Where Indian growth is crooked - Amit Bhaduri

Amit Bhaduri is a distinguished economic theorist. He has been a consistent critic of mainstream neoclassical economic theory and the corporate-led growth strategies that have emerged in India and other developing countries in the wake of globalisation. He has been articulating alternative development strategies that seek to mobilise the strengths and energies of the poor masses who are currently disenfranchised and excluded from the growth process. His books include Development With Dignity (2005), and The Face You Were Afraid To See (2009). He is currently an internationally selected professor at Pavia University, Italy, and a visiting professor at the Council for Social Development, New Delhi.

 Bhaduri’s technical work has focused on distribution of work, growth and employment generation in the Indian economy. He has also studied agricultural backwardness under ‘semi-feudalism’. In this interview, he criticises India’s current model of economic growth, and points to the areas overlooked by the myopic economic orthodoxy.

 Neeta Deshpande: What are your views on Indian economic policies in recent times?

Amit Bhaduri: What is quite fantastic is the convergence of views across political parties in India about economic policy. Whether the CPM [Communist Party of India (Marxist)] or the BJP [Bharatiya Janata Party], when they are in power, they all follow the same policy. There are two points to understand here.

 First, why did all parties come to the same conclusion? It’s because they all believe that the investment climate in the country has to be maintained. During the Nehru period, the Indira Gandhi period, and roughly up to V P Singh’s prime ministership, the state was responsible for economic policy and its consequences. Now, it is the private sector. This change was brought about by creating an investment climate for corporations. Now in a country where there are so many poor people with little purchasing power, without roads and electricity, the only way to maintain the investment climate is through a massive transfer of natural resources at cheaper prices. Water, electricity, land and minerals are given away to corporations. This has now become the name of the game. 

 The second aspect is that the government is crippled because it withdraws from all profitable activities. Activities for the social good like basic education, healthcare, water and public utilities are privatised and converted into profitable activities. This to a large extent is the common policy. It is achieved by not allowing the government to have an active fiscal policy, or active budgets. However, there is nothing in economics or the empirical data that shows that a higher or lower budget deficit increases or decreases the inflation rate. Nothing at all.

 Along with an investment climate, a climate of opinion that the fiscal deficit has to be kept down is simultaneously created. This entails that the government cannot spend sufficiently on education or employment guarantee. Also, these activities are implemented through the government instead of decentralising them, so that they can be stopped or diluted at convenient times.

 These are the two main planks on which almost every political party agrees. The 2003 Fiscal Responsibility and Budget Management Act which says that it is the government’s responsibility not to increase deficit, is supported by every party. But it is not the government’s responsibility to see that the citizens of this country have enough food to eat.

 Is there an either-or choice between the state and the market in terms of economic policy?

No, there isn’t an either-or choice. I want to make two points here, one about a change that has taken place, and the other about what we should all fight for.

 The change that has taken place is that there is a third force which has become far more important. These are the resistance movements by civil society against development projects, which force the government and corporations to recognise that when people resist unjust policies, they cannot be pushed beyond a point.

 If you think of India since independence, it was believed that the country had to work as a unitary state: a Congress government in the centre and Congress governments in the states, with maybe one or two exceptions. However, the legitimacy of the states is recognised today. Whether for good or bad, now we recognise the rights of the states in the federal structure.

 Similarly, I hope that a historical process will take place to decentralise power to the Panchayats. This is a force which is neither the market nor the state. It would redefine the state and its meaning. The only way forward to change the current scenario of pro-corporate development, of the central state being an agent of the corporations, is through decentralisation. 

 Also, something very peculiar has happened in Indian politics. Owing to coalition politics, state powers have come into play. Now the states have a vested interest. You can be a very small party but can influence politics. So our federalism has become stronger. This will happen even more if we recognise the power of the Panchayats. If they are allowed to do things locally independent of the centre and states, there can be much higher growth in local areas where the Panchayats work better.

 What are your views on the high growth of the Indian economy and how it impacts ordinary people?

Everybody now recognises that high growth does not impact ordinary people’s lives well. The government believed that high growth will help legitimise its policies, even though it meant taking away the land and livelihoods of people. This has not happened partly because the growth has trickled down so little that it has not been a legitimising process at all in a democracy. When you talk to people who are not part of the English speaking middle class, they don’t give a damn. Talk to an autorickshaw driver or a farmer. They are not worried about whether the growth [rate] is 7% or 8%. They are not worried about whether there is a budget deficit or not. It is true that they might be worried about inflation. But nobody has shown that there is a very clear connection or any connection at all between budget deficit and inflation.

 So the economic debate is in what I call a stratosphere; it simply does not interest ordinary people. What interests ordinary people is not growth, but whether they get food, health and education. 

 Look at the human development index – India’s rank is among the lowest. The dramatic statement that there are two Indias is not true. There are no two Indias. There is a small minority of people and corporations who are making money in the name of growth, and the rest are usually indifferent to what is happening until it affects their lives. And now this growth process for maintaining the private investment climate requires that natural resources are transferred to corporations, which has begun to have a direct impact on people’s lives. That’s why there is so much resistance all around. People resist corruption that happens in the name of development, they resist the taking away of land in the name of development, they resist when this land is given away for real estate in which only the upper-middle class can invest. It is this kind of resistance which will define the other politics.

 Why doesn’t growth trickle down to the poor?

It is not strictly true that growth does not trickle down at all. If you look at the Indian data, there is enormous concentration of the benefits of growth at the top. These people have made money because they got access to natural resources at cheap prices. To a large extent, it is probably true that the upper-middle class and the middle class have not lost out that much. Another 30-40% have more or less maintained their position.

 But it is the lowest group which has paid the price for high growth. They have lost their land, rivers and mountains in the name of growth. Even if there has been a trickling down, the gap between the rich and poor has increased. Every study shows this. Even the Planning Commission and [its Deputy Chairman] Montek Singh Ahluwalia wouldn’t disagree. There are certain statistics which are robust. You can discuss, for example, whether India has 33% or 40% poverty. You can play the numbers game. But certain statistics are robust – India is growing much faster now. Similarly, as a statistical fact, it remains that there has been a huge increase in the disparity in people’s incomes.

When inequality of this kind increases so rapidly, people who are rich and gaining enormously buy goods which only the national and international corporations can produce. Whether it is fancy jeans or a fancy car, you cannot produce these in the villages. So you are continuously throwing people out, not only as consumers because their purchasing power is not increasing, but also as producers. After all, who can go to a mall? What percentage? We talk so much about retail trade – but who will buy these goods? Those below the middle class cannot buy them. This is the rule of the market.

 When you build an air-conditioned mall, you cannot use traditional skills, with the result that a majority of Indians are ruled out of the growth process. This is where Indian growth is crooked because it requires growing inequality to sustain the malls, real estate businesses, etc. Also, for corporations to grow, natural resources like land, water and minerals have to be transferred to them. So there is a vicious circle in which greater inequality leads to greater growth and vice versa.

 What are your views on the notion of a poverty line?

Well, frankly, it’s a fool’s game. There are many reasons why it’s a fool’s game. First, someone who earns just one rupee less is poor, someone who earns just one rupee more is not poor. There is no notion of how far a person is from the poverty line. So the entire concept is quite flawed, except when it is used in a biological sense; that is, if a [range] in calorie consumption determines whether a person is considered malnourished or not. But the poverty line as it is used by the planning commission, economists and statisticians is really a stupid game to play.

 Second, if you study it in detail, it depends on so many assumptions and the way the data is collected, that actually you can change it almost any which way you like. It is almost like the notion of democracy, growth, development, or any of these abstract concepts. You define what poverty is, and then you say that poverty is going up or down. I am of the view that the less time you spend on this, the more time you will have for doing genuine things like allowing the poor to participate through decentralisation, making use of their production, seeing that urbanisation is not of such a nature that more and more water has to be diverted from irrigation to cities. If attention is paid to such fundamental issues, things will take care of themselves.

 There is no way to make a dent in poverty in a country like India without sufficiently high employment growth at the bottom. And India’s performance in this regard has been dismal. During the period of 8% growth, employment has not grown at more than 1%. It grew even faster during the Nehru period, when growth was less than 4%, but employment grew at 2%. The whole middle class was created in this period. Today you have much higher growth, every worker produces much more, but people are not being employed. In the private corporate sector, employment has more or less remained the same. In a certain way, if the growth does not have sufficient employment content, it is not development in a purely operational sense.

It is argued that without a poverty line, without a targeted public distribution system (PDS) and welfare schemes, there is a lot of inefficiency and wastage of resources and funds. What do you think?

 What do you think about the rotting food grains that you see when you try to [reserve] them only for the poor? There is only one way to improve efficiency in India, given the corruption and the nature of our political class. Those who benefit should pay. If the corporations benefit, they should pay much more for development, instead of talking vaguely about corporate social responsibility and so on. 

 But the basic way forward in the interests of the poor is not to leave things to the corporations, but decentralise. Let those who benefit from the local health centre run it.

 What are your thoughts on the current inflationary trend?

With so many people who are at starvation or near starvation levels, an increase in food prices is extremely critical in a sense in which it is not – leave alone advanced capitalist countries – even in countries like China or Thailand. If a construction labourer is consuming 1900 calories and food prices go up a little bit and he can only consume 1700, his life is shortened by about 10-15 years immediately, if the situation persists for one or two years. In this sense, in human terms, India is extremely vulnerable to inflation.  That is why, traditionally, inflation in India has been a highly explosive political issue.

 It is when you make elections so expensive, and everybody agrees on the same economic policies across parties, that the state loses touch with people, and is no longer sensitive to how they are affected by issues like inflation. Double-digit inflation would not have been possible thirty years ago. The government would have immediately tried to do something about it. But today, we have created a democracy which is insulated from such issues. The more the state is insulated, the better it is rated by credit-rating agencies. This is what inflation is all about.

 The government should have been far more sensitive to inflation. By now any civilised government would have made policies to decentralise food distribution. The government should provide capital to people to build their own warehouses. At least some experiments should be started in this direction. There is no other way. That will take the teeth out of inflation. 

 How vulnerable is India to hot money?

India is very vulnerable to hot money in two ways. One way is direct, like the recent exchange rate going down and so on. Money can go out at any time.

 But at another level, the influence of hot money is also very important because it paralyses the government much more than a coalition government. Earlier, India used to have a foreign exchange crisis. Now it does not, but the government has to attune policies to what hot money will not object to. For example, certain kinds of hot money will certainly object to a large employment-guarantee scheme. So the government is paralysed from doing almost anything pro-poor. The influx of hot money will depend on whether investors think the country is a good destination to keep money in or not. But who will give this chit? Originally, it used to be the IMF [the International Monetary Fund] and the World Bank, now it is Standard and Poor’s [a major US credit-rating agency]. If they say your democracy is good, your democracy is good. If they say your democracy is bad, it’s bad. Till now, our development or economic policies were being evaluated. Now, they literally say that this Prime Minister should be replaced by an elected one who can be more decisive. So whether our democracy is good or bad is also rated by the credit-rating agencies.