marxian categories.  In any economy where a capitalist sector co-exists with a pre-capitalist sector, especially peasant agriculture, the growth of the former entails a growing demand for not only resources (like land) but also of goods (foodgrains, whose output itself is adversely affected by land diversion) from the latter.  If output is not growing adequately then an increase in demand from the capitalist sector can be met only out of existing output, by snatching away a part of it through various methods of primitive accumulation of capital.  If this larger expropriation of output by the capitalist sector from the pre-capitalist (peasant agriculture) sector were to be accompanied by a transfer of labour from latter to the former, then the availability of goods per capita in the latter would not shrink; but if there is no such transfer of labour then the per capita availability of goods in the latter would shrink, causing absolute impoverishment in the latter.  And such absolute impoverishment also keeps down, and even reduces, the real wages of workers in the capitalist sector itself by lowering their reservation wage and hence bargaining strength.  It follows that in any situation where growth under capitalism is accompanied by a stagnant pre-capitalist sector subjected to intensified primitive accumulation of capital, and is unaccompanied by much increase in employment in the capitalist sector itself, there must be an increase in absolute impoverishment, of the work-force not only in the pre-capitalist sector but also in the capitalist sector itself.  And any increase in the growth rate in the capitalist sector in such a case (which would express itself as an increase in the economy’s growth rate) will be accompanied by increasing absolute poverty.

These conditions for the co-occurrence of increasing growth with increasing poverty are precisely the ones that have obtained in the Indian economy in the period of economic liberalisation.  The fact that such liberalisation which entails an increase in the stranglehold of corporate and financial interests on the State precludes State support for peasant agriculture, resulting in its stagnation, is well attested to by the Indian experience.  This, together with the diversion of land away from foodgrains to other uses and the absence of any yield-raising innovations (which too require State support), has meant that the last two decades have witnessed a decline in per capita output of foodgrains in the Indian economy, reversing the increasing trend that had been introduced after independence.  At the same time there has been little absorption of labour into the growing capitalist sector: taking the two decades as a whole, organised sector employment has scarcely increased at all, and between 2001 and 2008 (the latest year for which data are available) it has even fallen in absolute terms.  It follows then that we have a combination of primitive accumulation of capital with little labour absorption by the capitalist sector, which is the recipe for absolute impoverishment accompanying increasing growth.

There is a whole array of government spokesmen, from prime minister Manmohan Singh downwards, who do not tire of repeating the need for higher growth.  This chorus about the growth rate has become even louder now because the twelfth plan is being discussed.  But it is clear from the above that this higher growth will only be accompanied by a further increase in the magnitude of absolute poverty in the country, unless the neo-liberal policies are changed, for which the class orientation of the State needs to be altered.

Prabhat Patnaik is a Marxist economist in India.  This article was first published in the 28 August 2011 issue of People’s Democracy; it is reproduced here for non-profit educational purposes.

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