Revisiting India’s ‘Growth’ Story

by Chirashree Das Gupta


The trajectory and sustainability of India’s economic growth has been a highly contested terrain. On one hand, India’s neoliberal rulers saw in economic growth an end itself regardless of the means. On the other, critics of the neoliberal regime have pointed out that the narrow social basis of this growth driven by subsidies to the private corporate sector was bound to run its course both in terms of its trajectory and its consequences. So one aspect of the contradictions of the recent growth story lies in the social consequences of neoliberal economic policy of the last two decades. The second aspect of the contradictions in India’s growth trajectory however demands a consideration of the structural features of India’s economic growth since independence. The entire post-independence period is characterized by stop-go cycles – growth is cyclic regardless of policy regime. Stop-go cycles in capital formation, asset concentration in the hands of the big bourgeoisie, wage depression and the class consensus on the perpetuation of the agrarian and taxation constraints constitute four distinctive continuities across policy regimes in independent India. Changes in the contemporary Indian growth story entails corporate expansion through foreign currency asset acquisition, contractor capitalism piggybacking on agrarian crisis and wage depression, and re-emergence of non-capitalist mode of labour deployment in fastest growing sites of capitalist accumulation. Thus contemporary capital accumulation regime in India demonstrates not only a resolute continuity of the semi-feudal basis of Indian capitalism but also its intensification.

Image Credits: Yann (CC BY-SA 3.0)

Features of the neoliberal growth process

The global economic crisis and its relationship with the Indian growth story hit home since 2008-09, but the extent of the slowdown in India was little understood by those who were opinion shapers and policy makers on India’s growth story. For example, Prime Minister Manmohan Singh was oblivious to the Indian economic reality when in Washington DC in November 2009, he argued that ‘India is on the march. While the global slowdown has hurt us too, we have been able to catch our breath and move forward. With a gross savings ratio of over 35 per cent of national income, and a gross investment ratio that is almost close to 40 per cent, we now have the economic pre-conditions for sustained high growth’.This optimism continued in 2010 when Prime Minister Manmohan Singh told the UK Business Delegation in July 2010 that ‘The global economy is at a stage of profound transformation. India is a part of the shifting global economic landscape, and its economic weight is set to increase in the years ahead. I invite you to join us in our socio-economic transformation as investors, financiers and traders.’ This confidence waned in the next twelve months and the Prime Minister told the Indian Parliament, in December, 2011: ‘As you all know, the global economy is facing serious difficulties and if we don't manage our affairs well we can also go down,…We are at a point where we can reverse the slowdown in our growth. We need a revival in investor confidence, domestically and globally. The decisions we have taken are necessary for this purpose’. However, the growth rate has only plummeted and is currently at less than the 5 percent level. By 2013, the Prime Minister finally acknowledged that the overhyped growth story was over. ’It is now a challenge for all of us to take credible action to ensure that we are least affected by this global slowdown. In this context, the way we conduct the financial business, now before Parliament, will be a crucial determinant of our country's ability to cope with the formidable challenges that our country faces. (Prime Minister Manmohan Singh, Statement to Media, Parliament House, February 2013).

For the mainstream ‘growth’ cabal that makes opinion through the corporate media, the diagnosis was simple. They argued that the reasons for the slowdown lay in little significant reforms since 2004 and because the government was spending excessively. It was mismanaging the exchange rate and creating pricing bottlenecks in energy, mining and land allocation, not to mention the emergence of serious scams in spectrum, mining and other big projects. The policy advice that followed was on the usual lines of ‘revival and a vigorous pursuit of economic reforms’ at the center and in the states; raising the rate of domestic savings by reducing government dissavings, and cutting down government expenditure’ (Bajpai 2011; Acharya 2012).

Thus the focus was exclusively on state action and state policy without any reference to the private corporate sector – the main protagonist of the recent Indian growth story. Neither was there any assessment of the capitalist accumulation regime in India which has been running on neoliberal principles since the last two decades. Critics pointed out that the crisis lay in the vulnerability of the economy to external shocks due to opening up of the real and financial sectors (Chandrasekhar and Ghosh 2008;) All mechanisms used during UPA-I to under-price assets and give animal spirits a sufficiently conducive environment have become infructuous under UPA II, being caught up in unintended political economy consequences due to the fall-outs of agrarian crises and contestation from below (Mohanty 2013). Coupling of advanced and developing countries entails trade dependency and reduced world demand (Chandrasekhar and Ghosh 2012). Decoupling is impossible (Subbarao 2009). Manufacturing is bearing the brunt of the rising import competition and hence expected profit squeeze (Mohanty 2013). These are integrated stories of state and society embedded in the various phases of the post-1991 growth process. It is argued that the neoliberal growth process in India has run its full course and this was bound to happen.

The neoliberal policy regime’s exclusive focus on GDP growth irrespective of its quality in terms of its composition, distribution across the population, its impact on environment and its sustainability was self-defeating. Moreover the narrowing of the class basis of the state in its exclusive incentives to the private corporate sector entailed exacerbation of social inequality. These consisted of fiscal sops, tax holidays, taxes foregone in every budget, and provision of cheap land, water, labour and spectrum This came at the cost of the needs of millions of small producers, in both agriculture and non-agriculture who form the bulk of employment and production. This has led to slow or falling productivity, lack of viability and fragile employment conditions. Finally, while there was always enough resources to incentivize the private corporate sector, the state pleaded lack of resources on the question of delivering the socio-economic rights of the citizens — housing, education, roads in villages, health and electricity. This unsustainable economic process based on the narrowing of the class basis of the state in favour of capital has run its course ending in balance of payment problems, ecological problems, and social and political instability related to the increasing inequalities of wealth and income.

Structural continuities in post-independence economic growth

But is the problem confined to the current policy regime? Or does it have structural features? Figure 1 maps India’s growth process under different policy regimes since 1955-56 up to 2011-12. The post independence policy regimes can be divided into four phases. The first was the phase of Nehruvian planning (1955-56 to 1964-65) implemented through the Feldman-Mahalanobis planning models and ended in stagnation of the economy after a growth acceleration. The second phase can be characterized as dirigiste populism which lasted from 1965-66 to 1978-79. This also ended in stagnation after a period of recovery and consists of two stop-go cycles. The third phase was the first neoliberal regime since 1979-80 to 1990-91 which also entailed two such cycles. The last period starts from 1990-91, entails two such stop-go cycles and ends in the current period. We find that the cyclical nature of growth is persistent in its systemic dimension regardless of policy regime. It entails structural constraints and points to the secular nature of the structural dimensions of crisis in the post independence period.

Responsiveness of Growth to Policy Regimes in India : 1955-56 to 2011-12

The regime of capital in India achieved the following through the Feldman Mahalanobis exercise: first, it broke the barrier of the capital formation constraint in the economy for ten years from 1959 to 1965 but ended in crisis. Second, it ensured asset concentration in the hands of the big bourgeoisie. However, the planning exercise in its class consensus on irresolution of the agrarian constraint and taxation had rendered itself unsustainable and met its demise in the deep crisis of 1965-66. However, the stop-go cycles in capital formation, asset concentration in the hands of the big bourgeoisie, wage depression and the class consensus on the perpetuation of the agrarian and taxation constraints constitute four distinctive continuities across both the earlier dirigisme and the present crises of neoliberalism in India.

Stimulus to primary accumulation has been the chosen way out of each crisis – 1965-66, 1978-79, 1990-91 for the Indian bourgeoisie. Each time, the state launched ‘reforms’ of the economy. Attempt to harness the agrarian surplus without a radical structural transformation in agriculture was characteristic of the response in both 1965-66 and 1978-79. Turning to domestic savings had been resorted to since 1978-79.

Continuities and changes under neoliberalism

Thus there are both continuities and changes in the manifestation of the crisis in the current conjuncture. The change in the last decade lie in the significant accumulation of FDI by India explained by increased import competition and increased acquisition of foreign assets by corporates registered in India. Thus asset concentration in the last decade comprises an increasing share of foreign asset ownership by the corporate sector. This is reflected in the steep rise in foreign currency assets in the composition of foreign currency reserves since 2004-05. The decelerating savings and investment in the Indian corporate sector predates the global recession since 2008. Indian corporates had been buying up assets in foreign markets quite forgetting that sooner or later these would have to be paid for.

On the other hand, state policies have directed a change towards deflationary policies since 1991. The reform period has seen a reduction of labour’s bargaining power through the casualisation of the work force including in public sector undertakings. Food security has been undermined with trade liberalisation in India. Farmers’ suicides point to rising indebtedness in commercial agriculture and the irony of food exports and empty stomachs. Rising land hunger, disproportionality crisis in the key sectors of the economy and ‘de-agriculturalisation’ have been the inevitable outcomes of this corporate-led growth process (Nagraj 2008; Patnaik 2006; Patnaik 1972; U Patnaik 2006).

The net increase in men’s agricultural wages (subtracting the food-grain yield growth rate from real agricultural wage growth rate) stands at 1.7% for the period 1999-2004 and 0.6% for 2004-2009. Thus, 2004-2009 effectually experienced a lower rate of increase in agricultural wages once the growth rate in yield is netted out. After subtracting the rate of growth in food-grain yield, Tamil Nadu and Karnataka in fact show negative growth rates in men’s agricultural wages in 2004-2009 though they had positive net growth rates in 1999-2004. The women’s wages also show very low or negative net wage rate growth in Karnataka, Maharashtra and Tamil Nadu among the states that show higher rate of growth in women’s real agricultural wages. Even at the all India level, growth in net female agricultural wages is a modest 2.4% in 2004-2009 in comparison to the 1.1% in the 1999-2004. There is a significant decrease in gender gap by 8-10 percent in ploughing and sowing between 2008 and 2011. Gender gaps are persistent at their levels in all other agricultural occupations. (Mahajan 2012; NSSO data , various years).

Between 2008-09 and 2011-12, while real wages for non agricultural occupations like masonry (4%) and blacksmithing (4%) , have seen a modest increase in rural areas, most other occupations have registered either stagnating (carpentry and cobbling) or falling real wages (sweeping and unskilled labour). (NSSO data, various years). Thus intensification of wage depression is the second significant feature of the current growth regime.

Women’s labour force participation has declined by almost 14 percent and rural women’s participation shows a decline of 15 percent between 2004-05 and 2009-10 (Mitra 2013). There is re-emergence of non-capitalist forms of labour in the fastest growing sites of accumulation – eg brick kilns, garment industry, construction sites with increasing use of family labour and bonded labour (Mazumdar et al 2013). This indicates the structural continuity and intensification of the use of different forms of labour which are semi-feudal in nature and represents an amalgam of capitalist and feudal patriarchy.

Thus the stop-go cycles in capital formation and growth, asset concentration in the hands of the big bourgeoisie, wage depression, and the class consensus on the perpetuation of the agrarian and taxation constraints constitute distinctive continuities across both the earlier policy regimes and the present crises of neoliberalism in India. Changes in the contemporary Indian growth story entails corporate expansion through foreign currency asset acquisition, contractor capitalism piggybacking on agrarian crisis and wage depression and re-emergence of non-capitalist mode of labour deployment in fastest growing sites of capitalist accumulation. Thus the growth cycles in India reflects the semi-feudal basis of capitalism in India which has only been exacerbated under the current neoliberal policy regime.


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