People's Democracy

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


No. 37

September 16, 2012


The Enigma of the Indian Growth Story


                   Prabhat Patnaik



INDIA’S recent economic experience appears at first sight to be an enigma. It has recorded, prior to the current year’s slow down, extraordinarily high rates of GDP growth, which made it a much-hyped “emerging economic superpower”. Over the very same period, however, it has witnessed an increase in the extent of absolute poverty. “Poverty” in India is defined in terms of a food energy intake norm: those unable to access 2100 calories per person per day in urban India and 2200 calories per person per day in rural India (originally 2400 but later scaled down) are counted as “poor”. By this criterion, the percentages of “poor” in urban India in rounded figures were 57, 65, and 73 respectively in 1993-94, 2004-5 and 2009-10; and in rural India 59, 70, and 76 respectively (calculated by Utsa Patnaik from the basic consumption and nutritional intake data provided in the National Sample Survey Reports for those years). Thus, during the very period when GDP growth rate has been unprecedented, around 8 per cent, absolute poverty has increased.


This may appear odd at first sight, given persistent claims by the Planning Commission about a “rapid” decline in poverty. But these claims rely on a per capita daily “poverty line” expenditure, which is obtained by bringing up to date, through a cost-of-living index, the per capita expenditures at which these very calorie norms were accessed in 1973-4 (a bizarre procedure since direct data are available on current calorie intake); the ludicrously low levels of these “poverty lines” are by now well-known.




The explanation of this enigma, of the coexistence of high growth and growing absolute poverty, lies in the fact that this growth process has been accompanied by a shift of resources gratis from the State, from petty and marginal producers, and from the common property pool, to a few large capitalists and financiers. This shift has a “stock” and a “flow” dimension: the former occurs when assets are transferred, the latter when income flows of the large capitalists and financiers are augmented at the expense of the small and marginal producers. And this shift, needless to say, often appears camouflaged as a transaction: if an asset worth 100 is “sold” to some favoured capitalist for 60, then the gratis shift is 40, hidden within the transaction itself.


Shifts of this nature, whether “stocks” or “flows”, were referred to by Marx as “primitive accumulation of capital”, which explained according to him how capitalism came into being in the first place. But this process of primitive accumulation is not confined to the period before the birth of capitalism; it occurs throughout its history (the colonial “drain” being a prime example of it) and underlies the process of decimation of petty production. Of course if the victims of primitive accumulation, the distressed petty and marginal producers, like peasants, artisans, craftsmen, fishermen, and petty traders, could be absorbed into the ranks of the capitalist or the State sector, i.e. as organised sector workers, then there need not be any increase in absolute poverty. But the organised sector in India, as is well-known, has witnessed “jobless” growth even during the high-GDP-growth phase. This has meant that the victims of primitive accumulation have either lingered on in their traditional occupations at lower and lower levels of income, or moved to cities to work in the so-called “informal sector”, which is a euphemism for the bog where a vast army of the unemployed, underemployed, semi-employed, casually-employed and “disguised”-unemployed are located, again at lower incomes than what they were earning earlier. An increase in absolute poverty, accompanying the growth process, therefore has been the order of the day.


At the same time, the swelling of this vast labour reserve (excluded from what the ILO calls “decent work”), weakens the bargaining strength of the organised sector workers, and ensures that their wage rates do not rise (and even fall). This in turn results, because of rising labour productivity, in an increase in the share of surplus in output, and hence a massive increase in income inequality.


All these phenomena are clearly evident in contemporary India. Indeed, the “scams”, such as the 2G spectrum scam, the allocation-of-coal-blocks scam, over which the nation has got so exercised of late as cases of corruption, are nothing else but instances of primitive accumulation of capital. “Corruption” is an epiphenomenon associated with the process of primitive accumulation of capital. The spate of peasant suicides that has rocked the country, is the obverse of this phenomenon of primitive accumulation. It testifies to the distress, desperation, and helplessness of the peasantry, which is a prime victim of this phenomenon.


Capitalism invariably uses the State for imposing this primitive accumulation upon its surrounding petty and marginal producers. Even when such accumulation is effected via the market, through unequal exchange for instance, the process is sustained nonetheless through the support of the capitalist State, which ensures that the petty and marginal producers are drawn into, and remain within, a market relationship with the capitalist sector. (The taxation system during the colonial period, itself a mechanism of primitive accumulation, also forced peasants into market relations with metropolitan capitalism and hence susceptible to other forms of primitive accumulation). And this is where we notice an important change in the nature of the Indian State.


The tempo of primitive accumulation, though not absent by any means, was somewhat arrested in the pre-liberalisation period. The State supported peasant agriculture in various ways: it protected it from world market price fluctuations with not just tariffs but also quantitative trade restrictions; it set up a network of extension services; it subsidised inputs, including credit (after the nationalisation of banks); it set up a mechanism for procuring a set of crops at pre-announced remunerative prices; it invested in irrigation and rural infrastructure; and it undertook agricultural research in public institutions to improve seed varieties and practices, of which the HYV seeds were an outcome. Obviously, the benefits of these measures were not distributed evenly across all sections of the peasantry: the landlords and rich peasants, the harbingers of capitalist agriculture, were the chief beneficiaries, but this capitalism was different from, and in some ways a counterweight to, the capitalism of the large corporates and multinationals. Likewise, in the case of handlooms, there was a system of “reservations” in place to prevent the weavers from getting displaced.


This plethora of measures to protect petty producers from encroachment by corporate capital, was part of an effort to develop a “national” capitalism, in relative autonomy from metropolitan capital, which also entailed a strong role for the public sector, especially in areas where the domestic big bourgeoisie was loath to enter. Such a regime however could be sustained only if it was both socially broad-based, and physically nourished by a developing agriculture, for which a redemption of the pledge of the anti-colonial movement to protect petty production was essential.


The post-colonial State, prior to liberalisation in short, even while pursuing a capitalist path of development, appeared to stand above classes, mediate between them, and even protect the interests of workers from excessive encroachments by the capitalists. “Liberalisation” changed all that. The hall-mark of a neo-liberal regime is that the State which had earlier appeared to stand above classes, not concerned exclusively with the interests of capital, now becomes exclusively concerned with defending and promoting the interests of big capital, and with it of the globalised capital that domestic big capital gets integrated with, to the detriment of the other domestic classes. The relentless drive to open up multi-brand retail to FDI, the strenuous effort to open up the insurance sector to FDI, the proposal, just about kept in check, to privatise (including to foreign control) the nationalised banks, are all manifestations of this new trend, as are actual “achievements” like handing over coal-blocks gratis to a bunch of private capitalists.




The other side of the coin is the removal of all fetters on primitive accumulation of capital through the withdrawal of State support from the petty production sector, and the encouragement to big capital to encroach upon this terrain. In agriculture itself, domestic prices have got increasingly linked to world prices, with the removal of quantitative restrictions and the non-use of tariff bounds (that could even, under the present regime provide some protection to peasants); input costs have increased through the reduction in subsidies; institutional credit for agriculture proper (as opposed to other uses that get spuriously defined as “agriculture”) has dried up, forcing the peasants to approach a new class of money lenders; public extension services have collapsed, with multinational seed, chemical, and agribusiness firms establishing direct contact with the peasants; public research has dwindled; and even procurement operations were on the verge of being wound up, until the 2008 inflationary upsurge gave such operations a fresh lease of life. Agriculture, as is widely recognised, given such adverse policies, ceased to be a profitable operation.


Alongside primitive accumulation which is shifting assets and resources from petty and marginal producers to large capitalists and multinational corporations, there is also a change in the pattern of asset use, especially of land-use. Around 80 lakh hectares of land going out of foodgrain production and per capita grain output declining, is a reflection of this. And it exposes the country to the possibility of deepening under-nutrition, especially since the surplus foodgrain stocks that exist with the government owing to inadequate purchasing power with the people, are being exported with alacrity.


This change in the nature of the relationship between the State and capital, whereby the State becomes much more closely involved with the interests of capital, is a fundamental feature of neo-liberalism. From the fact that high growth has been associated with an increase in the extent of absolute poverty because of the primitive accumulation of capital that this changed nature of the State has given rise to, it must not be concluded, however, that a decline in the growth rate ipso facto would reduce the extent of poverty. Since the process of primitive accumulation would occur anyway, growth or no growth, the absence of growth would simply mean that in addition to the petty and marginal producers, and the working people, even the middle classes, who have been beneficiaries of neo-liberalism, would now also face hardships.


This is already happening, with a drying up of jobs, even for this segment of the population; and since in the context of the current capitalist crisis, which if anything is deepening, a revival of India’s high growth trajectory within a neo-liberal framework, seems out of the question, a generalisation of distress across all working classes is on the horizon. This should, however, provide the basis for changing the class orientation of the State, and thereby essaying an alternative, more egalitarian and more humane trajectory of development than the current neo-liberal one.