MacroScan (Printable Version) - Redefining the Nation

India's beleaguered Prime Minister seems desperate to blame everybody else for the waning of India's shining growth story and for the loss of legitimacy of his government. He now periodically reiterates an argument he has presented in many forms in the past. That argument starts from the assumption that what really matters for India is growth, as measured by movements in the not-too-robust official estimate of GDP. Ensuring growth, it is assumed in turn, requires continuous ''reform'' or liberalisation of a kind that expands the space and boosts the profits of domestic and foreign investors. So any opposition to the reform that does just that amounts to restraining the GDP growth that is all-important for the country.

More recently, in the Prime Minister's Independence Day speech for 2012, this line of reasoning has been extended in two ways. The first is by arguing that growth is important for national security. This extension would imply that those opposing the ''reforms'' that are crucial for growth are not just anti-growth but anti-national as well. Second, the Prime Minister went on to argue in his speech that the task of ''creating an environment within the country for rapid economic growth'' has not been completed ''because of a lack of political consensus on many issues.'' This is an obvious reference to the opposition in Parliament and on the streets, which has not been willing to go along with his specific reform agenda on the grounds that it is no good for the nation. In terms of the Prime Minister's logic, then, that opposition is least concerned about India's security, and therefore, is unconsciously or otherwise, anti-national.

But does the evidence suggest that the growth that has occurred over the last two decades and especially during the 2003 to 2008 period has been good the for the nation as a whole? Or have the benefits of reform bypassed much of the nation? This being the PM's ninth Independence Day speech, the UPA's reform agenda has been implemented long enough for its actual character to be assessed. Judged in terms of content and not just outcomes, economic reform under the UPA has involved reshaping the role of the state. Earlier, especially during the post-Independence years till the 1970s, the role of the state was seen as that of using the tax-cum-subsidy regime as a means to raise the rate of investment in the economy and ensure that such investment is allocated across sectors in ways considered appropriate for maximising growth. This not only made the state a growth-leader of sorts, but required the state to not merely regulate but engage in economic activity, including production.

Under the reform, the state is seen not as leader but as facilitator. Its role is, therefore, presented as one of ensuring that the private sector makes large investments. The choice of the sectors in which such investment is made is to be left to the private sector and its perceptions of profitability. If the state has to ensure that investments must occur in some sectors, such as infrastructure, ways must be found to enhance the profitability of such activity. The state must cajole the private sector into investing larger and larger sums in different sectors crucial to growth by influencing the profits to be earned from such investment. And if the domestic private sector is unable or unwilling to exploit the opportunities offered, foreign capital must be wooed. As the PM made clear foreign capital must be sent the right signal. ''To attract foreign capital, we will have to create confidence at the international level that there are no barriers to investment in India,'' he reportedly said. Incentivising private investment, especially foreign investment, seems to be the essence of the reform strategy.

Unfortunately, the outcome of this strategy pursued relentlessly by UPA I and II despite the ''lack of consensus'' has been quite divisive. While growth has boosted profits and delivered some benefits to a small upper-middle class, it has failed to ensure employment and livelihoods for the majority. The results from the National Sample Survey with reference year 2009-10 suggest that while the deceleration of employment growth recorded during 1993-94 to 1999-2000 had been partially reversed in the period 1999-2000 to 2004-05, the record over the five years after 2004-05 is even worse than it was during the 1990s. Over the five-year period 2004-05 to 2009-10 employment declined at an annual rate of 0.34 per cent in rural areas, and rose at the rate of just 1.36 per cent in urban areas. In the aggregate, the volume of principal and subsidiary status employment rose by a negligible 0.1 per cent. This period included the years when GDP growth was at its highest. But that growth did not generate livelihoods for the unemployed and the underemployed in the country.

There is also evidence to suggest that income inequality has increased significantly during the reform era. One difficulty in assessing the inequalising effects of post-reform growth is that the only large-scale survey available to analyse inequality in India focuses on consumption expenditure. Such surveys, by the National Sample Survey Organisation, tend to exclude the very rich and the very poor and therefore are inadequate indicators of even trends in consumption inequality. Further, since the rich are known to save a significant part of their income, these consumption figures fail to adequately reflect the underlying income inequality. Some researchers such as Sonalde Desai, Reeve Vanneman and Amaresh Dubey have attempted to estimate the extent of income inequality based on evidence from independent sample surveys. Those estimates indicate that income inequality is very high in India, with the Gini measure of inequality being around the same as Brazil. Such estimates only confirm the impressionistic evidence of increasing inequality, especially in the metropolitan cities and larger urban centres of India.

Moreover, with growth focused largely on the services sector, which accounts for around two-thirds of the increase in GDP under the UPA's watch, an unusual form of rural-urban inequality has come to characterise the country. While segments of the non-agricultural sector thrive, agriculture is in long-term decline and the viability of crop production is under challenge. Even where the state intervenes with support prices, more often than not the increases in costs paid exceed the increases in the prices garnered by cultivators, resulting in an agrarian crisis in many parts of the countryside.

Thus, clearly growth under reform benefits a few and excludes the majority. So to argue that such growth is in the interests of national security is to redefine the nation itself. Clearly the notion of the nation here is one that denudes a substantial share of the population of citizenship, since their interests do not seem to matter. The elite is not only allowed to secede from the nation in an economic sense, but the enclave it inhabits is treated as the true nation.

Unfortunately for the UPA, the economic and social divide that these trends reflect has undermined the credibility of its claim to give the country the high growth and economic stability that strengthen national security. The perception that growth has served the interests of some, while leaving substantial sections economically insecure, has also eroded its legitimacy. Moreover, given the nature of the economic reform noted above, that perception has been reinforced and strengthened by the mounting evidence of the largesse of the state in handing over social wealth to big capital at prices that involve huge actual or potential losses to the exchequer.

It is indeed true that the scams associated with the sale of 2G spectrum and coal blocks, among others, tend to be presented as instances of corruption in the political establishment and the bureaucracy. But there are few who do not see the manner in which in each of these cases the private sector has benefited from violations of norms of fairness and even of the law. The government has gone out of its way to enhance the profitability of the private sector through interventions that permit profit-making beyond what the market permits. The consequence is an engineered redistribution of income far greater than mere liberalization would ensure. That too is part of the reform.

Not surprisingly, while under pressure from the anti-corruption movement the Prime Minister had to promise that the government ''will continue (its) efforts to bring more transparency and accountability in the work of public servants and to reduce corruption, he introduced an element of caution. Since some of these measures are part of the strategy of incentivising private investment, the government, he noted, ''will also take care that these measures do not result in a situation in which the morale of public functionaries taking decisions in public interest gets affected because of baseless allegations and unnecessary litigation.''

In fact, the final defence of government actions such as providing access to coal blocks without resorting to an auction is that these were measures needed to fast-track clearances and incentivise investment to drive growth. If the rule of law is a hindrance to private investement that is good for growth, then violation of the law is warranted policy. Such violation is seen as part of the environment that is conducive to growth. So even those who oppose such violation are tainted as anti-growth and even, therefore, anti-national.

The UPA's problem today is that growth is slowing and is likely to slow further as India finally begins to be fully impacted by the global crisis. So if its growth strategy is to be persisted with, more incentives are needed. The Prime Minister's lament seems to be that the task of providing them is being made impossible by the opposition in Parliament and activists protesting against corruption and inequalising growth on the streets. Given his predilections, they can only be anti-national. However, nobody is listening.

* This article was published in the Frontline Volume 29- Issue18, September 8-21, 2012.



Themes > Current Issues	6.09.2012


Redefining the Nation*

C.P. Chandrasekhar

India's beleaguered Prime Minister seems desperate to blame everybody else for the waning of India's shining growth story and for the loss of legitimacy of his government. He now periodically reiterates an argument he has presented in many forms in the past. That argument starts from the assumption that what really matters for India is growth, as measured by movements in the not-too-robust official estimate of GDP. Ensuring growth, it is assumed in turn, requires continuous ''reform'' or liberalisation of a kind that expands the space and boosts the profits of domestic and foreign investors. So any opposition to the reform that does just that amounts to restraining the GDP growth that is all-important for the country. More recently, in the Prime Minister's Independence Day speech for 2012, this line of reasoning has been extended in two ways. The first is by arguing that growth is important for national security. This extension would imply that those opposing the ''reforms'' that are crucial for growth are not just anti-growth but anti-national as well. Second, the Prime Minister went on to argue in his speech that the task of ''creating an environment within the country for rapid economic growth'' has not been completed ''because of a lack of political consensus on many issues.'' This is an obvious reference to the opposition in Parliament and on the streets, which has not been willing to go along with his specific reform agenda on the grounds that it is no good for the nation. In terms of the Prime Minister's logic, then, that opposition is least concerned about India's security, and therefore, is unconsciously or otherwise, anti-national. But does the evidence suggest that the growth that has occurred over the last two decades and especially during the 2003 to 2008 period has been good the for the nation as a whole? Or have the benefits of reform bypassed much of the nation? This being the PM's ninth Independence Day speech, the UPA's reform agenda has been implemented long enough for its actual character to be assessed. Judged in terms of content and not just outcomes, economic reform under the UPA has involved reshaping the role of the state. Earlier, especially during the post-Independence years till the 1970s, the role of the state was seen as that of using the tax-cum-subsidy regime as a means to raise the rate of investment in the economy and ensure that such investment is allocated across sectors in ways considered appropriate for maximising growth. This not only made the state a growth-leader of sorts, but required the state to not merely regulate but engage in economic activity, including production. Under the reform, the state is seen not as leader but as facilitator. Its role is, therefore, presented as one of ensuring that the private sector makes large investments. The choice of the sectors in which such investment is made is to be left to the private sector and its perceptions of profitability. If the state has to ensure that investments must occur in some sectors, such as infrastructure, ways must be found to enhance the profitability of such activity. The state must cajole the private sector into investing larger and larger sums in different sectors crucial to growth by influencing the profits to be earned from such investment. And if the domestic private sector is unable or unwilling to exploit the opportunities offered, foreign capital must be wooed. As the PM made clear foreign capital must be sent the right signal. ''To attract foreign capital, we will have to create confidence at the international level that there are no barriers to investment in India,'' he reportedly said. Incentivising private investment, especially foreign investment, seems to be the essence of the reform strategy. Unfortunately, the outcome of this strategy pursued relentlessly by UPA I and II despite the ''lack of consensus'' has been quite divisive. While growth has boosted profits and delivered some benefits to a small upper-middle class, it has failed to ensure employment and livelihoods for the majority. The results from the National Sample Survey with reference year 2009-10 suggest that while the deceleration of employment growth recorded during 1993-94 to 1999-2000 had been partially reversed in the period 1999-2000 to 2004-05, the record over the five years after 2004-05 is even worse than it was during the 1990s. Over the five-year period 2004-05 to 2009-10 employment declined at an annual rate of 0.34 per cent in rural areas, and rose at the rate of just 1.36 per cent in urban areas. In the aggregate, the volume of principal and subsidiary status employment rose by a negligible 0.1 per cent. This period included the years when GDP growth was at its highest. But that growth did not generate livelihoods for the unemployed and the underemployed in the country. There is also evidence to suggest that income inequality has increased significantly during the reform era. One difficulty in assessing the inequalising effects of post-reform growth is that the only large-scale survey available to analyse inequality in India focuses on consumption expenditure. Such surveys, by the National Sample Survey Organisation, tend to exclude the very rich and the very poor and therefore are inadequate indicators of even trends in consumption inequality. Further, since the rich are known to save a significant part of their income, these consumption figures fail to adequately reflect the underlying income inequality. Some researchers such as Sonalde Desai, Reeve Vanneman and Amaresh Dubey have attempted to estimate the extent of income inequality based on evidence from independent sample surveys. Those estimates indicate that income inequality is very high in India, with the Gini measure of inequality being around the same as Brazil. Such estimates only confirm the impressionistic evidence of increasing inequality, especially in the metropolitan cities and larger urban centres of India. Moreover, with growth focused largely on the services sector, which accounts for around two-thirds of the increase in GDP under the UPA's watch, an unusual form of rural-urban inequality has come to characterise the country. While segments of the non-agricultural sector thrive, agriculture is in long-term decline and the viability of crop production is under challenge. Even where the state intervenes with support prices, more often than not the increases in costs paid exceed the increases in the prices garnered by cultivators, resulting in an agrarian crisis in many parts of the countryside. Thus, clearly growth under reform benefits a few and excludes the majority. So to argue that such growth is in the interests of national security is to redefine the nation itself. Clearly the notion of the nation here is one that denudes a substantial share of the population of citizenship, since their interests do not seem to matter. The elite is not only allowed to secede from the nation in an economic sense, but the enclave it inhabits is treated as the true nation. Unfortunately for the UPA, the economic and social divide that these trends reflect has undermined the credibility of its claim to give the country the high growth and economic stability that strengthen national security. The perception that growth has served the interests of some, while leaving substantial sections economically insecure, has also eroded its legitimacy. Moreover, given the nature of the economic reform noted above, that perception has been reinforced and strengthened by the mounting evidence of the largesse of the state in handing over social wealth to big capital at prices that involve huge actual or potential losses to the exchequer. It is indeed true that the scams associated with the sale of 2G spectrum and coal blocks, among others, tend to be presented as instances of corruption in the political establishment and the bureaucracy. But there are few who do not see the manner in which in each of these cases the private sector has benefited from violations of norms of fairness and even of the law. The government has gone out of its way to enhance the profitability of the private sector through interventions that permit profit-making beyond what the market permits. The consequence is an engineered redistribution of income far greater than mere liberalization would ensure. That too is part of the reform. Not surprisingly, while under pressure from the anti-corruption movement the Prime Minister had to promise that the government ''will continue (its) efforts to bring more transparency and accountability in the work of public servants and to reduce corruption, he introduced an element of caution. Since some of these measures are part of the strategy of incentivising private investment, the government, he noted, ''will also take care that these measures do not result in a situation in which the morale of public functionaries taking decisions in public interest gets affected because of baseless allegations and unnecessary litigation.'' In fact, the final defence of government actions such as providing access to coal blocks without resorting to an auction is that these were measures needed to fast-track clearances and incentivise investment to drive growth. If the rule of law is a hindrance to private investement that is good for growth, then violation of the law is warranted policy. Such violation is seen as part of the environment that is conducive to growth. So even those who oppose such violation are tainted as anti-growth and even, therefore, anti-national. The UPA's problem today is that growth is slowing and is likely to slow further as India finally begins to be fully impacted by the global crisis. So if its growth strategy is to be persisted with, more incentives are needed. The Prime Minister's lament seems to be that the task of providing them is being made impossible by the opposition in Parliament and activists protesting against corruption and inequalising growth on the streets. Given his predilections, they can only be anti-national. However, nobody is listening. * This article was published in the Frontline Volume 29- Issue18, September 8-21, 2012.



© MACROSCAN 2012