A VERY significant change is taking place in the Indian economy, namely a pervasive reduction in the rate of remuneration per unit of labour service. This phenomenon necessarily entails a rise in the rate of surplus value but is not exactly synonymous with it; its scope is much wider, as we shall see later. Comprehensive estimates of this phenomenon are not yet available; indeed even the raw material for making such estimates is as yet quite hard to come by. But innumerable examples can be cited of this phenomenon occurring all around us. I shall list six illustrative cases, each highlighting a way in which this wage-cut occurs.

First, in many states (of which Madhya Pradesh is a good example) instead of new school teachers in the regular pay-scales being employed, appointments are being given to new teachers at a fraction of the regular salary under a programme of having a school in the neighbourhood of every village. The spread of school services this entails is a matter we shall come to later; but the undeniable fact is that per unit of labour service of a school teacher there is a drastic cut in remuneration. An alternative way in which this is happening (and Orissa is a good example here) is that instead of filling up regular posts of university lecturers, the government appoints temporary lecturers who do exactly what the permanent appointees would have done but at a fraction of the remuneration.

The second way in which exactly the same result occurs is through subcontracting certain activities. The units to which activities are subcontracted by large, vertically-integrated producers are typically small, employing unorganised workers at low remuneration. The net effect of subcontracting therefore is to ensure that a particular activity in the overall production process is carried out at a lower cost, especially lower labour cost, than before, i.e. a reduction in remuneration per unit of effective labour service. Subcontracting of course has been there for a long time, but exploring possibilities of subcontracting has now become an obsession. Even in the railways for example there are suggestions for contracting out a range of services which the railways themselves have been producing till now.

Thirdly, the so-called "downsizing" which has become a favourite word in official circles is yet another means of achieving the same objective. The finance minister in his budget speech referred to the need for cutting down the number of government jobs as a part of necessary cost-cutting. To be sure, "downsizing" may entail any one, or a combination, of two things: a reduction in the magnitude of service provided, with the remuneration per unit service remaining unchanged; or a reduction in the latter. Typically however "downsizing" would mean a combination of the two. "Downsizing" in other words is typically accompanied by a reduction in the remuneration per unit service provided.

The fourth way is the old familiar one that Marx had highlighted, namely, as labour productivity increases there is no corresponding increase in the wage rate. Of course, it is often suggested that since the increase in labour productivity is brought about (usually) through the introduction of more sophisticated machinery and instruments of production, there is no obvious reason why wages should increase in tandem with it. This is in fact the argument advanced by the capitalists who believe that they have a God-given right to exploit workers.

But ignoring this banal claim, two other points should be noted in this context. First, in calculating labour productivity, we are taking net value added per unit labour used, i.e. total value added minus depreciation of fixed capital, divided by labour used. Of course if wages increase in tandem with labour productivity so defined (i.e. net labour productivity), even then the rate of profit may fall, since the introduction of more sophisticated machinery could have raised the amount of constant capital per unit of net value added. The second point, however, is that even when there is a rise in constant capital per unit of net value added, there would still be considerable room for increase in wages compatible with an unchanged rate of profit.

In other words, even in a capitalist economy, with technological change taking place, as labour productivity increases wages can increase without lowering the rate of profit. If they do not increase even at this benchmark rate, then that is symptomatic of a special squeeze on the workers, which is what has been happening in large segments of the Indian economy. In all sectors where there has been a so-called "downsizing" of the work-force through the introduction of technology, real wages have scarcely increased at all. The railways are an obvious example where there has been a massive reduction in the work-force, and hence by implication an increase in labour productivity without any noticeable increase in the real emoluments.

The fifth way in which remuneration per unit of labour service has gone down in the Indian economy is through an actual reduction in real wage rates in many sectors. This has happened where cost-cutting for the survival of existing units in the face of the newly-unleashed "competition", especially in the unorganised sector, has taken the form of keeping down money wages even in the face of rising cost of living.

The sixth way needs a little elaboration. It consists in the large-scale retrenchments that are taking place everywhere, and that are likely to increase in magnitude as the government "liberalises" further the rules for retrenching workers, as promised by Yashwant Sinha in the current year's budget speech. It may be thought that retrenchment affects only the level of employment but not the amount of remuneration per unit of labour service. But this is not true. In the absence of retrenchment, the wage and salary bill, which resembles more a fixed cost item, is larger per unit of output; with retrenchment it comes down.

The fact that each of the ways mentioned above has been quite prevalent in the Indian economy of late (they are always present under capitalism anyway), so that as a conjoint tendency they have become suddenly very powerful, is obvious. Their concentrated effect is what we are concerned with here, and that, to put it in the most general terms, is a pervasive and significant lowering of the remuneration paid per unit of labour service.

Implicit in this is a rise in the rate of surplus value. But the tendency we are observing entails something more than what is strictly meant by a rise in the rate of surplus value. The rate of surplus value can rise only in the case of those workers who produce surplus value, i.e. only in the case of what Marx had called "the productive workers". If there is a decline in the wages paid per unit of labour use for unproductive workers, e.g. government employees, school teachers etc who are paid by the State which itself like a parasite lives off the surplus value produced by the productive workers elsewhere (we are ignoring here the role of the State as a producer and hence a direct extractor of surplus value), it follows that this particular decline does not entail a rise in the rate of surplus value. What we are seeing in India today is a rise not only in the rate of surplus value (produced by definition by the productive workers), but also a decline in remuneration per unit labour service of unproductive workers. It is to capture this comprehensive squeeze on the entire work-force, both its productive and unproductive segments, that I have been using the more general term, decline in remuneration per unit labour service.

This tendency of course has very important political implications, relating to the nature of class struggle in our society, but they require much more extensive discussion than is possible in this brief note. What I shall be concerned here is with one obvious economic implication of this tendency.

One has to distinguish in this context between two different cases. If, say, Rs 100 have to be spent per period employing school teachers, then 10 teachers can be employed at Rs 10 per head per period, or 20 can be employed at Rs 5 per head per period. If the latter option is adopted then clearly we have a decline in remuneration per unit labour service, with serious implications; but there is no decline in the level of demand for other sectors' goods emanating from the teachers as a whole employed in this sector. But if in the second option, 18 teachers are employed at Rs 5 per head per period, then, other things remaining equal, demand in the economy has gone down by Rs 10.

Now, the decline in remuneration per unit labour service in today's India is a fall-out of the process of liberalisation. It is a response on the one hand to the fiscal crisis that liberalisation has unleashed on account of the tax-cuts it has entailed; it is a response on the other hand to the stiff competition faced by the public and private sector units in a stagnant market which, additionally, is thrown open to encroachment by foreign goods. In these conditions it is inevitable that the decline in remuneration per unit labour service has meant a decline in the total share of wages and salaries in GDP. This must mean a further reduction in demand in the economy and hence an accentuation of recession in key areas.

It may be argued that if by lowering the level of remuneration per unit labour service our commodities become internationally more competitive, then this can act in an offsetting manner by boosting exports and curtailing imports. But quite apart from the fact that this is a particularly invidious manner of going around improving competitiveness (it is far better to boost exports or curtail imports through specific measures such as tariffs and subsidies than through a generalised assault on the working class), any such offsetting tendency would be necessarily limited and partial. Reducing school teachers' salaries for instance can in no way make our manufactured goods more competitive internationally; hence the demand-compressing effects of reducing school teachers' salaries would continue to haunt the economy, even if we manage to make good some loss of demand for manufactured goods through somewhat increased exports.

Our economy currently is already facing a severe demand constraint, the profligacy of the rich being insufficient to offset the multiplier effects of the reduction inter alia in public expenditure; when we add to it the effects of the cut in remuneration per unit labour service that is occurring quite pervasively, the demand constraint can only worsen as a result. The economy is moving into a serious crisis even as the Vajpayee-Sinha crowd keeps talking about 8-9 per cent growth rate! But then if you get your economic ideas from World Bank handouts, you can hardly be expected to do any better.