Central to the “reforms” introduced in 1991 was not a “retreat of the state” in favour of the “market” as is commonly supposed, but a change in the nature of the state. This change was not necessarily a conscious decision; it was more a “spontaneous” outcome of the introduction of the “reforms” themselves.
Since the “reforms” entailed the opening of the economy to freer cross-border flows of goods and capital, including of finance which is highly mobile and whose sudden outflow can precipitate a financial crisis, the state under a “reform regime” necessarily has to ensure that the “confidence” of the international financiers in the economy remains intact. State policy therefore must always be to their liking.
This means that instead of a state that apparently stands above all classes even while promoting capitalist development, and that protects traditional petty producers, including the peasantry and the workers, against encroachments by capital, despite being a bourgeois state, as was the case earlier, the “reform regime” creates a state that becomes exclusively concerned with the interests of globalised capital, and the domestic corporate-financial oligarchy aligned with it.
Withdrawal of state supportA fallout of this is the withdrawal of support by the state from traditional petty production, and hence the unleashing of a crisis in this sector, including in peasant agriculture. The increase in the prices of agricultural inputs because of reduced subsidies (as the government, to placate finance capital, has to keep down the fiscal deficit while not raising taxes on the rich); the withdrawal of government price support for several crops by ending the market-intervention role of the Commodity Boards; allowing even nationalised banks to renege on providing agricultural credit, so that the peasantry is forced to rely increasingly on a new class of private moneylenders charging exorbitantly high interest rates; the winding up of public extension services; the removal of the insulation from world market price fluctuations that had been provided earlier to the agrarian economy through tariffs and quantitative restrictions; the cuts in public investment in agriculture and irrigation; the running down of agricultural research and development in public institutions; the permission to agribusiness to enter the countryside for a direct, unmediated and unregulated relationship with the peasantry; and the retreat of the government from providing essential services like quality education and health care are some of the obvious ways in which state support has been withdrawn from this sector.
This has adversely affected the income flow of the peasantry, impaired the profitability of peasant agriculture, reduced its rate of growth, and brought acute distress to the countryside. For large sections of the peasantry, even simple reproduction of their economy has become impossible, causing a spate of peasant suicides. What is true of peasants is also true of traditional petty producers in general: fishermen, artisans, craftsmen, weavers and others. A simple calculation some years ago showed that if the statutory minimum daily wage was imputed to Kerala’s traditional fishermen, then their entire economy would be in deficit.
The income squeeze on the peasants has been accompanied by a taking over of their land for “infrastructure” and “industrial” projects, often at throwaway prices and against their wishes. When consent has been obtained, not everyone dependent on the land has been consulted. “Primitive accumulation of capital”, to use Karl Marx’s phrase, is rampant not only in “flow” terms (income squeeze) but also in “stock” terms (asset dispossession). The latter is set to gather further momentum with the “Smart City” project of this government.
All this need not make one shed tears if the peasants and petty producers, who are either dispossessed or unable to cope with the income squeeze and therefore migrate to cities, could find proper employment there. But the scale of job creation has been minuscule despite high GDP growth.
A weakened workforceJoblessness does not announce itself as such. The employment rationing it entails takes diverse forms: casual employment, intermittent employment, part-time employment, and disguised unemployment (camouflaged often as “petty entrepreneurship”). These give a misleading picture of the unemployment scenario. But if we take what the National Sample Survey calls “usual status employment”, then between 2004-05 and 2009-10, a period of high GDP growth, such employment grew at 0.8 per cent per annum. This was below the natural rate of growth of the workforce itself, even if we ignore the job-seeking displaced peasants.
This has led to a proliferation of precarious and insecure employment, a burgeoning lumpenproletariat, an immense weakening of the bargaining position even of the unionised workers, and hence to a compression of the per capita real income of the “working people” as a whole, consisting of agricultural labourers, traditional petty producers, and non-white-collar workers.
A simple statistic confirms this. The percentage of the rural population with food intake below 2,200 calories per person per day (the benchmark for defining rural poverty) was 58.5 in 1993-94; it increased to 68 in 2011-12. Likewise the percentage of the urban population below 2,100 calories per person per day (the benchmark for defining urban poverty) was 57 in 1993-94; it increased to 65 in 2011-12.
It is often claimed that growing calorie deprivation does not indicate worsening economic status, since it could arise for other reasons, such as changing tastes, greater health consciousness, reduced physical work effort, or greater emphasis on children’s education and health care. But if reduced calorie intake occurred for these reasons even when real incomes of the working people were (for argument’s sake) rising, then it would be difficult to explain an increase in calorie intake when real incomes were also rising, such as between 2009-10 (a poor crop year) and 2011-12 (a good crop year).
Indeed, one invariably finds a positive association between the two variables. The more reasonable explanation for declining calorie intake therefore is a decline in real income of the working people — that is, money income deflated by a price index that takes into account the effect of privatisation of essential services (which the usual price indices do not).
Middle class the beneficiaryWhat the “reforms” have brought therefore is a process of “primitive accumulation of capital” without the creation of adequate employment opportunities to absorb those who are displaced by it. This has caused a worsening of the conditions of the “working people” as a whole.
There is, however, another side to “reforms”: the growth of the financial sector, or what is called “financialisation”; and the location domestically of certain service-sector activities outsourced from developed countries owing to the comparatively lower wages prevalent here. These have benefited an emerging middle class, not so much through an expansion in its relative numbers as through an increase in its relative incomes. This class has emerged as a votary of the “development” paradigm of the “reform regime” and thrown its weight behind the corporate-financial oligarchy whose share of wealth and income has increased phenomenally under this regime.
But the world capitalist crisis, which is nowhere near ending, is likely to bring disappointment to the middle class. This class will then provide support for an alternative development strategy which would be in the interests of the working people and transcend “neo-liberal” capitalism, though attempts to prevent such a denouement through the formation of a corporate-”communal” alliance that seeks to divide the people will also gather momentum.
Prabhat Patnaik is Professor Emeritus, Centre for Economic Studies and Planning, JNU, New Delhi.
