India's Economic Miracle Only for the Top 10%

27 Apr 2010

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Jayati Ghosh, economist from India's Nehru University in New Delhi and author of the book After Crisis, says India's economic growth is no miracle.

India is often compared to China for its rapid economic growth, but Ghosh argues that the two countries are very different.

China has better economic growth and poverty reduction indicators. It also has a completely different institutional system with massive state control over finance, which enables the state to manipulate the nature of the growth of the economy more directly.

Moreover, China's economic policies have had a better effect than India's - quite importantly - because of China's revolution, land reform and egalitarian income distribution. As a result, China has been operating on a much more equal asset base, which allowed economic policies to have a different/better effect.

The major episodes of poverty reduction in China happened in the early 1980's and mid 1990's. These were periods when agricultural prices rose and benefitted rural farmers. Thus, poverty reduction and income distribution were helped because there was egalitarian land distribution. 

India is different. In India efforts towards asset redistribution and land reform have not taken place, making it, still, a very unequal society.

India is a big success story of globalization, but it's a peculiar success story because of its dependence on foreign capital. India does not run trade or current account surpluses. India has been getting capital inflows because it was discovered as a "hot destination." 

The capital inflows make the stock market rise and allows for new urban services to develop. This in turn generates a "feel good segment" of the Indian population -- the upper middle class.

Banks have been lending more to this top 10% of the Indian population, which despite being a small part of the country's overall population, number in the region of 110 million people, making them a very big market for anyone.

The consumption of this top 10% has fueled economic growth in India, which has been between 8-10% for close on a decade.

But the majority of Indians experience no benefit from this boom -- coupled with economic growth, real wages are falling for the poor, nutrition indicators are extremely low, per capita incomes in the countryside are not growing at all and "a whole range of basic human development is still abysmal."

India's poor are not exactly excluded from the new economic growth process. They are integral to it (but in an insidious manner). India's growth process relies on keeping the incomes of the poor low to enable the extraction of greater surplus from them.

For example, everybody talks about India's modern and competitive software sector. Upon closer examination, its not just that India's software engineers are cheap, but that the entire supporting establishment is very cheap.

The whole system, which allows India to be more competitive, is one that relies on very low paid assistants, drivers, cooks and cleaners. The entire support establishment is paid below subsistence wage levels and this effectively subsidizes the modern software industry.

Unfortunately, there is no political voice of dissent against this exploitation argues Ghosh. For example, food prices have gone up by 20% in the last two years. When this happened in the 1970's there were food riots all over the country. But there is no outcry from the people today. What does seem to happen is an increase in unpleasant social and political forces such as people turning against different linguistic, caste groups or religions. Ghosh believes that they choose weaker targets than themselves because the system itself is too big to be attacked.

But, India does have a long tradition of "left" politics, which is still a vibrant and important political force. It is unfortunately under attack from both the right and imperialist forces that want to suppress a genuine left movement in India. The movement is also fraught with identity politics.

Ghosh believes that the future of the left is integral to the future of India in order to engender a more secular democracy.

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