Indian Farmers – Bacbone of Economy | Photo credit: IJR
The post-colonial state in India had two primary tasks before it: one was to overcome the hegemony of metropolitan capital, so that a development strategy in relative autonomy from imperialism could be pursued; the second was to attack landlordism both to free the agrarian population from its clutches, and to increase agricultural output for rapid industrialisation based on a growing home market. These two tasks were interlinked: unless agricultural growth was stepped up considerably by attacking landlordism, the inflationary and balance of payments pressures associated with a relatively autonomous development strategy would keep overall growth constrained, generating social contradictions that would force an eventual capitulation before imperialism.
The attack on landlordism however was limited. It amounted to getting rid of absentee landlords, turning the remaining landlords into agricultural capitalists on the land they retained as khudkasht, and giving ownership rights on whatever land was taken from the landlords to the upper layer of tenants. Land concentration in the sense of the proportion of land owned by, say, the top 15 per cent of landowners, remained unchanged, but the composition of this top 15 per cent changed; and the ground was cleared for capitalist farming in the countryside. At the same time, State investment in irrigation, in the development of better agricultural practices, and in extension activities, were all stepped up.
The main instruments used for overcoming the hegemony of metropolitan capital were: pervasive protection of the domestic economy; control over trade especially in agricultural products; keeping out agribusiness altogether (and even preventing Indian business houses from having any direct relationship with the peasantry); strict control over cross-border capital flows; nationalisation in certain key areas, notably finance (though the substantial nationalisation of banks was to come later); and the development of the public sector as a bulwark against such hegemony. The development of a relatively autonomous capitalism which was the sine qua non of this strategy was sought to be kept under control by the institution of a policy of investment–and foreign exchange–licensing that also covered collaboration agreements with foreign capital.
This dirigiste period marked a substantial break from the dismal state of the colonial era. The growth-rate of both the overall gross domestic product and of the agricultural sector accelerated greatly. There was a remarkable turnaround in foodgrain availability per capita: the per capita foodgrain availability in British India which had been about 200 kg per annum at the beginning of the twentieth century, had dropped to an abysmal 136.8 kg by 1946-47; this drastic retrogression was reversed and per capita availability reached close to 180 kg by the end of the 1980s.
But this pace of change, though rapid relative to the colonial period, could not satisfy people’s aspirations. Even in 1973-74, despite the rise in per capita foodgrain availability and the associated fall in poverty defined through a nutritional norm, 56 per cent of the rural population could not access 2200 calories per person per day, and 60 per cent of the urban population could not access 2100 calories per person per day. Likewise, the 2 per cent annual increase in the magnitude of employment, while it may have broadly matched population growth, also meant a growth in the backlog of unemployment, which specially alienated the youth. The big bourgeoisie which had supported the project of building an autonomous capitalism, found the growth-rate of the economy too stifling once it had grown to a considerable extent and had become more ambitious; and even this growth rate became difficult to sustain because of the growing fiscal crisis of the State.
The push for a regime change, away from dirigisme towards neo-liberalism, came from the big bourgeoisie. It saw greater opportunities for itself in the new situation by getting integrated with international finance capital that had emerged as the hegemonic element after the oil price shocks of the seventies. The middle class backed it up: it was lured by the prospects of greater employment if activities were outsourced from the metropolitan economies to India, as neo-liberalism promised. And the working people, who might have been expected to stand up in defence of dirigisme, did not do so, as that regime had belied their expectations. Starting from 1985 therefore, but especially after 1991, India moved to a neo-liberal regime which meant freer cross-border flows of goods and services, and of capital, including above all of finance; it also meant the end of licensing.
This was not just a change of economic regime. It entailed the reassertion of the hegemony of metropolitan capital over the Indian economy, though in a vastly altered context, with the big bourgeoisie integrated with it and with segments of the upper middle class acquiescing in this reassertion. The contradiction between imperialism and the Indian society that had united several classes against imperialism in the pre-independence period, of which the dirigiste strategy after independence was seen to be a carryover, now divided the nation itself. The dividing line in short shifted from its location between imperialism and the nation to within the nation itself, between international finance capital, together with the domestic big bourgeoisie integrated with it, on the one hand, and the working people on the other.
An immediate fall-out of this related to the State. Instead of being an entity apparently standing above classes, it became concerned exclusively with the interests of the big business and landlords, and international finance capital with which big business got integrated. A manifestation of this shift was the withdrawal of State support from petty production, including peasant agriculture, and an opening up of this sector to encroachment by international agribusiness and the domestic big bourgeoisie. Such withdrawal of support, eg, of price-support for cash crops (the attempt to withdraw price support for foodgrains was defeated by the year-long kisan agitation), and of subsidies on inputs including credit, led to a sharp decline in the profitability of peasant agriculture. The crisis that followed for peasant agriculture resulted in mass suicides and also peasant emigration to cities in search of non-existent jobs, which only swelled the relative size of the reserve army of labour.
Neo-liberalism in short was loaded with false promises. No doubt the growth rate of GDP in the economy went up, but the rate of growth of employment was halved compared to earlier, to about 1 per cent per annum, because of the high rate of productivity growth that was simultaneously labour-displacing. This acceleration in labour productivity growth came about because of the exposure of domestic producers, not just those exporting but even those producing for the home market, to foreign competition because of the withdrawal of protection under neo-liberalism. The rise in the relative size of the reserve army of labour showed itself not necessarily as a higher unemployment rate, but as the sharing of a given number of jobs (each with a given wage) among more and more people. This rise however kept down the wages even of the organised workers by reducing their bargaining strength.
By squeezing the peasants and petty producers, and by reducing the bargaining strength even of the organised workers, the neo-liberal regime necessarily reduced the average real income per capita of the working people of the country which manifested itself in an increase in the poverty ratio, no matter how high the GDP growth might have been. The per capita foodgrain availability that had risen until the end of the 1980s, at best stagnated thereafter. The proportion of the rural population that fell below 2200 calories per person per day in 1993-94 was, according to the National Sample Survey, 58 per cent; it went up to 68 per cent by 2011-12. The next NSS in 2017-18 came with such dismal findings (apparently per capita real expenditure had fallen by 9 per cent between 2011-12 and 2017-18 in rural India) that the Modi government suppressed them, and decided even to discontinue the NSS in its old form! In urban India the proportion of people falling below 2100 calories per person per day had increased from 57 to 65 per cent between 1993-94 and 2011-12.
The working people’s misery, increasing even in the heyday of neo-liberalism (and thus showing the bogusness of the theory of “trickle down”), has accentuated sharply as neo-liberalism has moved into a crisis, from which there is no clear way out. This crisis is hardly surprising. We saw earlier the tendency under neo-liberalism for the per capita real incomes of the working people to decline on average, even as labour productivity increases, which increases the share of economic surplus in output (this in fact is a world-wide phenomenon). This is the reason behind the sharp rise in income inequality in India and elsewhere during the period of neo-liberalism.
Since a rupee in the hands of the surplus earners generates less consumption than the same rupee in the hands of the working people, such an income shift tends to create a tendency towards over-production. This tendency, kept in check in the world economy because of the asset-price bubbles in the U.S., which artificially increase demand by making asset-holders feel spuriously wealthier, has asserted itself after the collapse of the American housing bubble. The world economy has been more or less in a state of stagnation since then, and this has caught up with the Indian economy too, pushing it towards greater unemployment, and accentuated distress. Matters have been made even worse by the Modi government’s ill-conceived measures like demonetisation and the introduction of the GST (the work on which had begun under the Congress earlier).
This crisis cannot be overcome within the neo-liberal regime. The only possible mechanism for overcoming it, viz. larger State expenditure, can work if this expenditure is financed either by a fiscal deficit or by taxing the surplus- earning rich; if it is financed by taxing the working people, who more or less spend their entire income anyway, then one kind of demand would simply get substituted by another, with no net expansion in demand. But both an increase in the fiscal deficit and an increase in taxes on the rich are unacceptable to international finance capital; if they are resorted to under neo-liberalism then finance will simply quit the country en masse, causing an acute financial crisis.
On the other hand, neo-liberalism’s own way of coping with the crisis, which is to give tax concessions to the capitalists in the hope that they will raise investment, actually worsens the crisis: the capitalists just pocket the money without investing a rupee more (they will do so only if demand has increased), while the reduction of expenditure elsewhere for financing these handouts to capitalists, actually reduces demand.
Getting out of this crisis, which has nothing to do with the pandemic and which predates the pandemic (though the pandemic has added to it in the short-run) requires therefore a transcendence of neo-liberalism. But precisely to forestall such a possibility, neo-liberalism in crisis has made an alliance with Hindu communalism to change the discourse. The aim of this corporate-Hindutva alliance is to shift the discourse away from issues of material life to the alleged “atrocities” committed, whether in the present or in the past, by a hapless minority group. Its aim is to keep people engaged in hatred against this group while they suffer growing distress, even as international capital and domestic big business add to their wealth despite the crisis, by getting hold of assets, of raw material extracting rights, and of investment opportunities, from the public sector and the petty production sector.
Big business finances the Hindutva Party to come to power and supports it through the media it controls; in return it increases its wealth inter alia through measures of primitive accumulation of capital. And any opposition to this process is stifled through a combination of blatant authoritarianism, the creation of disunity among the people, and the use of hoodlum elements against dissenters.
Neo-liberalism even in its heyday increases economic inequalities greatly, abrogates whatever democratic content there was in the operation of the State, subverts the autonomy of the State, and increases absolute poverty; in addition however it ends up getting enmeshed in stagnation and mass unemployment from which there is no exit. Because of this dead-end, it imposes a neo-fascist political regime upon the country. This regime can be overthrown not just by democratic elements coming together. That of course is necessary; but the transcendence of neo-fascism requires the transcendence of the conjuncture that produced it, viz. the crisis produced by the neo-liberal order, for which this order itself has to be transcended. This is a difficult task; it can be accomplished only by the widest mobilisation of the working people.
Prabhat Patnaik is an Indian political economist and political commentator. His books include Accumulation and Stability Under Capitalism (1997), The Value of Money (2009), and Re-envisioning Socialism (2011).
MR Online, August, 13, 2022, The Indian economy since Independence / by Prabhat Patnaik