Just where India’s development trajectory has gone askew?

One of the more surprising things about India is the contradiction between the evidence of rapid national income growth for nearly three decades and the persistence of so many indicators of backwardness in the national economy. The vast majority of our workers remains in employment situations that are very vulnerable, fragile and low-paying; nutrition indicators are still appalling, with certain states in the country on par with some of the worst in Sub-Saharan Africa; health indicators are relatively poor and improving only very slowly except in a few states; educational achievement is still quite low, even when compared to countries with similar levels of per capita income; there is still a great deal of extreme destitution.

Why has rapid output growth not generated the usual expected outcomes like improved quality employment, better nutrition, health standards, and so on? There are two ways of interpreting what has gone wrong. One is to argue that while the growth has been rapid for the past two decades, it has not been fast or widespread enough for the benefits to reach everybody, because we began with such a large poor population. In this view, all we need do is continue for more time on the same growth trajectory and eventually the fruits of that increased income will be available to all, including those who have so far been excluded.  

But there is another way of interpreting this apparent paradox: the discrepancy arises from the very nature of the growth process. So it is not just because some people have been “left out” of the growth process, but rather that they have been incorporated on very unequal terms in ways that perpetuate or increase disparities.

This operates on different levels. One standard feature of the “classic” growth pattern is that people move out of low value-added, low paying activities (typically in the primary sector and low grade services) into higher value-added, higher paying activities. This happened in Europe, the U.S., Japan and South Korea, and is now happening in China. The remarkable thing about India over the past half century is that the share of the primary sector in GDP fell from around 60 per cent to 15 per cent today, but it still accounts for around half of all employment. A significant chunk of workers is employed in low-grade services, while manufacturing activities and “modern” high productivity services together account for only a fifth of total employment. Many of our problems can be traced to this basic absence of productive diversification for our workforce.

But why did this not happen? It was partly driven by technological change, which keeps introducing more labour-saving techniques in a globalised world, so that more can be produced with fewer workers. But that’s a small part of the explanation. The big reason is that the pattern of growth has generated more inequality, which then suppresses future potential growth, because it keeps the level of demand domestically lower than it would otherwise have been.

Inequality has indeed served the system of growth, since those who are excluded from benefits are nonetheless incorporated into unequal market systems. Peasants facing a crisis of viability of cultivation have been integrated into markets that make them more reliant on purchased inputs in deregulated markets, while becoming more dependent upon volatile output markets with little state protection. “Self-employed” workers are excluded from paid employment by the sheer difficulty of finding jobs, but are nevertheless heavily involved in uncertain commercial activity and forced to provide very cheap goods and services. Informal workers are deeply integrated into the formal economy through outsourcing and value chains, so that their low wages help to sustain profits in the formal sector. Systems of social discrimination allow segmented labour markets to emerge, based on gender, caste, community and so on.

Meanwhile, the focus of the Indian state has been on generating growth through various incentives designed to encourage the expansion of private capital. We now know that this can very quickly become prey to corruption and crony capitalism. It also generates a context in which capitalist accumulation is based essentially on extraction: of land and other natural resources, of the labour of differentiated workers in segmented labour markets, of the products of peasant cultivators and small producers of goods and services. This reduces the incentives to focus on growth of productivity and innovation as routes to more rapid growth, since state-aided primitive accumulation and socially determined extra-economic relationships provide easier and more reliable means of generating private surpluses. All this has actually been reinforced under globalisation, rather than being diminished by external competition.

The problems now being experienced by this growth strategy provide an opportunity to change course, for a more democratic and equitable alternative route to economic development.

(The New Delhi-based LILA Foundation for Translocal Initiatives organised the PRISM Lecture Series 2013 on ‘Development and Contemporary India’ over the last few months in which 15 seminal thinkers participated. This is the second of a cross-selection of talks we will feature here. For more information, please visit www.lilafoundation.in)

Jayati Ghosh is Professor of Economics at Centre for Economic Studies and Planning, JNU, New Delhi. She is also Executive Secretary, International Development Economics Associates, an international network of heterodox development economists.