People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 52

December 26, 2010




Growth and Impoverishment


Prabhat Patnaik


NOT a day passes without some official spokesman or the other recounting India’s high growth performance and promising to better it in future. The rate of growth of gross domestic product has got elevated to being the sole criterion for judging the country’s economic achievement. True, large masses are still afflicted by poverty, malnutrition and abysmal living conditions, but that, the official argument states, is only because the fruits of this growth have been unevenly distributed; if the rate of growth is further increased, and if a better spread of its beneficial effects is ensured, then these problems will disappear. About the beneficial effects of GDP growth, however, they scarcely have any doubt.




This perception which has many adherents is plain wrong. There can be alternative ways of achieving economic growth, and the social impact of growth depends upon how it is achieved. The growth process currently underway in the Indian economy, which is rooted in India’s neo-liberal policy dispensation, is necessarily of a kind that impoverishes in absolute terms the bulk of the working population. Its celebration is unwarranted. An acceleration in the rate of this growth, as long as its nature remains unchanged, will only further increase the degree of absolute impoverishment. And, given the nature of the current growth process, ie, within the overall ambit of neo-liberalism, efforts to make this growth “inclusive” through various measures of “social protection”, such as the NREGS, will be necessarily limited, transitory, and, at best, restrictive of the pace of absolute impoverishment without reversing it.


I am not resorting to hyperbole. The empirical evidence for absolute impoverishment in the recent period of high growth is overwhelming; and the reason for it is also fairly straightforward. Let us look at the evidence first. The official criterion for the identification of poverty (until it was changed recently after the Tendulkar Committee report) has been the intake of 2400 calories or less per person per day in rural India and 2100 calories or less in urban India. By this criterion, poverty has certainly increased: direct measurement of calorie intake suggests that 74.5 per cent of the rural population was “poor” in 1993-4, and 87 per cent in 2004-5; the corresponding figures were 56 per cent and 63 per cent respectively for the urban population. (These figures, based on NSS data, are from Utsa Patnaik, Economic and Political Weekly, Jan 28-Feb 4, 2010, and their veracity cannot be questioned).  


Foodgrain absorption figures confirm this conclusion. Per capita foodgrain absorption (defined as net output minus net exports minus net increase in stocks) which, in round figures, was 200 kilograms  per annum in “British India” at the beginning of the twentieth century declined drastically to less than 150 kilograms by the time of independence. Strenuous efforts by successive governments in independent India raised it to 180 kilograms by the end of the eighties; but there has been a decline thereafter, marginal at first but precipitous after the late nineties, so much so that per capita foodgrain absorption in 2008, at 154 kilograms by FAO estimates, was lower than in any year after 1953. The period of high growth is precisely the one associated with reduction in foodgrain absorption, and hence with significant absolute impoverishment.


Two arguments are typically advanced against the identification of reduced foodgrain intake with increased poverty. The first states that there tends to be a diversification of consumption away from foodgrains as incomes increase, so that reduced foodgrain intake signifies, contrary to my claim, a qualitative improvement in the consumption basket, and hence in living standards.


This argument however is wrong. With increased incomes, the direct consumption of foodgrains may go down, but the indirect consumption of foodgrains, as processed food (such as cornflakes) or as feedgrains for animal products (such as mutton, pork, chicken etc) goes up; as a result the total absorption of foodgrain per capita, direct and indirect taken together, increases. In the US for example the per capita total absorption, direct plus indirect, of foodgrains is 900 kilograms per annum compared to India’s 154 kilograms. In fact, comparison across countries shows that almost 55 per cent of the observed difference in per capita total foodgrain absorption is “explained” (statistically) by per capita real income difference. Hence reduced foodgrain absorption is indicative of large-scale absolute impoverishment.


The second argument states that the reason for reduced foodgrain intake even among lower income groups is larger expenditure on other things, in particular healthcare; and this is indicative of changing “tastes”, associated with an improved quality of life, and hence economic betterment.


The fallacy of this argument lies in its underlying assumption that anyone, even a poor man, compares at the margin the satisfaction to be derived from consuming more food with that from taking his child to the hospital when the child is ill. This assumption is wrong. In most people’s perception the latter has absolute priority. Since this perception could not have emerged suddenly over the last decade, when per capita foodgrain absorption declined precipitously, the cause for this decline is likely to be a rise in healthcare costs over this period.


Such a rise has certainly been a feature of the neo-liberal era, owing to increasing drug prices and privatisation of healthcare. Hence, the fact that expenditure on healthcare has gone up even at the expense of food intake in the last decade, can only be indicative of impoverishment, rather than of an improved quality of life.





The basic reason for this impoverishment is reduced purchasing power in real terms in the hands of the bulk of the working population, which in turn is due to two phenomena. First, the growth process has been accompanied by what Marx had called a process of “primitive accumulation of capital”, whereby vast numbers of peasants, petty producers like fishermen and craftsmen, marginal groups like the tribal population, suffer either outright dispossession or a squeeze on their real incomes, for the benefit of large capitalists, speculators and the financial interests.


Big retail chains come up to displace petty traders; agribusiness comes in to squeeze the peasantry; land grabbing financiers come in to displace peasants from their land for real estate and spurious infrastructure projects; tribal people are evicted to make room for mining projects; and petty producers of all descriptions everywhere get trapped between rising input prices caused by the withdrawal of State subsidies and declining output prices caused by the withdrawal of State protection from world commodity price trends. When we add to all this the rise in the cost of living, because of the privatisation of education, health and several essential services, which affects the entire working population, we can gauge the virulence of the  primitive accumation that is unleashed.


This process of primitive accumulation is at the same time unaccompanied by any significant increase in the employment of wage workers (as distinct from white collar professionals) in the capitalist sector. This is because of the rapid rate of technological and structural change that a changing demand pattern, owing to rising income disparities, generates in a “liberalised” economy. Hence the victims of primitive accumulation cannot get absorbed as wage-workers under capitalism. They either join the reserve army of labour, or linger on in their old occupations, taking a cut in their real incomes in both cases. Besides, this very fact of a swelling labour reserve also keeps the wages of employed workers low, even as labour productivity rises, contributing further to the growing income disparities.


Any acceleration of growth simply reproduces the problem on an even larger scale. The displacement of tribals and peasants occurs on an even larger scale, the expropriation of petty producers occurs to an even greater extent, while the rate of growth of labour productivity in the organised capitalist sector increases with increased growth rate, keeping labour absorption into this sector as constricted as ever. The view that with a higher growth rate poverty will be eradicated remains a chimera; poverty on the contrary only increases with the growth rate.


And the constraint on public expenditure, typical of neo-liberal economies, where tax concessions reduce revenue and “fiscal responsibility” legislation curbs government borrowing, ensures that “social protection” measures remain both anaemic and amenable to sudden, arbitrary and sporadic cuts. Growth under the neo-liberal dispensation therefore, far from being a condition for the amelioration of poverty, becomes an instrument for the impoverishment of large segments of the working population.