THE INDIA ECONOMY REVIEW 2010 - IIPM Think Tank

RETHINKEDIFYDELINEATE

INDIA: GROWTH SANS DEVELOPMENT

THE INDIA ECONOMY REVIEW

2010Volume VII | Quarterly Issue: 31st March 2010 www.iipmthinktank.com

www.gidf.org

A N I I P M T H I N K T A N K &

G R E A T I N D I A N D R E A M F O U N D A T I O N P R E S E N T A T I O N

L e s s on s N o t L e a r n tS l i p p e r y S l op e sN e e d To K n owRe n a s ce n t I n d i a

I N S I D E T H I S I S SU E

“A Society where man is at the centre of all activities, a society where exploitation of man by man has been abolished, where he is cared for as an in a family, where “to each according to his need’ is practised, a society where non bureaucratic National Economic Planning is given due importance for sustainable optimum growth, where adequate social safety net is a reality and yet market’s advantages are fully taken care of for creativity and entrepreneurship, such a society can be truly described as humane society and the vision as “Humanism”.Dr. M K ChaudhuriThe Great Indian Dream, 2003, Macmillan India,New Delhi

THE GREAT INDIAN DREAM

“Let us together dream of a country where poor are not just merely reduced to statistics but where there are no poor. Let there be a day when small children are taken to a poverty museum like science museum where they shiver at the plight of the way people used to live in the last millennium. Let this dream take the form of a revolution and as long as our dreams keep outweighing our memories, India would remain a young and dynamic nation on this path to global equality. And for this let the wait not be for eternity. Let us together achieve this in the next 25 years.”

Prof. Arindam Chaudhuri The Great Indian Dream, 2003, Macmillan India,New Delhi

Since its incorporation (1973), IIPM has been an institution with privileged traditions, in the diversity of its fraternity, its global outlook, its world class research and its commitment to alternative national economic planning process.

It can be said, without much oversimplification that there are no ‘underdeveloped economies’. There are only ‘under managed’ countries. Japan 140 years was ago was an underdeveloped country by every material measurement. But it very quickly produced management of great competence, indeed of excellence. The policy inference is that ‘management’ is the prime mover and ‘development’ is the consequence. At IIPM, every one considers that development is a matter of human energies rather than economic wealth. And the generation and direction of these human energies is the task of ‘management’. Accordingly, we formed The Great Indian Dream. Unlike any other dream, this is one dream which each one of us are determined to realise and that too in our own lifetimes. Each bit of cynicism and condemnation from pessimists makes us evolve even stronger and determined.

All our endeavours and initiative is towards realisation of this dream, where in we produce committed ‘bare foot’ managers and entrepreneurs who are needed by nation, on an insistent basis. As an educational institute, we aim at initializing a three dimensional personality in IIPMites, viz. � Pursuit of knowledge in economics and management� Commitment to economic, social, political and technological upliftment of masses and � Cultivation of taste for literature, fine arts and etc.

Economists often have limited access to the practical problems facing senior managers, while senior managers often lack the time and motivation to look beyond their own industry to the larger issues of the global economy. It has set before it the twin tasks: to reorient education and research towards the needs of both the private and public sectors and to establish the link between the National Economic Planning and the development of private enterprises in Indian economy. IIPM dares to look beyond, and understands that what we teach today, other adopt tomorrow. IIPM’s service output (education, research and consulting,) is a unique combination of two distinct disciplines: economics and management. Through this integration, IIPM helps guide business and policy leaders in shaping the Indian and global economy, bringing together the practical insights of industry with broader national and global perspectives.

A hall mark of IIPM is that it is armed with the comparative advantage of engaging the committed, passionate and brightest management post graduates and undergraduates, who pursued the education at IIPM and subsequently joined it, to realise the dream. IIPM alumni, spread across the globe, holding crucial decision-making positions in the corporate sector, are bonded by the one ideology of making a positive difference, turning that ideology into a movement itself.

The India Economy Review is another humble initiative towards the realisation of the same and more distinctly, engaging the broader publics and pertinent stakeholders.

IIPM: THE FUTURE IS HERE

SEARCH, SIEVE, SCHEME...In economics, like in everyday existence, it is imperative to hear, perceive and consider what others have to say. Each issue of The IER

brings together a selection of important contributions on a particular theme, authored by some of the brightest minds in different areas of Indian economics. The provocation for publishing these issues arises from the fact that over the years economic journals have become copious, exclusive and expensive. Most of the journals and a good many of the books have gone beyond the cerebral and financial reach of general students and other scholars. It is for them that these issues are primarily being raised and debated here.

Much about India is transparent enough. One does not require detailed criteria, cunning calibration or probing analysis to pinpoint India’s problems and recognise its antecedents. There is in fact much that is perceptible about India. But not everything about India is even if simplistic is so simple. The learned reader would appreciate the fact that India is like an elephant that looms too large to be grasped within a distinct structure and paradigm the constituent parts of which would fail to reveal the entirety. Obviously and observably, no suggested solution to any protracted and complex socio-economic problem will satisfy all sides and stake-holders evenly. Consequently, there exists an enormous diversity in economic thinking and perspectives, as is also reflected in the viewpoints of different expert contributors in this issue. The intended outcome of this exercise is to facilitate the invention, improvement, deliberation and dissemination of innovation in economic thinking and national economic planning, insisting merely on well-grounded, open and unbiased debates, without predetermined outcomes. It is impossible to do justice to the entire field of Indian economics in a single issue. The topics selected for this issue are those which are of critical and immediate importance to India. Majority of them were freshly and exclusively written. Encapsulated, it is a constructive attempt aimed at helping India actualise its promises and potential. The editors hope that this issue of IER proffer the reader a flavour of dynamism and excitement and persuade her/him to participate in the journey towards realising ‘The Great Indian Dream’. At the same time, it illuminates the terrible, practical problems of India and Bharat.

ACKNOWLEDGEMENTSThe IIPM Think Tank likes to thank all the internal faculty who have been instrumental in coordinating

with many authors all across India and according their unstinted support. The assistance of Prof. R.Krishnan (IIPM Chennai), Prof. Amlan Ray (IIPM Lucknow) and Mr. Robin Thomas (IIPM Ahmedabad) has been more valuable than, perhaps, they realise.

Dear Reader,

India has come a long way in terms of eco-

nomic growth. Softer indicators – aspira-

tions, health, and literacy – are all register-

ing discernible improvements. We live in a

generation of relative abundance now.

While for the Western world it is going to

be a demographic winter, we in India with

some effort should be reaping a demo-

graphic dividend. It is an India full of good-

ies –better consumption and lifestyle are in

attendance all around. Spending power, op-

portunities, and the splurging propensity

have been shooting up. So free markets

working for profi ts have delivered? Well,

poverty ratios have gone down, the per

capita income is growing, the economy is

expanding at a fast pace. So where is the

problem? Well, poverty ratios have gone

down, not the number of poors. Poors still

remain vulnerable, largely unprotected –

socially, economically, or legally. And, most

signifi cantly, India has defi nitely performed

dismally as far as inclusive growth is con-

cerned. The shift to inclusive growth as a

leitmotif of policy discourse is of recent vin-

tage. This shift marks a broadening of con-

cerns about inequality. The focus has been

on how the excluded groups can participate

in aggregate growth. This takes policy dis-

cussions to the domains of education,

health, basic infrastructure, agricultural

productivity, basic urban services and so on.

Let’s emphasize that without addressing

those issues, India’s longer term develop-

ment prospects would be in jeopardy. Struc-

The First Words And The Last Word

Aspiring Change: Will Past Be A Prologue Of The Future?

Prasoon.S MajumdarManaging Editor

M.N.V.V.K.ChaitanyaDeputy Editor

CREDITS Founder

Dr. M. K. ChaudhuriEditor-in-Chief

Arindam ChaudhuriManaging Editor

Prasoon.S. MajumdarDeputy Editor

M.N.V.V.K. ChaitanyaConsulting EditorPrashanto BanerjiResearch Fellows

Pathikrit Payne Sray AgarwalAkram HoqueMrinmoy Dey

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and graphics. M.N.V.V.K. Chaitanya

Prasoon.S.Majumdar

tural inequalities in India are not only

deep and persistent, they are also inti-

mately linked with institutional struc-

tures in the political, social, and eco-

nomic domains – and they are likely to

impede the transformations necessary

for long term growth too. One can iden-

tify structural inequalities as witnessed

in oligarchic capitalism, group based in-

equalities, spatial differences, interstate

disparities, and education and skill based

differences. And what could be the pos-

sible remedial actions? These incidently

are the sub themes we pursued in this

issue– can turn future sustained high

growth into a unique opportunity to

build a more equitable and cohesive so-

ciety. You are invited to participate in

the discussion. Happy Reading.

Best

(F)ACT SHEET

PROBLEMS & PERSPECTIVES: The Beautiful TreePrivate Sector and Quality ConcernsAmit Kaushik 08PROBLEMS & PERSPECTIVES: Demographic DilemmasIndia’s Demographic Transition: Dividend or a Disaster?Anand Teltumbde 12PROBLEMS & PERSPECTIVES: Emerging IndiaGlobal Financial Crisis and Indian EconomyG. Thimmaiah 20PROBLEMS & PERSPECTIVES: Indigenous IndiaTrade, Corporate Market and Indigenous PeopleGoldy M. George 28PROBLEMS & PERSPECTIVES: Indian IndigenceImpact of Environment on Poverty in IndiaT. Koti Reddy 32

PROBLEMS & PERSPECTIVES: Inclusive IndiaFinancial Inclusion: Enabling Inclusive GrowthSwati Raju 42PROBLEMS & PERSPECTIVES: Whither India? Growth Sans Development ?B.K. Thapliyal 50PROBLEMS & PERSPECTIVES: Growth GoalsIncome and Inequality in IndiaJoydeep Goswami and Subrata Bandyopadhyay 56PROBLEMS & PERSPECTIVES: A Long Road Ahead India: Economic Growth Sans DevelopmentT S Mohanchandralal 66PROBLEMS & PERSPECTIVES: An Actionable Agenda India : Growth Sans DevelopmentTushar Kanti Das 72PROBLEMS & PERSPECTIVES: Profound PrioritiesIs there any Relationship between Economic Growth and Human Development? Evidence from Indian StatesSacchidananda Mukherjee and Debashis Chakraborty 80PROBLEMS & PERSPECTIVES: Crucial Convergence India and the Crisis of Civilization:Potential Impacts of Converging Ecological, Economic and Energy Catastrophes Nafeez Mosaddeq Ahmed 90PROBLEMS & PERSPECTIVES: Food FirstFood Security in North-EastIndia in the Post Globalisation Era Utpal Kumar De 98ENERGY ECONOMICS: Fuelling GrowthIs LPG a Sustainable Cooking Fuel for India? A Study in Managerial Economics

Debesh C Patra 110ENVIRONMENTAL ECONOMICS: Gandhian Good Gandhian Model for Sustainable Forest ManagementG Bhalachandran 116HEALTH ECONOMICS: An Economic Diagnosis Problems and Solutions of Shortage of Physicians in the USA and its Impact on Developing CountriesShamim Mohammad 128INTERNATIONAL ECONOMICS: Change For GoodGlobal Economic Uncertainties: Essential Coordinated Governance K. U. Mada 134POLITICAL ECONOMY: MicroMacroPolitics, Governance, Political Economy of Development or Stagnation: West Bengal 2009 Amiya K. Chaudhuri 144WELFARE ECONOMICS: MicroMacro Creating Jobs for Rural Youth in Andhra Pradesh, India Meera Shenoy, Smriti Lakhey and Parmesh Shah 160MANAGERIAL ECONOMICS: MicroMacro Retailers’ Preferences for Coca Cola: A Case Study With Special Reference to the Kolkata RegionRuma Kundu, Indraneel Mandal and Mithun Chakraborty 168MONETARY ECONOMICS:Price PuzzlesInfl ation and Its CuresMadhusudan Raj 174CARE ECONOMICS: Pilgrims & ProgressReligion and Economics: An Empirical AnalysisAtanu Sengupta and Krishanu Nath 182WHAT NEXT: A Long Road AheadWhen Nationalism is SocialismPathikrit Payne 190

Cover Design: Saurabh Mishra

P R O B L E M S & P E R S P E C T I V E S

8 T H E I I P M T H I N K T A N K

PRIVATE SECTOR AND QUALITY CONCERNS

disadvantaged children between the ages of six and fourteen years from their immediate neighborhood, at least to the extent of 25 percent of their strength in the entry class.

Although the Act has yet to be notifi ed, not surprisingly, this provision has managements of recognized private schools up in arms. Joining them, albeit for very different reasons, are the proprietors of the unrecognized private schools, who risk monetary fi nes and jail terms if they continue to operate their schools without seeking recognition as prescribed under the Act. Ironically therefore, an Act that seeks to universal-

The last two or three years have witnessed a fairly vigorous debate in the education space over the role of the private sector in education, particularly at the

elementary level, and its merits and/or otherwise. The somewhat contentious provisions of the then Draft Right to Education Bill, 2005, recently passed as The Right of Children to Free and Compulsory Education Act, 2009, also contributed to this debate. Among other things, the Act stipulates that even unaided schools under private manage-ment would be responsible for providing free education to

T H E B E A U T I F U L T R E E

9T H E I N D I A E C O N O M Y R E V I E W

Liberalizing the school sector

would result in the emergence of educational

entreprenuers and a new market

Amit KaushikChief Operating Offi cer, Pratham Education Foundation, Delhi Area, India

ize elementary education for children in India has succeeded in alienating a signifi cant proportion of those who are engaged in contributing to that very objective.

While the numbers offered by different sources vary slightly, it does appear to be more or less agreed that private (recognized) schools in India account for anything between 15-25 percent of available schools. The District Information System for Education (DISE) data for 2007-08, released in November 2009, places the number of schools under private, unaided management at 173,282 out of a total of 1,250,775 schools in India1, or about 14 percent. If one adds the number of aided schools under private management, we arrive at a fi gure of nearly 20 percent. According to NCERT’s 7th All-India Educational Survey based on fi gures for 2002, enrolment in such private schools was 15 percent and 19 percent at the primary and upper primary stages respectively. While NUEPA and NCERT data capture the picture as related to recognized schools, ASER only notes the fact of private school enrol-ment without distinguishing between recognized or other-wise, thus providing the slightly higher fi gure of 21.8 percent children enrolled in private schools in 2009.

While there are minor variations in the private school enrolment indicated by ASER between 2007-2009, it would seem to be fairly clear that roughly one-fi fth of elementary schools in India are under private management. If one adds the number of unrecognized private schools, about which little data is available, the percentage of children enrolled in what may be called non-government schools may be conserv-atively assumed to be between 25-30 percent, if not more. A study in 2006 showed that even in rural areas, almost 28 percent of the population had access to fee-charging private schools2. In 2009, ASER data indicates that nearly 44 percent villages have access to private schools, and it would seem safe therefore to assume that this is a sector that is now

well established.At the same time, it may not be correct to presume that

private schools are coming up in the absence of government schools; in many cases, they come up in areas with poor government school performance3. Various studies have shown that while the private school sector has grown in recent years, leading to a decline in the relative enrolment in government schools, the former do not necessarily compete with the latter in terms of addressing unmet demand.

Rather, in establishing themselves in areas where government schools already exist, these private schools meet differentiated or quality demand, attracting children from higher-income groups or from advantaged social groups4 .

Many years ago, when Milton Friedman fi rst postulated his concept of vouchers in schools, he was con-vinced that liberalizing the school sector would result in the emergence of

a market where none existed, with educational “entrepre-neurs” entering the market to take advantage of opportuni-ties offered and in turn, to offer quality school services5. While the effectiveness of voucher programmes remains a matter of some debate, it does seem true that the desire of parents to fi nd an alternative to poorly performing govern-ment schools may have led in recent years to a growth in the number of available private schools, under both recognized and unrecognized management. In his book, The Beautiful Tree6, James Tooley argues quite convincingly that notwith-standing the costs involved, poor parents in urban areas are choosing to vote with their feet and move their children from free government schools into private (and in many cases, unrecognized) schools, thus setting off an increase in the number of such schools.

It is certainly true that there is greater interest in estab-lishing private schools today than there was earlier; no longer viewed as a purely philanthropic activity, the setting



up of private schools is now attracting more and more corporate fi rms who see this as a potential business. In the case of some real estate developers, it is even being seen as another form of forward integration, making the purchase of apartments in their developments more attractive by virtue of guaranteeing a “good” school in the neighborhood; a case in point is the recent announcement by a well-known real estate group, of a chain of 150 CBSE schools to be set up all over India. Similarly, the provisions of The Right of Children to Free and Compulsory Education Act, 2009, requiring the earmarking of 25 percent seats for children from disadvan-taged families, are being viewed by many in the private sector as an opportunity to invest in setting up schools, in order to take advantage of the “guaranteed” reimbursement of costs by government.

The government’s proposal to establish 2500 “model” schools in various districts through the Public Private Partnership (PPP) mode has also generated signifi cant interest in the private sector, with several corporate houses exploring options of investing in the sector. Thus, the creation of educational “entrepreneurs” does appear to be taking place to some degree, even though the numbers remain comparatively small.

But what of quality in these private schools? As ASER 2008 showed, when various variables such as family background, income and others are controlled for, the difference in learning levels between government and private schools becomes marginal7. Similarly, Education Initiatives (EI), India’s largest private sector testing organi-zation, found that “any lead that private schools show in their learning outcomes over government schools can be com-pletely explained away by... (1) Students’ socio-economic background, (2) students’ initial levels, (3) rote/procedural nature of learning tested. In other words, if you control for factor 1, look for improvements between say, Grade 3 and Grade 7 (to nullify any initial advantage), and the test is not rote/testing procedural knowledge only, private schools (do not) show any advantage over government schools”8. In part of course, the trouble arises on account of the usual assump-tion in reference to private schools—they are generally seen to be high-end private schools of the likes of say, a Delhi

Public School in New Delhi or a Cathedral in Mumbai. The reality however, is that a majority of private schools are only marginally different from their counterparts in government; the major difference lies in their ability to ensure account-ability amongst the teaching staff.

In fairness, it must be said that this is an area that remains open to debate and further research. Tooley for instance, records a difference of 16-17 percentage points in the learning levels of children in private schools in urban areas, as compared to their counterparts in government schools9, but it is not clear whether this is after controlling for factors of the nature mentioned in the preceding paragraph. His fi ndings are clearly in contradiction to fi ndings elsewhere, so there is certainly a case for deeper examination of the underlying causes.

Given that ASER 2009 data reconfi rms what has been observed in earlier years in respect of enrolment, fi nding only about four percent children in the 6-14 year age group still out of school, the question of what happens to the 96 percent children in school acquires great signifi cance. Since this year’s data has been discussed in some detail else-where in this report, let us take just one example, that of reading ability; on an overall basis, ASER 2009 fi nds that

nearly 47 percent children in Class 5 are unable to read a Class 2 text. More worryingly, at the national level, the percentage of children in Class 5 unable to read a Class 2 text actually shows an increase between 2008 and 2009, from 44 percent to 47 percent. Regardless of how the difference between government and private schools is explained, the fact remains that these are unacceptably high numbers.

Going forward, two conclusions would appear to be inescapable; fi rst, private management participation in the school sector is only likely to increase over time, and it may be wise to develop policies that address this situation. It may even be time to move away from our traditionally hypocriti-cal approach to private investment, which insists that such investment should be on a not-for-profi t basis, thus compel-ling school operators to fi nd alternatives by which they can make a return on their capital, to a regime that actively encourages private investment within a regulated environ-

Unlike the government

schools, all private schools ensure accountability amongst the teaching staff

T H E B E A U T I F U L T R E E


ment. Second, action is urgently required to improve quality in our classrooms, whether these are in government or private schools. A failure to address this need will lead to increasing numbers of children going through the school system without learning very much, something that no nation can afford.

The most signifi cant thing that ASER has done over the last fi ve years has been to focus attention on the need to improve learning outcomes. Greater public awareness and parental demand, improved infrastructure and more re-sources have brought us to a point where enrolment is reasonably satisfactory. But we would be failing future generations if we do not take this to the next logical step, improving what children do once they’re in the classroom. It is to that—regardless of whether the child is in a government or private school—that we must now turn our attention.

Endnotes and Additional Thinking1 Mehta, Arun C (2009), Elemen-

tary Education in India,

Where Do We Stand? State Report Cards 2007-08, New Delhi: National University for Educational Planning and Administration

2 Muralidharan, Karthik and Kremer, Michael (2006), “Public and Private

Schools in India”, Harvard Univer-sity, Boston.

3 bid.4 Tilak, Jandhyala B.G. and Ratna M.

Sudarshan (2001), Private School-

ing in Rural India, NCAER Working Paper No. 76, New Delhi: National Council for Applied Economic Re-search.

5 Friedman, Milton (1955), “The Role of

Government in

Education”, in Economics and the

Public Interest, Robert A Solo (Ed), New Brunswick, NJ: Rutgers University Press.

6 Tooley, James (2009), The Beautiful Tree, New Delhi: Penguin Books India.

7 Wadhwa, Wilima (2009), “Private Schools: Do They

Provide Higher Quality Education?”, in Annual Status of Education Report (Rural) 2008, Mumbai: Pratham Resource Centre.

8 Sarangpani, Padma (2009), “Quality, Feasibility and

Desirability of Low Cost Private Schooling”, in Economic & Political Weekly, Vol. 44 No. 43, October 24th - October 30th, 2009, New Delhi

9 Tooley, James (2009), op cit.

(The views expressed in the write-up are personal and do not

reflect the offi cial policy or position of the organization.)


nkingC (2009), Elemen-

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Stand? State2007-08, Newl University foranning and

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dia, NCAERNo. 76, New

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INDIA’S DEMOGRAPHIC TRANSITION: DIVIDEND

OR A DISASTER?

Anand TeltumbdeManaging Director, Petronet India Limited, Mumbai

A section of the intellectual class which has chosen to sing paeans to the ruling class policies has been striving to cover up the ugly reality of India with a

thick coat of nationalistic fervor that India will emerge as a superpower in this century. It tried showing India’s neolib-eral reforms in brighter light chanting the success story of GDP growth while they were devastating the countryside and were creating a crisis of livelihood for majority of people. Under the load of negative evidence, they lowered their pitch and began painting bright future for India along the superpower theme. The demographic transition, which may be viewed as a cyclical phenomenon created by asyn-chronous trends of fertility and mortality experienced by every country in the developmental context, some time or other is being noted as India’s ‘demographic dividend’, which will give it a unique competitive edge over many countries and realize her superpower ambition.

D E M O G R A P H I C D I L E M M A S


India’s Demographic TransitionDemographic transition is the change societies undergo from a premodern regime of high fertility and high mortality to a postmodern regime of low fertility and low mortality as observed in the case of European and American population history during 1930s. This shift is typically seen from short lives and large families to where people tend to live longer lives and raise smaller families. Observed trends suggest that both size and age structure of the population in all countries tend to change over time because of this transition. About one-third of the world’s countries have completed this transition and another third of all countries are in the transition’s early or middle phases. Most are in sub-Saharan Africa and the Middle East, while others are scattered across southern Asia and Latin America.

American demographer Warren Thompson presented demographic transition in three stages. The fi rst stage depicted rise in proportion of young people in the population. The second stages marked signifi cant increase in the working age population while the proportion of young people declined and that of the

Period Total Fertility

Population growth

Rate

Crude Bith Rate

Crude Death Rate

Life Expectancy at Birth

(Both Sexes)

1950-1955

5.91 1.79 43.4 25.5 37.9

1960-1965

5.82 2.06 40.5 19.9 44.0

1970-1975

5.26 2.21 37.3 15.2 50.4

1980-1985

4.50 2.24 34.4 12.0 56.0

1990-1995

3.86 2.01 30.7 10.4 58.8

2000-2005

3.11 1.62 25.4 8.9 62.0

2010-2015

2.52 1.27 21.0 8.1 65.2

2020-2025

2.12 0.92 17.2 7.9 68.1

2030-2035

1.86 0.58 14.2 8.3 70.5

2040-2045

1.85 0.37 13.0 9.2 72.4

2045-2050

1.85 0.25 12.4 9.7 71.4

Table 1: India’s Demographic Advantage

Source: Population Division of the Department of Economic and Social Affairs of the United NationsSecretariat, World Population Prospects: The 2008 Revision, http://esa.un.org/unpp, Tuesday, March 02, 2010; 1:10:56 PM.



Population aged 15-59 Dependency ratio

Year (Thousand) (percentage) Total Child Old-age

1950 212 418 57.1 68 63 5

1955 227 258 55.9 73 68 5

1960 242 336 54.1 78 72 5

1965 263 130 53.0 82 76 6

1970 296 395 53.6 79 73 6

1975 335 649 54.4 77 71 6

1980 380 171 54.9 75 69 6

1985 429 113 55.4 73 67 6

1990 482 844 56.0 71 65 7

1995 542 673 56.9 69 62 7

2000 607 532 58.3 65 58 7

2005 677 099 59.9 60 53 7

2010 748 653 61.6 56 48 8

2015 810 563 62.6 52 44 8

2020 868 259 63.5 49 40 9

2025 918 679 64.2 47 36 11

2030 961 653 64.8 45 33 12

2035 993 795 65.0 44 30 14

2040 1 011 317 64.6 44 28 15

2045 1 014 055 63.6 45 27 18

2050 1 004 176 62.2 47 27 20

Table 2: Working Age Population and Dependency Ratios

Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2008 Revision, http://esa.un.org/unpp, Tuesday, March 2, 2010

old increased modestly. The third stage represented a decline in the proportion of working-age along with the rise of old people. Japan and parts of Western Europe are already past the second stage while most of East and South-East Asia, having enjoyed the second stage for more than four decades is soon following suit. India, in contrast, is just entering the second stage and its share of the working age population is expected to increase until 2035 and beyond.

Table 1 provides the demographic trend from 1950-2050, which illustrates that India’s fertility has been consistently falling from the peak 5.91 percent in the fi rst decade after independ-ence to 2.76 percent today and expected to fall further to 1.85 percent. Even the death rate (per 1000) also likewise shows consistent decline from its peak of 25.5 in 1950-55 to 8.5 today and to the lowest of 7.9 in 2020-2025, which then looks up and goes on rising to a moderate value of 9.7 in 2050. Even the data on other parameters like population growth rate, crude birth

rate, life expectancy provided in the table are consistent with this positive demographic transition.

Economic Pay-Off of ‘Demographic Transition’Economic advantage of demographic transition to the countries materializes through a number of mechanisms. The most important are labour supply1, savings, and human capital. Labour supply is increased in two ways: maturation of baby boom populations to the working age of 15 to 59 and induction of women into the workforce as family size declines.2 The demographic transition leads to the growth of savings in two ways. One, through the reduction of dependency ratio, which is the ratio of non-working age population (all the children until they reach the working age and all the old people who are past the working age) to the population actually in the workforce. Two, the behavioural effect insofar as the working people relatively consume far lesser than the non-working ones, i.e., their propensity to save is more than that of the non-working people.3 The third mechanism is increase in human capital, which may be the least tangible, but most consequential in contributing to economy. The population that lives longer and stays healthier through demographic transition entails better education, and experiences deep-rooted changes in its culture which brings in great productivity benefi ts. Both the quantitative as well as qualitative increase in productivity ultimately spirals up savings in economy thereby investment and thence economic growth in a mutually-reinforcing manner.

It is estimated that during the 30-year period beginning with the mid-1960s, policies designed to take advantage of the favourable demographic phase contributed nearly two-fi fths to one-third4 of the total economic growth in the successful South East Asian countries.5 The Celtic Tiger, the present-day Ireland, which also attained rapid economic growth, appears to be another powerful illustration of the same phenomenon. The working-age population in East Asia grew nearly four times faster (an average of 2.4percentage a year) than its dependent population between 1965 and 1990. A virtuous spiral was thus created: population decline pushing up income and increased income further pushing down population growth. This is a major explanation, among others, of the phenomenal increases in national saving rates in East Asia in the last three decades to 30 percent or more.

The demographic transition on its own does not spell a dividend; it needs congenial policy intervention to become one.



In absence of such a policy intervention it could well turn out to be a threat. For instance, Latin America’s demography refl ects close similarity with East Asia’s. In 1965 Latin America and East Asia both had life expectancy in the upper 50s. Both followed similar improvements in public health to raise it to above 70 years today. There has been similar reduction in infant mortality in both the cases: Latin America’s 32 deaths per 1,000 live births as against East Asia’s 34 in 2000. The fertility rate has also fallen to the present level of 2.5, for many countries such as Brazil, Chile, and Uruguay, it being just above replacement levels (2.1 children per woman). Despite these similarities in favourable demographic changes with East Asia, Latin America could not see the economic growth of the former. While East Asia had a per capita annual growth rate between 1975 and 1995 of 6.8 percent, the growth rate for Latin America over the same period was one-eighth of that, at 0.7 percent. It clearly illustrated the importance of policy in capitalizing the opportunity through demographic transition.6 Military juntas and dictators ruling much of Latin America for most of the 20th century, until the late 1970s, could not provide the policy framework that the democratic regimes of East Asia could.

India’s Demographic DividendTable 2 provides the working age popula-tion (15-59 years) from 1950-2050 along with dependency ratios, for both pre and post working age. The data clearly reveals that the working age population had begun to rise from its lowest level of 53 percent in 1965 to the current 61.6 percent and would reach its peak in 2035 at 65.0 percent before declining thereafter. In 2050, it is estimated to be at 62.2 percent. This is perfectly refl ected in the total dependency ratio. The latter, when seen in terms of its two components, viz. child and old age, however gives a different picture. While child dependency consistently declines from its peak of 76 percent in 1965 to 27 percent in 2050, the old-age dependency rises right from its lowest value of fi ve percent in 1950 to its alarming level of 20 percent in 2050. Although this dependency pattern poses a serious challenge to our policy makers, India enjoys its prepon-derance of young age population for almost four decades. Indeed, India would be one of the youngest nations, with its median age lying between 25 and 30 over the next 15 years (2010

to 2025).7 The UN Population Division estimates that, over the next 10

years, India’s working age population is set to grow by a cumula-tive 120 million, signifi cantly greater than the expected increase of 33 million in China or 12 million in the US and rather decline of eight million in Japan and 18 million in Europe. By 2020, it appears that the US will be short of 17 million people of working age, China by 10 million, Japan nine million and Russia six million. India in contrast will have a surplus of around 47 million. In face of it, this demographic scenario provides a window of great opportunity for the country. As explained before, this opportunity is just one-shot and could pass us by if we are not prepared to grab it. Since, we are already in the zone of demographic transition; it would be pertinent to see our state of preparedness to exploit this opportunity.

India’s State of Preparedness The basic premise behind the discourse of demographic dividend is that the ‘bulge’ in our population pyramid is absorbed in our workforce and it comprises people with good health, education and skills to be productive over their working age. It implies that the current children who mature into our workforce are healthy, educated and skilled and our economy will provide them suitable employment. Viewed in this perspective, we are bound to get shiver down the spine looking at

the pathetic state we still are in.

Child Health Indian children are still in dismal state of health and nutrition. According to the NFHS 3, 78.9 percent of Indian children of six to 35 months suffer from anaemia. In fact, most children are born anaemic as their mothers suffer from anaemia - 56.2 percent married and 57.9 percent pregnant women between 15 to 49 years suffer from anaemia. According to a Unicef report, ‘Tracking progress on child and maternal nutrition’8 , the country has a whopping 61 million stunted children, the largest in any country-- three out of 10 world’s stunted children are in India. Stunting is associated with developmental problems and is often impossible to correct. A child who is stunted is likely to experi-ence a lifetime of poor health and underachievement. The same

India has a whopping 61

million stunted children. Three

out of ten world’s stunted children

are in India



report further tells us that there were 54 million underweight, 25 million wasted and over eight million severely wasted children in India. The large incidence of poverty in the country, some 77 percent people living off Rs. 20 per day income, is the root cause of the widespread nutritional deprivation in children. There is plethora of data that clearly establishes that a vast majority of our children with serious health defi ciency will constitute our working age population.

Education

In recent years considerable progress is made in terms of enrolment at all levels of education though it still falls short of the needs of demographic transition. The gross and net enrol-ment ratios at the primary education were at 108 and 86 percent in 2007, thanks to Sarva Shiksha Abhiyan and the mid-day meal scheme. The same at the pre-primary level was however at just 47 percent, refl ecting a lack of attention of the government to the preparatory phase of children, considered crucial in their capacity building. The secondary and tertiary level enrolments drastically drop to 53 and 12 percent respectively, way behind the comparable case of China which has it at 75 and 24 percent. And this is just the quantitative aspect; in terms of quality, the education situation is far more disturbing. From 1980s, with increasing commercialization of education, the overall standard has consistently fallen to appalling levels. It is taken for granted that quality education needs to be paid for extra and hence has been the monopoly of the upper classes. The majority being poor should live with poor quality.

Annual Status of Education Report 2005 based on the nationwide survey conducted by Pratham had revealed disturb-ing picture of our elementary education against the claims of quantitative improvements. 34.9 percent of all school going children in 7-14 year age group could not read even a short, easy paragraph (class 1 level) and 51.9 percent could not read a simple story (class 2 level). The current Annual Economic Survey (February 2010) states that over 47 percent children studying in class 5 cannot even read Class 2 textbooks. While this percent shows a decline from 56.2 percent in 2008 to 52.8 percent in 2009, the report expresses concern about the worsen-ing standards of education. With much of emphasis on elemen-

tary education to expand markets in recent years, the secondary education has been grossly neglected as revealed by a World Bank study –‘Secondary Education in India: Universalizing Opportunity’9. While it caters to fewer students, qualitatively it is not any better than the elementary level. As per the fi rst-ever offi cial assessment of the higher education system (123 universi-ties and 2,956 colleges across India, estimated 60 percent of them being private), conducted by UGC’s Bangalore-based National Assessment and Accreditation Council (NAAC), 90 percent of colleges and 68 percent of universities across the country were of middling or poor quality on almost all indicators - faculty standards, library facilities, computer availability, student-teacher ratio and so on.10 According to an ASSOCHAM Eco Pulse Study based on twenty quality parameters relating to primary, secondary, tertiary and higher education system, India came out last but one (just above Indonesia- score 2.68) among the seven countries with a score of 3.3 out of 10. Russia was at

the top with score of 7.28 followed by China with 6.77, Brazil with 5.57, Mexico with 5.42 and South Africa with 3.29.11

Our education system represents huge inequity. While a tip of it may compare with the best in the world, the rest is just nowhere. The recent Right to Education Bill with lofty proclamations on paper formalizes the existing iniquitous basis of education and is callous about the overall quality of education. In utter ignorance of the Kothari Commission (1966) recom-

mendations to have equitous universal and state funded education in line with what was envisaged by the Constitution, it sought to promote neoliberal principle of public-private partner-ship in the education market which could only be detrimental to the interests of the bulging mass of youth.

Employment

The state of health and education has a serious implication to the quality of workforce, which essentially determines whether the demographic transition will prove boon or bane to us. The nutrition defi ciency extensively prevalent among children does impair their physical as well as cerebral capacities. The defi cien-cy of our education system is refl ected in the low skill level of our young people. The overwhelming majority of the work force not only in rural areas but also in urban areas, does not possess

90% of colleges and 68% of

universities across India were of

middling or poor quality, on almost

all indicators



any identifi able marketable skill. Only 19.6 percentage of male and 11.2 percentage of female workers in urban areas and 10 percentage of male and 6.3 percentage of female workers in rural areas possessed marketable skills. The percentage of younger members of the workforce (age group 20-24) having vocational skills is just fi ve percent in India whereas in industrial countries it varies between 60 percentage and 80 percentage, except for Italy, which is 44 percentage. The percentage for Korea, which has recently been categorized as an industrialized country, is at whooping 96 percentage. Even the developing countries have better score than India: Mexico at 28 percentage and Peru at 17 percentage.12

In recent years the Indian economy has been undergoing drastic structural change in favour of Services at the cost of Agriculture. The current contribution of Agriculture, Manufac-

Rural India Urban India

15-19 20-24 All 15+ 15-19 20-24 All 15+

Males

Usual Status

1993-94

3.3 4.9 2.0 11.9 12.6 5.4

1999-00

5.5 5.2 2.1 14.2 12.8 4.8

2004-05

7.9 6.2 2.1 14.0 12.5 4.4

Current Daily Status

1993-94

9.0 10.3 5.6 16.2 17.0 6.7

1999-00

13.1 11.7 7.2 19.0 17.1 7.3

2004-05

15.0 12.9 8.0 18.4 15.8 7.3

Females

Usual Status

1993-94

19.0 2.8 1.3 12.8 21.7 8.3

1999-00

3.2 4.9 15.0 13.2 19.4 7.1

2004-05

6.7 9.3 3.1 15.6 25.8 9.1

Current Daily Status

1993-94

8.3 8.2 5.6 18.6 28.5 10.4

1999-00

12.8 12.1 7.0 18.0 25.9 9.4

2004-05

12.6 14.9 8.7 16.4 27.3 11.6

Table 3: Unemployment Rates among Young Peo-ple and Overall Population

Source: Jayati Ghosh and C.P. Chandrasekhar, Economic Growth and Employment Generation in India:Old Problems and New Perspectives. http://www.networkideas.org/feathm/mar2007/fa10_Jayati_Ghosh.htm

turing and Services is 17, 20 and 63 percent respectively, with approx 56, 21 and 23 percent workforce engaged in them. Most of this workforce (94 percent) is in unorganized sector, without any security of tenure whatsoever. Its growth in recent years implies that the quality of employment is deteriorating fast. Given India’s baby boomers joining the workforce by millions each year, the country’s economy needs to create 10-20 million new jobs each year. Our performance however has been dismal on this front which is evidenced by the rising percentage of self-employed people. The government’s employment guarantee schemes like NREGA notwithstanding, the offi cial rate of unemployment has been rising in recent years as shown in the Table 3.13

We are already in the midst of the demographic transition and hence the necessary institutional and policy framework to reap its benefi ts should have been already in place demonstrating its effi cacy. But unfortunately that is still not visible. The time is passing us by and with it our problems are only leaping skywards. It is certain that we will not be able to absorb the burgeoning working age population, least provide them worthwhile jobs over the next two decades. As such, with falling employment elasticity world over, this is the larger challenge to the mankind and India cannot be an exception. Surely, those from the upper classes endowed with market oriented educations and skills would be in short supply given the global demand, but most of the rest would face acute crisis of living. This is bound to pose serious civic and political challenge which could jeopardize or even reverse the economic dynamic towards utter uncertainty.

Some Qualifying ConcernsNotwithstanding the above analysis, what is claimed as India’s demographic dividend may not look the same if one takes a micro look at the composition of demographic transition. Table 4 and 5 provide population projections for the North and South India. These two tables clearly shows that South India had entered the favourable demographic phase in the 1990 and is rather expected to exit it in the next 15 years time. On the other hand the North will enter this phase in the next 10 years and remain in this phase until 2025. By the year 2025 the population of South India would have begun to grey. The median age of the population would have gone up from 26 years in 2000 to 34 years in 2025, and nine percent of the population would be of age 65 years and over. On the other hand, the North India would have a relatively young population with a median age of 26 and only four percent of the population aged 65 and over. What we see as



Demographic Indicators 2000 2005 2010 2015 2020 2025

Total Population (millions) 450 498 547 597 649 699

Population Density (per sq. km)

319 353 388 424 461 496

Share of All-India population (%)

45 46 47 48 49 50

Females per 1000 males 924 920 918 917 918 919

Growth rate for preceding 5-years (%)

Total population 2.17 2.02 1.88 1.78 1.66 1.47

Population age 15-64 years

2.23 2.45 2.39 2.24 2.04 1.82

Percent 0-14 years 38.1 36.6 34.9 33.3 31.8 30.2

Percent 15-64 years 57.6 58.9 60.4 61.8 63 64.1

Percent 65+ years 4.3 4.5 4.7 4.9 5.2 5.7

Median age 21 22 23 24 25 26

Dependency ratio (percent):

Child (0-14) 66 62 58 54 50 47

Elderly (65+) 8 8 8 8 8 9

Total 74 70 66 62 59 56

Population 6-14 years (millions)

97 105 111 115 120 125

Crude Birth Rate (per 1000)

32.4 29.9 27.8 26.4 24.4 21.9

Crude Death Rate (per 1000)

11.3 10.5 9.7 9.2 8.6 8.1

Crude Growth Rate (per 1000)

21.1 19.4 18.1 17.2 15.8 13.8

Net Reproduction Rate 1.68 1.57 1.45 1.35 1.26 1.15

Table 4: Key Results of Population Projection for North India, 2000-2025

Source: P.N. Mari Bhat, Indian Demographic Scenario, 2025. Population Research CentreInstitute of Economic Growth, Delhi. June 2001

Demographic Indicators 2000 2005 2010 2015 2020 2025

Total Population (millions) 220 232 242 251 258 265

Population Density (per sq. km)

346 365 381 394 406 417

Share of All-India population (%)

22 21 21 20 19 19

Females per 1000 males 988 987 987 988 989 991

Growth rate for preceding 5-years (%)

Total population 1.26 1.05 0.86 0.7 0.61 0.53

Population age 15-64 years

1.79 1.67 1.39 1.15 0.83 0.55

Percent 0-14 years 30 27.5 25.3 23.2 21.7 20.5

Percent 15-64 years 64.4 66.4 68.2 69.8 70.5 70.6

Percent 65+ years 5.6 6 6.5 7 7.8 8.9

Median age 26 27 29 31 32 34

Dependency ratio (percent):

Child (0-14) 47 41 37 33 31 29

Elderly (65+) 9 9 9 10 11 13

Total 55 51 47 43 42 42

Population 6-14 years (millions)

40 39 38 36 34 33

Crude Birth Rate (per 1000)

20.7 18.3 16.4 15.1 14.5 13.7

Crude Death Rate (per 1000)

8.6 8.6 8.6 8.7 8.7 8.8

Crude Growth Rate (per 1000)

12.1 9.7 7.8 6.4 5.8 4.9

Net Reproduction Rate 1.03 0.95 0.87 0.83 0.84 0.85

Source: P.N. Mari Bhat, Indian Demographic Scenario, 2025. Population Research CentreInstitute of Economic Growth, Delhi. June 2001.

Table 5: Key Results of Population Projection for South India, 2000-2025

the potential demographic advantage of India is rather the resultant of these two profi les, mostly pertaining to the relatively undeveloped North. Having nearly squandered the advantage associated with South, we would rather face more challenging situation emerging in North created by expanding population of young people with relatively low endowment.

Finally, the bulge enters the old age bracket, as is happening in the developed countries, epitomized by Japan currently. The high savings, high investment and high growth associated with the positive democratic transition have to reverse as the depend-ency rises, particularly old-age dependency, unless productivity increases neutralize the demographic defi cit. Table 2 indicates that India’s old age dependency in 2050 is at 20, certainly one of

the lowest in the world; China being at 38, Brazil and Mexico at 36. However, just this ratio does not make a good measure of actual dependency, which rather arises from the combined infl uence of physiology, culture, institutions, and economic choice, in ways that we take as given.14 In India, 50.78 percent rural and 57.35 percent urban old-age people are totally dependent and 15.20 percent rural and 13.71 percent urban old-age people are partially dependent on others. The incidence as well as intensity of old-age dependency in India is thus far higher than anywhere in the world. It could have serious dampening effect on savings and thereby economy unless mitiga-tive institutional and policy measures are taken in time.



ConclusionIndia has tremendous potential advantage in its demographic transition although its temporal mismatch in its developed (South) and undeveloped (North) parts might substantially reduce it. Such demographic advantage however is the one time gift to the countries which needs to be capitalized with the backing of appropriate economic, social and political institutions and policies. Otherwise, it could easily lead to higher levels of unemployment and give rise to social unrest. Moreover, if it is allowed to slip off without capitalization, it soon turns into rising liability on account of rising old-age population. India’s appar-ent low ratios of dependency mislead one into ignoring this mounting burden. They may be escalated substantially to be truly comparable with others.

India has already allowed much of this advantage to lapse. There is no indication yet in the policy trend that it would catch up with it before it lapses. On the contrary, this advantage is manifesting into a grave unemployment crisis. Its run after the neoliberal mirage of economic growth at the cost of distribu-tive justice has already done signifi cant damage to the econo-my. Much of its advantage is currently being monopolized by the increasingly smaller numbers of the elite to make it the fastest producer of Dollar billionaires in the world while the majority is faced with crisis of survival. This growing inequality is bound to feed the fury of the majority of youth which is getting pushed into nowhere in absence of jobs. If our policy makers realize the incipient danger through this demographic transition, which is fast passing us by, and shun their elitist policy myopia, it would prove to be the greatest dividend to us through this demographic learning.

Endnotes and Additional Thinking1 Bloom, Canning, and Sevilla (2000), Labor Force Dynamics

and Economic Growth, paper presented at the August 2000 Summer Institute of the National Bureau of Economic Research, Labor Studies Program.

2 See http://www.ilo.org/public/english/bureau/stat/newsletr/nine.

htm. [Last Accessed: 4th March 2000] 3 C.H. Paxson (1996), “Savings and Growth: Evidence from

Micro Data”, European Economic Review, Vol. 40, pp. 255-288; and A. S. Deaton A.S. and C. H. Paxson (1997), “The Effects of Economic and Population Growth on

National Savings and Inequality”, Demography, Vol. 34, pp. 97-114.

4 D. E. Bloom and J. G. Williamson (1998), World Bank Economic Review, 12 (3), 419. D. E. Bloom, D. Canning, P. N. Malaney (2000), Population Development Review, 2000, Supplement to Vol. 26, pp. 257-290.

5 Bloom, D. and Williamson, J. (1998), Demographic Transi-

tions and Economic Miracles in Emerging Asia. World Bank Economic Review 12, 419-56; Bloom, D., Canning, D., and Malaney, P. (2000), Demographic Change and Economic

Growth in Asia, Population and Development Review. Vol. 26, supp., pp 257-290.

6 Inter-American Development Bank (2000), Development

Beyond Economics, IDB 2000 report, Washington DC. 7 During 2010 to 2025 China’s median age will rise from 34 to

39. In the US, Western Europe and Japan it will rise from 37, 42 and 45 to 39, 46 and 51, respectively.

8 United Nations Children’s Fund (UNICEF) (2000), ‘Tracking

progress on child and maternal nutrition: A survival and

development priority’, November 2009. http://www.unicef.de/fi leadmin/content_media/mediathek/

AR_046_Tracking_Progress_Nutrition_2009.pdf. [Last Accessed: 4th March 2000] 9 http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXT

EDUCATION/0,,contentMDK:22339000~menuPK:282424~p

agePK:64020865~piPK:149114~theSitePK:282386,00.html. [Last Accessed: 4th March 2000]

10 Shubhajit Roy (2007), Higher education, lowest standards, Indian Express, Jun 10th, 2007.

11 Assocham Eco Pulse Study (2008), “Comparative Study of

Emerging Economies on Quality of Education”, November 2008. www.assocham.org/arb/aep/quality-of-education_

nov_2008.pdf. [Last Accessed: 4th March 2000] 12 Shailendra Sharma, Employment (vision 2025), Planning

Commission: http://planningcommission.nic.in/reports/sereport/

ser/vision2025/emp2025.PDF.[ [Last Accessed: 4th March 2000]

13 The rate of unemployment has risen from 7.3 percent in 1999-2000 to 8.35 percent in 2004-05, as the Labour and Employment Minister Oscar Fernandes informed the Rajya Sabh on 18.03.2008.

14 Martin, L.G., and Preston, S.H. (1994). Demography of

Aging, National Academy Press, Washington.

(The views expressed in the write-up are personal and do not reflect

the offi cial policy or position of the organization.)



GLOBAL FINANCIAL CRISIS AG. Thimmaiah Honorary Visiting Professor, Institute for Social and Economic Change, Bangalore

Global fi nancial crisis is an important economic event which engulfed the entire world towards the end of 2008. It resulted in the economic meltdown of USA

and Europe It proved the Marxian prediction of the inevitable collapse of capitalism. It also revived the interest in the long forgotten Keynesian solution of government intervention in economic activity to save the western capitalist economies. How is India affected by this global fi nancial crisis? How has the government managed the impact of the global fi nancial

crisis on the Indian economy?

Genesis of Global Financial CrisisIt is generally believed that the US housing bubble was the main cause for the US fi nancial crisis of 2007. That fi nancial crisis spread to other parts of the world through the intercon-nected globalized fi nancial markets. How did the US housing bubble emerge? Easy availability of mortgage loans for house buyers in general resulted in profl igate lending by mortgage banks to people who were previously refused housing loans on the basis of their low credit rating, (‘sub-prime’ borrowers, as they were not having regular income). But when there was easy availability of refi nance at low rates of interest from commercial banks and investment banks, mortgage banks

E M E R G I N G I N D I A


AND INDIAN ECONOMY overstretched their lending to prime borrowers and later to even ‘sub-prime’ borrowers. In order to replenish their funds, the house mortgage banks started securitizing their house mortgage loans and selling the securitized mortgage loans at a discount to investment banks, hedge funds and insurance fi rms. These securitized mortgage loans were rated for their credit quality by US credit rating companies like Standard and Poor, Moody and Fitch. Such credit rating encouraged the commercial and investment banks to take risk mainly guided by sheer greed of making profi t. They in turn packaged those securitized house mortgage loans which they had purchased from the mortgage banks and sold them to insurance fi rms and foreign banks through globalised capital markets. The total housing mortgage loans so packaged and sold amounted to a

woofi ng $10.5 trillion by mid-2007. The US Wall Street played a major role in transacting these securitized fi nancial instru-ments which were issued on the basis of house mortgage loans. When the foreign fi nancial institutions started purchasing packaged mortgage loans, mortgage banks started lending more to housing companies who in turn used that money for construction of more and more houses and selling them to fi nancially unviable buyers. However, the house mortgage banks, the original sinners, started facing delinquency in loan repayment from the ‘sub-prime’ borrowers and were forced to declare foreclosures, (public auction of houses), as they could not absorb the massive defaults of loans. When the mortgage banks and other fi nancial institutions failed to sell these securitized houses to other buyers, they became toxic assets on



their balance sheets. Such bad loans entered into the balance sheets of almost all fi nancial institutions which had partici-pated in the sophisticated process of mortgage fi nancing.

There was another factor which led to this kind of reckless lending resulting in housing loan defaults by the ‘sub-prime’ borrowers. After the great depression of 1930’s several banking regulations were introduced in USA. But those were ignored during and after the Second World War. But after the savings and loans banks failure in the USA in the 1980’s, more regulations were imposed on the operation of all types of fi nancial institutions like banks, mutual funds, hedge funds, mortgage banks, insurance fi rms and stock markets. They stabilized the America fi nancial system and USA experienced one of the longest growth trend during 1990’s. However, when there was world wide revival of the ideology of free market capitalism, Reagan administration scrapped most of the regulations of the USA fi nancial system. This encouraged American fi nancial intermediaries like commercial banks, investment banks, mortgage banks, mutual funds, hedge funds, stock markets, broking fi rms to innovate new instruments of trading in fi nancial assets like shares, debentures, and commodities like oil, food grains, metals and other raw materials. They devised new forms of derivatives, fi nancial futures, credit default swaps and used them in sophisticated futures trading. When the USA economy was booming in the early 2000’s, these fi nancial institutions encouraged the commercial banks, investment banks, insur-ance fi rms and hedge funds to trade the securitized housing loans through these newly created fi nancial instruments. What is more, such repackaged mortgage loans were sold to com-mercial banks, mutual funds and insurance companies outside USA. Many European, British, Canadian, Australian, Japa-nese and South Korean banks purchased them hoping to make profi t through capital appreciation.

Once the commercial banks, investment banks and insur-ance fi rms which had purchased securitized repackaged mortgage loans found these as good as useless, they started facing huge losses on their balance sheets. Once this negative fi nancial impact started, many big fi nancial fi rms like Bear Streans, investment banks like Lehman Brothers and Insur-

ance companies like AIG and even federally owned refi nanc-ing institutions like Fannie Mae and Freddie Mac faced huge losses and started laying off their employees. This led to fall in consumer demand through multiplier effect. All this led to the collapse of both investment and consumer confi dence in the American economy by mid-2007. What was worse, such bank losses were transmitted to other countries through the

globalized fi nancial markets and led to chain reaction all over Europe and England where Royal Bank of Scotland and Barclays bank faced severe losses which forced them to cut their labour force. This process spread to Middle East, Asia and even to Australia.

Thus, excessive lending by house mortgage banks to ‘sub-prime’ borrow-ers hoping to make more profi t from house sales created housing bubble. Failure of house buyers to repay their

loans to mortgage banks because of absence of regular income forced the banks to resort to public auction of houses. Failure to realize the invested amount from the securitized mortgage loans led to enormous losses to the fi nancial institutions which had invested in securitized loans. In order to minimize their losses, they laid off thousands of workers. This created sudden fall in domestic demand for not only domestic products but also for the products imported from many European, Asian and Middle East countries. Many Asian countries like Singa-pore, Malaysia, and Taiwan who were dependent on their exports to USA suddenly faced sharp decline in their export earnings. This is evident from the following Table 1:

(Goods and Services) % Change

2008 2009 2010 (Projected)

I. Exports From :

1. Advanced Economies 1.8 -12.1 5.9

2. Emerging Economies 4.4 -11.7 5.4

II. Imports Into:

1. Advanced Economies 0.5 -12.2 5.5

2. Emerging Economies 8.9 -13. 5 6.5

Table 1: Growth Rates of World Exports and Im-ports During Recession Years

What was worse, the bank losses

were transmitted to other countries

through the globalized

financial markets

Source: Economic Survey, 2009-10, GOI



Such decline in the demand for exports did not spare even emerging economies like China and India. This resulted in reduction of work force employed in export units. That in turn reduced domestic demand in their economies which resulted in fall in the growth rates of their GDP.

Even the fi nancial sector was not free from such globalised impact. As soon as the stock markets collapsed in USA and Europe, there was panic in the Indian stock markets. The foreign institutional investors who had invested in Mumbai stock market suddenly withdrew their investment. This naturally dipped the BSE sensex. The value of sensex which reached 17,578 on February 2008 declined to 16,371 on March 28th, 2008. It further declined to 14,043 on July 6th, 2009 because of the net selling by the foreign institutional investors (FIIs). Such decline was noticed in many other Asian stock markets also. Table 2 shows the change in the equity index value of share indices of major Asian countries in major Asian Stock Markets after the US fi nancial crisis. It may be observed that the downward pressure on the share values was severe in 2008. However, in 2009 share values recovered in some Indian and Chinese stock markets because of economic stimulus measures announced by their governments.

It may be observed from Table 3 that the Foreign Institu-tional Investors sold more than they purchased in their portfolio investment in India in 2008 resulting in net disinvest-ment in Indian equity and debt in 2008 when the fi nancial crisis was deep. This obviously resulted in loss of share value for the Indian companies whose shares were purchased by the FIIs. This was the only impact of the US fi nancial crisis on the Indian fi nancial system. There were no bank failures in India as it happened in USA and Europe. It has been estimated that the value of shares of international companies melted down by $14.5 trillion in 2008 which was more than the GDP of USA,


Equity Index 2007 2008 2009

BSE Sensex (India) 247.4 65.2 199.1

Hang Seng Index (Hong Kong) 121.2 1.1 74.2

Nikkei 225 (Japan) 43.4 -22.9 -5.3

TSEC Weighted Index (Taiwan) 44.4 -25.2 32.3

SSE Composite Index (China) 251.5 43.7 116.9

Table 2: Cumulative Change of Equity Index Over 2003 Level in Asian Stock Markets (Points)

FII Investment 2007 2008 2009

Gross Buying(B) 846295 769625 736010

Gross Selling (S) 765380 810841 648023

Net Investment (B-S) 80915 -41216 87987

Table 3: FII Investment in Equity and Debt In-struments of Indian Companies. (Rs. in Crores)


which was $13.8 trillion.The fi nancial crisis created by US house mortgage banks

was transmitted to the real economy through the mechanism of fi nancial losses forcing large scale lay off of their workers which in turn reduced consumer demand both for domestic and foreign products. This ultimately shrank the GDP of the countries which were connected through fi nancial globaliza-tion as well as international trade. The real economy of USA started melting down which was in turn transmitted to Euro-pean and Asian economies in the form of falling exports, falling domestic and foreign demand and ultimately fall in the growth rates of their GDP. The globalized interdependent economies started facing fall in their growth rates of GDP. This was the economic meltdown which originated from the US housing fi nancial crisis. It was estimated that the world output would grow by three percent in 2008 but likely to decline to a mere 0.8 growth rate in 2009. It was also estimated the advanced economies will grow only by 0.5 per cent as compared to negative growth in 2007 and their growth may improve only in 2009.

Impact of Global Financial Crisis on Indian EconomyThough the fi nancial crisis started in USA in August 2007, its impact on the real economy started manifesting only by September 2008 all over the world. When the process of fi nancial crisis was evolving in USA and Europe, Indian policy makers argued that since Indian fi nancial system was well regulated and not closely integrated with the global fi nancial system,(in the absence of full capital account convertibility of Indian rupee), its impact would be very minimal. However, Indian fi nancial system could not escape completely from the impact of the US fi nancial crisis. Some Indian banks were exposed to the toxic assets of the mort-gage banks of USA. One big private bank namely, ICICI bank, was exposed to the American toxic assets substantially.



It is true that the Reserve Bank of India had supervised the Indian banking system effectively and ensured adequate capital base for the banks. Their loan policies were also carefully watched which prevented any substantive impact on the Indian fi nancial system. As a result, Indian fi nancial system did not adversely impact the real economy of India. The macroeconomic fundamentals were reasonably in balance and hence the real economy was saved from any possible adverse impact from the well insulated fi nancial system.

Notwithstanding such prudent management of the Indian fi nancial system, the Indian economy could not escape from the adverse impact of the meltdown of the real economy in the west. After the introduction of structural reforms, Indian economy got integrated into the global economy. Globaliza-tion process integrated the Indian economy with the econo-mies of the west, which enabled India to move on to a higher growth path and reduce poverty. But that global economic integration itself exposed the Indian economy to adverse impact of the economic meltdown of the western countries. In other words, though the fi nancial crisis of USA did not spread to Indian fi nancial system, the meltdown of the real

Pre-Meltdown Years Meltdown Years

Sector 2006-07 2007-08 2008-09 2009-10

1.Agriculture, Forestry & Fishing

3.7 4.7 1.6 -0.2

2. Mining & Quarrying 8.7 3.9 1.6 8.7

3. Manufacturing 14.9 10.3 3.2 8.9

4. Electricity, Gas & Water Supply

8.5 10.0 3.9 8.2

5. Trade, Hotels & Res-taurants

11.2 9.5 5.3 8.3

6. Construction 10.6 10.0 5.9 6.5

7. Transport, Storage & Communication

12.6 13.0 11.6 Note

8. Finance,Insurance, Real Estate & Business Services

14.5 13.2 10.1 9.9

9. Community,Personal & Social Services

2.6 6.7 13.9 8.2

Total GDP of India from all sectors

9.7 9.2 6.7 7.2

Table 4:Sectoral Growth Rates of GDP in India in Pre-Melt Down and Meltdown Years. (At 2004-05 Prices) Percent

Note: Included under item 8.Source: CSO /Economic Survey,2009-10, GOI

economy of USA and Europe impacted the real economy of India. This is evident from Table 4:

It may be observed from the data presented in Table 2, that of all sectors of the Indian real economy, only mining and manufacturing sectors and to some extent trade were affected from 2007-08 by the economic meltdown of the western economies. This was obvious because of the fall in the demand for India’s iron ore and also due to the decline in exports particularly garment exports. Even then the Indian economy sustained an impressive growth rate of 9.2 percent in 2007-08. This was the second highest growth rate next only to China in the whole world. And this is in contrast to the shrinking of the real economies of many western econo-mies.

However, the Indian economy could not withstand the impact of the global meltdown beyond 2007-08. In 2008-09 there was an all round decline in the growth rates of GDP from almost all sectors except from community, personal and social services. Consequently, the GDP of the country could grow only at 6.7 per cent in 2008-09, a decline of 2.5 percent over the previous year. What became alarming was the sudden decline of the growth of exports from 29 percent in 2007-08 to 13.6 per cent in 2008-09, a negative growth of 20.3 per cent in 2009-10. All these declining economic activi-ties resulted in lay off of workers. It was estimated by Bibek Debroy (2009), that Indian export sector had created about six million direct jobs and another nine million indirect jobs. Of these, two million jobs were lost owing to the decline in exports. In the manufacturing sector about 25 percent of the workers were laid off. In the construction sector of Gulf countries about 20,000 workers, mostly from Kerala, lost their jobs. About 40,000 workers in engineering industry (cycle and hand tools), lost jobs though from all over India but mainly from Punjab and Tamil Nadu. In Gujarat about one lakh gems and jewellery workers were laid off. The garment industry laid off about fi ve lakh workers mainly in Punjab (Ludhiana), and Tamil Nadu (Tirusur). Job losses spread even to sun rise sectors like IT and BPO services. It is necessary to remember that whereas in western countries laid off workers get social security benefi t for almost six months until they get new jobs, in India out of 50 crore workers only about four crores are in organized sector where social security benefi t is provided. The rest the workers who are mainly in the unorganized sector have to fend for



themselves. The only social security for them is MNREGS which has come into effect only for the last fi ve years. Mr.Pranab Mukherji has made a beginning to provide them pen-sion and insurance benefi ts in his budget for 2010-11.

The efforts of the successive governments after the introduction of economic reforms to reduce poverty by achieving higher growth rates of GDP were made ineffective by the decline in the growth rate of GDP and large scale job losses on account of the meltdown of the real economy of India.

Policy Response to Economic Meltdown and Its ImpactThe above narrated economic melt down alarmed the UPA government in 2008 itself though the Union Finance Minis-ter asserted that it will not have much impact on Indian economy as it was well insulated from global economic events. However, the country was expected to face Parlia-mentary elections in middle of 2009 which added political weight to the plight of the unemployed. Alarmed by these ground realities, the policy makers swung into action. So on December 6th, 2008 the Prime Minister Dr. Manmohan Singh, who was tempo-rarily holding the fi nance portfolio, (after the exit of Shivraj Patil as Home Minister which resulted in shifting of P. Chidambaram as Home Minister), announced a very bold 14-point stimulus package to revive the Indian economy. These 14- points were fourteen stimulus measures. They were:1. Additional plan expenditure was increased by Rs. 20,000

crores for infrastructure development during next four months from December 2008 to March 2009.

2. Authorised Infrastructure Investment Finance corpora-tion to raise an additional amount of Rs. 10,000 crores by issuing tax-free bonds for spending on infrastructure development.

3. Excise duty reduced across the board by four percent. 4. Public sector banks were asked to lend housing loans up

to Rs. 20 lakhs at seven to eight percent interest. 5. Rs. 350 crores were allocated for providing export

incentives to revive exports.

6. Backup guarantee was announced for ECGC for up to Rs. 350 crores.

7. Two percent interest subvention was announced for labour intensive exports.

8. Rs. 1,100 crores were announced to ensure full refund of excise duty.

9. Additional Rs. 1,400 crores of assistance was announced for textile sector under TUF ( Technology Upgradation Fund) scheme.

10. The guarantee cover for loans to SMEs was doubled to one crore rupee.

11. The lock-in period for such collateral-free loans was reduced.

12. Government departments were allowed to take up replacement of vehicles.

13. Export duty on iron fi nes was eliminated.14. Import duty on naptha for use in power sector was eliminated.

In addition to these fi scal stimulus measures, the Reserve bank of India also announced monetary measures to increase the liquidity available in the economy particularly for export sector, housing sector, auto sector and construction sector. The RBI reduced the Repo rate from 7.5 to 6.5 and Reverse Repo rate from six to fi ve percent. The RBI also enhanced the

refi nance capacity of SIDBI to Rs. 7,000 crores and of NHB to Rs. 4,000 crores.

Thus the stimulus measures targeted power sector, exports, housing, automobile, SME and infrastructure sectors to revive the economy from recession. These stimu-lus measures coupled with anti-cyclical fi scal defi cit measure announced in the Union budget for 2008-9 created positive impact on the economy. Growth rate of exports which suffered sharp fall in 2008-09 started recovering from the third quarter of 2009-10 as may be seen in Table 5.

When the Union Finance Minister Mr. Pranab Mukherji presented only the interim budget for 2009-10 in February, because of the ensuing Parliamentary elections, he did not want to announce major policy decisions on the ground that the government did not have the mandate to do so as the Parliamentary elections were due in the middle of 2009.

The Indian export sector had created about six million direct jobs and another nine

million indirect jobs in 2009



2008-09 2009-10

Q1 Q2 Q3 Q4 Q1 Q2 Q3

Exports 57.0 39.5 -4.0 -20.3 -38.6 -21.0 6.0

Imports 38.7 73.8 7.4 -24.0 -35.0 -33.6 1.2

Table 5: Quarterly Growth Rates of Exports and Imports (Percent)


After the return of the UPA government to power following the Parliamentary elections, Mr. Pranab Mukherji presented the full budget in July 2009 in which he increased the plan expenditure by 14.9 percent, non-plan expenditure by as much as 17 percent and overall government expenditure by 13.3 percent. The non-plan expenditure included the sixth pay commission recommendations on the pay scales of government employees. He also extended the exemption of export earnings of IT companies under STPI by one more year. He increased the exemption limits of income tax. All these measures increased the fi scal defi cit of the government beyond the limit prescribed under Fiscal Reform and Budgetary Management Act. Such increased fi scal defi cit was justifi ed as a counter-cyclical fi scal measure which was needed to stimulate the recession stricken economy exports.

In addition to these fi scal stimulus measures, the Reserve bank of India also announced monetary measures to in-crease the liquidity available in the economy particularly for export sector, housing sector, auto sector and construction sector. The RBI reduced the Repo rate from 7.5 to 6.5 and Reverse Repo rate from six to fi ve percent. The RBI also enhanced the refi nance capacity of SIDBI to Rs.7000 crores and of NHB to Rs. 4000 crores.

Thus the stimulus measures targeted power sector, exports, housing, automobile, SME and infrastructure sectors to revive the economy from recession. These stimu-lus measures coupled with anti-cyclical fi scal defi cit measure announced in December, 2008 created positive impact on the economy. Growth rate of exports which suffered sharp fall in 2008-09 started recovering from the third quarter of 2009-10 as may be seen in Table 5.

It becomes clear from the foregoing data that growth rates of both exports and imports went on declining until the middle of 2009-10. By that time most of the export specifi c stimulus measures started stimulating the exports and as a

result the growth rate of exports turned positive at six percent in the third quarter. It may be mentioned here that the Union Finance Minister Mr. Pranab Mukherji has continued most of the stimulus measures specifi cally pro-vided to export sector. This continuation will further push up the growth rate of exports in the next quarter and there-after.

As far as the recovery of other sectors is concerned, data presented in Table 4 indicate that they have started recover-ing from 2009-10. In view of this recovery of sectoral growth rates of GDP, the Union Finance Minister Mr. Pranab Mukherji has rolled back partially some of the fi scal stimulus measures to reduce the fi scal defi cit from 6.9 percent to 5.5 percent in his recent budget for 2010-11. This is intended to moderate the infl ationary pressure in the economy which has started showing up in food grains prices. He has increased the excise duty on non-petroleum products by two percent. He has also restored the basic custom duty on petroleum products. But he has increased plan expenditure on infra-structure and rural development to ensure adequate domes-tic demand for the economy..

Thus the Indian economy started recovering from the slowdown towards the end of the fi scal year 2009-10. This is evident from the 7.2 percent growth rate of GDP. Except agriculture which suffered a negative growth rate of 0.2 percent and transport, real estate, fi nance and community and social services, all other sectors have shown recovery. Notably, mining, manufacturing, construction and electricity generation have shown remarkable recovery. Thus the Indian economy which was negatively impacted by the meltdown of the western economies for one year has started recovering. The Union Finance Minister has projected a growth rate of GDP of 8.5 percent for the coming fi scal year 2010-11.This would mean that the Indian economy will return back to nine percent growth path by 2011-12. Let us hope that this expectation will be realized in the coming years.

References and Additional Thinking• Debroy, Bibek, “Global Downturn and Its Impact”, in

Global Financial Crisis: It’s Impact On India’s Poor, (2009), UNDP, India





Trade, Corporate Market

and Indigenous People

I N D I G E N O U S I N D I A


Goldy M. GeorgePhD Research Scholar, School of Social Sciences, Tata Institute of Social Sciences, Mumbai

The Copenhagen drama is over. Nothing came out of it. It was predicted the same by many expert and many intellectuals, activists, professional experts

kept a distance from this proscenium. But what is that concerns the ordinary people of this nation? How does market and market values related with people at large and particu-larly the Dalits, Adivasis and the exploited sections of Indian society? What is the correlation between trade, corporates, market and indigenous communities of this land who still have the noble quality of surviving on a minimum basis?

A Competition of UnequalsIn March 2009, European Parliament came up with a resolution on EU-India Free Trade Agreement, where one of the major concerns raised was the inability of India to contain with the problems of Dalits and Adivasis. The reason identi-fi ed was the lack of administrative and political will of the government, which underlines the existence of an unjust socio-political divide. Apparently this stratifi es the inability of Dalits and Adivasis to coup up with the situation under free trade formula particularly in the context of unjust caste system.

In October 2008, the Director General of WTO, Pascal Lamy said, “All of the models suggest that the gains to developing countries will be larger the more they open their markets to trade.” Citing specifi c cases, he said, “since opening their economies, Asian giants like China and India have together lifted more than 440 million people out of poverty, an economic success.” While trade has been an engine of aggregate economic growth, Lamy did not consider the unmitigated displacement of traditional sectors and the uneven development that has led to an alarming rise in income inequality both socially and geographically within each country.

Industrialization has today proved to be the worst form of

development with unchecked exploitation, particularly with WTO taking the centre stage of all sorts of trade related agreements and transactions. Trade is no longer buying and selling of goods and services but it encompasses issues like Intellectual Property Rights, exploitation of resources, maintenance of supremacy, mobilizing capital, controlling share market etc. Prophets of free trade argue that it maxi-mizes economic output but what has been witnessed is a competition of unequals – diametrically opposite to these claims.

Corporates Trading IndigenityThe symbiotic relationship between the forest-based commu-nities and the forest Eco-system is an eternal truth. Their life cannot be segregated into watertight compartments such as social, economic, political, religious, cultural, administrative,

intellectual, spiritual, etc. Undoubtedly Adivasis, live in close relationship with the forest and have the greater depend-ency on it. There are many Dalit artisan and craftsman communities like Kurava in Kerala, Mala communities in Andhra Pradesh, Basod in Madhya Pradesh dependent on the forests. However their customary rights were either curtailed or ignored by every ruler – both Colo-nial and National.

Undeniably the past policies led to unchecked forest destruction, affecting people’s lifestyle and stuck at the very survival. People’s control over Natural Resources was further reduced with the direct intervention of World Bank in funding forest projects. Biodiversity, bionet-work genealogy, natural knowledge, medicinal herbs etc. are treasure of wealth in forests. With land, forest and water in the open market, life and culture turns corporatized, slowly legitimizing an unquestionable political and social control over people.

State has turned out to be an implementation tool of the corporatehood. For instance private participation in mining sector is widely open in Chhattisgarh. The State’s Mineral Policy has created conducive business environment to attract private investment with simplifi ed procedures. The state is interested to provide resources and manpower such as tailor-made programs in geology, geophysics, geochemistry,

What is the correlation

between trade, corporates, market

and indigenous communities of this land?



mineral benefi ciation, mining engineering, land procurement, fi nancial support, recommend for mining operations in forests area, etc. For the people, their dependency on land and forest is not just as a productive asset but as a symbol of their self-determination, co-existence, community feeling and dignity.

Displaced & DislocatedMining projects, power plants, dams, defense projects, wildlife management, botanical gardens, bio-experiments, eco-tourism, etc has displaced large population across the country. For example in Chhattisgarh alone almost 17 lakh acres demarcated for wildlife conservation consisting of 250 villages with an approximate population of 50,000 had already been cleared off. Ten major dams acquired 2,57,032.585 acres of land affecting 238 villages and their rehabilitation has not yet been done. Thirty medium projects impacted 123 villages with an acquisition of 32,745.13 acres. These statistics are of 2000, which has gone several multiple by now.

Sarguja, Raigarh and Bilaspur districts are the coal zones. It is estimated that more than 72,000 acres was leased to SECL for coal mining, dislocating hundreds of villages. Nearly 20,000 acres have been occupied for mining steel in Bailadee-la and Dalli Rajhara area of Bastar and Durg districts with some of the rare quality of steel. In Raipur, Durg and Bilas-pur, there are 10 big cement plants and its auxiliary units. Huge diamond deposits in Devbhog (Raipur) and Bastar are also in the eyes of the MNCs. In all for cement industry 2,990 acres, 14,530 acres for rice mills, 7,665 acres for steel industry, for ferry alloys 940 acres and 285 acres for re-rolling mills were already acquired till 1998. Apart from these 18,652.377 acres of land has been given for mining.

Within the last two years, Chhattisgarh has signed 61 MoUs with Independent Power Producer (IPP) to generate 50,000 MW of electricity with an investment of nearly Rs. 2,50,000 crores. National Thermal Power Corporation signed an agreement last July to set up a 4,000 MW plant needing 30,000 hectares. 16 power projects are to be established in Janjgir-Champa district alone with an approximate estimation of 80,000 acres of land for unit establishment, ancillary divisions and blocks, overburden dumping, fl y-ash, staff quarter, road, and other infrastructure.

Between 2005 and 2007 Jindal alone had applied for the prospecting licence (PL) and mining licence (ML) for 6,110.95

sq km and another 1,559.172 hectare (3,852.66 acres) in Dantewada, Bijapur, Narayanpur, Rajnandgoan, Bilaspur, Janjgir-Champa, Raigarh, Jashpur and Surguja districts. This gives a glimpse of displacement or possible dislocation. A survey by a Delhi based NGO revealed that over 1.5 Jharkhandi Adivasi girls/women are domestic workers in Delhi. Over half of them are found to be from displaced group. Non-recognition of land rights implies land alienation which further leads to depeasantisation.

Seeking Market or Alternatives?Under the impact of corporate market the lifestyle, culture and ethos of indigenous people change forcefully. Land is turned into a commodity with concentration on corporate capital. People’s rights are systematically and strategically bypassed, excluded or isolated, while a new army of easily disposable domestic refugees emerge. The historic omission and betrayal continues multifold. It is a confl ict between surplus and survival, subsistent economy and market econo-my, between community life and competition.

Devastating development based on industrialism and wasteful growth is the root cause of this. Developing countries must be allowed the policy fl exibility and political space to create national development strategies to increase incomes and secure livelihoods. Policies should create employment and raise productivity, especially in the agricultural and informal sector along with progressive taxation system, land reform and equitable access to education, health, credit and technology.

Hence a reorienting of economies from production for export to production for the local market is required. De-emphasize growth and maximize equity in order to radically reduce environmental disequilibrium. Global policymakers need to understand not only the economics of aggregate growth, but the socio-economic impact of globalized fl ows on the distribution of income aligning welfare of human beings. One needs to come out of the socio-political inferiority and impotence, which prevents them from identifying the de-humanizing situations, and restricts them to magical explana-tions and limits the activities to passive acceptance and resignation.

(The views expressed in the article are personal and do not refl ect

the offi cial policy or position of the organisation.)



T. Koti ReddyFaculty in Economics, ICFAI Business School, Hyderabad

IMPACT OF ENVIRONMENT ON POVERTY IN INDIA

I N D I A N I N D I G E N C E


IntroductionEconomic growth is a prerequisite for poverty reduction, but that a sustainable development strategy will also need to take into account the impacts of growth on the environment. Rapid economic growth over the past two decades has created unprecedented opportunities for poverty reduction in India. Sustained growth, allied to policies that tackle deep social disparities, is a basic requirement for overcoming the coun-try’s large human development defi cit (UNDP 2007-08). The challenge of reducing widespread poverty in India remains at the centre of the development paradigm for the country. The process of development inevitably involves the use of natural resources in economic activities, it has become increasingly clear in recent years that for any poverty reducing growth strategy to be sustainable, it must address environmental concerns and sustainable utilization of generally limited natural resources (Charles Leyeka Lufumpa 2005). This is particularly the case for India where the majority of poor live in rural areas and their livelihoods are critically dependent on the exploitation of natural resources. Improvements in the economic well-being of the population can only be sustained in the long run if the natural resources are utilized in a sustainable manner.

The average growth rate of the Indian economy over a period of 25 years since 1980-81 has been about six percent - a signifi cant improvement over the annual growth rate of 3.5 percent over the previous three decades from 1950-51 to 1979-80. In the more recent period, the Indian economy has entered a high-growth phase with the growth rate averaging 8.6 percent in the last four years and over nine percent per annum during the last two years. The Reserve Bank of India has projected the Indian economy to expand by 7-8 percent during the current fi scal year ending March 31st, 2009. The main reason for the fall in the overall expansion during the period under review (July-September 2008) was a low fi ve percent growth in the manufacturing sector as opposed to 9.2 percent in the like period of last fi scal. Similarly agriculture also logged a signifi cantly lower growth of 2.7 percent as opposed to 4.7 percent, while Hospitality, transport and communications expanded the best 10.8 percent as against 11

percent during the second quarter of fi scal 2007-08. Financial services, realty and business services also registered a notable growth of 9.2 percent against 12.4 percent, given the circum-stances where real estate companies have been complaining about a major slow down (CSO 2008).

Issues like global warming and the resultant climate change have gained importance in international discussions. Globally, carbon trading has grown rapidly in recent years. There is a need to balance the harmful effects of human activity on global warming against the need for poverty reduction and economic growth in developing countries like India. The issue of global social justice cannot be delinked from the issue of global public goods like the atmosphere.

Climate change may affect people’s health both directly and indirectly. For example, heat stress and other heat related

health problems are caused directly by very warm temperatures and high humidity. Indirectly, ecological distur-bances, air pollution, changes in food and water supplies, and coastal fl ooding are all examples of possible impacts that might affect human health. How people and nature adapt to climate change will substantiate how seriously it impacts human health. Generally, poor people and poor countries are likely to suffer the most.

There are at least three key reasons why poverty and the environment should be addressed as a twin problem in India. First, the main problem in India is the high level of birth rates coupled with a falling level of death rates. The fast rate of growth of population necessitates a higher rate of economic growth in order to maintain the same standard of living of the population. Second, the majority of the population depends on low-productivity, rain fed agriculture for their livelihood. The low productivity per hectare in Indian agriculture and the low level of productivity per worker in agriculture and industry are largely a consequence of technological backward-ness. Third, inadequate economic policies increase the risks related to farming, thereby inhibiting the use of enhanced and more effi cient agricultural technologies.

2.Poverty in IndiaThe combined poverty ratio is declined from 54.9 percent in

Low productivity per hectare and low productivity per worker are largely a result of technological backwardness



1973-74 to 36 percent in 1993-94. The poverty ratio declined by nearly 10 percentage points in the fi ve year period between 1993-94 to reach 26.1 percent in 1999-2000. While the proportion of poor in the rural areas declined from 56.4 percent in 1973-74 to 27.1 percent in 1999-2000, the decline in the rural areas has been from 49 percent to 23.6 percent during the same period. In absolute terms, the number of poor declined to 260 million in 1999-2000, with about 75 percent of these being in the rural areas.

Incidence of poverty is estimated by the Planning Commis-sion on the basis of quinquennial large sample surveys on household consumer expenditure conducted by the National Sample Survey Organization (NSSO). The Uniform Recall Period(URP) consumption distribution data of NSS 61st Round yields a poverty ratio of 28.3 percent in rural areas, 25.7 percent in urban areas and 27.5 percent for the country as a whole in 2004-05. The corresponding poverty ratios from the Mixed Recall Period (MRP) consumption distribution data are 21.8 percent for rural areas, 21.7 percent for urban areas and 21.8 percent for country as a whole. The URP uses 30 day recall/reference period for all items of consumption, the MRP uses 365 day recall/reference period for fi ve infre-quently purchased non-food items, namely, clothing, footwear, durable goods, education and institutional medical expenses and 30 day recall/reference period for remaining items. The average per capita consumption expenditure for rural and urban population as per 61st Round (2004-05) is Rs. 558.78 and Rs.1, 052.36 respectively (Economic Survey 2007-08).

As per the UNDP’s Human Development Report (HDR)

2009, inspite of the absolute value of the human development index (HDI) for India improving from 0.577 in 2000 to 0.611 in 2004 and further to 0.612in 2007, the relative ranking of India has not changed much.

The strength of the relationship between growth and poverty is usually measured by the poverty elasticity with respect to per capita GDP. Our estimate of poverty elasticity is in the range of -0.86 to -0.77.There has been no signifi cant acceleration in the process of poverty reduction during 1980-2005 despite an acceleration in the growth of per capita GDP. There is now a growing consensus that the poverty reduction strategy must also rely

on direct measures since the present high growth, given its sectoral composition and degree of inclusiveness, may not eradicate poverty completely even by 2015.

It is clear from the Table 2.1 that the income inequalities are larger in underdeveloped countries. If we compare the share of national income accruing to the poorest 60 percent of a country’s population with that of the richest 20 percent as a rough measure of income inequalities, we could see that underdeveloped countries have considerable degree of income inequality. The proportion of people living below $1.25 and $2 a day in a number of developing countries, demonstrates Ethiopia’s achievements with regard to individual poverty: while ranking defi nitively fourth in terms of GDP Per capita (PPP US$) it is second(out of seven) in terms of incidence of poverty(measured as having less than $1.25 a day) and third in terms of the incidence of poverty (measured as having less than $2 a day).

India witnessed a mere one percent hike in wages against a fi ve percent growth in productivity during the last two decades to employees (ILO 2008). India has ranked ninth in the list of countries offering highest disparity in wage and productivity growth between 1990 and 2007. China has offered among the best wages to its workers with its productivity to wage growth ratio standing at 9:10. While Brazil was the worst, with its productivity to wage growth ratio standing at a dismal 3.5: - 3.5.

Inequality in India owing to high food prices which have risen by nine percent compared with 6.3 percent for non-food prices. This is predicted to have a negative effect on the purchasing power of all urban households. A decline in

Table 2.1 International Poverty Lines and GDP per Capita for Selected Countries

Source: Human Development Report 2009

CountrySurvey

Year

PopulationBelow$1.25a

Day %(2000-07)

PopulationBelow$2 a

Day %(2000-07)

GDPPer capita(PPP US$)

HDIRank(2007)

India 2007 41.6 75.6 2753 134

Kenya 2007 19.7 39.9 1542 147

Nigeria 2007 64.4 83.9 1969 158

Eritrea 2007 --- ----- 626 165

Ethiopia 2007 39.0 77.5 779 171

Sierra Leone 2007 53.4 76.1 679 180

Niger 2007 65.9 85.6 627 182



purchasing power of urban Indian households varies from 5.1 percent to 3.5 percent owing to rise in food prices which are a major area of spending for lower and middle income groups. The poorest households in urban India experienced an estimated drop in purchasing power of over fi ve percent, while the richest in urban areas in 2007 experienced only a drop of 2.2 percent.

Another reason attributed for the income inequality has been pointed to a rise in temporary jobs rather than perma-nent jobs and India’s status was noted to be bleaker than Latin American countries.”Temporary jobs pay, on average 20 percent less than permanent jobs. In Latin America, workers with informal jobs earn, on average 43 percent less than workers with formal jobs, while in India, casual workers (who form the bulk of informal employment) earn 45 percent less than regular employees(The Financial

Express 2008).

3. Deforestation and Land Degra-dationDeforestation is driven by many forces. In some cases, poverty is the driver, with agricultural populations collecting fuel wood or expanding the frontier for subsistence agriculture. In others, opportunities for wealth generation are the main engine of destruction. The expansion of national and international markets for products such as beef, soybeans, palm oil and cocoa can create strong incentives for deforestation. Commercial pressure on rainfor-ests is unlikely to dissipate in the near future. Croplands, pastures, plantations and logging are expanding into natural forests across the world. Population growth, rising incomes and opportunities for trade create incentives for deforestation-as does market failure on a global scale (UNDP 2007-08). Forests are ecological resources that generate wide-ranging public and private benefi ts. They are the home and basis of livelihoods for many poor people and a source of potential profi t for large commercial interests. One of the challenges in forest govern-ance is to balance the demands of competing interests with very diffi cult levels of power. International cooperation on climate change alone can not resolve the wider problems driving deforestation. Respects from the human rights of indigenous people, the protection of biodiversity and conserva-

tion are issues for national political debate. There is signifi cant potential for creating triple benefi ts from climate change mitigation, to adaptation and sustainable development.

Out of the total 329 million hectares of geographical area 174 million hectares or 53 percent of the total land area in India is suffering from serious degradation. Of this, area subject to water and wind erosion amounts to 144 million hectares and area degraded through special problems like ravines, salinity, water logging etc., accounted for another 30 million hectares. Area degrade through special problems includes Waterlogged area (eight million hectares), alkaline soil(four million hectares) and saline soil (5.5 million hec-tares) etc. It is estimated that the total fl ood prone area is 40 million hectares but the annual average area affected by fl oods is eight million hectares and the annual average

cropped area affected by fl oods is four million hectares. One-third of our land under forests, nearly two-thirds of land under agriculture and nearly all cultur-able waste lands, permanent pastures and grazing lands are in urgent need of conservation measures (K.G.Tejwani

1982). The effects of haphazard grazing on the environment are alarming. Land degradation due to overgrazing has led to desert like conditions in many parts of the country. Besides, depletion of

vegetative cover, overgrazing is hardening the soil, preventing forest regeneration and causing soil erosion in many parts of the country. In addition to ecological destruction, there is growing hostility from farmers against the graziers who are generally nomads. Infact, many nomadic groups have given up nomadism and have become landless labourers. The Indian planners are completely ignorant about afforesting public lands with fodder species and regenerating grasslands and are not even aware of the fact that there is immense potential for grazing lands in India. In Rajasthan alone, cultivable waste-lands are estimated at 9.5 million hectares which even if moderately developed can support a large livestock popula-tion. This is an addition to permanent pastures estimated at 4.5 million hectares.

There is probably no other area of India’s environment that has been viciously attacked and destroyed since independence than the country’s forests. India was supposed to have lost 3.4

Casual workers, who form the

bulk of informal employment in India earn 45

percent less than regular employees



million hectares of forest land between 1951 and 1972 alone; over 72 percent of forest area was lost to agriculture(2.4 million hectares) another 17 percent was lost to river valley projects, industries and roads and communications(0.6 million hectares); and another 11 percent(0.4 million hec-tares) was lost to miscellaneous purposes. The process of deforestation has continued till today at the current annual rate of 1.3 to 1.5 million hectares. India has lost nearly 2.5 million hectares of mangrove forests in this century alone. These remarkable forests can grow on marginal lands, and survive soil infertility, water logging and salinity and high winds (International Union for the Conservation of Nature and

Natural Resources).In India, one of the basic reasons for the degradation of

forests has been over use of its resources. Poverty and pres-sure of population has made the rural population increasingly dependent on forests. Over harvesting of industrial wood has also caused tremendous damage to forests. Cattle’s grazing is another important stress factor for forests. The industrial pollution of sulphuric oxides and nitric oxides emission are also a source of great risk for forests. These pollutants often affect forests located at a long distance from the source of pollution.

4. Water Stress and ScarcityChanging climate patterns will have important implications for water availability. Large areas of the developing world face the imminent prospect of increased water stress. Flows of water for human settlements and agriculture are likely to decrease, adding to already acute pressures in water-stressed areas. Water is vital to the health and well-being of households and an essential input into agriculture and other productive activities. Rapid population growth, industrialization, urbanization and the need for irrigation water to feed a growing population are already placing immense pressure on water resources.

Water availability is uneven across regions in India. 71 districts in different states are drought prone. At present agriculture and livestock account for 93 percent of fresh water use in this country and out of the remaining seven

percent the domestic consumption accounts for three percent and industrial use and powers generation four percent. The supply of fresh water for human activity comes partly from surface water and partly from ground water sources. India has now reached a stage of development where 32 percent of its replenishable ground water is available for use. However, the ground water resource has been over used in certain regions. The overuse of ground water over the years has made agricultural operations particularly in the green revolution belt unsustainable. Another major cause of water defi ciency has been water pollution. Most of the water pollution in India is domestic sewage, industrial effl uents and agricultural chemical inputs like pesticides and fertilizers. In India, almost 90 percent of all wastes is discharged without treat-ment in rivers.

5. BiodiversityIn respect of biodiversity India has rich heritage of species and genetic form. It has a share of six percent of the world species. However, rapid growth of population, urbanization and industri-alization have seriously impaired the ecological balance of fl ora, fauna and forest. At the same time it is rather diffi cult to quantify the biodiversity loss for the simple reason that reliable

information is not available about the species that are found at any given time. The extinction of species and organisms affect human society through the destruction of ecosystem services. All plants, animals and micro-organisms exchange gases with atmosphere and the biotic composition thus contributes to the maintenance of mix of gases in the atmosphere. Destruction of biodiversity may result in such change in the gas mix in the long run which may end up with rapid climatic change and agricultural crop failure (Ramprasad Sen Gupta 2001).

If loss of diversity is considered inconsequential for future development, then consumeristic life style which is destructive from the ecological point of view will persist without any restraint. It is important to conserve plants and animal species and they should not be threatened of extinction due to overuse. Economic rationality demands that biodiversity should be protected all the time failing which sustainability of development and human well being will be seriously impaired.

The process of deforestation has continued till today at the current annual

rate of 1.3 to 1.5 million hectares



Changes in ecosystem biological diversity, evolution of parasites and invasion by exotic species all frequently result in disease outbreaks such as cholera which emerged in 1992 in India. The frequency of AIDS/HIV is increasing. In 1996 about 46,000 Indians out of 2.8 million (1.6 percent of the population) tested were found to be infected with HIV (Burns

JF 1996).The Tenth Plan as asserted clearly that “the sustainable use

of biodiversity is fundamental to ecologically sustainable development”. India is identifi ed as one of the 12 major biodiversity countries of the world. However, since 1951 industrialization has put severe strain on the ecosystem altering and even destroying it. The loss of biodiversity arises from the destruction of the habitat, extension of agriculture, fi lling up of wetlands, conversion of rich bio-diversity areas for human settlement and industrial development, destruction of coastal areas and uncontrolled and unregulated commercial exploitation. A series of steps have been in recent years to protect and conserve biodiversity. These include (Datt and Sundharam K.P.M

2004 P.114):* Establishment of 88 national parks

and 490 wildlife sanctuaries; * The setting up Indian coral reef

monitoring work for the conservation and management of mangroves and coral reefs;

* Deceleration of fi ve sites as world heritage sites; * Project tiger reserves and project elephants have been set

up to ensure long time survival of tigers and elephants in their natural habitats; etc.

6. Low Productivity in Indian AgricultureProductivity of crops in India is not only low relative to other countries, there are considerable inter-state variations. The Eleventh Five Year Plan observed that not only the yields differed across the States, there was a signifi cant gap between the performance and potential as revealed by actual yield and yield with improved practices adopted by farmers. Agriculture in India has continued to be a gamble in the monsoons: failure of rainfall in some parts of the country and excessive rains and consequent fl oods in certain other areas of the country. Since 1961 the emphasis shifted to the use of seed-fertilizer-water

technology known as the new agricultural strategy. But the new strategy succeeded only in wheat and to a small extent in rice; other food and non-food crops did not show perceptible improvement in production. Dry land cultivation was not touched at all by the new agricultural strategy. Public invest-ment on agriculture has been declined. The worrying aspect is that private investment in agriculture is almost completely concentrated in the northern regions particularly Punjab, Haryana and Western Uttar Pradesh and almost completely absent in other parts of the country. The share of agricultural sector’s capital formation in GDP declined from 1.92 percent in the early 1990s to 1.28 percent in the early 2000s due to decline or stagnation in public investment in agriculture since the middle 1990s. Due to decline in public investment the growth of irrigation has slowed down. The situation with

respect to minor irrigation has been relatively better but there is overexploi-tation of ground water by rich farmers. Public expenditure on agricultural research and extension was low at 0.49 percent of GDP(on average developing countries spend 0.7 percent and devel-oped countries two to three percent). It is important to recognize that the research requirements are high in view of substantial variations in agro-climatic conditions that warrant region-specifi c

and crop-specifi c technologies, compatible with the endow-ments of the farm community (S.Radhakrishna and S.Chan-

drasekhar 2008).Many regions in India had continued to be poor and

backward indicating the necessity for a balanced growth of agriculture as between different regions. Indian agriculture displayed another type of imbalance in the form of disparities in growth between foodgrains and non-foodgrains and between different foodgrains. The agricultural production with growing farmer’s suicides all over the country has created a sense of panic in the country. Unprecedented hoarding of cereals and pulses by traders and huge rise in the prices of articles of daily consumption has forced the Government of India to resort to import of wheat for the fi rst time in nearly three decades.

The Report of the Expert Group on Agricultural Indebted-ness (GOI 2007) has highlighted the twin dimensions of the

The share of agri- sector’s capital

formation in GDP declined from 1.92% in early

1990s to 1.28% in early 2000s



current widespread agricultural crisis- an agricultural devel-opment crisis and an agrarian crisis. The root cause of the agricultural development crisis is the neglect of agriculture in designing development programmes and ineffective imple-mentation of agricultural programmes at the micro level. On the other hand, the agrarian crisis is characterized by the high dependence of rural population on farm incomes which are too meager to withstand weather and price shocks and are also vulnerable to technological risks. In addition to low growth and declining productivity, the failure of growth in creating adequate productive employment outside agriculture underlines the agrarian crisis.

A major area of concern is the sluggish growth of institu-tional credit. Agriculture’s share of about 10-11 percent in the institutional credit was way below the stipulated target of 18 percent. Half of the farmers had no access to institu-tional fi nance in 2003; institutional agencies accounted for 57.7 percent of the outstanding loan amount of farmers, followed by money lenders (25.7 percent) and traders(5.2 percent). It suggests heavy dependence of farmers on informal sources of fi nance. Inadequacy of formal credit, enormous delays in obtaining credit from scheduled commercial banks, and cumbersome documentation have compelled farmers to avail of high-cost credit from infor-mal sources (Shettey).

A comparison of productivity levels in Indian agriculture with the levels in other countries shows how low the produc-tivity in Indian agriculture is. Table 6.1 compares the produc-

tivity of some crops in India with their productivity in some other countries. As is clear from this table, productivity of Rice in India is about 29.59 percent of the productivity in Egypt. It is 37.17 percent of the productivity in comparison to USA. As far as wheat is concerned productivity in India is 64.52 percent of the Productivity in China and 35.06 percent of the Productivity in UK. As far as maize is concerned productivity in India is 12.08 percent of the productivity in USA and 22.44 percent of the productivity in China. Produc-tivity of cotton in India is about 41.44 percent of the produc-tivity in China and 60.52 percent of the productivity in Pakistan. As far as major oil seeds is concerned, productivity in India is 40 percent of the productivity in China and 80.0 percent of the Productivity in Nigeria. Information on India’s global rank in major agricultural crops is still more revealing. India happens to be one of the Larger growers and producers of most of the agricultural crops but ranks very low in terms of yield.

Productivity of crops is not only low relative to other countries, there are considerable inter-state variations. The productivity of wheat in 2005-06 varied from a low level of 1,393 kg per ha in Maharashtra to a high of 4,179 kg in Punjab. The steering Committee on Agriculture for the Eleventh Five Year Plan has observed that not only the yields differed across the States, there was a signifi cant gap between the perform-ance and potential as revealed by actual yield and yield with improved practices adopted by farmers (Economic Survey

2007-08).

Table : 6.1 - International Comparisons of Yield of Selected Commodities – 2004-05(In Metric tonnes/Hectare)

Source : Ministry of Agriculture and Co-operation

Rice / paddy Wheat Maize Cotton Major oilseeds

Egypt 9.8 China 4.25 U.S.A 9.15 China 11.10 Argentina 2.51

India 2.9 France 7.58 France 7.56 U.S.A 9.58 Brazil 2.48

Japan 6.42 India 2.71 India 1.18 Uzbekistan 7.98 China 2.05

Myanmar 2.43 Iran 2.06 Germany 6.69 India 4.64 India 0.86

Korea 6.73 Pakistan 2.37 Philippines 2.1 Brazil 10.96 Germany 4.07

Thailand 2.63 U.K 7.77 China 4.9 Pakistan 7.60 U.S.A 2.61

U.S.A 7.83 Australia 1.64 -- -- Nigeria 1.04

World 3.96 World 2.87 World 3.38 World 7.33 World 1.86



6.2 Agricultural CreditA major area of concern is the sluggish growth of institutional credit. Agriculture’s share of about 10-11 percent in the institutional credit was way below the stipulated target of 18 percent. Half of the farmers had no access to institutional fi nance in 2003; institutional agencies accounted for 57.7 percent of the outstanding loan amount of farmers, followed by money lenders (25.7 percent) and traders (5.2 percent). It suggests heavy dependence of farmers on informal sources of fi nance. Inadequacy of formal credit, enormous delays in obtaining credit from scheduled commercial banks, and cumbersome documentation have compelled farmers to avail of high-cost credit from informal sources (Shettey). The interest rate is undoubtedly important, but more important is the effi ciency and speed of lending that is totally absent in governmental lending agencies, that is at the root of much farmers distress.

Rural Indebtedness in India is a result of the social system or the relations of production prevailing in Agriculture. The problem of indebtedness of the farmers continues in the post- independ-ence period. The proportion of indebted farmers were 22.3 percent in 1981 and it rose to 25.9 percent in 1991 and it has increased now sharply to 57.2 percent. The situation with respect to minor irrigation has been relatively better but there is overexploita-tion of ground water by rich farmers.

6.3 Agricultural Marketing in IndiaThere was a large chain of middlemen in the agricultural marketing system like village traders, kutcha arhatiyas, pucca arhatiyas, brokers, wholesalers, retailers, money-lenders etc. As a result, the share of farmers in the price of agricultural produce was reduced substantially. Farmers obtained only about 53 percent of the price of rice, 31 percent being the share of middlemen (the remaining 16 percent being the market cost). In the case of vegetables and fruits, the share of farmers was even less – 39 percent in the former case and 34 percent in the latter. The share of middlemen in the case of vegetables was 29.5 percent and in the case of fruits was 46.5 percent (A.S.Kahlon and M.V.George 1985).

In addition to presence of a large number of middlemen and

widespread prevalence of malpractices in the mandies- there were a number of other problems as well. For instance, there was absence of proper warehousing facilities in the villages. As a consequence, the farmer was compelled to store his produce in pits, mud-vessels, kutcha storehouses etc. These unscientifi c methods of storing led to considerable wastage. Transportation facilities were also highly inadequate and only a small number of villages were joined by railways and pucca roads to mandies. Most of the roads were kutcha roads not fi t for motor vehicles and the produce was carried on slow moving transport vehicles like bullock-carts.

The weakest link in India’s agricultural efforts is its totally ineffi cient extension services. Only 0.9 percent of the farmers make use of the hundreds of Krishi Vigyan Kendras (KVKs) spread across the length and breadth of the country. Close to

half-a-lakh of village and block-level extension workers with no knowledge of the advances in technology are but a fi nancial burden on the exchequer (K.V.

Prabhakaran Nair).

7. Policy RecommendationsIn India, besides industrial activity causing damage to natural environment land use, water use, deforestation and forest degradation, loss of biodiversity, energy production, and exploitation of

non-energy materials have resulted in environmental damage and all these in turn have adversely sustainability of develop-ment. Policy makers need to have better knowledge of the exogenous factors infl uencing various economic activities such as farming, forestry, grazing or fi shing and how to manage them and ensure effi cient use of resources. There is a scope for faster farm growth, based on the gap that exists between the yields that the farmers actually get and the yields that the farmers actually get and the yields that are shown to be obtained using better practices, not in laboratory conditions but actually on the fi eld. The state governments have to be encouraged to undertake additional expenditure on agricul-ture over a baseline level and the centre has to share that additional expenditure. Recognizing growing disparities between the agricultural and non-agricultural sectors and deterioration of the quality of the public services in rural India calls for a radically different approach to make the farm

Indian farmers obtained only

about 53 percent of the price of

rice, 31 percent being the share of middlemen



sector improve its growth performance (Vaidyanathan).There is a need to raise farm productivity especially in the vast rain fed areas. If India’s Gross Domestic Product is to rise by nine percent a year, agriculture must grow by at least four percent. Improved seeds can play an important role in increasing productivity. Use of improved seeds and fertilizers requires proper irrigation facilities. Farmers should be educated in the methods of sowing, manuring, and irrigating the new high yielding varieties of seeds.

The socio-economic development consideration needs a rational and effi cient management of water resources. For sustainable development water problem is to be tackled by giving overriding priority to augmenting water supply and treating effl uent waste to control pollution. From sustainabil-ity point of view hydel power should receive far greater attention than what it has been accorded so far. Recycling of used products often helps in conserving raw material reserves. However, if the scope for recycling of raw material wastes is limited, their sustainability would require lengthening the life time of the product. This implies that obsolescence rate of the product is to be lowered by discouraging too frequent changes in fashion. Products are to be made more durable and repair services are to be organized to handle damage.

Food security remains a global challenge today and famines still threatens several parts of the globe. Many scientists believe that new plants developed using modern biotechnology will play an important role in increasing our ability to produce enough food. Often called the Gene Revolution, advances in biotechnology are having dramatic impacts on global agricul-tural production. Biotech crops were planted on over 100 million hectares last year by 10 million farmers in 22 countries and the results have been well documented. In all countries where farmers have access to biotech crops, yields are higher and production costs are lower, making farmers more effi cient than ever before. Since 2003, when biotech Bt cotton was introduced, India’s cotton output has almost doubled to 27 million bales weighing 170 kilograms each, and average yields are up around two-thirds, largely because of lower rates of pest infestation in the hardier Bt cotton varieties.

Government has to take steps for modernizing irrigation systems in a phased manner like that of effi cient water management, adequate maintenance of canals and distribu-tion systems, surveys and investigations for preparation of new projects, developing a National Grid system to ensure water supply from water surplus areas to water defi cit areas and etc. For increasing the agricultural growth community farming (i.e. a place where farmers in an area coming together to cultivate a common crop) should be encouraged. Proper use of fertilizers and pesticides should be pressed upon, especially encouraging use of organic manure like vermin compost and bio fertilizers to minimize input cost and increase yield.

Besides crop farminga, equal amount of stress need to be laid on promoting livestock farming, horticulture, and fodder

plantation and grassland development. A multi-layered approach would be adopted with proper fi nancial and technical support so that the farmers are protected from the vagaries of nature and employment generated in rural areas. The situation of women needs special emphasis in rural areas. Women are by far the biggest contribu-tors to production in the countryside and also the main gathers of food, fuel and water. Expansion of electrifi cation

programmes in rural areas, via simple environmentally friendly technologies, could also reduce the rate of exploita-tion of the natural resource base, particularly forests (Charles

Leyeka Lufumpa).To remove the defects of rural marketing the markets

should be very near to the villages with adequate facilities for grading, weighing and storage of all commodities. The regulated markets should be strengthened in terms of ad-equate market yard, market functionaries, ware housing and storage facilities etc., Extension education in marketing should be improved through regulated markets, primary co – operative marketing societies and farmer’s servicing socie-ties. An effi cient marketing system helps to increase the disposable incomes of rural people and this in turn generate market for manufactured products.

To make agricultural credit services more effective there is a need of co-ordination between various fi nancial institutions in

Biotech crops were planted on over 100 million hectares last year

by ten million farmers in twenty

two countries



order to avoid multiple fi nancing. The banks should educate the farmers and get them into the habit of regular repayment. Large investment in agriculture is required for the growth of infrastructural facilities like irrigation, rural roads, market, power, cold storages etc. The Eleventh Five Year Plan (2007-2012) should aim at reducing poverty and the disparities across regions and communities. The pattern of funding also should have the objective of making States more self-reliant. Proper monitoring and evaluation against the laid down benchmarks along with the use of modern technology like e-governance can help in ensuring the higher outlays result in better outcomes and more inclusive growth. Policy makers should be able to compare how various growth strategies impact on poverty and the environment. Sustainable poverty reduction is attainable only in conditions where the development strategy generates an effective demand for environmental quality and for the sustain-able use of natural resources. Along with higher economic growth and poverty reduction there should be an improvement in many important social indicators like life expectancy, infant mortality rate and gross enrolment ratios at primary level of education. However, disparities continue at the State and regional level. Better governance and improved service delivery are essential to ensure that leakages are plugged and the funds under the welfare schemes reach the intended benefi ciaries to the maximum extent. Local governments, Panchayat Raj Institutions and Non Government Organizations can play an important role in this area. It is essential that these higher outlays result in better outcomes.

References and Additional Thinking• Ashok Gulati and Seema Batula, 2002, Capital Formation

in Indian agriculture, Trends composition and implications

for growth, NABARD, Occasional Paper-24• Ashok Gulati, Kelly, Tein 1999, ‘Trade liberalization and

Indian Agriculture’, Oxford University Press, New Delhi. • Burns JF. 1996. Denial and taboo blind India to the horror

of its AIDS scourge. New York Times, 22nd September.• Charles Leyeka Lufumpa 2005: “The Poverty-Environment

Nexus in Africa”, African Development Review,Vol.17,No.3 December 2005

• Government of India 2005, “Economic Survey 2004 - 05”, Ministry of Finance,Oxford university press, New Delhi.

• Government of India 2006-07: “Economic Survey”, Ministry of Finance, Oxford University Press.

• Government of India 2006: “An approach to the 11th fi ve

year plan”, Planning Commission, Page No. 18 & 19 • Government of India 2008: “Agriculture and food manage-

ment”, Economic Survey 2007-08, Ministry of Finance, Oxford University Press, P.161.

• Kahlon A.S. and George M.V.1985: “Agricultural and Price

Policies”, New Delhi 1985,Table 4.1. p.39. • Ministry of External Affairs, 2007 (GOI) ‘India in Busi-

ness’ FICCI-BISNET • Misra S.K.& V.K. Puri 2004 ‘Indian Economy’, Himalaya

Publishing House, New Delhi. • Prabhakaran Nair 2007: “Indian Agriculture at Cross-

roads”, The Hindu, August 15th • Ramprasad Sen Gupta 2001: “Ecology and Economics-An

approach to Sustainable Development”, New Delhi, 2001, P.175. R. Datt & K.P.M. Sundaram 2004 ‘India Economy’, S.Chand & Company, New Delhi.

• R.S.Sidhu and Sucha Singh Gill 2006 ‘Agricultural Credit

and Indebtedness in India : Some Issues’ Indian Journal of Agricultural Economics’ Vol. 61 No. 1 January - March 2006, Page No. 25

• Mohua Roy 2006: A review of Bank lending to Priority and

Retail Sector’s, Economic and Political weekly 18th Mar 2006 Page No. 1036

• Misra S.K.& V.K. Puri 2004 ‘Indian Economy’, Himalaya Publishing House, New Delhi.

• Gulati, Ashok, Kelly, Tein 1999, ‘Trade liberalization and

Indian Agriculture’, Oxford University Press, New Delhi. • R. Datt & K.P.M. Sundaram 2004 ‘India Economy’, S. Chand & Company, New Delhi. • R.Radhakrishna &S.Chandrasekhar,“Overview Growth:

Achievements and Distress”, India Development Report, Indira Gandhi Institute of Development Research, Oxford, 2008.

• Shetty S.L., 2006 “Monetary Policy and Financial Sector

Liberalization”, in Macroeconomics of poverty Reduction: India Case Study, Report submitted to UNDP, IGIDR, Mumbai, April 2006.

• Vaidyanathan 2005 “Farmer’s Suicides and the Agrarian

Crisis”, Economic and Political Weekly, Vol.XLI, No.38,23 Sep,PP.4009-13.

(The views expressed in the article are personal and do not

refl ect the offi cial policy or position of the organisation.)



Swati Raju

Financial Inclusion: Enabling Inclusive

G ROW TH

Lecturer, Department of Economics, University of Mumbai

IntroductionInclusive growth and fi nancial inclusion have emerged as buzz words in most discussions on economic growth in recent times. India has witnessed a GDP growth rate of over nine percent since 2005-06 with a signifi cant slowdown to 6.7 percent in 2008-09 on the back of a global recession. Much of the benefi ts of this high growth, however, have not been equitably shared. Data reveals that while the economy witnessed unprecedented high growth, according to the estimates of the Tendulkar Report aggregate poverty was at 37.2 percent while 41.8 percent of rural population and 25.7 percent of urban population was below the poverty line (BPL). The Planning Commission estimates vary and give a slightly lower fi gure of aggregate poverty of 27.5 percent and peg rural and urban poverty and 28.3 percent and 25.7 percent respectively (by 61st round of NSS data for 2004-05). Irrespective of the estimate it’s worthwhile to note that more than a quarter of our population lives below the poverty line. It is imperative therefore, that growth must be inclusive and must be viewed as a tool to alleviate poverty. Growth is inclusive when it creates economic opportunities along with an equal access to those opportunities. The Planning Commission defi nes Inclusion as ‘a process of including the excluded, as agents whose participation is essential in the very design of the development process and not simply as welfare targets of development programmes’ (Government of India, 2007). The Economic Survey 2009-10 (p.22) rightly notes that ‘policies promoting growth need to be complemented with policies that ensure that there are mechanisms in place to re-distribute some of the gains to those who are unable to partake in the market process and hence get left behind’. This would require a new thinking as regards the role of the government, from being a provider to being an enabling

I N C L U S I V E I N D I A


government where in the government does not directly partici-pate in the provision of goods but creates an enabling environ-ment where markets operate within well-defi ned incentive compatible rules and also intervenes directly when it needs to ensure its functions as a welfare state (Economic Survey

2009-10). The Eleventh Five Year Plan (2007-12) formally integrated the concept of inclusive growth with overall economic growth so as to make the growth process broad based and reduce fragmentation in society. The plan docu-ment states, ‘the development of rural India is an imperative for inclusive and equitable growth and to unlock the potential of the population that is presently trapped in poverty with its associated deprivations’. The plan document envisaged a two pronged approach through huge investments in social and physical infrastructure which in turn would generate income and employment and also fi nance social programmes that would enable inclusive growth.

Achieving inclusive growth, however, faces several challenges, viz., increasing growth in agriculture and allied sectors which would in turn create a market for goods and services provided by manu-facturing and services sector; the huge rural-urban migration which has put a substantial pressure on urban infra-structure; large investment would be required to adequately train and skill the young population and enable us to exploit the demographic dividend since growth has been driven by the knowledge and services sector. Thus, sustained high growth would require huge investments in social and physical infrastructure and in turn would create an increased demand for diverse fi nancial instruments. The role of the fi nancial sector in achieving inclusive growth would be pivotal as apart from institutional investment there would be a need at an individual level to have easy access to credit from formal sources accompanied by effective and effi cient credit-delivery taking us to a related and an important facet of inclusive growth, namely, fi nancial inclusion. Financial inclusion therefore emerges as the crucial link towards achieving inclusive growth

Financial Inclusion: Defi nitionFinancial inclusion, simply put, refers to taking banking

services to the common man or in other words, the transfer-ence from elitist/class banking to mass banking. More importantly, fi nancial inclusion is not just restricted to credit but involves extending a wide array of fi nancial products and services like saving accounts, insurance, remittance and other facilities to the under-privileged and the poor in rural, semi-urban and urban areas. It is important to note that the defi nitional emphasis of fi nancial inclusion varies across countries and depends on the level of socio-economic and fi nancial development of the concerned country. The defi ni-tions hence vary with regard to dimensions such as ‘breadth’, ‘focus’ and degree of inclusion/exclusion. The Reserve Bank of India in its Report on Currency and Finance (2003-08,

volume V) provides a compendium of defi nitions. To note a few major defi nitions, Leyshon and Thrift (1993) focused largely on social exclusion and the geographical access to

fi nancial services, in particular banking outlets while Ford and Rowlingson (1996) and Kempson and Whyley (1998) point out that the debate is no longer restricted to just geographical access but has widened to include all types of people who make little or no use of fi nancial services. The Asian Develop-ment Bank (2000) defi nes inclusion ‘as the provision of a broad range of fi nancial services such as deposits, loans, payment services, money trans-

fers and insurance to the poor and low income households and their micro-enterprises’. The Treasury Committee, House of Commons, UK (2004) defi nes fi nancial inclusion as ‘ability of individuals to access appropriate fi nancial products and services’. The World Bank (2008) expresses fi nancial inclusion as the broad access to fi nancial services implies an absence of price and non-price barriers in the use of fi nancial services; it is diffi cult to defi ne and measure access because access has many dimensions. The United Nations (2006) notes, ‘a fi nancial sector that provides ’access’ to credit for all ‘bank-able’ people and fi rms, to insurance for all insurable people and fi rms and to savings and payments services for everyone. Inclusive fi nance does not require that everyone who is eligible use each of the services, but they should be able to choose to use them if desired’. The Committee on Financial Inclusion in India (2008) indicates that fi nancial inclusion

Sustained high economic growth would create an

increased demand for diverse and several financial

instruments



implies ‘the process of ensuring access to fi nancial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost’. To summarize, the two focal points that emerge from the different defi nitions are the access to fi nancial services and affordability (Reserve Bank of India,

2008).

Factors Affecting Financial Inclusion in IndiaFinancial exclusion is the inverse image of fi nancial inclusion and is multi-dimensional. Financial exclusion on the demand side arises because of (i) low income and asset holdings (ii) the high information barriers and low awareness regarding fi nancial services in rural areas and also among women and on the supply side (iii) the lack of access to fi nancial services which arises because of an absence of formal fi nancial institutions such as banks (which could not extend outreach on account of high cost of operations, or unviable due to the small ticket size of the transactions so there are fewer branches) (iv) unsuit-able fi nancial products (v) cumbersome documentation and procedures (vi) in the case of primary agricultural co-operative societies where participation is restricted those who have land ownership (such societies do not provide saving and insurance facilities to their members). (vi) the failure of fi nancial co-operatives in several States has had an impact on the outreach of fi nancial services in rural areas. (vii) the lack of fi nancial education and coun-selling. Finally, fi nancial exclusion is often related to the issue of social exclusion which gives access to fi nancial services and fi nancial literacy a complex socio-economic dimension. Consequently, the fi nancially excluded comprise of marginal farmers, landless labourers, share croppers or oral lessees, self employed and unorganized sector enterprises, slum dwellers, migrants, socially disadvantaged groups and women. These factors accompanied by the easy availability of credit from informal sources such as money lenders (where there is no cumbersome documentation) makes borrowing from informal sources though costly but popular. Widening fi nancial inclusion or in other words, overcoming the problem of fi nancial exclusion would require a holistic

approach wherein awareness about fi nancial products and services, fi nancial counselling including debt counselling and affordable credit is made available to those excluded. Banks thus, emerge as the key players on the supply side and can enable the poor and the socially disadvantaged as well as the small and medium enterprise sector to gain access to formal sources of credit (Thorat, 2007).

Financial Inclusion: Initiatives and MeasurementThough the Reserve Bank of India used the term Financial Inclusion explicitly for the fi rst time in its Annual Policy Statement of 2005-06, the objective of banking/fi nancial policy has always been inclusive. The process of fi nancial inclusion began in 1969 with the nationalization of banks and can be broadly classifi ed into three broad phases. Phase I (1969-1990) which was characterized by State control over the

banking system, a directed lending programme with a system of adminis-tered interest rates. This phase of bank expansion was propelled by socialist thrust /intentions and saw massive expansion of bank branches in rural and semi urban areas and priority sector lending. Consequently, scheduled commercial branches increased from 8,262 in June 1969 to 64,608 branches as of end-March 2009. The average population serviced per branch also

decreased from 64,000 to 15,000 and the share of rural branches increased from 22.2 percent to 31.04 percent over the same period. Priority sector lending was enhanced to a compulsory 40 percent of total lending. Regional Rural Banks (RRBs) were set up in 1975 in backward and tribal areas to cater to the needs of the weaker sections. National Bank for Agriculture and Rural Development (NABARD) was established as an apex body for the agriculture sector and provided concessional refi nance for lending done by the rural co-operative sector. Industrial Development Bank of India (IDBI) was similarly set up for the industrial sector. The credit outstanding against small borrowal accounts of Sched-uled Commercial Banks (SCBs)which cover agriculture, industry, trade, personal loans and professionals and other services showed an increase of about 18.69 percent in 2008 while the rural sector also saw an equal increase of 18.26



Credit Outstanding Deposits

March 2007

March 2008

March 2007

March 2008

Rural 87675 103690 224047 261654

Semi-Urban 75466 87443 272633 335978

Urban 115753 139889 862330 1090730

All- India 278894 331022 1359020 1688362

Source: Basic Statistical Returns of Scheduled Commercial Banks, March 2008

Table 1: Credit Outstanding against Small Bor-rowal Accounts and Deposits (Scheduled Commer-cial Banks) (Rs. in Crore)

Savings Loans Disbursed

2007-08 2008-09 2007-08 2008-09

Commercial Banks 2078 2773 5404 8061

RRBs 1166 1990 2652 3193

Cooperative Banks 541 783 794 999

Total 3785 5546 8849 12254

Source: Report on Trends and Progress of Banking in India 2008-09

Table 2: SHGs - Savings with Banks and Bank Loans Disbursed (Rs. in Crore) (As of March end)

Year Coopera-tive Banks

RRBs Commer-cial Banks

Total

1 2 3 4 5

1998-99 0.16 0.01 0.62 0.78

1999-00 3.59 0.17 1.37 5.13

2000-01 5.61 0.65 2.39 8.65

2001-02 5.44 0.83 3.07 9.34

2002-03 4.58 0.96 2.70 8.24

2003-04 4.88 1.27 3.09 9.25

2004-05 3.56 1.73 4.40 9.68

2005-06 2.60 1.25 4.16 8.01

2006-07 2.30 1.41 4.81 8.51

2007-08 2.09 1.77 4.60 8.46

2008-09 1.34 1.41 5.83 8.58

Total 36.2 11.5 37.0 84.6

Percentage share in Total

42.7 13.5 43.8 100.0

Source: National Bank for Agriculture and Rural Development

Table 3: Number of Kisan Credit Cards Issued (in millions) (As of end of March)

percent over the same period. Of the total credit outstanding against small borrowal accounts at the All-India level nearly 82.1 percent of the accounts are held by males (rural areas males - 80 percent) while 14.4 percent (rural areas females hold 17.6 percent) of the accounts are held by females as of end March 2008. Deposits held in SCBs as of end March 2008, just about 15-16 percent of the deposits are from rural areas. However, irrespective of the geographical location almost 70 percent of all deposit accounts are held by males and about 20 percent by females bringing out the gender disparity dimension of fi nancial inclusion with regard to both credit and the deposit side.

Phase II (1990-2005) coincided with the period of fi nancial sector reform, higher allocation of credit to the private sector, dismantling of the administered interest structure, strength-ening of the banking sector through the stringent monitoring and the introduction of regulatory and supervisory norms for capital adequacy, tier I capital. This phase also saw increased competitiveness with the entry of new private sector banks and listing of public sector banks on stock exchanges along with a consolidation of the banking system and the scope of priority sector lending was widened. The developments of this phase emphasized that fi nancial strengthening and inclusive banking need to go together. Financial inclusion in this phase saw the introduction of Self-Help Group (SHG) – Bank linkage programme (SBLP) launched by NABARD in 1992. A SHG is a small homogenous group of about 15-20 people (usually women) who join together to address common issues. Pooled savings are used to make interest bearing loans to group members. SHGs aid in fi nancial intermediation apart from inculcating the quality of thrift amongst members. Besides the transaction costs are low and SHGs can reach out to both the smallest unit in villages. The Reserve Bank of India allowed banks to open savings account for SHGs (despite the fact that they have no legal form) once the group had stabilized and thus gain access to credit and fi nancial services from the formal sector

Table 2 presents the results of the SBLP programme and shows the savings of SHGs with banks and the amount of bank loans disbursed to SHGs. It can be observed that commercial banks lead in both savings held by SHGs as well as in loan disbursement and are followed by RRBs. Another important step during this Phase which aided inclusion was the introduc-



tion of Kisan Credit Cards (KCCs) for providing credit to farmers. There has been a multifold increase (Table 3) in the number of KCCs issued since its inception in the late 1990s and the percentage share of both co-operative banks and com-mercial banks in the issuance of KCCs is above forty percent respectively with RRBs having a share of just about 13.5 percent.

Apart from the different measures aimed at expanding fi nancial inclusion, it was recognized that inclusive growth would need huge investments in rural infrastructure and in the small scale industries sector (Micro, Small and Medium Enterprises) which assumes importance because of its employment generation potential and wide regional spread. Consequently the Rural Infrastructure Development Fund (RIDF) was launched under NABARD in 1995-96 with an initial corpus of Rs.2000 crores with the motive of creating adequate infrastructure in agriculture and later extended to develop rural infrastructure such as roads and bridges. Likewise a similar fund was created for the industrial sector – Small Industries Development Fund (SIDBI). There are about 1.3 crore MSEs and they employ about three crore people and the main source of credit to this sector are the public sector banks followed by the private sector banks and foreign banks. Table 4 presents the credit outstanding to the MSE sector by various bank groups while Table 5 gives the disbursements under various tranches of RIDF which as of end of March 2009 stood at Rs.56,052 crore.

Phase III (2005 onwards) saw fi nancial inclusion introduced explicitly as policy objective and several initiatives were undertaken to extend bank penetration and outreach with a focus on the credit needs of agriculture and small enterprises.

Bank Group 2007 2008 2009(P)

Public Sector Banks 1,025(24.40)

1,511(47.38)

1,913(26.58)

Private Banks 131(26.05)

469(257.12)

479(2.14)

Foreign Banks 116(38.04)

155(33.10)

181(17.10)

P – Provisional. Figures in parentheses indicate growth rate over the previous yearSource: Report on Trends and Progress of Banking in India, 2008-09.

Table 4: Credit Outstanding to MSE Sector (Rs. in Crore) (As of end of March)

All - India

RIDF I 1761

RIDF II 2398

RIDF III 2454

RIDF IV 2482

RIDF V 3055

RIDF VI 4071

RIDF VII 4052

RIDF VIII 5141

RIDF IX 4871

RIDF X 6200

RIDF XI 5725

RIDF XII 5775

RIDF XIII 5057

RIDF XIV 3013

Total 56052

Source: Report on Trends and Progress of Banking in India, 2008-09.

Table 5: Disbursements under RIDF (Rs. in Crore) (As of end of March 2009)

Consequently, banks were advised by the Reserve Bank of India in November 2005 to introduce ‘no-frills’ accounts. Such accounts would have very low or nil minimum balance, 5-10 free transactions per month and an ATM facility. Besides all material used by such customers would be printed in the regional language. Further to enable inclusion, Know Your Customer (KYC) norms were simplifi ed for accounts with balances not exceeding Rs.50,000/- and credit limits not exceeding one lakh rupees in a year so that people belonging to the low income groups both in urban and rural areas do not have to face cumbersome procedures whilst opening accounts. It can be observed that there has been a massive increase of about 7.28 times in the number of no-frills accounts opened by SCBs over the period of three years - March 2007 to March 2009, and the maximum number of accounts have been opened with Public Sector Banks given the comparative advantage they enjoy with their vast branch network in rural and semi-urban areas. Besides, banks, increasingly, have started looking the basic ‘no-frills’ accounts as a huge business opportunity that can emerge as a viable business model over time.

Further, the Raghuram Rajan Committee on Financial Sector Reform suggested that the opening of basic or ‘no-frills’ accounts be encouraged so as to provide 90 percent



Bank Group 2007 2008 2009

Public Sector 5865419 13909935 29859178

Private Sector 860997 1845869 3124101

Foreign 5919 33115 41482

Total 6732335 15788919 33024761

Source: Report on Trends and Progress of Banking in India, 2008-09.

Table 6: Number of No-Frills Accounts Opened by SCBs (As of March 31st)

Bank Group 2007-08 2008-09

Commercial Banks 1969 (497) 3719 (522)

Regional Rural Banks 2 (8) 13 (59)

Cooperative Banks 0.04 (13) - (0)

Total 1970 (518) 3732 (581)

- indicates nil/negligible. Figures in parentheses indicates number of MFIs. Source: Report on Trend and Progress of Banking in India,2008-09, RBI

Table 7: Bank Loans Disbursed to MFIs (Rs. in Crore) (As of end of March)

Indians access to the formal fi nancial system and that these accounts may be used for the payments made under NREGS and other government programmes. Besides, banks have also been advised by the Reserve Bank of India to introduce a General Credit Card (GCC) apart from KCCs with a credit facility of up to Rs.25, 000/- at their rural and semi-urban branches. This facility would provide revolving credit and allow the holder to withdraw up to the sanctioned limit which in turn is determined after an assessment of the household’s cash fl ow. Interest rate on this facility is complete-ly de-regulated and 50 percent of GCC loans can be denominated as priority sector lending which acts as an incentive for the bank. This phase also saw an expansion of the priority sector to include high employment sectors such as agriculture, small enterprises, retail trade, educational loans, microfi nance, low cost housing and venture capital.

A major contribution to inclusive banking in recent times has been the role of microfi nance institutions (MFIs) who have emerged as major node in the expansion of outreach of the formal fi nancial sector. In January 2006, the Reserve

Bank of India permitted banks to utilize the services of MFIs/ NGOs/ SHGs for expanding the coverage of fi nancial and banking services through the Business Facilitator (BF) and Business Correspondent (BC) models and it can be observed from Table 7 that commercial banks have again emerged as the largest lenders to the MFI sector.

In April 2008, the list of BCs was extended to include retired bank employees, ex-servicemen and government employees so as to provide banking facility to rural popula-tion at an accessible location or put differently, taking banking to the doorstep. The Raghuram Rajan Committee on Financial Sector Reform also suggested the expansion of the BC model. The Working Group set up to review the BC model has submitted its Report in August 2009 and has recommended the expansion in the list of BCs in rural and semi-urban areas to include retired teachers, kirana/medical/

fair price shop owners, and authorized functionaries of SHGs among many other such representatives. The Report also suggests that banks be permitted to collect a reasonable service charge from the customer in a transparent manner depending upon the profi le of the customer along with providing ad-equate risk-mitigation measures. Apart from such standardized approaches in the formal sector, there are a large number of innovative experiments done

by MFI and SHGs that serve local requirements and indicate that there exists a market at the bottom of the pyramid.

Although, fi nancial exclusion is a major problem in rural and semi-urban areas it is important to acknowledge the prevalence of exclusion in urban areas as well particularly in the case of informal sector workers such as artisans, labour-ers, small businessmen, migrants, slum dwellers etc. who do not have bank accounts and whose knowledge of banking services is limited. Efforts along lines to overcome fi nancial exclusion in rural areas will have to be undertaken by both SCBs and Urban Co-operative Banks (UCBs) to expand fi nancial inclusion in urban areas. For instance, Indian Bank opened a core banking branch (using smart card based banking) along with ATM facility in Dharavi, Asia’s largest slum, in Mumbai and extended doorstep banking to residents of this slum. A similar model has now been extended for the

Financial education and

credit counseling are important tools to enable

people overcome indebtedness



urban poor by Indian Bank in Guntur, Andhra Pradesh and Tharamani, Chennai.

Besides, several others initiatives have been undertaken to make access to the fi nancial sector inclusive, namely, adopt-ing a decentralized strategy wherein the State Level Bankers’ Committee (SLBC) identifi es one district in each State for 100 percent fi nancial inclusion (whereby all those who wanted to open a bank account were provided with one by allocating villages to different banks), conditional approval for opening of new bank branches wherein at least half of such new branches are opened in under banked areas as notifi ed by the RBI, strengthening and reviving Regional Rural Banks and Co-operative banks which being local institutions are best adapted to achieve fi nancial inclusion,

improvements in the payments system, exploiting the vast network of post offi ces and the trust reposed by the local population in the postman - banks are using post offi ces as agents for branchless banking under BC models, strengthen-ing primary agricultural credit societies, reviving the Lead Bank Scheme (Reserve Bank of India, 2008; Thorat, 2008;

Chakrabarty, 2009). On the recommendations of the Committee on Financial

Inclusion, the Government constituted two Funds with NABARD – the Financial Inclusion Promotion and Devel-opment Fund (FIPF) and the Financial Inclusion Technology Fund (FITF) with an initial corpus of Rs.500 crore each. The FIPF would focus on capacity building and promote rural entrepreneurship, farmers service centres while the FITF

would focus on funding low cost technology solutions (Government of India, 2008).

Financial Literacy and Credit CounsellingEfforts at fi nancial inclusion will meet with success when accompanied by an awareness of the available fi nancial products and services, especially of the risks and rewards so that an individual can make an informed choice. Financial education and credit counseling are seen as important tools to enable people overcome indebtedness. In India the need for fi nancial education is well borne out given the low levels of overall literacy and that a large section of population continues to be out of the purview of the banking and fi nancial sector. Credit/Debt Counselling can be defi ned as

‘counselling that explores the possibility of repaying debts outside bankruptcy and educates the debtor about credit budgeting and fi nancial management’. In other words, it examines ways to solve current fi nancial problems, explains the costs of misusing a credit and encourages distressed people to access the formal fi nancial system. Counselling can be preventive wherein people are made aware of the pitfalls of misuse of credit, making borrowers aware of their repayment capacity while it can be curative and help distressed people in generating effective debt management plans (Chakrabarty, 2009b). A model scheme on fi nancial literacy and credit counseling centres was formulated and circulated by the Reserve Bank of India to all Scheduled Commercial Banks and Regional Rural Banks in February 2009 with the advisory that such centres be set up as separate entities at arms length from the bank so that such

facilities can be availed by customers of different banks (Reserve Bank of India, 2009).

Other measures undertaken by the Reserve Bank of India is the creation of a multi-lingual link on its website in 13 Indian languages on all matters concerning banking in June 2007, taking fi nancial education to children by adopting the comic books format that explain the basics of banking, fi nance and central banking to children, promote fi nancial awareness through essay competitions for school children. Further, the RBI has undertaken a project entitled ‘Project Financial Literacy’ with the objective of creating awareness on general banking concepts and the central bank to differ-ent target groups and to be operated through the mass media, banks, local government machinery and NGOs. Financial



literacy programmes are being launched in each State with the active involvement of the government and SLBC (Reserve

Bank of India, 2008a).

Roadmap for the FutureThe principle of fi nancial inclusion indicates that banking and fi nancial services are to be viewed as public goods and hence have to be equally enjoyed by all. All efforts at fi nan-cial inclusion validate the issue of access and support the argument of taking banking services to the last mile. A direction for the future would be the increasing use of IT enabled solutions which would reduce costs of fi nancial trans-actions, improve the allocation of fi nancial resources, increase competitiveness and take fi nancial products and services to the general masses in under banked rural and semi-urban areas. The use of smart cards, mobile ATMs with instructions and commands in regional languages (like the e-Choupal project) and the coverage of post offi ces under electronic payments network could facilitate fi nancial inclusion. Another tool could be the use of mobile telephony whose use is widespread across all strata of society. The mobile phone can function as a multi-application smart card, thus extending banking services to every mobile phone user. Projects have been initiated in several States using smart cards for opening bank accounts with bio-metric identifi ca-tion and the link to a mobile or a hand held connecting device ensures that the transactions are recorded in bank books on a real time basis (Chakrabarty, 2009a; Thorat,2007). As suggested by the Raghuram Rajan Committee on Finan-cial Sector Reform that a nationwide electronic fi nancial inclusion system (NEFIS) be created by linking the ‘no-frills’ accounts to facilitate electronic transfer of funds into these accounts from various government social security pro-grammes.

In conclusion, the approach to fi nancial inclusion needs to be comprehensive and holistic as opening of a no-frills account which would ensure the safety of savings and access to affordable credit would encourage the individual to embark on a continuous process of access to different fi nancial products and services which lead to wealth creation as also to seek insurance. The success of fi nancial inclusion would ultimately depend on a collaborative strategy wherein there is an adequate supply of correctly priced and appropri-ate fi nancial products and services accompanied by an

effi cient delivery mechanism along with fi nancial awareness and a co-operation between fi nancial institutions, govern-ment and civil society organizations.

References and Additional Thinking• Chakrabarty, K.C. (2009): Banking: Key Driver for

Inclusive Growth, Reserve Bank of India Bulletin, September.

• Chakrabarty, K.C. (2009a): Technology, Financial Inclu-

sion and Role of Urban Cooperative Banks, Reserve Bank of India Bulletin, September.

• Chakrabarty, K.C. (2009b): Furthering Financial Inclu-

sion through Financial Literacy and Credit Counselling, Reserve Bank of India Bulletin, December.

• Government of India (2007): Towards Inclusive Growth:

The Gender Dimension, Planning Commission, November 15th 2007.

• Government of India (2008): Eleventh Five Year Plan – 2007-2012, Planning Commission, Oxford University Press, New Delhi.

• Government of India (2008a): Report of the Committee on Financial Inclusion.

• Government of India (2008b): Report of the Committee on Financial Sector Reforms.

• Government of India (2010): Economic Survey 2009-10.• Ramesh, S. and P. Sahai (2007): Universal Financial

Inclusion in India: The Way Forward, CAB Calling, July - September 2007.

• Reserve Bank of India (2008): Report on Currency and Finance 2003-08, Volume V.

• Reserve Bank of India (2008a): Concept Paper on Finan-cial Literacy and Counselling Centres.

• Reserve Bank of India (2009): Report on Trends and Progress of Banking in India, 2008-09.

• Reserve Bank of India: Basic Statistical Returns of Scheduled Commercial Banks, various issues.

• Thorat, U. (2007): Financial Inclusion – The Indian

Experience, Reserve Bank of India Bulletin, July.• Thorat, U. (2008): Inclusive Growth: The Role of Banks in

Emerging Economies, Reserve Bank of India Bulletin, March.





GROWTH SANS DEVELOPMENT ?B.K. Thapliyal Former Professor and Head at National Institute of Rural Development (NIRD), Hyderabad

W H I T H E R I N D I A ?


Economic Growth and DevelopmentEconomic growth and economic development are often used synonymously. When progress takes place gradually and refl ected in quantitative changes, it should be considered as economic growth. Growth leads to more output, saving and investment. Development involves not only quantitative increase in the economy but also qualitative changes. Eco-nomic growth implies a gradual change in the economy. Economic development may not be steady, and some times it may be abrupt and uneven changes. From this point of view development is more dynamic than growth. It has a broader perspective. It not only stands for “more output” but also “changes in the technical and institutional arrangements by which it is produced”. Such changes are not automatic. Further, it implies change in technological and institutional organization of production as well as in distributive pattern of income. Hence, compared to the objective of development, economic growth is easy to realize by a larger mobilization of resources and raising their productivity and output levels. The process of development is far more extensive. Apart from a rise in output, it involves changes in composi-tion of output, shift in the allocation of productive resources, and elimination or reduction of poverty, inequalities and unemployment. Lastly, economic development is not possible without growth but growth is possible without development.

An economy grows because it accumulates factors of production, like physical and human capital, because its labour effort grows, or because it improves the effi ciency with which it uses the factors of production. The variables that appear most frequently in economic growth include: savings, investment, technological change, structure of capital, consumption, etc. The conventional “neoclassical” theory of growth had held that economic growth was a result of the accumulation of physical capital and an expansion of the labour force – combined with an “exogenous” factor, techno-logical progress that makes capital and labour more produc-tive. In addition to an expanded view of the relationship between economic growth and human capital, there now is a deeper understanding of the relationship between growth and

equity. Human capital has more impact on growth, for example, if it is equitably distributed.

It may be pointed out that economic development is not the same as economic growth. Economic development involves something more than economic growth. While economic growth involves expansion of an economy through a simple widening process, economic development incorporates growth as well as essential qualitative dimensions appearing in the form of improved performance of the factors of production and improved techniques of production. Another qualitative change may appear in the form of development of institutions and changes in values and attitudes. Thus, while economic growth refers to sustained increase in per capita product, economic development refers to growth plus progressive changes in the socio-economic structure of a nation.

National income is one of the most commonly used economic phrases and from that viewpoint it appears to have a fairly simple meaning, viz., it represents the aggregate income of a nation as against the income of an individual. A number of specifi c problems or issues arise when we try to defi ne and measure the national income of any country. However, to begin with, we may defi ne national income as the aggregate money value of the annual fl ow of fi nal goods and services in the national economy.

Some aspects of this defi nition deserve special mention. For instance, it may be noted that national income is an aggrega-tive value concept. It makes use of the value determined by the measuring rod of money as the common denominator for the purpose of aggregating the diverse outputs resulting from different types of economic activities.

Another aspect of this defi nition that should be noted is that national income represents the aggregates value of fi nal products rather than the total value of all kinds of products produced in the economy. The distinction arises because there are a number of products, which in turn are used in the production of several other products. The output of the latter will, therefore, include as its components the entire output of the former. For instance, since fl our is used in making bread, the total value of bread includes the value of fl our also. Hence

Economic development is not possible

without growth. But growth is

possible without development



Period Agriculture Industry Services All

1950-60 3.0 6.2 4.3 3.9

1960-70 2.3 5.5 4.8 3.7

1970-80 1.5 4.0 4.4 3.1

1980-90 3.4 7.1 6.7 5.6

1990-2000 2.5 5.6 7.6 5.6

2000-2006 2.8 7.7 8.9 7.3

1950-80 2.3 5.2 4.5 3.6

1980-2006 2.9 6.4 7.7 6.0

1950-2006 2.6 5.8 6.0 4.7

Table 1 : Sector Wise Growth Pattern in India

Source : World Bank Central Database, May 2007.

if we add the value of the former to that of the latter while measuring national income, we will be indulging in what is known as "double counting". Obviously the measure of national income should be free form double counting. To emphasize this aspect, the word ‘fi nal" has been used in the above defi nition to specify the type of goods and services, the values of which are to be aggregated to derive national income. It indicates that national income is an unduplicated total that does not involve any double counting.

Philosophically speaking, there are two opposing views of development. One is a consumerist view, which regards the human being primarily as a consumer of goods and services. Basically, ‘development’ is seen in this view as an expansion of the fl ow of consumption. For a time, development was identifi ed with aggregate economic growth to bring about a progressively higher fl ow of aggregate of consump-tion irrespective of its distribution (the ‘reactionary‘ view). Gradually, the interpersonal distribution question was raised, in terms of who benefi ts from such development as consumers (the ‘liberal’ view) (Rahman,1992:172).

In 1955 Lewis defi ned the purpose of development as widening the “range of human choice”. However, Lewis tended to equate wider choice merely with greater income - and had more faith that economic growth would inevitably lead to human development. Proponents of economic growth, argue that without such growth, ‘development’ in the broader sense of human well-being would be impossible to achieve. They recognize, of course, that economic growth is a ‘means’ rather than an end in itself, but tend to agree that achieving economic growth is the fi rst priority (Kabeer 1994:74).

Economic development is not concerned only with eco-nomic growth but also with progress in human societies. Development is a process of economic, social, and techno-logical change by which human welfare is improved. Anything that raises the level of human welfare contributes to develop-ment; anything that reduces the welfare is anti-developmen-tal, a subtraction from development (Higgins,1992:27). A major goal of development policy and planning, say Adelman and Morris(1973:192-93), ‘should be to guarantee social

justice to those in need, and that any pattern of economic growth is unjust that fails to improve the standard of living of major segments of the population. Anything contributing to extreme inequality in standards of living is morally unaccept-able’. A similar point is raised in the HDR, 1996, “Is econom-ic growth a meaningful goal? Or is human development the real objective? If it is human development, growth should be judged not by the abundance of commodities it produces, but by how it enriches people’s lives”(UNDP: 1996:43).

Economic Growth and Develop-ment in IndiaThe economic growth and development pattern in India has been very interest-ing. From the beginning of First Five Year Plan (1952-53) till Eighth Five Year Plan (1991-92) India followed socialistic pattern of development with dominance of public sector in all spheres of economic and social develop-ment. The government had control over

most of the factors of economic growth and development. It was mainly a closed economy and markets had very limited role. During 1950 to 1980, the GDP grew between three and four percent. Prof. K N Raj, an eminent economist named it as “Hindu Rate of Growth”. During the decade of eighties, there was some opening of the economy, which helped in breaking the barrier of Hindu Growth Rate and the GDP grew between 5-6 percent.

It was during 1991-92 when the government realized that

Growth must be judged not by the abundance

of commodities it produces, but by how it enriches people’s lives



Sectors 1993-94 over1983-84

1999-2000 over1993-94

2004-05 over1999-2000

2004-05 over1993-94

1. Agriculture 1.4 0.1 1.5 0.7

2. Mining & Quarrying 3.7 -2.8 2.4 -0.4

3. Manufacturing 2 1.6 5 3.1

4. Electricity, gas, water, etc. 4.8 -4.8 3.1 -1.2

5. Construction 5.7 6.4 8.2 7.2

6. Trade, hotel & restaurant 3.8 6.3 3.9 5.2

7. Transport, Storage and Communication 3.4 5.3 4.9 5.1

8. Other services – Financial, Insurance, Public and Personal services, etc. 3.9 -0.7 3.6 1.2

9. All sectors 2.1 1 2.8 1.9

Table 2 : Employment Growth Rates by Sectors (Annual Compound Growth Rates)

Source : NSS Employment and Unemployment Surveys adjusted for population Census. Employment is measured by number of workers by UPSS status.

restructuring and liberating from the control of the govern-ment is essential to achieve higher growth in the economy Thus Ninth Five Year Plan onwards, the government allowed private sector and the markets to play their role and started minimiz-ing state control on the factors of production and business.

This upturn in the growth rate can defi nitely be attributed to the economic reforms. After 2001, the growth rate further jumped to cross seven percent and during 2007-08 it moved above nine percent. Table 1 provides compounded growth rate decade wise from 1950 to 2006.

There are two aspects of develop-ment. One is increase in income of the people by the expansion of gainful employment leading to increase in their consumption and also help in the reduction of poverty. Another is expansion of roads, power supply, more hospitals, school and colleges, safe drinking water and sanitation, etc., which refl ects in the increase of literacy and quality education, reduction in Infant Mortality Rate (IMR) and Maternal Mortality Rate (MMR), increase in expectancy of life and so on. In other words, development can be measured in terms of improve-ment in all aspects of human development. In fact the ultimate objective of development is to improve the quality of life of the people in the country.

Economic Growth and EmploymentLet us fi rst compare the growth trends with the employment.

Table 2 given below provides data on the growth rate of employment from 1983 to 2005. It can be seen from the table that during 1983-84 and 1993-94 annual compounded growth rate of employment was 2.1 while in the corresponding period economic growth rate was 5.6. Between 1993-94 and 1999-2000, while the growth rate was improving over the previous decade, the employment rate declined to 1.0 percent. How-ever the employment rate increased to 2.8 during 1999-2000 to 2004-05 but the economic growth rate was above seven

percent during the corresponding period. This clearly indicates that high economic growth has not been helpful in expanding employment.

Economic Growth and Poverty ReductionOne of the important indicator of development is reduction in poverty. It is the basic presumption that when economy grows, every one gets the benefi t, but in proportion to his/her

capacity and capability. Thus those with high capacity and capability would get higher share of growth while those with poor capacity and capability get poor share. In other words the rich become richer while the poor remain poor. This situation will continue unless a mechanism is devised which enables the poor to derive “little more than proportionate benefi t” from the economic growth.

Poverty reduction in India has been one of the dominant development policies. A number of rural development

The trickle down effect of growth

and inclusive development will be possible when

employment expands massively



programmes with substantial budgetary allocation were introduced from the First Five Year Plan . From Ninth Plan onwards, the budgetary allocation has been increased by many times. In addition during these periods India has been on high trajectory of growth, but it has little or no effect on the rate of poverty reduction as can be seen from Table 3. Between 1973-74 and 1983-84, when the growth rate was below four percent, the percentage of population ‘below poverty line (BPL)’ declined from 54.9 to 44.5, averaging about one percent per year. The decade between 1983-84 and 1993-94 when the growth rate broke the barrier of Hindu Growth Rate and crossed fi ve percent, the BPL population was reduced to 36.0 percent from 44.5 percent, registering less than one percent annual decline in poverty. From 1993-94 to 1999-2000 when the growth rate was above six percent, poverty declined by annual average of one percent. However, this was the period when there was a quantum jump in the allocation for poverty alleviation programmes. Unfortunately, the greatest tragedy is that between 1999-2000 and 2004-05, poverty has rather increased over the previous period in spite of the fact that economic growth was above seven percent and invest-ment on rural development programmes were increasing phenomenally.

Economic Growth and Human DevelopmentThe overall indicator of development has to be refl ected in terms of the human development. The United Nations Development Programme (UNDP) organisation in 1990 started bringing out human development report on all nations of the globe. Based on the various indicators of human

development a composite index was developed which is called Human Development Index or HDI and based on it all the nations are ranked. It is interesting to note that according to Human development Report 1990, India was placed at 123 in HDI rank. In 1992 it climbed two steps up at 121. However from 1993 it sided down to 134 and reached its lowest at 139 during 1998. It was this period when the economic growth in the country was rising above six percent. During 2004 and 2005 India improved in HDI rank and stood at 127. There was again a surprise that India dived to 139 HDI rank in 2009. These fi gures clearly indicate that the high economic growth rate did have least effect on the HDI Rank of India. Then can we conclude that there was growth but no develop-ment?

ConclusionThe facts provided above in respect of the economic growth pattern and some vital factors like employment, poverty reduction and human development (which are important indi-cators of development) have helped the government to mobilise more resources and accordingly the government

development, clearly explain that economic growth not necessarily lead to development. Economic growth has increased investment on social develop-ment and poverty alleviation by many folds, unfortunately, these have not yet shown encouraging results. There are many causes for this situation, however there are three main causes which neutralise the efforts being made for development. These are : (1) High rate of population growth; (2) Inability to

transfer labour from agriculture to non-agriculture sectors on a larger scale; and (3) High level of corruption.

If we want that high growth rate is translated to develop-ment, there is a need to promote inclusive development. The trickle down effect of the economic growth and inclusive development will be possible when there is mass expansion of employment in industrial and service sectors. In all the developed countries, the percentage of workers in agriculture sector and its share in GDP is much less than 10 percent while in India more than 60 percent of the workers are in agricul-ture sector though its share in GDP is around eighteen

Region 1973-74 1983-84 1993-94 1999-2000 2004-05

1.Rural 56.4 45.7 37.3 27.1 28.3

2.Urban 49 40.8 32.4 23.6 25.7

3.Total 54.9 44.5 36 26.1 27.5

Table 3 : Population Below Poverty Line (as per expert group)

Source : Planning Commission, Press Release, March 21, 2007.

During 2004 and 2005 India improved in HDI rank and stood at 127. Then again it dived to 139 HDI

rank in 2009



percent. In the ultimate analysis it can be concluded that economic

growth is necessary so that more resources can be mobilised, but it can be translated into development only when all the concerned, government as well as corporate sector make sincere efforts to improve the factors contributing to human development both in quantity and quality.

References and Additional Thinking• Adelman, I. And Morris, C.T.(1973) ‘ Economic Growth

and Social Equality in Developing Countries’. (California:Stanford University Press), pp.192-93

• (1992) ‘What is the Evidence on Income Inequality and

Development?', in Donald J. Savoie and Irving Brecher ed. Book ‘Equity And Effi ciency in Economic Development' (London: Intermediate Technology Publications), p. 121-46..

• Ahluwalia, M. (1976) ‘Inequality, Poverty, and Develop-

ment’. Journal of Development Economics, 6:307-42 • Bardhan, Pranab. (1995) ‘Research on Poverty and

Development twenty Years after Redistribution with

Growth',. in Michael Bruno and Boris Pleskovic (eds.) ‘Annual World Bank Conference of Development Eco-

nomics, 1995,( Washington D.C.: the World Bank

• Chenery, Hollis, Montek S. Ahluwalia, clive Bell, Hohn H. Duloy, and richard Jolly. (1974). ‘Redistribution with

Growth’. (New York: Oxford University Press)

• Colman, D and Nixson, F. (1994). ‘Economics of Change in Less Devel-

oped Countries’. (New York: Harvester Wheatsheaf), p. 100

• Fields, G.S. and G.H. Jackbuson. (1993). ‘ New Evidence on the Kuznets Curve’. Yale Economic Growth Centre, New Haven, Conn.

• Fishlow, A. (1995) ‘Inequality, Poverty,

and Growth : where Do We Stand?', in Michael Bruno and Boris Pleskovic (eds.) ‘Annual World Bank Conference of Development Economics, 1995', (Wash-ington D.C.: The World Bank

• Higgins, B. (1992) ‘Equity and Effi ciency in Development:

Basic Concepts’, in Donald J. Savoie and Irving Brecher ed. Book ‘Equity And Effi ciency in Economic Develop-

ment' (London: Intermediate Technology Publications), p. 37-8.

• Lewis, W.A. (1976) ‘Development and Distribution’, in A. Cairncross and M.Puri (eds.) Employment, Income Distributed and Development Strategy, Macmillan.

• Rahman,A. (1992) ‘People’s self-development’ , in Paul Ekins and Manfred Max- in Paul Ekins and Manfred Max-Neef (ed). Real-Life Economics: Understanding

wealth Creation (London: Routledge) p,172 • Todaro, M.P. 1997. ‘Economic Development’ (London:

Longman) p. i70UNDP (1996) Human Development Report (New York: OUP)

• Watkins, Kevin. (1998). ‘Economic Growth with Equity:

Lessons from East Asia’,. (Oxford: Oxfam). • World Bank. (1993) ‘The East Asian Miracle: Economic

Growth and Public Policy- A World Bank Policy Research

Report.’ (New York:OUP)





INCOME AND INEQUALITY IN INDIA

G R O W T H G O A L S


Joydeep Goswami

Subrata Bandyopadhyay

Consultant, National Council of Applied Economic Research, New Delhi

Senior Research Manager, ICMR, New Delhi

1. IntroductionIndia being the home to 1.1 billion people with a median age of 25 years has the phenomenal potential for growth. With real per capita income growing in excess of seven percent per annum, together with an increased willingness to cooperate as well as compete with the rest of the world, the country is emerging as a major player in the global economy. Sixty years have passed since India gained independence, and it is a fascinating time to review the country's economic perform-ance over these last few decades, and to assess future prospects and potential.

The economy of India is the twelfth largest economy in the

world by market exchange rates and the fourth largest by pur-chasing power parity (PPP) basis. The economy was charac-terized by extensive regulation, protectionism, and public ownership, leading to pervasive corruption and slow growth till the last part of eighties. Since 1991, continuing economic liberalization has moved the economy towards a market-based system. Indian economy has moved from the tradi-tional economy depending primarily on agriculture to industrialized economy and is on the threshold of emerging a big player in the world economy. India has been one of the best performers in the world economy in recent years, but rapidly rising infl ation coupled with ever increasing inequal-ity in income is posing a serious threat to the growth path.

This is a matter of debate whether inequality is greater in a country when the vast majorities are poor and a few people are very wealthy with a small middle class or when there is a considerably larger middle class with the number of rich persons, few of them sumptuously wealthy, increased by several multiples. The latter situation has a lower inequality but makes more visible to the poor.

The main objective of this paper is to examine the income

Plan PeriodGross National Product at

Factor CostNet National Product at

Factor CostPer Capita NNP

At Current PricesAt 1999-00

PricesAt Current

PricesAt 1999-00

PricesAt Current

Prices At 1999-00

Prices

First plan period (I951-56) 1.8 3.7 2.0 4.4 0.2 2.6

Second Plan period (1956-61) 8.8 4.0 8.7 3.8 6.5 1.7

Third Plan Period (1961-66) 9.6 2.8 9.6 2.6 7.2 0.4

Annual Plan (1966-69) 12.3 3.9 12.3 3.9 9.9 1.6

Fourth Plan (1969-74) 11.1 3.4 10.8 3.1 8.3 0.8

Fifth Plan (1974-79) 10.7 5.0 10.3 4.9 7.9 2.6

Annual Plan (1979-80) 9.4 -5.0 8.3 -6.0 5.7 -8.2

Sixth Plan (1980-85) 15.4 5.4 15.2 5.4 12.8 3.1

Seventh Plan (1985-90) 14.1 5.5 13.8 5.5 11.4 3.3

Two Annual Plans (1990-92) 15.7 3.2 15.6 3.1 13.3 1.0

Eighth Plan (1992-97) 16.4 6.6 16.5 6.7 14.2 4.5

Ninth Plan (1997-2002) 10.8 5.5 10.6 5.3 8.5 3.3

Tenth Plan (2002-07) 12.6 7.8 12.5 7.8 10.8 6.1

Table 1: Growth Rates in GNP, NNP and Per-Capita NNP in Different Plan Period (in percent)

Note: Growth rates from 2000-01 based on New Series with base year 1999-2000Source: Economic Survey 2007-08, Ministry of Finance, Government of India, 2008



and inequality in India across states and regions and various regional groupings. Our main focus here is to measure income inequality among the rural and urban households in India by states and various groupings. The levels of inequal-ity have been measured using Gini Coeffi cient. Another important aspect of income dynamics for a country like India is large spatial variation. In this paper we have cap-tured spatial variation in household income by states and various regional groupings. We have also looked at relative income inequality across various income groups, sources of household income, religion as well as levels of education.

The rest of the paper is organized in the following fashion. In the next section we have mentioned the sources of data on which the analysis has been carried out. Section 3 mentions the broad outline of the Indian economy and growth while Household and per capita income and inequality by various stakeholders is taken up in Section 4. Section 5 makes the concluding remarks of the results and fi ndings.

2. Data and MethodologyFor the analysis of income and inequality we have used

IHDS survey carried out by NCAER for the year 2004-05. The surveys was carried out for the households located in all States/Union Territories of India in both rural and urban areas and information about their sources of income, income earned by each one of earners in the household along with other demographic characteristics. Income survey was designed around a three stage stratifi ed sampling design which is similar to that used by the NSSO in its Household Budget Surveys (HBS).1 Sampling was done independently within each state/UT with objective of generating estimates at state/UT level.

3. Indian Economy at Broader PerspectiveThe structural transformation that has been adopted by the national government in recent times has reduced growth constraints and contributed greatly to the overall growth and prosperity of the country. Indian economic policy after independence was infl uenced by the colonial experience and has strongly led to the exposure to Fabian socialism. Policy tended towards protectionism, with a strong emphasis on import substitution, industrialization, state intervention in labor and fi nancial markets, a large public sector, business

regulation and central planning paradigm.An adoption of the development strategy

helped the country to escape from the massive illiteracy, recurrent famines, fertility rates of about seven children per woman, and secular stagnation prevailing before Independence. The adverse economic situation during the later part of 1980s and the fi rst part of 1990s made the Government of India review the polices followed in the preceding four decades, take a "U" turn and try to pull the economy from the brink of disaster and the verge of bankruptcy. The terms Liberalization, Privati-zation and Globalization (the new LPG) amply summaries the crucial aspects of the reforms started in 1991. The stabilization policies initiated in 1991 were highly contractionary and were designed to reduce infl ation from the level of 16 percent, improve precarious balance of payment situation, reduce fi scal defi cit and help pick up drooping industrial growth.

The liberalization of the Indian economy

Table 2: India’s Growth Performance per Year

Note: Growth rates from 2000-01 based on New Series with base year 1999-2000Source: Economic Survey 2008-09, Ministry of Finance, Government of India, 2009

PeriodTotal GDP

Growth

Sectoral Growth of GDP (%)

Agriculture Industry Services

1970-72 to 1980-81 (average) 3.2 2.0 4.0 7.2

1981-82 to 1990-91 (average) 5.7 3.8 7.0 6.7

1991-92 1.4 -1.5 -0.1 3.5

1995-96 7.3 -0.2 12.2 9.4

1996-97 8.0 9.1 7.3 7.2

1992-93 to 1996-97 (average) 6.7 4.6 8.0 7.6

1997-98 4.3 -1.6 4.3 7.9

1999-2000 6.4 2.7 4.7 9.3

2001-02 5.8 5.9 2.8 6.4

1997-98 to 2001-02 (average) 5.4 2.3 4.5 7.8

2004-05 7.5 0.7 10.5 8.7

2005-06 7.9 14.0 9.6 11.1

2006-07 8.2 15.2 9.8 12.5

2007-08 7.6 14.6 9.3 12.1

2008-09 6.7 NA NA NA



during the early nineties provides increasing hopes to the agricultural sector. But what is different is that there has taken place a notable deceleration in the growth rate of gross product from agricultural during the nineties, which deceler-ated for 3.94 percent per annum during 1980-81 to 1990-91 to only 1.9 percent per annum during 1990-91 to 1998-99.

The fruits of liberalization reached their peak in 2007, with India recording its highest GDP growth rate of nine percent. With this, India became the second fastest growing major economy in the world, next only to China. An Organi-zation for Economic Co-operation and Development (OECD) report states that the average growth rates 7.5 percent will double the average income in a decade and more reforms would speed up the pace. Indian government coalitions have been advised to continue liberalization. India grows at slower pace than China. McKinsey states that removing main obstacles "would free India’s economy to grow as fast as China’s, at 10 percent a year". The GDP growth rate for the 2008-09 periods has been 6.7 percent. Despite improvement in many areas it is true that poverty, inequality and unemployment are major stumbling blocks to the nation’s development.

4. Household and Per-Capita Income The share of household income to the GDP is an indicator

Variables Rural Urban All India

Estimated Population (Million) 741.5 260.9 1002.5

Estimated Household (Million) 138.2 53.7 191.9

Household Size 5.4 4.9 5.2

Estimated Household Income (Rs.) 45135 77410 54160

Estimated Per-Capita Income (Rs.) 8413 15915 10366

Estimated Poor Household (%) 24.0 22.0 23.5

Gini (Inequality) 0.48 0.48 0.51

Table 3: Basic Characteristics of Indian Economy by Location

Source: Calculated by the author from IHDS data

based on consumption levels, is often used, but other indica-tors are needed to capture other dimensions of poverty. The level of household income is an important indicator deter-mining the level of inequality. This section explains the levels of household income and per capita income by various regional groupings. In the beginning we present the estimat-ed characteristics of Indian economy such as population, household size, household income and the proportion of poor household by the place of location to fi nd out the level of inequalities at the broader aspects.

The household income estimated from the surveys data shows that the mean household income in among the rural

Figure 1: Average Annual Per-Capita Income by Income Groups

Household Income Groups

Ave

rag

e A

nn

ual

Per

Cap

ita

Inco

me

(Rs.

)

0

5000

10000

15000

20000

25000

30000

35000

Q1 Q2 Q3 Q4 Q5

229

1 4371 6

816

1132

7

228

4 445

5 69

81

116

70

2955

7 3281

6

Rural

Urban



and urban area is signifi cantly different (Table 3). However, the rural-urban differences are far less pronounced when we compare the per capita incomes. The signifi cant point to be highlighted is that the rural-urban difference in household income and per-capita income is striking. The survey reveals that rural household in India is earning 42 percent less than urban household. The CSO estimates suggest that the per capita net domestic product at current prices for 2004-05 vary about fi ve times between the rich and the poorer states. Shukla (2007) reports that 48 percent of the Indian live in the low income states while about 31 percent come from the middle income states.

A signifi cant way of looking at the inequalities is by dividing the households ranked by their incomes. We have divided the households on the basis of their incomes into fi ve groups called quintile where Q1 correspond to the house-holds at the bottom of income range and Q5 representing the households at the top. Differences across quintiles are striking. This shows that the share of income of the house-hold for Q1 is just 10 percent of the household income of Q5. This disparity is independent irrespective of rural and urban areas but marginally better in rural areas.

The per capita income by quintiles shows a more conspicu-ous fact as the per capita income for the household belonging to Q5 is about 13.6 times more than the per capita income of household belonging to Q1. The difference by place of residence is again prominent. In rural areas, the Q5-Q1 ratio is 12.9 while in the urban sector the ratio difference is about

IncomeQuintiles (Rs.)

Q1 Q2 Q3 Q4 Q5All

IndiaHHY 13568 24080 35699 57300 140166 54160

PCY 2290 4385 6856 11449 31172 10366

Gini 0.19 .08 .08 .09 0.31 0.51

Table 4: Household and Per-Capita Income by Quintiles


RegionsRural Urban All

HHY PCY Gini HHY PCY Gini HHY PCY Gini

Mountain 75834 12958 0.43 101065 19312 0.45 80658 14067 0.44

North 93185 15603 0.48 88383 18302 0.44 90846 16775 0.47

UP-UT-Bihar-Jharkhand 39283 6387 0.43 75611 13232 0.51 45530 7495 0.47

Rajasthan-MP-Chhattisgarh 44849 7767 0.46 66562 12399 0.49 49983 8803 0.48

East & NE 38274 7675 0.47 81803 18724 0.46 47994 9898 0.51

West 53150 10264 0.49 85534 17324 0.44 66491 13091 0.49

South 42917 9639 0.49 69666 15835 0.48 51499 11611 0.51

All India 45135 8413 0.48 77410 15915 0.48 54160 10366 0.48

Table 5: Household and Per-Capita Income by Quintiles


14.4. These differences arise due the fact that the households in lower income groups tend to have larger household size.

Again capturing the spatial variations in income the household income and per capita income is determined by regions.2 The northern regions experienced a more balanced development in terms of Industry and agriculture. Moreover, urbanization has fl ourished at a fast rate in the northern region compared to the other regions of the country. The western regions are blessed by various industries due to easy availability of the raw materials.

The Northern region is having highest mean household income followed by the states in the hill areas (Mountain). The households in four out of seven regions on an average earn less than the all India average (Figure 2). The lowest mean household income is in the region comprising of states of Eastern and North Eastern States. The mean household income in Northern region is more than two times to that of



mean household income in the East and North Eastern States. The disparities in the household earnings become sig-nifi cant when we look at the income by place of residence. The difference is quite signifi cant in the East and North Eastern States as rural household in these states earns more than two times less than their urban households. In Northern region the household in rural areas earn fi ve percent more than the households in the urban areas though the per-capita income of the household in urban areas is about 14 percent more than the household in the rural areas. However, it may here be mentioned that income inequality as indicated by Gini coeffi cient has been higher in the East and North-East region along with Southern Indian States though inequality

has been much lower in the Hill (Mountain) states (Table 5). In the urban areas of the plain region of Uttar Pradesh, Uttarakhand, Bihar and Jharkhand the inequality has been higher though inequality in income in rural areas has been much lower in these states.

It is believed that about 68 percent of the people in India still depend on agriculture while in recent time there has been exemplary shift of occupational pattern in the country due to rapid industrialization on one hand and fast increase in the service sector. It is expected that there has been shift of income from the traditional agriculture to the service sector in the form of regular salary and wages.

The survey fi ndings suggest that the regular salary and

OccupationsRural Urban All


Regular Salary/Wages 73486 13606 0.44 100534 21259 0.41 89677 17940 0.44

Self employment in Non-Agriculture

46700 8714 0.45 79030 15342 0.49 62152 11817 0.49

Labour 25536 5096 0.36 35255 7111 0.34 27369 5473 0.36

Self-employment in Agriculture 57113 9680 0.51 94713 16026 0.55 57944 9821 0.51

Others 45573 10903 0.48 72044 17481 0.49 56316 13550 0.50

All India 45135 8413 0.48 77410 15915 0.48 54160 10366 0.51

Table 6: Household and Per-Capita Income by Principal Source of Household Income


Figure 2: Average Per-Capita Income by RegionsPe

r C

apit

a In

com

e (R

s.)

Rajasthan-MP-Chhattisgarh

UP-Uttara-khand Bihar-Jharkhand

South West North East & North East

Mountain

0

5000

10000

15000

20000

Rural

Urban

776

7

123

99

63

87

132

32

96

39

158

35

1026

4

1732

4

156

03

183

02

7675

187

24

129

58

1931

2



wages households in India earn on an average of Rs. 89,677 per annum while the household engaged as self-employed in non-agriculture earns Rs. 62,152 per annum. The household belonging to manual labour on an average earns about 3.2 times less than the household engaged in regular salary and wage. The disparity between the rural and urban areas for the household engaged as self employment in non agricul-ture has been quite signifi cant as it is understood that the household engaged in non-agriculture have wider scope of earning in an urban areas than in rural areas.

The per capita income closely follows the similar pattern like household income among the various occupational distributions. However, the noticeable differences emerge in case of urban areas where the per capita income of the other occupation is higher than the per capita income of the household engaged as self employ-ment in agriculture. This is understood that in urban areas the scope of agriculture as occupation is very much limited.

Talking about inequalities in income distribution by occupation pattern of the household, the household whose main occupation is labour (agriculture and non-agriculture)

have lower inequalities while inequalities has been very high among the household income whose main occupation is self-employment in non-agriculture. This is equally true by the place of location though the household in urban areas whose main occupation is salary and wages has lower inequality compared to rural areas.

The Indian population is characterized by a distinctive texture with socio-cultural and reli-gious structure. Institutionally there is no reason why income will have any correlation among the caste and religion of a household. However, it is known that Indian case is exclusive in its traditional organization where caste and/or religion play an important part in determining the scope of occupa-tion. Despite greater access to educa-tion and positive action on the part of Indian Government, there are studies

that show that the caste groups who were traditionally at the lower ranking were also economically worse off.

Over the years, social scientists have investigated the relationship between religion and social inequality. Re-searchers have focused on issues such as the impact of inequality on religion, the effect of religion on inequality,

Figure 3: Average Per-Capita Income By Socio-Religious Groups

High Caste Hindus

OBC Dalit Adivasi Muslim Others

Rural

Urban

Per

Cap

ita

Inco

me

(Rs.

)

Socio-Religious Groups

0

5000

10000

15000

20000

25000

1226

9

2263

6

8111

1431

9

631

3

1179

3

620

5

1620

6

736

8 9793

219

53 2412

1

Indian population is characterised

by distinct texture with

socio-cultural and religious structure



and the relationship between religion and socio-economic status. In order to justify the income inequality by religious groups, we have estimated the household and per capita income by various socio-religious groups.

Among the various religious groups, the survey result reveals that on an average, household from other religious groups in India earns Rs. 1,07,740 per annum followed by the household belonging to High Caste Hindus earns on an average Rs. 81,382 (Table 7). This may be due to the fact that agriculture has fl ourished in North Eastern Region. It may also be men-tioned here that a household on an average earns Rs. 91,557 in Punjab which is considered as among the rich state in India. Strikingly, the household income of Muslims is lower than the national average while that of the household income of the Adivasis is the lowest and worse off among other socio-religious groups.

There is not much difference in the trend in household income by the place of residence. In urban areas, the Hindus households are better off than their Christians counterpart. The per capita income of the household belonging to other socio-religious groups has been highest followed by high caste Hindus. This is under-stood that Sikhs are more prone to Punjab and are much better off. Interestingly in urban areas, Adivasis are better off than Muslims, Dalit and OBCs while in rural areas Muslims are better off than these groups.

The Gini coeffi cients by various socio-religious groups suggest that inequality has been higher among the other religious groups followed by higher inequality among the Adivasis. However, inequality has been lowest among the Dalits. The same scenario persists by the place of residence.

With the changing economic structure brought about by industrialization and large scale development in social structure, education sector has done quite well in providing basic education to the Indian masses. It is believed that

education makes a big difference to earning level for the Indian house-holds. About 17 percent of the house-hold in India do not have a single literate. This is about nine percent in urban areas and about 24 percent in rural areas. On the other hand, we fi nd that about 20 percent of the head of the households are graduates or have higher degree. The proportion is about 30 percent in urban areas and about 10 percent in rural areas.

As expected the mean household income increases with the increase in education level. On an average, a household of illiterates in India earns almost 5.7 times less than the Graduate household. However, urban households are quite better off in earning by all level of education. On the other hand, an illiterate Indian on an average earns about 3.8 times less than a graduate but this inequality has been slightly less in rural areas compared to that of urban areas in the country.

Religious GroupsRural Urban All


High Caste Hindu 66339 12269 0.47 102581 22636 0.46 81382 16135 0.49

OBC 43754 8111 0.46 68100 14319 0.45 49732 9495 0.48

Dalit 32655 6313 0.42 59046 11793 0.42 38309 7457 0.44

Adivasi 31338 6205 0.48 79189 16206 0.47 36141 7180 0.51

Muslim 43796 7368 0.46 56124 9793 0.44 47945 8165 0.46

Other Religion 107607 21953 0.55 107911 24121 0.47 107740 22855 0.52

Total 45135 8413 0.48 77410 15915 0.48 54160 10366 0.50

Table 7: Household and Per-Capita Income by Socio-Religious Groups


Inequality of Income is said to be higher among

the adivasis though mean household

income of this group is lowest



5. ConclusionVarious studies have shown that the marginal productivity in agriculture is zero if not negative. Indian agriculture is over burdened and this is suggested from the fact that the growth rate in the agricultural sector has been very slow. Since agriculture is concentrated to the rural areas, there seems to be large inequality in the distribution of income between rural and urban areas. Our results suggest that on an average a household in the rural areas earns about 60 percent less than the household in the urban areas. This disparity is much lesser in the south Indian states.

While standard political economy theories suggest a moderating effect of development and growth on income inequality, empirical literature has failed to uncover any such robust relationship. After about six decades of planning with various incentives of growth, inequality remains the most shameful scar on the face of Indian society. The rising income accompanied by rapid growth of popula-tion, per capita income has been increasing at a slow pace. The growth of urbanization and rapid industrialization in the country is leading to a shift in occupation structure coupled

with rising inequality.The household size is an important determinant in the

determination of per capita income in the country. It is expected that the larger the household size lower is the per-capita income. However, the survey results shows that northern region with higher household size tops the list among the other regions in terms of per capita income. On

the other hand, though the western India regions have higher household income compared to the southern India region, but with higher household size, the per capita income for the west is lower than south.

Inequality also persists among the states and regions in India. The development process has not been uniform across states and regions. Our results suggest that the northern regions are quite better off in terms of

household income though inequality in income is higher among the household in these states. The central Indian states is yet to catch up with the development effort showing low level of household income and higher poverty ratios compared to the other regions. However, these states show lower level of inequality in income among the households.

Urbanization is leading to shift in occupational structure and

leading to a rise in inequality in

income

Figure 4: Average Per Capita Income by Education Level of Head of Household

0

59435006

5000

10000

15000

20000

25000

6338

7836

10542

13334

21957

Illiterates LowerPrimary

Primary Middle Matric HigherSecondary

Graduation& Above

Per

Cap

ita

Inco

me

(Rs.

)



Another sign of income inequality is observed between the higher and lower income groups. This inequality is observed irrespective of the place of residence though marginally better in rural areas. Inequality in income also persists by various religious groups in India. It was observed that households which belong to other religious groups are quite better off though income inequality among these household is quite high.

To conclude, we observed that with higher income there has been higher income inequality though the poverty ratio has been lower. The household size is lower for the house-hold with higher income though there is no direct relation-ship between level of income inequality and poverty ratio. There seems to be inequality in the distribution of income by regions and by place of residence. The northern regions are quite better off though these regions are characterized by higher income inequality. The disparity in income distribu-tion has been more severe in eastern and north eastern India by rural and urban areas though this region is not worse off compared to central plains of India.

Endnotes 1 See GOI (2004) for detailed on sampling design and other

related issues in NSSO surveys during 2004-05. 2 The regions are group of states classifi ed based on

geographical location and physical proximity. References and Additional Thinking• Bhalla, Surjit S (2003): ‘Recounting the Poor: Poverty in

India, 1983-99’, Economic and Political Weekly, January 25-31.

• Bhagwati, Jagdish (2001): ‘Growth, Poverty and Reforms’, Economic and Political Weekly, March 10th.

• Bhaumik, S.K. and Chakraborty Manisha (2006): Earn-

ings Inequality in India: Has the Rise of Caste and

Religion Based Politics in India Had an Impact?, IZA Discussion Paper No. 2008, Bonn, Germany.

• Chadha, G K and Alakh N Sharma (1997): Growth,

Employment and Poverty: Change and Continuity in

Rural India, Vikas, Delhi. • Deaton, Angus and Jean Dreze (2002): ‘Poverty and

Inequality in India: A Re-examination’, Economic and Political Weekly, September 7th.

• Deaton, Angus (2003): ‘Prices and Poverty in India,

1987-2000’, Economic and Political Weekly, January 25-31.

• Dubey, A. and Gangopadhay, S. (2000): Counting the

Poor, Indian Statistical Institute, New Delhi • Kaplinsky Raphael (2005): “Globalization, Poverty and

Inequality: Between a Rock and a Hard Place” Polity Press, Cambridge, UK.

• Narayan, D., with R. Patel, K. Schafft, A. Rademacher, and S. Koch-Schulte. 2000. Voices of the Poor: Can

Anyone Hear Us? New York: Oxford University Press. • GOI, (2007): Poverty Estimates for 2004-05, Press

Information Bureau, New Delhi. • GOI (2008): Employment and Unemployment Situation in

India – 2005-06, NSSO 62nd Round, Ministry of Statistics and Programme Implementation.

• Sen, Abhijit (1996): ‘Economic Reforms, Employment and

Poverty: Trends and Options’, Economic and Political Weekly, Special Number, September.

• Sen Amartya (2006): Inequality Re-examined, Oxford University Press, New Delhi

• Shukla, R.K. (2007): How India Earns, Spends and Saves, NCAER, New Delhi.

• Sundaram, K (2001): ‘Employment and Poverty in the

1990s: Further Results from NSS 55th Round Employ-

ment-Unemployment Survey 1999-2000’, Economic and Political Weekly, August 11-17.

• Sundaram, K and Suresh D Tendulkar (2003): ‘Poverty

Has Declined in the 1990s: A Resolution of Comparability

Problems in NSS Consumer Expenditure Data’, Economic and Political Weekly, January 25-31

• Sundaram, K and Suresh D Tendulkar (2003): ‘Poverty in

India in the 1990s: Revised Results for All-India and 15

Major States for 1993-94’, Economic and Political Weekly, November 15-22.

• Upadhyaya Umesh (2008): Ending Poverty & Inequality - The Context of South Asia Presentation in South Asian Woman Trade Unionists Conference Organized by GEFONT-3F Partnership, Kathmandu.

• World Bank (2000): World Development Report 2000-

2001: Attacking Poverty. New York: Oxford University Press.





INDIA: ECONOMIC GROWTH SANS DEVELOPMENT

T S MohanchandralalVisiting Faculty, IIPM Chennai

Economic Growth Versus Economic DevelopmentEconomic growth is quantity centric. It indicates a rise in GDP or GNP of a nation which focuses on the quantity of goods and services produced without mentioning how they are produced, and how they are distributed among the people across of the country. Positive economic growth implies expansion of eco-nomic activities in terms of increased production etc, while negative growth suggests it’s down turn; recession culminating into depression. Income per capita of various countries is compared through purchasing power parity which compensates for changes in the value of money. Hence GDP and GNP are

also given in infl ation adjusted terms along with their nominal or current fi gures.

Economic development is quality centric too. In a more comprehensive way it describes a rise or fall in the share of agriculture in GNP and a steady rise or decline in the shares of industries, trade, banking, construction and other services. It is inclusive of the changes in technological and institutional arrangements of production and their distributive pattern among the people. It is not very diffi cult to achieve economic growth through mobilization of resources, raising their productivity, and output level. But the process of development is quite challeng-

A L O N G R O A D A H E A D


ing. It involves not only a rise in output but also changes in their composition, shifts in the allocation of productive resources among the various sectors of the economy, and elimination or reduction of poverty, inequalities and unemployment. In the

words of AmartyaSen development requires the removal of the

major sources of poverty, fi lth, squalor, poor economic opportu-

nities, and denial of basic facilities to the people as well as

intolerance of the repressive activities of the states.

India’s economic growth is amazing but her development is appalling and hence the over all performance is not appealing. India has achieved economic growth in substantial measures in almost all the sectors of the economy. Production in the primary sector has gone up. The secondary sector has diversifi ed well with increasing output. The tertiary sector is becoming promi-nent in India’s GDP. But in the process of achieving economic growth, India is facing many challenges in the form of rural-urban divide, growing income inequali-ties, price infl ation, shrinking employ-ment opportunities in the rural side, sectoral and regional imbalances, stock market scams etc. All these issues that are associated with economic development have to be tackled effectively to see that the benefi ts of economic growth reach all the sections of the society.

Indian Economy: Growth DimensionsIndian economy has grown at the rate of 8.8% for the past four years save 2005. It reached 9.6% in 2006, the highest rate attained in the last 18 years. Structural transformation fortifi ed

by the policy of liberalization has contributed to the overall

growth the economy. During this period the performance of the service sector grew at 11.2% and the industrial sector at the rate of 10.6%.

An upcoming manufacturing sector has provided the environ-ment for the country’s excellent growth momentum. Its growth rate sprang up steadily from nine percent in 2005 to 12% in 2006. The storage and communication sector also posted an impres-sive growth rate of 16.6% in the same year. High savings rates backed by sustained investment provided the right environment for this dramatic transformation. Hence India’s GDP jumped from 22.8% in 2001 to 35.9% in 2006. Further, the gross rate of savings as a proportion to GDP registered a solid growth from

23.5% to 34.8% for the same period. Today the manufacturing sector accounts for more than 80%

of industrial production and its growth is indicative of the vibrant industrial health of the economy. Six Indian corporations: IOC,

RIL, BPCL, HPCL, ONGC, and SBI have gone into the Fortune

Global 500 list for the year 2006. Construction growth rate rose to 10.7%. Trade, hotels, transport and communication registered a 12% growth rate. Financing, insurance, real estate, and business services recorded a telling growth rate of 11% during this period. The passenger vehicles sector grew by 11.6% in 2007. Electricity, gas & water supply posted an 8.3% growth rate. Community, social and personal services witnessed a decent growth rate of 7.6%. Agriculture forestry and fi shing, and mining and quarrying, grew at 3.8% and 3.2%, respectively during 2007-2008.

Exports grew by 18.1% and the imports shoot up by 34.3% during 2007-2008. India's foreign ex-change reserves sans gold and SDRs stood at $219.8 billion at the end of 2007. The food sector that is valued at US$ 200 billion at present is expected to grow at $310 billion by 2015. Stocks of food-grains grew by 13.1% to 17.7 million tonnes. The annual infl ation rate was 4.5% in 2007. After a high dose of price rise in the past couple of years, now it is on the moderate side. India's balance of payments is expected to remain comfortable, with

merchandise exports witnessing substantial growth. In recent years due to global recession there may be setbacks in our exports, but compared to countries such as China, the fall may not phenomenal.

The productivity trends of different sectors of our economy and its subsequent growth is estimated to be around eight percent and above until 2020. At this rate, India will become the second largest economy in the world after China. IMF ranks India 4th in the world with only the USA, China and Japan ahead of it in terms of purchasing power parity. World Bank estimates for 2006, ranks India 12th in the world with a GDP of $906,268 million. It has also ranked India as one of the top economic performers of the world.

AgricultureIndian agriculture in terms of GDP is fast losing ground to the

The food sector that is valued at US$ 200 billion

at present is expected to grow at $310 billion by

the year 2015



services sector. In the second plan period our agriculture with 60% of our labour force contributed only 18.6% of the country's GDP. In 2006 with less percentage of labour force it contributed 19.9% of our GDP. While the services sector accounted for 60.7% of our GDP, our industry’s share was 19.3% of GDP. Thus agriculture is no longer the keystone of our economy, as it was for about 30 years since the 1960. It refl ects the structural changes of an emerging economy. Today our primary agricul-tural produce include milk, tea, ginger, cashew nuts, black pepper, turmeric, wheat, rice, tobacco, oilseed, cotton, jute, sugar, sugarcane, groundnut, inland fi sh and cattle. More commercial crops have entered the list. Their outputs have been on the steady rise, thanks to the green revolution and white revolution.

Trade and InvestmentIndia's exports have been steadily rising since liberalization. Our foreign exchange reserves rose in 2005-06 from an impres-sive $141 billion, to $200 billion in recent years. Thanks to this welcome develop-ment, our dependence on external assistance and commercial borrowings have started moving southward since 1991-92, and since 2002-03, we have started paying back our external debts. India's exports stood at $125 billion during 2006-07, as against the $187.9 billion imports. Today our major trading partners are the USA,

China, the UAE, the UK, Singapore, Hong Kong and the EU. In

the past our trade was mostly confi ned to the UK and the US.

Besides skilled manpower, now our main exports constitute engineering goods, gems and jewellery, textile products, chemi-cals, and leather products. Our main imports include crude oil, fertilizers, chemicals, machinery, and gemstones.

Outsourcing HubIndia's service sector is witnessing an unprecedented growth, with great promises for the new - generation professionals who are knowledge workers. This unenviable position has pushed India to the status of a knowledge superpower. With less than 1/3rd of India's labour force; today it generates more than half of India's output. With its huge supply of skilled and cheap man-power, India has become the most sought after destination for

'back offi ce' operations of many prominent global conglomerates in the world. All these have sparked an outsourcing boom in the west, with its main base in India. In 1950 the service sector contributed only 15% to our GDP, whereas in 2005, it contribu-tion sprang up to 53.8% toward our GDP.

The services sector, as a whole, contributed as much as 68.6% of the overall average growth in our GDP between the years 2003 and 2007. Our software and services industry with its strong value chain, gives us formidable brand equity in the global markets. Our Business Process Outsourcing sector has emerged as a key driver of growth for our economy. India is the world's 6th

largest energy consumer accounting for about 3.5% of the world's total annual energy consumption. It is the 8th largest crude steel producing country in the world. Our cement industry uses the latest technology and we are the second largest manu-facturer of cement in the world. These outstanding perform-

ances have let loose a number of formida-ble challenges to India which are associated with economic development.

Agriculture and rural- urban divide The sharp rise in rural-urban disparities

in India after decades of planned eco-nomic development is appalling. Our planning process instead of narrowing down such disparities accelerated it. Rural India with about 70% of the India's population is characterized by low income levels, poor quality of life and a weak base

for human development. Nearly 1/3rd of our national income comes from villages, but there is a sharp rural-urban divide. Agriculture supports about 50% of the workforce. But a lion's share of our national resources is directed to the non-agricultur-al sector. Our agriculture has been growing at less than half the pace of the other sectors. During the 7th Plan agriculture and allied sectors grew at the rate of 3.4% while the national economy grew at six percent. In 1997-98 our agriculture experi-enced a negative growth of two percent, as against a fi ve percent growth of the national economy.

This dismal performance agriculture has serious implications for the rural-urban relationship. The GDP per agricultural worker was Rs. 2443 in 1950-51, followed by Rs.3196 in 1970-71 and Rs. 3627 in 1995-96 whereas GDP per non-agricultural worker rose sharply from Rs. 4470 in 1950-51 to Rs. 9179 in 1970-71 and to Rs. 16715 in 1995-96. This problem remains more

India is the world's 6th largest energy consumer

accounting for about 3.5% of the

world's annual energy usage



or less the same even after the Structural Adjustment Pro-gramme of the central government. While the GDP per agricul-tural worker moved up marginally from Rs. 3545 in 1990-91 to Rs. 3627 in 1995-96, the GDP for per non-agricultural worker rose from Rs. 14660 to Rs. 16715 during the same period. Our liberalisation policy has hit hard the non-farm employment in rural areas. In 1997-98, the annual increase in non-farm employ-ment in rural areas was four percent. In 1983-84 it was 3.3%. During 1999-2000 it came down to 2.1%. The consequence is a very slow reduction in rural poverty. In 1993-94 it was 39.4%, and in 1999-2000 it came down marginally to 36.4%.

NSSO on Rural poverty The survey report of NSSO is revealing. Investment in agricul-ture has been about 10% of the total investments of the country. The neglect of agriculture and allied sectors is apparent from the budgetary allocation. It has never been more than 20%. In 1997-98 the Central and State governments spent about Rs.12, 000 crores on agriculture and allied activities. The average income of an urban dweller is four times higher than that of a rural dweller. The neglect of rural India is clear if one examines the data on rural India's contribution to the GDP and what the rural areas get back from the nation. With 27% of the GDP coming from rural India, the return is just fi ve percent. A Human Development Report of India (1999) points out that the rural per capita per month consumption expenditure was Rs. 486 in 1999-2000 while it was Rs. 855 for urban areas.

Data collected by the NSSO also show that the mean expendi-ture gap between the urban and rural areas has widened by over eight percent points between 1988 and 2001. This increase in the disparity level will be great during drought periods. Another NSSO data points out that while 75% of the country's population in 2000-01 resided in rural areas, they accounted for less than 62% of the total consumption expenditure.

The disparities in the social development sector too are quite disturbing. In 2001, the urban literacy rate was 80% while it was 59% for rural India. In percentage points the disparity is 20.9. A study by the Planning Commission shows that illiterate people aged 15 years and above but not beyond 60 years, in rural areas constitute 56% and it is 25% for urban areas. Of the school-

going children in the age group of 5-14 years, 82% live in urban areas. The rural fi gure is 63%. Kerala has brought down this disparity to a signifi cant extent.

Rural India is Classically Backward in Basic AmenitiesThe NSS 5th round data show that 70% of the urban dwellers have access to piped water, as against just 19% of the rural population. Public health facilities are so poor in rural areas that the death rate per 1,000 is 10% while it is six percent in urban areas. In rural areas the infant mortality rate is 77 per 1,000 but in urban areas it is 45 per 1000. Again 84% of rural households are devoid of toilet facilities as against 23% in urban areas. In 1991, such facilities were made available to nine percent of rural households as against 64% for urban households. A HDR 2002 report indicates that only 31% of rural households had electricity as against 76% for urban areas. All these disparities are well

refl ected in the Human Development Index of the planning commission. The index is 0.34 for rural India and it is 0.51 for urban India. The Human Poverty

Index for rural India is 42 and it is 44 for

urban India.

Gandhiji wanted that the engine of India's development must roll down from the villages. Time and again he empha-sized that regeneration of rural economy alone save India from classical backward-ness. A strong rural India can lay the royal

road for urban progress and prosperity. But the planners felt that urban India with a modern-mind set can provide the spark for sustained economic development which will in due course percolate into the rural India. This misplaced emphasis has been responsible for the present day rural-urban divide.

The Need of the HourThere is little doubt that our rural economy cannot grow without a strong and well diversifi ed agriculture. This calls for bottom up approach to development. Reconstruction of the rural economy poses one of the greatest challenges for India. We have to start from scratch. Effective land reform is the need of the hour. It must be backed by uninterrupted supply of farm inputs and implements to the peasants at reasonable prices. Here commercial banks can play a constructive role to bring bought economic transformation in rural India. Financial

The neglect of agriculture is

apparent from the budgetary

allocation. It has never been more than 20 percent



institutions and industries can give life again to village adop-tion scheme. Their participation can result in an increase in agricultural productivity, besides commercialisation of agricul-ture and disagriculturalisation.

Apart from improving basic facilities such as health, sanitation and education in the villages, the local bodies with the support of the state and central Government must launch time bound cum task-oriented programs for the development of rural infrastruc-ture such as roads, rural housing and marketing facilities for agro and agri-products. There is a great need for employment generation, which can better the living style of the rural popula-tion. We must put in place a long-term policy with multilevel targets, keeping in mind the immediate requirements of the rural and urban areas and the technologies available to fulfi l their need. The government must demonstrate that there will be no ad-hocism in our developmental policy and planning exercises. Such an approach will instill confi dence among the rural population.

Technology Can Reduce the Rural Urban DivideTechnology can be effective to contain the growing rural-urban divide through a) high connectivity, b) renewable energy for Power, and c) multiple economic opportunities for income generation. a) The Private Service providers can exploit the vast unexplored market of rural India for connectivity. Reliance has made a beginning and reached the rural corridor. Others can follow suit. Tremendous effort is needed to bring telecommunication facility to the remotest area with internet technology and other related IT enabled technologies. This will bridge the gap in information fl ow and knowledge between the rural and urban India. E governance can bring about transparency and prevent the exploitation of the rural folks.

The rural sectors can be self suffi cient in power supply by banking on renewable energy in bio mass, solar and gas fi red digesters that can lessen the urban dependence. Since the rural sector is rich in natural resources this can be made easily adaptable on large scale.

Rural BPO with great employment opportunities has caught up in Tamil Nadu with IIT Madras spinning several novel successful ventures under the leadership of Prof Junjunwala.

This can be imitated by the entire country. The quality education through online education portal provided by Tutorvista can be extended to the rural areas too. This will make the rural folks more confi dent in their career profi le. It promotes employability and generates quality employment options. Apart from their traditional occupation the rural population can also work through the tale- networking projects by sitting at home. This will increase their per capita income. Besides selling their services, they can also sell produce and products online.

Technology development hubs once set up in rural areas can promote technical skill among rural masses which can be successfully employed for rural industrialisation. This can also cry halt their migration to urban areas. For example, Titan

Watch factory at Hosur was responsible for the development of a

new generation of work force from the surrounding rural areas.

It has built up a talent pool there with precision delivery systems

particularly with the women population.

Bio-technology can be used to promote contract farming which can give an additional revenue base for the rural folks besides their traditional income. Agri business will generate great income if the traditional organic methodology is used in cultivation of crops and vegetables. A Non-Government Organization named Development Alternatives has been using GIS spatial mapping for locating wet areas and ground water levels for building

watershed management systems in rural arid areas. This has changed there the method of cultivation on modern lines.

With numerous employment options and good income choice available via technology applications there is no reason for the rural mass to migrate to the urban centres in search of employ-ment. This will bring about a holistic development between the urban and rural areas by reducing the divide considerably. Modern technologies can be of great help for the reconstruction of rural India. Urban development in a country like India has to dovetail with rural development.

Corporate Frauds: Appalling DisclosuresNow turning to the urban issues, a serious problem which needs immediate attention is how to fi ght out the recurring stock market scams engineered by greedy and self seeking profession-als. This menace enervates the small investors from entering the

At least 25% firms listed on the BSE and 28% firms

listed on the NSE have manipulated

their financial statements



stock market with their tit bits of savings. A recent survey by the India Forensic Consultancy Services brings to light many shocking revelations on corporate frauds. The study points out

that at least 25% companies listed on the BSE and 28% compa-

nies listed on the NSE have manipulated their fi nancial state-

ments to woo the gullible investors. They include almost all industries belonging to manufacturing and service sectors. The manufacturing sector, which contributes about 28% of India's GDP, is fraught with fraudulent activities largely due to the peculiar nature of their business and the underlying procedural complexities of this sector. Real estate and Puss are in no way inferior to the former in manipulations.

73% of 340 Chartered Accountants (CAs) who participated in the survey, admits that they are forced to manipulate accounting statements to exceed the expectations of stock market analysts. Credit-greedy fi rms force the auditors to manipulate their fi nancial data in their applications to qualify for easy credit at concessional rate of interest. Most of the investors apprehend that fi nancial fraud will be on the rise in the years to come. It is most unfortunate that the personnel in the accounts depart-ments of companies, auditors and directors of companies, promoters and others benefi t more from the fi nancial frauds at the expense of the ordinary investors. These fraudsters if go unchecked in due course may make quick money through insider trading too.

Checks and BalancesDespite multilevel inbuilt checks and balances in the form of induction of independent directors, independent audit commit-tees, and certifi cations on the genuineness of the fi nancial statements by chief executive offi cers and chief fi nance offi cers of companies and fi nally the inspection of the Department of Corporate Affairs of the Government of India, it is really astounding to see that at least 20% of the listed companies have successfully managed to come out unscathed with fraudulent fi nancial statements. There are some strategies worth trying to contain this menace. The government must see to it that the companies publish their balance sheets and profi t and loss accounts on quarterly basis instead of the present system of annual publications so that the investors will get a better picture of the companies before they fl ow their funds in the stock market. The Institute of Chartered Accountants on India should also take strong penal action against the fraudulent chartered accountants concerned. Once a fraudulent cover up is un-

earthed, SEBI should immediately start investigations in the transactions of shares of the tainted companies to discover cases of insider trading etc. Once the crime is proved SEBI must come out with strong deterrent action. The stock market regulator must also carefully evaluate the roles of the independent directors in their depth and breadth and also their share in the fi nancial misappropriations for suitable deterrent action. To prevent the future fi nancial managers, auditors and other professionals from falling prey to corporate frauds, institutions offering professional courses must include corporate ethics as an important program in their education.

ConclusionIf the fraudulent activities are not nipped in the bud it will ultimately ruin the future of corporate world and that of the stock market. Therefore the need of the hour is to send a strong message to the fraudsters through strong penal action once their fraudulent activities are exposed. If we want a strong India, a healthy and vibrant economy, and a cheerful society, we must strive for rural and urban integration to bring about a reasonable balance between their income levels. We also crush corruption and fi nancial frauds in stock market with iron hand. It is really an uphill task, but there is no escape.

The holy words of Bhagvad Gita rightly say: “yat tad agre visam iva pariname amrtopamam tat sukham satvikam proktam” Ch 18-36. The happiness which appears as poison in the beginning and nectar in the end is said to be dominated by clarity of mind.

References and Additional Thinking• http://www.echeat.com/essay.php?t=28127 • http://en.wikipedia.org/wiki/Economic_development

• http://news.indiamart.com/news-analysis/india-s-growth-perfo-

3236.html • http://www.thehindu.com/fl ine/fl 2114/

stories/20040716002009000.htm • http://timesofi ndia.indiatimes.com/india/Wide-rural-urban-

divide/articleshow/41299654.cms • http://content.msn.co.in/MSNContribute/Story.

aspx?PageID=ac33d999-5ab7-4538-adc9-19469168c4e7 • http://www.indiaforensic.com/corporatemaster.htm





INDIA : Growth Sans DevelopmentTushar Kanti DasLecturer, Department of Business Administration, Sambalpur University

Introduction For last several years the performance of Indian economic growth is remarkable (praiseworthy). But when it comes to social indicators such as health and education performance of India is limited. Inequality is often blamed for the poor links between economic growth and human development. Gross Domestic Product (GDP) in US dollar for India is 1217.49 billion in 2008. The annual GDP growth rate was 4.0% in 2000. It increased to 9.4% on 2005 and 9.1% in 2007. In the year 2008 the annual GDP growth rate of India was 7.1% as compared to US which had 1.1%. On the other extreme, between 1980 and 2007 India’s Human Develop-ment Index (HDI) rose by 1.33% annually from 0.427 to 0.612 today. During the same period US’s HDI rose by 0.25% annually from 0.894 to 0.956.

“India is a country with many poor people but is not a poor country1”. It is a country of population just over one billion (1139.96 million in 2008 approx) of which about 300 million live below the poverty line. It is the largest democ-racy in the world and one of the most important countries in terms of meeting global development goals. In the past decade, India has accelerated economic growth, improved most MDGs and maintained a vibrant democracy. It has also emerged as a global power – the fourth largest economy on purchasing power parity terms and a leading player in information technology, telecommunications and business processes outsourcing.

A N A C T I O N A B L E A G E N D A




With economic liberalization in 1991, India began to focus on private sector investment led growth, engendering an open and competitive economy. A massive introduction of new services and manufacturing drove its global competi-tiveness and growth. Software exports, telecommunications, Information Technology, the outsourcing of business processes, the fi nancial sector, housing and retail services all helped in the rise of the services sector.

The Eleventh Five Year Plan (2007-12) aims to achieve a GDP growth rate of nine percent and double the per capita GDP within 10 years. Achievement of this target and continued growth of 10% in the 11th plan would lead to a doubling of per capita income over the next two plans (Planning Commission,

2006). The structure of growth should also be such as to promote a wide spread of benefi ts. Doubling agricultural GDP growth to around four percent is particu-larly important in this context. The approach paper is also of the view that doubling agricultural GDP growth to around four percent is very important. This must be combined with policies to promote rapid growth in non-agricul-tural employment so as to create job opportunities. The approach paper has also identifi ed areas where new policy initiatives are needed to achieve the nine percent growth target and its desired sectoral composition.

The reform process that began in 1991 was gradual. As a result reforms have become relatively endogenous with much better accountability for results. It is important to note the growing role played by states with greater competition to perform increasing accountability. In India’s deregulated and open economy, those states in which governments have delivered better governance and public services have attracted greater and more private investment. Conversely those states where political leaders have not done so have been punished by a fl ight of both capital and people. The challenge is to improve the prospects of the poorest and low income states.

Investment rates, backed by growing savings and led by private investment have now increased close to 40% of GDP

compared to about 24% a decade ago. Foreign Direct Investment grew rapidly until the global fi nancial crisis in 2008. Fiscal defi cits have remained high but prior to the Indian Fiscal Year 2008 were on a declining track under the fi scal responsibility acts at the center and the states. Poverty has fallen to about 28 percent although the momentum of decline may have slowed. Growth has helped considerably in progressing towards the Millennium Development Goals (MDGs) but delivery of public services to India’s 300 million pose major challenges.

Investment as a growth engine for India was running out of steam in 2008 when bottlenecks in the economy became

increasingly apparent. In addition, high international commodity prices and rising interest rates in response to infl ationary pressures lowered corporate profi tability. In the last quarter of 2008 large capital outfl ows put pressure on reserves and the rupee. The government reacted to the slowdown with swift easing of monetary policy and a sizeable fi scal

stimulus. Thus, on the one hand a rapid

development trajectory and on the other the progress is much slower, caught in a low level development trap. Signifi cant differences persist in poverty levels and human development indicators along gender, ethnic and regional lines. In response the central and state governments have stepped up their attention to programs that help

the poor and disadvantaged. At the state level there are growing initiatives to support spending on water, old age and disability pensions and rural livelihoods and credit.

Economic GrowthEconomic growth is the most powerful instrument for reducing poverty and improving the quality of life in developing countries. The goal of development is to improve human well-being in a sustainable way, with particular emphasis on less well off. Rapid and sustained economic growth, though not suffi cient for eliminating poverty, is certainly a necessary condition for improving

An apposite definition of

inclusive growth implies a direct

link between the macro and micro

determinants



living standards.India’s economic growth has received potential attention in

recent years. It is also evident that the India’s growth has accelerated over the past two decades. Sweeping economic reforms that commenced in 1991 have included the de-licens-ing of most industries, deregulation of industries earlier monopolized by the public sector, liberalization of foreign trade through a steady reduction in tariffs and freeing up of the foreign investment limits in nearly all industries. These measures have had far reaching consequences and today, India has a strong, vibrant and fast-growing economy which is rapidly integrating with the global economy (Ernst & Young,

2006). India is forecast to become the third largest economy in the world, after China and the US, by the year 2050 over-taking all other developed economies (Wilson and Purush-

othaman, 2003).Now the policy challenge for India is

not to raise growth from 8-10 percent. Rather the primary challenge is to sustain rapid growth while extending rapid growth and its benefi ts to more regions, sectors and people. Questions have been raised about the distribution of the benefi ts of growth on income groups, especially the poor. A key concern is the perception of two Indians, one shinning and the other bleak, referring to the large gap in the living standard of the rich and the poor (World Bank, 2006;

Kohli, 2006). High growth rate of India can be sustained only if neces-

sary policies are adopted for removing binding constraints like poor infrastructure, stagnant agriculture and lack of fi scal space (Kumar, Palit & Singh, 2007). India’s post-inde-pendence leadership had undertaken to abolish mass poverty remains only partially fulfi lled. Half the battle still lies ahead. The challenge for policy makers today is to balance the growth momentum with inclusionary policies (Ahmed and Varshney, 2008). The eventual prospects for making India’s growth process more inclusive are not encouraging. If rapid growth continues, some of this will necessarily ‘trickle down’ and help the poor. Beyond that the scope for hastening this trickle via deliberate redistribution is limited (Kohli, 2008).

Evidence suggests that income inequality is rising and the gap in average per capita income between the rich and poor states is growing. In the agriculture based country like India, agriculture is essential to growth, which in turn necessary to reduce poverty and food insecurity. As the largest sector of the economy agriculture has an important role in providing resources for the development of the overall economy.

Theory of Inclusive GrowthThe strategy of ‘inclusive growth’ combines empowerment with entitlement and investment. Education empowers, improved health care empowers, employment guarantee entitles, fulfi lling quota obligations entitles. Through a combination of offering entitlement, ensuring empowerment and stepping up public investment the growth process can

be made more inclusive. Inclusive growth also means empowering the disadvantaged. The strategy for inclusive growth is to provide access to basic facilities such as health, educa-tion, clean drinking water, etc. to the common people. In the short run these essential services impact directly on welfare, in the long run they determine economic opportunities for the future.

Inclusion implies not only reduction in absolute poverty but also in income

inequality across income groups and geographical regions. A variety elements and dimensions are involved in deter-mining whether growth is inclusive. The most important dimension is the improvement of the livelihood of the poor. The general consensus is that for growth to be inclusive it must be pro–poor i.e. growth that is not pro-poor is defi -nitely not inclusive.

Inclusive growth allows people to contribute and benefi t from economic growth. Rapid pace of growth is necessary for substantial poverty reduction. For this growth to be substantial in the long run it should be broad based across sectors and inclusive of large part of the country’s labour force. This defi nition of inclusive growth implies a direct link between the macro and micro determinants of growth (Ianchovichina and Lundstrom, 2009). The micro dimension captures the importance of structural transformation for

The primary challenge is to sustain rapid growth, while

extending rapid growth benefits to

more regions



economic diversifi cation and competition. Inclusive growth refers both to the pace and pattern of growth which is considered interlinked and therefore they should be ad-dressed together. For achieving a sustainable growth record as well as poverty reduction both the pace and pattern of growth are critical.

The Commission on Growth and Development in their report Growth Report: Strategies for Sustained Growth and Inclusive Development (2008) stated that ‘inclusiveness’ is an essential ingredient of any successful growth strategy. Inclusiveness is a concept that includes equity, equality of opportunity and protection in market and employment transitions. The Commission considers systematic inequality of opportunity will be toxic and it will derail the growth process through political channels or confl icts.

The extent to which growth reduces poverty depends in the degree to which the poor participate in the growth process and share in its proceeds. Thus, both the pace and patterns of growth matter for reducing poverty. India’s most recent development plan has two main objectives: raising economic growth and making growth more inclusive.

Growth DiagnosticsLast 25 years has seen considerable developments in thinking on develop-ment policies. The standard policy reforms included in the Washington2 Consensus have the potential to be growth promoting. Many countries have adopted the Washington consensus, i.e., the enforcement of property rights, maintenance of macroeconomic stability; integration with the world economy and creation of a sound business environment. However, experiences of last 15 years have shown that impact of these reforms is heavily depend-ent on circumstances. Growth strategies are likely to differ according to domestic opportunities and constraints. The disappointments with the Washington Consensus led to the Barcelona consensus3 of 2004. The key recommendation of the Barcelona consensus is that the growth strategies

require a sense of priorities. This has led to the development framework for growth diagnostics (Hausmann, Rodrik and

Velasco, 2005), i.e., a strategy for fi guring out the policy priorities.

Growth diagnostics require in depth knowledge of the economy that is being analyzed (Leipziger and Zagha, 2006). The strategy is aimed at identifying the most binding constraints on economic growth such as limitations in mobilizing suffi cient domestic or foreign fi nance, low levels of human capital and technological capabilities, weaknesses in governance structures and the poor functioning of institutions that regulate markets or provide public goods

and social services. The importance and relevance of these constraints tend to vary from country to country.

The implementation of the ‘growth diagnostics’ framework aims to give the meta-steps that a persuasive growth diagnosis should have, and elaborates on the strategies and methods that may be used (Hausmann, Klinger and Wagner,

2008). Rather than a step-by-step instruction manual or handbook it suggests how to think about the problem of identifying a country’s constraints to growth. Analyzing constraints does not necessarily make ‘growth diagnostics’ an advocate of economic growth. Countries should fi nd the trade offs, if any, between growth and other goals through an appropriate political process4.

Actionable PoliciesWithout higher agriculture growth, India's ten percent economic growth target will be impossible to achieve. In addition, higher real incomes lead to higher food consump-tion, implying more pressure on demand. Historically, India's agriculture growth has fallen short of growth in the overall economy. In fact, long-term average growth in agriculture has been close to two percent. India's population has been growing at 1.4%. Consequently, it has just managed to maintain its per capita growth in food and non-food crop production. Given such a precarious demand-supply

Higher real incomes lead to higher food consumption

levels, implying more pressure

on demand



position, one year of drought leads to food prices shooting up. This is what we are seeing at this time of the year. With growth in per capita incomes, the supply constraints will hit India even harder in the future. If the growth story in India is to be inclusive, farm productivity has to rise for income levels to increase (Narang and Santnalika, 2010).

One vital policy decision the government should take while choosing between two different sectors. Suppose there is a multipurpose dam project. The farmers in the periphery are producing two / three crops in a year using the water from the canal of the dam. Many often the farmers complain insuffi cient water is released through the canals which is not suffi cient for sustainable agriculture. This results in low productivity of agricultural commodities. Water is also used by the different heavy industries which are present in these localities. The announcement by the heavy industries to increase capacities to different de-grees, e.g. double the capacity in some cases, makes the situation complex. Thus these heavy industries are going to suck more water from the reservoir. Obviously the water share of agricul-ture is bound to reduce. Inclusive policy demands with the existing allocation of water between different vital sectors, the government should not reduce the share of water to agriculture, as agriculture is the key to inclusive growth.

To make the growth process inclusive, it is necessary to enable the poorer states to raise infrastructure levels to harness their rich resources and compete with their devel-oped peers (Rao, 2009). The shift in focus towards inclusive growth in the Tenth Plan and increased emphasis on the same in the Eleventh Plan are important to ensure that the poor participate in the market activity and the growth process in a meaningful manner. However, the strategy has been mainly to provide this section with some measure of consumption security through various employment pro-grams and / or writing off farm loans. While these are important in the short term, the inclusive growth strategy requires linking the poor rural population to the market and undertaking measures to increase their skill levels and productivity. Considering the fact that the poor are concen-

trated in less developed areas of the country, the growth strategy, to be inclusive, should shift the focus to less developed areas.

Providing infrastructure and connectivity in these areas can go a long way not only in bringing these regions within the fold of market activity, but also in breaking their institu-tional impediments. A lasting solution to poverty and backwardness in the country cannot avoid focusing on poorer regions. These regions—comprising Bihar, Chattis-garh, Madhya Pradesh, Orissa, Jharkhand, Rajasthan, Uttarakhand and Uttar Pradesh —with 45 percent of the total population account for just about 22 percent of income generated in the country. Almost 60 percent of the poor reside in these states. The human development ratio in these states is substantially below the national average, and infrastructure like road and transportation facilities,

agricultural marketing and cold storage as well as power supply is abysmal. Many of these states, Bihar and Orissa in particular, suffer from periodic fl oods, controlling of which is beyond their capacity or realm.

Growth without development will deepen inequality and have dangerous socio-political consequences that could undermine the very essence of free-dom and democracy. If economic growth is achieved without social

development at the grassroots level, it will not only widen inequality but also give rise to socio economic paranoia, socio-political unrest and instability. The biggest constraint on rapid growth in the years ahead will be the lack of physical infrastructure and its poorer quality. Both the center and the states have responsibility in this area as different types of infrastructure (roads, ports, railways, airports, electric power system and various types of urban infrastructure) fall under different jurisdiction. The strategy for infrastructure development must therefore encourage public private partnerships (PPP). The PPP strategy must be based on principles which ensure that PPPs are seen to be in the public interest in the sense of achieving additional supply at reasonable cost. PPPs must serve to put private resources into public projects and not the other way round.

Labour markets in India are characterised by underutili-

It is imperative to enable the poorer states to strengthen

infrastructure to harness their rich resources



sation of labour which manifests itself in unemployment and under employment. Improving labour market opportunities for workers is the key to poverty reduction and improving standard of living (Felipe and Hasan, 2006). The cause of unemployment and under employment in developing countries is lack of capital equipment and productive capacity. Only sound policies geared toward full employ-ment will create the foundation for inclusive growth. Unemployment and underemployment as the fundamental causes of lack of inclusiveness are unethical states of a malfunctioning economy (Felipe, 2009). The objective of achieving full employment has to be complemented with the objective of creating productive employment and ensuring decent employment. Full employment requires the govern-ment’s commitment to attaining and maintaining it. The private sector has neither the commitment nor the tool to achieve it. Full employment requires close coordination between private and public sectors.

The National Rural Employment Guarantee Act now renamed Mahatma Gandhi National Rural Employment Guarantee Scheme, guarantees 100 days of employment at the state's minimum wage. The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) enacted in 2005 with the objective of enhancing the live hood security of people in rural areas by guaranteeing hundred days of wage-employment in a fi nancial year to a rural household whose adult members volunteer to do unskilled manual work. Now the question arises how far the MGNEGA is helpful in achieving full employment.

In the Right to Education Act 2009 under Sarva Shiksha Abhiyan government allocated Rs 1.71 lakh crores. It is expected that the government should do effective social sector spending. Funds should be set aside in the budget for support functions that improve the implementation of such programs. Sarva Shiksha Abhiyan, that is educational program which started in 2001, should improve the quality of learning and ensuring access to upper primary classes.

National Rural Health Mission started in the year 2005. Here the problem lies in the shared responsibility between the states and the center. Government has also initiated the National Rural Livelihood Mission. Here the government is inviting private players to work alongside the state machin-ery. The government bears the cost of training on the condition that private parties will provide jobs to the trained

workers. It is expected that the government will identify more such areas where private sectors participation can be leveraged in development.

Social services institutions should not be concentrated in some specifi ed areas. The inclusive growth policy will be more appropriately implemented if these institutions are more diversifi ed throughout the sub-national government jurisdiction. The objective of the government should not only to create more such social institutions but to maintain effi ciencies in the existing institutions.

The Long Road AheadStructural inequalities are deep and persistent. They are also intimately linked with institutional structures in political, social and economic domain. These are likely to impede the transformation necessary for long term growth. The appropriate Indian policy for growth with development is inclusive growth and inclusive development, as appropri-ately adopted by Eleventh Five Year Plan.

A necessary next step is to look at more specifi c policy instruments and for each instrument calculate a ratio of the additional growth potential associated with this instrument with respect to the cost of implementing the corresponding policy. This in turn would enable us to “rank” the reforms, that is, to get a more precise view as to what should be undertaken fi rst, or as to which reforms should be imple-mented jointly because of complementarities in their growth impacts.

Endnotes1 As stated by His Excellency Mr. M. Hamid Ansari, Vice

President of India.2 The concept and name were fi rst presented in 1989–1990

by John Williamson, an economist from the Institute for International Economics, Washington DC. The Wash-ington Consensus contained a set of 10 recommendations that synthesized the policies considered necessary for the recovery of Latin American economies from the fi nancial crises of the 1980s and cycles of high infl ation and low growth.

3 Sixteen leading economists, gathered in Barcelona in September 2004 to discuss effects of economic reforms, lessons for future policy making, and performance of international economic systems, and issued a consensus



on growth and development.4 To set up an appropriate growth diagnostic exercise

(which the authors named as differential diagnostics), it is useful to follow the following fi ve step process: i) De-scribe the growth process and determine a relevant question; ii) Go through a differential diagnosis; iii) Posit a syndrome; iv) Test further implications, corroborate evidence of the syndrome and v) Iterate on (iii) and (iv) until you converge.

Reference and Additional Thinking• Aghion, P. and Durlauf, S. (2009), ‘From Growth Theory

to Policy Design’, Commission on Growth and Develop-ment, Working Paper No. 57.

• Ahmed, S. and Varshney, A. (2008), ‘Battles Half Won:

The Political Economy of India’s Growth and Economic

Policy since Independence’. Working Paper No.: 15. Commission on Growth and Development, Washington DC

• Badoni, S. R. and Nadkarni, P. (2010), ‘Effective Social

Sector Spending Needed’, The Wall Street Journal, February 25th.

• Commission on Growth and Development (2008), Growth Report: Strategies for Sustained Growth and

Inclusive Development, the World Bank. • Ernst & Young (2006), Doing Business in India, Ernst &

Young Private Limited, New Delhi • Felipe, J. (2009), Inclusive Growth, Full employment and

Structural Change: Implications and Policies for Devel-

oping Asia, Anthem Press. • Felipe, J. and Hasan, R. (2006), ‘The Challenge of Job

Creation in Asia’, ERD Policy Brief No. 44, Asian Development Bank, Manila, Philippines, April

• Hausmann R., Klinger, B. and Wagner, R. (2008), ‘Doing

Growth Diagnostics in Practice: A ‘Mindbook’, Working Paper No. 177, Center for International Development, Harvard University, September.

• Hausmann, R., Pritchett L., and Rodrik D. (2004), ‘Growth Accelerations’, Harvard University, May.

• Hausmann, R., Rodrik, D. and Velasco A. (2005), ‘Growth Diagnostics’, John F. Kennedy School of Gov-ernment, Harvard University, Cambridge, MA, March.

• Ianchovichina, Elena and Lundstrom, Susanna (2009), ‘Inclusive Growth Analytics: Framework and Applica-

tion’, World Bank Policy Research Working Paper 4851, March.

• Kohli, Atul (2006), ‘Politics of Economic Growth in

India, 1980-2005, Part I: The 1980s’, Economic and Political Weekly, April 1st, pp 1251-1259 and ‘Politics of

Economic Growth in India, 1980-2005, Part II: the 1990s

and Beyond’, Economic and Political Weekly, April 8th, pp 1361-1370.

• Kohli, Atul (2008), ‘State and Redistributive Develop-

ment in India’, Working Paper, Princeton University • Kumar, R., Palit, A. and Singh, K. (2007), ‘Sustainability

of Economic Growth in India’, Working Paper No. 25, Center for International Governance Innovation, On-tario, May.

• Leipziger D. and Zagha R. (2006), ‘Getting Out of the

Rut’, Finance & Development, Vol. 43, No. 1, pp 16-18. • Narang, S. and Santnalika, S. (2010), “Agriculture: The

Key to Inclusive Growth”, The Wall Street Journal, February 24th.

• Planning Commission (2006), “Towards Faster and More

Inclusive Growth; an Approach to the 11th Five year Plan

(2007-2012)”, Government of India, Yojana Bhavan, New Delhi, December p. 97.

• Rao, M.G. (2009), ‘Regional Development for Inclusive

Growth’, Business Standard, New Delhi, October 6th. • UNDP (2009), Human Development Report 2009, New

York • Wilson, D. and Purushothaman, R. (2003), Dreaming

with BRICs: The Path to 2050, Goldman Sachs Global Economics, New York, Paper No. 99.

• World Bank (2005), Economic Growth in the 1990s:

Learning from a Decade of Reforms, Washington, DC. • World Bank (2006), Inclusive Growth and Service

Delivery: Building on India’s Success, Development Policy Review, Washington, DC

• World Bank (2009), India: Country Strategy (CAS) 2009-2012, www.worldbank.org.in, accessed on 18/1/2009

• World Bank (2009), IDA at Work, India: Using IDA

Effectively in a Large Country, July. • World Bank (2009), World Development Indicators

Database, Washington D.C., September





IS THERE ANY RELATIONSHIP BETWEEN ECONOMIC GROWTH AND HUMAN DEVELOPMENT?

Sacchidananda MukherjeeConsultant, National Institute of Public Finance and Policy, New Delhi

Debashis ChakrabortyAssistant Professor, Indian Institute of Foreign Trade, New Delhi

EVIDENCE FROM INDIAN STATES

1. IntroductionThe economic reform process initiated since 1991 has played a major role in determining India’s overall economic growth path. Among the major changes undertaken during this period, shift in emphasis on export-oriented economic philosophy, encouragement to FDI infl ow, unshackling of industrial licensing system, ongoing tariff reforms (unilater-ally as well as part of WTO obligation) need to be mentioned. The collective infl uence of these measures has ensured a steady growth path for the country over the last decade.

The enhanced economic growth (EG), thus generated, is however likely to create important repercussion effects in the economy, which would further propel the growth trajectory in the long run. For instance, the rising income level would be instrumental in expanding the capacity of the government to raise the general level of human development (HD) in the current period (through provision of health and educational achievements), which in turn would infl uence the future EG potential positively.

Over the last decade, India has initiated a number meas-

ures for augmenting HD. For instance, the Sarva Shiksha Abhiyan started for universalising elementary education across the States has been a commendable initiative. Simi-larly, the goals of National Rural Health Mission (2005-12) includes: reduction in Infant Mortality Rate (IMR) and Maternal Mortality Ratio (MMR), universal access to public health services such as women’s health, child health, water, sanitation & hygiene, immunization, and nutrition, preven-tion and control of communicable and non-communicable diseases, including locally endemic diseases etc. The intro-duction of National Rural Employment Guarantee Schemes in rural areas and introduction of Bills like Right to Educa-tion Act and Food Security Act in the Parliament are in the right directions to empower the people with right to employ-ment, food and education. All these measures are expected to enable India to move closer to fulfi llment of the related Millennium Development Goals by the stipulated deadline, 2015. On the economic front, the growing size of the healthy and educated population in the working age group would enable the country to reap the benefi ts of Demographic Dividend more vigourously.

In this background, on the basis of a secondary data analysis, the current paper attempts to analyze the relation-ship between EG and HD for 28 major Indian States during four time periods ranging over last two decades: 1983, 1993, 1999-00 and 2004-05. The objective of this exercise to understand to what degree and extent the per capita income (as an indicator of economic growth) has infl uenced the human development achievements across Indian States. To understand the rural – urban disparity in the realization of

P R O F O U N D P R I O R I T I E S




human development, the Human Development Index is constructed for rural and urban areas separately for each of the States. While 1983 marks the pre-liberalization era, 1993 captures the scenario shortly after initiation of the reform exercises. Though the reform process was almost a decade old during 1999-00, the EG in the preceding period was infl uenced by several external and internal events (e.g. Southeast Asian Crisis during 1997-98, three successive General Elections over 1996-99 etc.). On the other hand, 2004-05 marked a period of relative stability.

The paper is organised as follows. A brief literature survey on the relationship between EG and HD is followed by a discussion on the methodology adopted in this paper, the results and the policy observations respectively.

2. Economic Growth and Human DevelopmentThe existing literature suggests a two-way relationship between EG and HD, implying that nations / States may enter either into a virtuous cycle of high growth and large HD gains, or a vicious cycle of low growth and low HD im-provement (Ranis, 2004). Higher initial level of HD may also lead to positive effects on institutional quality and indirectly on EG (Costantini and Salva-

tore, 2008). India displays a two-way causality between EG and HD, indicating possibilities of vicious cycles (Ghosh, 2006). The relationship pattern between Per Capita GDP (in PPP USD) and HDI score (UNDP 2009) is presented in Figure 1. The fi gure shows that, from cross-country perspective, as per capita income increas-es the HDI score increases upto a level and then it remains constant. This non-linearity in the relationship between EG and HD has been reported by Mukherjee and Chakraborty (2009). Therefore, from cross-country perspective per capita income is necessarily an ingredient for achieving a higher level of human wellbeing. From cross-country perspective, Mukherjee and Chakraborty (2010) observed that HD is positively related to both democracy and income level, indicating that the countries characterized by higher levels of income and better democratic set up are likely to witness higher HD achievements. The regression results on the relationship between HD and corruption confi rms presence

of a non-linearity and suggests that with decline in corruption, HD level rises, but declines marginally for a few countries characterized by a less corrupt regime (Mukherjee and Chakraborty 2010).

The UNDP annually publishes an extensive analysis of global HD situation in the Human Development Report (HDR) along with country rankings. While India remained in the low HD category throughout nineties,

in 2002 it graduated to medium HD category. In 2005 it secured a composite HDI score of 0.619, as compared to the corresponding fi gure of 0.439 in 1990. India’s global HDI rank has also improved from 132 in 1999 to 134 in 2007, while the number of countries covered also increased during this period. Recently in association with UNDP, the Government of India has started analysing the State-wise HD status. The National Human Development Report 2001 (Government of India, 2002), brought out by the Planning Commission following the UNDP methodology, is worth mentioning in this regard. While the report ranked Kerala, Punjab and Tamil Nadu as the toppers; Bihar, Madhya Pradesh and Uttar Pradesh were at the other extreme in HD scale. The alternate index developed by Guha and Chakraborty (2003), in line with Nagar and Basu (2001), however showed that inclusion of other socio-economic variables changes the State rankings to some extent.

From cross country perspective, per capita income is necessarily an ingredient for

achieving a higher level of well-being

Source: Computed by Authors based on UNDP (2009) data

Figure 1: The Relationship between Per Capita GDP and HDI Score: 2007

Per Capita GDP (PPP USD) 2007 vs HDI Score_2007: Cross-Country Analysis

1.1

1.0

0.9

0.8

0.7

0.6

0.5

0.4

0.3

HD

I Sco

re-2

007

0 10K 20K

Per Capita (GDP) (PPP USD)

30K 40K 50K 60K 70K 80K 90K



3 Methodology and Data

3.1 Human Development Index (HDI)

Following the principle of the NHDR 2001 methodology, for calculation of the Human Development Index (HDI) for Indian States, the current paper consider three variables, namely - per capita consumption expenditure; and composite indices of educational attainment and health attainment respectively. With this formulation, following the HDI method, the HDI score for the jth State is given by the average of the normalised values of the three indicators, namely - infl ation and inequality adjusted per capita consumption expenditure ( ); composite indicator on educational attainment ( ) and composite indicator on health attainment ( ). The normalisation is done by dividing the difference between any variable ( ) within these categories and the minimum value of to the difference between the maximum and the minimum value of .

Although UNDP considers Real GDP Per Capita in PPP USD for generating the HDI, the NHDR 2001 has preferred infl ation and inequality adjusted average monthly per capita consumption expenditure (MPCE) of a State over that for the analysis. Here the monthly per capita consumption expenditure data, obtained from National Sample Survey Organisation (NSSO)’s quinquennial surveys (38th Round: 1983, 50th Round: 1993-94, 55th Round: 1999-2000 and 61st Round: 2004-05), fi rst adjusted for inequality using State-wise Gini Ratios (also provided in the quinquennial rounds), and further adjusted for infl ation to bring them to 1983 prices by using defl ators derived from State specifi c poverty line (Government of India, 2002). The adjustment was done in the following manner. If (GRij)is the Gini Ratio for the jth State for the ith period and MPCEij is the average monthly per capita consumption expenditure for the jth State for the ith period, inequality adjusted average monthly per capita expenditure for the jth State for the ith period (IMPCEij) is expressed as (1-GRij) XMPCEij ,

where .After adjustment for inequality for each of the states, we carried out adjustment for infl ation. If PLij is the poverty line (in Rs. per capita per month) for the jth

One important policy response for the Government

would be to ensure balanced growth process

across the States

State for the ith period and PL1983j is the poverty line of the jth State for 1983, then infl ation and inequality adjusted average monthly consumption expenditure for the jth State for the ith period (IIMPCEij) is expressed as (PL1983j/PLij)XIMPCEij .

1 Hence infl ation and inequality adjusted MPCE of a State is considered as an indicator of consumption () to construct HDI. The analysis carried out for rural and urban areas of a State separately.

The composite indicator on educational attainment ( ) is arrived at by considering two variables, namely:

literacy rate for the age group of seven years and above (e1) and adjusted intensity of formal education (e2). The idea is that literacy rate being an overall ratio alone may not indicate the actual scenario, and the drop-out rate, needs to be incorporated in the formula. We consider the data on literacy rate for three periods – 1981, 1991 and 2001 corresponding to the Population Census. The adjusted Intensity of

Formal Education data is used for four periods – 1978 (4th All India Educational Survey, NCERT, 1982); 1993 (6th

All India Educational Survey: NCERT, 1999), 2002 (7th All

India Educational Survey: NCERT, 2002) and 2005-06. For 2005-06, we have taken the Intensity of Formal Education (IFE) from NCERT (2002) and used the Total Enrolment Figures as given in Government of India (undated).2 The entire analysis is carried out for rural and urban separately. Estimation of State-wise population between 6 to 18 age group (rural and urban separately) has been taken from the data released by the Registrar General of India and Census Commissioner (RGI&CC 2006) for 2001. It is to be mentioned here that RGI&CC (2006) data does not provide population data for 6-18 age group for rural and urban separately, so we used the rural and urban 6-18 age group population ratio in 2001 and estimated the State-wise projected rural and urban 6-18 age group population for 2002 and 2005. The current analysis assigns weightage of 0.35 to e1 and 0.65 to e2 to estimate , in line with the NHDR 2001 methodology.

The Intensity of Formal Education (IFE) is estimated as a ratio between Weighted Average of Enrollment (WAE) of students from class I to class XII (where weights



being assigned 1 for Class I, 2 for Class II and so on) to the Total Enrolment (TE) in Class I to Class XII. IFE is multiplied with the proportion of Total Enrolment to Population in the age group 6-18 (Pc) (Government of India, 2002). According to the formula suppose Ei be the number of children (rural and urban combined) enrolled in ith standard in 2002, i = 1 for Class I to 12 for Class XII). Then Weighted Average of the Enrolment (WAE) from Class I to Class XII is calculated as the weighted average of enrolment (Ei) in a particular Class where weights are i = 1 for Class I to 12 for Class XII.

Now, suppose Ei is the total enrolment of Children from Class I to Class XII in 2002. Then the Intensity of Formal Education (IFE) for children (rural and urban combined) in 2002 becomes WAE expressed as a percentage of TE. Suppose Pc represents the Population of Children (rural and urban combined) in the age group 6-18 years in 2001. Then we can determine the Adjusted Intensity of formal education (AIFE) for children (for rural and urban separately) in 2002, as the ratio of IFE multiplied by TE and the Population of Children in the age group 6 to 18 years in 2001.

Table 1: State-wise Human Development Index (HDI) Scores & Ranks

Note: Figure in the parenthesis shows the rank Source: Calculated by the Authors

State Name 1983 1993 1999-00 2004-05

Rural Urban Urban Rural Urban Rural Urban

Andhra Pradesh 0.245 (17) 0.303 (16) (17) 0.151 (26) 0.248 (18) 0.223 (20) 0.255 (21) 0.336 (20)

Arunachal Pradesh 0.178 (20) 0.247 (19) (21) 0.399 (12) 0.177 (22) 0.322 (18) 0.289 (19) 0.305 (26)

Assam 0.274 (13) 0.266 (17) (19) 0.418 (11) 0.165 (23) 0.369 (15) 0.294 (18) 0.407 (15)

Bihar 0.085 (23) 0.165 (24) (23) 0.202 (21) 0.098 (28) 0.129 (27) 0.146 (26) 0.146 (27)

Chhattisgarh 0.071 (25) 0.204 (20) (27) 0.167 (24) 0.127 (25) 0.179 (25) 0.133 (28) 0.360 (18)

Goa 0.721 (2) 0.642 (3) (2) 0.577 (4) 0.663 (2) 0.578 (5) 0.626 (3) 0.718 (3)

Gujarat 0.366 (7) 0.419 (11) (10) 0.325 (16) 0.329 (12) 0.326 (17) 0.312 (17) 0.468 (10)

Haryana 0.501 (5) 0.507 (7) (7) 0.398 (13) 0.442 (7) 0.372 (13) 0.506 (5) 0.397 (16)

Himachal Pradesh 0.412 (6) 0.582 (4) (12) 0.509 (6) 0.553 (3) 0.687 (2) 0.626 (2) 0.791 (2)

Jammu & Kashmir 0.214 (19) 0.098 (26) (14) 0.279 (18) 0.393 (10) 0.295 (19) 0.493 (6) 0.363 (17)

Jharkhand 0.085 (23) 0.165 (24) (23) 0.202 (21) 0.111 (26) 0.209 (22) 0.187 (24) 0.407 (14)

Karnataka 0.332 (10) 0.501 (8) (15) 0.315 (17) 0.309 (14) 0.371 (14) 0.326 (16) 0.500 (8)

Kerala 0.840 (1) 0.722 (1) (1) 0.778 (1) 0.834 (1) 0.728 (1) 1.000 (1) 0.954 (1)

Madhya Pradesh 0.071 (25) 0.204 (20) (27) 0.167 (24) 0.103 (27) 0.171 (26) 0.138 (27) 0.356 (19)

Maharashtra 0.364 (8) 0.520 (6) (8) 0.482 (8) 0.417 (8) 0.490 (6) 0.421 (12) 0.665 (4)

Manipur 0.340 (9) 0.266 (18) (13) 0.262 (19) 0.208 (20) 0.444 (9) 0.279 (20) 0.327 (21)

Meghalaya 0.249 (16) 0.352 (15) (18) 0.550 (5) 0.325 (13) 0.454 (8) 0.452 (10) 0.431 (13)

Mizoram 0.519 (4) 0.661 (2) (4) 0.745 (2) 0.477 (6) 0.650 (3) 0.488 (7) 0.608 (5)

Nagaland 0.315 (11) 0.407 (13) (5) 0.586 (3) 0.478 (5) 0.613 (4) 0.438 (11) 0.565 (6)

Orissa 0.159 (21) 0.185 (23) (20) 0.225 (20) 0.191 (21) 0.190 (23) 0.219 (23) 0.325 (22)

Punjab 0.668 (3) 0.567 (5) (3) 0.480 (9) 0.522 (4) 0.413 (11) 0.587 (4) 0.467 (11)

Rajasthan 0.144 (22) 0.193 (22) (22) 0.179 (23) 0.211 (19) 0.211 (21) 0.236 (22) 0.319 (24)

Sikkim 0.257 (15) 0.410 (12) (16) 0.478 (10) 0.275 (16) 0.391 (12) 0.382 (13) 0.319 (23)

Tamil Nadu 0.268 (14) 0.387 (14) (6) 0.387 (15) 0.412 (9) 0.432 (10) 0.458 (9) 0.564 (7)

Tripura 0.306 (12) 0.466 (9) (11) 0.506 (7) 0.301 (15) 0.466 (7) 0.340 (15) 0.466 (12)

Uttar Pradesh 0.064 (27) 0.010 (27) (25) 0.019 (27) 0.133 (24) 0.015 (28) 0.182 (25) 0.097 (28)

Uttarakhand 0.064 (27) 0.010 (27) (25) 0.019 (27) 0.251 (17) 0.181 (24) 0.341 (14) 0.306 (25)

West Bengal 0.237 (18) 0.443 (10) (9) 0.392 (14) 0.338 (11) 0.364 (16) 0.465 (8) 0.469 (9)



Finally the Composite indicator on health attainment ( ) is arrived at by considering two variables, namely Life Expectancy (LE) at age one (h1) and the inverse of Infant Mortality Rate (IMR) as the second variable (h2). For h1, which measures the life expectancy at age one (Person – rural and urban separately), the four data periods considered for our analysis are: 1981-85 (for 1983), 1991-95 (for 1993-94), 2000-04 (for 1999-00) and 2001-06 (for 2001-05). For the fi rst two periods we have taken data (rural and urban separately) from Government of India (2002) and for other two periods we have taken data from Ministry of Health & Family Welfare and the Offi ce of the Registrar

General (1999). The data on IMR (per thousand) for rural and urban is considered for four data points, namely – 1981 (for 1983), 1991 for (1993-94), 1999 for (1999-00) and 2004 (for 2004-05). The IMR data for 1981 and 1991 are taken from Government of India (2002) and for other two data points we have taken data from SRS Bulletins (RGI 2001). The current analysis assigns weightage of 0.65 and 0.35 to h1 and h2 respectively to determine the composite indicator ( ), in line with the NHDR 2001 methodology. The entire analysis is carried out for rural and urban separately.

3.2 Economic Growth (EG)

EG in the current analysis is measured by the Per Capita Gross State Domestic Product (PCGSDP) at constant (1999-00) prices (Comparable 1999-2000 Series), as reported by EPW Research Foundation database (EPWRF 2009). To understand the size of the economy and growth pattern of each of the States, we have classifi ed them in three categories with respect to their PCGSDP at constant prices in the following manner: high income States (PCGSDP: greater than 3rd

Quartile), medium income States (PCGSDP: 1st to 3rd

Quartile) and low income States (PCGSDP: less than

1st Quartile). 4. Results and Policy

Observation

The overall HD scores for the States generated following the above methodology is presented in Table 1. It is observed from the table that HD

State Name 1981-82 to 1983-84 1992-93 to 1994-95 1998-99 to 2000-01 2003-04 to 2005-06

Andhra Pradesh 9,439 (M) 13,252 (M) 17,358 (M) 22,247 (M)

Arunachal Pradesh 7,836 (L) 13,935 (M) 15,246 (M) 20,119 (M)

Assam 11,441 (M) 12,983 (M) 13,335 (L) 15,413 (L)

Bihar 5,259 (L) 5,929 (L) 6,553 (L) 7,208 (L)

Chattisgarh 8,275 (M) 12,600 (M) 13,168 (L) 16,225 (M)

Goa 18,782 (H) 31,315 (H) 46,919 (H) 53,485 (H)

Gujarat 11,467 (H) 17,101 (H) 22,068 (H) 28,719 (H)

Haryana 14,501 (H) 20,662 (H) 25,182 (H) 33,728 (H)

Himachal Pradesh 12,554 (H) 17,567 (H) 23,573 (H) 29,749 (H)

Jammu & Kashmir 12,332 (H) 13,815 (M) 15,992 (M) 17,644 (M)

Jharkhand 5,259 (L) 12,101 (M) 13,245 (L) 14,192 (L)

Karnataka 8,832 (M) 13,253 (M) 19,090 (M) 22,858 (M)

Kerala 11,336 (M) 16,520 (H) 21,592 (M) 28,447 (H)

Madhya Pradesh 8,275 (M) 10,572 (L) 12,911 (L) 13,777 (L)

Maharashtra 12,368 (H) 20,050 (H) 25,278 (H) 31,011 (H)

Manipur 9,296 (M) 11,922 (L) 13,800 (M) 15,712 (L)

Meghalaya 9,787 (M) 12,634 (M) 15,963 (M) 19,679 (M)

Mizoram 11,441 (M) 12,983 (M) 16,562 (M) 21,014 (M)

Nagaland 11,441 (M) 16,196 (M) 15,992 (M) 19,467 (M)

Orissa 8,164 (L) 10,042 (L) 11,629 (L) 14,924 (L)

Punjab 17,134 (H) 23,697 (H) 28,016 (H) 31,273 (H)

Rajasthan 8,202 (M) 11,842 (L) 14,979 (M) 17,337 (M)

Sikkim 11,441 (M) 14,687 (M) 17,648 (M) 22,794 (M)

Tamil Nadu 9,800 (M) 15,999 (M) 21,783 (H) 26,222 (M)

Tripura 7,456 (L) 10,351 (L) 15,255 (M) 21,487 (M)

Uttar Pradesh 7,543 (L) 9,460 (L) 10,734 (L) 11,797 (L)

Uttarakhand 7,543 (L) 14,786 (M) 15,877 (M) 21,738 (M)

West Bengal 9,009 (M) 12,487 (M) 17,010 (M) 21,126 (M)

Quartile 1 8,193 12,056 13,684 16,097

Quartile 3 11,448 16,277 21,640 26,778

Table 2: Per Capita Gross State Domestic Product (at Constant 1999-00 Prices) (1999-2000 Series) (Rs.)

Note: (H) implies High Income State (PCGSDP is higher than third quartile); (M) implies Middle Income State (PCGSDP lies between fi rst and second quartile); and (L) implies Low Income State (PCGSDP lies below First Quartile). Source: Authors’ own estimation based on EPWRF (2009)



Year Criteria Low Income

Middle Income

High Income F-stat

1983 PCGDP (Rs.) 7,008 9,858 14,163 29.354 *

Gini Ratio of

MPCE (Rs.)

Rural 0.272 0.279 0.266 0.180

Urban 0.307 0.299 0.284 0.292

HDI Score Rural 0.134 0.297 0.464 6.541 *

Urban 0.178 0.380 0.477 6.017 *

1993 PCGDP (Rs.) 10,017 13,694 20,988 26.731 *

Gini Ratio of

MPCE (Rs.)

Rural 0.238 0.241 0.279 2.150

Urban 0.284 0.284 0.320 1.085

HDI Score

Rural 0.163 0.254 0.488 8.434 *

Urban 0.223 0.363 0.507 4.774 **

1999-00 PCGDP (Rs.) 11,654 16,597 27,546 21.519 *

Gini Ratio of MPCE (Rs.)

Rural 0.227 0.214 0.247 2.503

Urban 0.313 0.273 0.311 3.122 ***

HDI Score

Rural 0.133 0.345 0.477 11.868 *

Urban 0.180 0.408 0.471 8.278 *

2004-05 PCGDP (Rs.) 13,289 20,711 33,773 31.065 *

Gini Ratio of Rural 0.236 0.251 0.302 4.633 **

MPCE (Rs.) Urban 0.329 0.315 0.365 1.435

HDI Score

Rural 0.206 0.364 0.583 13.633 *

Urban 0.295 0.422 0.637 10.854 *

Table 3: Average Per Capita GSDP and Average HDI Score across Income Groups

Note: +, ++ and +++- implies F-stat for Mean Equality Test is signifi cant at 0.01, 0.05 and 0.10 level

Source: Calculated by the Authors

level is consistently high for States like Kerala, Goa, Mizoram, Himachal Pradesh etc. On the other hand, Chhattisgarh, Uttar Pradesh, Uttarakhand, Bihar, Orissa etc. have always been among the bottom liners. Some interesting movement across the States is noticed over the period of analysis. For instance, Punjab and Haryana started with an appreciable HD scenario in 1983, but their performance in the urban areas decline considerably during the last observed period. A similar worsening effect is noticed for Arunachal Pradesh at the bottom of the scale as well. On the other hand, Jammu & Kashmir and West Bengal has managed to improve their HD level to some extent over the period. Interestingly Jharkhand has shown marked improvement in terms of HD achievements after separation from Bihar.

The changing income scenario across the States is explained with the help of Table 2. The income quartiles during the years under observation are defi ned and the States falling under different income categories during a period are mentioned in the parenthesis. It is observed from the table that while Punjab, Haryana, Goa, Gujarat and Maharashtra remained in the high income category throughout the period, Bihar, Orisa and Uttar Pradesh stayed on the

Dependent Variable:

Log (Human Development Index Score)

1983 1993 1999-00 2004-05

Independent Variable

Rural Urban Rural Urban Rural Urban Rural Urban

Constant-19.724 -17.301 * -15.901 * -11.773 * -13.835 * -12.957 * -10.889 * -9.663 *

(2.150) (5.274) (2.822) (4.169) (1.729) (3.952) (1.462) (1.820)

Log (Per Capita GSDP)

1.988 1.737 * 1.510 * 1.103 ** 1.290 * 1.209 * 0.987 * 0.882 *

(0.229) (0.560) (0.289) (0.429) (0.178) (0.399) (0.147) (0.182)

Number of observations

28 28 28 28 28 28 28 28

Adjusted R2 0.607 0.212 0.331 0.117 0.634 0.311 0.571 0.522

Durbin-Watson statistic

2.142 1.667 2.24 1.471 1.847 1.75 1.859 1.541

F-statistic 42.724 8.256 14.372 4.591 47.828 13.192 36.927 30.53

Prob(F-stat) 0.000 0.008 0.001 0.042 0.000 0.001 0.000 0.000

Table 4: Regression Results on the Relationship between HDI and PCGSDP

Note: Figure in the parenthesis shows the White heteroscedasticity-consistent standard error for the corresponding estimated coeffi cient *, ** -implies estimate coeffi cient is signifi cant at 0.01 and 0.05 level respectively



other extreme. States witnessing a growth in the service sector of late, i.e., Andhra Pradesh, Karnataka, Tamil Nadu and West Bengal have remained in the mid-income category throughout the period of study. The position of Kerala kept fl uctuating between high and middle-income category. A fl uctuating trend between low and middle-income category is noticed for some Northeastern States as well. It becomes clear that liberalization exercise has affected the growth path of the States in different manner.

Before exploring the relationship between HD and EG, a deeper analysis on the quality of income growth across Indian States would not be irrelevant here. The concern here is that the inequality in the growth process may adversely infl uence the pace of HD formation in a State. Table 3 compares the HD level of the States in the

rural and the urban belt with the respective Gini ratios. It is observed from the table that the rise in income level over the study period is associated with rise in inequality in the high income States during 1983 to 1993 (both for rural and urban). For high income States, the inequality marginally fall (both for rural and urban) during 1993 to 1999-00, but again gone up during 1999-00 to 2004-05. Except for urban areas under low income States during 1993 to 1999-00, the inequality (both for rural and urban) gradually declined during 1983 to 1999-00. However, urban inequality is found to be gone up for low income States during 1993 to 1999-00. For all income States, both for rural and urban, the inequality has gone up during 1999-00 to 2004-05. Understandably, the increase in the HDI score for the low income States over 1983 to 2004-05 has been moderate as compared to the corresponding fi gures for the high-income States. Average HDI score of the States is signifi cantly different across income categories. The existing literature suggests that the rising inequality has affected the growth process and livelihood of the citizens of different States differently, though HD level has improved across all income groups. However, the improvement is not smooth. For middle income States, both for rural and urban categories, HDI score in 1993 is lower than the corresponding 1983 level. For lower income States, for urban areas, HDI score in 1999-00 is lower than the 1993 level and for high income States, for rural and urban areas, the HDI score in 1999-00 is lower than the corresponding 1993 level.

In order to understand the relationship between EG and HD, a regression analysis has been undertaken here, involving the logarithm of the HDI score as dependent variable and the logarithm of the PCGSDP of the States as independent variable. The cross-section regressions are separately estimated for the four periods under study and for the rural and urban areas separately.

It is observed from the reported results in Table 4 that the HDI formation process of the States is positively infl uenced by the growing income levels, as refl ected from the positive value and signifi cance level of the coeffi cients of log (Per Capita GSDP). It is observed that, the value of the coeffi cients of the log (Per Capita GSDP) (it measures the income elasticity of human development), both for rural and urban areas, is declining over the period. This implies

Figure 2: Relationship between HDI and PCGSDP (1983)

HDI Score vs PCGDP : 1983

0.9000.8000.7000.6000.5000.4000.3000.2000.1000.000

0 5K 7K 9K 11K 13K 15K 17K 19K

HD

I Sco

re-2

007

Per Capita (GDP) (RS.)Rural Urban Log (Urban) Log (Rural)

Figure 3: Relationship between HDI and PCGSDP (1993)

0.9000.8000.7000.6000.5000.4000.3000.2000.1000.000

HD

I Sco

re

HDI Score vs PCGDP : 1993

5K 10K 15K 20K 25K 30KPer Capita (GDP) (RS.)

Rural Urban Log (Urban) Log (Rural)




that per capita income (as an indicator of economic growth) is not translating into human well being more effectively in the recent period. This in another way may signify the rising infl uence of other variables in determination of the HD achievements of a State. This indicates that there is much scope for further investigation to understand the underlying factors (other than per capita income) which infl uence human development of a State. Moreover, we observe from the table that except in 1999-2000, for all the other years the income elasticity of human development is higher for rural areas as compared to urban areas. This implies that an increase in per capita income results higher human development in rural areas as compared to their urban counterparts. This has a major policy implication given the fact that around 70 percent of the population still

reside in the rural areas. Figures 2-5 pictorially depict the cross-State relationship

between HD and EG during the four periods under observation across the States. The rural and urban income levels and HD achievements are considered separately in the diagrams. A couple of observations emerge from the fi gures. First, the positive relationship between EG and HD holds good for all four periods under consideration. Second, the relationship between EG and HD is non-linear in nature; rising level of income is associated with lesser degree of increase in terms of HD achievements. Third, despite rising income inequality in the last period under consideration (2004-05), as refl ected from the divergence of the rural and urban curves, this non-linear structural relationship is not affected in any signifi cant manner. Except for a few States, the urban HDI score is higher than rural HDI score for all the periods of our analysis. For Goa, a high income State, rural HDI score is higher than urban HDI score for 1983, 1993 and 1999, but it is opposite in 2004-05. For high income States like Punjab and Haryana (1999-00, 2004-05), rural HDI score is higher than urban HDI score. The same is true for middle income States like Kerala, Jammu & Kashmir, Andhra Pradesh (1993, 1999-00) and low income States Uttar Pradesh and Uttarakhand.

Over the last decade the contribution of the service sector in India’s GDP has increased tremendously. Health and education is part to that growth in a two-way process, on one hand they form part of the service sector, and on the other hand healthy and educated population stand to augment the GDP in a more productive manner not only in the service sector but also within agriculture and manufacturing segment. It is observed from the current analysis that EG and HD levels in India are positively related. While this is a comforting observation, indirectly implying that the HD formation process resulting from the rising income level in the current period would continue to provide growth impetus in the subsequent period, the rising inequality level and the weakening of the income elasticity of HD in the recent period are among the major areas of concern. One important policy response for the Government would therefore be to ensure a balanced growth process across the States on one hand, and to bridge the gap between the rural and urban areas within

Figure 4: Relationship between HDI and PCGSDP (1999-00)

0.9000.8000.7000.6000.5000.4000.3000.2000.1000.000

HD

I Sco

re

5K 10K 15K 20K 25K 30K 40K 4535K

HDI Score vs PCGDP : 1999-2000

Per Capita (GDP) (RS.)Rural Urban Log (Urban) Log (Rural)


Figure 5: Relationship between HDI and PCGSDP (2004-05)

1.0000.9000.8000.7000.6000.5000.4000.3000.2000.1000.000

5K 10K 15K 20K 25K 30K 40K 45K35K 50K 55KPer Capita (GDP) (RS.)

Rural Urban Log (Urban) Log (Rural)

HDI Score vs PCGDP : 2004-2005




a State on the other. Only then the benefi ts of the EG and HD augmentation process would cumulatively lead to sustainable economic development path.

Endnotes 1 State-specifi c poverty lines for the three periods (1983,

1993-94 and 1999-00) have been taken from Government of India (2002) and for 2004-05 we referred the estimates provided by Himanshu (2009).

2 For 2005-06, we estimated the adjusted intensity of formal education as on September 30th, 2005.

References and Additional Thinking • Costantini, Valeria and Salvatore Monni (2008),

"Environment, human development and economic

growth", Ecological Economics, Vol. 64, No. 4, pp. 867-880.

• EPWRF (2009), “Domestic Product of States of India :

1960-61 to 2006-07”, EPWRF, Mumbai. • Ghosh, M. (2006) “Economic growth and human

development in Indian States”, Economic and Political Weekly, Vol. 41, No. 30, pp.3321–3329.

• Government of India (undated), “Annual Report

- 2007-08”, Department of School Education and Literacy, Department of Education, Ministry of Human Resources Development, Government of India, New Delhi.

• Government of India (2002), “National Human

Development Report 2001”, Planning Commission, Government of India, New Delhi.

• Guha, A. and D. Chakraborty (2003), “Relative Positions

of Human Development Index Across Indian States:

Some Exploratory Results”, Artha Beekshan, Vol. 11, No. 4, pp. 166-181.

• Himanshu (2009), “Towards new poverty lines for India”, Chapter 3 in Report of the Expert Group to Review the Methodology for Estimation of Poverty, Planning Commission, December 2009.

• Mukherjee, S. and D. Chakraborty (2010), “Is there

any Relationship between Environment, Human

Development, Political and Governance Regimes?

Evidences from a Cross-Country Analysis", MPRA Paper 19968, University Library of Munich, Germany.

• Mukherjee, S. and D. Chakraborty (2009),

“Environment, Human Development and Economic

Growth: A Contemporary Analysis of Indian States”, (Co-authored with S. Mukherji), International Journal of Global Environmental Issues, Vol. 9, No. 1 & 2, pp. 20-49.

• Nagar, A.L., and Basu, S. R. (2001), “Weighing Socio-

Economic Indicators of Human Development: A Latent

Variable Approach”, National Institute of Public Finance and Policy, New Delhi.

• NSSO (1986), “Levels and Pattern of Consumer

Expenditure”, NSS 38th Round (January 1983 – December 1983), NSSO, CSO, MoS&PI, GoI, New Delhi.


Expenditure”, NSS 50th Round (July 1993 - June 1994), Report No. 402, NSSO, CSO, MoS&PI, GoI, New Delhi.


Expenditure”, NSS 55th Round (July 1999 - June 2000), Report No. 457, NSSO, CSO, MoS&PI, GoI, New Delhi.


Expenditure”, NSS 61st Round (July 2004 - June 2005), Report No. 508, NSSO, CSO, MoS&PI, GoI, New Delhi.

• Ranis, G. (2004), “Human development and economic

growth”, Center Discussion Paper No. 887, Economic Growth Center, Yale University, May, Available at:

http://www.econ.yale.edu/growth_ pdf / cdp887.pdf • Registrar General of India & Census Commissioner

(2006), “Report of the Technical Group on Population

Projections Constituted by the National Commission

on Population”, Registrar General of India & Census Commissioner, Government of India, New Delhi.

• Registrar General of India (1999), “Compendium

of India’s Fertility and Mortality Indicators 1971 to

1997, based on Sample Registration System”, RGI, Government of India, New Delhi.

• Registrar General of India (RGI) (2001), “Sample

Registration System (SRS) Bulletin”, Volume 35, No. 2, October 2001, RGI, Government of India, New Delhi.

• United Nations Development Programme (UNDP) (2009), “Human Development Report

2009 - Overcoming barriers: Human mobility and

development”, New York: Palgrave Macmillan.





India and the Crisis of Civilization

Nafeez Mosaddeq Ahmed

Potential Impacts of Converging Ecological, Economic and Energy Catastrophes

the fi nancial crisis is only one factor suggesting that the more optimistic conventional scenarios for Asia should be approached with some caution. Other “major upheavals” that both security and fi nancial experts have largely missed include issues like climate change, energy scarcity and food production – all of which are likely to have signifi cant, converging impacts on India in particular.

That is not to say the future is nec-essarily bleak. To the contrary, world-class experts across India are cognizant of all these issues, and working furious-ly to address them. But the fact remains that as these global crises intensify, In-dia will face escalating challenges that are likely to exacerbate her as yet unre-solved internal and external problems without suffi cient mitigating, preven-tive and transformative measures.

Social-Structural Inequalities: Neoliberalism in Crisis?The Indian economy has been frequently cited as a prime example of the success of the model of development pro-posed by institutional agents of neoliberal globalization such as the IMF and the World Bank. But over the last decades, poverty has remained a serious problem which, contrary to conventional wisdom, has actually worsened under the

The fi rst decade into the new millennium has seen India rise dramatically onto the world stage as a major economic and geopolitical force, both re-

gionally and globally. The trend has been long anticipated, as articulated by the CIA in its 2005 report, Mapping the Global Future. The report noted that by 2020 India’s GDP would “have overtaken” or would be “about to overtake Eu-ropean economies.” Rather than the 21st century constituting a new ‘Amer-ican century’, the report observes, it “may be seen as the time when Asia, led by China and India, comes into its own.” But the report also includes the following crucial caveat: “Barring an abrupt reversal of the process of glo-balization or any major upheavals in these countries, the rise of these new powers (China and India) is a virtual certainty.”1

Needless to say, the global fi nancial crisis which has plunged the world into a recession whose overall outcome remains uncertain, was certainly one such “major upheav-al” that was never anticipated by the US intelligence community, nor even the fi nancial community. Indeed, the spate of banking collapses in 2008 took the vast majority of neoliberal economists, including those working for national governments, by complete surprise. The inability to foresee

Poverty has remained a

serious problem which, contrary to conventional

wisdom, has actually worsened

Executive Director, Institute for Policy Research & Development, London

C R U C I A L C O N V E R G E N C E




impact of neoliberal reforms. The landmark 2007 report of the Indian government’s National Commission for Enter-prises in the Unorganized Sector (NCEUS) clarifi es this beyond doubt, fi nding that 77 percent of the entire popula-tion lives on less than half a dollar a day. The report put to rest earlier government claims that India’s poverty rate had stabilised at around 30 percent.2 The report further shows that out of the 457 million people (nearly 42 percent of the population) in employment, only 34 million were employed in the organized sector (including industries directly linked to India’s economic growth such as IT, textiles, heavy in-dustry, and so on). The vast majority of new jobs created have been in the organized urban sector, and even here, most jobs have accrued to ‘informal workers’ who lack job security and social security benefi ts.3 Moreover, 88 percent of rural workers earn less than Rs. 66 per day – the Labour Ministry’s norm for rural incomes. As Dr Abraham George, managing trustee of the Indian charity, The George Foundation, points out:

“1-2% of the country’s population in the private organized sector is reaping much of the fruits of the recent rapid economic growth. Increased wealth and income remain mostly within this small minority; the gap between them and the rest of the nation is widening by the day. Those who have accumu-lated immense wealth are in a position of power and infl uence to further en-hance it, often without sharing much with anyone else. The economic and social system seems to be inequitably struc-tured and in the end, most Indians are unable to partake in the benefi ts of the aggregate growth in the economy.”4

The World Bank, however, has repeatedly taken India’s previous highly questionable offi cial statistics at face value to lend support to the claim that neoliberal policy reforms and trade liberalization have contributed to poverty reduction. In its 2006 World Development Report, for instance, the Bank uncritically reproduced now thoroughly discredited offi cial Indian fi gures suggesting that poverty declined from 37.3 to 27.4 percent between 1993 and 2000.5 Yet as noted by Utsa Patnaik, Professor of Economics at the Center for Economic Studies and Planning, Jawaharlal Nehru Univer-sity in New Delhi:

“... over exactly the same period a number of crucial and inter-related indicators of rural well-being have worsened: crop growth rates have halved in the 1990s compared to the 1980s, rural development expenditures have gone down as a share of National Product and in real per head terms. Rural employment growth has dropped sharply and open unem-ployment has been growing fast. Bank credit to farmers has declined and there is higher dependence on private usurious credit. Price declines have been severe for many crops, and food grains absorption per head has declined sharply to reach levels prevalent fi fty years ago. Mounting un-repayable farm debts have led to loss of land refl ected in a sharp rise in landlessness, and to the historically unprecedented situ-ation of many thousands of farmer suicides in widely sepa-rated areas in different states (Andhra Pradesh, Karnataka, Vidarbha in Maharashtra, Punjab, and Kerala) and these suicides are continuing. All these indicators of acute agrar-

ian distress are quite inconsistent with the claims of decline or constancy of poverty. These indicators suggest that as a ground level reality rural poverty is high and rising in many areas.”6

Other studies indicate that available fi gures cannot easily prove that poverty has drastically reduced or increased in the last decade. However, Deaton and Dreze argue that there has been “an intensifi cation of regional disparities” between historically poorer and affl u-

ent states, with some poorer states such as Assam and Oris-sia experiencing “virtually zero growth of average per capita expenditure” between 1993-94 and 1999-2000. This is part of “a broader pattern of increasing economic inequality in the nineties”, evident for instance in “rising rural-urban dis-parities in per capita expenditure” and “rising inequality of per capita expenditure within urban areas in most states.”7

Indeed, widening inequalities in India are also part of a larger global pattern throughout the world, linked directly to neoliberal macroeconomic policy prescriptions. A 2006 United Nations Department of Economic and Social Af-fairs (UNDESA) report on the impact of IMF-World Bank reforms in the South for the period 1980-2005 found that:

“The past quarter-century has seen a sharp decline in the rate of growth for the vast majority of low and middle-

1-2% of India’s population in the private organized sector is reaping much of the fruits of the recent rapid economic growth



income countries. Accompanying this decline has been re-duced progress for almost all the social indicators that are available to measure health and educational outcomes... [A]t least some of the policy changes that have been widely implemented over the last 25 years have contributed to this long-term growth and development failure.”8

The report points out that the isolated growth-gains in India and China are more likely to be linked less to neo-liberal reforms, than to specifi c government interventions such as high levels of protection, currency controls, and so on.9 While the neoliberal model therefore cannot be eas-ily absolved from the entrenchment of social structural in-equalities in India, it clearly must take responsibility for the devastating impact of the 2008 fi nancial crisis. NDESA estimates that the number of India’s poor was 33.6 million higher in 2009 due to declining growth rates in the after-math of the crash.10

Climate Change: Probable RisksExperts project further economic loss-es due to the impact of global warm-ing over the coming decades. Although climate ‘sceptics’ have had a fi eld day over the discrediting, due to a case of sloppy referencing, of the claim in the IPCC’s Fourth Assessment Report that the Himalayan glaciers are in danger of completely disappearing by 2035, the peer-reviewed scientifi c literature confi rms that the glaciers are nevertheless melting rapidly. A 2008 study in Geophysical Research Letters notes, for instance, that:

“Naimona’nyi is the highest glacier (6050 masl) document-ed to be losing mass annually suggesting the possibility of similar mass loss on other high-elevation glaciers in low and mid-latitudes under a warmer Earth scenario. If climatic conditions dominating the mass balance of Naimona’nyi extend to other glaciers in the region, the implications for water resources could be serious as these glaciers feed the headwaters of the Indus, Ganges, and Brahmaputra Rivers that sustain one of the world’s most populous regions.”11

This is part of a wider global trend of “unbroken accelera-tion” in melting of the majority of glaciers around the world over the last 10 years according to the World Glacier Moni-

toring Service – such that even on a “medium scenario” of global warming, 70 percent of the Alps and a 100 percent of mountain ranges like the Pyrenees would be ice free.12

Other impacts of global warming on India could be equal-ly deleterious. Scientists project that sea level will rise at the rate of 2.4 millimetres (mm) per year in India, reaching 38 centimetres (cm) by mid-century. This would “inundate low-lying areas, drown coastal marshes and wetlands, erode beaches, exacerbate fl ooding and increase the salinity of rivers, bays and groundwater.” As a quarter of Mumbai com-prises low-lying areas, those most detrimentally affected by these impacts will be “low-income groups and poor residents living in vulnerable locations (accounting for nearly 50% of Mumbai’s population).”13

Flooding would be exacerbated by increased precipita-tion. In 1989, Mumbai’s average rainfall was 2129 mm, in-creasing by 50 percent by 2005-2006 to 3214 mm. Global

warming is likely to continue intensi-fying “extreme precipitation” over the western coast and west central India, with the summer monsoon increasing by as much as 20 percent by 2008 in all states except Punjab, Rajasthan and Tamil Nadu. Inadequate drainage and sewage infrastructure, sanitation and hygiene would in this context exacer-bate danger of disease outbreaks.14

Global warming would also lead to greater “episodes of heat cramps, heat

exhaustion and heat stroke” largely affecting poorer class-es. Heat stress would weaken immune systems and further amplify “susceptibility to diseases”, mainly for three major illnesses – diarrhoea, malaria and leptospirosis. Increased heat can also increase the range of vector-borne diseases like malaria, thus facilitating the spread of pathogens.15

Flooding could also be as damaging as drought in terms of agriculture, and in this regard has already detrimentally affected 20 million people in India. In the 2007 monsoon alone, for instance, nearly 8,000 square miles of agricul-tural land had been inundated; more than 130,000 houses destroyed; and 1,428 people killed.16

By 2009, however, the monsoon failed, most likely due to the El Niño Southern Oscillation.17 Vandana Shiva reports that the failure had “impacted two thirds of India, especially

Global warming would also lead to greater episodes of heat cramps and heat stroke, largely affecting poorer classes



the bread basket of India’s fertile gangetic plains. Bihar has had a 43% rainfall defi cit, Jharkhand - 47%, Uttar Pradesh - 64%, Haryana - 61%, Punjab - 26%, Himachal Pradesh - 63%, Uttarakhand - 42%.”18

Food Insecurity: from Scarcity to Calamity?Overall, climate change is likely to increase the frequency of fl oods and droughts in India, along with Himalayan glacier-melt, which together will dramatically affect agricultural productivity. Already in India, per capita food grain has fallen from 177 kg in 1991 to 155 kg in 2001. Wheat pro-duction in India’s breadbasket is projected to drop by 50 percent in 2050, putting 200 million further people at risk of hunger. Agriculture will be worst affected in the most fertile coastal regions of Gujarat and Maharashtra.19

But the escalating food crisis is not simply a function of climate change, but part of a deeper systemic crisis in the nature, structure and methods of corporate-industrial food production and distribution. As Patnaik argues, rising levels of hunger in India have largely been not due to unavailabil-ity of food, but due to increasing in-equality:

“... the average Indian family of fi ve in 2005 was con-suming a staggering 110 kg less grain per year compared to 1991, refl ecting divergent trends: a sharp rise in intake for the wealthy minority, outweighed by a large decline for the majority. Not only has calorie intake per capita fallen, there is also a steep decline in protein intake for four-fi fths of the rural population over the period 1993-94 to 2004-05 according to the National Sample Survey Reports on Nutritional Intake (NSS).”20

Yet she acknowledges that this does not obviate the fact that growth rates for food grains have “slowed sharply in every developing country, including India and China, and in many countries, there has been an absolute decline in grain output.”21 Indeed, during seven of eight years prior to 2008, world grain consumption exceeded production.22

She urges that this global food production crisis, and its link to the massive food price hikes of 2008, must be un-derstood in the context of the enforcement of the neoliberal

paradigm which eschews Southern food self-suffi ciency in production for export crops to Western markets. This has led to:

“... an intensifi cation of the international division of la-bor in agriculture, where tropical lands are increasingly required to produce the relatively exotic requirements of advanced country populations, keeping the supermarket shelves in the North well-stocked with everything from win-ter strawberries to edible oils and fl owers. The resulting food grain defi cits of developing countries, as they divert more land to export crops and specialized crops for internal consumption by the wealthy, are supposed to be met by ac-cessing the global market for grains, which is dominated by the United States, Canada, and the European Union with

Argentina and Australia as smaller players.”23

The problem is that the majority poor cannot afford to buy expensive food imports from the West, and that the system of global agribusiness is systematically degrading its own con-ditions of production. Maps released in December 2005 by scientists at the Center for Sustainability and the Glob-al Environment (SAGE) at the Univer-sity of Wisconsin-Madison show that

the Earth is “rapidly running out of fertile land” and that “food production will soon be unable to keep up with global population growth.”24 As US structural geologist Dave Al-len Pfeiffer argues, the principal problem is that modern industrial agriculture in its current structure is simply un-sustainable. In the US alone, it takes 500 years to replace one inch of topsoil lost to industrial methods, and erosion is reducing productivity by up to 65 percent each year. For-mer prairie lands, which constitute the breadbasket of the United States, have lost one half of their topsoil after about 100 years of farming. Overall, the soil is eroding 30 times faster than the natural rate of reproduction.25

The over-dependence of industrial food production on fossil fuels exacerbates this problem. Currently, the modern food system consumes ten calories of fossil fuel energy for every calorie of food energy produced.26 Yet a growing con-sensus among oil industry experts suggests that the world is either precariously close to exhausting half the world’s con-

Wheat production is projected to drop by 50% in

2050, putting 200 million further people at risk

of hunger



ventional oil reserves, or may already have done so – a phenomenon known as ‘peak oil’. Energy Depletion – Scaling the PeakIndia is currently the world’s fi fth larg-est energy consumer, importing about 70 percent of its crude oil requirements. This is likely to increase to around 85 percent by 2012 due to growing energy demand and a lack of alternative do-mestic energy sources coming online. Saudi Arabia is India’s largest crude oil supporter, followed by Iran. New imports will continue to arrive from these Middle East suppliers, along with Abu Dhabi, Iraq and Kuwait.27

Yet world oil production may well have already peaked. From 2005, world oil production stopped rising, remained roughly fl at for three years, and then began to decline in 2008, and now continues to decline.28 Although a studiously optimistic estimate by Cambridge Energy Research Asso-ciates, whose chair is close to Saudi elite circles, puts the annual decline rate at about 4.5 percent,29 the International Energy Agency noted that the “natural annual rate of de-cline” as of 2008 has been 9.1 percent. This decline has only been temporarily ameliorated due to the slow-down of world demand in the context of global recession. Recent estimates put the coming oil supply-crunch at around 2015.30

Indeed, for India, the prospects are grim, given that its two major Middle East oil suppliers, Saudi Arabia and Iran, have

most likely already peaked.31 Saudi Arabia, for instance, is struggling to maintain 2008 levels of production, with 2009 and 2010 production levels falling consecutively.32 Given that India’s oil imports are projected to triple by 2020 from 2005 levels to meet rising demand, this potentially poses a serious crisis since it is unlikely the oil will actually be there.33

Beyond State FailureThe rising challenges India faces are by no means unique. The convergence of global ecological, economic and en-ergy crises will increasingly undermine the capacity of all states to maintain territorial integrity, deliver goods and services, and provide security. This, in turn, will intensify the vulnerability of increasingly disenfranchised classes to

resort to violence; while also increasing states’ willingness to attempt to exert social control through military means. It is no accident, in this context, that Maoist revolts began to break-out in eastern parts of India in late 2009. This emerging confl ict cannot be defused with counterinsurgency initiatives – a symptom-led approach – but through addressing root structural causes. The reality is that this and many other violent confl icts are symptomatic of a

deeper systemic crisis striking at the heart of the structure, values and ideology of modern industrial civilization.

There is no need to look upon these worsening trends with extreme pessimism, even though necessary pragma-tism entails recognition that social dislocations and even catastrophic short-falls may well be inevitable. Despite this, the window of opportunity – albeit closing fast – still re-mains for India to play a pioneering role in undertaking the wide-ranging social, political, economic, and cultural transformations essential to effectuate a successful transi-tion to a social form which is truly sustainable and prosper-ous in the long-term. Such a transition requires, ultimately, a rejection of the failed neoliberal model, whose doctrine of unlimited growth through deregulation and liberalization, has proven to be intimately bound up with the destruction of the environment, the exhaustion of the soil, the unsus-tainable depletion of resources and raw materials, and the unrestrained unbalancing of the Earth’s complexly inter-

India is currently the world’s fifth largest energy

consumer, importing about 70% of its crude oil requirements



dependent ecosystems. India has already proven that it has the technological, cultural, spiritual and human resources to successfully pursue this transition. In the words of British environmentalist Martin Wright:

“India’s economic growth may have fuelled pollution, but it is also producing a massive expansion in renewable ener-gies... Across the country, I’ve seen some truly dramatic grassroots innovations in agriculture, energy and water man-agement. India’s long traditions of self-reliance and ‘right living’, as expounded by Gandhi, and still embodied in the determination and commitment of community leaders and innovators across the country, could be a powerful source of strength to meet the sustainability challenge. Everything depends on the choices India’s leaders make in the coming few years.”34

Indeed, India, as well as the world, is at a crossroads. Without massive mitigating, preventive and transformative measures, the convergence of global crises threatens the continuity of civilization into the 21st century. Yet India is uniquely positioned, both in terms of its meteoric ascension as a major economic power as well as its abundant domestic civilizational resources, to play a leading role in transition-ing toward a form of social organization that is more equi-table, just, sustainable and harmonious than hitherto even conceivable.

End Notes and Additional Thinking1 Jonathan S. Landay, “Report foresees gains by China,

India”, Knight Ridder Newspapers (14th January 2005) <http://seattletimes.nwsource.com/html/

nationworld/2002150724_ forecast14.html> 2 NCEUS report, Conditions of Work and Promotion of

Livelihoods in the Unorganised Sector (New Delhi: National Commission for Enterprises in the Unorgan-ised Sector, 2008) pp. 1-13

3 Ibid. 4 Abraham George, “Is India’s Prosperity Trickling

Down?” Uncovering the Truth Behind Poverty (17th August 2007) <http://www.abrahamgeorge.blogspot.

com/2007/08/is-indias-prosperity-trickling-down.html> 5 World Bank, World Development Report 2006 (New

York: Oxford University Press, 2006) p.278, Table A1 6 Utsa Patnaik, Poverty and Neo-liberalism in India (New

Delhi: Center for Economic Studies and Planning,

Jawaharlal Nehru University, February 2006) p. 2 7 Angust Deaton and Jean Dreze, “Poverty and Inequal-

ity in India: A Re-Examination”, Economic and Politi-cal Weekly (7th September 2002) p. 3745

8 Mark Weisbrot, Dean Baker and David Rosnick, The

Scorecard on Development: 25 Years of Diminished

Progress (New York: United Nations Department of Economic and Social Affairs, September 2006) p. 17 <http://www.un.org/esa/desa/papers/2006/wp31_2006.pdf>

9 Also see Robert Wade, “Is Globalization Reducing

Poverty and Inequality”, World Development (2004, Vol. 32, No. 4) pp. 577-589. Available at <http://www.lse.

ac.uk/collections/DESTIN/pdf/Isglobreducing.pdf>

10 Rukmini Shrinivasan, “No fi nancial crisis impact?

India’s poor grew by 34 mn”, Times of India (10th February 2010) <http://timesofi ndia.indiatimes.com/

india/No-fi nancial-crisis-impact-Indias-poor-grew-by-34-

mn/articleshow/5553859.cms> Also see Rajiv Kumar et. al, Global Financial Crisis: Impact on India’s Poor –

Some Initial Perspectives (New Delhi: United Nations Development Programme India, 2009) <http://data.

undp.org.in/FinancialCrisis/FinalFCP.pdf> 11 Natalie. M. Kehrwald, et. al. “Mass loss on Himalayan

glacier endangers water resources,” Geophysical Research Letters (November 2008, Vol. 35) L22503, doi:10.1029/2008GL035556 <http://www.wrq.eawag.ch/

organisation/abteilungen/surf/publikationen/2008_kehr-

wald.pdf> 12 Juliette Jowit, “World’s glaciers continue to melt at

historic rates”, Guardian (25th January 2010) <http://

www.guardian.co.uk/environment/2010/jan/25/world-

glacier-monitoring-service-fi gures> 13 Rakesh Kumar, Parag Jawale and Shalini Tandon,

“Economic impact of climate change on Mumbai,

India”, Regional Health Forum (2008, Vol. 12, No. 1) pp. 38-39

14 Ibid. 15 Ibid. 16 Somini Sengupta, “Climate change threatens food

production in India, UN expert warns”, New York Times (8 August 2007) <http://www.nytimes.

com/2007/08/08/world/asia/08iht-india.1.7036864.html> 17 K. Krishnar Kumar, “Unravelling the Mystery of Indian

Monsoon Failure During El Niño”, Science (October



2006, Vol. 314, No. 5796) pp. 115-119. Also see Steve Connor, “In India, the monsoon fails. In Europe, it

rains without mercy. Is this more than a coincidence?” Independent (13th September 2002) <http://www.

independent.co.uk/news/science/in-india-the-monsoon-

fails-in-europe-it-rains-without-mercy-is-this-more-than-

a-coincidence-607269.html> 18 Vandana Shiva, “Climate Change, Drought and India’s

Looming Food and Water Crisis”, ZNet (15th August 2009) <http://www.zcommunications.org/climate-change-

drought-and-indias-looming-food-and-water-crisis-by-

vandana2-shiva> 19 Anita Chaudhary and P. K. Aggarwal, “Climate Change

and Food Security in India” National Workshop on Climate Change and its Impact on Health (New Delhi: World Health Organization India, 26th-27th November 2007) pp. 39-40 <http://www.whoindia.org/LinkFiles/

Health_&_Environment_Nat_Wrksp_Climate_Change_

Lonavala_ p09.pdf> 20 Utsa Patnaik, “Origins of the Food Crisis in India and

Developing Countries”, Monthly Review (July-August 2009)

21 Ibid. 22 Lester R. Brown, ‘World facing huge new challenge on

food front: Business-as-usual not a viable option’, Plan B Update 72 (Washington DC: Earth Policy Institute, 16th April 2008) <http://www.earthpolicy.org/

Updates/2008/Update72.htm> 23 Patnaik “Origins of the Food Crisis”, op. cit. 24 SAGE Press Release, ‘New Map Reveals True Extent of

Human Footprint on Earth’ (San Francisco: Center for Sustainability and the Global Environment, University of Wisconsin-Madison, 5th December 2005) <http://

www.news.wisc.edu/releases/11907.html>; Kate Ravilous, ‘Food crisis feared as fertile land runs out’, Guardian (6th December 2005) <http://www.guardian.co.uk/food/

Story/0,,1659112,00.html> 25 Dale Allen Pfeiffer, ‘Eating Fossil Fuels’, From The

Wilderness (3rd October 2003) <http://www.fromthewil-

derness.com/free/ww3/100303_eating_oil.html> 26 Richard Heinberg, ‘Threats of Peak to the Global Food

Supply’, Museletter (July 2005, No. 159) <http://www.

richardheinberg.com/museletter/159> 27 “India’s dependence on oil exports to grow 85% by 2012:

report,” Financial Express (New Delhi: 17th August 2007); Piyush Pandey, “India expected to increase oil

imports from Mideast”, Emirates Business (Dubai: 11th February 2010)

28 Oilwatch Monthly (Amsterdam: Association for the Study of Peak Oil, December 2008) <http://www.

peakoil.nl/wp-content/uploads/2008/12/2008_december_

oilwatch_monthly.pdf> 29 Reuters, “World’s oil fi elds declining at 4.5 pct – CERA”

(17th January 2010) 30 “World oil output declining faster than thought”

Telegraph (29th October 2008) <http://www.telegraph.co.

uk/fi nance/newsbysector/energy/oilandgas/3276406/

World-oil-output-declining-faster-than-thought.html>; Simon Roberts (ed.) The Oil Crunch: A wake-up call for

the UK economy (London: UK Industry Taskforce on Peak Oil & Energy Security, February 2010) <http://

peakoiltaskforce.net/wp-content/uploads/2010/02/fi nal-

report-uk-itpoes_report_the-oil-crunch_ feb20101.pdf>

31 Werner Zittel and Jorg Schindler, Crude Oil: The

Supply Outlook (Berlin: Energy Watch Group, October 2007, EWG-Series No. 3/2007) pp. 5–17 <http://www.

energywatchgroup.de/fi leadmin/global/pdf/EWG_

Oilreport_10-2007.pdf> Also see summary of US geologist Jeffrey J. Brown’s Export Land Model (ELM) in David Galland, ‘What the Export Land Model Means

for Energy Prices’, Casey Energy Speculator (19th May 2008) <http://www.investorsinsight.com/blogs/john_maul-

dins_outside_the_box/archive/2008/05/19/what-the-ex-

port-land-model-means-for-energy-prices.aspx> 32 MENAFN, “Saudi oil production still below 2008

levels” (Amman: Middle East North Africa Financial Network, 3rd March 2010) <http://www.menafn.com/

qn_news_story_s.asp?storyid=1093310493> 33 “China and India: A Rage for Oil”, Business Week (25th

August 2005) <http://www.businessweek.com/bwdaily/

dnfl ash/aug2005/nf20050825_4692_db016.

htm?chan=gb> 34 Forum for the Future, “India’s future – sustainability or

bust?” (31st January 2008) <http://www.forumforthefuture.

org.uk/press-release/indias-future-sustainability-or-bust>





Utpal Kumar DeDepartment of Economics,North-Eastern Hill University, Shillong

BackgroundFood and nutrition security is directly related to the well-being of human population as it directly affects the physical and working ability of the people. The problem of food and nutri-tion security has become more important in the trade liberaliza-tion and globalisation regime and now even the staple food has become the political good in the developing country like India. It has become more important in the developing countries not only because it is essential for the survival of the people who live under poverty but also for its social and political conse-quences. The problem is much more signifi cant in North-East-ern region of India that has been lagging far behind the other states in respect of agricultural production especially of food items, industries and the development of human capital. Basically these states are food defi cit states and for meeting the requirements of the inhabitants these states depend on import-ed food articles from other regions of the country to a great

FOOD SECURITY IN NORTH-EAST

INDIA IN THE POST

GLOBALISATION ERA

F O O D F I R S T




extent. Whereas, assurance of food and nutrition security is also important from the point of view of human capital growth and also the productive capacity of human being in the region.

The decade of 1990s, observed rising concerns of the people about the question of food security at the local, regional, national as well as international level. People have become more concerned about the problem of persistent food insecurity especially the chronic insecurity that is observed during the period of natural calamities like drought, fl ood etc. and war and caused the loss of human lives, which is a common seen of many countries in Asia and Sub-Saharan Africa. The international community has been discussing the issue at different interna-tional forum for preparing guidelines to make provisions for adequate food for everyone in order to meet their nutritional requirement so that they are able to lead a smooth healthy life. The Agenda 21 of Rio Earth Summit in 1992, emphasis on Nutrition in Rome conference 1992, Cairo conference on Population and Development, 1994 and World food summit in Rome 1996 are a few to name. The primary concern of all those summits was the level of poverty and food security and how to enable the poor to acquire their purchasing power so that everybody can obtain the basic food requirement to lead a healthy life in a sustainable environment and no one die of starvation. Technological improvement was also given the priority for raising the production of food-grains and that has yielded much during the last few years but added another question of sustainability of land productivity.

At the same time, continuous efforts have been there to integrate the world economy and deregulate the economies in favour of free trade and to allow the market to work freely without any interference. Here opinions are formed in neoclas-sical line that if the markets are allowed to work freely then effi cient results would come and there will automatically a fl ow of food items from the surplus to defi cit regions. It will fl ourish the world economy; economic activities and opportunities will increase and free trade will benefi t every country through the best utilisation of their comparative advantages. Free market operation was supposed to enable the system to tickle down the benefi ts of technological advancement and development towards the poorer section of population all over the world.

However the globalisation programmes operate under the GATT agreement in which there is the clause of patent right, intellectual property right and sui-generis system to give a special benefi t to the inventors of different technologies and varieties of crops i.e., to those having an advantage of develop-ing newer improved varieties of food and other items of human welfare. This system allows the already developed nations a chance of harvesting extra benefi ts through their monopoly practices in many cases and cause twist in balance of power of exploitation in favour of developed nations. Also negotiations are going on for the reduction in food and agricultural subsidy (under WTO agreement) and the gradual removal of Public Distribution System (PDS) in the developing countries (espe-cially in Asia and Sub-Saharan Africa) that would cause further food insecurity in the defi cient production zone and having

substantial number of people under poverty. Thus we observe severe confl ict between the lobby of less developed nations who want to protect their right and interest against the hitherto unequal competition as well as avoid precarious food security condition and the rich nations who still provide heavy farm subsidy, export subsidy etc in order to protect their farmers’ profi teering interest. Therefore, the Doha round (2001), Cancun meet (2003) were

marked by strong disagreement and concluded without any concrete resolution.

However, one cannot deny the welfare implication of PDS in a developing country like India where still now more than 26 percent of population are poor. That is more chronic in North-East India with about one-third of its population is under poverty and thus is not entitled to acquire their basic needs. Similarly, the poor farmers in many cases, because of imperfec-tions in market structure, fi nancial obligations and having no control over market are compelled to follow distress sell of their products at meagre prices and thus lose economic access to necessaries in the lean seasons when consumer price index go up and they turn out to be the essential buyer of the same product. Therefore, a strong public policy is required to arrange for procurement and proper distribution of essential items to meet the necessaries of general public at their affordable price and fulfi l their nutritional requirements (De, 2000). In spite of

The assurance of food and nutrition

security is also important from

the point of view of human capital growth

F O O D F I R S T


having a low level of per capita SDP and being a food defi cit state Kerala through its wide coverage of PDS to benefi t the under-privileged section of society has been able to reduce the impact of poverty and achieve a notable growth in human devel-opment (Dreze & Sen 1995; Govt of Kerala 1994). On the other hand, at the same time despite being a relatively richer state; Maharashtra (in terms of per capita SDP) has not been success-ful in reducing rural poverty and a substantial part of its population is still suffering from shortfall of calorie intake in both rural and urban areas (Suryanarayana, 1999). Though some developed countries followed the policy of import restriction (price policies and quota) to encourage their own farmers to grow more and attain self-suffi ciency in food production and support producers’ income; they also supply the urban consumers cheap food at some stable prices and try to provide the rural poor masses the staple food items at some standard affordable prices (Anderson 1994). India also adopted a targeted Public Distribution System since 1997 to tackle the problem of the target groups (severely poor people) who suffer from chronic food insecurity in terms of their entitlement. In North-East India, around 40 percent of population (most of those live in rural areas) are directly or indirectly depend-ent on nature, especially forest resources. But due to degradation of forest in terms of quality and quantity, productivity of forest and thus availability of forest produces have been declining over the years. Also a large number of farmers follow jhum cultivation with traditional tech-nology for their subsistence that without technological progress and due to rise in population or declining land per head coupled with falling fallow period led to decline in crop produc-tivity. Moreover, adverse changes in terms of trade of their small or marginal farm produces make the situation worse for those vulnerable sections.

Objective An effort is made in this paper to examine the changes in food security situation in the region in the post globalisation era from both the supply as well as demand side.

Agricultural Liberalisation, Globalisation and Food

SecurityAgricultural trade liberalisation has led to the rapid commer-cialisation of agriculture in India and therefore diversifi cation of crop production has taken place more in favour of the high valued cash crops or non-food crops from the production of food crops. Reduction in food subsidies and gradual withdrawal of PDS has increased peoples’ dependence on the open market for their basic food requirements. During 1990s foodgrain output growth in India has fallen short of population growth rate. Foodgrain output growth has decelerated to 0.58 percent annual compound rate, where as during the same period though population growth rate has declined than earlier, annual compound rate was still 1.95 percent. Therefore it is very likely to reduce the per capita availability of foodgrains from the indigenous production to 139.07 kg per year (estimated by the

author for the year 2001). During the age of trade liberalisation

and globalisation the defi cit of food item can be met by importing food items from abroad and thus the thrust on export of agricultural produce has resulted in a policy induced changes in the production of oilseed, cotton and other horticultural crops. But due to the adverse change in the exchange rate and due to the absence of strong tie among the developing nations, the price of export item has

fallen. Where as the developed countries operate in a system of cartel and thus the price of importing items have increased compared to the exporting items that has therefore added to the problem of food insecurity. The fi rst time, the lobby of developing countries tries to put pressure on their developed counterpart in Cancun meet of WTO, Mexico in September 2003 for the maintenance of agricultural subsidy and public distribution system and the effort continued till now.

Moreover during the period of 1990s there is a drastic fall in acreage and production of coarse grains, especially of coarse cereals and coarse pulses, which are the main food item of the poorer section of population. An estimated 4.6 million hectares decline in area under food-grains cultivation has been observed in India during 1991 to 2000. Gross area under coarse grain fell by nearly seven million hectares during that period. Area under pulses fell by 2.4 million hectares. Though there is a rise in area under rice by 1.9 million hectare (especially because of rise in

Reduction in food subsidies and gradual

withdrawal of PDS has increased

dependence on open markets



area under boro rice cultivation) and rise in area under wheat cultivation by 4.4 million hectares has taken place, the net food-grains production growth has been decelerated. That phenomenon has added to the hardship of the people lying below poverty line.

Scenario of Food Security in North-East IndiaPer capita income and disparities or inequality of income distribution, price level, availability of food items are the major indices of food security in a region. According to FAO (1980) food security implies that “all people at all times have both physical and economic access to the basic food they need”. The World Bank (1986) extended the idea to “access by all people at all times to enough food for an active, healthy life. Its essential elements are the availability of food and the ability to acquire it”. Similarly there are the concepts of chronic and transitory or temporary food insecurity. The fi rst one means continuous failure to acquire adequate diet caused by the inability to buy food or to produce by them. The transitory insecurity however arises because of temporary failure to access enough food either due to sudden price rise, crop failure and household income, which is experienced time to time by different parts of the country (George, 1999).

The process of agricultural liberalisation and globalisation started in 1991 in a signifi cant way. Therefore the growth of food-grains production and other changes during nineteen eighties are compared with that of post globalisation period. The triennia average fi gures presented in table-1 show that though production of total food-grains in India had increased at an annual compound rate of 2.93 percent during 1980-82 to 1990-92, the rate declined signifi cantly during 1990-92 to 2000-02. In North-East India also, the annual compound growth rate declined from 2.68 percent in 1980s to 1.84 percent in the following decade and the trend continued till now. But the changes are associated with signifi cant interstate variation in the region.

Except Manipur and Meghalaya all other North-Eastern states recorded the similar trend. Production of total cereals as well as the staple food, rice also recorded a similar trend like that of total food-grains across all the North-Eastern states (Table-2 & Table-3). But during the previous period, growth of paddy production was relatively higher than that of cereal or food-grains, whereas during the latter period growth of staple food i.e., paddy (which is the basic food grain of the people of

eastern and North-Eastern India) declined at a faster rate than that of cereal or total food-grains. It indicates slightly higher rate of growth of other cereal items in comparison to paddy in the region.

On the other hand, at all India level during the decade of 1980s growth rate of paddy production was relatively higher than the total cereal, which was again signifi cantly higher than the total food-grains. In the following decade however the rate of growth of production of total cereal was signifi cantly higher than that of paddy, in spite of the fact that the rate of growth of all has declined. It is an indication of relatively faster growth of other cereals and that indicates a faster deceleration in the growth of staple food (rice) production. The deceleration in North-Eastern region has however been associated with the decline in inter-state variation in growth rate, which is observed from the signifi cant decline in coeffi cient of variation in growth rate in the later period.

Unlike all India aggregate, rice is the primary food-grain of the North-Eastern region. Allocation of land towards paddy is signifi cantly higher in all the North-Eastern states than that of all India average. From Tables 4 to 6 it is evident that percent-age of area allocated for the production of food-grains, cereals as well as staple food item paddy has declined in all the North-Eastern states since 1976, which shows the shift of attention of the farmers towards the non-food crops. Whatever, rise in production has been observed was therefore due to the rise in yield but that was also insuffi cient owing to the fall in long run rate of growth of yield of crops as a result of lack of investment.

Diagram-1 shows that except Manipur and Tripura all the North-Eastern states lie below the all India average yield of food-grain. Also growth of yield in the region followed deceler-ated growth over the years and thus raised question of sustain-able availability of food-grain from internal production.

However, one may argue that the decline in percentage of area allocated for food-grains has been observed throughout the period before and after the globalisation and economic as well as agricultural reform in India and thus it is not the effect of globalisation. But it should be remembered that gross area under cultivation has increased over the years and hence increasingly people allocated their enhanced area under cultivation towards non-food crops as well as horticulture activities. Area under horticulture fruit crops together has increased from 56.831 thousand hectares in 1979 to 262.124 thousand hectares in 1990 and further jumped to about 21060

F O O D F I R S T


Table-1: Production of Food-grains and its Growth in the North-Eastern Region during 1980-82 to 2000-02

Source: 1. North Eastern Council, Basic Statistics of NER, Various Issues 2. Government of India, Economic survey, Various Issues.

Production in ’000 Tonnes Annual Compound Growth Rate (%)

State 1980-82 1990-92 2000-02 1980-82 to 1990-92 1990-92 to 2000-02

Arunachal 139.33 209.5 222 4.16 0.58

Assam 2632.70 3422.67 4028.33 2.66 1.64

Manipur 261.97 304.23 385.00 1.51 2.38

Meghalaya 154.40 151.03 215.87 -0.22 3.64

Mizoram 40.33 90.53 126.50 8.42 3.40

Nagaland 113.73 209.90 333.00 6.32 4.72

Tripura 393.57 485.53 559.33 2.12 1.43

NER 3739.37 4873.53 5850 2.68 1.84

All India 130815.8 174695.3 185052 2.93 0.58

Coeffi cient of Variance in Growth Rate 83.30 57.06

Table-2: Production of Cereals and its Growth in the North-Eastern Region during 1980-82 to 2000-02

Source: Same as table-1


State 1980-82 1990-92 2000-02 1980-82 to 1990-92 1990-92 to 2000-02

Arunachal 139.33 206.23 216 4.00 0.46

Assam 2582.00 3371.70 3965.67 2.70 1.64

Manipur 260.27 304.23 383.50 1.57 2.34

Meghalaya 152.87 148.63 212.37 -0.28 3.63

Mizoram 40.07 85.03 122.00 7.82 3.68

Nagaland 111.97 198.77 312.50 5.91 4.63

Tripura 391.37 479.17 553.93 2.04 1.46

NER 3681.03 4793.90 5747 2.68 1.83

All India 119485.5 161730.83 174148 3.07 0.74


Table-3: Production of Rice and its Growth in the North-Eastern Region during 1980-82 to 2000-02



State 1980-82 1990-92 2000-02 1980-82 to 1990-92 1990-92 to 2000-02

Arunachal 93.27 134.17 139.50 3.70 0.39

Assam 2447.23 3255.70 3863.67 2.90 1.73

Manipur 248.53 294.67 372.00 1.72 2.36

Meghalaya 126.90 118.30 179.00 -0.70 4.23

Mizoram 34.20 72.93 106.50 7.87 3.86

Nagaland 99.57 162.10 215.50 4.99 2.89

Tripura 383.23 471.30 547.80 2.09 1.52

NER 3436.27 4509.17 5404.00 2.75 1.83

All India 51331.73 74044.70 78762.00 3.73 0.62




thousand hectares in 2000 in the region. Also area under tea has increased from merely 194.5 thousand hectares in 1977-78 to 236.475 thousand hectares in 1989-90 to further 282.403 thousand hectares in 2002-03. Similar is the case for other plantation crops. Even if area under food crop increased in some states in the 1990s the growth of absolute area under it has declined (except Manipur) signifi cantly compared to its previous decade, which is clear from the Tables-7 and 8 respec-tively. Moreover, the small subsistence farmers who are substantial in number in the region compelled to grow some staple food for their survival but that is insuffi cient to meet the growing total requirement.

Table-10 and 11 reveals that except Manipur, Meghalaya and Mizoram all other North-Eastern states and the region as a whole observes a fall in the per capita production of cereal as well as total food-grain during 1990s though the growth was positive during the previous decade in most of the states. It is due to the rapid growth of population compared to the growth of food-grain production like that of all India trend. Though per capita production in Mizoram has increased marginally in the 1990s, growth rate declined at very faster rate. Table-10 also shows that the estimated defi cit of cereal per capita though decreased during 1981 to 1991 it increased again after 1991 due to rising gap between production and the requirement. There-fore, there is a rising dependence on import of food-grains especially coarse cereal from other region of the country. But the country as a whole is becoming food defi cit on an average and thus the situation indicates rising food insecurity especially for those who cannot afford the imported food articles. The price of imported food from other regions becomes costlier in

Table-4: Changes in Percentage of Gross Cropped Area Allocated for Foodgrains

Table-5: Changes in Percentage of Gross Cropped Area Allocated for Cereals

Table-6: Changes in Percentage of Gross Cropped Area Allocated for Paddy

Source: Same as table-1 Source: Same as table-1


State\Year 1976-77 1988-89 1995-96 2000-01

Arunachal 81.77 76.03 75.04 69.96

Assam 74.59 69.97 69.24 67.77

Manipur 92.69 91.10 86.26 78.47

Meghalaya 61.91 57.87 53.16 47.29

Mizoram 92.67 83.97 71.65 64.89

Nagaland 89.74 77.17 84.39 67.20

Tripura 81.68 65.19 57.39 59.35

NER 76.50 70.47 69.10 68.90

All India 74.41 70.89 64.86 64.05

State\Year 1976-77 1988-89 1995-96 2000-01

Arunachal 81.77 76.13 72.54 67.68

Assam 71.77 66.64 66.52 64.87

Manipur 89.95 91.10 86.26 78.47

Meghalaya 61.18 56.61 51.82 45.49

Mizoram 92.29 83.09 67.52 62.77

Nagaland 85.74 74.09 79.60 61.78

Tripura 80.23 63.33 55.42 57.01

NER 73.11 67.69 66.49 66.21

All India 66.66 58.03 52.92 53.34

State\Year 1976-77 1988-89 1995-96 2000-01

Arunachal 54.62 51.98 48.65 45.25

Assam 69.03 62.98 63.57 62.41

Manipur 85.19 87.95 84.83 77.03

Meghalaya 51.67 45.90 42.11 37.18

Mizoram 88.67 74.41 60.37 55.32

Nagaland 58.70 62.63 61.40 46.50

Tripura 79.04 62.56 54.34 56.31

NER 68.67 62.66 61.74 61.89

All India 23.05 23.17 22.96 23.19

the region due to heavy transportation cost. Also due to rise in price of fertiliser, HYV seeds etc. when transported from the main land, many of the small and marginal farmers cannot afford to adopt such technologies and hence modernisation of agriculture is very slow even after globalisation or market integration and hence the growth of productivity is slow and uncertain. Therefore, globalisation process fails to accelerate the process of modernisation through the expansion of trade and improve food security position in the region.

If we look at the index number of prices in India, food prices are found to increase at a faster rate than the non-food and manufacturing articles since 1981-82. However, growth of food prices during 1990-91 to 2000-01 (i.e., in the post-globalisation period) was much faster than that of previous decade i.e., 1981-82 to 1990-91 (Table-12). Though rise in food prices is comparatively lower during 2000-01 to 2004-05 than the

F O O D F I R S T


non-food and manufacturing articles, food prices have esca-lated swiftly in recent past even when there is a recession world over. The process of diverting corn output for the production of ethanol or bio-diesel in USA (that reached about 20 percent of its current production and there is a target to increase to 30 percent by 2010) and EU (where the target is to divert 10 percent of their crop output for the purpose and reduce the dependence on fossil fuel) has added fuel to this fi re. Recently, Indian Government has also taken decision to allow the generation of ethanol and bio-fuel from corn in order to solve the problem of petroleum and that is supposed to complicate the situation further unless food production rises to over-com-pensate the loss.

A simple question may arise that if food prices have increased at faster rate why the farmers switched over to other crops. It has been experienced that the farmers do not receive the exact price at the time of harvest that is refl ected through index because of market imperfection and local conditions and especially in North-East India where markets are disintegrated. Also, a large number of farmers here practice Jhum cultivation for self-sustenance and hence marketed surplus is very low. Moreover, there is fall in relative price of food with respect to non-food or manufacturing items since 2000-01 when the effect

of globalisation is more visible (Table-12). Therefore the farmers in the region prefer to switch over to relatively more remunerative crop like potato and horticulture crops where profi t depends not only on the price but also on the yield rate of the respective crops. The rise in price of food crops rather increases their cost of living, as there is defi ciency of output.

If we look at the per capita income, which shows the standard of capability of the people on an average, it is observed that annual compound rate of growth of per capita NSDP in all the North-Eastern states has increased during 1990s compared to its immediate previous decade except in Assam and Arunachal Pradesh (Table-13). But if one looks at the recent past rise in price level across all the commodities including food items, the purchasing power of the average people is bound to affect adversely. After the integration of world market the local fi nancial markets respond to the changes in world market very fast, where as commodity prices (that those people sale) varies more depending upon the availability in the indigenous markets. Whatever rise in NSDP in North-Eastern region has been observed during 1990s was not mainly due to integration with the world market as these economies are mostly based on the natural resources with little export orientation of manufac-tured articles. The growth here has been due to the exploitation

Diagram 1: Growth of Yield of Foodgrains in North-Eastern States on India

0

0.5

1

1.5

2

2.5

3

3.519

75-7

6

197

7-78

1979

-80

1981

-82

198

3-8

4

198

5-8

6

1987

-88

198

9-9

0

1991

-92

1993

-94

199

5-9

6

1997

-98

199

9-0

0

2001

-02

MT

Per

Hec

tare

Arunachal

Assam

Manipur

Meghalaya

Mizoram

Nagaland

Tripura

NER

India



Table-7: Growth of Triennia Average Area under Foodgrains during 1981 to 2001


Area under Foodgrains in ‘000 Hectares Annual Compound Growth Rate (%)

State\Year 1981 1991 2001 81-91 91-01

Arunachal 133.17 184.90 190.00 3.34 0.27

Assam 2529.50 2734.10 2797.33 0.78 0.23

Manipur 182.43 159.60 167.00 -1.33 0.45

Meghalaya 130.97 132.77 133.17 0.14 0.03

Mizoram 43.97 65.73 65.00 4.10 -0.11

Nagaland 127.60 180.00 209.50 3.50 1.53

Tripura 302.00 273.97 255.47 -0.97 -0.70

NER 3449.63 3731.07 3857.00 0.79 0.33

All India 126966.50 124179.00 115638.60 -0.22 -0.71

Table-8: Growth of Triennia Average Area under Cereals during 1981 to 2001


Area under Cereals in ‘000 Hectares Annual Compound Growth Rate (%)

State\Year 1981 1991 2001 81-91 91-01

Arunachal 133.17 181.13 184 3.12 0.16

Assam 2410.9 2620.97 2683.67 0.84 0.24

Manipur 177.93 159.6 164 -1.08 0.27

Meghalaya 128.47 129.5 128.7 0.08 -0.06

Mizoram 43.43 62.87 61.5 3.77 -0.22

Nagaland 123.87 169.17 186 3.17 0.95

Tripura 296.67 262.77 246.67 -1.21 -0.63

NER 3314.07 3586 3695.5 0.79 0.30

All India 103922.1 101079.2 95600.5 -0.28 -0.56

Table-9: Growth of Triennia Average Production of Foodgrains per Capita in North-Eastern States during 1981 to 2001


Annual Production per Head in Kg Annual Compound Growth Rate (%)

State\Year 1981 1991 2001 81-91 91-01

Arunachal 220.46 242.20 202.37 0.94 -1.78

Assam 145.93 152.70 151.13 0.45 -0.10

Manipur 184.35 165.61 177.75 -1.07 0.71

Meghalaya 115.57 85.09 93.13 -3.02 0.91

Mizoram 81.65 131.21 142.45 4.86 0.83

Nagaland 146.75 173.47 167.34 1.69 -0.36

Tripura 191.70 176.11 174.85 -0.84 -0.07

NER 151.09 154.48 152.68 0.22 -0.12

All India 191.44 206.42 179.88 0.76 -1.37

F O O D F I R S T


Table-11: Growth of Triennia Average Production of Paddy per capita in North-Eastern States during 1981 to 2001

Table-12: Variation in Index Number of Prices of Food, Non-food and Manufacturing Articles in India since 1981-82



Production of Paddy in ‘000 Tonnes Annual Compound Growth Rate (%)

State\Year 1981 1991 2001 81-91 91-01

Arunachal 147.57 155.11 127.16 0.50 -1.97

Assam 135.65 145.25 144.95 0.69 -0.02

Manipur 174.90 160.41 171.75 -0.86 0.69

Meghalaya 94.99 66.65 77.22 -3.48 1.48

Mizoram 69.23 105.70 119.93 4.32 1.27

Nagaland 128.47 133.97 108.29 0.42 -2.11

Tripura 186.67 170.95 171.24 -0.88 0.02

NER 138.84 142.93 141.04 0.29 -0.13

All India 75.12 87.49 76.56 1.54 -1.33

Year1981-82 1990-91 2000-01 2004-05

Growth during

Item 1981-2 to 1990-1 1990-1 to 2000-1 2000-1 to 2004-5

Food 100 200.6 484.9 529.8 100.6 141.7 9.25

Non-food 100 194.2 364.9 467.3 94.2 87.9 28.1

Manufacturing 100 182.8 344.6 404.4 82.8 88.5 17.4

Table-10: Growth of Triennia Average Production of Cereals per capita in North-Eastern States during 1981 to 2001


Area under Foodgrains in ‘000 Hectares Annual Compound Growth Rate (%) Annual Defi cit per Head in Kg

State\Year 1981 1991 2001 81-91 91-01 1981 1991 2001

Arunachal 220.46 238.42 196.90 0.79 -1.90 -91.88 -84.57 -86.22

Assam 143.12 150.43 148.78 0.50 -0.11 -51.84 -69.39 -57.95

Manipur 183.16 165.61 177.05 -1.00 0.67 -120.58 -151.26 -143.38

Meghalaya 114.42 83.74 91.62 -3.07 0.90 -153.89 -111.76 -97.61

Mizoram 81.11 123.24 137.39 4.27 1.09 -90.53 -70.73 -77.96

Nagaland 144.47 164.27 157.04 1.29 -0.45 -44.37 -61.20 -61.84

Tripura 190.63 173.80 173.16 -0.92 -0.04 -86.27 -83.04 -85.01

NER 148.73 151.96 149.99 0.21 -0.13 -60.14 -43.90 -65.72

All India 174.86 191.10 169.28 0.89 -1.21 -14.54 3.42 -38.10

of natural resources and its export and partly due to the growth of service sector a fraction of which is the export of labour services in the BPOs which has of course been confronting the severe problem in the last few months due to the set back in world fi nancial market and bankruptcy of many foreign compa-

nies and instability in the fossil fuel market. Even there is degra-dation of natural resource base and hence its productivity that raise question about the sustainability of such rise in NSDP. Moreover, even after globalisation, look-east policy of the government of India we do not observe notable progress in



Table-13: Per Capita NSDP and Annual Compound Growth Rate during 1980s at 1980-81 prices

Source: Economic Survey, various issues.

State 1980-81 1990-91 2000-01 Annual Compound Growth Rate (%)

Rs Rs Rs 1980-1 to 1990-1 1990-91 to 2000-1

Arunachal 1516 2443 3708 4.58 4.26

Assam 1200 1790 2541 4.08 3.57

Manipur 1429 1736 2527 1.97 3.82

Meghalaya 1361 2020 3474 4.03 5.57

Mizoram 1289 1985 4383 4.41 8.24

Nagaland 1448 2233 4179 4.42 6.46

Tripura 1323 1525 3616 1.43 9.02

C-V 7.82 15.85 20.81 36.37 36.98

Table-14: Changes in Poverty in North-East India

Source: Planning Commission, Government of India

Incidence in Percentage Changes in Percentage

State\Year 1983 1993-4 1999-00 1983 to 1993-41993-4 to 1999-

001983 to 1999-00

Arunachal 40.38 39.35 33.47 -2.55 -14.94 -17.11

Assam 40.47 40.86 36.09 0.96 -11.67 -10.82

Manipur 37.02 33.78 28.54 -8.75 -15.51 -22.91

Meghalaya 38.81 37.92 33.87 -2.29 -10.68 -12.73

Mizoram 36.00 25.66 19.47 -28.72 -24.12 -45.92

Nagaland 39.25 37.92 32.67 -3.39 -13.84 -16.76

Tripura 40.03 39.01 34.44 -2.55 -11.71 -13.96

Table-15: Infl ation and Inequality Adjusted Monthly Per Capita Consumption Expenditure (Rs)

Source: Planning Commission, Government of India, National Human Development Report, 2001. Note: Note: Figures in the parentheses represent ranking among all the Indian states.

State\Year 1983 1993-4 1999-00

Arunachal -- 104.71 (14) 129.38 (12)

Assam 93.84 (11) 96 (17) 99.81 (21)

Manipur 101.06 (8) 112.89 (9) 130.88 (10)

Meghalaya -- 124.55 (5) 145.65 (7)

Mizoram 119.82 (3) 174.47 (1) 202.99 (2)

Nagaland -- 164.15 (2) 228.04 (1)

Tripura -- 119.53 (8) 125.92 (14)

All India 86.59 97.53 111.28

industrial activities in the region except the tertiary activities that cannot sustain growth process without improvement in production activities.

Moreover, the increase in NSDP is associated with the

decline in incidence of poverty but still now it is much higher than the national average (Table-14). About one-third of population is still suffering from the lack of entitlement to acquire their basic necessities. Therefore, the growth of per capita NSDP is not showing the actual improvement of entitle-ment rather there is the lack of economic entitlement and inequality in income.

Infl ation and inequality adjusted monthly per capita con-sumption is another index of welfare and condition for human development in any region. In this case of course all the North-Eastern states except Assam are much ahead of the national average. The condition of Arunachal though better than all India average it ranked 12 among all the states in 1999-2000. Here it may be pointed out that though per capita consumption is adjusted with the general infl ation level, at any point of time, general price level in any North-Eastern state is much higher compared to the national average (Basic Statistics

F O O D F I R S T


of NER 2006, P. 416) and there is large scale variation in prices within each North-Eastern state especially in Mizoram, Tripura, Nagaland and Meghalaya due to poor infrastructure and if that can be considered the actual conditions would not show much better. Moreover, inequality in actual consumption in the rural areas is observed to increase during 1990s (National Human

Development Report, 2001) in all the North-Eastern states except Arunachal, Meghalaya and Tripura.

Concluding RemarksIn terms of availability of coarse food-grains, scarcity in the North-Eastern region of India has increased after the globalisa-tion of Indian economy and that has raised the dependence on import. More market-oriented approach has led to the growth of non-food crops at the cost of food crops.

Income of the people on an average has increased due to the expansion of economic activities especially in the tertiary sector and thus raised the capability to acquire food security. But that has been associated with the large-scale uncertainty, which is clear from the recent devastation of the world fi nancial econo-my. Also the growth in NSDP has not been able to reduce poverty substantially and therefore a large section of population is excluded from the growth process and still suffering from eco-nomic as well as food insecurity due to lack of entitlement.

Moreover, globalisation and other economic reforms have not yet contributed to the industrial progress of the region (which is clearly visible from the sluggish industrialisation fi gures in the region) so that the income and entitlement of the people would increase. Rather opening up of market has accelerated the import of consumer durables from outside and thus in order to meet their aspirations for such goods exploita-tion of natural resources like forest has taken place at faster rate during 1990s that further caused decline in productivity of soil and the problem of food insecurity deepened (De, 2003).

Therefore, from both supply as well as demand capability side the globalisation movement has necessitated the institutional arrangement like PDS more in order to balance the require-ment of food and nutrition across different sections of the society. Even though money income has increased on an average the benefi t has not yet reached to all the sections in the society and that also involves uncertainty for the future of those benefi ted temporarily unless production activities increase sustainably.

Finally, it should be noted that here data were available up

to 2001-02 only. If the recent past information is considered; it will defi nitely refl ect a further grey picture of food security position in the region. As of now, globalisation has not been found to be a great path towards the achievement of better food security in the absence of much focus on the industriali-sation in the region.

References and Additional Thinking• Anderson, K. (1994): “Food Price Policy in East Asia”, Asia

Pacifi c Economic Literature, Vol. 8, No. 2, Pp. 15-30. • De U. K. (2000): “Food Security and PDS in Tripura: A

Policy Intervention” Paper presented at the National Level Seminar on Food, Nutrition and Food Security – Public Distribution System in North-East India organised by NEICSSR from 27th to 28th, November, 2000.

• De, U. K. (2003): “Economic Incentive and Environmental

Management: A Study of Forestry in North-East India” in Z. Husain (ed) Environmental Issues in North-East India, Regency Publications, New Delhi, Pp. 170-188.

• Dreze, J. and A. K. Sen (1995): India: Economic Develop-

ment and Social Opportunity, Oxford University Press, Delhi.

• FAO (1980): Conference 24th Session, Evaluation of Food Security Assistance Scheme, Rome, C 87/8-Sup 3.

• George, P. S. (1999): “Some Refl ections on Food Security in

India”, Indian Journal of Agricultural Economics, Vol. 54, No.4, Oct.-Dec., Pp. 465-489.

• Government of Kerala (1994): Eighth Five Year Plan 1992-97: Final Outlay, Approved by the Planning Commis-sion (Summary Feature), State Planning Board, Thiruvanan-thapuram.

• Planning Commission, GOI (2001): National Human Development Report, 2001.

• Singh, R. P. (1999): “Strategies for Rural Prosperity: Some

Policy Interventions”, Yojana, June, Pp. 12-17. • Suryanarayana (1999): “Poverty, Food Security and Levels of

Living: Maharashtra”, Journal of Indian School of Political Economy, Vol. 11, No.1, January-March, pp.77-100.

• World Bank (1986): Poverty and Hunger: Issues and Options

for Security in Developing Countries, (Washington D.C., World Bank).



E N E R G Y E C O N O M I C S


Debesh C PatraPh. D. (Petroleum Economics)Chief Manager (LPG), Bharat Petroleum Corporation, Mumbai

IS LPG A SUSTAINABLE COOKING FUEL FOR INDIA? A STUDY IN MANAGERIAL ECONOMICS

natural gas sources. During 1990s, LPG consumption grew at 10% annual average rate, a spectacular growth, being boosted by: a) availability from natural gas (40%); and b) imported source (20%). From 2000 onwards, during last eight years, consumption grew at annual average rate of seven percent; supply source supported by refi nery production (57%), from natural gas condensation (24%) and balance (18%) from import. Despite growth in domestic refi ning throughput (146 million in 2006-07) and high LPG yield from Crude (4.3%), LPG supply is becoming import intensive as import compo-nent is as high as 21% (average of last decade).

LPG is primarily used as a cooking fuel. Household sector consumes about 86% of total LPG consumed in the country; nine percent goes to commercial, industrial including manu-facturing sector. By 1999-2000, 54 out of every 1,000 rural households used LPG for cooking, which scaled up to 86 households by 2004-05 and to 93 by 2005-06. In urban area, out of every 1,000 households, 571 used LPG as cooking fuel by 2005-06, which was 442 by 1999-2000. This shows that 39

IntroductionLPG is an item of cooking fuel for urban middle class Indian families. Currently 55 percent of country’s household use LPG in their kitchens. The UPA-II Government at the Centre is committed to take this number up to 75 percent during next fi ve years. This would essentially mean penetration of LPG into rural areas and high growth in demand. Currently LPG for domestic consumption is subsidized to the extent of 25%. 20% of LPG consumed in the country is being imported. Under these conditions, market is supply driven and demand may be unsustainable at some point. This paper attempts to examine this issue.

Demand for LPGIn 1965 the country consumed only 43 thousand metric ton (TMT) of LPG; 10 years later in 1975 it was a meager 281 TMT against the level of 11,700 TMT in 2008-09. Consump-tion of LPG literally boomed during 1980s at the rate of 19% per annum, primarily being boosted by availability from

F U E L L I N G G R O W T H


households (per 1000) have adopted to LPG cooking during last six years in rural area, where as in urban area, the adop-tion rate is 129 per 1000. The incremental adoption is propor-tionately higher in rural area (72%) than in urban area (29%).

Supply of LPGLPG is always seen to be in short supply. LPG is preferred fuel from health and environment points of view. 57% of urban households pan India (2005-06) use LPG as cooking fuel. In states like Punjab, Assam, Haryana, Madhya Pradesh and Maharashtra, it is above 65%.

There is high degree of correlation between quantity of LPG consumed and country’s national income (NNP at current price). The correlation coeffi cient is 0.9945 for 34 years (1974-2006). The coeffi cient was highest in 1990s (0.9959). It was low (0.9878) during 1980s and further low (0.9673) during 2000s.

Average household consumes 112 kg LPG per year. After 2000, consumer base has been increasing at 11% per annum and supply is lagging behind. That is getting refl ected in reduced consumption to 102kg per year during 2000s, from a level of 114kg per year recorded during 1990s.

Private fi nal consumption expenditure on LPG in the country (Rs 18,625 crores in 2006-07) constitutes only 0.8% of total private consumption expenditure. Its annual growth slowed down from 2001-02 onwards to 13%, from level of 54% recorded in 2000-01 and 49% in 1993-94.

Issues In the light of demand and supply scenario as presented above, economic and manage-rial issues that are to be studied are the following:• How much will be the estimated demand

for LPG by 2015, taking into account: a) the expansionary policy stance of UPA II Government; b) substitution of LPG by CNG; and c) substitution of liquid fuel by LPG.

• How much of demand will be met by indigenous source and how much will be imported and whether the demand is sustainable from the supply point of view?

• What are the challenges of marketing LPG in India, under the given conditions?

Demand for LPG: Long Term ProjectionCurrently 86% of demand for LPG emanates from household sector. In the near term future, the same household sector will continue to remain the principal consuming segment; how-ever, there will be increasing penetration into rural area. In the long term, demand will be generated from commercial application like auto LPG, cooking and heating requirement from hotels and hospitals, catering to high income clientele.

LPG demand has been projected under three scenarios: a) Base Case, b) Most Likely Case, and c) Optimistic Case. ‘Base Case’ is a conservative projection, where a subset of existing customers belonging to one (out of three) company is taken for projection and its projected numbers are proportionately applied for the whole Industry. The ‘Most Likely Case’ follows projection done for the whole Industry. ‘Optimistic Case’ takes into account more of auto LPG application and high economic growth scenario where more of commercial applica-tion of LPG will pull the LPG demand up.

Methodology for Base Case2007-08 and 2008-09 has been taken as base year. Demand estimation for 2009-10 and 2010-11 has been done as per following method:

Chart 1: LPG Consumption (1980/81 - 2008/09)

0

2000

4000

6000

8000

10000

12000

14000

81 83

85 87 89 91 93 95 97 99 01 03 05 07 09

Thousand ton

4% growth per annum

55% of country's household is covered under LP Gas for cooking till now; By 2015, 75% planned to be covered

Annual average growth• during 1980s = 19%• during 1990s = 11%• during 1980s = 7%

Quantum jump @ 20% (1999-2000)

Lowest Growth @ 2.1% (05-06)



2009-10

Newly enrolled customers of 70 lakhs have been apportioned across the states in proportion to their distribution in 2008-09. Consumption of a particular state has been split into rural and urban on the basis of rural urban ratio of respective state.

New enrolment for each state (rural and urban separately) has been added to the customer base of previous year. Total customer of each state has been converted into consumption number by applying the per capita consumption of that state, rural and urban separately.

2010-11

Same method has been followed for estimating consumption for each state (rural and urban separately) by taking the new enrolment at 80 lakhs.

Thus estimation for 2009-10 and 2010-11 has been done with

realistic assessment of:1. (i) Customer base, (ii) new connection as per ‘Vision 2015’ of Government of India, (iii) per capita consumption, (iv) rural urban composition of customer population, existing and conform-ing to ‘Vision 2015’ stipulation2. Rural and urban fi gure for each state has been aggregated for the total of state for domestic con-sumption. 3. Non domestic consumption has been considered to be 10% of domestic.4. All states have been aggregated to arrive at all India fi gure.

Projection till 2015-16

Projection till 2015-16 has been done on the basis of CARG growth assumed for the following landmark period:

2011-12 to 2013-142014-15 to 2015-16Different growth assumptions

have been applied for the rural and urban segment of each state

for the fi rst two periods. These assumptions captures the growth potential, market forces like ingress of alternative gas and policy directives fl owing from ‘Vision 2015’ of Govern-ment of India.

Methodology for Most Likely CaseThis is based on Industry approach, where assumed growth is applied for the whole Industry for different years. The as-sumed growth rate for the year captures market potential and government policy based on historical growth.

Methodology for Optimistic CaseIn the ‘Optimistic Case’, consumption is assumed to be higher by 10% on the volume of ‘Base Case’. This high growth will emanate from the following sources:a) Higher per capital consumption in household segment than

Chart 2: Supply Sources Matching Most Likely Demand

0

2

4

6

8

10

12

14

16

18

20• Import is the balancing source

• Globally supply is available

.07-08 .08-09 .09-10 .10-11 .11-12 .12-13 .13-14 .14-15 .15-16

Fractionators Refi neries Import

07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16

Demand

Base Case 11.17 11.52 12.28 13.11 13.94 14.82 15.76 16.66 17.60

Most Likely Case 11.16 12.08 12.80 13.57 14.38 15.25 16.16 17.13 18.16

Optimistic Case 12.29 12.67 13.51 14.42 15.33 16.30 17.34 18.32 19.36

Supply

Fractionators 2.14 2.14 2.14 2.14 2.14 2.14 2.14 2.14 2.14

Refi neries 6.55 7.40 8.55 9.91 10.04 10.80 10.80 10.80 10.80

Import 2.47 2.53 2.10 1.51 2.20 2.30 3.21 4.18 5.21

Total Supply 11.16 12.08 12.80 13.57 14.38 15.25 16.16 17.13 18.16

Table 1: Demand Supply Balance (Figures in Million ton)

Source: Author's Own Calculation



assumed in the ‘Base Case’. It is assumed that per capita consumption of rural consumers will grow along with higher income earned by average rural household in coming years.

b) Auto LPG will make a difference, as more hybrid vehicles will be manufactured and more and more auto LPG dispensing stations are provided by private marketers in upcoming metropolis.

c) Optimistic Case primarily assumes a high commercial consumption scenario based on high economic growth (double digit growth for next 10 years), leading to high commercial application of LPG in hotels and hospitals along with the growth of real estate development and life style consumption. Demand for LPG under the three scenarios has been

projected in the Table ‘Demand Supply Balance’.

Supply SideLPG is known for its multi source availability and multi modal transportation. These features make LPG a more dependable gas, vis-à-vis natural gas. LPG is produced as a stream of refi nery yield; it is also produced from natural gas fractiona-tion and it can be imported by ocean tankers. This makes availability of LPG more fl exible. LPG transportation can be optimized by a suitable combination of road, rail, pipeline and ocean tanker.

Supply of LPG has been estimated from the production number of all the refi neries till 2015-16. Each refi nery LPG produc-tion has been put together in line with their expansion plan and new refi nery capacity also has been factored in. Two new refi neries (Bhatinda in North and Paradeep in East) production has been added from the year 2012-13 onwards. Known expansion plan of other refi neries has been taken into account till 2011-12, and maintained at that

level from 2012-13 onwards. Production of LPG from frac-tionators has been assumed to remain same at the current level of 2.1 million ton for the whole period. This assumption is a limitation of the exercise; however, variation of supply under this heading will be counterbalanced by variation in import. Import has been taken as the balancing supply source. The existing and planned import handling capacities till 2010-11 will support the projected import volume till 2014-15. Beyond 2014-15, additional import facilities have to be built up to match the demand. Supply has been balanced with the ‘Most Likely Case’ demand projection. Defi cit demand is assumed to be imported.

Global Availability of LPGLPG production has been rising in every region of the world. In 2007, global supply was about 229 million tons, up by 2.4% from 2006 level. During 2000 to 2006, supply grew at average two percent per year. LPG production and exports have ramped up, associated with higher crude oil and LNG produc-tion rates. Because LPG is a byproduct of oil and gas, LPG production is unlikely to be reduced, despite a surge in supply and probable reduction in LPG prices relative to crude.

Natural gas processing continues to be the largest supply source of LPG, accounting for nearly 60% of worldwide production during the last 10 years. A fundamental change in

Chart 3: Volatility in International Market - Integration with Indian Market

Price formation in international market is a complex process

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar200

300

400

500

600

700

800

900

1000

- Data for 2009-10 is up to 31st Dec. 09- LPG Price is Saudi Aram co CP based on 60:40 butane/propane ratio

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 5 yrs avg

International Price Trend of LPG



the market will occur during the next few years as LPG is recovered from LNG. Most propane and butane available in the raw gas streams for LNG production will be separated from the LNG upon liquefaction. The growth in LNG facilities around the world will increase LPG production accordingly.

LPG demand has also increased around the globe. About half of LPG demand comes from the residential-commercial market for heating and cooking. Within limits, base demand that consists of residential-commercial demand and a signifi -cant fraction of other LPG demand is relatively insensitive to price. Consequently, any LPG supply that exceeds this base demand will need to be consumed by the more elastic demand coming mainly from petrochemical plants or possibly stored for later consumption when the market adjusts.

The global LPG surplus is building even while crude oil and petroleum product prices are strong. As a result, LPG price relationships have been affected. Global LPG markets are experiencing high absolute LPG price levels, which are supported by high crude oil and natural gas prices, but recent LPG prices have also been relatively weak compared to crude.

Markets for LPG substitutes such as ethane, light naphtha and certain fuels are also affected by changes in LPG supply and pricing. For example, in Japan, Fuel Oil has traditionally been a more economical industrial fuel than LPG. In recent years, however, LPG has been the more economical industrial fuel except during peak seasonal LPG demand.

Pricing Issues During last six years, LPG prices have exhibited such high volatility as was not seen earlier, as depicted in the fi gure below. Prices have oscillated between 300 USD per MT and 800 USD per MT.

Contrast to this volatility, domestic selling price of LPG has remained more or less fi xed, leading to un-recovered cost being borne by the LPG marketing companies, which are fi nanced by upstream companies and by the Government. The subsidy has made LPG business unattractive for private players. Therefore, the business has largely remained in the domain of public sector marketing companies. Subsidy

fi nancing is a larger issue, involving fi nancial health of oil marketing companies in particular and country’s budget in general.

Subsidy Administration – A Managerial ChallengeLPG Market in India is characterized as:• Plural market (customers of all income classes coexist in a

geographical unit); overlapping market segment; hard to segregate geographical areas based on any parameter, be it income, per-capita expenditure, family size, spending habits etc.

• Subsidized LPG has number of stakeholders (vested interests) across the distribution chain; it distorts the value chain as a cylinder gets marketed to the end consumer;

• A LPG cylinder is an item of low price and high signifi -cance; customer demands the item, does not pay for the value of it.

• Market is largely concentrated in urban area and rural market is largely disconnected and unviable at most of the places. • Generally there is no substitute to LPG as a domestic fuel in cities; but in few cities, piped natural gas (PNG) is emerging a substitute product.• Consumption is supply driven; high demand at current price; there is trade off between volume and price; enough volume is not available at current

artifi cially low price level.

Profi le of an Indian LPG Consumer is:• Customer is a subscriber; he is not free to buy his product

from any where; he is a directed customer. Most of the time, he enjoys it; but at times, he resents it.

• LPG connection is mark of household identifi cation; it is not merely a commercial transaction; a connection in the household has a legal status. It makes marketing a bit diffi cult. (like a trade off between ‘hospitality’ and ‘security’)

• Customer is price sensitive; (both as an individual and in political sense); it restricts the freedom of the marketing company to recover the cost of marketing. It makes market-ing a rationing job.

• Customer feels unsecured; he has underlying fear that in a

Currently LPG for domestic

consumption is subsidized to the

extent of 25% and 55% of country’s household use it



situation of scarcity, he may not get a cylinder. The scarcity syndrome has not got off the psych of Indian consumer.

• Generally customers are not sensitive to safety; they do not appreciate that a cylinder is a pressurized vessel fi lled with explosive gas.

From a managerial perspective, marketing a product with dual pricing under the above stated market condition and consum-er psyche, is a complex job of serving the customer on the one hand and regulating his consumption on the other.

ConclusionGrowing LPG market in India is constrained by supply. Supply in the country is balanced by import from international market, where LPG is available for trading. However cost of imported product is not getting recovered by the domestic selling price, as domestic selling price is a regulated price. Due to larger interests like price stability, environmental protection and social equity, selling price of LPG is subsidized. That has robbed the market its equilibrating mechanism. Therefore the high potential demand is not being supported by a fl exible supply line.

References and Additional Thinking• Chakraborty Atanu (2005) ‘Status of Gas in India’s Fuel

Basket’, Economic and Political Weekly, April 2nd, 2005, pp. 1424 – 1427

• Hart Walt, Ken Otto, Ron Gist and S. Craig Whitley (2007) ‘Global Markets Facing Adjustment to Surge in

LPG Supply’, Oil & Gas Journal, June 18th, 2007• Hart Walt, Ken Otto, Ron Gist and S. Craig Whitley (2008) ‘Global LPG Markets React to High Oil Prices’, Oil & Gas Journal, June 23rd, 2008

• Lal, Deepika (2007) ‘LPG Supply Crunch’ Indian Infrastructure, June, 2007, pp. 60 - 61

• Patra, D.C. (2004) ‘Oil Industry in India: Problems and

Prospects in Post APM Era’, Mittal Publications, New Delhi• Patra, D.C. (2005) ‘How much Gas would India consume

in 2050?’ Hydrocarbon Asia, March / April 2005, pp. 12-18• Patra, D.C. (2005) ‘LPG Subsidy in India 2005’, Oil Asia, International Edition, Vol. 25, No. 4, Jul-Aug. 2005. pp. 46-54

• Patra, D.C. (2006) ‘Retail Marketing of LPG: An Entre-

preneurial View, with Special Reference to Mumbai’, in PATH, by Mathew Thomas (ed.) St. Francis Institute of Management and Research, Mumbai, pp. 203-213

• Patra, D.C & Parag Diwan. (2008) ‘Where is Oil in

National Reforms?’ Excel Books, New Delhi • Patra, D.C. (2009) ‘Tariff on Petroleum Products: A Case

for Fiscal Consolidation in India’ in ‘Contemporary Issues

in Energy Sector’, Anand Neeraj (ed), Technology Publications, Dehradun

• Patra, D.C. (2009) ‘LPG Marketing in India: A Trade off

between Price & Volume – A Consumer’s Perspective’ Reprints of technical papers in CD ROM by PETRO-TECH 2009

• Petrofed (2005) ‘Fuelling India’s Growth: Past Trends and

Scenarios 2011-2012’, Petroleum Federation of India, New Delhi

• Petrofed (2005) ‘Fuelling India’s Growth: Vision 2030’, Petroleum Federation of India, New Delhi

• Petrofed (2009) ‘Aspiring Change – Suggestions for 100

day Agenda for Government for the Oil & Gas Sector’, Petroleum Federation of India, New Delhi

• Sreenivas, Ashok, Girish Sant and Daljit Singh (2007) ‘Emerging Issues in the Indian Gas Sector: A Critical

Review’, Economic and Political Weekly, August 25th, 2007, pp. 3465 – 3474



Chart 4: Un-recovered Cost

• How is this un-recov-ered cost fi nanced?

• What are the macro economic impacts?

0

50

100

150

200

250

300

Subsidy on Domestic LPG

Rs.

Per

cyl

ind

er

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Apr-Sept'09 (Prov.)

67.7545.18

22.58 22.58 22.58 22.58 22.58 22.58

62.2789.54 124.89

152.89 156.08

214.05234.88

109.03

131.61

257.46

236.63

178.66175.04

147.47

134.72130.02

Under recovenes to Oil companies

Subsidy from fi scal budget

Total susidy to consumer

E N V I R O N M E N T A L E C O N O M I C S


EEE NE NNNNN VN VN VN VNN VEEE NN VN VEEEE NE NN VNN VN VN I RI R OI R OI RI RI R ORR OR ORI R OR OR OOR OR OR OOR OOOO N MN MN MNN M EN M EM EN M EM EM EM EM EMN M ENNNNN MMMMM N T AN TN TNNNN TN T AN TN TN T AN T AN T AN T AN TN TN T AN AT AAAAAANNN L EL EL EL EL EL EL EL EEL EL EL EL ELL ELLLLL EELLLL EEEEEEE CCCCC OC O NC O NC OC O NC O NC O NNC O NC O NO NC O NCC O NCC OCC O O M IO MO M IOOO M IO M IO MO M IMO M IO M IO M IO MMO MM IO I CCC SC SC SC SC SCCCCC SC SSC S

11611116116116116116116116161 6611611666111161 611111 TTTTT H ET H ET H ET H ET H EHT HHT H EH EH EEEH ETTT H EHHT H EH ETTTT HHHHT H ETT HHHH EH ET HHHH EH ETT H EHHHHHHH EH EHHHHHHHH EHHHHHHHHHHHHHHHHHHHHHHHHT H EHT HHHHHTT H EH ETT E II II II II II I I II I II III III IIII IIII III II II IIII IIIII I PPPP MP MP MPP MMP MP MP MPPPP MP M M PPPPPP M P MMPPPP MP M P M PPPPP M P MPPPP MMMM MM M T HT HT HT H IT HT H IT H IH IT H IT H IT HT H IT H IHT HT H IHHT HTTT N K N K N K N K KN K N KN KKN K KK N KN KKN K T A NT A NT A NTT AT A NT A NT AT A NT A NT A NA NNNNNNT A NT A NT A NT AT A NT AT AT AA KKKKKKKKK

Gandhian Model For Sustainable Forest ManagementIntroductionPlanet Earth was covered with diverse natural vegetation in an estimated area of six billion hectares1 prior to the human domestication of plant species and invention of agriculture. On account of human habitation, urbanization and development in agriculture, industry and tertiary sectors, this pristine gift of nature, called forest, is just reduced to about thrity per cent of the land surface of the Earth2. This resource is a heterogene-ous collection and this plays a vital role in maintaining the ecological balance, in preserving soil fertility and in taming climates. These are the non-marketable services of forests. But, forests do supply a lot many harvestable products which have direct use value. In other words, they provide raw materials for a range of industries which contribute to the growth of a country. In addition, forests supply the essentials for the rural poor and support them in several ways3. It hardly requires any emphasis to say that the socio- cultural and economic benefi ts derived from forests enhance the quality of life and sustain it for long.

Destruction and degradation of forests is one of the major environmental crises of the world today4. This has led to the species extinction worldwide5. Moreover, its negative impact can be seen in the form of heavy soil erosion, greenhouse effect, silting of rivers and dams, fl ooding, landslides, denuded upland, degraded watershed, and even destruction of corals

G A N D H I A N G O O D


G. BhalachandranDepartment of Economics, Sri Sathya Sai University, Prasanthinilayam, Andhra Pradesh

G A NG A NG A NA NNG A NG A NNG A D HD H ID H ID H ID HHHH A N A N A N NNNA N NNA G O OG O OG OG O OG O OG O OOG O OO OG O DDDDDDDDDDDD

1171171171171171171117117117117171111711711711171171717777777117111111717771711711711711111717177171117117771711711111711111111777771 7TTTTT HT H ET H ET H ET H EH EH ET H ET HT HT H ET HT H EEET H ET H EET H ETTT H EHH ET H EEET HT HTT HT HT HT HHT H EH ETTTT ET H ET HT EET I I N I I NI I NI N I NI NI N I NNNNI NI NI NIII NNN I N I NIIII NI N I NI NN I N I NII NNNI N D I ADDD I AD I AD I AD I AD I AD I AD ID I AD I AD I AAAAAAD I AD I AD I AD I AID I AAAAD I ADD I AI AD AI AD I AD I AD I ADDD I AD ADD I ADDD I ADDDDDDDD EEEE CEE CCCCCCCCCCCCE CE CE CCCCCCCCE E C E C E C E C E CE CE CE CEE CE CE CE CCCCCEE CE CE CE CCCE CCE C E CE CCCCCC OOOOOOOO NOO NO NNNO NNNO N OOO NO N OO N OO N OOOO N OOO NN ONN ONN OO N OO N OOO N OO N ON OOOO NO NO NN OO N ON OONO NN ON ON ON OON OOOO NNNNO N OO N ON ONNO NNO NOO N M Y M Y M Y M Y M Y M YM YMMMMMM YYYM YM YM YM Y M Y M Y YYYM YM YM YMM YM YM YM Y M YM YM YYM YMMM YM YM YM YM YMM YYYYYYYM YM Y M YM YYYYYYM YYYYM Y YYYYYYYY RRRRR E VR E VRR E VR E VR E VR E VE VR E VR E VR E VR E VR E VR E VR E VVRRR EE VR E VR E VVRRR ER E VRR E VR E VR E VR ER E VR E VR E VR ER ER EEER EER ERR ERRRRR ERRRRR II EII EEE WI E WE WI E WE WWI E WWWI E WII EI E WE WE WE WWWI EEI E WE WE WWWWI E WI E WI E WI E WE WWI E WI E WI E WWWI E WI E WI E WI E WE WII E WI E WII EI E WW

along the coast.If one surveys the Indian forest scenario, the picture is not

different and quite depressing too. India’s forest cover ac-counts for 21.02 per cent of the geographical area of the country6 in 2009 with a marginal increase of 0.03 per cent during 2007-’09, which is, of course, far from the Govern-ment’s recommended resolution of 33.3 per cent7. The inter-state distribution of forests is also quite skewed8. The defor-estation process, though started even before the British period mainly to expand the agriculture, a large scale destruction of forests was recorded during the Colonial Rule on account of its commercial policy in general and the owner ship policy in particular. This impact continued even after Independence. Recently, the globalization and liberalization have worked negatively on the forest development. Precisely, the polariza-tion of development strategies in the reform- period, un-planned urbanization, mad consumerism and depressing trend in agricultural sector insensitively alienated the communities living in the forests deprived them of their basic sources of survival and made them refugees in their own land.

At this juncture, Sustainable Forest Management (SFM) is recommended as the remedy for the maladies. At the Sixth session of UNFF, four global objectives9 on forest manage-ment were spelt out. They are relevant to India as well in all respects. They happen to be:(a) To reverse the loss of forest cover and increase the efforts

to prevent forest degradation;(b) To enhance the multiple benefi ts derived from forests and

improve the livelihoods of forest-dependent people;(c) To increase the protected and other areas under SFM and

the proportion of forest products from sustainably man-aged forests and

(d) To reverse the decline of offi cial development assistance and mobilize new and additional fi nancial resources for SFM.

SFM concept has its origin in the World Commission on Forests and Sustainable Development, which was set up follow-ing the Earth Submit in Rio in 199210. The Commission came



out with its sets of recommendations to improve the life of people who depend on forests for their livelihood. In addition, the Commission underscored the need to improve the ecologi-cal balance by projecting the social importance of forests. For this purpose, it emphasized SFM as a plausible approach with a view to initiating bold political decisions and initiating new civil society institutions to bring in transparency and accountability in forest management. It takes into account some of the important human issues like that of improvement in living conditions, social equity, poverty reductions, power relations, gender roles, etc. along with involving civil society and commu-nities living in forests in the process of decision making. In short, sustainability can be ensured in forest management only if government and forest communities work in unison with a sense of participation and commitment. This was reiterated in the Millennium Summit of United Nations Conference on Environment and Development (UNCED) in 200011 in addi-tion to the fi xing of quantitative and time-bound targets coupled with ensuring and securing forest communi-ties’ rights and accessibility to forest resources. This gave proper direction to many countries to work on strengthening the process of forest governance and to improve the living conditions of their forest communities12.

In essence, SFM must ensure ecologi-cal, economic and socio- cultural well-being13. It is not out of context for one to dwell upon the concept of sustainability as it has to be properly linked with forest management. This concept is very comprehensive and at the same time it encompasses many spheres of activity related to human life with the support of Nature. This implies a pattern of development which ensures welfare to the present generation along with an assurance to the future generation that their life would be as comfortable as that of present generation14. When one thinks of Sustain-able Forest Management, especially with reference to India, the socio- economic, political, cultural, geographical and climatic factors are to be considered in addition to the historical developments that had infl uenced the people, governance and practices in the country. These factors must be considered when a theoretical frame work is designed for this concept. In this study, an attempt is made to provide a

simple, but an enduring theoretical structure drawn from Mahatma Gandhi’s Model of Sustainable Development which is idealistic and at the same time practical in several respects in the present context.

Forest Management in Ancient IndiaA survey on Forest Management in Ancient India is useful in this context not only to admire the ancients’ forethought and wisdom on forestry but to pick up the thread from them to initiate a sustainable and at the same time, long lasting and practical approach in Forest Management in India. The available literature on ancient Indians’ approach to Forest Management reveals that sustainable forest management was ingrained in the way of life of ancient India. The main reason for this was that forests had played an infl uential role in shaping their social, political, economic and cultural life15 and hence they integrated them in their regular course of life.

Even during the Vedic period (4500-1800 BC), productive and protective aspects of forests were emphasized16. In the latter Vedic period (1000- 500 BC), Aranyakas (work on forests), Upanisads (especially Brahadaranyaka Upanisad), Smrities, etc. contain wealth of informa-tion on the use and management of forests. To be precise, each village then was attached to a forest17. The concept of Participatory Forest Management was in vogue and village committees

managed and maintained forests. Moreover, agriculture became a dominant economic activity during this period. As a result, concept of cultural landscapes promoting sacred forests and groves, sacred corridors, ethno- forestry practices, etc. was developed18.

The Himalayas was the treasure house of medicinal plants during the Vedic period. This practice was prevalent even during Emperor Asoka’s time19 ( 273-232 BC). This led to the practice of growing medicinal plants at residential dwellings by assigning sanctity to them20. This practice is continued even today in many parts of this country. In essence, Religion in Ancient India was more to promote sustainable practices by protecting environment and attuning each one’s life to the Nature.

One can observe here that the environmental conscious-

Research literature points that the

sustainable forest management

was ingrained in the way of life of

ancient India



ness in Ancient India was holistic in approach and it came from the Upanishads’ Gospel, Vasudhaiva Kutumbakam, which proclaims that all beings of the entire universe belong to one family21.

Arthasastra (the end of the Fourth Century BC.)22, an authentic treatise on the socio- economic, political, environ-mental and cultural aspects of the Mauryan period, has an elaborate discussion on forestry and its management. Its approach in this regard, is the direct assimilation of the wisdom and practices prevailed in ancient India and adopting them for sustainable development23. Kautilya, the author of this master- piece, pinned the responsibility of protecting, preserv-ing and conserving forests with the State24 in a planned manner25. In addition, he wanted this to go with well designed dwellings in a scintillating environment26. He expected that every citizen must have a sense of belonging27 and commitment in society for realizing the goal of total welfare with the support of the State. At the same time, he did not want to spare the rod in the case of defaulters28. When he dwelt upon the disaster of many kinds, he preferred prevention to cure29. In essence, Kautilya wanted to instill the faith and awareness in every individual that he/ she was a part of the Whole and he wanted the activities of individuals/ society/ State to be regulated in such a way that the development of economy is a harmonious and integrated one with the support of the Nature.

If one looks at the problems of environment and more specifi cally of forests of today, they are several folds larger/ severe/ complicated than that of those in Kautilyan period. Then, the approach to the present crisis must be deeper with a better sense of understanding, commitment and coordinated efforts. This cannot be achieved overnight. For this, a selfl ess direction with avowed objectives through a planned mecha-nism suitable to the people in the modern context is called for.

This study notes that the Ancients in India were successful in bringing sustainability in forest management because it had a strong theoretical background, of course unwritten, but assimilated in practice and adopted as a way of life. This can be termed Ancient Indian Model of Sustainable Develop-ment30. The Ancients in India used the concept, Dharma, which includes both the means and end in itself31, to refer to the concept of Sustainable Development (SD). This word, which has been in vogue from time immemorial in India, has no equivalent in any other tongue. But, it encompasses and synthesizes all the healthy, lofty, profound practices that the

concept of SD stands for. Moreover, this concept was used as a touch-stone32 in thought, word and deed and hence, it was easy for any one in Ancient India to weigh the pros and cons of every one of his/ her actions and choose only those actions that would produce welfare. For this, every individual requires a constant training from cradle to tomb. Indian Culture, which survives in its prop-roots and practiced sporadically today in many parts of India and elsewhere, vouches for this. Many of the nationalists in India, including the Father of the Nation, Mahatma Gandhi, who had their deep-roots in Indian wisdom, derived inspiration and found solutions to their problems they faced during the British Rule by translating the directives of the Ancients of India into practice. One can fi nd the silver lining in dark clouds that the tool-box of ancient Indian wisdom would never let us down when the country faces crisis of any kind. Needless to say that the strategies of development adopted in India and elsewhere in the modern time are wanting in quality and application.

Critical Review of Forest Management in India:Forestry in India is the second major land use productive activity, after agriculture. It is estimated that India has 2.5 per cent of the world’s geographic area and 1.8 per cent of the world’s forests. Forestry contributes 1.7 per cent of India’s National Income33. Moreover, one ha of forest plantation can create 630 man-days of employment. According to the India

State of Forest Report- 200934, (Table 1) forest and tree cover of the country happened to be 78.37 m.ha in 2007, which was 23.84 per cent of the geographical area. It includes 21.02 per cent forest cover and 2.82 tree cover. The decadal increase i.e., between 1997 and 2007 was 3.13 m.ha.(4.75 per cent). The increase in forest cover in hill and tribal districts stood at 66,300 ha and 69,000 ha respectively compared with the previous assessment in 2005-‘06. The seven northeastern states of India had nearly one fourth of country’s forest cover. This region gained 59,800 ha of forest cover in the two year’s time. Almost, 97 per cent of forest cover is owned and main-tained by the Government of India35. It is an established fact that India, which is a rural biased economy, has over 1.7 lakh villages with a total population of 200 million are located in the vicinity of forests.

The forest cover assessed was classifi ed into four canopy density classes:(a) Very dense forest (VDR) – more than 70 per cent.



(b) Moderately dense forest (MDF) – 40 to 70 per cent.(c) Open forest (OF) – 10 to 40 per cent.(d) Shrub, which is classifi ed as degraded forest, had a canopy

density less than 10 per cent.One could see the inter-state variations in the increment

process of the forest cover. While some states like Jharkhand, Manipur, Mizoram, Meghalaya, gained more than 0.5 per cent forest cover, states like Haryana, Tripura and Nagaland had lost more than 0.5 per cent forest cover during the assessment period.

This report succinctly points out that the Government’s progressive national forestry legislations and policies in India supported conservation and sustainable management of forests in the last two decades and transformed India’s forests into a signifi cant net sink of CO2. It is estimated that the CO2 absorption by India’s forest and tree cover is right now enough to neutralize the 11.25 per cent of India’s total green house gas (GHG) emissions. In other words, India’s forest and tree cover is a main mode of carbon mitigation for India36.

The Thirteenth Finance Commission (TFC) was asked in its terms of reference37 by the President of India to consider the need to manage ecology, environment and climate change consistent with SD while making its recommendations. It is to be noted that environment was explicitly made an important area of study in the federal mechanism for the fi rst time keeping in view the value of India’s forest and tree cover as a national asset.

It is to be noted that a majority of Indian population depends on forests directly for its fuel38, sustenance39, fodder for its cattle40, timber for its construction, medicine for its health41, etc. On account of the change in the consumption pattern at home and in abroad, demand- supply gap of forest produce has emerged. The fuel- timber ratio remains at 7: 3. It is to say that forests in India have to put up with fi ve times more pressure42 which is certainly abortive. This has led to an over exploitation of the forest resources and resulted in deforestation. With a view to containing this, the Government of India initiated, a strategy, under the banner of the National Commission on Agriculture, to use forest lands for the commercial production of timber and a massive drive on social forestry programme in unused fallow lands for the rural population to meet their timber, fuel and fodder require-ments. It was an old practice in new vigor to make the village administration and people to conserve and judiciously use the natural resources around. This scheme was put forth in the names of farm- forestry, community forestry, extension forestry and agro-forestry. This picked up well at an average rise in the coverage of one million hectares per year. However, this project had not yielded the desired results since the people continued to mount their pressure on forests and forest degradation could not be mitigated as desired. In addition, the confl icts between the forest communities and the forest offi cials posed severe problems.

Knowing full well of the need to have a revamped forest policy in tune with the major shift towards a more centralized and people oriented forestry in many parts of the world43, the Government of India introduced Joint Forest Management (JFM) programme in 1988 with a view to giving emphasis to conservation and meeting the demands of forest communities by keeping revenue generation as a secondary objective. It was realized that any programme on forest management would be successful only if the forest communities are the direct benefi ciaries. Under this programme, it is mandatory for the forest department and the forest communities to enter into an agreement to jointly protect and manage the forest lands in which these communities have accessibility and share benefi ts they accrue. The village community is expected to be repre-sented by a committee44 (commonly known as Forest Protection

Committee) nominated for this purpose. Moreover, each state is privileged to have one’s own resolution to accommodate the local needs. This initiative has led to a better accessibility and

Class Area (million ha)

% of Geographic Area

Forest Cover

• VDF 8.35 2.54

• MDF 31.90 9.71

• OF 28.84 8.77

Total Forest Cover 69.09 21.02

Tree1 Cover 9.28 2.82

Total Forest & Tree Cover 78.37 23.84

Scrub 4.15 1.26

Other Non-forest 246.21 74.90

Total Geographical Area 328.73 100.00

1 Tree cover is defi ned as tree patches less than 1 hectare with canopy density above10%Source: India State of Forest Report- 2009, p.6.

Table: 1: Forest and Tree Cover in 2007



control on forest resources for the forest communities thus making them more committed towards rehabilitation and extension of forests. This is the fi rst step towards SFM in India.

According to the JFM cell, Ministry of Environment and Forests (MEF), this programme has been extended to 22 per cent of country’s forest land, covering 17.33m ha of India’s forest area45 through 84,642 JFM committees up until 200346. The MEF has also initiated a project entitled, National Forest

Programme- India (NFP) under the aegis of National Forest

Policy and it has very well accepted the JFM programme as a part and parcel of it and projected a target of 33 per cent of forest- tree cover for India by 202047. It has to be noted that there are many state- sponsored organizations and NGOs including women- self- help groups, which have also been involved in the participatory management of forests at present along with the JFMP.

This programme is credited with many positive impacts. They happen to be,a) It has brought the forest offi cials and

forest communities closer to work for a common goal48.

b) This coordinated effort has really improved the conditions of forests49.

c) Reduction in encroachment or withdrawal from encroached areas is observed50.

d) There is an increase in the income of forest communities since several external assisted projects have offered employments51.

e) This has led to an increase in the involvement of many NGOs in the forest- sector although there is signifi cant variation from state to state.

But, there are several issues related to this programme which have to be critically looked into. They are:a) Many intra- community confl icts have emanated in many

parts of the country on account of unequal distribution of cost- benefi ts observed in several pockets under JFM52. This was not foreseen when this programme was initiated. This is quite depressing.

b) In a programme of this kind, where large amount of funds are poured in through several projects, transparency at every stage is expected. But, this was in stake in several places that led to untoward incidences53.

c) From time immemorial, there have been several thousands

of village communities who own and manage forests in several parts of the country54 wherein JFM would be a fi fth wheel in the coach.

d) Normally, JFM is extended to degraded forests (crown cover less than 25 per cent). Forest communities in high crown cover area are not benefi ted.

e) Of late, JFM programme has become a project- driven one. This has resulted in skewed development within a forest area since a project could cover only a portion of a forest jurisdiction. Moreover, after the completion of a project, it is not sustained55.

f) Forest communities fi nd it worth while to have a share in NTFPS than even in timber under JFM programme. But a clear policy measure has not come out of the state govern-ments56.

g) The forest community is entitled to have only 20 per cent of the revenue accrued annually57 which is believed to be on

the lower side. There is no viable model

The Forest communities find it worth while to have a share in

NTFPS than even in timber under JFM programme

for JFM, adaptable to the local needs.

h) JFM programme is not properly linked with market. As a result, the supply of forest products is ill- or-ganized and their demand is not properly tuned58.

i) Corporate sector has not been drawn into JFM programme. If due place is given to them, they would be

supportive in production, processing and marketing.j) There is no proper legal backing in this programme. It was

pushed through by issuing an administrative order in many states. So it is not properly focused in the States’ plan.

k) Panchayats are not legally linked with this programme. This will not only strengthen the activities of JFM programme but also support the forest communities involved through governments’ welfare measures59.

l) A macro outlook of this programme is lacking.m) Several national and international agencies have been

drawn into this programme. But it lacks proper channeliza-tion.In short, one can fi nd that the Forest Management Pro-

gramme in India lacks a sound theoretical base and a vision for the future. If one examines the cause for this, It is due to the fact that it is not properly linked to the country’s development



strategy. But the pity is that the country is yet to choose a path of development that is of her own and at the same time sustainable and conducive to her people, their attitudes and living conditions. China and East Asian countries feel proud to declare that their development strategies owe their origin to the Confucian Ethics60 and they are even patenting them. It hardly requires any over emphasize that Mahatma Gandhi happened to be the binding force in India’s past, present and future through his stature, contribution, dedication and exemplifi ed life. He proved through his life that what he taught could be practiced with no special effort. More over, he could prophesize the ills that would befall on this country and had designed a model of development for this country to emerge great, grand and glorious for ever. This study attempts to present his model of SD as the befi tting theoretical back ground for the sustainable forest management programme the country proposes to have.

Gandhian Model of Sustainable DevelopmentMahatma Gandhi had his roots deeply soaked in the Ancient Indian Philoso-phy61. Though he was not an economist by profession, he had a total grip on the socio- economic, political and cultural problems that India faced during the pre- Independence days, on account of series of invasions she suffered over centuries and the wrath of subjugation from the British. The model of sustainable development that he designed at that time was to grant Purna Swaraj62 or to ensure a better quality of life to the people of his country. His model that he outlined 1930s had interwoven several concepts needed in his angle for the reconstruction of India.

First, one must be aware that this model presupposes the spread of a certain set of attitudes to economic life and economic action63 and these attitudes themselves will lead for economic progress. It is a rare combination of idealism mixed with practical approach. Above all, it was time- tested in the sense that Gandhiji himself proved the success of his model in his personal life. His model is verily an alternate to individual-ism and socialism. In essence, his model promotes the concept that an individual or a society can improve his/ her or its quality of life only through collaboration and co-operation. It is

the duty of society to inculcate these values through training and practice64. He wanted the required institutional structure and the instruments for economic reconstruction to be worked out through a planned approach from below.

It is a wide spread belief even today that poverty in less- de-veloped countries (LDCs) is due to the inadequate moderniza-tion of their economic system. Gandhiji asserted that the poverty in these economies was due to the direct result of the excessive and indiscriminate preference for technical moderni-zation in advanced countries65. This startling paradox is the key to the analytical treatment of the Gandhian model. His premise has life even at present when the concept of globaliza-tion, which the advanced countries have pushed through in LDCs with a selfi sh motive in its back-drop, is claimed to be a failure, according to the Nobel laureate, J. E. Stiglitz, from the point of view of development perspective66.

Indian economy which has adopted incrementalizm bordering on stagnation as its dominant development strategy67 has no doubt produced impressive results in different spheres during its plan- period. But, if quality defl ators are applied, its achievements seem to be gloomy. In other words, the managers of the country are unable to sustain its development process in totality. Gandhiji’s fundamental question which is considered as a bench- mark to determine the viability of progress

happens to be, does moral progress increase in the same proportion as material progress?68. The short point is that Gandhiji linked SD with the improvement in the quality of life, which is a buzz-word today.

When Gandhiji wrote his manifesto entitled, Hind Swaraj or Indian Home Rule69, way back in 1908, India was under the grip of the materialistic and the cultural infl uence of the west. At the same time, the teachings of Swami Dayanand Saraswathi, Swami Vivekananda, Bladavasky, etc. had sown the seeds of the Indian Renaissance. The Indian National Congress, which led the freedom movement in the country, had nurtured two approaches to the future constitutional set-up for the country, in the beginning of the 20th century. One was supported by Gopalakrishna Gokhale and his followers, which believed in the Parliamentary form of government practiced in England70.

Blind use of machines and technological development would destroy

the value-system cherished in India



The other was propounded by Bipin Chandra Pal and his supporters which wanted a village to be the primary basic unit of governing system for the country71. Gandhiji was convinced of the latter’s view and converged the national opinion towards the village Swaraj. His purpose then was to reestablish the lost civilization by promoting mutual co-operation, simple living and high thinking and the force of love72 to envelope the thought, word and deed. The Mahatma was emphatic to say that Indians were the inheritors of rural civilization73. In his opinion, it could neither be uprooted nor substituted by an urban civilization. He dreamt that by removing the ills in the present village system and equipping the village communities for self- governance with minimum external interference74, village swaraj could become a reality. One has to pick up the thread to argue that this concept should be the strong basis for sustainable forest management in India.

Gandhiji analyzed the negative effect of the British industri-alism on the development of the Indian Economy in the long-run. He understood that it was based on three weak premises: unabated wants- growing use of complicated machines- wrong method of distribution. This resulted in the material comfort of a few; unrest in the rest of the economy and above all, total negation of moral progress. Gandhian solution to this was born out of his own philosophy of life75. He realized that the blind use of machines and technological development would destroy the value- system cherished in the country. He was in favor of production by masses in the place of the modern craze for mass production. He understood that the problem of Indian’s economic development is not merely one of growth but also of rehabilitation and arresting of the infl uence of shocks. Above all, his interest was more on a decentralization of productive activities and an integration of rural and urban economies to ensure orderly production according to needs. This concept was much lauded by econo-mists like G.D.H. Cole76.

The village Swaraj model is to antidote the wide spread abject poverty prevalent in villages. The Mahatma was clear that to the hungry millions, their God was bread77. From this one can infer that his primary consideration was man and his well being. More over, one could fi nd in his writings that he welcomed labor- saving and employment – generating ma-chines. He believed that such a venture could drive away India’s pauperism and idleness78 and pave the way for self- suf-fi ciency and self-reliance.

In essence, the Gandhian Model of Sustainable Develop-ment has potentialities for social reconstruction for perennial social and human progress locally, nationally and globally79. In other words, it is a non- materialistic, non- violent, harmonis-tic, egalitarian and value- driven model.

The unlimited growth model of the western economists has supported the maximization of utility and profi t and thus encouraged irresponsible and continuous exploitation of natural resources and environment beyond the threshold of resilience of the eco- system80. This has resulted in an unsus-tainable development process. Gandhiji’s model is very sensitive to this issue. It calls for an effective resource manage-ment by having a check on the pace of development, rate of consumption and restraint over insatiable demand for goods and services81. This model is against the over exploitation of resources, disruption of ecological balance and deterioration of environment since these are considered as a form of violence .It is convinced that the all pervasive greed that is prevalent in every sphere of activity prompted by homo oeconomicus82 approach of modern man is the basic cause of all crises the humanity encounters today. Gandhiji wanted that economics must have its roots in ethics83 and his philosophy of Sarvodaya, the welfare for all, aimed at the overall develop-ment of every individual, which he called, the micro unit of development84.

In the past, the industrial development in India was a part and parcel of her proud heritage. During the British time, it received a death blow. It was a pathetic story of intrigues exploitation and day light plunder. Physical brutalities were also perpetuated by the British rulers on Indian weavers and artisans of extra-ordinary dexterity, unheard in human history, with the sole purpose of delinking them from their ancestral training and support from local rulers. This pained Gandhiji a lot and he ingrained rural industrialization as the axis of his model. He wanted the village and cottage industries, main-tained by the village communities, to co-exist with heavy industries in urban areas85. It is more to ensure zero structural unemployment. He visualized that the decentralization of production would lead to decentralization of economic and political power, paving the way for a classless, unexploited, egalitarian society86.

In egalitarian society, ensuring economic equality is the pre- condition. In the gamut of non- violent model, Gandhiji prescribed trustee-ship as a plausible remedy to achieve this



goal. By trusteeship, he meant that people, who possess wealth of any kind, may be material wealth or gift of God, must hold it as its trustee for the welfare of mankind. By caring and sharing, one’s human dignity gets elevated, he stressed. Gandhiji was inspired by the dictum of Ishavasyopanishad and he was convinced that wealth in the hands of a few was unjust. In other words, this concept is based on the Law of Non- pos-

session87. This study feels that this simple model has a universal

message. Gandhiji’s much cherished symbol, the Spinning Wheel (Charkha), aptly represents his vision and sustainable

model of development. No doubt, this wheel is for the weal of humanity, upholding the dignity of labour. The strong wooden base of the Spinning Wheel denotes the well structured society

without which no development is possible. The giant wheel represents life, full of dynamism. The pole- stands that hold the wheel and facilitate its rotation are to connote two basic human values, Sathya (Truth) and Santhi (Peace).The handle that propels the wheel is the chosen activity, properly planned and executed. The axis of the wheel affi rms that Dharma (righteousness) is the basis of all purusharthas (the aims of life, according to the ancients of India) and the spokes of the wheel indicate togetherness (collaboration and co-operation needed for the promotion of high quality of life). The activating thread connecting the wheel and the spindle represents the force of love, revealed through the sense of belonging. The groove on which the thread runs, symbolizes non- violence. The spindle in Charkha exhibits simple living and high thinking. The yarn produced is the out come of all the efforts undertaken i.e., welfare of society.

Gandhian Model of Susutainable Development and Forest Management in IndiaGandhiji felt that his mission was not merely securing freedom for India, but more to ensure equal rights for every one88. He considered himself as a humble servant of humanity89. His concept of Swaraja was born out of him with the objective of uplifting the downtrodden. His concern for the forest tribes was special which fructifi ed into the establishment of All India

Adim Jati Seva Sangh at the fi rst instance and several organiza-tions under the stewardship of Thakkar Bappa to work for the benefi t of forest communities90 with the support of thousands of volunteers later. Many NGOs too were inspired and joined in this venture. Later, Kadhi and Village Industries (KVI)

took a leading part in establishing the link between tribal and urban communities for a mutual support. When the Kadhi and Village Industries Commission (KVIC) were established in 1961, many programmes were charted out for the uplift of forest- dwellers. The National Forest Policy- 1988 initiated the JFMP which is controlled and regulated by MEF.

How does the Gandhian Model work as a theoretical base for the sustainable forest management?• JFMP is a joint venture between the government and forest

communities. Trust and co-operation must guide them for better results. The leader of the programme must be trained to be selfl ess and committed to the welfare of the community.

• Government might be the owner of the forest wealth. But, it must act as a facilitator in the case of the functioning of JFMP.

• Each one in this programme must be trained in the Gan-dhian principles and live harmoniously.

• Village reconstruction works must be undertaken by the forest offi cials and each forest village must be self- con-tained and self- suffi cient.

• Village Swaraj concept must be made a reality and self governance must give confi dence and support to remove the bottlenecks of any kind in the path of development of forest community.

• If these communities are strong in their values, externalities and shock variables dare not to enter and dissuade their faith and misguide them.

• These communities can be trained in modern techniques and modes of production; but, they should see that none is unemployed.

• It is suggested that these communities could have their own co-operatives for marketing so that the link with the consumers be direct and the income earned would be relatively larger.

• Any project accepted by the community must go with their lifestyle and functioning of the community. The independ-ence or the identity of these communities need not be sacrifi ced at any cost.

• There must be a legal sanction of this model for JFMP to gain value among the forest communities to come forward and organize themselves for their benefi t and growth.

• It will be highly desirable if the Centre could design this programme, implement and monitor it for the sake of uniformity.



• Any support from external agencies could be properly weighed and canalized for effective results.

ConclusionThe attempt made in this paper is to show that new vistas can be opened if one thinks of a remedy for the maladies of forest management. There might have been some diffi culties encoun-tered when someone attempted this model in a community. It is not due to the defi ciencies in the model. It is certainly due to the defi ciencies in the understanding and implementation of this model. One cannot ignore the success of the Operation

Flood programme in this country which is based on this model. To be precise, each one in this programme must think that he/ she is a Gandhi and implements it with faith. Old habits die hard. If these communities are grooved in certain unhealthy tradition and approach, it would take some time to get rid of them and get convinced about this model and accept it for their benefi t. Above all, this model took birth in this soil and prac-ticed. There is no way for this model to be unsuccessful and misleading at any time. It is up to the stakeholders to see that this is workable, contributive, benefi ciary and elevating.

End-notes and Additional Thinking1 Ramprasad Sengupta, (2002), Ecology and Economics: An

Approach to Sustainable Development, Oxford, New Delhi, p. 157.

2 B.C. Field, (2001), Natural Resource Economics- An

Introduction, McGraw Hill, New York, p. 222.3 It is estimated that approximately 60 million indigenous

people are almost wholly dependent on forests in the world. See, CBD, (2010), Sustainable Forest Management:

Biodiversity and Livelihoods, IUCN, Montrea, p. 3. 4 Everyday at least 80,000 acres of forest vanish from Earth.

See, www.articleonramp.com, site visited on January 27th, 2010.

5 In 20th Century alone, nearly two million species became extinct. See,en.wikipedia.org/wiki/Holocene_extinction, site visited on January 27th, 2010.

6 See, timesofi ndia.indiatimes.com dated December 1st, 2009, site visited on January 27th, 2010.

7 This happens to be the desirable norm of FAO too, quoted in K.T.Acharya, (1985), Integrating Forestry with Human

Needs, Institute of Rural Management, Anand,p. 2.8 FSI, (2003), State of Forest Report-2003, Forest Survey of

India, p. 13.9 Peter Csoka,(2008), International Symposium on Sustain-

able Forest Management, UNFF Secretariat, Beijing, p.2.10 Subhabrata Palit,(2006), Sustainable Management of

Forest, in Chandreyee Das and Dipankar Ghosh, (ed.), (2006), Eye on Development, Sampark, Kolkata, p. 144.

11 See, http://www.un.org/millennium/declaration/ares552e.htm Site visited on February 9th, 2010.

12 See, Ahuja Chopra and Shivanji Sharma, (2008), Forest

Management in India, Legal Service India.com, Site visited on February 9th, 2010.

13 See,Tajbar S. Rawat, B.L. Menaria ,D. Dugaya and P.C. Kotwal, (2008), Sustainable Forest Management in India, Current Science, Vol. 94, No. 8, April 25th, 2008.

14 Michael P. Todaro, (2000), Economic Development, 7ed. Addision- Wesley, Delhi, p. 766.

15 Arjun Das, (1986), Economic Philosophy of Ancient India, Agam Kala Prakashan, Delhi, p.30.

16 B. M. Kumar, (2008), Forestry in Ancient India: Some

Literary Evidences on Productive and Protective Aspects, Asian Agri- History, Vol. 12, No. 4, p.299.

17 R. Prime, (2002), Vedic Ecology: Practical Wisdom For

Surviving the 21st Century, Mandala Publishing Group, Novata, California, USA., p.157.

18 D.N. Pandey, (1998), Ethno-forestry: Local Knowledge for

Sustainable Forestry and Livelihood Security, Himansu/ AFN, New Delhi, p. 91.

19 See, http://www.cs.colostate.edu20 This practice had its beginning even during the Indus- Val-

ley civilization (3000- 1700 BC).See, B. M.Kumar, (2008), op.cit., p.304.

21 See, Mahaupanisad, Chapter 6, verse 72.22 R.P. Kangle, (1986), The Kautiliya Arthasastra, Motilal

Banarsidass, Delhi, p.59.23 See, M.B. Chande, (2004), Kautilyan Arthasastra, Atlan-

tic, New Delhi,p. 5.24 Arthsastra, 2.2.5.25 ibid., 2.1.39, 2.2.4, and 2.2.5.26 ibid. 2.4.1.27 Ibid., 2.36.15 and 4.3.8.28 ibid., 4.10.4 and 5.29 ibid., 4.3.6 and 7.30 See, G.Bhalachandran, (2004), Ancient Indian Model of

Sustainable Development, Proceedings of the All India



Economics Conference of Indian Economic Association, Varanasi. (Unpublished)

31 See, R.P. Kangle, (1986), op.cit., p.69. 32 See, G.Bhalachandran, (2011), Kautilya’s Model of

Sustainable Development, Humanomics, Vol. 27: 2 (Accepted for publication)

33 R.M.Singhal , Sudhir Kumar and V Jheera, (2003), Foresta

and Forest Research in India, Tropical Ecology, 44(1): p.57.34 See, Forest Survey of India and Ministry of Environment

and Forest, India State of Forest Report-2009, Govern-ment of India,

35 Sushil Saigal, (2001), Joint Forest Management: A Decade

and Beyond, www.rupfor.org , Site visited on February 1st, 2010.

36 ibid., p.8.37 See, fi ncomindia.nic.in site visited on February 13th, 2010.38 In India, 70 per cent of rural and 50 per cent of urban

population use fi re-wood as fuel. In other words, 40 per cent of energy requirements in India are met ny forests. For this purpose, 131 mmt of wood is cut from forests. See, Sushil Saigal, (2001), p.2

39 (a) Many landless families and marginal farmers around forests depend on forests for their sustenance. See, M.Ahmed, (1997), In Depth Country Study –India. Asia – Pa-cifi c Forestry Sector Outlook Study. Working paper No. APFSOS/WP.26.Food and Agriculture Organization of the United Nations (FAO). Rome/ Bangkok, October 1997.

(b) As per an estimate made in West Bengal, an average income of Rs. 2270/- per ha in a year from NWFPs could be earned. See, R.M.Singhal , Sudhir Kumar and V Jheera, (2003), p. 57.

40 India has the world’s largest livestock population of 1.3 b, according to the 18th Livestock Census- 2009, of which 25 per cent depend on forest for fodder and grazing. See, en.wikipedia.org Site visited on February 13th, 2010.

41 The herbal medicines prepared and used in India are from 8200 species of medicinal plants from forests.See, R.M.Singhal , Sudhir Kumar and V Jheera, (2003), p. 59.

42 R.M.Singhal , Sudhir Kumar and V Jheera, (2003), p.58.43 In the Asia- Pacifi c region, community based forest

management programme is widely practiced. See,Ram Prasad, Forest Management, Extension Digest, www.

manage.gov.in p.1 Site visited on January 28th, 2010. 44 These communities prefer to call themselves by specifi c

names to create an identity for each one of them. See, Sushil Saigal, (2001), op.cit.

45 The area covered under JFM can be compared with that of under National Parks and Sanctuaries (15.60 mh). See, Sushil Saigal, (2002), Regenerating India’s Forests, The Deccan Herald, dated March 26th, 2002.

46 N.H. Ravindranath and P. Sudha (ed.), (2004), Joint Forest

Management in India: Spread, Performance and Impact, University Press, quoted by Subhabrata Palit, (2006), Sustainable Management of Forests, in Chandreyee Das and Dipankar Ghosh, (ed.) (2006), Eye on Development, Sampark, Kolkata, p. 144.

47 See, Ram Prasad, Forest Management, Extension Digest, www.manage.gov.in p.3. Site visited on January 28th, 2010.

48 For instance, in Andhra Pradesh, 20987 training camps were organized in two decades period. See, S.D. Mukher-jee, (2001), Status of JFM in Andhra Pradesh. Draft paper prepared for a book on Joint Forest Management by Commonwealth Forestry Association (India Chapter) in collaboration with Winrock International India and Ford Foundation, New Delhi.

49 See,A. Ghose, (2001), ibid.50 See, S.D. Mukherjee, (2001), ibid.51 In Gujarat, the Nisana village has registered an increase in

milk production from 40000 litres to two lakhs litres. See, P.Khanna, and J.Prasad, (2001), ibid.

52 See, Sushil Saigal, (2001), op.cit., p.6. 53 See, Samatha and CRYNet. (2001), Joint Forest Management

- A Critique Based on People's Perspectives, (Unpublished).54 In the seven north-eastern states, only about 45 % of the

recorded forest area is under government control and rest is controlled by different community institutions. See, J.P.Yadav, (2001), Status of JFM in North-East India, Draft paper prepared for a book on Joint Forest Manage-ment by Commonwealth Forestry Association (India Chapter) in collaboration with Winrock International India and Ford Foundation, New Delhi.

55 See, Ecotech Services, (2000), Study on Management of

Community Funds and Local Institutions. New Delhi: Ecotech Services (Mimeo.).

56 In Andhra Pradesh, the Government allowed 50 per cent share NTFCs revenue since 1999 and it really enhanced the revenue of the forest communities. See, S.D. Mukher-jee, (2001), ibid.



57 See, Ahuja Chopra and Shivanji Sharma, (2008), op.cit.58 See, S. Saigal, H.Arora, and S.S. Rizvi. (2001), Forestry

Beyond Bureaucracy: Role of Private Enterprise in the

Indian Forestry Sector, International Institute for Environ-ment and Development and Ecotech Services, London.

59 See, S.D. Mukherjee,( 2001), op.cit.60 See, V.V. Bhanoji Rao, (2001), East Asian Economies: The

Miracle, A Crisis and the Future, McGraw Hill, Singapore, pp.131-135.

61 See, Rajni Bala Sharma, (1998), Gandhi’s World View and

Industrial civilization, Printwell, Jaipur, pp. 1-24.62 See, Pyarelal, (1965), Mahatma Gandhi: The Last Phase,

Navajivan Publication House, Ahmedabad, Vol. I, Book-I, p.182.

63 Amritananda Das, (1979), Foundations of Gandhian

Economics, Allied Publishers (P) ltd., New Delhi, p.4864 M.K. Gandhi, The Harijan, Dated February 23rd, 194765 M.K. Gandhi, Young India, October 7th, 1926.66 See, J. E. Stiglitz, (2002), Making Globalization Work,

Amazon.com67 Hiten Bhaya, (2006), Sustainable Development and the

Indian Perspective, in Chandrayee Das and Dipanker Ghosh, (ed.), op. cit., p.6.

68 A.J. Patel, (ed.), (1997), M.K. Gandhi’s Hind Swaraj and

other writings, Cambridge University Press, London, p. 157.69 See, M.K. Gandhi,(1939), Hind Swaraj or Indian Home

Rule, Navajivan Publication House, Ahmedabad, 70 See, Gopalakrishna Gokhale, (1916), Speeches of

Gopalakrishna Gokhale, Natesan and co., Madras, p.1213.71 Annie Besant, (1915), Self- Government in India, Theo-

sophical Society Publishing House, Madras, p. 7.72 (a) Gandhiji asserts that the universe would disappear

without the existence of this force. See, M. K. Gandhi, Hind Swaraj, op.cit., p. 77.

(b) Bhagawan Sri Sathya Sai Baba of Puttaparthi elabo-rates the concept of Love further:

Love as speech is Truth; Love as action is Dharma; Love as thought is Peace; Love as understanding is Non-violence. See, Sri Sathya Sai News Letter, Summer, 1994, p.34.73 A. J. Patel, (ed.), (1997), op.cit., p.157.74 S. K. Lal, (1981), Gandhiji and Village, Agricole Publish-

ing Academy, New Delhi, p. 49.

75 See, Ramjee Singh, (1988), Gandhi and the Modern World, Classical Publishing Co., p.155.

76 Quoted in G.M.Bhat and Shabir Ahmad Padder, (2007), Economics of Mahatma Gandhi: Challenges and Develop-

ment, The Indian Economic Association- 90th Conference, Vol. I, p. 220.

77 M. K. Gandhi, Young India, Dated October 15th, 1931.78 M. K. Gandhi, Young India, Dated November 3rd, 1921.79 T.K.N. Unnithan, quoted in Sachinandan Sau, (2007),

Gandhian View of Sustainable Development: Some Issues, The Indian Economic Association- 90th Conference, Vol. I, p. 172.

80 B. M. Sanyal, (2006), Sustainable Development: Certain

Critical Observation, in Chandreyee Das Dipankar Ghosh (ed.), op. cit., p.89.

81 To draw a parallel, Bhagawan Sri Sathya Sai Baba of Puttaparthi too advocates ceiling on desires as the remedy for the ills of modern economic problems. See,

http://www.saibaba.ws/teachings/ceilingondesires.htm Site visited on February 19th, 2010.82 See, Homo Oeconomicus, www.wikipedia.org , Site visited

on February 19th, 2010.83 B.G. Gokhale, (1961), Indian Thought Throughout the

Ages, Asia Publishing House, Bombay, p. 72.84 Amritananda Das, (1979), p.49.85 Gandhiji believed in harmony between small and big. See,

M. K Gandhi, The Harijan, Dated August 27th, 1930.86 M. Maharajan, (1998), Economic thought of Mahatma

Gandhi, Discovery Publishing House, New Delhi, p. 62.87 See, Y Kesavulu, Gandhian Trusteeship as an Instrument

of Human Dignity, http://www.mkgandhi- sarvodaya.org/

articles/trusteeship.htm Site visited on February 19th, 2010.88 See, U. S. Mohan Rao, (1968), The Message of Mahatma

Ganghi, Publication Division, Ministry of Information and Broadcasting, New Delhi, pp.125-127.

89 K.P. Saksena, (1981), Gandhi and International concern

with Human Rights, in K.P. Misra and S.C. Gangal, (ed.), Gandhi and the Contemporary World: Studies Peace and

War, Chanakya Publications, Delhi, p. 153.90 Y.A. Panditrao, (1992), Gandhian Approach to Economic

Development, Himalaya Publishing House, Delhi, p. 122.



Problems and Solutions of Shortage of Physicians in the USA and its Impact on Developing Countries

Shamim Mohammad(International Ford Fellow)Member, Managing Committee,Samajik Seva Vikas Sansatha


Overview of the Problem:Health workers are all people whose main activities are aimed at enhancing health (WHO, 2006). They include the people who are directly or indirectly involved in rendering health services such as doctors, nurses, pharmacists, laboratory technicians, management and support workers. According to the World Health Report (2006) there are 59.8 million health workers worldwide. About two-thirds of them (39.5 million) provide health services; the other one-third (19.8 million) are management and support workers. They are responsible for prevention and treatment of diseases and advances in health care globally. There are fi fty-seven countries, most of them in Africa and Asia continents, which are facing a severe health workforce crisis. The global profi le presented below in the Table I shows that there are more than 59 million health work-ers in the world, distributed unequally between and within countries. They are found predominantly in richer areas where health needs are less severe. Their numbers remain woefully insuffi cient to meet health needs, with the total shortage being in the order of 4.3 million workers worldwide. It is a challenging impediment in the way of achieving public health priorities such as reducing child and maternal mortal-ity, increasing vaccine coverage, and battling epidemics such as HIV/AIDS. Bridget, M.K. (2007). The world is facing a serious health workforce shortage and without prompt action, the shortage will worsen.

Though, Table I demonstarte that the American region has the highest concentration of health workers, which is 24.8 per thousand residents whereas the rest of the world has only 9.3 per thousand residents. Despite this, USA is experiencing a severe shortage of physicians in critical areas, which has been widely documented and is expected to last through 2050

A N E C O N O M I C D I A G N O S I S

WHO Region Number (In Millions)

Density (Per 1000 Population)

Africa 1.6 2.3

Eastern Mediterranean 2.1 4.0

South East Asia 7.0 4.3

Western Pacifi c 10.1 5.8

Europe 16.6 18.9

Americas 21.7 24.8

World 59.2 9.3

Table I : Global Health Workforce, by Density

Source: World Health Report (2006)

H E A L T H E C O N O M I C S


Sl.No. Doctors per 1000 Residents Nos. of State

1 Below 2 8

2 2-3 35

3 3-4 6

4 Above 4 1

Table II: Doctors per Thousand Residents

(NRHA, 2003). Merritt, Hawkins & Associates (2004) reported that there is a growing demand for health profes-sionals in the United States in the face of stagnant supply. It is estimated that the United States could be short of 808,000 nurses and 85,000 to 200,000 physicians by 2020.

Health Professional Shortage Areas (HPSAs):Sensing the shortage of Physicians, USA had created the Health Professional Shortage Areas (HPSAs) in 1978, with a purpose to identify areas and populations that needed physicians the most than other areas. It is used by a number of Federal programs to make decisions about fi nancial and manpower support to the needy states. It has an in-built rationing system in it. This program is administered by the, Health Resources and Services Admin-istration (HRSA). Its role is to desig-nate HPSAs based on the ratio of population, to the number of primary-care physicians and other factors, such as the area's infant mortality rate, the percentage of the population below the poverty level, or the area's birth rate. HRSA then gives each HPSA a score based on specifi c criteria that ranks shortage of primary-care providers or other needs, relative to other HPSAs. Each HPSA is ranked from 0-25. A low score can disqualify an HPSA for certain Federal aid programs.

A report on the status of offi cially designated Health Professional Shortage Areas (2006) from the Government Accountability Offi ce provides some basic fi gures on the shortage throughout the United States, of primary-care physicians. Looking at the defi cit for geographic areas and population groups, 831 counties were designated as HPSAs, while another 815 consisted of service areas within counties.

There is no state that does not have some HPSA designation. The GAO estimates concluded that 6,941 additional full-time primary-care physicians are needed to achieve ratios that would eliminate HPSA designations; this is based on a ratio of one physician for every 3,500 people in a geographic area, and 1:3,000 persons in a population group.

USA Today (2005) reported the distribution of the physi-cians by density in the USA, which is depicted in Table II, shows that there are eight states having less than two doctors per thousand residents whereas 35 states have 2-3, six states have 3-4, and only one state has more than four doctors per thousand residents. These fi ndings indicate that physicians

tend to concentrate in urban areas and there is problem for the rural American in accessing health services. There is shortage of physicians as well as mal-distribution to provide needed health services in rural areas. This problem is especially serious in remote frontier communities, many of which are located in the Western region of the United States of America (NRHA, 2003).

Shortage of Physicians in Critical Areas:The recent workforce studies indicate that the United States of America already faces current and future shortages in many specialties. The studies cited below explore the extent and critical areas of shortages such as Psychiatry, Immunology, Pulmonology, Cardiology, Dermatology, Endocrinology, Geriatrics, Genetics, Neurology, Neurosurgery, and Pediatrics.

The Center for Health Workforce Study located in Albany in 2000 concluded that within 10 years, there will be a shortage of allergist/immunologists. The supply of new physicians will not be able to keep pace with the current retirement rate of practicing allergists and immunologists as demand is rising very fast. The American College of Cardiol-ogy in (2004), reported that the USA is facing a serious shortage of cardiologists. It is estimated that by 2020, there will be a 20% decrease in the age-adjusted supply of cardiolo-gists at the same time, there will be a substantial increase in the incidence and prevalence of cardiovascular diseases due to the aging of population, the epidemic of obesity and, diabetes.

The Department of Health and Human Services (1990) Source: USA Today (2005)

United States could be short

of 808,000 nurses and 85,000 to 200,000

physicians by the year 2020



Geographical Location IMG USMG

Large Rural 69.6% 62.4%

Small Rural 80% 70.6%

Isolated Small Rural 84% 73.4%

Table III: Who is Located Where?

concluded that the nation should have over 30,000 child psychiatrists but there are less than 7,000 currently practicing. Further, a similar study published in 2003 revealed that the actual growth and supply of child and adolescent psychiatrists has been very slow. The Committee on Manpower for Pulmo-nary and Critical Care Societies (2004) stated that there will be increased demand for intensivists and pulmonologists due to the aging of the population while the supply of these specialists will remain near constant. This will result in a shortfall of specialists by 35% by 2030. The CHEST (2004) predicted that the shortage will become severe as early as 2007. This shortage is expected to worsen as hospitals move to increase the use of intensivists as recommended by the Leapfrog Group.

The Journal of the American Acad-emy of Dermatology (2004) indicated that there is an inadequate supply of dermatologists to meet the current demand. The Journal of Clinical Endocrinology & Metabolism (2003) reported that the supply of newly trained endocrinologists will not be suffi cient to offset retirements and future increases in demand. As it stands, current demand exceeds supply by 15% and the aging of the population compounded with physician retirements will exacerbate the situation. A report from the American Geriatrics Society (2004) suggested a “severe and worsening shortage.” There are only 7,000 practicing geriatricians with around 65% unmet needs. The Alliance for Aging Research estimated that another 14,000 geriatricians are needed to adequately care for the existing elderly population.

The Banbury Summit Meeting on Training of Physicians in Medical Genetics (2004) stated that “the medical genetics workforce situation is critical.” The scope of practice for geneticists has increased manifolds. They are not only treating rare pediatric disorders but also common health problems such as cancer and a number of neurological and cardiovascular disorders. According to a study published in the February 2005 in an issue of the Journal of Neurosurgery, the nation is encountering a severe decline in the number of active neurosurgeons. However, at the same time there has been a signifi cant increase in the demand for neurosurgeons.

The Department of Health and Human Services (2003)

reported the shortage of the pediatricians. It said that children with special needs have problems in accessing to appropriate subspecialty care. As a result, many children with juvenile arthritis and other serious autoimmune conditions are often forced to seek care from adult specialists because of a lack of adequately trained pediatric providers. Further, a study published in (2003) revealed that the current psychiatric workforce supply trends indicate that the present supply of Psychiatrists is not enough to keep up with the rate of growth of demand. Furthermore, a workforce report published in American Journal of Roentgenology in (2002) found out that the demand for radiologists over the next three decades will

be diffi cult to meet.

International Physicians Alone will not Solve the Problem: There is overwhelming empirical evidence which indicate that there will be a shortage of 90,000 to 200,000 physicians by 2020. The average wait times for medical specialties are likely to increase dramatically beyond the current range of two to fi ve weeks.

Various factors, including the demise of managed care, the aging of the population, changing practice patterns, increas-ing regulation and paperwork are some of the reasons for the impending shortage. Many American believes that the present healthcare system is poorly distributed, offers little protection to patients, to support long term health manage-ment, and it is expensive to the point of inaccessibility for many Americans. Moreover, at the moment it provides inconsistent and fragmented care.

The sustainable solutions to this problem have to emerge from within, but the U.S. is relying more and more on Inter-national Medical Graduates as its generalist physician providers, especially in designated underserved areas (L.

Source: Health Affairs (2007)

Empirical evidence indicates that there will be a

deficit of 90,000 to 200,000

physicians by the year 2020

H E A L T H E C O N O M I C S


Gary H.L., et al., 2001). After the terrorist attacks of Septem-ber 2001, the visa and immigration rules were made more stringent, and it has now become more diffi cult for many foreigners to enter and work in the country. If the number of IMGs eligible to work in the U.S. in future years is reduced because of these restrictions, access to primary care may be further limited for underserved populations of the country. However, in the present health care system IMGs are playing a great role in delivering health services in the underserved areas. Since World War II America's physician workforce has been signifi cantly infused with foreign-trained international medical graduates (IMGs) (Hagopian A.,2008).

Presently, approximately 180,000 IMGs are practicing in the USA. Majority of IMGs working in the United States come from seven countries: 32,822 (20.3 percent) from India, 17,357 (10.7 percent) from the Philippines, 10,049 (6.2 per-cent) from Mexico, 7,310 (4.5 percent) from Pakistan, 5,311 (3.3 percent) from China, and 4,300 (2.7 percent) from the Republic of Korea. India and Philippines have remained the largest contributors since 1981, but the rankings of other countries have changed (Gary, L.H., et al., 1981).

Table III, shows that the most of the International Physi-cians are placed in large, small, and isolated small rural areas whereas the US physicians are placed signifi cantly less in numbers in remote and rural areas. Under the Conrad Program, IMGs are granted waivers of a visa rule, in return of a commitment to practice at least three years in a HRAs. This J-1 visa waiver allows foreign-born, nonimmigrant physicians

on exchange visas to remain in the United States during a period of obligated service employment; many subsequently apply for permanent residency status. As of February 2002 forty-one states and the District of Columbia were participat-ing in this program. This program allows each jurisdiction to recommend up to twenty physicians for J-1 visa waivers each year. Hagopian A., (2006)

According to a survey conducted under Conrad Program in 2002, mentioned above in Table IV shows that 43% Interna-tional Physicians were practicing Internal Medicine, 13% were involved in Family practice, and 11% Psychiatry, 10% Pediatrics, two percent Obstetrics, two percent Surgery, and 19% were from other specialty. These fi ndings reveal that shortage in critical areas such as Immunology, Pulmonology, Cardiology, Dermatology, Endocrinology, Geriatrics, Genet-ics, Neurology, and Neurosurgery will remain unmet as long a sustainable solution is not found.

Proposed SolutionsThe situation warrants a multipronged and urgent response. Several areas of the USA and several medical specialties are already reporting shortages. The number of elderly Ameri-cans is growing far more rapidly than supply of physicians and the large Baby Boom generation will begin to reach age 70 in 2015. This will burden the health care system further. The physician workforce is also aging: In 2003, 205,000 doctors, 29% of all active US physicians were over 55 and Physician migration from poor countries to the USA has slowed down due to rigid visa policies. Moreover, migration trends of International Physicians suggest that the shortage in critical areas will remain unchanged. Furthermore, how ethically correct it is to poach physicians from poor countries as it contributes to worldwide health workforce imbalances that may be detrimental to the health systems of source countries (Hagopian A. et al., (2008)). In addition to that there is empirical evidence which suggest that younger physicians are choosing to work shorter hours than their predecessors.

There is a need to relook into policies which warrant reforms, how J-1 visa waiver and immigration policy reforms may increase the numbers of International Physicians. How school enrollment can be increased in Medical Science Studies? In addition to that more funding to increase physi-cian residency positions and specialty mix, and the National Health Service Corps numbers can be considered. The other

Specialty Per-cent

Country of Origin

Per-cent

Type of Facility Percent

Internal medicine

43% India 25% Private practice/clinic

45%

Family practice

13 Pakistán 19 FQHC/CHC 18

Psychiatry 11 Philip-pines

14 Rural hospital 10

Pediatrics 10 Lebanon 5 State facility 6

Obstetrics 2 Syria 5 Local health department

2

Surgery 2 Colombia 4 Other 13

Other 19 Romania 4

Table IV: J-1 Visa Waiver Physicians Placed Through the Conrad Program, By Specialty

Source: Health Affairs (2008)



programs affecting physicians supply should also be relooked into (Gary, H.L., 2001).

The Association of American Medical Colleges recently recommended that US medical colleges increase their output of new doctors by 15% over the next 10 years, and that residency programs increase the number of training slots available for new graduates. If medical colleges start imple-menting this recommendation of AAMC, USA will be able to produce about 2500 more MDs a year by 2015 than the 16,000 produced currently.

Are these numbers adequate? A lot will depend on what happens to the American healthcare system in time to come. If some forms of severe managed care restriction on use of physician services are brought into effect, supply could overshoot the mark. But, if fewer international physicians enter the American health workforce, it may still need even more of its own physicians to meet the country's needs. These trends need to be monitored closely so that additional adjust-ment can be made as per requirements (Jordan J. C., 2005).

The Critical Care Workforce Partnership (2006) proposed solutions to alleviate the current and future burden imposed by the critical care workforce shortage. It suggested that this problem can be resolved through legislative and regulatory changes. Among the solutions, the Partnership recommended specifi c steps to increase the effi ciency of the current critical care workforce, increase the future supply of critical care professionals, and address the patient demand for critical care services. The challenge for meeting the future demand is to clearly communicate with policymakers, educators, medical students, and the medical community the importance of a well-trained, adequately equipped, and equitably distributed family physician workforce for America. AAFP, (2007).

References and Additional Readings• American Academy of Family Physicians. (2007). Match Summary and Analysis. Retrieved February 28th,

2008, from http://www.aafp.org/online/en/home/residents/

match/summary.html

• Center for Workforce Studies, Association of American Medical Colleges. (2006). Recent Studies and Reports on Physician Shortages in the US. Retrieved March 1st, 2008, from http://www.aamc.org/workforce/rcntwrkfce.pdf

• Cohen, J. J. (2005). Help wanted: More doctors for the

United States. Retrieved February 15th, 2008, from

http://www.medscape.com/viewarticle/506845

• Cauchon, D. (2005). Medical miscalculation creates doctor shortage. Retrieved February 15th, 2008, from

http://www.usatoday.com/news/health/2005-03-02-doctor-

shortage_x.htm

• Hart, L. G., Skillman, S. M., Fordyce, M., & Thompson, M. (2007). International Medical Graduate Physicians In

The United States: Changes Since 1981. HEALTH AF FA I R S, 26(4), 1159-1168.

• Hagopian, A. D., Thompson, M. J., Fordyce, M., & Johnson, K. E. (2004). The migration of physicians from

sub-Saharan Africa to the United States of America:

Measures of the African brain drain. Human Resources

for Health, 2(17).• Hagopian, A., Thompson, M. J., & Kaltenbac, E. (2008).

Health Departments’ Use Of International Medical

Graduates In Physician Shortage Areas. Retrieved February 20th, 2008, from http://content.healthaffairs.org/

cgi/reprint/22/5/241

• Hagopian , A., & Friedman, E. (2006). Ethical Restric-

tions on International Recruitment of Health Profession-

als to the U.S. Retrieved March 2nd, 2008, from http://www.apha.org/programs/globalhealth/section/advo-

cacy/globalihtest2.htm

• Kuehn, B. M. (2007). Global Shortage of Health Workers,

Brain Drain Stress Developing Countries. JAMA, 298(16), 1853-1855.

• The Critical Care Workforce Partnership. (2006). Recom-

mended Solutions to Critical Care Workforce Shortage:

Stemming a Crisis. Retrieved February 19th, 2008, from http://www.chestnet.org/downloads/practice/gr/HRSABack-

grounder.pdf

• National Rural Health Association. (2003). Health Care

Workforce Distribution and Shortage Issues in Rural

America. Retrieved February 11th, 2008, from http://www.nrharural.org/advocacy/sub/policybriefs/Work-

forceBrief.pdf

• World Health Organization. (2006). The World Health Report 2006. Retrieved February 25th, 2008, from

http://www.who.int/globalatlas/default.asp


reflect the offi cial policy or position of the organization. He is

reachable at this email id: [email protected])

I N T E R N A T I O N A L E C O N O M I C S


GLOBAL ECONOMIC UNCERTAINTIES: ESSENTIAL COORDINATED GOVERNANCE

C H A N G E F O R G O O D


K. U. Mada Economist & Management Specialist and former Executive Director, I.D.B.I.

The recent global meltdown has brought into sharper focus the embedded threats to the world economy. The political, geopolitical, social, economic and

fi nancial issues infl uence, and be infl uenced, by economic and fi nancial affairs. “There are a number of key unknowns, but one of the most vexing is political uncertainty”, says Smick.1 With risks ingrained in coalition governments in power in nations like India, Pakistan, Germany and France, the reconciliation of competing and confl icting views tends to be more complex and tardy. Also, globalization generates uncertainties. Themes of anti-globalisation have gained support with rising discontents among people2. In globalised economy, economic affairs often go beyond national frontiers. As Robert Kagan underlines, “the new geopolitics runs along an arc from North-east Asia through the South-east and into Central Asia, where the interests and ambitions of China, Japan, India, Russia, and the

United States all overlap and collide.”3 All this adds to greater uncertainties.

Hence, governments and markets have, perforce, deter-

mined their own space in different economies.

Government and Market ParticipantsIn capitalism, government is sovereign but the community

at large and non-governmental organizations are the movers and shakers. They establish relationships

based on individual freedom and security, creating opportunities for citizens to grow to their poten-tial. Traditionally, market economies had three

ingredients viz. prices, private property, and profi ts; fi rms which operate therein aim at achieving

least-cost combinations to maximize their profi ts. As Paul Krugman says, “effi cient markets have been very

hard to kill”.4 However, when faith in self-regulating

markets is shaken, government intervention for a temporary period may be required. Adam Smith’s invisible hand guiding the market to effi cient outcome is guided by govern-ment interventions to make the market participants better off. Increased transparency is crucial to decide the timing for government interventions. If operatives in the markets are at fault, intervention by a balancing force is desirable and also unavoidable if information is asymmetric. People have their likes and dislikes, preferences, angularities and profi t motives. Government should, as political supremo, reconcile confl icting views of the parties concerned. The markets are at the centre of the economy and the govern-ment’s role is limited. Depending on socio-economic needs,

it is necessary for “reinventing govern-ment” and “markets” to make them effi cient. Detailed information and transparency lead to enlightened policies.

The role that trust and faith plays in a democracy refl ects in the community organizations or non-governmental organizations (NGOs) which search for consensus on issues of deeper concern. Their function is to have, as Barack Obama says, “some infl uence

on the public debate”.5 In public affairs, individuals by them-selves cannot infl uence policies, except the few who are in vantage points. In view of this, the Non-Governmental Organizations (NGOs) become an integral part of the community. The budgetary supports extended by govern-ments in developing economies do not reach the target benefi ciaries. They are leaked in the delivery process. The poor might be ignorant of their entitlement but could not demand due to their weakness. The cost of delivery mecha-nisms is large due to the structural defi ciencies. NGOs could understand what should work in a specifi c location and how to improve the services by targeting the deserved ones. It has been the experience that states like Kerala were success-ful in setting up appropriate delivery mechanisms whereas

When faith in self-regulating

markets is shaken, government

intervention for a temporary period may be required



Uttar Pradesh could not. Research studies reveal that in Kerala, with better infrastructure facilities, women live longer, infant mortality was lower and births per woman were lower. Over 70 percent of primary school teachers were women. And, there was better awareness of the government facilities. Compared with the position in Kerala, Uttar Pradesh had relatively poor indicators and performance.6 NGOs could play an important role in correcting the missing links. The strengthening of NGOs paves the way for effi cient functioning of market economies.

The government should take action to build institutional framework at national, state and district levels. Also, the legal and regulatory framework should be built/strength-ened to enforce contracts, resolve commercial and social disputes, and settle matters arising from commercial dealings. To make them effective, trained and dedicated local leaders are to be involved in the NGOs. The preventive supervision and regulation over the local institutions could reduce the need for intervention by them to the irreducible minimum. At the same time, the leadership of NGOs should be effectively monitored for they could misuse the privileges and start playing partisan games.

International Trade NegotiationsThanks to the prosperous Dutch Republic and the spread of affl uence in the 17th century, a new dynamic and capitalist society emerged. It generated innovations in fi nance, technology, marketing and communications. This develop-ment over 400 years infused the culture of growing world trade and gaining power status.7 In 1776, Adam Smith said in The Wealth of Nations that markets would create surplus-es. Accelerated technological advances have made suppliers to produce an unprecedented array of products and services leading to supply exceeding demand which further accentu-ated the trend towards globalization.

“As trade barriers between nations and regions disman-tled and as information on products and prices became instantly and globally available, niche markets and havens for monopoly continued to disappear”, say Chan Kim and Mauborgne.8 As part of trade negotiations, the General

Agreement on Tariffs and Trade (GATT) succeeded in lowering tariffs. The World Trade Organisation (WTO) provided a forum for trade negotiations. Capitalist econo-mies support free trade but if an exporting country wants to export a commodity, domestic “protectionist interests are galvanized”. This mix of labour and business interests uses “fair trade laws” to construct barbed-wire barriers to imports and makes out a case of “dumping” i.e. selling below cost without substantive evidence and protects itself by levying “dumping duties”.9

The new round of trade negotiations agreed in November 2001 at Doha, Qatar, characterized as the “development round” to open up markets further, to rectify imbalances and to have more open discussion on “poverty”. Despite the high hopes, there was skepticism. The Americans and

Europeans protect agriculture and specifi c industries. As the negotiations would be about the maximum permit-ted (“bound” tariff rates) by global trade rules, the Doha round cannot dramatically change the world’s fortunes. What persists is the use of non-tariff barriers, such as overnight import taxes or surcharges or imposi-tion of time-consuming, expensive and complex quality controls. With strong integration of supply-chains, multilat-

eral negotiations may not be popular. The symbolic signifi -cance of the talks is important inasmuch as their failure bodes ill for future multilateral cooperation. Also, such failure could lead to more of regional and bilateral trade deals. The Doha talks failed because emerging economies like China and India desired to maintain the right to impose “safeguard” tariffs to protect their agriculture and food security. Food self-suffi ciency is socially and politically important for India and China. The developed world makes reference to trade restrictions on the grounds of control of carbon emissions. Arguments in favour of trade marks, economic security and key industries reign supreme. With China and other Asian countries growing, it is argued, there could be a long-term trend of over-capacity in manufactur-ing and in services which could lead to greater shortage of natural resources (copper, iron ore, oil, zinc, etc.).

There is a view that global integration may be causing

The government should take

action to build institutional

framework at national, state and

district levels



The resultant inward-looking

attitude of failed Doha Talks will

be an embedded threat to the

world economy

wage stagnation, widening inequality and greater insecurity. Eminent economists like Alan Blinder and Larry Summers doubt the benefi ts of globalization for the American middle class. Trade restrictions and controls over carbon emissions could be other setbacks. Global talks should concentrate on fears over “security” of food, energy, environment, income and oil production quotas.10 The Doha Talks failed on account of irreconcilable differences in trade, patents, subsidies, professional services and tariffs between the developed and the emerging econo-mies. The resultant inward-looking attitude will be another embedded threat to the world economy.

Reshaping International Institutional ArchitectureThe thinking of shaping the interna-tional institutions began with the Paris Peace Conference in 1918, followed by the London Conference in 1933 to reestablish fi xed parities for a wider range of currencies, the Bretton Woods Conference in 1944, the decision to end of fi xed exchange rates in 1971-73, oil-price shocks in 1973-74 and subsequently by the call for a new Bretton Woods in the 1980s and onwards. The several discussions that followed eventually resulted in the adoption of Multilateral Debt Relief Initiative and the IMF’s Policy Support Instrument in 2005. According to James M. Boughton, IMF historian, on the basis of the developments and crises over these years, there were three lessons. They are: some goals be set but they cannot be fully achieved; if revision of the rules dominates the agenda other issues would not get full attention; and major participants in fi nancial markets could

devise rules for fi nance but they cannot devise rules for trade in commodities, climate change or extreme poverty.11

As a sequel to the World War I, huge reparations pay-ments had to be made by Germany to Great Britain and other allied countries. With hindsight this looked unfair. Taking this cue, the victorious nations after the World War II decided to ensure the reconstruction of the war-devastat-ed nations in the western Europe under the American-spon-sored Marshall Plan. Europe, which had technology and

knowledge of management, rebuilt the economy. The reconstruction of developed countries, it was felt, should be supplemented by development of underdeveloped countries to ensure peace, stability and prosperity. An international conference, convened at Bretton Woods, New Hampshire, San Francisco, in July 1944, had partici-pants from 44 countries. A major outcome of their deliberations was the

setting up of the International Monetary Fund and the Interna-tional Bank for Reconstruction

and Development (IBRD) or The World Bank. The conference

participants had at the back of their mind the great depres-

sion of the 1930s. The IMF was to identify coun-tries with balance of

payments problems, especially “fundamental

disequilibrium” so that ‘collective action at the global

level’ could be taken.12 The World Bank was for assisting industrial, agricultural

and infrastructure projects and for promoting development banking network and development in

underdeveloped economies.13 The IMF, the World

Bank and also the WTO, set up later

in 1991 for trade negotia-



tions, have come to occupy the centre stage in economic and fi nancial affairs.

The World Bank is headed by a representative of the US Government and the IMF, by convention, is by a representa-tive from Europe. The professional staff has been drawn from all over the world. It is felt that the IMF does not seem to fully appreciate the diversity in the socio-economic structures in developing countries. The IMF assistance has rigorous conditionalities. This briefl y means providing funds only if assisted countries could strictly adhere to prescribed policies like reduction in expenditures and defi cits, raising taxes and interest rates, devaluation of currencies, and lowering infl ation. These conditionalities came to be known as “Washington consensus”. These prescriptions led to contraction of the economies of the assisted countries and limited their operational freedom not only in terms of utilizing the assistance provided but also in management of the economies in general.

This situation differed from what John Maynard Keynes had envisaged for adoption of expansionary measures by depressed economies by larger expenditures for increasing consump-tion and undertaking projects. Even the broad-based structural adjustment loans had rigorous built-in condition-alities.14 Apart from prima facie national diversities, such prescriptions require in-depth understanding of the life of people in the assisted countries. Exchanges of experiences were not strong points of interna-tional institutions. Thus, the IMF and the World Bank have had only a mixed success.

It goes without saying that the world, in the six and half decades, has had far-reaching changes. Several countries like Japan, South Korea, and Taiwan have emerged as export-led economies. West Germany became a strong industrialized country. China and India followed their growth paths. The rest of Asia pursued its own strategies to make quantum jumps in economic progress. Known as the Asian tigers, they did well because of business, technological and fi nancial collaborations and the fl ow of foreign direct investments. Oil-producing countries are another major block in the world economy. Africa, however, remains to be

brought into the mainstream of growing world. The organizational structures of the IMF and the World

Bank were designed by the post-World War II powers to satisfy the needs and aspirations of the then victorious nations without giving much thought to possible future developments. An important post-World War II develop-ment was the emergence of a number of independent nations since the colonial rule to which they were subject came to an end. For instance, at the time of its independence, India had a not insignifi cant share of world trade. Compared to France, Germany and the U.K., countries like Japan, India, China, South Korea, Eastern Europe and Brazil have grown relatively fast.

As a matter of immediate recognition of the changed situation, India and some others have been demanding a revision of their SDR shares. There has been no in-built

adjustment mechanism to effect structural changes after 1944. Thus, as of now, there is an absence of accom-modative spirit and effective voice for the emerging economies. This is an obvious lacuna. The set pattern of the “Washington consensus”, infl uenced and nurtured by Wall Street stalwarts-turned politicians, European leaders, and persons without proper grounding in “inclusive”, welfare-based growth perspectives and ways of life, have

been ruling over the global affairs. These institutions have become less and less relevant for the current world economy. Now that the far-reaching changes have taken place world over, the entire international fi nancial architecture need undergo change to be of contemporary relevance. “The international architecture which is six and half decades old requires drastic reorganization”.15 Emerging economies like India and Brazil could contribute signifi cantly to the decision-making process in the fi elds of climate change, global security, food security and economic and fi nancial issues. In this evolving scenario, Brazil, India, and Russia look for occupying their rightful places. In equity and fairness, therefore, there should be changes in quotas of member countries and representations on the boards of directors with appropriately-designed and consensus-based organizational and policy changes. Incidentally, the signing

The signing of SAFTA is a

precursor to the gradual process of Asian integration

towards a common currency



of SAFTA is a precursor to the gradual process of Asian integration towards a common currency on the lines of the European Union.

The G-20 leaders who met in November 2008 and April 2009 agreed to impose stronger restraints on hedge funds, credit rating companies, and executive remunerations. Also, they agreed to establish a new Financial Stability Fund to unite regulators and join the IMF in providing early warn-ings of potential threats. The summit increased IMF rescue funds to $ 750 billion from $ 250 billion. Japan, European Union and China will provide the fi rst $ 250 billion. As the G-20 leaders encouraged the IMF and the World Bank, they should reorganize these institutions to make them more representative of the composition of the G-20 and the rest of the nations. Such global coordinated actions should be set on a long-term basis and on an even keel.

The diverse viewpoints for national sovereignty and global capital markets limit the room for an overhaul. No country is agreeable to cede sovereign-ty to a global regulator. Dr. Dan Rodrik (Harvard) is opposed to having any international supervision while Gordon Brown (U.K.) had a proposal to have a “college of supervisors” to oversee the biggest fi nancial fi rms. Despite the recent excesses in the banking fi eld, Dr. Rodrik is not convinced of the need for international control.16 In a recent interview, Paul Krugman says, we “need to have something like traditional bank regulation extended to any fi nancial product if it is capable of generating a crisis”17.

Signifi cance of U.S. RoleThe USA being the dominant country could be a moderator as well as a source of threats. As other economies grow there would be dynamic changes. The USA, the western parts of the European Union and to some extent Australia attract immi-grants from the rest of the world. Immigration takes place because of employment opportunities, educational facilities and better ways of life in the prosperous regions. Viewed from the immigrant-receiving nations, the immigrants should contribute and make positive contributions to their economies and cultural settings. The receiving countries should publicize

their expectations from the immigrants so that the latter could prepare themselves to cope with them. If the receiving countries refuse to accept immigrants, it would be a retro-grade step for the processes of world integration and the balancing of global economic resources. Similarly, the USA might set up investment barriers to foreign ownership of U.S. assets. This could provoke other countries to take retaliatory measures with the result that transfer of technology and fl ow of human resources and capital would be hampered to the detriment of global welfare. Further, if the Doha Talks fail, emerging markets might not respect patents or guaranteed payments on anything considered “public good” (pharmaceu-ticals, water treatment facilities, etc.) and the USA might retaliate. This will result in trade melt down. Another possi-bility could be that the developed world might restrict cross-border movement of intellectual property and also ban

intellectuals, scientists, and students, seeking best possible intellectual environment to pursue their research projects. This will restrict freedom of thinking, innovative spirit, research output and consequential world pros-perity for want of cross-fertilisation of ideas and research fi ndings. The USA might become less innovative.

So also any regulatory change the USA might make on the U.S. Treasury market might cause a decline in value

of T-bills and this could drive the U.S. bond markets into chaos. The heavy investment in U.S. Treasury bills itself is an embedded threat perception. In case the U.S. restricts or prohibits, for any reason, investments in the Treasury bills, there could be an anomalous situation. Concentration of huge funds in one country and in one reserve currency, however safe it is, could be a built-in weakness in the international monetary system. Political or economic events might lead to a situation in which the investors from the rest of the world could feel unsafe. Another instance could be that if the US and Europe join together and impose tax on imported goods based on high carbon emissions, countries like China might retaliate resulting in a major Wall Street meltdown.18 Recently, a Chinese company preferred to go in for initial public offering (IPO) to the Dubai fi nancial sources, ignoring the New York and London fi nancial

There is a need to have something like traditional

bank regulation extended to any financial product to contain crisis



centres. In this context, “America is at risk of losing its perceived uniqueness as a trusted repository for global investment”, says David M. Smick.19 Implicitly, the centres of liquidity and fi nancial services will change over time.

The US dollar as reserve currency has its built-in unique-ness. The US is the repository of savings of the rest of the world, especially in its Treasury bills. In turn, the funds take the form of international fl ows of funds for investment and fi nancing. If this fl ow is restricted, global liquidity may dry up and interest rates soar with consequential adverse results. Another development of signifi cance is that at recent international fora, China and Russia have been talking of replacement of US dollar as reserve currency. The BRIC countries also referred to the scope for having a “more diversifi ed” monetary system. There is also a view that the Asian region could evolve a single Asian currency so that the trade between Asian countries could accelerate. Asia’s share of world’s merchandise exports went up from 10% in 1985 to 26% in 2003 and they are on the rise; during this period, intra-regional Asian trade grew at an average of 14 %. A single Asian currency unit, it is pointed out, can be an incentive for integration of Asia. The issue of reserve currency could be part of the agenda for reshaping the international fi nancial architecture.

Demographic Somersault or UptickThe rich world has fewer children than the poor world. India and China have more people below the age of 35; Japan and Europe have more beyond the age of 35 with shrinking population. As economies grew, they experienced demograph-ic transition with fertility dropping from eight children borne by a woman to one and a half. With this reproductive collapse combined with increased life expectancy, population in the developed world has shrunk with an increase of older people. Fertility goes down on account of family planning, women entering the work-place, rising cost of raising children, presence of social security systems and falling rates of child mortality. Psychologically, the thinking seems to be to bring fewer children into an uncaring world in unstable environ-ments and, instead, to have a few progeny and extend greater

care and dote on them more effectively. Recently, Dr. Mikko Myrskyla and his colleagues write in

Nature that as development continues, the demographic transition goes into reverse. With relatively high standards of living, fertility rates are now approaching two children per woman. The nadir of fertility is reported to be 1.3 children requiring 1.5 immigrants to remain static. It is pointed out that the introduction of female-friendly employ-ment policies in the most developed countries allow women to have best of both worlds. Abundance enhances the instinct to lavish care on offsprings without compromising on continued care of those the parents already have.20

Accounting Standards and IFRSAfter the Enron and WorldCom debacles, there is a relook at corporate accounting standards. In a globalised world, all

countries should adhere to the globally accepted accounting standards. The US Generally Accepted Accounting Practices (US-GAAP) is more quanti-tative whereas the International standards are based on “fair value” concept. The US companies “mix mark-to-market values with the more traditional practice of carrying assets at their cost and impairing them only when managers and auditors think fi t. There are also several different ways of

recognizing losses. The result is that the balance sheets of different banks are not always directly comparable”.21 The discretion allowed scope for window-dressing. However, when proposal for merger of the international and American practices under an independent body is mooted, the Ameri-ca’s rule-maker, the Financial Accounting Standards Board (FASB) is not enthusiastic. Simply stated, mark-to-market makes the accounting process dance to the tune of market fl uctuations as on a given date in a year.

If International Financial Reporting Standards (IFRS) are introduced on a world-wise basis, it would facilitate investment, trade and banking transactions, besides uni-formity in record-keeping and comparability. Countries which do not follow uniform Accounting Standards and follow historical methods/standards might get isolated. Moreover, there will be differences in procedures for

Asian region could evolve a single Asian currency

so that the trade between Asian countries could accelerate



issues unresolved. The Institute of Chartered Accountants of India indicated that major public interest entities in India should follow IFRS after April 1st, 2011. Such companies have to organise preparatory work for having comparative data for the previous accounting year as well. Under IFRS, depreciation (cost minus the residual value) of property and plant and equipment would have to be provided after the management completes the task of determining the residual value. Hence, timely and suffi cient preparatory work is essential before switchover to international accounting principles and standards.22

Utilization of Sovereign Wealth FundsOwing to huge accumulation of foreign currency arising out of oil exports and large and consistent trade surpluses, many a country has emerged in recent times as a source of invest-ment fi nance and a keen player in international currency and stock markets. It is of course a moot point whether these countries could have invested some of these funds domesti-cally to enhance social welfare, economic well-being and security of their own citizens. Be that as it may, the substan-tial foreign exchange earnings and internally-generated resources have led to the creation of new stars on global fi nancial fi rmament, the Sovereign Wealth Funds (SWFs).

Investment funds owned by about 12 state-owned entities in countries like Saudi Arabia, United Arab Emirates, Dubai and Russia controlled roughly $ 2.5 trillion in 2007.23 The McKinsey Global Institute report (2007) describes four new “power brokers” of the global economy viz. oil-export-ing nations, Asian central bankers and their SWFs; hedge funds; and private equity funds. Their assets have tripled since 2000 to nearly $ 10 trillion.24 If the new “power brokers” (SWFs, oil producers, hedge funds, and private equity fi rms) withdraw from their global investments and move into cash, there might be volatility in the global stock markets. Despite having an effective game plan and road map, the job of minimizing growing global imbalances and smoothing inherent confl icts and tensions between powers that be, could pose problems. There should be a credible approach geared to the opportunities and risks of SWF investments. The US Congress Committee on Foreign Investment in the US could void foreign investment in the USA on national security concerns.25

SWFs could increasingly become signifi cant in future.

provisioning which will open up differences in tax liabilities. Hence, the entire fi nancial edifi ce and reporting systems built over the existing multi-standards in accounting will require in-depth reviews as to identifi cation of defi ciencies and likely implications. This being a matter of wide impact, there should be consensus not only in the accounting profession but also among economists, entrepreneurs, business executives, bankers/fi nanciers and fi nancial experts. Deviations in Accounting Standards will leave



Recently, some SWFs supported meltdown-affected banks but they became overawed by the huge losses. The current-account surpluses of oil exporters and Asian countries have been recycled. The foreign fi nancial assets controlled by governments went up to reach $ 9.5 trillion in late 2008, of which, it was estimated, one-fourth was held by SWFs. If oil prices rule high and global boom resumes, in a decade or so, SWFs could become as infl uential in stock markets as hedge or pension funds. However, based on experiences in Russia, China, Qatar, Japan and other Asian countries, it has been estimated that the SWFs might not become as big as had been projected. Since the credit crisis, SWFs are more risk-averse, especially China. There is a viewpoint that they may gradually move out to safe investments like US Treas-ury bonds instead of riskier equities and alternative assets. Saudi Arabian Monetary Authority, with $ 500 billion-odd assets, has raised its holdings in gold, cash and deposits. Abu Dhabi Investment Authority is reducing its equity alloca-tion. Even Singapore is cautious. Russia and South Korea prefer to buffer reserves with risk-free liquid assets, prefer-ably in dollars. It is stated that the SWF investments have declined from a torrent to trickle.26 Also, the savings-surplus countries require funds for growth and for meeting their contingencies.

In the beginning of 2008, the advanced countries were not comfortable with the large-scale investments through SWFs. The host countries were desirous of monitoring and regulat-

ing the investments. They clam-oured for greater accountability in the home countries, including the consideration of a voluntary code of conduct. In India, in view of comfortable forex reserves, one view was that internal SWFs, specifi cally created out of forex reserves, could be used for infra-structure development through the India Infrastructure Finance Corporation Ltd. as a special purpose vehicle under the supervi-sion of the RBI. However, the RBI was not in favour of creation of SWFs 27.

The recent developments have been pressing for early decisions on global supervision over fi scal, monetary and banking affairs. The G-20 world leaders underlined the need for corrective measures. The rising Asia and Latin America are looking up to the developed world for equity and fairness in resolving the outstanding global issues so that the world-wide discontents would be contained/mini-mized. Conclusions and indicative suggestions are presented below :(1) Political hot-spots require closer attention by the U.N.,

the Security Council and other agencies combined with more engaging and effective representation to the most populous region of the world, South Asia, the oil-rich Middle East, Latin America and Africa; also, complex subjects be considered in-depth by specifi cally constituted working groups to make recommendations to the appro-priate bodies.

(2) In international trade negotiations, both the developed and emerging world should adopt give-and-take attitudes without resorting to beggar-thy-neighbour policies seeking immediate, short-lived gains from trade.

(3) In the context of the demand of China, Russia and oil-exporting countries, the U.S. dollar as a reserve currency and preferred medium of international trade would require joint evaluation by academicians and practitioners. This is a crucial subject for creating a new

Conclusions and Suggestions



world order. (4) Reshaping the international fi nancial architecture calls

for drastic reorganization at the Board, executive, profes-sional and supporting staff levels and that equal opportu-nity be extended to citizens of all countries in the world in the selection of CEOs of the IMF and the World Bank. Also, the quotas be refi xed on the basis of current position of each member country so as to refl ect the realities.

(5) The USA, as a world leader, has to adapt itself to the changed world and avoid abrupt policy changes and help building a cohesive world.

(6) With BRIC countries and the rest of Asia assuming their place in terms of their GDP, level of industrialization, modernization, educational and research attainments, and the place of major currencies, the US dollar might get slowly and subtly replaced as the reserve and/or common-ly denominated international currency in the world; with more intra-regional and international deals in trade and money, more than one single currency might occupy their place as reserve currencies which may prove benefi cial to world trade.

(7) Demographic changes in the world markedly reveal that Japan, Russia and Europe have relatively aged popula-tion, and China, India, the rest of Asia, and Africa have relatively young demographic profi les and this situation necessitate a relook at the immigration policies and the population policies (incentives, etc.) in all these countries.

(8) With the world coming closure in many respects and cross-border transfers of labour, capital and enterprise are gaining ground; and, further with the experience gained in monitoring frauds and risks, uniformity will have to be ensured in the Accounting Standards, so that the wired world will be able to adjust freely and fully to the emerging business needs and concerns.

(9) Countries that have come to own Sovereign Wealth Funds out of their surpluses in commodity trade and savings could fi nd appropriate investment opportunities, lest the funds might get converted into gold, cash etc.; this subject requires specifi c considerations from the angle of security, misuse of funds, transfer of funds etc.

(10) There should be in-built mechanisms to sort out issues at global level in respect of situations where a strong country or a group of countries dominate the trade world and resort to the banning of trade unilaterally.

Endnotes and Additional Thinking1 Smick, David M. : The World is Curved, Portfolio, 2008,

p.25.2 Stiglitz, Joseph E. : Globalisation and Its Discontents,

W.W.Norton, N.Y.,2003. 3 Kagan, Robert, Ibid, p.37.4 Krugman, Paul : Interview, The Economic Times, 11th

August 2009.5 Obama, Barack : The Audacity of Hope, Crown Publish-

ers, NY, 2006,p.359.6 Make the Service Work for the Poor, Southern Econo-

mist, 15th July 2009.7 Mead, Walter Russel, Ibid, p.89.8 Kim, Chan W. and Mauborgne, Renee : Blue Ocean

Strategy, Harvard Business School Press, 2005, Boston, Massachusetts, U.S.A.

9 Stiglitz, Joseph E. : Ibid, p.172.10 The Economist : A special report on world economy, 11th

October 2008, pp.28-30.11 Boughton, James M. : Finance and Development, IMF,

March 2009, pp.44-46.12 Stiglitz, James E. : Ibid, p.120.13 Mada, K. U. : A Journey Through Development Bank-

ing, Mumbai, p.1-2. 14 Stiglitz, James E. : Ibid, p.12-14. 15 Mada, K. U. : More Effective Global Financial Regula-

tion, The India Economic Review, 31st May 2009, p.121. 16 Ibid, p.12117 The Economic Times, Mumbai, 11th August 200918 Smick, David M. : Ibid, p.31.19 Ibid, p.35.20 The Economist London, 8th August 2009.21 The Economist London, 18th July, 2009, p.66.22 Agarwal, Sanjay : “It’s time to act on IFRS”, Business

Line, 18th June 2009.23 Smick, David M. : Ibid, p.32.24 Ibid, p.61.25 Ibid, p.32.26 The Economist London, 24th January 2009.27 Reddy, Y.V.: India and the Global Crisis, Orient Black-

Swan, 2009, p.34



P O L I T I C A L E C O N O M Y


Amiya K. Chaudhuri Senior Fellow, Maulana Abul Kalam Azad Institute of Asian Studies, Kolkata

Politics of the Left Parties Certain common properties, either inherent or constitution-ally contrived, characterize the working of the process of state politics in India. Achievement of good governance through democratic means for realizing political modernization and development objectives has been the coveted goal. Besides, the securing of equal opportunity and special provisions for deprived social groups fi nd a special place in this overall objective. Whether and to what extent this objective and the values underlying it are or can be realized depends upon the way the political parties in India-both national and regional, have conducted state affairs. Differential endowments in respect of political space and territorial size as also the magnitude and the density of population are, of course, important components. However, socio-political ethos, which differs from state to state, consti-tutes the most important factor. The interaction of all these factors has been instrumental in the prolonged rule of the Left Front (LF) government in West Bengal. Of late, however, there have been defi nite signs of its decline throwing up the possibility that it might be driven out of power in the next state election. It is against this background that the question of how the LF, particularly, the Communist party of India (Marxist), the CPI (M), came into power, ruled for more than three decades, and is now showing defi nite signs of its decline, assumes importance.

In West Bengal, anti-Congressism has been the mainstay of

the Marxist political parties. The refugees who had to migrate to West Bengal after Partition were more educated1 and the Marxists targeted them to side with the oppositions; their existential conditions made them susceptible to the leftist ideology and propaganda.

If their existential condition turned them against the Congress government in the state, their education helped them to relate themselves meaningfully to leftist ideology. This made it easier for the left parties to mobilize a large number of the refugees against the Congress government directly and indirectly through culturally mediated popular movements. The cinema shows and musical programmes depicting the miserable plight of the uprooted people helped the process. Numerous refugee camps and colonies were built on government khas lands and on lands left behind by the Muslims around the state capital, Calcutta, and many of the suburban areas including North Bengal. The left parties continuously highlighted the problems. But the activities of the Communist Party of India (undivided till 1964) were aimed not so much at redressing the deplorable conditions of the uprooted people from the erstwhile East Pakistan. Their objective was to as to gain political advantage. Successive election campaigns and electoral manifestos and election results of the state from 1952 to 1967 would prove the point.2 Add to it the fact that there existed a deep-seated feeling among the people of West Bengal that the Central govern-ment, instead of following the strict principles of federalism,

Politics, Governance, Political Economy of

Development or Stagnation: West Bengal 2009

M I C R O M A C R O


paid little attention to the prevailing regional situation, as well as the socio-political perspective and the legitimate aspirations of the people.

Like other states, West Bengal too had several small parties confi ned to the state. As their presence favoured the Congress party electorally, the CPI (M), a new avatar of the Communist party since the split in the communist movement in 1964, and CPI, were contemptuous of other smaller parties. For oppor-tunistic reasons, however, they did speak of some sort of a left unity highlighting the Communist thesis of “United Front”3 strategy. But they did not care to recognize the pragmatic necessity of establishing some equation between the powerful and the smaller parties for the purposes of coalition making. In West Bengal, specifi c politics revolving around the Marxist parties seems different from that of the other states. The Marxist very intelligently used their thesis that West Bengal was discriminated both politically and economically by the successive central governments. The Marxist parties, when they came into power, exploited both the situations; when the Central government was strong, it raised the bogey of discrimi-

nation and in the case of a friendly but weak Centre, its demands for autonomy for the regional parties4 became quite strident and often met with success.

The well calculated expediential relationship of the CPI (M) with the Congress is nicely illustrated by its decision in July 2008, when the LF (with its 61 MPs) withdrew its support from the United Progressive Alliance (UPA) government. This was meant to express its opposition to the Indo-US civil nuclear agreement. The UPA government, however, survived because it received support from the Samajbadi Party (SP) of Mulyam Singh Yadav with 38 MPs, while Mayawati and her Bahujan Samaj Party (BSP) did not oppose. The CPI (M)’s political cal-culation was to further emasculate the Congress at the state level in West Bengal and Kerala. At that juncture they thought it prudent to distance the LF from the Congress with a view to enhancing its image as Caesar’s wife, more honest and people oriented in their traditional bastions of West Bengal and Kerala.

Holding its strategy very close to the chest, the CPI (M) wanted to carve out an exit route in view of their future course



of actions to maintain their electoral hold in Bengal. They did not like to give up even an inch to the Congress and the Trinamool Congress (TMC) in state politics. Rather, they did everything possible to keep the Congress and the TMC at loggerheads with each other. But this time, a large sections of middle class, several groups of civil society, the refugees living still in the colonies, the Muslims and the Scheduled Castes and Tribes, -the mainstay of social coalition that sustained the LF so long, appeared sternly to turn their back against the LF. The LF was overbearing towards the Congress since the UPA seemed to it to be dependent on its support to remain in power. This belief was reinforced by their success in fl eecing their strategic pounds from the central government. The intellectuals, artistes, singers and a number of literati, siding with the CPI and CPI (M), were appointed or nominated to important academic and other policy-making bodies in the state.

These state institutions are very important and their members are often regarded as part of the think-tank of the government. It was quite characteristic, even though uncharitable, for the highest leadership of the CPI (M) to say: “the UPA coalition government survives on the LF’s support. Therefore, if we want them to stand up or sit down they must do that.”5 The other side of the coin is the decided unwillingness of the LF to share responsibility when the UPA government did unwittingly commit mistakes. Actually, a large number of people in West Bengal did not like this sort of vocabulary.

The LF led by the CPI (M) had to withdraw support from the UPA government for tactical reasons. They were to go in for parliamentary election next year in 2009 and do whatever was possible to save its most important red bastion. If it had made the decision earlier, it would have been wiser. This is so for the reason that its support base had already begun eroding because of its contradictory political stance: a pragmatic support for the Congress at the Centre and throwing, at the same time, electoral challenges to the party in West Bengal. Note also the fact that the main opposition party, the TMC, earlier made a sustained campaign against the Congress Party as a team ‘B’ of the CPI (M) in the state after its split from the Congress on January 1st, in 1998. The TMC was now in

alliance with the Congress for the second time before 2001 Assembly election. Also, the CPI (M)’s duplicity6 in support-ing Congress at the Centre and mock fi ght against the Con-gress at the same time in the state was perceived by the people quite ridiculous. Some of the left leaders thought that the LF should have withdrawn its support much earlier to tidy up its home turf. Its failure to do so is amply refl ected in 2009 parliamentary election results.

The middle class people, possibly for reasons of their past history, are in the habit of thinking that they are uncompro-misingly radical.7 The communists and the ever-increasing band of their supporters considered themselves to be a superior species. They considered themselves as ideologically progressive having a correct socio-political and economic perspective. They continued to believe that the politics they

were engaged in, was guided by a superior social ideology and political objective as compared to other political parties in different states of India.

More often than not they claim that the LF led by the CPI (M) stands for the poor and is more democratic and people oriented than other political parties. They also claimed that the caste, communal divides and features that are paramount in other Indian states are absent in West Bengal. However, a close

look at social situation in West Bengal suggests this idea to be a myth. This is confi rmed by their mode of selecting candi-dates for contesting elections at all the levels. But once the charm of left ideology wore out, social divisions came to have a large impact on how the people voted. It should also be noted that the life styles of leftist leaders at all levels have undergone a sea change since 1977; they began behaving like the elites of society since long. This elite mentality percolated down to the most of the leaders down below. Instead of perceiving society in terms of caste and communal distinc-tions, the left oriented Bengalee social groups would like to divide it into two classes- bhadarlok (elite)8 and chhotolok (subaltern). They take it for granted that the subaltern or the chhotolok can, with subtle electoral engineering and political manipulations, be brainwashed by continuous verbal outpour-ings. Possibly they ignore that the rise of the chhotolok class (in economic term) at certain historical junctures is a predes-

The refugees existential

conditions made them susceptible

to the leftist ideology and

party propaganda

M I C R O M A C R O


tined fact of social evolution. To the upper and middle class elites, Mamata Banerjee and

her party TMC appeared to represent the rural subalterns. They failed to realize that soon after the Assembly election in the state in 2006, she would be able to mobilize the rural masses on the basis of their fear against the government’s land acquisition and Special Economic Zone (SEZ) related industrial policies. In fact people begin to be disenchanted with process of the Governance the LF led by the incumbent chief minister Buddhadeb Bhattacharjee. Unchallenged in the electoral politics for such a long period, Bhattacharjee went ahead of his illustrious predecessor to obliterate the demo-cratic distinction between the party and the administration. He proceeded to think in terms of total equation between the party run state and the civil society. According to Ross Mallick,9 this government put party interest above the people. No other Indian state, not even Kerala, another CPI (M) bastion, is guided by such a mind-set. As he says, “Given this record of failed reforms, non-reforms, and regressive policies, the question remains as to how such a singularly unsuccessful government was able to achieve the world record for being the longest ruling democratically elected Communist government in history”.10

And, fi nally, the LF’s focused tirades against the Central government’s discriminatory attitude and actions, whether real or imagined, meant for popular consumption, have been habitual. They also claim that people’s rights to equality of life and liberty are better ensured in West Bengal than anywhere else. But the fact of the matter is that the CPI (M)’s organiza-tional dominance in Bengal, particularly in the rural hinter-land, for the last three decades has alienated even its impor-tant partners, the Revolutionary Socialist Party (RSP) and the Forward Bloc (FB). The CPI (M)’s policy prescription and its implementation of the recent land and industrial policies11 kept them in the dark.

The question then arises as to why the partners of the LF, despite their sense of alienation born of deprivation of real political power, still cling together. An important minister belonging to the RSP underlined the reason: “It is simple electoral arithmetic and to a great extent of certain politico-

electoral compulsion. If any of the major partners comes out of the left fold the result would be disastrous not only for any individual partner but the LF as a whole. The CPI (M) would also suffer a political paralysis for years to come.”12 And this perception has refused to die even when the people of West Bengal nurture the sore caused to the people on different occasions. Note that the people still remember that the three leaders, who had a hand in massacring the Sain brothers, in Bardhaman on 17th March 1970,13 the day after the second United Front fell, are actively alive and leading the CPI (M) from the front. The then chief minister, Ajoy Kumar Mukher-jee, while submitting the resignation of his ministry, character-ized his own 2nd United Front government as “uncivilized and barbaric,”14 pointing to the partisan use of the police adminis-tration by the then deputy chief minister, Jyoti Basu.

Another instance of the LF’s total indifference to the well being of the people they claim to serve is provided by the tragic case of the refugees settled in Marichjhapi, an Island near Sundarvan in undivided 24 Parganas from early 1978 to May 16th, 1979. The refugees came over to Sundarvan from Dandaka-ranya where they were originally settled in the arid areas of Madhya Pradesh and Orissa. They built up a colony at Marichjhapi. The CPI (M) committee of

refugee organization in the island and around asked them to take the membership of the CPI (M). They refused and the government retaliated harshly. The CPI (M) government stopped the supply of drinking water and food and committed the sin of murdering many of the helpless and innocent second time refugees by burning their hutments and sinking their boats while they were collecting food and drinking water, and ultimately when they were fl eeing from the island.

This left an indelible dark spot on the history of the fi rst phase of the LF government in West Bengal.15 Several private individuals have meticulously documented the stories.16 Next were the Bijon Setu (the Ballygunj Station Flyover) murders in which the CPI (M) hoodlums burned alive 17 Sanyasis (including a woman).17 The Bantala incident at South 24 Parganas was gruesome; but the then the chief minister Jyoti Babu took no serious note of it and commented: “These are nothing extraordinary; occasionally it may happen.”18 Another

To the upper and middle class elites, Mamata Banerjee

and her party TMC appeared to represent the rural

subalterns



incident concerns the murder of Anita Deoyan. The other lady of the same team was brought back to Calcutta seriously wounded and mentally traumatized, unable to speak about the incident.19 All these incidents, heinous as they were, should have stirred the people out of their passivity. They did not do so for long. If the partners of the LF were worried about their electoral fortunes, why did not the people of West Bengal react to these atrocities perpetrated by the LF supporters and activists? They seem to have never confronted this reality. A scholar piquantly answered the question, which should have stirred the earlier generations of the ever-protesting Bengalis: “Bengalis have adjusted remarkably well with the reality. They have opted to coil up and seek comfort in pursuing the simple art of making money.”20 Another gruesome incident, which occurred at Khandua, Arambag in Howrah, involved the CPI (M) resorting to its method of politically controlling the entire western belt of rural West Bengal. It was some sort of a political cleansing.

Atrocities like these paved the way for the overwhelming victory of the LF in elections after elections particularly since 1987.21 On 21st July 1993, the police barricaded a Youth Congress procession led by its president Mamata Banerjee to symbolically encircle the Writers’ Buildings. When the younger restive activists attempted to cross over the police barricade, the police fi red mercilessly without any heed to the police manual. Thirteen people were killed on the spot and many more injured. Thereafter, the police fi red at the procession of the Socialist Unity Cente (SUC) near Curzon Park. One person was killed and a few others suffered heavy injuries. The CPI (M) cadres mercilessly beat Mamata Banerjee, while still a Youth Congress leader, near Hazra Road, while protesting against a bundh called by the CPI (M). She had to be hospital-ized with serious head and abdominal injuries for quite a long. Such attacks on Ms Banerjee were mounted frequently even while she was in the Congress as a Central minister. She formed her own party, the Trinamool Congress (TMC) in 1998 after serious differences with the state Congress leadership.

Land reforms, with which the LF is credited and rightly so, but only initially in the earlier phase of the LF rule, have come to a halt in 1986. In fact, a reverse process started by 1988. The

panchayat system as a spearheaded by the LF to spread its tentacles to the remotest part of the rural areas, became by now all “political panchayats,”22 and was totally centralized politically and administratively by the CPI (M). The power at all the three tiers came to be concentrated in the hands of the local and regional committee leaders. The urban bodies and their extended areas around urban conglomeration are controlled by the central party apparatchik at district head-quarters. By providing muscle and money powers to the leaders the urban real estate promoters began to rule the roost with the connivance of the party. Scholars from abroad, who studied the functioning of panchayat bodies under the LF front government, eulogized the LF government for its good work in rural areas.23 However, D. Bandyapadhyay and Nirmal Mukerji24 and Pranab Bardhan and Dilip Mukherjee25

were down to earth in their assessments. Even those, who had benefi ted most from the patronage of the government, could not believe the extent of the erosion of democratic values and the prevalence of corruption among the LF functionaries at different levels.

What has helped the CPI (M) main-tain its hegemonic dominance almost all over the state, was the policy of terrori-zation in most of the rural hinterlands and distribution of largesse to the

aspirant elite sections including the government employees, trade unionists, rich peasants and teachers of all categories. The higher echelon of the government offi cials and high-rank-ing police personnel, who ever preferred status quo, was happy because it was tension free for the reason26 that the opposi-tions were too emasculated to throw any challenge to the powerful regime. The successive LF governments were particularly impatient and often vindictive against the opposi-tion TMC. Ultimately Ms Mamata Banerjee emerged as a charismatic mass leader. To the popular perception, she was the only uncompromising main opposition political leader to challenge the “social fascist party i.e. the CPI (M)”27 and the “misrule of the LF government.”28 The chief minister, Jyoti Basu, refused to meet Ms Banerjee--a central minister at that time, when she went on a deputation to seek justice for a deaf and raped victim of the CPI (M) cadres. She waited in front of the chief minister’s chamber. The police evicted her forcibly

By providing muscle and

money powers to the leaders the

urban real estate promoters began to rule the roost

M I C R O M A C R O


and put her in the Lal Bazar jail. The police released her at the dead of night without any protection on her way home. Such behaviour from the police offi cer and ordinary constables was a regular feature during the last 33 years of the LF rule. Misbehaviour with women by the CPI (M) leaders, their constant ridicules and frequent ill treatments encouraged the police administration to heckle Mamata Banerjee who had endeared herself to the oppressed people of the state.29

Ms Banerjee began her fi ght for Maa, Mati, Manush (mother, earth and men) during Singur land acquisition incident. It was a magical symbol and a slogan that helped the underprivileged Scheduled Castes, Scheduled Tribes and the Muslim community at large to rally around the TMC. She fasted for twenty-six days against the acquisition of the multi-cropped 997 acres of agricultural lands of the suffering peasants at Singur acquired for the Tatas by the government agency, West Bengal Industrial Development Corporation (WBIDC). Meanwhile, brutal killings took place at Nandigram by the police and the CPI (M)’s hired killers in police uniforms. The Governor of the state, Gopal Gandhi characterized it as a “cold horror.”30 A very important civil society groups took up the cudgel and played a very important role to expose the “fascist method of the Buddhadeb Bhattacharjee regime”31. After these two serious incidents for three long decades, the people began shedding off their fear and came out in the open to seek a “change.”32

Against this backdrop of the explosion of the desire for a change, the parliamentary election was held in 2009. The results of the election were absolutely “demoralizing for the CPI (M) and signaled its decline after years of its control in all aspects of life in the state.”33 The social coalition that created the LF was the product of a reality prevailing in the beginning. The Muslim, scheduled caste, scheduled tribes, the different layers of middle classes, a large numbers of intellectuals and a large section of Trade Union leaders etc, constituted the social coalition, the LF was banking on. The LF began vaunting its superiority as a party with progressive socio-political values. Demonstrating its skill at showmanship, it began propagating that only it could give good governance to the people. Marxists of their brand posed that only they understood the “nature of

Indian State.”34 They claimed that they were better able to pursue political economy of development.35 The Chinese development pattern, rather than the US and Western economic institution’s imperialistic model, would safeguard the sovereign decision-making process and serve Indian interest better,36 the CPI (M) was supposed to claim. But the leaders always deceived the people knowing it well that it was not possible until and unless the Marxists of the West Bengal variant were able to guide the total decision-making process of the government of India

The Left Front Coalition Government has been continuing since 1977. Only the Chief Minister was changed just six months before the Assembly election in 2001. The younger generation of leaders of the Communist Party of India (Marxist) or CPI(M), in the face of a genuine electoral

challenge of the newer generation of the Congress and the Trinamul Congress (TMC), as evident from electoral data (1996 Assembly election and1998, 1999 parliamentary elections) to a large extent thought that the leadership of Jyoti Basu as the longest continuing Chief Minister in the state might not be as fruitful as before. Buddhadeb Bhattacharjee, took over to face the challenge of two combined opposition Parties. In the late 1990s the CPI(M)’s

younger leaders began to be assertive. The other partners of the Left Front wanted Jyoti Basu to continue. They were used to think that the coalition structures both at its social and political levels were safe with the leadership of Jyoti Basu. But their arguments did not cut much ice with the CPI(M) central committee. The coalition partners demanded to create a post of the deputy chief minister, and a core group of ministers to discuss important policy matters before they were brought to the public domain. The CPI (M) was lukewarm or to be precise quite unwilling. The idea, however, did neither materialize nor did the LF coalition face disintegration even after the election when the CPI(M) was reduce only to a single majority party of 143 MLAs rather than a predominant single party majority in the coalition as earlier.

This coalition establishment is a unique experiment in Indian states as also at the Centre where the coalition culture is yet to crystallize or institutionally mature.

The successive LF governments were particularly

impatient and often vindictive

against the opposition TMC



What are the factors that have tilted the balance in favour of the a state to maintain a coalition system for such a long period of time when the facts remain that the coalition government in its very nature is unstable be it in European countries or in any country belonging to Asia Africa and Latin America. This problem requires to be addressed empirically with the seriousness it deserves, and if possibly theoretically also with the existing tools we have had in the already explored paradigm by the western scholars.

The post emergency Assembly election in 1977 served as the watershed in the politics of West Bengal both in its electoral and political processes. The Jyoti Basu-led Coalition Govern-ment that came into power in 1977 has been continuing still with only a change of the Chief Minister in 2000. The Commu-nist Party of India (Marxist) has been the predominant partner. Coalition partners have become more important since the 2001 Assembly election. The three major coalition parties-- Forward Bloc (FB), Revolu-tionary Socialist Party (RSP) and Communist Party of India (CPI)—theo-retically now have more bargaining power in the system. However, the other fi ve smaller parties are absolutely dependent on the CPI(M). In 2006 Assembly election the CPI(M) regained its earlier position of preeminence in the LF coalition. Therefore, governmental stability hasn’t become an issue. Congress Party, by contrast, appeared to be almost decimated in the aftermath of the emerging socio-political scenario since 1977.

The Contributing Factors of StabilityA number of factors contribute to the unique stability of the Left Front regime in West Bengal. The CPI(M) and other Front partners have to learn the lessons of history they had to come through. It taught them to maintain courteous public relations with the people at large. All the left parties particu-larly the CPI (M) have acquired power through a series of political movements that brought them closer to the people. Measures of land reforms, reviving the system of rural self-governance the way to get near to real power base, taking some genuine popular policy decisions sometimes populist though, determination not to go in for inter-party rivalries to a

breaking point despite provocations, always to keep alert against the politics of the opposition and building up of formidable party organizations and spreading them to the grassroots levels, trying to nurse the electoral bases, and creating a congenial environment to foster a coalition culture, are some of the important components of the leftist politics in the state.

The Left Front Regime has been dominant for the last 28 years having won six consecutive elections. Predominance of the CPI (M) is one major reason for this unique record in India. By virtue of its capacity for “direct and mediated”37 social mobilization the CPI (M) became the predominant Marxist political party. The CPI (M) itself held the majority of the Assembly seats from 1977 to 1996. Again the CPI(M) came back to its original position having won 176 in 2006

Assembly election. The party’s Assem-bly seats began declining from the 1996 election, but its percentage share of votes remained about the same. The left parties came to realize from their experience that the voters in the state were in favour of anti-establishment politics of the mainstream left parties. It appeared to any unattached political observer, Marxist ideology or not, a social coalition in the sense of societal spaces being as they were, was taking

place within. This indicated the mandate for the Left Front with CPI (M) in government making.38 In earlier times, other partners of the Left Front like FB and RSP were seen to be quarrelling with CPI(M) regarding portfolio-sharing and other offi ce seeking claims. But that was only to a certain point. The confl icts are dormant even now. The new developments are that frequently in rural areas the smaller partners have had clashes with local CPI(M) leaders. They seem to engineer split within each of the smaller parties. The tendency of CPI(M) in this process of having a horizontal spread in the electoral bases of the minor partners is frequent in recent years. Noticeably during elections all the partners putting aside their confl icting attitudes come to depend on CPI (M). The junior partners realize that without the support of the CPI(M) and its organi-zation, their electoral forte is not secured. The secretary of the state committee of the FB declared frequently that they are to guard the “unity of the Left Front as the apple of eye.”39 The

By virtue of its capacity for “direct and

mediated” social mobilization, the CPI (M) became

predominant

M I C R O M A C R O


left parties did not repeat the mistakes, they failed to assess in the late 1960s. They used to talk about left consolidation in the 1930s and casually attempted to put together in the mid 1950s and 1960s. But ideological rigidities and angularities among themselves, despite their adherence to principles in a broader framework of Marxism, stood in the way. Till then the Marxist parties were not sure about the effi cacies of western parlia-mentary liberal democracy. Before 1977 they never “imag-ined” to form a government themselves as a combination of left parties.40 The political coalition of the left parties is the outcome of a series of past socio-political movements.41 Ideologically all the left parties were on the same side of the spectrum but before 1977 they could not come to put together. For the fi rst time they realized the impact of trying to socially mobilize the people directly as also through programmes of their frontal organizations.

The scholars have written volumes about Bengal’s radicalism and sought to justify CPI(M)’s rise to power. The question to be seriously addressed is the Left Front’s outstanding stability and electoral successes for such a long period of time. In all other Indian states including Kerala, endemic political instability, social fragmentation in terms of castes, ethnicity and religions, crisis of governance and electoral reverses are common features.

The Left Front government was fi rmly established in 1977. Electoral arithmetic indicates that the vote share of the left parties together never came down below 50% till the parlia-mentary elections in 1998. It is said that the left parties with CPI(M) in the lead have been holding on in the crest of Bengal’s proverbial radical politics. The politics of anti-Cen-trism often put the left parties nearer. Having a weak govern-ment at the Centre helped CPI(M) further strengthening its electoral bases. It became successful to maintain its societal spaces among the rural masses irrespective of castes, commu-nities and economic class divisions. Caste distinctions and Communal hatred do not play signifi cant role in West Bengal as elsewhere in other Indian states.

The millions of refugees that crossed over to West Bengal both at Partition and after continued to support the politics of the left parties. Earlier the left parties used to highlight Nehru

government’s discrimination against West Bengal in regard to its policy of refugee rehabilitation in comparison with what it did in Punjab. The Centre’s policy of freight equalization depriving Bengal of her natural advantages and industrial licensing policy discrimination “against West Bengal” are two other planks of the left politics that greatly infl uenced a large section of people in the state. The infl ux of displaced persons both Hindu and Muslim during the Bangladesh War in 1971 supported the Congress governments at the Centre and the state run by Siddhartha Roy. Some of them mostly Muslims went back after the liberation of Bangladesh. The people who stayed back began to side with the left parties later. The Muslim community42 possibly, because of minority syndrome used to always support the establishment. The Congress as the largest Indian party used earlier to enjoy their electoral

support. Gradually the Left Front government was gaining in the state. With the rise of the Bharatiya Janata Party (BJP) in Indian politics, the Muslim population stood solidly behind the coalition of the left parties in West Bengal.43 The people mostly Muslims crossing over the border by stealth for economic reasons, are patronized by major secular political parties. Most of them now constitute the support base of the Left Front.44

Several scholars studied the politics of West Bengal and made out incisive analysis from different perspectives.45 As observed now, the idioms of West Bengal politics in earlier decades were different. The styles and moorings have been changed. The politics of a Congress dominant system with multiple political parties competing with one another and against the Congress on the other was a shade different from that of the Left Front coalition. The number of political parties has been reduced, paradoxically to the advantages of the Left Front.

The Left Front government initially took very fruitful decisions and sincerely sought to implement the same. Those were the programmes of land reforms through “Operation Barga” and secondly, to make the land reforms programme effective in the rural hinterland. The government overhauled the moribund Panchayat system. Following the recommenda-tions of the Asok Mehta Committee Report, the three-tier

The question to be seriously

addressed is the LF’s outstanding

stability and electoral successes over a long period



Panchayati raj system of rural self-governance was intro-duced. The fi rst election of Gram Panchayat, Panchayat Samiti and Zilla Parishad, was held in 1978. It was a massive exercise and people in rural areas began enthusiastically participating in local governance. It was in fact the fi rst but determined effort on part of the New Leftist regime to spread its politico-electoral tentacles to the rural areas. The last elections in all the three tiers were held in 2003, the LF winning the largest ever majorities46. In respect of land reforms and “operation barga”, the LF government did not commit the same mistake of alienating the rich and middle peasants of the village communities, which it did in the United Front eras. The Left Front government acquired more than 1.30 million acres of benami (registered in other’s name) lands and distributed the same to the poorer and marginal peasants. Pranab Bardhan and Dilip Mukherjee write, “A party with Leftist ideology is more likely to have acquired the political will”. The government appears to have political will to under-take a measure of land reforms and remove several legal and administrative hurdles in the way. The authors continue, “Alternatively, intrinsic policy preferences of elected offi cials may derive from the partisan interests of their electoral constituencies, and additionally be subject to moral hazard wherein implementa-tion requires effort on the part of the offi cials. Second, the electoral competition or populism can matter; land reforms may be motivated by the need to expand vote shares”.47 On a sound judgment it transpires that the effi cacies and claims of policy implementation, later in the 1990s the claim of imple-mentation faced criticisms on several points.

The urban and semi-urban middle classes were already sympathetic to the politics of the left parties. From its earlier united front experience, CPI (M) learnt an important lesson. Through different channels it attempted to bring the members of the staff of general administration as also police administra-tion in the side of the leftist organizations. To make its policies and objectives acceptable to the larger sections of people CPI(M) attempted to woo the largest number of middle class employees in different organizations and professionals. It

allowed, unoffi cially though, the registered left oriented Government Employees Coordination Committee to have exercised supervision not only over the ordinary employees but also over the offi cers. The employees of the government and semi-government institutions like government undertak-ings, cooperative societies, factories, schools, colleges and even universities fi nancially aided by the government were mostly won over by the LF government, by way of changing their service manuals, enacting laws for their security of services and increasing the salary packets.48 Even the non-gazetted police personnel were allowed to form association of their own and began functioning as members of trade union, as it were. In the beginning the chief minister Jyoti Basu made such concessions and even allowed the ordinary police union members in a meeting to criticize against their superior IPS

offi cers49 in the presence of the Calcutta Police Commissioner, IGP, DGP etc. All these policies brought about enor-mous electoral dividends to the Left Front regime making it as stable as never before. Most of the government employees were happy with the new dispensation. The Left Front govern-ment even allowed its employees to go on strike to press their demands50 and itself supported occasionally the politics of Banglaband (All Bengal strikes) or

Bharatband (All India strikes) and Chakkajam (stopping rail movements) when directed against the “anti-people policies” of the “inconvenient” Central governments. The Left Front regime undertook a large number of populist measures and did not give suffi cient thought about their economic sustain-ability resulting in the near fi scal collapse later in the 1990s.This prompted the government to roll back some of their earlier political decisions after 2001.

The Finance Minister, Asok Mitra announced unemploy-ment allowances without going into the long-term question of feasibility. The government started a large number of primary schools, later colleges and even Universities in the state. Salary hikes were made not only for the government employees but also for teachers of all categories, education workers, and the employees of the panchayat bodies and municipalities. The government implemented free education from primary to the 10+2 level. To reduce the number of dropouts in schools, at

More than 1.3 million acres of benami lands were acquired

and distributed to the poorer and

marginal peasants

M I C R O M A C R O


the instance of the Left Front Committee the government abolished English teaching in government aided schools up to class six but this policy had to be discarded in the face of severe criticisms after more than two decades. The rural poor and the larger peasantries were already supporting the Left Front. After the panchayat elections the middle and rich peasants also crossed over, to support the new government. Regular municipal elections began to be held from 1982 to the advantages of the LF. These factors helped the Left Front consolidating their politico-electoral bases for years to come. The main opposition parties were in a shambles. The Janata party government at the Centre failed in the middle of 1979.The state unit of the party was split into factions. The honest coins among them went out of circulation and the rest joined the Left Front.

The Congress party was almost decimated till it gained a little in1996 Assembly election. A little later the party was vertically split. Mamata Banerjee led the split away party the Trinamul Congress (TMC). The Con-gress and TMC came closer with seat-adjustment before 2001 Assembly elections. Allegations were made that CPI (M) manipulated some of the congress leaders to make the adjustment infractuous.51 The people disenchanted with CPI (M) are yet to fi nd a powerful opposition political party or a coalition of parties. Moreover the organizational strength of CPI (M) is fearfully imposing. The frontal organi-zations52 of CPI(M) continuously work for the party in all seasons. The members of all the opposition parties have been crying hoarse about electoral malpractices of CPI(M). This allegation is borne by all the opposition parties and cross-sections of ordinary people. A few prestigious newspapers and a section of intellectuals fi nd some grains of truth in this theory of politico-electoral engineering.53

Nossiter points out that “First the CPI (M) and the Left Front have succeeded in identifying themselves with Bengali resentment at what is perceived to be chronic central neglect of the diffi culties of the State”. He continues, “Whatever defi ciencies there have been in the performance of the Left Front, it is perceived as having a mission, discipline and leadership”, and “Last, the CPI (M) and its partners have

shown a capacity to learn from past mistakes”.54 The foreign scholars are really enamoured with the remarkable stability of this Marxist regime within with a framework of parliamentary democratic system. But after more than three decades of its existence this factor of stability for various reasons particularly actions, inactions and complacence of the big partners, CPI(M) the stability factors have been subjected to serious scrutiny. Why did the coalition government even during the Jyoti Basu regime for twenty three and a half years fail to deliver what the LF pledged to do? No new industry, rising unemployment, deterioration of educational standard, poor heath system but increasing party dominance in aspects of public life became the signpost of the LF regimes. Even Buddhadeb Bhattacharjee could not stem the rot. The stability of the LF rather stood in the way to political modernization,

economic underdevelopment and invisible social harmony. Therefore even the exemplary stability during the long years in Bengal under the Marxists as eulogized by the leaders within the country and around failed improve the life and living of teeming millions. They were mile to walk to redeem the pledge of establishing equity with social justice. A newspaper banner head line, “Stabil-ity of Stagnation”55 began jolting the discerning people of the state.

Demographic Feature and Cultural Attributes The politics of a state is the product of a combination of several factors, like history, geography, density of population and the cultural differences within and lastly its format to interact with geographic neighbours. Historically, West Bengal is truncated state with problems peculiar to its own. It is a densely populated border state. The borderline is porous and infi ltration is diffi cult to check. The state is having the largest Muslim population of 25.25%.56 The Scheduled Castes and Scheduled Tribes constitute 23.02% and 5.50% of the total population respectively.

The cultural attributes of the population in different regions of the state are varied. The cultural traits, tradition oriented family vis-à-vis social norms, mores and rituals, linguistic characteristics and style of dialects have been found to be different from one region to another. The state of

Historically, West Bengal is truncated state with problems peculiar to its

own. It is densely populated



economic development, occupational engagements and even the idioms of politics as observed in the past do also vary quite perceptively. In the recent years since the state-wise rise of left ideological politics attempts have been made to usher in a modernized secularization in the regions and the state at large in an ideological baggage.

Process of GovernanceA unique experiment and steady political process comes to

prevail. It is a period of accommodation among the partners of the ruling Left Front. Political sanity among the warring leaders of the earlier United Fronts has been obtaining. The new process of governance follows.

To a great extent the claims of a government shedding aside their earlier rigidities of Marxist ideological strapping are justifi ed. It was really possible for the simple reason that the CPI (M) did not commit the political mistakes that were committed during the late 1960s and early 1970s. The absolute power, the CPI (M) was mandated for, to run the state, cooled down the political temperature of the party. It was a single party majority win for the CPI (M) along with other left parties.

Secondly, predominant partner CPI (M) has a complete sway over the rural areas. Maintaining a liberal democratic façade the CPI (M) began exercising its party dictum of “democratic centralism”, from the very beginning. Introduc-ing democratic decentralization in running the panchayat system of governance in the vast rural hinterland, the party has been exercising a centralized control. Therefore, the question, the party secretary himself stated above that the “Left Front aims at growth with equity”, remains to be addressed. Having ruled the state unhindered without any disrupting opposition movements in social and political spaces for more than three decades, the Left Front could have done better in its twin objectives of growth and equity.57 Enough central funds have been available for removing illiteracy, programmes for gender equality, health and sanitation, rural housing scheme (Indira Abasan Yojana) and alleviating rural poverty in the form of issuing BPL cards (people living below poverty line).58 But it is shown frequently in comptroller and auditor general’s (CAG) Reports that the government could not utilize the total amount of the funds released by the Centre for defaulting matching grants by the state government facing fi nancial crunch for several years now.

Political Economy of DevelopmentThis study to a signifi cant way may refl ect the socio-cultural and political economy of the diverse elements of the state’s prevailing political perspectives. A number of foreign and Indian scholars in their effort to carry on micro studies on democratic decentralization were offered to choose selected panchayat bodies. Most of them were engrossed with the change of rural faces as a result of the economic activities of the Panchayati raj system in a Marxist state, pragmatically diluting its earlier rigid theoretical framework of “democratic centralism, class struggle, social revolution etc,” They compacted their research fi ndings of fi eld survey data in Western theoretical paradigm to highlight the politico-eco-nomic developments within a liberal democratic framework of politics.

Bardhan and Mukherjee are clear, and nearer the truth when they observed that only those panchayat bodies, 80 in number they surveyed, were looking well to the expectations of the people of those areas where political party competitions were apparent; or in other words, “Land reform and imple-mentation was highest in villages where local governments were more evenly contested between the Left and Rightist parties”.59 The panchayat bodies took off well in the develop-ment process of rural Bengal and continued with remarkable success during the 1980s. The Left Front led by CPI(M), still sporting its ideological strapping of “people’s democratic revo-lution” in a diluted form though, resorted to its formula of “democratic centralism”. The local party leaders that in-creased by leaps and bounds over the years adapted them-selves in their area of control to the “bourgeois liberal meth-od” of combining the western process of modernization and development. The consequences are many. As expected the centralized control of the party spreads all over. In the process a paradoxical reverse took shape in rural governance. The local satraps of the party took over the Panchayats at the levels- Zilla Parishad, panchayat samiti and Gram panchayat. It was but natural in a state where infl uential rich and middle peasants were used often to change their side in village politics. In the last two decades many of the CPI (M) leaders in local levels were seen to become the “party unto them.” This was mostly felt in disjointed belt of underdeveloped districts of North Bengal, the Western belts of Purulia, Bankura, and Midnapur. The story of death by hunger in Amlasole60 in southwest of Midnapur, in some tribal villages of

M I C R O M A C R O


Purulia, Nadia and eastern part of Murshidabad might be symbolic but the facts are undeniable. In many tribal areas the local leaders did not care to distribute the “Below Poverty Line” (BPL) cards to the genuine poor.61 Even today, the government itself admitted that a total number of 4612 villages have been marked “under-developed”. The poor people miserably living below poverty line number 4.6 millions as reported in West Bengal Human Development Report 2004.62

The phenomenal growth of a communist party with all of its frontal organizations is both a strength and weakness in this state. In electoral politics the opposition parties like Trinamul Congress (TMC), Congress (CONG), Bharatiya Janata Party (BJP) or smaller parties like Socialist Unity Centre (SUC) and others separately or even in a ramshackle combination were no match for CPI (M) in this regard. The growth of the Maoists and People’s War Group (PWG), Naxals, actively engaging in the western belt of Purulia, Bankura, Birbhum and southwestern part of Midnapur or Lalgarh to be exact ap-

peared to be disconcerting. The other “secessionist” leaders of “Kamtapuri movement”, Gorkha National Liberation Front (GNLF) led by Subhas Ghising, now reoriented Gorkha Jana Mukti Morcha GJMM) led by Bimal Gurung and the move-ments for “Greater Cooch Behar demand” in North Bengal were not so conspicuous even a few years back.

Politico-electoral management by the party organization does not go hand in hand with the governmental management of the economy in the state. Recession in industries like jute, smaller iron factories, manufacturing and engineering indus-tries, tea processing units of the North Bengal region is alarming. Absence of agro-industries and moribund village industries, are plaguing the state. Scarcely there are well running small-scale industries to provide alternative opportu-nities for employment. Retrenchment of the workers, even very low-paid workers and unemployment in other sectors are increasing. Among the staggering unemployment of more 7.5 millions, there are a large number of educated unemployed

Table 1: Human Development Indices of District in West Bengal

Source: West Bengal Human Development Report 2004, Govt. of West Bengal, Kolkata,

Districts Health Index Income Index Education IndexHuman develop-ment Index (HDI)

HDI Rank

Darjeeing 0.73 0.49 0.72 0.65 4

Jalpaiguri 0.61 0.38 0.60 0.53 10

Koch Bihar (Cooch Bihar) 0.50 0.41 0.65 0.52 11

Dinajpur 0.62 0.39 0.53 0.51 13

Malda 0.49 0.36 0.48 0.44 17

Murshidabad 0.57 0.29 0.52 0.46 15

Birbhum 0.53 0.27 0.61 0.47 14

Bardhaman (Burdwan) 0.74 0.47 0.71 0.64 5

Nadia 0.65 0.41 0.66 0.57 9

North 24-Parganas 0.72 0.49 0.76 0.66 3

Hugli (Hooghly) 0.77 0.46 0.67 0.63 6

Bankura 0.67 0.26 0.62 0.52 11

Purulia 0.61 0.18 0.55 0.45 16

Medinipur (Midnapore-east& west together)

0.68 0.45 0.74 0.62 7

Haora (Howrah) 0.77 0.58 0.75 0.68 2

Kolkata 0.82 0.73 0.80 0.78 1

South 24-Parganas 0.71 0.40 0.68 0.60 8

West Bengal 0.70 0.41 0.69 0.61 8*



that tops the list among all other Indian states. The government has made a survey and found that the poverty stricken villages have a spread all over the state.63 Despite a unique political stability of the regime for the last several years and political management skill of the Left Front, the inference that the government often failed to redeem its pledges, is quite apparent.

Politics: Redefi ned or Stagnating? Indirectly, due to this weak electoral presence of the politics of opposition, the politics of the CPI (M) itself sometimes appear to be stagnating. The party organizations could not launch any movements against any shortsighted policies of government they have been supporting. The industrial stagnation began. Basu to revive the industrial sickness and rope in the foreign investors or NRI visited different countries, but of no avail with any visible results. The CPI (M) affi liated Centre for Indian trade Unions (CITU) keeps quiet when workers of public undertakings, several Jute Mills, industrial houses, Tea gardens, Tea industries in North Bengal lost their jobs. Despite several lacunas in the education policy, the students’ community under the leadership of the Student Federation (SFI) remains mostly silent as never before in the past. So is the Kisan Sabha, the CPI (M)’s peasants’ organization. In the mean while groups of miscreants under the patronage of some of the party high-up by stealth entered the party folds. Real estate business under the party backed promoters, land dealers, suppliers and contrac-tors were having free hands in exchange for whatever was demanded. It is all visible and can not escape the notice of even the ordinary public but nobody has to do anything. Watching all the circumstances around, one of the tallest leader of the CPI(M) and minister of land revenue, Benoykrishna Chowd-hury was pained to comment, “It has become a contractors raj,” or a regime of the contractors. The Chief Minister Basu retorted, “in that case why he is the government,”64 Benoy Chowdhury did not quit because it was not easy for a man like him to quit the government of a communist party.

The party functionaries and offi ce bearers of panchayat and urban civic bodies were mired in different types of corruption. Many Newspaper stories and even administrative reports mentioned this aspect of corruption often frequently. Corrup-tions seemed to be seeping in almost visibly into different layers of the party. But at least some consequences were refl ected in the voters’ choice in the 1996 elections. The

number of the seats the CPI (M) was gaining in all the previous Assembly elections was drastically reduced to 150 only, and the total number of seats gained by the Left Front, as a whole was 203 as compared with 246 seats in 1991. The 1996 parliamen-tary election provided a unique opportunity to Jyoti Basu. The partners on consensus of the makeshift coalition at the Centre offered the post of the prime minister to Basu. Basu was willing but his younger party colleagues prevented him from accepting the offer. Basu was debarred on the plea that such unstable coalition with a Marxist leader at the head on the mercy of the Congress party “still then a political enemy of the Marxists” would do more harm than good to CPI(M). The objective condition was not ripe enough for a communist party to accept the offer. Basu did not suppress his frustration and commented that “it is a historic blunder”65 on the part of the CPI (M). The rise of Mamata Banerjee over-shadowing other leaders of the state congress party indicated another phase of revival of the congress party at the state level. Secondly, in 1997, Mamata Banerjee came out of the party and founded her own Trinamul congress (TMC) and joined the National Democratic Alliance (NDA) as a partner. She came of a lower middle class back-ground and within a very short period acquired some charis-matic charm to mobilize enormous crowd around her. Her joining the NDA and her capacity to attract large sections of the people both rural and urban, who were dissatisfi ed with the Marxist regime, sent a danger signal to the CPI (M). The younger leaders of the party began thinking that Basu would not fi t in the bill in the emerging context. Buddhadeb took over as the new chief minister. He was supposed to be the leader of the younger generation. Since 1977 he was in the cabinet of Jyoti Basu and Bhattacharjee was supposed to deliver when Basu was failing. Looking back even Bhattacharjee could not fi t in the bill in the late 1990s and early 2000-2009s. Leaving aside the result of the 2001 election, the parliamentary election result in 2004 went in favour of the new chief minister, which also refl ected Assembly election for the CPI(M) in a massive way. Possibly that were the turning point in three decade long LF’s electoral fate.

ConclusionDuring the last three years since 2006, a change has overtaken the politics of the CPI (M). Due to their faulty industrial policy ignoring the land interest of the poor peasants, peasants took place in several places in the state. The civil society groups

M I C R O M A C R O


supported it. Not to speak of good governance Buddhadeb Bhattacharjee appears to stumble over in respect of both the general and the police administration. The main opposition leader Mamata exploited this unique opportunity by forming an alternative coalition with smaller left parties and several other civil society organizations. Her latest attempt to make a near perfect seat adjustment with the Congress Party before the Panchayat Raj elections in 2008 and Parliamentary election in 2009 gave her unprecedented dividends. Now opposition parties mostly led by Mamata Banerjee and her Trinamool Congress Party gather enough strength to challenge the Marxist monolith. The way the CPI (M) wanted to suppress the peasants’ revolt in different places of the state and the popular movements against the police and the cadres of the CPI (M) atrocities became counter-productive. If things continue like what it is now and the Buddhadeb Bhattacharjee government fails reestablish its legitimacy, popular preference is very likely to go against the CPI (M).

Possibly three tier Panchayat elections in 2008, several by-elections, the Parliamentary elections in 2009 and several other local elections as well for the last one year have been showing the way West Bengal politics is going to be shaped up in near future.

Endnotes and Additional Thinking1 West Bengal : An Analytical Study, The Bengal Chamber of

Commerce and Industry, Oxford & IBH Publishing Co, Calcutta, 1971.

2 Amiya K. Chaudhuri, “Electoral Politics in West Bengal : A

predominant Party in Government”, in Suchandana Chat-terjee edited Asia Annual 2006,Standard Publishers (India), New Delhi, 2007.

3 Leon Trotsky, General consideration of the United Front, 1924; In this connection the Marxists focused on the contribution of Georgi Dimitrov’s concept of “united and popular fronts directed against the rising tide of fascism”, Vijay Singh, “Georgi Dimitrov and the United National

Front in China 1936-1944”, http://www.revolutionary democ-

racy.org/rdv5n2/drimitrov.htm; see also EN.Sivadasan, “A

comparative Study of the CPI(M) and CPI led Coalition

Government in Kerala: Politics and Policy Implementation” (unpublished Paper), Department of Political Science, St. Thomas College, Palai, Mahatma Gandhi university, June, 1971.

4 Interview, Jyoti Basu, August 4th, 2004; this author, inter-viewed Jyoti Babu, in connection with the UPIASI project on “Coalition Politics in West Bengal”; Sri Basu expressed this forthright opinion in this private discussion.

5 During a few LF rallies in the Kolkata Maidan after the UPA coalition taking over the CM made this comment, The Statesman, Kolkata, July 12th, 2008.

6 Popular perception as found in The Survey Report, West Bengal Chapter, UPAISI, August 2005.

7 Marcus F. Franda, Radical Politics in West Bengal, MIT Press Cambridge, Mass, 1971; Atul Kohli (ed), India’s

Democracy: An Analysis of Changing State Society Rela-

tions, Princeton, N.J, Princeton University Press, 1988.8 John. Broomfi eld, Elite Confl ict in a Plural Society, Berke-

ley, University of California Press, 1968. This categorization of Bengal society in the 1920s among the political leadership still holds good in the present day West Bengal society and political classes.

9 Ross Mallick, Development policy of a Communist govern-

ment: West Bengal since 1977, Cambridge University Press, New York, 1993.

10 Ibid, p.214.11 Sangbad Pratidin, Kolkata, July 5th, 2009, it is a very well

circulated language daily that carries the story, the “RSP’s

Central Committee comes to the conclusion that the CPI(M)

has gradually been detached from the people for their land

and industrial policies”. 12 Kshiti Goswami, PWD minister of the LF government told

the author in a Television (DD, Kolkata centre) interview on May 16th, 2009.

13 The Statesman, Calcutta, March 18th, 1970.14 Udayan Nambudri, Bengal’s Night Without End, India First

Foundation, New Delhi, 2006.15 Jagadish Chandra Mondal, Marichjhapi: Naishabder

Antarale( Gana hatyar ek Kalo Itihas)in Bengali people’s Book Society Kolkata 2002.

16 Udayan Nambudri, Bengal’s Night Without End, op.cit; see also the book written by Amitva Ghosh, The Hungry Tide, Ravi Dayal, Publisher, New Delhi, 2004.

17 Niranjan Halder, former assistant editor of Ananda Bazar Patrika who lived near the place of this gruesome incident described the scene most vividly in his occasional writings and told the author recently in an interview on April 12th, 2009; see also Udayan Nambudri West Bengal’s Night never



Ends in greater detail, op.cit. 18 The Statesman, Calcutta, May 18th, 1990.19 Udayan Nambudri, Bengal’s Night without End, op.cit,

p393.20 Ibid, p85.21 Barun Sen Gupta, editor, Bartaman Patrika a language

Daily in post edit wrote extensively about the electoral malpractices of the CPI(M) after most of the Assembly and Parliamentary elections in West Bengal particularly since 1987; he even investigated every panchayat and municipal elections and printed pictures to show as to how all those happened during the days of elections; see also Prabir Ghosal, CPIM-er rigging, (Bengali), Mukherjee Publishing, 2005 and a number of researched Bengali publications on the subject.

22 D.Bandyapadhyay and N. Mukerji, New Horizon for West

Bengal Panchayats 1993, a report, the government of West Bengal commissioned in 1992 but the published report was withheld for circulation.

23 Glyn Williams, “Rethinking West Bengal’s Stability : From

Party Organization to Local Practices of Politics” in John Zavos, et al edited, The Politic of Cultural Mobilization in India, OUP, Kolkata, 2004: Arild Engelsen Ruud, Poetics of

Village Politics : The making of West Bengal Rural Commu-

nism, OUP, New Delhi, 2003; Neil Webster, Panchayati Raj and the Decentralization of Development Planning in West Bengal, KP Bagchi & Co, 1992; O.k. Lieten, Development, Devolution and Democracy: village Discourse in West Bengal, Sage Publications, New Delhi, 1996, and a few others among them, Nossiter, Marxist State Government in India :Politics, Economics and Society, Printer Publishers, London, 1988.

24 D.Bandyapadhyay and Nirmal Mukerji, op.cit. 25 Pranab Bardhan and Dilip Mukherjee, “Political Economy

of Land Reforms in West Bengal." People.bw.edu/dilipm/

wkpap/wbpelref17.pdf26 Interview, Jawhar Sarkar, joined as the secretary of Industry

being transferred from the post of the CEO of West Bengal, November 6th, 2001

27 Debabrata Bandyapadhyay, the present state General Secretary of the RSP, used the same term while the CPI (M) led by Jyoti Basu took away the Panchayat port folio from him and his party after 1987 Assembly election in West Bengal; Shri Bandyapadhyay expressed the same opinion

while talking to the present author while writing on “The

Coalition Politics in West Bengal” in an interview in August 8th, 2006.

28 Mahasweta Devi, Dainik Statesman (the Bengali edition of The Statesman, Kolkata), July 20th, 2009.

29 Tusar Talukdar, this former Calcutta police Commissioner assessed Mamata Banerjee’s rise to the political height that Mamata Banerjee achieved, August 2nd, 2009.

30 The Governor, Shri Gopal Gandhi issued the statement in the night of 14th March and published in all the leading Newspaper, March 15th, 2007

31 Mahasweta Devi, Amitava Chaudhuri (SriNirapeksha), Saoli Mitra, Bivas Chakraborty, Kaushik Sen, Kabir Suman (singer), Nachiketa (singer) and many others took up the causes and wrote several pieces in different Newspaper, particularly the Dainik Statesman, Kolkata from the very beginning of the Nandigram incident on March 14th, 2007

32 Just before the 2009 General Election in India, hoardings conceptualized, devised by Shuvaprasanna- the renowned Bengali artiste. Several faces of eminent Bengali intellectu-als, writers, poets, social activists, Professors, cinema directors, stage actors, and directors, artistes and singers were seen in several different places in each of the 42 parliamentary constituencies; the theme was “We want Change”; it appeared to be a surrealistic painting to the discerning viewers; there were only a dozen faces on the hoarding; on the faces and the ambience created on the canvas one can imagine more than fi ve crore voters who might be desiring for a change after a span of 32 years of a cartel of political oligopolies. This hoarding might have a tremendous infl uence on the people of the state; the LF particularly the CPI(M) became shaky and began making wide allegations that American imperialistic forces and the foreign money of the NGOs had been playing the most signifi cant roles to destabilize a “very well governed Marxist government,” as claimed by the CPI(M) leaders in the state; but the bad logic and the knee-jerk reactions of the CPI(M) did not cut much ice this time around; the people made up their minds and exercised their options in West Bengal election that was unique after 1984 when the opposition Congress Party was able to garner only 16 seats.

33 Interviews, with several rational leaders, including Univer-sity teachers, once holding the post of Vice-chancellors, of the CPI (M), on different days, 20th, 25th May, and July 22nd,

M I C R O M A C R O


2009.34 Quoting the much earlier document the two commentators

dilated the phrase; Gene D. Overstreet and Marshall Wind Miller, Communism in India, The Perennial Press, Bombay, 1960

35 Atin Sarkar, a member of the undivided Communist Party, “Shameless False Propaganda is the forte of the CPI(M),” Dainik Statesman, Kolkata, August 12th, 2009.

36 Istehar, Panchadash Lok Sabha Nirbachan, 2009, Bharater Communist Party,(Marxbadi), [ tran, Manifesto, 15th Lok Sabha Election, 2009, Communist Party of India (Marxist)],

37 Rudolf and Rudolf, “Determinants and Varieties of

Agrarian Mobilization”, University of Chicago (Mimeo) 1979, quoted by Rakhahari Chatterji, “Political Change in

West Bengal”, Rakhahari Chatterji (ed), Politics in West Bengal: Institution, processes and problems, World Press, Calcutta, 1985.

38 Electoral data substantiate the point. 39 Asok Ghosh, secretary state committee, Forward Bloc,

November 5th, 2004. 40 Interviews,Jyoti Basu, 4th September 2004. 41 Left parties’ popular movements, for refugee rehabilitation

within West Bengal since 1950s. 42 Census Report 2001,The Muslim Community constitutes

25.25% of the total population in West Bengal. 43 Survey, CSDS in1999&2001 elections, UPIASI Field survey,

2004-05. 44 Bangladeshi Infi ltrations, The Statesman, Kolkata, May-

June 2005;The Times of India, Kolkata,May 15th-20th, ’05. 45 Myron Weiner, The Politics of Scarcity, Asia Publishing

House, Calcutta 1963, Political Development and Political Decay in Bengal, Firma K. L. Mukhapadhyay, Calcutta, 1971, Paul Brass, Ethnicity and Nationalism, Sage New Delhi 1991, Atul Kohli, The State and Poverty in India Cambridge University Press 1987; Democracy and Discontent, Cambridge University Press, 1991; Biplab Das Gupta, Naxalite Movement, Bombay, Allied Publishers, 1975.

46 Out of more than forty-eight thousand six hundred seats in all the three tiers, the LF won six thousand eight hundred seats uncontested. There were no opposition candidates in more than 22 thousand seats in 2003 election. The opposi-tion parties and the local Newspapers widely reported the allegations that the CPI(M) did not allow the main opposi-

tion parties to fi le their nomination papers. 47 Pranab Bardhan and Dilip Mookerjee, “Political Economy

of Land Reforms in West Bengal”, Journal of Political Economy, 110(2) pp.239-89.

48 Ross Mallick, Development Policy of Communist Govern-ment: West Bengal since 1977, Cambridge University Press, 1993, chapter 5; The Statesman, Calcutta, February 10th, 1998,

49 Interviews, Two IPS offi cers (retired since), January 15th, 2004. Dr. Amiya Samanta IPS (Rtd DG) corroborated, interview on August 17th, 2005.

50 The Statesman, Calcutta, May 25th, 1980, Basu agreed to give them right to strike”. See also government sponsored Srike, Ananda Bazar, Kolkata, September 30th, 2005

51 Interviews, Even the former chief minister Basu told the that many of the congress leaders used to come to him while in offi ce for some personal favours, September 4th, 2004.

52 Sources, Central Party offi ce, CPI(M) at Alimuddin Street, Kolkata. Memberships of Student Federation, 13 lakh 2 thousand, DYFI – 70 lakh 71 thousand, Krisan Sabha – 1 crore 32 lakh 778 thousand and CITU – 12 lakh 74 thousand, as of December 2004.

53 Ibid.54 Nossiter, Marxist State Governments in India: Politics,

Economics and society, Printer Publishers, London and NewYork, 1988, pp. 138-39.

55 The Statesman, Kolkata edition, Kolkata, January 16th, 2010.56 Census of India, Report 2001.57 The Pratichi Health Report, introduction by Amartya Sen

Number 1, 2005, Pratichi (India) Trust, Delhi, 2005. 58 Aloke Banerjee, “Bengal tops the hunger list” Hindustan

Times, Kolkata, July 14th, 2004. 59 Bardhan and Mookerjee, op.cit, pp 1-2.60 Ananda Bazar Patrika, Kolkata July 27th, 2005.61 Dainik Statesman, Kolkata, July 30th, 2005. 62 Ananda Bazar Patrika, Kolkata, August 8th, 2005. 63 Jayanta Ghosal, Ananda Bazar Patrika, Kolkata, August 21st,

2005. 64 The Statesman, Calcutta, December 10th, 1995; The States-

man, Calcutta, December 20th, 1995. 65 The Statesman, Calcutta, January 2nd, 1997.



W E L F A R E E C O N O M I C S


Creating Jobs for Rural Youth in Andhra Pradesh, India

M I C R O M A C R O


Meera ShenoyExecutive Director, Employment Generation and Marketing Mission (EGMM), Hyderabad

Smriti LakheyJunior Professional Associate,South Asia Sustainable Development Department, World Bank

Parmesh ShahLead Rural Development Special,South Asia Sustainable Development Department,World Bank

One job per poor rural family. This is the goal of the Employment Generation & Marketing Mission (EGMM), which was established in 2005

by the Andhra Pradesh Rural Poverty Reduction Program (APRPRP)1. Andhra Pradesh’s unemployment rate (6.7 percent) is slightly higher than that of India (six percent), but these numbers do not give the full picture of employ-ment challenges. Rural areas are plagued with low incomes and underemployment with many people working in the informal sector, manual labor or seasonal small scale farming. EGMM’s mission is to respond to this problem by facilitating employment in the formal sector — which offers more stable and higher incomes—for economically under-privileged rural youth so that poor households can leave poverty within one generation.

EGMM recruits unemployed or under-employed youth from poor households by working through the institutional network of rural self-help groups (SHGs) and their federa-tions developed by APRPRP. By offering an end to end employment solution (training —placement — post-place-

Box 1: The 5 Key Elements of a Successful

Job Promotion Strategy

1. Aggregating demand of the rural laborforce 2. Scanning the Market to Identify Employment

Opportunities3. Setting up Market-Linked Job Academies4. Matching job seekers with job placements

5. Providing Post Placement Support

Year No of Youth Trained No of Youth Placed

2005-06 12,320 11,200

2006-07 38,194 33,800

2007-08 74,750 65,000

2008-09 101,645 73,891

Total 226,909 183,891

Table 1: The Scale of EGMM



ment support — alumni network) to rural youth, EGGM enables the poor to fi nd jobs in the organized sector on better terms, with better skills, and higher wages. Altogeth-er 1,85,784 youths have been trained and linked to jobs.

To achieve its goal of generating employment for rural youth, EGMM works with the state government, the private sector, and community institutions of the rural poor. Accurate targeting is an important component of the program. EGMM targets rural youth from poor families of SHGs who are between 18 and 28 years of age. Their education levels vary – from having limited ability of just being able to read and write to having graduate degrees. Targeting is highly enhanced by a database of unemployed youth from the poor communities which has been systemati-

cally gathered and updated from remote areas. Of those who received training, about 80 percent have been linked to jobs. While the EGMM program started small - and those trying to start similar employment generation programs should perhaps also begin with smaller pilots which will allow them fl exibility and customization to local needs -today, EGMM has emerged as the single largest jobs mission for the rural poor in India. Its programs, such as Rural Retail Academies command a strong brand name. In four years of operation, 2,26,909 youth have been trained at 450 EGMM training centers that are located in rural and tribal areas. Forty-fi ve percent of these are girls and 37 percent are from the most vulnerable groups of scheduled castes and tribes.

Figure 1: Employment Generation Model of EGMM

Monitors the overall program andControls funds

Oversees theAcademy

Indentifi es youth to be enrolled in the rural academy Counsels identifi ed youth

Children of SHG members who are educated andlooking for work, but are held back by their poverty

Job Placement inPrivate Companies

EGMM RuralAcademy M

ar k e t S c a nJobResource

Person (JRP)

EmployedYouth

ZS

MS

VO

SHG

Registers youth in jobs database

M I C R O M A C R O


The Institutional FrameworkSHG Networks As The Core BackboneEGMM was piloted by Society for Elimination of Rural Poverty (SERP), the implementing agency of APRPRP, to enable the poor households to diversify their sources of livelihoods. SERP relies upon the extensive network of 800,000 SHGs — groups of 10 to 15 poor women who save and rotate funds together, and carry out various livelihoods activities — to target the poorest youth in the communities, disseminate program information and penetrate remote village areas. EGMM recruits children of SHG members in its program. Between 2000 and 2006, during the fi rst phase of the APRPRP program, members of SHGs invested 204 percent more in educating their children than before. This program makes it possible for them to reap the benefi ts of their investments.

The institutional platform of the poor and the governance mechanism used by SHGs to run and monitor other commu-nity programs is used in the jobs program as well.Village Organizations (VOs) — the initial federation of SHGs within the village — are responsible for overseeing the identifi cation of youth for employment and for coun-seling them. Working with them is a new cadre developed and trained by the EGMM called Job Resource Persons (JRP). At Mandal Samakya (MS) level — the fi rst tier at which VOs federate — a three member “job committee” is formed that discusses and shares experiences of the EGMM jobs program across the villages with the vision of creating unemployment-free mandals. The highest level of federation of SHGs at the district level, the Zilla Samakya (ZS), is responsible for monitoring SHGs, VOs, and MSs and it controls the funds fl owing down to the communities. ZS manages logistics such as providing bus passes to youth when they travel to cities for jobs and arranging their accommodations. They also facilitate parent meetings and counsel parents to send their youth, especially girls, to enroll in training centers. This three tiered structure of rural institutions results in a bottom-up approach and ensures ownership of the program from the community.

Public-Private Institutional StructureEGMM has an executive committee with senior government offi cers and an executive director with experience from the private sector. In the fi eld, government offi cers such as District Collectors, Project Directors of the District Rural Development Agencies (DRDA) and Project Offi cers of the Integrated Tribal Development Agency (ITDA) support the program. A core private sector team in EGMM at the state

level builds links with the private sector and incorporates their feedback into the programs of the academies. This unique institutional structure that incorporates governance mechanisms and knowledge from both the private and public sectors is critical for a market-led program like EGMM.

Five Key Elements of the Job Promotion Strategy1. Aggregating Demand of the

Rural Labor ForceAPRPRP piloted the EGMM out of realization that there is a high demand for formal sector jobs in rural areas among young people who are educated but have limited resources and information to pursue them. Assessing the nature and volume of job demands is critical in designing the training programs and the job placements.

Job Resource Persons (JRPs) play an important role in demand assessment and demand creation among the rural youth. JRPs are also members of SHGs. They raise aware-

APRPRP piloted the EGMM out of realization that there is a

high demand for formal sector jobs

in rural areas

Box 2: Recruitment at the HDFC Banks’ Rural BPO

HDFC Bank needed to quickly set up deliverables for new customers for services such as opening bank accounts, issuing credit cards, etc. The Bank set up back room

operations in nine larger cities but faced the twin problems of attrition and the high cost of infrastructure. When the

Bank decided to set up a rural BPO, it approached EGMM for manpower. Says A. Gopinath, Vice President, “This is

the best model the Bank has seen in 13 years of its existence. Productivity is 200% higher than other BPOs- they fi ll 400

forms versus 75 in operations based in cities. Absenteeism is minimal. Work ethics taught by EGMM is amazing.”



ness about the job program in rural areas, facilitate the process of identifying the poorest youth eligible for the program, counsel them, and recruit them into the EGMM program. Trained by the EGMM, these JRPs visit every household in the villages and compile a database of unem-ployed and vulnerable youth for monitoring and targeting purposes. This database is fed into the EGMM software, which assigns a unique registration number for every youth. Based on their qualifi cations and the job demand in the market, registered youth are screened and enrolled in the local training centers.

The VOs play an active role in identifying the eligible youth for the job program and counseling them.

2. Scanning the Market to Identify Employment OpportunitiesBased on secondary source research and data from market scan reports, growth sectors—industries which are experiencing relatively higher growth for next three years— are identifi ed and targeted for employment opportu-nities. EGMM offi cials visit potential companies for employment with a view to understand their entry level employ-ment needs and their specifi cations of trained manpower. Training centers tailor their courses accordingly. Market scans for assessing the job market are important elements of the strategy for creating jobs for rural youth. Trainings for retail, sales, security guards, restaurants business, data entry, electrical operations, plumbing, sanitation, carpentry, painting and decoration, heavy equipment driving, apparel, etc, have been set up in rural and remote tribal areas. Students are matched for trainings according to their education level and interests. For instance, those who have limited literacy skills are trained in construction and textiles. Meanwhile those with eighth grade to graduate level literacy are linked to new economy sectors such as sales, retail, tourism, hotel industry, business process outsourcing (BPO), and other skilled sectors.

3. Setting up Market-linked Job AcademiesRural academies for retail, security guards, English classes,

work readiness, and computer operations, have been set up in partnership with industry. A training course typically lasts from 15 days to three months. Industry associations help with curriculum development and teach at the EGMM academies as guest lecturers. In addition to the sector specifi c technical trainings in classrooms, techniques such as role plays, mock job interviews, and grooming of the trainees are necessary and are used to help students fi t in their new job roles. Emphasis is also given to soft skills development such as grooming, personality development, time and money management, and goals setting. Local teachers are great resources who have been trained to become trainers at these academies. Meanwhile, involving the private sector in creating training modules ensures buy-in from them and matches the supply of labor produced by the academy to the market demands. Hence, most youth are placed with jobs

immediately after completion of their programs. In just three years’ time EGMM academies have become a quality brand name among employers.

To broaden the range of training offered, use the best resources avail-able, and make strategic placements through well-established networks, partnerships have been developed with other organizations that offer employ-ment training. EGMM has forged partnerships with organizations such as

Tally and National Academy of Construction, among many others. EGMM works continuously with partners to improve program quality and the curriculum. For example, EGMM trained all trainers of their 14 partners in all 22 districts in “counseling” and “coping with migration”.

4. Matching Job Seekers With Job PlacementsNetworking with reputable private companies that need entry level manpower is an important element of the place-ment strategy. The market scan, solicitation with companies with employment opportunities and trainings designed to meet the job market needs form a strong platform for the placement part of the job creation strategy. Job fairs or “job melas” are organized in rural training centers creating a platform for many companies to showcase themselves and meet their labor needs. EGMM organizes recruitment fairs

Companies recruit from EGMM both

for the quality of trainees and support offered

to the youth post-placement

M I C R O M A C R O


at EGMM campus locations only. The purpose behind this practice is to sensitize the companies to EGMM, its vision and mission, and inspire them to be mentors of the program.

By employing rural youth, private companies take advantage of recruiting in a more cost-effective manner compared to high urban salaries — a rural workforce can be employed at a more competitive price. This model also allows companies to fulfi ll the government mandate of providing employment to scheduled caste people and fulfi ll their corporate social responsibility. Additionally, the comparative advantage of a well-trained and motivated workforce makes hiring EGMM graduates an attractive option for the private companies. Today EGMM supplies 80 percent of entry level manpower in Andhra Pradesh to large retail chains like Aditya Birlas, fast food chains like McDonalds and Café Coffee Day, and Pureit sales of Hindustan Unilever, among others. EGMM is also a dedicated manpower supplier to the manufacturing unit of Apache, of the global giant Adidas shoes.

Companies recruit from EGMM both for the quality of trainees and support offered to the youth post-placement, which reduces attrition that is a high cost to companies. In retail companies, hiring EGMM trainees has reduced the attrition rate from 55 percent to just 5-10 percent.

EGMM periodically rates companies according to the salary offered; benefi ts extended such as boarding and

lodging, insurance, etc; and the sensitivity of supervisors toward their employees. It blacklists companies with polluting work environment—such as scraping of jeans in textile factories, or in companies where salaries are below the minimum wages prescribed by the state, and does not place the youths in such companies.

A month after placement, arrangements are made for the mothers of the rural youth to visit their children in their workplace in the cities. The sense of pride they feel is unmatched. This also raises awareness of the program and helps in the scaling up process.

Additionally, government offi cials are taken on exposure visits to understand the changing needs and expectations of

companies so that they can provide support accordingly.

Experience has shown that when these newly employed youth return home, they become powerful agents of recruitment themselves. They counsel and motivate their friends and families to enroll in EGMM. Each returning employed youth, brings at least ten new trainees to EGMM. This enables the approach to become cost effective in the long run.

5. Providing Post Placement Support: Orientation, Microfi nance Products, Social Support, and Alumni NetworkOrientation: Once the trainees are offered jobs in compa-nies, EGMM offers them orientation to their new workplace and the new environment. The module includes money management, coping with city life, and other counseling services. Research shows that just placing the trained youth with companies is not enough. Their transitions from rural surroundings to the urban cities need to be carefully man-aged.

Microfi nance Products: In many cases in the past, newly placed youth quit their jobs within early days of the place-ment due to the high expense of city living in the fi rst month

When the newly employed youth

return home, they become

powerful agents of recruitment

themselves

The Rural Community• Fixed income, new skills, and self confi dence• Remittances for the rural families• Lowering of caste stigma• Eradication of poverty within a generation’s time in a sustained manner The Government• Employment creation for rural youth• Poverty alleviation• Prevention of social unrest from high underemployment in rural areas The Private Companies• Competent, loyal, cost-effective workforce• An opportunity to fulfi ll its social responsibilities

Box 3: Impact on Stakeholders



of employment. They were unable to cope when they had not yet received their salaries. To prevent monetary constraints from being the source of dropping out, EGMM facilitates provision of fi nancial tools to smoothen the cost of transition to the city life. It offers micro-loans through federations of SHGs to cover living expenses of the fi rst month in the city. The interest on the loan is decided by the federations and payments are made in small installments.

Social Network: Youth are usually placed in groups in private companies. Having people with similar backgrounds and similar goals prevent a sense of isolation that youth might otherwise feel in a new city environment. Additionally, a help line with counselors is established to provide support and guidance. When necessary, the counselors also facilitate

discussions with the management to address work issues. This mechanism helps in supporting the new employees and boosting their confi dence in the city.

Alumni Network: The EGMM maintain a network of the alumni and keep them engaged as role models for the trainees. Senior alumni share their experience in the training classes as guest lecturers and build the confi dence of trainees before job interviews. Alumni also provide tips on how to deal with customers, cope with city life, and plan their career or goals for higher education. This is very effective for coaching the trainees because most of the youth are fi rst generation white collar workers whose parents are agricultural or other wage laborers, from whom they can get limited guidance when it comes to city jobs.

Using Information Technology to Monitor the ProgramMonitoring a program of this scale is a challenge. To over-come this, EGMM uses transaction based software (www.egmm.ap.gov.in) that gets training, placement and post placement data from each training centre. This software allows EGMM to monitor and analyze its performance even at the village level. Placement and dropout analysis is done seamlessly using this EGMM developed software. This IT backbone has helped bring quality and transparency into the program.

Impacts of EGMMIncreased Income: On average EGMM trained youth earn an income at or above Rs. 42,000 per year in urban areas and

Figure 2: How Households are Using the Remittances (in percentage)

Others8

Clearing Debts38

Savings23

Education12

Assets19

Table 2: Training Cost per Person and ROI (unit: Rs)

Source: EWRC: English Work Readiness & Computer Academy

Training Program Training Cost Monthly Starting Salary Annual Salary ROI (%)

Average 8,992.63 3,487.35 41,484.20 365.36

Construction 6,178.33 3,564.78 42,777.36 592.38

EWRC 9,525.00 3,677.71 44,132.52 363.33

IKP Labs 8,450.00 3.149.81 37,797.72 347.31

Security 4,390.00 3,730.47 44,765.64 919.72

Skylark 10,525.00 5,116.67 61,400.04 483.37

Textile 5,416.67 2,934.00 35,208.00 549.99

Other Services 10,236.11 3,750.67 45,008.04 339.70

M I C R O M A C R O


about Rs. 30,000 per year in rural areas. This amount is three to four times higher than the average income earned by a rural family in agriculture, which is about Rs 10,000 per year. Fifty-one percent of trainees received incremental pay increases within six months of employment. The average increment of the trainees was about Rs. 550 per month.

Remittances: Surveys show that almost all of the working youth send 20 percent of their earning back home. Remit-tances have tremendous effect in improving the fi nancial condition of the families. Those who receive remittances use 38 percent of this additional money to clear previous high cost debts at high interest rates. Twenty-three percent is deposited as savings and 19 percent is used to create assets such as adding a room to the house, buying land, colored televisions, etc. Twelve percent is used to educate younger siblings, and eight percent for other purposes.

Improved quality of life: An impact study of youth2 trained as security guards placed in a multinational company—G4 Securitas—showed that the quality of life of their families has improved because of one family member working in the city. Ninety-four percent of the households say that they are able to afford more nutritious food and 30 percent of the families have invested the money to improve their housing conditions.

Less dependency on money-lenders: Financial conditions have improved since household dependence on money lenders reduced from 74 to 14 percent among the family members. Meanwhile, 92 percent of the households say that their dependence on local moneylenders has reduced. Return on Investments (ROI)

EGMM invests Rs. 8,992.63 per trainee on average for the job training program. Each trainee after placement earns Rs. 3,487.35 per month on average. Therefore, ROI is 365.36 percent3.

Creating Intellectual Assets And An Inclusive SocietyThe intellectual assets generated through EGMM make additional benefi ts to the society. The skills and the knowl-edge generated from the training is a permanent asset, components of which are transferable across jobs. The impact on girls is marked with reduction in child marriages in rural and tribal areas as girls opt for a career in hitherto male dominated sectors like sales. Meanwhile, the rural-urban divide and the unorganized-organized labor divide reduce as rural youth get trained to work white collar jobs.

Endnotes and Additional Thinking 1 Jointly fi nanced by the World Bank and the Government

of Andhra Pradesh, the objective of APRPRP is to enable rural poor and their organizations to improve livelihoods and quality of life. The project invests in building self-managed grass root level institutions and federations of poor rural women. Ten million women have been organ-ized into 850,000 Self-Help Groups comprising of 10-15 women in each.

2 Intellecap Study of Youth trained and placed by EGMM 3 Mariko Katsura, Goldman School of Public Policy,

University of Berkeley EGMM data


refl ect the offi cial policy or position of the organisation. The

document was reviewed and edited by Natasha Hayward and

Melissa Williams of the World Bank.)

Sudharani is from Old Chintalapudi Village in West Godavari District. She could not complete her college education as her father an agricultural laborer could not afford her college fees. Her mother, an SHG member told her about EGMM English and computer centers. After three months training she was placed at Big Bazaar, the largest retail chain in the country earning a salary of Rs. 3500 per month as a customer service associate. Recently, she returned to her home district to work as a cashier with Coromandel Fertilizers which brings in Rs. 5,000 per month. Sudharani says, “Now I will complete my gradua-tion from the university.” She enrolled both her brothers in the EGMM Academy. Today the three working youths have enhanced their family income from Rs. 10,000 year to Rs. 144,000 a year.

Box 4: Future in the Service Sector

M A N A G E R I A L E C O N O M I C S


Lecturer, Management Institute of Durgapur

Ruma KunduLecturer, Management Institute of Durgapur

Indraneel MandalStudent, MBA Final Semester,

Management Institute of Durgapur

Mithun Chakraborty

IntroductionIt is a well recognised fact that India is one of the largest and fastest growing economies in the world. Within the various sectors that form the building blocks of this enormous entity one of important and ‘evergreen’ sectors is the one occupied by the so-called Fast Moving Consumer Goods or FMCGs. Finally, a part of this FMCG sector is made up of food and beverages. Indians belonging to the middle and upper classes by nature invest a substantial amount of time, effort and money against food and beverages, which includes snacks, fast food and soft drinks. Such expenditure is of a discretionary nature and has been observed to rise signifi cantly during festivals and traditional holidays. Again, in case of items like ice creams and soft drinks there a seasonal element in the consumption pattern.

This paper intends to concentrate on a specifi c player in the soft drinks market (viz., Coca-Cola) so as to evaluate its performance vis-à-vis the preference of retailers in certain specifi c areas in and around Kolkata in West Bengal, India. After going through a detailed analysis of market behaviour and future prospect, it may also provide an opportunity to Coca-Cola to frame a good future plan to satisfy maximum needs of the retailers and established its guiding role in the market of Kolkata city, West Bengal, in particular and throughout the country as a whole. The study has undertaken a detailed view of the tasks, which have been undertaken to analyse the market of Coca-Cola. The methodology adopted

involved the use of questionnaires in order to ascertain the preferences of retailers regarding the Coca-Cola. The re-search areas included Dunlop, Belghoria and Tobin Road in Kolkata, West Bengal. It would now be relevant to consider the salient features of the beverage industry in India.

Beverage Industry in IndiaIn India, beverages form an important part of the lives of people. It is an industry, in which the players constantly innovate, in order to come up with better products to gain more consumers and satisfy the existing consumers. The beverage industry is vast and there various ways of segmenting it, so as to cater the right product to the right person. Some of the possible ways of segmenting this industry are as follows:(a) Alcoholic, non-alcoholic and sports beverages(b) Natural and synthetic beverages(c) In-home consumption and out of home on premises

consumption(d) Age wise segmentation i.e. beverages for kids, for adults

and for senior citizens(e) Segmentation based on the amount of consumption i.e.

high levels of consumption and low levels of consumption.If the behavioural patterns of consumers in India are closely

noticed, it could be observed that consumers perceive bever-ages in two different ways i.e. beverages are a luxury and that beverages have to be consumed occasionally. These two perceptions are the biggest challenges faced by the beverage

RETAILERS’ PREFERENCES FOR COCA COLA : A CASE STUDY

WITH SPECIAL REFERENCE TO THE KOLKATA REGION

M I C R O M A C R O


industry. In order to leverage the beverage industry, it is important to address this issue so as to encourage regular con-sumption as well as and to make the industry more affordable. It has been found that the following strategic elements play a strong role in increasing consumption of the products of the beverage industry in India:(a) The quality and the consistency of beverages needs to be

enhanced so that consumers are satisfi ed and they enjoy consuming beverages.

(b) The credibility and trust needs to be built so that there is a very strong and safe feeling that the consumers have while consuming the beverages.

(c) Consumer education is a must to bring out benefi ts of beverage consumption whether in terms of health, taste, relaxation, stimulation, refreshment, well being or prestige relevant to the category.

(d) Communication should be relevant and trendy so that consumers are able to fi nd an appeal to go out, purchase and consume.

Review of LiteratureThe literature on the marketing of the soft drinks is quite extensive though there is lack of suffi cient work on the preference of retailers in the Indian context.

Stephen (2008) has stated that while formulating a new beverage, the new product would need to be differentiated by improving the sensory characteristics. Four factors were identifi ed for the formulation: four colour intensities), three fl avourings, two label types (soft versus hard), and two pack sizes (standard versus oversize). By using both quantitative (hedonic testing) and qualitative (focus groups) approaches, the researchers found that the primary factors behind drive consumer preference for this concept are colour intensity and fl avouring.

Tepper (1998) has examined the relative contributions of taste and health considerations on consumer liking and purchase intent of cola drinks. Davis (2007) has used prefer-ence tests on varieties of cola drinks and orange juices using three response protocols: the traditional paired preference



test with the "no preference" option, a 9-point hedonic scale and a 6-point hybrid hedonic/ purchase intent scale.

According to Smith (2008) brand preference in FMCG products and increasing competition, especially due to globalisation, is motivating many companies to base their strategies almost entirely on building brands.

Another paper by Snedden (2008) tried to investigate the degree of brand awareness with regard to various food products in relation to the background and education of the household and the consumption pattern of various food products consumed by respondents in the light of their areas, income levels and education. The study reveals that there is low degree of brand awareness in rural areas, whereas there is a moderate degree of brand awareness in urban India. The highly educated rural and urban respondents have high degree of brand awareness for many food products while the less educated rural and urban respondents have low degree of brand awareness for many food prod-ucts.

A recent study involving Danone found that the intensity of colour and fl avour are the key drivers behind consumer acceptance of beverages. However, packaging and labelling are not as important for winning over consumers, according to fi ndings published in the Journal of Food Quality and Preference.

Objectives of the StudyBased on the above samples of existing studies, it seems imperative that the proposed study should be built around the following basic objectives:(i) To study the retailers’ preferences with regard to Coca-

Cola(ii) Identifying the factors that are responsible for developing

preference towards accommodating soft drinks of Coca-Cola product in the retail outlet.

(iii) Exploring the correlation between the volumes of demand of the product with the overall preference level.

(iv) To understand the perception in the minds of the retailers towards the offered schemes.

(v) To ascertain whether the credit policy, profi t margin, storing tools etc. are playing a vital role in the preference

for Coca-Cola products.

Scope of the StudyThis study consists of the data sources (primary as well as secondary), sampling procedure, detailed analysis and interpretation of data, methods used in data analysis. This study may contribute to an understanding of the current situation of the company as well as the brand position of the products under Cola-Cola portfolio. It may also enable development of appropriate measures for the various at-tributes which contribute to making Cola-Cola the predomi-nant preference among the retailers.

Research AreaIn order to have an idea of the preference of the retailers’ regarding Coca-Cola involved in selling Coca-Cola products, data have been collected by personal interview method on the

basis of a pre-structured questionnaire from different areas of Kolkata, West Bengal under three distributors. Since the areas are large in size and there are many retail outlets under one distribu-tor, purposive sampling has been adopted to select the retail outlets under each distributor. The number of samples selected from each distributor is 20 and the total sample size under the three distributors is 60. The detailed descrip-tions about the locations are given

below.Location 1: The 1st location is Dunlop bridge area consisting of many sub areas, viz., Narendra Nagar, Rabindra Nagar, Dunlop Super Market, B.T. Road, Ashokgarh, Sabeda bagan etc. under the Baranagar municipality. Location 2: The 2nd location is Belghoria consisting Rifl e range RD., Nilganj Road, M.G. Road, Bata Gali, Old Nimta Road, Patna school area, etc. under Kamarhatty Municipality. Location 3: The 3rd sampling area includes Tobin Road, Pal Para, Ananya, Z.B Road,etc. under the Baranagar Municipal-ity.

Research Methodology The basic research design of this paper has been outlined in the following table:

A research study involving Danone

found that the intensity of colour and flavour are very crucial in

beverages sector

M I C R O M A C R O


products.H1B - The perceptions regarding the profi t margin in the mind of the retailers are same across the distributors.H1C - Profi t margin is independent of the types of retail outlet.H2. Availability of Storage Facilities

H2A - The storage facility offered by the Coca-Cola Company plays a role for selling the Coca-Cola products.H2B - The perceptions regarding storing facility offered in the mind of the retailers are same across the distributors.H2C - The quality of the storing facility offered is independ-ent of the types of retail outlet.H3. Credit Policy

H3A - The credit offered by the distributors plays a role for the selling of Coca-Cola products.H3B - The perceptions regarding offered credit policy in the mind of the retailers are same across the distributors.H3C - The credit policy offered is independent of the types of retail outlet.H4. The Schemes

Here schemes refer to the extra facilities or the extra bottles or any type of gift given by the company to the retailers with the particular purchase. H4A - The schemes offered by the distributors play a role for the selling of Coca-Cola products.H4B - The perceptions regarding credit policy offered in the mind of the retailers are same across the distributors.H5. Behaviour of the Distributors

H5A - The behaviour of the distributors plays an important role the sale and retention of Coca-Cola products.H5B - The perceptions regarding the distributor’s behaviour in the mind of the retailers are same. H5C - Distributors’ behaviour is independent of the types of retail outlet.H6. Delivery

H6A - The punctual delivery plays signifi cant role in the sale of Coca-Cola products.H6B - The perceptions regarding delivery of products by the distributors in the mind of the retailers are same for all the distributors.H7. Point of Purchase Tools

H7A - POP tools play a role for selling Coca-Cola products.H7B - The perceptions regarding the POP tools in the mind of the retailers are same for all distributors.

TYPE OF RESEARCH

• Explorative, Descriptive and Relationship

RESEARCH QUESTION

• Retailers’ preference for Coca-Cola products

SAMPLING TECHNIQUES

• Convenience sampling• Stratifi ed sampling

SAMPLE SIZE • 60 (20 for each Distributor)

SAMPLING AREAS • KOLKATA-Baranagar & Belghoria

PRIMARY DATA • Responses through questionnaire• Personal interviews with the respondents.

SECONDARY DATA • Websites• Company sources

RESEARCH TOOLS • Z-test• Analysis Of Variance (ANOVA) test

• Chi-Square Test.

UNIT OF ANALYSIS • Retail outlet owners or the retail keepers

Table 1:

Hypothesis DevelopmentTo study the retailers’ preference for Coca-Cola products, some attributes were very necessary upon which the frame-work of the study could be designed. We have obtained these attributes from the literature survey, objective evidence discussions with the company representatives and lastly, pilot surveys in our sampling areas. Subsequently, on the basis of these identifi ed attributes or factors, we developed hypotheses for identifying retailers’ preferences. We have developed various types of hypotheses for testing the signifi cance of those hypotheses, to test the variance between the different distributors and to check the dependency between various types of retail outlets with some attributes. This development of hypotheses was made on the basis of the identifi ed at-tributes that are taken into account for measuring and analyzing preference of the retailers for Coca-Cola products. The attributes or parameters on the basis of which the project has been prepared are as follows: 1. Profi t margin2. Storage facility (fridge and crate)3. Credit policy4. Schemes5. Behaviour of distributors6. Punctual delivery and7. Communication in between distributors and the retailersThe hypotheses tested are as follows:H1. Profi t Margin

H1A - Profi t margin plays a role in the sale of Coca-Cola



* at 5% level of signifi cance

Sl. No. Hypothesis Test Statistic* Result Inference

1 Coca-Cola offers a good profi t of margin over the competitors.

Z REJECTED There is an iota of dissatisfaction towards the profi t margin offered by Coca-cola in comparison with its competitors.

2 The perceptions regarding the profi t mar-gin in the minds of the retailers are same

across the distributors.

ANOVA REJECTED The profi t margin changes with the distributor.

3 Profi t margin is independent of the types of retail outlets.

2χ ACCEPTED The type of the retail outlet has no impact on the profi t margin.

4 Coca-Cola offers a better storage facili-ties.

Z REJECTED There is dissatisfaction in the mind of the retailers regarding the storage facilities offered by Coca-Cola.

5 The perceptions regarding the better stor-age facility in the mind of the retailers are

same across the distributors.

ANOVA ACCEPTED As far as storage facilities are concerned, there isno variance among the distributors.

6 The offered storing facility is independent of the types of retail outlets.

2χ ACCEPTED The storage facility remains same acrossdifferent types of retail outlets.

7 Credit offered by the distributor is satis-factory.

Z REJECTED There is scope for dissatisfaction in theminds of the retailers towards the credit offered by the

distributors.

8 The perceptions regarding the offered credit policy in the minds of the retailers

are same across the distributors.

ANOVA ACCEPTED There is no variance among the distributorswith regard to the credit policy.

9 The credit policy offered is independent of the types of retail outlets

2χ ACCEPTED The credit policy offered is same across all typesof retail outlets.

10 The schemes offered by the company are very profi table.

Z ACCEPTED Sometimes the schemes offered are profi table.

11 The perceptions regarding the offered schemes in the mind of the retailers are

same across the distributors.

ANOVA ACCEPTED There is no variance among the distributors the matter of the schemes offered.

12 The behaviour of the distributor is satis-factory

Z ACCEPTED Most of the retailers think that the behaviour ofthe distributors is satisfactory.

13 The perceptions regarding the behaviour of distributors in the minds of the retailers

are same for all the distributors.

ANOVA ACCEPTED There is no variance among the retailersregarding the behaviour of the distributors.

14 The behaviour of the distributors is inde-pendent of the type of retail outlet.

2χ ACCEPTED The type of retail outlet has no impact on the credit policy offered.

15 The delivery of Coca-Cola is very much punctual

Z ACCEPTED By and large, the retailers are satisfi ed about the delivery of Coca-Cola.

16 The perceptions regarding the delivery time in the minds of the retailers are

same for all the distributors.

ANOVA ACCEPTED There is no variance among the retailers with regard to the delivery time of the distributors.

17 Coca-Cola offers advertisement tools for facilitating the sale.

Z ACCEPTED Retailers have expressed their moderate disagreement re-garding this statement.

18 The perceptions regarding the delivery of point of purchase tools in the minds of

the retailers are same for all the distribu-tors.

ANOVA ACCEPTED There is no variance across the distributors regarding the delivery of POP tools.

19 The distributor maintains good commu-nication.

Z REJECTED According to the retailers the distributors are not serious about maintaining proper contact.

20 The perceptions regarding the delivery of point of purchase tools in the minds of

the retailers are same for all the distribu-tors.

ANOVA ACCEPTED There is no variance in the perception regardingthe level of communication maintained by the distributors.

Findings

M I C R O M A C R O


H8. Communication with Retailers

H8A - Communication with the retailers plays an important role in the sale of Coca-Cola products.H8B - The perception in the mind of the retailers regarding the communication maintained by the distributors is same for all the distributors.

These hypotheses have been tested using the z-test, analysis of variance (ANOVA) and chi-square test

Conclusions and RecommendationsDuring the course of the study it was noticed that the retailers answered the closed end questions willingly without any additional encouragement. From the analysis of the data collected and from the experiences gained during the project the following conclusions have been arrived at:

Coke is most popular amongst its retailers mainly because of the demand of the consumers. It is well known that there is strong competition between Pepsi and Coca-Cola.

In the opinion of the respondents, the most important parameters affecting the business include profi t margin, credit policy and diverse schemes.

It is worth mentioning that throughout the survey the preferred soft drink among the ultimate consumers has turned out to be a product of Coca-Cola. In other words, Coca-Cola has acquired most of the market.

When the question was put to the retailers regarding the extent to which the profi t margin afforded by Coca-Cola is higher compared to the competitors, it was observed that there was moderate disagreement among the retailers.

On the question of fl exibility in credit policy the retailers once again exhibited moderate disagreement.

On the basis of the preceding analysis the following recom-mendations may be offered:

The Coca-Cola Company is advised to introduce more schemes in order to maintain their market position.

The distributors are advised to make their credit policy more fl exible.

The company must be aware of and stay up to date on the activities of its primary competitors.

From time to time the company should utilise greater and more effective systems of word of mouth and POP advertise-ments in order to stay competitive in the market.

A constant watch should be maintained on the distributors, because in some cases they are found to be cheating the

retailers, thus affecting the goodwill of the brand.The company should carry out a detail demand survey at

regular interval to know about the unique needs and require-ments of the retailers. It should also resort to various types of sales promotion to increase its sales volume.

The company should take the responsibility to inform customers about their current as well as about upcoming schemes to the retailers.

Lastly, we can say that the Coca-Cola company is on the top of the market according to the consumer’s choice; but in order to be the retailers’ preferred brands the company and the distributors should focus on the parameters highlighted above.

References and Additional Thinking• Raz, C., Piper, D., Haller, R., Nicod, H., Dusart, N., and

Giboreau, A.; “From sensory marketing to sensory design:

How to drive formulation using consumers’ input?”; Food Quality and Preference; Volume 19, Issue 8, pp. 719-726.

• Daniells, Stephen, “Colour and fl avour rule consumer

preferences: Study”; Food Navigator.com; 7th October 2008.

• Muris, Timothy J, Scheffman, David T and Spiller, Pablo T; “Strategy and Transaction Costs: The Organization of

Distribution in the Carbonated Soft Drink Industry”; Journal of Economics & Management Strategy; Volume 1, Issue 1, pp. 83-128.

• Tepper, J.; “Relative Contributions of Taste and Health

Considerations on Consumer Liking and Purchase Intent

of Cola Drinks”; Journal of Food Science and Technology; 15th September 1998; pp. 21-32.

• Davis, W.; “Understanding Consumer Choice through

Preference Tests for Cola Drinks and Orange Juices using

Three Response Protocols”; Journal of Food Science and Technology; July 31st, 2007; pp. 43-59.

• Smith, R.A.; “Study of Factors Responsible for Brand

Preference in FMCG Sector”; Journal of IMS; Vol. 5, no.1, January-June 2008; p. 40-49.

• Snedden, M.R.; “Consumer Awareness and Consumption

Pattern of Food Products”; Journal of IMS; Vol. 5, no.1, January-June 2008; pp. 64- 71.



M O N E T A R Y E C O N O M I C S


Madhusudan RajMises University Alumni, Ludwig von Mises Institute, Auburn, Alabama, U.S.A.

INFLATION AND ITS CURES

P R I C E P U Z Z L E S


Introduction Infl ation is the most pressing and grossly misunderstood problem of our time. The cures of infl ation are simple. The only diffi culty with infl ation is that its cures are politically incorrect, and thus are never implemented. Political correct-ness or incorrectness does not render the study of infl ation useless. Ideas are always important in the long run, and so we need to understand the problem of infl ation and its cures without worrying for its political nature. For us its economic nature is of utmost importance than anything else. Infl ation and Its CausesA clear defi nition of infl ation is essential to fully comprehend its various facets. This is important because the modern mainstream economics defi nition of infl ation is faulty, and thus completely misguiding. Mainstream neoclassical economics defi nes infl ation as, an increase in the overall level of prices in the economy (Mankiw, 2001, p.

13). A logical scrutiny of this defi nition reveals its serious errors. Traditionally, after the Keynesian revolution [sic] in economic thought, infl ation is regarded as a macroeconomic phenomenon, and so the term overall level of prices in its defi nition. But the crucial question here is, does such phenomenon of overall level of prices exist in the market of individual exchanges? And the answer of this question is a defi nite No. In the market economy there are only individual product prices prevailing at a given moment of time. Adding up all these different prices in one index, and then averaging them out to calculate various indexes like WPI or CPI is wrong because there is no average price here, and there are no average consumers who are paying this average price. Measurement of purchasing power of money is an impossible task because, as believed by the economists, money never remains neutral. Its value is always changing in the market. Every price of goods and services is determined by a unique relationship between demand for goods and services and money on one side, and their stock on the other. In every exchange these factors are so intricately interwoven that it is impossible to treat them separately. Goods and services are only expressed and appraised in terms of money, and not measured1. Money is not an objective

standard of measurement. Moreover, prices do not have any economy wide ‘level’. Different product prices rise and fall several times in the market. Prices also do not rise at once so that we can say that the level of overall prices has risen. Actually when infl ation is underway2, different product prices changes step by step as newly printed money spreads through-out the economy. This phenomenon was fi rst analyzed by Richard Cantillon in his famous Essays (Cantillon, 2001), and is known as Cantillon Effect after him.

Apart from the impossibility of comparing various money prices, and the untenability of the concept of level of prices, the mainstream neoclassical defi nition also focuses solely on the effects of infl ation rather than its true causes. Rise in prices is not a cause of infl ation, but is its effect. Focusing the attention on effects of infl ation prevents one from knowing the

true causes of infl ation. And unless and until the true causes of infl ation are known it is impossible to cure it.

Let us then see the true causes of infl ation. To understand the true causes we must defi ne infl ation in such a way so that its defi nition focuses on its causes and not on its effects. This correct defi nition was given by the Austrian school of economics. Henry Hazlitt defi ned infl ation as, ‘an increase in the quantity of money and credit. Its chief

consequence is soaring prices. Therefore infl ation—if we misuse the term to mean the rising prices themselves—is caused solely by printing more money. For this the govern-ment’s monetary policies are entirely responsible’ (Hazlitt,

2004, p. 41). Let us now analyze what happens when the quantity of

money and credit increases in the economy.

Infl ation and Its ConsequencesRising pricesThere are two chief ways in which the quantity of money can increase in the present day monetary regime of government paper money with its central bank, and the system of fractional reserve banking. We take each case in succession and see its consequences.

Money is one commodity in the individual market exchange. This knowledge of money as a commodity was widespread in

The only difficulty with inflation

is that its cures are politically incorrect, and thus are never implemented



the past, but is lost today. Carl Menger (Menger, 2009) demon-strated how some commodities (e.g. gold and silver) have historically evolved as money (a common medium of ex-change) from the barter economy. And because money is just another good/commodity into the market process, its price is determined, similarly like the prices of any other good, by the forces of market demand for money and its available stock. Price of money is its purchasing power. Purchasing power of money determines how many goods and services a unit of money can buy in the market. This also determines person’s real income. We now see how price of money is determined. Figure 1 presents the money relation. On vertical axis is the PPM (purchasing power of money), and on horizontal axis is the quantity of money. Dm curve represents the total demand for money to hold, and vertical curve SS presents the total available stock of money in the society. The intersection of demand for money and the total available stock of money at A determine the initial purchasing power of money at OQ. Now, it can be seen that, as the total quantity of stock increases from OS to OS1, the purchasing power of money (its price in terms of other goods and services) decreases to OP from the initial higher level of OQ.

This simply means that now a unit of money can buy less number of goods and services. It also means that the real income of a person, who is having these units of money in his cash balances, has now declined due to this increase in the quantity of money. Looking from the goods and services side, this means that prices of goods and services have risen! Less goods and services are now selling at the same amount of money than before the increase in the quantity of money. This price rise of goods and services is the effect of infl ation for which we all worry a lot.

As our analysis shows, money is just another commodity whose price is determined by its demand and supply in the market. The only important difference between money commodity and other commodities is, that when price of other commodities (e.g., Milk) decline it confers social benefi t, but when price of money declines it results into social misery! Money is a common medium of exchange. Everyone demands money to later exchange it for other goods and services. No one wants to consume money directly. Precisely because of this reason, increase in the quantity of money or stated otherwise, erosion in the purchasing power of money results in social misery by lowering the real income, and thus standard of

living of the people.Sometimes prices of goods and services do not rise rapidly

or are stable when infl ation is underway. This happens because most probably the productivity of labor and capital goods is rising with the rise in the quantity of money. But, here again, infl ation is eroding the standard of living of people by not allowing the market prices of goods and services to fall due to the increased productivity of labor and capital goods. In-creased productivity of factors of production will increase the supply of various goods and services, which will lower their prices. We do not see these lower prices because of infl ation3. What we see is slowly rising prices or stable prices. But the notion of “stabilization of price” is absurd4. Everyone benefi t when prices fall, and not when they remain stable or when they are rising. The tendency of prices is to fall in the free market, but government intervention in the free market through infl ation never allows this fall to materialize.

Booms and RecessionsRising prices is one menacing effect of Infl ation, but not the only one. Misallocation of resources is another chief evil effect of Infl ation. The easy money policies of the government’s central bank induce entrepreneurs for starting new capital

Purc

has

ing

Po

wer

of

Mo

net

ary

Un

it

Quantity of Money

O

Q

P

S

S

S1

S1

Dm

B

A

Dm

Figure 1 Money Relation (Determination of Pur-chasing Power of Money)



projects. These projects are unsustainable in the long run because they are not backed by actual savings of people. Mal-investment results in the capital goods industries due to artifi cial lowering of interest rates by the central bank. Re-sources move from the consumer goods industries, where they are actually required, to the capital goods industries. This artifi cial boom fi nally ends in a bust5. Moreover, if govern-ments continue to infl ate during recession time too, then recessions turn into great depressions6. 1929’s Great American Depression and Japan’s 20 years long depression of present time are prime examples of this phenomenon7. Such reces-sions and depressions bring economic hardship and misery for the masses.

After seeing the dire effects of infl ation we now turn our attention to the chief sources of increase in the quantity of money. Thorough understanding of these sources can only enable us in eliminating infl ation.

Sources of Infl ation Government Money Printing Through Central Banks We live in a world where governments around the world have monopolized the issuance of money supply in the econo-my. The legal tender laws inhibit any private printing of money. There are two major reasons why governments have slowly monopolized the money market. Both these reasons are related with the increase in governmental activities in our times. We now turn our attention towards these reasons.

Welfare StateStates use to be very limited in old times. Its only activities were of protecting life, liberty and property of its citizenry. This is the so called police or the night watchman state of the olden times. But once monopoly of protection was granted to the State, it slowly expanded its powers and its interventionary activities (the problem of, who will watch the watchman?!). The police state became the welfare state of modern times. Today we see that government is involved in almost every activity one can think of (except providing protection and justice to its people8!). This expansion in activities is only possible when it has resources (e.g. money) to carry them out.

And these resources it can only have if it has a direct control over the money supply. This control it gained by slowly mo-nopolizing the money market. This monopolization was necessary because government cannot produce anything to earn money. Government cannot acquire money justly through the sell of its production like other individuals. There are three chief ways through which state can acquire resources:

1. Taxation,2. Public debt; and3. Money printingFirst two options are limited in its scope for acquiring

increasing amount of resources. Government cannot impose higher tax rates on its citizens because that will result in public uproar against the government, and a possible demise of its rule. Also, as the famous Laffer curve demonstrates, increased

tax rates will result in decreased rev-enues from taxation. Through public debt also it cannot acquire more resources because those funds are available in limited amount, depending on how many people are voluntarily willing to buy government bonds. In such a situation, only third option is open for acquiring the endless amount of resources. Printing money is the easiest and the most hidden way for the government to get hands onto the

needed resources. For this reason, and this reason only, it has monopolized the money market. This way, whenever in need of money, it can just give orders to central banks to run the printing presses day and night9. One clear evidence of this is the endless money which government is printing in this recession time to unduly bailout various banks and businesses (the so called stimulus packages). Various governmental plans require money, and this money is acquired easily by printing it. This is the one major way in which the quantity of money is slowly expanding in today’s societies. This slowly increasing quantity of money (i.e. infl ation) is pushing prices upward in the economy. Whenever government prints and spends money quickly prices soar up quickly, as is happening right now. Prices of various goods and services were much lower 25 or 50 years back. We have frequently heard our grandparents complaining that in their time things were much cheaper than today. We all hear this from our grandparents, but very few of

Mal-investment results in the capital goods

industries due to artificial lowering of interest rates by the central bank



Figure 2. Indian Central Government Total Expenditure with CPI 11,12

(A) (B)

Go

vt.

Exp

end

itu

re

1990 1995 2000 2005 2010

1200000

1000000

800000

600000

400000

200000

0

Year

Govt. Expenditure (In Crores of Rupees)

CPI

an

d G

ov

t. E

xpen

dit

ure

Year

1990 1995 2000 2005 2010

140

160

120

100

80

40

60

20

0

Govt. Expenditure (In Thousand of Rupees)CPI

us try to fi nd out the true reason behind this situation. Our analysis tells us that this price rise is due to slowly increasing governmental expenditures. As government expanded its activities by printing money, it resulted into slowly (and sometimes rapidly) rising prices. We must not forget one fact, which is historically proven, that all governments are inher-ently infl ationary in nature.

Figure 2 below presents the data of Indian government’s total expenditure in various years as seen in its budget, and the CPI (consumer price index) with all its defects10. Evidence of the welfare state infl ation (fi gure A), and its effect (fi gure B) can be clearly seen.

Misallocation of Resources through Government Spending and Rising PricesIncreasing government expenditures result into rising prices

from another way too. This way is misallocation of resources by the government. Government squanders the scarce re-sources; this results into lower supply of those goods and services which consumers are demanding. Free market allocates resources exactly where they are needed by the consumers. For example, suppose in the economy there are three types of fruits available, banana, oranges and apples.

Consumers are enjoying all three fruits in the present time. Now suppose consumer taste changes, and instead of eating oranges they now want more bananas. They will increase the demand for banana, and this will increase the price of banana which will increase profi ts of banana farmers. On other side the lower demand for oranges will reduce the price of oranges, and thus profi t of orange farmers. Seeing the higher profi t of banana farmers some orange farmers will shift their produc-tion to banana from oranges. Resources will fl ow in the direction of banana production instead of orange. This entry of new fi rms will increase supply of banana which will lower the price of banana. This situation will continue until new changes occur in the underlying market data e.g. consumer taste, their income, natural factors etc. In our dynamic world market thus allocates resources where they are required most by the consumers. Producers are guided by consumers. But

governments do not allocate resources according to the consumers’ requirements. They allocate resources according to the wishes and whims of their central planners, politicians, special interest groups etc. Only handful of such government people decide where to direct resources. For example, suppose, consumers’ needs are food and clothing but their government will spend resources in producing gardens and



Table 1. Indian Defense Expenditure

Year Total Defense Expenditure (Rs. in Crores)

2005-06 80548.98

2006-07 85494.64

2007-08 85494.64

2008-09 105600

Source: Ministry of Defense website (http://mod.nic.in/aboutus/body.htm#as6 16).

guns! This will reduce supply of food and cloth because private sector resources for production of these items are reduced through government taxation, debt and infl ation. And this reduced supply of various goods and services will push up their prices in the economy.

Warfare StateIf welfare state is one evil cause of infl ation then warfare state is another sinister cause of infl ation. For the state, any activity outside its own boundaries requires that it somehow gain control over the resources of other nation states. This is only possible if they attack them and win their territories13. This desire of winning other nation states has resulted into the longest and bloodiest wars in the history. All these battles require gargantuan amount of resources14. Here again, taxation and public debt will be insuffi cient for acquiring these resources. Printing money is the only way which enables governments around the world to fi ght these bloody battles. Without the central banks and their printing machines it is impossible for any nation state to wage such costly wars against other nation states15.

Figure 3 presents the evidence of increased war spending in various regions around the world.

Indian defense budget is increasing every year. Table 1 shows this data. It is evident that the military expenditures are rising with time.

Credit Expansion by Banks Apart from governments, commercial banks can also increase the quantity of money without the corresponding increase in production of goods and services. This infl ation banks bring about by using their system of fractional reserve banking. The process of creating money out of thin air is famously known as money creation17. Today’s banks can expand the money supply without any efforts because they work (and are legally sup-ported and allowed to work in this way by the government) on the basis of the fractional reserve banking system. In this system, banks are not required to keep 100 per cent reserve deposits of the depositors with them all the time. They can (and they do) misappropriate money of the depositors, and use it to lend it to other people for making illegal profi t out of it. Banks evolved basically as the warehouse for keeping people’s deposits safe. Their only work was to safe guard people’s money18. But, as slowly bankers realized that not all

Military expenditure, by region, 2008

To allow comparison over time, the above spending fi gure are in US dollars at constant (2005) prices.

RegionSpending,2008 ($b.)

Increase,1999-2008 (%)

Africa 20.4 +40

North Africa 7.8 +94

Sub-Saharan 12.6 +19

America 603 +64

Caribbean .. ..

Central America 4.5 +21

North America 564 +66

South America 34.1 +50

Asia and Oceania 206 +52

Central Asia .. ..

East Asia 157 +56

Oceania 16.6 +36

South Asia 30.9 +41

Europe 320 +14

Eastern 43.6 +174

West and Central 277 +5

Middle East 75.6 +56

World Total 1226 +45

Figure 3. World Military Expenditure.

Source: SIPRI (Stockholm International Peace Research Institute) Yearbook 2009.

the depositors return at a time to withdraw their deposits, they started lending these deposit receipts, mixed up with other fraudulent pseudo-receipts, which are not backed by any reserves, to other customers in the form of loans and other such credit extensions. One example will make this point clear. Suppose, person A deposits 1000 rupees in bank X. Bank X knows that A is not going to return to withdraw his money



until next two years. In this situation it sees an opportunity of using A’s deposits to make illegitimate profi t. It lends A’s 500 plus extra 500 rupees of pseudo-receipts to person B and C at the charge of 10 percent interest rate for the period of one year. Person B and C will return 1000 rupees plus 100 rupees as an interest payment to the bank at the end of one year. In this way, banks pocketed 600 rupees of profi t out of 1000 rupees of original deposit. 500 rupees it created out of thin air, without producing anything. This is how today’s banks create infl ation.

Cures of Infl ationAfter looking at the true causes of infl ation, it is easy to see its cures. In following paragraphs I discuss what we need to do to stop infl ation, and its malicious effects of price rise and booms and busts.

We now know that the welfare warfare state is the major cause of infl ation. If anyone is serious about stopping infl ation, then s/he must favor a total cut in governmental activities. Any step in the direction of total cuts in governmental activities will be an improvement in the direction of halting and eliminating infl ation fi nally. Unless and until we do this, it is impossible to cure infl ation.

The fractional reserve banking system is a second major cause of infl ation. This system should be adjudged illegal because of its fraudulent nature. All the deposit banks should function on the basis of 100 percent reserve standard. The activity of lending money to the businessman and needy people should be left over to the stock markets and/or credit banks, where explicit contracts about how the bank is going to use their money are signed between the depositors and the banks.

Central banks should be abolished because this is the institution which helps the fraudulent banks to survive when they go broke because of reckless embezzlements. In the absence of central banks and their bailouts, all banks will behave prudently in keeping their reserves in tact so that they do not default on their deposit payments. Central bank is also the institution which prints money for the welfare warfare government, and thus it should be dismantled as soon as possible19.

Today’s paper money standard allows governments, central banks and the banking industry to create money out of thin air. The cheap paper money can be printed endlessly. We need to

stop this. Adopting the market based commodity money, such as Gold or Silver, will take the endless paper money source away from the fraud governments and banks. Market based Gold standard with 100 percent reserve requirement is the real solution of infl ation.

Above outlined steps can only safeguard people’s standard of living against the vicious infl ation. No other options are open for mankind to stop the infl ationary policies of the governments, the fraudulent banks and other such money cranks, who think that by printing money they can make people rich! To blame speculator, hoarder etc., for infl ation is a trick of the establishment for covering up their sins and diverting people’s attention20. By blaming these people, governments silently continue their infl ation. On one side the government (all the parties, without exception) promises everyone that it wants to stop infl ation, and on other side it continually breaks this promise. Populace can never under-stand these hypocrisies of government without a sound knowledge of the science of human action i.e., Economics. The Praxeological laws are necessary to understand, and fi ght infl ationary governments and banks. Without this knowledge our world will never see an end of infl ation.

Endnotes1 For a detailed critique of this mainstream view of ‘money

as an objective standard of measurement’ and ‘level of price’ please refer to, (Rothbard, 2004, pp. 831-851)

2 We will soon see the correct defi nition of infl ation.3 This is the unseen effect of infl ation.4 And thus absurd are all the central bank and governmental

policies of price stabilization. We do not want stable prices. We want falling prices.

5 For a groundbreaking explanation of this phenomenon please see, (Hayek, 1967; Mises, 2009).

6 For a detailed explanation of this phenomenon please refer to, (Rothbard, 2000).

7 Discussion of Japan’s long economic debacle is given in, (Powell, 2002). And the recent Dubai debacle is another case at our witness here.

8 Professor R J. Rummel of the University of Hawaii has estimated that, governments around the globe have killed 26,20,00,000 of its own people (See his website for evidence and more analysis of this data - http://www.hawaii.edu/

powerkills/). This phenomenon is described as Democide by



Prof. Rummel. And once we take into account people being killed between various nations wars (see next section for discussion of this issue) the number reaches to mind boggling heights.

9 The offi cial words for this process are monetizing debt, market borrowing etc. These fancy words are linguistic tricks of government. Governments do not borrow anything from the market i.e., people. Their borrowings come directly or indirectly from the Central banks. The compli-cated mechanism of issuance of treasury bills (T-bills) etc., is a hidden way of fooling everyone. To get a clear picture of central bank as giant counterfeiting machine please read Robert Murphy’s illuminating article (Murphy, 2010).

10 CPI is used here for the comparison because that is the only available indicator of rising prices. What we actually need is a time series data of separate product prices. For example, the price of groundnut oil in two different years, say, 300 Rs/Ltr in 1980 and 1500 Rs/Ltr in 2009, provides a clear understanding of rising prices to the common man, instead of any index number or a percentage fi gure.

11 Source: Union Budget (various years) and KILM 6 soft-ware, ILO.

12 In fi gure 2 (B) expenditure data is converted into thousands of rupees to facilitate its comparison with the CPI.

13 The peaceful way of free trade with other nations again is politically incorrect, and so hardly tried by the governments.

14 For example, Joseph Stiglitz in his famous work, The Three Trillion Dollar War: The True Cost of the Iraq Confl ict (Stiglitz, 2008) estimates that American cost of Iraq war alone is three trillion dollars.

15 For the evidence of the sinister role played by the central banks in funding state wars see, (Koning, 2009).

16 Accessed on 1/19/2010 5:47:52 PM.17 To further understand how today’s commercial banks

create money out of thin air through the process of money creation, please refer to, (Rothbard, 2004, pp. 805-809). Also see, (Samuelson & Nordhaus, 1998, pp. 477-481).

18 For a detailed analysis of the vital economic difference between a deposit contract and a loan contract please refer to Soto’s brilliant work (Soto, 2006). Also see, (Mises, 2009).

19 For the detailed arguments about dismantling the central banks please refer to Ron Paul’s demolition of US Federal Reserve, (Paul, 2009).

20 For a brilliant critique of such attempts of blaming specula-

tors etc., for infl ation please read Walter Block’s Defending the Undefendable (Block, 2008)

Reference and Additional Thinking• Block, W. (2008). Defending the Undefendable. Auburn,

Alabama: Ludwig von Mises Institute. • Cantillon, R. (2001). Essay on the Nature of Commerce in

General. Edison, New Jersey: Transaction Publishers. • Hayek, F. A. (1967). Prices and Production. New York:

Augustus M. Kelly Publishers. • Hazlitt, H. (2004). Infl ation in One Page. The Freeman,

November. • Koning, J. P. (2009). How the Fed Helped Pay for World

War I. Mises Daily, Thursday, (November 12th). • Mankiw, G. N. (2001). Principles of Economics. Bangalore:

Thomson South-Western. • Menger, C. (2009). The Origins of Money. Auburn, Ala-

bama: Ludwig von Mises Institute. • Mises, L. V. (2009). The theory of money and credit.

Orlando, FL: Signalman Pub. • Murphy, R. P. (2010). The Fed as Giant Counterfeiter.

Mises Daily, February 1st. • Paul, R. (2009). End the Fed (1st ed.). New York: Grand

Central Pub. • Powell, B. (2002). Explaining Japan's Recession. The

Quarterly Journal of Austrian Economics, 5(2), 35-50. • Rothbard, M. N. (2000). America's Great Depression (5th

ed.). Auburn, Alabama: Ludwig von Mises Institute. • Rothbard, M. N. (2004). Man, economy, and state with

Power and market (Scholars edition) (2nd ed.). Auburn, Ala.: Ludwig von Mises Institute.

• Samuelson, P. A., & Nordhaus, W. D. (1998). Economics (16th ed.). New Delhi: Tata McGraw-Hill.

• Soto, J. H. D. (2006). Money, Bank Credit, and Economic

Cycles. Auburn, Alabama: Ludwig von Mises Institute. • Stiglitz, J. (2008). The Three Trillion Dollar War: The True

Cost of the Iraq Confl ict. New York: W W Norton & Company.


the offi cial policy or position of the organisation. The author

thanks Stéphane Couvreur and Jonathan Mariano for their

valuable comments. Special thanks to my student Dharmesh

Patel for preparing the article photographs.)

C A R E E C O N O M I C S


P I L G R I M S & P R O G R E S S


RELIGION AND ECONOMICS: AN EMPIRICAL ANALYSIS

Atanu SenguptaReader, Economics Department, Burdwan University, Burdwan

Krishanu NathResearch Scholar, Economics Department, Burdwan University, Burdwan

IntroductionEconomists visualize man as rational. A rational behaviour may be consistently explained by maximizing behavior (Sen 2003). However rationality does not imply extreme ego-centrism and selfi shness. It presumes certain value structures that are imbedded in the mind of an individual (Sen 1973, Arrow 1982, Basu 1983). As Arrow (1982) argues “The model of laissez-faire world of total self-interest would not survive for ten minutes; its actual working depends on an intricate network of reciprocal obligations, even among competitive fi rms and individuals’’. Herein come the role of religious, cultural and social values that consti-tute a rational psyche-the backbone of modern mainstream economics.

Historians often take the view that India is a country, deeply embedded in a religious fabric. Thus economic activities of human being become closely related with his broader cultural affi liation and the religious tradition of the country. The economic study of religious culture com-prises a variety of sub-fi elds, which collectively embraces all aspects of the



social-scientifi c study of religion, is known as “The Economic of Religion”. The study, that seeks to explain religious behavior from an economic (or “rational choice”) perspec-tive: that is people acquire religion in the same way that they acquire other objects of choice & also evaluate its costs and benefi ts and acts so as to optimize their utility. As in any market, the consumers’ freedom is to choose constraints, the producers of religion. It determines the content of religious commodities and the structure, where religion is unregulated and as a result, a competition among religious fi rms is pronounced. One can imagine the entire gamut of economic activities generated by religious activities. It is well noted that consumer demand in India are closely related with religious festivals (like Diwali, Dussehra, Durga Puja, Id, Christmas etc.).

In our study we have selected Tarakeswar- a Hindu pilgrim-age site in West Bengal-an Indian state for analyzing the interaction between the Economic Culture and Religious Culture, especially emphasis on the temple culture. The fl ow of pilgrims to any place is strictly determined by the pilgrim’s valuation of this religious site. How the economic development of society is generated by the acts deeds of religious culture, i.e., on the basis of religious faith, is the matter of discus-sion of our present study.

ConceptIn the Traditional Economics production activity is inde-pendent on the consumption activity and they occur at different points of time. In the defi nition of Care Economics, presented by Arrow (1963), the act of consumption is related with the act of production. In fact the product and the activity of production is identical (Arrow 1963). Shapiro (1960) argued that the physician-patient relation effects quality of medical care. There is an element of trust in the relation. This importance of morality faith and placable in the care industry also have some external effect. Good reputation which results from positive externality may help to boost-up a doctor’s demand, while negative externality tends to dampen it. Also there is a multiplier effect, because more is the doctor’s demand, more is the need for attendance and other semi-

skilled persons. However, there is requirement of some external forces (apart from the market mechanism) to control the quality. Otherwise, the negative externality will operate as demand exceeds below a point so as to exhaustive the doctor’s capacity. The same logic may be applied for a medical institute also. Other care sectors such as education, governance etc. is also falling under this category.

Under Cultural Economics there is an extra dimension. Added with the moral restrictions, there is a need for active participation of the consumer, in the generation process. Suppose a classical dancer performs. The demand for such a performance will depend not only on the positive and negative externality, but also on the spectator’s readiness to enjoy the performance itself. In the cultural term Aristotle called this ‘sympathy’. A process, in which the viewer sympa-thizes with the situation that created by the performer. In a

sense a spectator is also a part of the performance.

Under secular part of care economics consumers are passive but producers are active. So we can measure benefi ts, which arise from the demand-supply interaction. On the other hand, under cultural part both the consumers and producers are active. That is, both the activities are generated simultaneously from the market by the active participa-tion of the consumer. Here the benefi t

is non-measurable. The more consumer participation, the greater is his/her benefi t.

This can be shown by the following fi gure (1). In this fi gure the two sets are represented the activity of consumption (C) and activity of production (P). Under Traditional Economics in fi gure 1(b) both sets can’t intersect each other, since they are independent. But both the sets under Care Economics intersect each other, since the act of consumption is related with act of production and both the activities are generated simultaneously in the market, represented by the intersection of both sets in fi gure 1(a).

Unrevealing the Temple Complex of TarakeswarThe existence of the Temple Taraknath at Tarakeswar changes considerably the economic pattern of the town. It depends upon the occupational structure, standard of living

It is very well noted and

researched that consumer demand in India is closely

related with religious festivals



Figure- 2

Different Components of Temple Culture

Associates of Feligious Activities Associates of Non-religious activities

Temple Authority

Provider of local hospitality

Handicrafts, other cottage industries

Demand Side

Municipal Authority

Transport Authority

Visitor

Pilgrims Tourists

Cultural Agents

Benefi ciaries

Temple CultureSupply Side

Economics

Traditional Economics Care Economics

Secular Cultural

Consumers PassiveProducers Active

Diagram 1(b)

C P

Consumers ActiveProducers Active

C CP P

Figure- 1

Consumers & Producersboth are independentC = Consumption ActivityP = Production Activity

Diagram 1(a)



of the inhabitants, social-economic infra-structural condi-tions etc. of the town. The occupational profi le refl ects that, at Tarakeswer too a substantial portion of population earns their livelihood from the Temple and its pilgrims and the nature and extent of dependency vary from one group to another group. That is some are acquiring more from it by virtue of their ritual position or by the exclusive nature of their occupation, can be represented by a schematic diagram (2).

Temple Culture is analyzed from two different aspects; Demand Side and Supply Side. From demand side, this meticulous culture is consumed by the visitors who arrive to this place to fulfi ll their mental and virtuous pleasure. On the contrary from the supply side, the demands of the visitors are

Figure-3

fulfi lled by the various types of benefi ciaries.The visitors are divided into two categories- Pilgrims and

Tourists. Tarakeswer has now arrived at phenomenal atti-tudes; million of devotees are called pilgrims come to this sacred place in long processions every year to fulfi ll their religious desire ness, personal and pecuniary gains and so on from far and near. On some auspicious seasons such as, on ‘Sivaratri’, ‘Chaitra’ Sankranti’ and ‘Sravani Purnima’, here this number rises multiple times. In economic sense pilgrim is

a typical consumer of this particular culture under the religious cultural economics.

Now from the supply side the benefi ciaries group is divided into two categories- the group associated with religious activities and the other associated with non-religious activi-ties. The people who are supplying the religious goods and services to the pilgrims are the former group, which are classifi ed into three groups. These are Temple Authority, Provider of Local Hospitality and Handy-craft & Other Cottage Industries. Now the later who are providing various administrative hospitalities to the devotees in order to fulfi ll their religious requirements in a smooth manner e.g., Trans-port Authority and Municipal Authority.

The earning of the temple is divided into categories; (a)

Permanent Income and (b) Seasonal Income, shown in fi gure (3). The employees obtained a fi xed sum of money or allow-ances paid yearly by the State Government to the temple authority, gifts and donations from the pilgrims & also earns a lump-sum amount of income as interest from the invest-ment of these funds in the bank as fi xed deposit, rent and tax by keeping houses and other establishment the estate author-ity and also by leasing-out fi shing ponds, tonsuring center, sites for stalls through auctioning the temple authority earns

Temple Earning

Permanent Income Seasonal Income

Entrance fee from pilgrims

Entrance fee from vehicles

Sale of gold & precious metalsgifted by the piligrims

Payments of annuities by the State Government

Rent and tax of houses and establishment

Interest from the bank against fi xed deposits

Lease-out of fi shing ponds, stalls

Gifted & donation of pilgrims



income.With these permanent incomes, the temple authority also

earns a large amount of income seasonally. It collects taxes through coupon as a parking charge from the vehicles by which the pilgrims come to this sacred place. Especially at the time of ‘Sravani’, the temple authority also collects entrance fees as service charge through coupon from every pilgrim. Therefore, the people under temple authority depend upon this economic involvement of temple to maintain their livelihood.

Local Hospitality Providers group is also divided into two sub-groups- (1) Scared Group like Pilgrim Guide and Private Priest, who are working in the religious complex for assisting the pilgrims to fulfi ll their ritual demands and (2) Secular Group like rest house owners, shopkeepers, restaurant owners, barbers, fl orists, water carriers etc. who are supplying various types of convenience and opportunities to the pilgrims to accom-plish their religious as well as their own demand. By providing various types of goods & services to the temple as well as to the pilgrimage place, the providers earning income for their subsistence and also generate some sort of employ-ment.

The cult of Taraknath helps to develop a number of handi-crafts and cottage industries in the neighboring areas at Tarakeswar. Different types of handi-crafts and cottage industries like clay pot making industries, cotton industries, fruit pickle making industries, armlet making industries, manufacturer of portrayed of different Gods etc are separated according their origin of production at Tarake-swar. Conch shell industry, metal and stone image making industry, reticulated sling making industry, yoke-pole industry, manufacturer of plastic clay image industry all are those regional cottage industries where many people are engaged. Those are engaged with these industries, are living away far from Tarakeswar and also obtain economic benefi ts from the pilgrimage activities of that place.

The Associates of non-religious related activities are Trans-port Authority and Municipal Authority at Tarakeswar. For a long time, Tarakeswar has attracted many people from diverse areas near and far from Tarakeswar. Pilgrims come to

this place mainly using by various land transport systems like road transport (such as by bus, car, tracker, paddle rickshaw etc.) and railway transport.

On the contrary the law and administration of Tarakeswar Town is controlled by Municipal Authority. The authority takes a special care for providing the different types of facilities and comforts to the pilgrims to mitigate their religious needs. As against this, this authority collects different ritual taxes from the every pilgrim and also parking charges from these pilgrims’ vehicles. It refl ects that there exists a signifi cant impact of temple culture on the economic condition of the municipal Authority. That’s why the author-ity develops and modernizes the town Tarakeswar and also to provides more comfort and amenities to pilgrims that attract them for visiting this place.

From the above discussion, we can say that a wide stretch of surrounding areas of Tarakeswar comprises economically, culturally and socially linked with the towns their feeding center.

Information of Secondary Re-sourcesAnalysis of the Railway Authority The Railway Transport at Tarakeswar is one of the most ancient Broad gages Railway branch line of Eastern Railway of India has inaugurated on dated 5th

January, 1884 from Howrah to Tarakeswar. In order to exhibit the fl ow of pilgrims’ activities, we examine the monthly statistical data of outgoing passengers from terminal station Tarakeswar to any other stations obtained from Railway Authority at Tarakeswar as well as the Statistical Department of Eastern Railway, Howrah. Since the fi gure includes both the pilgrims and non-pilgrims, do not provide a correct estimate of the number of pilgrims. Besides these, many people, who come to or left this place by different road transports like buses, cars and also by foot and it also cover obviously some non-pilgrims also. Despite all these limita-tions, the railway data can yield a rough sketch about the trend of visit of pilgrims on different time periods to Tarake-swar.

In Hindu Culture an auspicious lunar day for rituals of any god is fi xed with respect to Bengali months. So we had to

The socio-economic

existence of Tarakeswar town

without 'Baba Taraknath' is

nearly nought



Figure-4: Detrend Value of Railway Outgoing Passengers Corresponding of DifferentMonths of Four Year

adjust the month wise railway data of year 2002 to 2007 as per Bengali Calendar.

The periodic movement of the outgoing passenger fi gures can be analyzed by applying the method of Time Series. To fi nd out the seasonal pattern in the outgoing passengers’ data, we derive the detrend values of these data & by comparing these detrend values we can say that the fl ow of pilgrims to Tarakeswar among the different months in four years are almost identical. In every four years, the detrend values of the number of outgoing passengers is maximum for the month of ‘Sravan’ and also two relative maximum values of detrend data in the months of ‘Kartick’ and ‘Chaitra’ respectively. It is

minimum in the month ‘Agrahayan’. Therefore, the tenden-cies for pilgrimage activities are homogeneous for every year at Tarakeswar. This analysis can be shown graphically in fi gure 4 which exhibits the Seasonal Pattern of the outgoing passengers.

Figure (4) represents that in the month of ‘Sravan’ and ‘Chaitra’, the two auspicious months of four years, the congregations of outgoing passengers are maximum and its seasonal pattern is all most same in all four years. So, it is obvious that in the auspicious months, the congrega-tion of pilgrims would increases and we obtain a seasonal effect on every year in the fl ow of pilgrims to Tarakeswar.

MONTH

Figure-5: Month Wise NTDR for Three Years

1997-98 2001-02 2004-05

APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR

30

25

20

15

10

5

0

NTD

R V

ALU

E

MONTH

1404 1408 1411 1413

BA

ISH

AK

H

JAIS

THA

ASH

AR

SRA

VA

N

BH

AD

RA

ASS

HIN

KA

RTI

CK

AG

RA

HA

YA

N

PAO

US

MA

GH

A

FALG

UN

CH

AIT

RA

200000

150000

-150000

100000

-100000

50000

0

-50000

DE

TREN

D V

ALU

E



Analysis of the Non-tax Earnings of the Municipal Authority:

The economic existence of town Tarakeswar without “Baba Taraknath” is nearly nought. To examine the statement, we have quantitatively formulated the infl uence of deity of the temple and its religious activities on the Municipal Authority of Tarakeswar. In order to access this, we evaluate the total non-tax earnings of Tarakeswar municipality, related with the temple on the basis of different months.

Analytically, we can visualize the total earnings of the municipality, is coming from two different sources. These are Non-secular or temple related earnings and Secular or General earnings.

We defi ne the ratio of monthly Non-secular earnings to yearly total earnings as Non-tax Temple Dependency Ratio (NTDR) of the municipality. It implies that we regard the ratio between the municipality’s Non-tax earnings from different temple related activities for a particular month in comparison to its total Non-tax earnings over the year as the Non-tax Temple Dependency Ratio.

The value explores that NTDR is higher in the month of August and July than others. The auspicious month ‘Sravan’ consists by taking fi fteen days of each of these months. So, in the month of ‘Sravan’, the maximum percentage earnings obtained from non-tax revenues to total non-tax earnings over the year due to the important fair “Sravani Mela”, implies the greater religious activities by the people in this sacred town. It illuminates the fl ow of pilgrims would in-crease in this month compare to other months. The value of NTDR for the month July and August are 11.6% and 23% respectively in year 1997-98. Again in the month of April, the value of NTDR is also greater, that is 8.3% compare with other months. Since in this month another important fair named “Gajan Mela” is executed. This similar phenomenon of NTDR fi gure is shown in other two years i.e., in 2001-02 and 2004-05. Therefore, greater religious activities generate greater earnings as well as greater economic activities. The NTDR values in the month of July and August are 16.6% and 25.2% respectively in year 2001-02 and 12.4% and 20% respectively in 2004-05. Also in month of April of all years, the ratio is higher. This analysis represents that the non-tax earnings from the sources of non-secular or temple related activities of the Municipal Authority is guided by the shrine of “Baba Taraknath”.

Therefore, Tarakeswar is a pilgrim town, whose economy,

particularly depends upon the deity of the temple of “Lord Shiva”. The entire service sectors under different authority of Tarakeswar are somehow associated with this sacred centre. Hence, the signifi cance of the deity of “Lord Taraknath” and the temple is by no means confi ned to the religious aspects alone, but also can be marked into the social, economical and cultural aspects at Tarakeswar.

ConclusionTarakeswar is a smallest town under Hooghly District in West Bengal. But this place to be lighted by the glory of ‘Baba Taraknath’ to all devotees, living in our country and also in abroad. The town, Tarakeswar without establishment of temple of ‘Baba Taraknath’ leaves nearly nothing. Due to improvement of transport system many people come to this place from various socio-economic backgrounds from different areas that generate greater economic activities which assist the people from inside and outside of Tarakeswar to maintain their livelihood. Many people at Tarakeswar earn a satisfactory level of income by providing different religious and non-religious services to the pilgrims.

References and Additional Thinking• Smith, P. Adam, 1776, An Inquiry into the Nature and

Causes of the Wealth of Nations, W. Strahan and T. Cadell, London, U.K.

• Arrow, 1982. ‘A Cautious Case for Socialism’. In I. Howe, ed. Beyond the Welfare State. New York: Schocken Books.

• Sen, A. K. 1973. ‘Behaviour and the Concept of Prefer-

ence’, Economica 40: 241-59 • Engels Friedrich, Manifesto of the Communist Party, Karl

Marx, February, 1848; Marx/Engels Selected Works, Vol. One, Progress Publishers, Moscow, 1969, pp. 98-137

• Iannaccone L.R., 1988, “Introduction to the Economics of

Religion”, Journal of Economics Literature, Vol. xxxvi (September 1998), pp. 1465-1996

• Chakrabarti Prafulla, 1984, “Social Profi le of Tarake-

swar”, Calcutta, Firma KLM Pvt. Ltd., Kolkata, 198• Basu Kaushik, November, 1983, On Why We Do Not Try

to Walk Off Without Paying After a Taxi Ride, Economic and Political Weekly, Vol. 18



W H A T N E X T ?


Pathikrit PayneSenior Faculty Member, IIPM New Delhi

It is neither the market nor the state but the combination of the two driven by passionate nationalism that have always created the best nations of the world.

One of the most important contributions of the World War II was the polarisation of the world that started in the post war era. Incidentally Cold War

was not just an era of face-off between the US and USSR but was also the one which further galvanised the world into two economic blocks. While the US and its allies came to be commonly known as the First World nations, the USSR and the countries under Warsaw pact were termed as Second World nations with the former having deep faith in the institutions of democracy and market capitalism while the latter was associated more with communist regimes and state controlled economies. By late 1980s, with the fall of the Berlin Wall and the eventual disintegration of Soviet Union in 1991, the very concept of the tug of war between the Capitalist West and the Communist East lost its essence. But what did not lose essence was the quintessential debate between the state and the market. Even in the era of globali-sation, this debate continues with many countries of Western Europe like France, Italy and the Scandinavian countries ironically tending to have more faith in socialism and in the tenets of protectionism even as many erstwhile socialist economies of the Second and the Third World have endeav-oured to not only embrace market capitalism but have also emerged as stronger nations through it. Strangely enough, one of the biggest mysteries of the modern day that has remained unsolved is whether the disintegration of Soviet Block has diluted the essence of state in economic affairs and made market stronger or not. All through the era of the Cold

War, the Communist Block gave primacy to the state in all economic issues and made sure that it is imbued in the heart, nerve and sinew of every citizen of their respective countries — that the state and the unity of the working class matters more than anything or anyone else. Not just that, the paranoia and hatred for market capitalism was spread with the words that capitalism not only creates the perennial rich-poor divide, but would make multinational companies more powerful than state and often, at the cost of the state. Further, an important aspect of the propaganda machinery was also that while the state would always endeavour to take care of all the basic needs of the downtrodden of the society, the multinational giants driven market capitalism would only make elitist products for the rich and the mighty. The mass would be reduced literally to the level of slave and that they would have no power, rights or ownership of assets.

Thus, in retrospect, more than two decades after the fall of the Berlin Wall and the subsequent embracing of the tenets of globalisation and market capitalism by the yesteryears’ poster boys of socialism, i.e. Russia and China, it becomes impera-tive to scrutinise as to whether globalisation has essentially done what the Communist blocks always feared the most. Has globalisation and market capitalism that has swept the world, in reality diluted the concept of the state? Has the state become subservient to the dictums of the multinational giants? Has the state, in this era of globalisation forgotten its basic responsibilities towards the common man? Do the state and the market continue to be mutually exclusive and anti-

When Nationali



i sm is Socialism

W H A T N E X T ?


thesis of each other or that there is a profound symbiotic relationship between the two? Well, to answer these complex propositions and to fi nd a common ground of convergence, let’s start with the objective of trying to fi nd the answers of few fundamental questions...

Even as China and Russia hopped into the globalisation bandwagon, Cuba preferred to continue with its tryst with Communist socialism and a completely authoritarian econo-my. There the state continues till date to be completely responsible for healthcare, education and employment. If one looks at the Human Development Index (HDI) of the Human Development Report of UNDP, Cuba is ranked at 51. Incidentally HDI ranks countries on the basis of ‘Quality of Life’ in those countries measured in terms of life expectancy at birth, adult literacy rate, combined gross enrollment ratio in education and GDP per capita. Barring the last factor which could presumably be higher in capitalist economies, the other three factors are all those about which the communist nations have always claimed to be more concerned than capitalist nations. Yet a glance at the HDI reveals quite a different story. While Cuba is ranked 51 and China 92, in that very list Cuba’s bête noire USA has been ranked 13, Japan 10, Germany 22, Canada 4 and France is ranked 8. In fact, barring Russia, every other G-8 country ranks among the top 25 in the chart. This vindicates the fact that not only the market oriented economies are better-off economically, (best measured in terms of nominal GDP and GDP per capita), in terms of social indicators too, they are generations ahead of their erstwhile and present communist or say ideological adversaries. In fact the kind of social security system that the US has in place, a prominent Chinese think tank has predicted that it would not be before 2020 that China could have such a system in place. Strange isn’t it? And more strange is the fact that China can only do so by piggy-backing on market capitalism and not by going back to the tenets of Mao’s version of Communism. Now the prime question here is why Cuba ranks 51 and China 92 instead of USA’s 13? Should the blame go to the US for the trade embargo that it has imposed on Cuba? And if that's the reason then, should we accept the fact that Cuba’s well being

depends completely on the dictums of the US which would in any case dent the credibility of a state controlled economic system? Or say, why is it that even today hordes of Cubans prefer to undertake the risky journey across the sea on small boats to somehow reach the shores of the US? Why can’t they just trust the Cuban government for all its tall claims for the last fi fty years, and stay back?

The second issue that needs to be addressed is why the USSR collapsed under the burden of socialism while China survived? Why all of a sudden all Soviet republics were so very willing to come out of Soviet Union and become inde-pendent? Does it vindicate the theory that Soviet Union was synonymous with Russia and that the Russians considered their race superior to all others in the Union and there were tremendous levels of discriminations? Does it also vindicate the fact that all that the garb of socialism did was to hide the

incredible levels of ineffi ciencies in the economic system and also that, for all the semblance of a classless society, all that it bred was an elitist one wherein only the members of politburo and high ranking state offi cials had the right to all privileges while the mass was left in destitution? Strangely enough, most of the countries of the Warsaw Pact and USSR who clamoured for independence are now again clamouring to become part of another union, i.e. the European

Union. And almost all of them are far better-off economically now than what they used to be two decades back.

The third and perhaps the most intriguing issue is that of China. More than three decades back the Communist Party of China under the aegis of Deng Xiao Ping, after the demise of Mao Tse Dong, realised that three decades of 'Soviet-Style draconian state ownership' and state control of the economy had not resulted in any dramatic transformation of the Chinese economy as well as in the well being of the common man. Also, because of complete isolation from global trade, not only China was falling behind but in essence the Western Capitalist block was racing ahead at a much faster pace. Deng’s decision to go for calibrated liberalisation of the Chinese economy through the Bottom-Up Theory by taking the villages as the building blocks of reforms, gradual liberali-sation of prices, restructuring of the public sector enterprises

While China and Russia joined

globalisation Cuba continued

its tryst with communist socialism



and eventually creating world class infrastructure in the fi ve coastal Special Economic Zones not (SEZs) only metamor-phosed the Chinese economy into a potent force to reckon with but also brought it within the striking range of overtak-ing the US economically in the future. Mao’s dream is thus being fulfi lled not essentially through pure communism but a new genre of economic model endeavoured by Chinese namely market socialism. In other words, Mao’s China emerged stronger against their ideological adversaries not by being dogmatic with their own ideology but with time, taking the best of the attributes from the market economy to refi ne their own concepts — thereby making it a more potent force. China’s success lies in not undermining the key responsibili-ties of the state with respect to education and healthcare even while not letting the veil of socialism be the perfect camou-fl age for all kinds of ineffi ciencies blossoming in the economy. Business should be done in the way business is supposed to be done. This essentially became the mantra of the Chinese government which made sure that the kind the infrastructure it created in the Chinese Special Eco-nomic Zones (SEZs) would put even the best industrial infrastructures of the First World to shame. It made sure that the very Western MNCs that the communists hated would eventually fl ock into the Chinese SEZs and become the ultimate catalysts for China’s economic metamor-phosis. Deng’s success lies in successfully transforming the role of the state from a monopoly player to that of an enabler whose task is to create an enabling environment where business can thrive and execute far better than what in the First World they could do. The resonance of the same could be found echoing in the words of the Indian Finance Minister while presenting the Union Budget for 2010-11. He stated in no uncertain terms, ‘The third challenge relates to the weak-

nesses in government systems, structures and institutions at

different levels of governance. Indeed, in the coming years, if

there is one factor that can hold us back in realizing our poten-

tial as a modern nation, it is the bottleneck of our public delivery

mechanisms.’ He further stated, ‘With development and

economic reforms, the focus of economic activity has shifted

towards the non-governmental actors, bringing into sharper

focus the role of government as an enabler. An enabling govern-

ment does not try to deliver directly to the citizens everything that

they need. Instead it creates an enabling ethos so that individual

enterprise and creativity can fl ourish. Government concentrates

on supporting and delivering services to the disadvantaged

sections of the society.’ In essence, the key reason for the turnaround of the

economies of Russia, India and China especially in the last one decade is that they have realised the importance of creating this very enabling environment where business and newer ideas can be nourished and thrived. This in turn vindicates the fact that the essence of the nation has not been diluted even in this era of intense globalisation. In other words market economy would simply not be able to survive, leave alone thrive in a failed state or in a chaotic state. Ever wondered why don’t great companies emanate from countries

like Afghanistan, Somalia, Sudan, Ethiopia or Congo? Well, no prize for guessing because the answer is obvious. In fact the answer is so obvious that we often ignore the inner essence beneath the veil of simplicity in it. Thus, it goes without saying that there is a profound symbiotic relationship between the well being of a country and the companies operating in that country. A healthy company at the end of the day is thus the manifestation of how good the

society is. The reason being that for the sound functioning of a company, it needs an environment where societal institu-tions such as banking, judicial system, law & order, the executive, legislative, regulatory environment as well as the healthcare and educational infrastructure perform reason-ably well. Reason? Well, every healthy and educated person in a society is supposed to be employable and every employed person (be it self-employed or otherwise) is always neverthe-less a customer who would work and use his hard earned money for a better living in a society where he presumes that his hard earned money and assets are safe enough just as much as a business entity would want security and safety of its business assets. And therefore just as it is important for the business to have its factors in right combination with the right kind of market acumen, an ability to think ahead of time, anticipate future competition, never undermine the essence

The turnaround of the BRIC

economies is because of

their creation of enabling environment

W H A T N E X T ?


of clients and above all, never let the feeling of ‘cloud number nine’ make the feet go off the ground, the same laws probably apply for a nation as an entity too while marketing the nation as an investment destination and thus creating the sustainable environment for business to survive and thrive which in turn creates utility products, generates employment, creates a healthy environment of competition, pays taxes to the government and forces the government to bring structural changes in the society. It also forces the government to develop the underdeveloped regions of the country in terms of physical, social and fi nancial infrastructure without which the mechanism of invisible hand of the market economy would not work. In western developed countries, the key to their high ranking in the Human Development Index can be attributed their effi cient public delivery mechanism (in spite of being market based economies) which made sure that the revenues generated by the govern-ment through taxes is put to an effective use through the develop-ment of high quality education, healthcare and physical infrastruc-ture in the society. This in turn churns out the army of skilled employees and potential customers that the market economy thrives on. Thus, it is a win-win situation for both the market and the state. Well, these are simple rules of the game but then in that very game with same simple rules, some win while most lose.

In retrospect, the difference between the US and Cuba or say between a reformed China and the erstwhile China has nothing to do with the kind of ideology they followed or professed. Rather, it has everything to do with how successful each one of them has been in creating an enabling environ-ment. China’s transition from state controlled economy to a more pragmatic market oriented one and getting integrated with the global economy has not necessarily made it keep aside her own perspectives and become subservient to the US. It has only created an effective environment where productivity, business acumen and enterprising attitude have

a higher chance of success than what it was in pre-1978 China. Cuba unfortunately never learnt that and thus continues to pay for it even when its one time mentor, i.e. USSR, in its new avatar Russia like China, has been extremely successful in making the quick transition to market oriented economy (albeit with several upheavals) and leverage it to the hilt by becoming a major player in the global defence, minerals and oil & gas industry. Russia’s transition towards market econo-my has similarly not made it subservient to the US or the Western block. Rather it has strengthened Russia to the extent that it has again started aspiring for a multi-polar world with Russia as the only viable counterpart to China and US. Today the popularity of Vladimir Putin is no less than that of

the incumbent US President. Today in the changed geopolitical paradigm, Russia is given much more importance by the US

than it ever got during the whole era of the Cold War. Today US rather gives more importance to Russia and China than to countries like France, UK or Japan. Yet like China; Russia too has not given-up on its independent foreign policy and both more often

than not are on the opposite side of US when it comes crucial

issues of geopolitics like Iran. This is exactly where the likes of Fidel Castro failed their respective nations by equat-ing economic reforms and

institutionalising of the system with capitulating to the Western

developed nations. For those who are still intoxicated by the Marxian theories, the debate has always been about state versus the market and never about the state plus the market. The likes of Deng Xiao Ping and Vladimir Putin realised that the key to the success of the US economy has been its ability to keep aside this confl ict and combine a cocktail of two to make it an incredibly potent force. If today, the US is the largest and the most powerful economy or say a nation of the world and continues to be so, in spite of a crippling recession, it is primarily because of the incredible feats, innovations and market dominance that the giant corporations of US have created. The 140-odd US based companies in the Fortune



Global 500 list is essentially the backbone of the US economy. It is the clout of American Inc. which when combined with shrewd policies of the US government that created the indisputable clout of the biggest brand of the world i.e. dollar. What would happen in the future and whether the supremacy of the dollar would continue is a matter of debate. But at least for the time being, it doesn’t seem that there is any real competitor. That issue will be discussed later in the article but an important thing that needs elaboration again is that even when many of the American corporations have become gigantic, with many of them having annual sales turnover bigger than the annual GDP of some middle rung countries of the world, it has not essentially made them bigger than the nation they originated from. Even though it goes without saying that lobbying by giant corporations with governments is a common affair, still the corporations have not been able to give-up their national allegiance and or replace the national identities of people with corporate citizenship. Everything said and done, GE or GM or the likes of Micro-soft, IBM, Oracle or Wal Mart would always remain Ameri-can companies. That identity can never be diluted even if majority of their present day employees, customers or workshops are located in other coun-tries. In fact the most incredible example of this national allegiance as well as the symbiotic relationship between the state and the market can be found in the US defence industry. While Pentagon remains the big daddy or say the nucleus of the entire system, almost the entire defence manufacturing and research work in the US is done in the realm of the America's private sector. So if one considers the gigantic defense contractors like Boeing Company, Lockheed Martin, Raythe-on, Northrop Grumman, General Dynamics, L-3 Communi-cations Holdings, General Electric or United Technologies, it is these corporations and several others like them which form the very backbone of American edge in defence technologies. Yet at the same time these organisations are so-called private corporations with their own board of directors and account-ability to shareholders. But does that make their shareholders or board of directors or say the profi t margin of the compa-nies more important than the nation they emerged from?

Would it ever happen that Boeing Company for the sake of increasing its sales turnover, endeavour to sell its cutting edge F-18 Hornet combat aircraft to countries like China or Iran much against the wishes and the policies of the US Govern-ment? Would ever Lockheed Martin sell F-16s to Syria or would ever General Dynamics sell the cutting edge M-1 Abrams or Stryker Armored Combat Vehicles to North Korea just for the sake of increasing their profi ts and sales? This is where the miracle of globalisation lies. Everything said and done, globalisation might have spawned a plethora of giant corporations but it has not necessarily diluted the concept of nation or nationalism. Big talks of this world being turned into one global village notwithstanding, the very essence of today’s globalisation is not about diluting the paradigm of nation-state but to eventually make the states stronger. The concept of symbiotic relationship in this case can be proved further by the extent of toil the US administra-tion takes to make sure that American companies get global contracts. The very issue of America’s sale of F-16s to Paki-stan or pitching the same to India for the proposed near $10

billion Medium Multi Role Combat Aircraft (MMRCA) deal of Indian Air Force, has nothing to do with rewarding Pakistan for its role in the 'War On Terror' in Afghanistan or the crusade against Taliban or about making India a closer ally. Rather, it has everything to do with keeping the assembly lines of the American defence industry rolling. To vindicate this point, I would take recourse to one of the most happening issues in the global defence industry at

this point of time. The MMRCA (Medium Multi Role Combat Aircraft) deal of the Indian Air Force (IAF) which is valued at $10 billion, on a conservative estimate, has entered the second round with some of the fi nest fi ghter aircraft manufacturers of the world pitching in with their products for the trials. One of the key contenders of the same is Euro fi ghter Typhoon from the European consortium of EADS. In the recent past, the chief of the Eurofi ghter Typhoon cam-paign in India, Dr. Matthias Schmidlin, gave an interview to the defence journal StratPost in which he stated that the fi nal decision of selecting the vendor would be a political one. And he couldn’t have been more correct than that. The reason

Would American defence

companies ever sell weapons systems to

enemies of US for the sake of profit?

W H A T N E X T ?


being that each of the vendor be it the MiG of Russia, Lockheed Martin or Boeing of the US or Dassault of France or SAAB of Sweden is backed by their respective govern-ments because this deal would not only help in creating thousands of jobs in their respective countries but would also give assured business in terms of maintenance and upgrada-tion, for decades to come, in addition to follow-on orders. Now consider this, the Fort Worth factory of Lockheed Martin in Texas is home to the assembly line of the F-16 combat aircraft. This fi ghter plane has been one of the fi nest and time-tested hardware for decades now, but it has almost reached the end of its life cycle. With the US Air Force gradually shifting its priority towards the fi fth generation fi ghter aircraft namely the Joint Strike Fighter or F-35, the orders at the Forth Worth factory have almost dried up with a potential of job-loss for thousands of people. Now it was under this consideration that George Bush had pushed so hard during his tenure to push the deal of selling F-16s to Pakistan under the garb of furthering the war on terror even when every one knew that F-16 is probably the last possible option to consider when the objective is to fi sh out rag tag Taliban jihadis from densely populated regions of tribal areas of Pakistan. The real objective no wonder was to save jobs back home. Likewise the current Obama Administration has been leaving no stone unturned to push through the latest or perhaps the India specifi c version of F-16 namely F-16 IN which the US states to even better than the one currently being used by the US Air Force. In the same league, by clearing the path of India’s entry into the elite nuclear club and letting it buy nuclear fuel for civilian power production, even when India has not been a signatory of the Non Proliferation Treaty (NPT), the US played a master stroke in making India feel obliged by the US favour to the extent that every now and then defense orders are simply going to American companies than to others. So while the MMRCA deal still hangs in balance, with Boeing and Lockheed Martin both having fair chance to see through it, US also succeeded in getting orders for six C-130 transport aircraft (from Lockheed Martin stable for almost a billion dollar), eight P-8I Poseidon Maritime Surveillance aircrafts

for Indian Navy (from the Boeing stable for almost $2 billion). Moreover US has also been able to make India get interested in the C-17 Globemaster heavy transport aircraft for the Indian Air Force (also from the Boeing stable) by almost making it desert its time tested IL-76s. In fact the desperation of Obama administration in pushing through this deal too can be gauged by recent reports which stated that Boeing is almost on the verge of closing its C-17 assembly line if fresh orders from abroad don’t materialise. Thus the whole essence of symbiotic relationship has been proved once more. The US Government often pulls all the strings possible to secure foreign contracts for its industry to keep their assembly lines running and thus keeping people employed at home which proves again that globalisation is all about making nations more important than integrating the world into one.

Well, the Doubting Thomas can still argue that there’s nothing great about globalisation helping the US to become a stronger economy as it is as common as saying that without

oxygen, life would not have been possible on earth. But the point of contention here is that it is not just the Western Capitalist block or countries like China with sheer passion to go ahead and be among the top league of economies but also some of the former Communist countries and the erstwhile torchbearers of Communism as well as the fi ercest crusader against Capitalism i.e. USSR in its new avatar as Russia have been undoubtedly some of the biggest benefi -

ciaries of globalisation. Moreover as stated earlier Russia also used it as a potent force to revive the nationalist pride in Russia which was almost gone after the destitution and chaos that swarmed in Russia after the disintegration of USSR. But before that it is important to look at one of the key issues, i.e.

the reason for the disintegration of the Soviet economy. The concept of planning of an economy and allocation of resourc-es is not essentially a wrong or faulty concept as even the economies of Western Capitalist blocks too had and still have certain elements of planning. For example, the US has one of the highest spending in the world when it comes to social security (as stated earlier) which is a planned expenditure by the US government. But the fault with the Soviet economic planning was its rigid structure of command wherein bottom-

The American sale of defence

systems is mostly driven by domestic

compulsions of keeping people

employed



up criticism for any kind of top-down order or plan was considered dissension. Thus the planners, imbued with a distorted picture of what the reality is and overwhelmed by intoxication of a prefi xed ideology, never really understood the ground realities. Their immediate subordinates in order to save their own skins, lives and jobs continued to feed them with as much a rosy picture as possible. When the whole world was going through a transitional phase of making a paradigm shift to low-cost and energy effective technologies, the Soviet Union continued to have faith in gigantic icons of their industrialisation. Gradually, not only they became out of favour when it came to international markets, the gap be-tween the estimates of the planners and ground level demand of products started creating a huge scarcity of basic products in the economy even while Soviet Union, for the sake of keeping the Warsaw Pact countries under its fold continued to feed them with subsidised food. Where every-thing else failed they resorted to either printing more currency to tide over the defi cits (thus gradually destroying the value of the currency), or attempted to browbeat the reality with the propaganda machinery which blamed everything to western conspiracy. Thus, Soviet Union, in spite of having far better engineering skills and capabilities than many had in west, fl oun-dered. Just for the sake of keeping pace with the defence expenditure of US, it continued to commit almost 25% of its GDP to defence production without realising that USA’s increase in defence expenditure always went hand in hand with increase in its overall GDP which made sure that the overall expenditure in defence was always in single digit as percentage of GDP. But Soviet Union fell into the trap and the decline continued. This was aggravated even more because of the absence of any kind of independent institu-tional mechanism which could have exposed the big fl aws in the system. By late eighties, it was beyond repair and there was much dissent among the mass because of the near

irrelevance of the currency and the sheer disparity between the lavish and often western type lifestyle of the politburo members and other senior party members vis-a-vis the destitution all around. In the aftermath of the disintegration of the Soviet Union, it was no less than utter chaos which was compounded further by an IMF prescribed panacea which simply was destined to fail. Corruption reached to greater heights. There was a systemic and a well planned liquidation of state assets in the name of divestment, most of which went in the hands of powerful oligarchs who kept no stone un-turned to shift all their ill-gotten wealth out of the country. The same was happening with the money coming from IMF which was quickly going out of the country instead of being put to good use for restoration of the beleaguered economy.

While many do rightly blame the near crippling of the Russian economy in the post Soviet disintegration period to the IMF prescribed Structural Adjustment Program which forced Russia to sell its state owned enterprises, cut down of state expenditure (often at the cost of social welfare) and allow unabashed entry of foreign players in the market, what is never mentioned is that part of the blame should also be put on the Soviet form of governance for decades which failed to create any kind of institutional mechanism to withstand shocks and yet survive. Soviet Union was run by a party

and not by institutions. So, when the party collapsed there was nothing left which could have salvaged Russia. The state run institutions never knew what effi ciency was all about and always took the subsidy and easy fi nancing by the state or bailouts for granted. Had those institutions been in place, Russia’s transformation would not have been so bloodied. Another important aspect with respect to this which needs consideration is that IMF need not be a symbol of globalisation. All those countries which went for the IMF prescribed doses of economic liberalisation eventually suffered systemic problems. In contrast, even though India did face a severe foreign exchange crisis in 1991,

W H A T N E X T ?


and was forced to open up the economy for good, it did not blindly follow the dictums of IMF because of which it has since then never faced any severe economic crisis in spite of recording spectacular economic growth year after year. The reason for this is simply because for India, globalisation has been a calibrated one instead of a shock therapy. It never accepted the IMF version of globalisation. Globalisation for India, in addition to opening up the economy as well as inviting FDI, also included the very concept of making Indian companies strong enough in not just being able to compete and survive in the Indian market against foreign competition but also make sure that they become strong enough to eventually become strong global players. Globalisation for India also meant making optimal utilisation of its large pool of english speaking and technically qualifi ed manpower to either cater to offshoring of business from the US or migrate to be part of the workforce, thereby creating a steady pool of expatriates who are not only a leverage for India in terms of their clout but also remit nearly $50 billion annually.

Coming back to the issue of Russia, the thing that Russia learned, especially from the era of Vladimir Putin is how to market well made products, something that was considered redundant in the Soviet era. In an era when OPEC started to use its clout too much to increase oil price randomly which often put the global economy in much turmoil, Russia realised the incredible leverage that it has because of its huge abundance of oil and gas reserve. It not only went in for being a counter to OPEC in oil market but eventually started gaining trust of many countries which were getting sick and tired of the tantrums of OPEC. By making countries like India partner in its oil explorations and defence research projects, Russia from the late nineties started playing the game which US has been so adept in. The leader-ship aspect of Putin is something that I would discuss later on but with reining in of the powerful oligarchs and making the Russian expertise in defence engineering the USP to sell it in the global market, Putin’s Russia was a new avatar altogether in the market which was no more inhibited by the prejudices of yesteryears but was more than willing to collaborate with the West on crucial issues even while not always bowing to

their dictums. Russia’s superpower ambitions were back in the reckoning but it didn’t forget the reality of the day and thus, didn’t get into the arms race with the US any more. It was more than willing to accept the second fi ddle role provided US gave it its due respect. Its brutal retribution of the Chechen rebellion and later on the thrashing of Georgia was more of a signal to the West that Russia was not to be meddled with. It renegotiated the gas price with many former Soviet nations like Ukraine, Belarus, Georgia and literally used the leverage of gas to bring many of the European nations to their knees. Russia was coming of age and all that mattered to it was Russia and nothing else. It made very clear to the former Soviet nations that they cannot continue to warm-up to US and yet continue to have the luxury of gas supply at Soviet era rates. While Russian giants of the Soviet era like Gazprom or Sukhoi Corporation became much more agile and adaptive to market changes, the Russian market too

became a lucrative one for the western companies. Today Russia is not only back in the reckoning but according to the report of Goldman Sachs, it is one of the four BRIC countries to watch out for in the future.

One thing in this respect that needs a special mention is that the very concept of state is often confused with state ownership of companies and factors of production. Likewise the nation and government of the nation need not be

the same thing. It is even more strange that it is always presumed that socialism is more nationalistic than globalisa-tion or liberalisation. Thus, one can be extremely critical about the government of a country and yet be very committed to the cause of the nation. This is something that was never appreciated in communist nations which often led to their downfall. There’s nothing wrong with state ownership of factors but if one looks at most of the African impoverished yet resource rich countries, there’s predominantly state ownership of assets there but one knows pretty well as to what state ownership there means. For, in most of those dictator led nations with no institutional mechanism in place, ruthless dictators and their coteries make billions and siphon it off to safe havens abroad while the mass continue to remain in utter destitution and even starvation. Thus it is not necessary that

The concept of nation and

the government of the

nation need not be

synonymous



welfare happens the best if the state has complete ownership of everything in the nation. India in this regard would be a wonderful example to vindicate it. In the late forties of the previous century when it got independence from more than two hundred years of British colonialism, it was in utter turmoil as the independence came at the cost of a painful partition. As a result of formation of Pakistan and India, millions on religious ground migrated either from the present day India to Pakistan (including Bangladesh which was then known as East Pakistan) or vice-versa. Thus, there was a huge population of refugees to take care of along with a severe famine that immediately followed soon after. In those days India did not have any industrial base worth talking about as the British, for all the infrastructure they created in this coun-try, never essentially wanted India to emerge as an industrial hub as the prime motive was always to make this resource rich state a prime supplier of raw material and semi-fi nished products for the industrial zone of Manchester. Thus, when India got independence, it almost didn’t even have the capacity to produce a single needle on its own. Further, everything said and done, the partition from the British point of view was a master stroke as it literally crippled whatever econom-ic potential the Indian subcontinent had. While Mumbai was the textile hub, the cotton fi elds existed mostly in the present day Pakistan. While most of prominent jute mills were in Kolkata, the fertile soils suitable for jute cultivation were in East Pakistan or the present day Bangladesh. Thus partition meant breaking of the critical supply chain for the economy of South Asia. Essentially we are talking about an era when there were no Reliance Industries or IT industries or a thriving service industries where one could have gone and sought a job. We are essen-tially talking about an era when there were no industries and all that one could have done to earn a living was to start some kind of an economic transaction through business to sustain a family. It was then that they realised that it was far more diffi cult to conduct business in independent India than it was perhaps during the British rule. The new regime and fi rst government of independent India had some other plans. Their fascination for the Soviet style of socialism was not

entirely wrong given the mayhem of Great Depression of 1929 that had left its scar on the world less than two decades back. But what was appalling was the Indian polity’s sheer antipathy towards private entrepreneurship and businesses. The concept of Heavy Industry Oriented Economic Development Strategy was not wrong given the sheer need of basic industry those days for creating the foundation of India. But what was unacceptable was the way Indian government was more than willing to literally beg for money and technology from the British or the Germans or Russians even while restricting similar ambitions of TATA and others for long. In any case India was perhaps one of the more fortunate nations to take birth with an intact infrastructure created by the British and not reduced to rubble by the mayhem of the Second World War. This when compared to the devastation that Japan, Germany, UK, France and other European countries were left with after the end of the war, was incredible. Irrespective

of whether one was part of the Allied or the Axis powers, all were reduced to rubble and had to start all over again. But not India. The cities of Delhi, Mumbai, Chennai or Kolkata were not hit by the mayhem of the Second World War unlike Paris, London, Tokyo or Berlin. But even then, can we compare today's Delhi or Mumbai with today's London or Paris? That's the answer we need to seek...

The creation of the legacy of licensing policy for keeping private industry under leash and to prevent the over production of so-called luxury items by the same, eventually laid the foundation of India’s industrial decay. With the bureaucracy having been given the discretionary powers to allocate licenses to new enterprises, it was only the rich and the mighty with right kinds of contacts and bag full of money who got the licenses to start business. The likes of Dhirubhai Ambanis were considered outsiders and castaways since they were from rustic India and didn’t know English, or horse-riding or golf which in those days of 'elitist India' were so very important to start a business. Thus, the concept of rural-urban divide and corruption started in India from the very time India got independence. One would not be sur-prised if the likes of G.D. Birla, B M Munjal or Jamna Lal Bajaj had to face similar harassment just for the sake of

Partition of India was a master- stroke by the

British to cut the supply chain of the South Asian

economy

W H A T N E X T ?


getting a license. Not just this, even when one got a license to start a business, it was the government babus and not the busi-nessman or the market who could decide on the level of production. Production control was a key pillar of the licens-ing system but the real fl aw lay in the fact that there was always sheer disconnect between the level of demand of something in the market and the estimation of the govern-ment. So suppose someone had this traditional knowledge of making bicycles and eventually got a license to make bicycles. And suppose that this company was allowed in the 1950s to make 10000 bicycles in a year and in those days this ubiqui-tous bicycle used to be the only source of mobility for the poor mass. And so if one supposes that the demand in the market was around a hypothetical fi gure of one lakh, (for a population of more than 40 crore those days, the demand was invariably more than one lakh) then the sheer disparity between demand and supply was good enough to raise the price. Realising this, the government also made sure that along with production control, it would control prices also. Now from the producer’s point of view, within the installed capacity that he had, to produce the commodity, he realised that he could produce probably three times of the sanctioned produc-tion and sell it in the black market even while showing on documents that only the stipulated amount of units have been produced. Thus, say for every 10,000 units of a product, the producer was actually producing

30000 and selling in the market even while showing on paper that only 10,000 are being produced. This means that taxes were being given for 10,000 units only while the rest of 20,000 were part of the black economy as they were not paying taxes. And when the excise or the labour inspector comes for inspection of documents, the easiest thing to do was to grease their palms with enough currency that the whole hierarchy from the excise inspector to minister could be kept content and silent. No wonder then that when the license raj was about to go, the political class was vehemently against it as doing away with restrictions to production would also mean no easy money forthcoming. Thus the seeds of black economy were sown in independent India in the so called socialist era.

The government control on most of the prices made sure that everything in this country was prohibitively expensive and almost everything was considered a luxury. Limited production meant long waiting period to get products or get it in the black market. Now imagine today if the government decides to go for production control and declare that not

more than 10,000 laptops or say one lakh cellphones would be allowed to be manufactured in a year, what would happen then? Wouldn’t it create an enormous scarcity in the market? Wouldn’t the prices just shoot up? Wouldn’t people just revolt? Yes, all of it is right but the biggest casualty would be with employment generation. Taking the instance of just the cell phone market only, the fi ve hundred million strong customer base and the exponen-

tial growth rate has created a pletho-ra of jobs in the production of cell phones, marketing of cell phones, sales of connections, after sales service, network and tower manage-

ment as well as promotions and advertising. A complete restriction

of the market would just dry up all the jobs. Now then multiply the same effect with

say, similar restrictions in each of the sectors and one can easily decipher the reason

for India’s stagnation for so many decades. Likewise,

The seeds of the black economy

were sown in independent

India in the so-called Socialist era



would the cell phone rates or the prices of consumer durables or FMCG products have come down so much in the last one decade if the government were to fi x the prices? It's the same telephone market where call rates were prohibitive for ages to the extent that there are jokes in the bureaucratic corridors that the prime minister of one South East Asian country once visited India and while making a call back to his home state, tried to fi nd out the call rates and eventually stated that with the money he had to notionally spend for making the call, he could have fl own back to his state, inform his wife that he has reached India safely and then could have fl own back to India to continue with his rest of the tour. Now the question that arises here is that what kind of planning was this and how did it benefi t India? Compare that with today's call rates and how it has empowered the poorest of India through the ability of affording a cell phone.

So while production and price control restricted consumer-ism and thus stifl ed the economy to a great extent, the two other pillars of licensing system were even more dangerous. One of them was invariably the concept of import substitution wherein the whole objective was to create a viable and a self reliant industry in the country for reducing dependence on imports. Theoretically, it was not a bad concept but practically it is diffi cult for any nation to produce everything on its own and when someone tries to do that, it is nothing more than a self defeating endeavour. Being self reliant doesn’t mean shutting the doors to foreign inventions which are path breaking. Imagine if today Indian government states that it would not allow let’s say, Microsoft or Oracle products to be used in India or say it would not permit the use of Boeing or Airbus airplanes in India simply because they are foreign made and instead India would endeavour to build the same from scratches over here. Who would then dare to travel in a plane made by any governmen-tal agency on an experimental basis? Or what would happen to India’s prowess in software industry if they are asked to work without the products of Microsoft, Oracle, IBM, Cisco and many more? Today any decision like that would be like a death knell for the incumbent government as not even the most left leaning party can essentially think of doing that. But

India, unfortunately did exactly the same for almost forty years when imports were restricted and companies like Infosys had to plead with the government for buying comput-ers from abroad which was considered unnecessary by the governments of those days. It was also for the same reason that many industrialists like Dhirubhai Ambani were pros-ecuted or even persecuted for importing machines for improving productivity. Unfortunately India’s social planners for the fi rst forty years were living in a utopian world with respect to what growth in essence is. Imports were made so prohibitively expensive that it was mostly counter-productive to buy. So Indians had to depend on the products made in India by some shoddy producers who were guaranteed immunity from competition, from within and abroad, and were almost given the free run to exploit the customers. People had to book and then wait for decades to get a car or wait for a minimum of fi ve years to get a telephone connec-tion thanks to production control. And even the car they used to get was not any way up to the mark. Before the advent of

Maruti Udyog Limted in 1980s, the choice was invariably between the ubiquitous Ambassador from the Hindusthan Motors stable and the Premier Padmini from the Premier Automobiles Limited. While choosing between the two it was never a question of which was better but to fi nd out which was less worse as if both the producers in the absence of competition had put in major effort to make a bad car and now the issue was to fi nd out as

to who has failed to make a bad car and by default had made a better car. The same was for every product. Indians remained intoxicated with black & white television sets even when the rest of the world was enjoying the marvels of colour television with remote control.

The fourth and the most dangerous of all the pillars of licensing system was the concept of small scale industry. The general presumption was that Small Scale Industry, since it would generally use labour intensive techniques, instead of capital intensive ones, would create much more employment and thus would solve the problems of unemployment to a great extent. The fact that this fallacy has been proved wrong is no more a breaking news but two important things need

The four pillars of licensing policy

almost destroyed the culture of

entrepreneurship in independent

India

W H A T N E X T ?


mention. They need mention because even today in many of the educational curriculum of India, students are taught that Small Scale Industry is better. The fi rst important proposition is that if capital intensive industry is so very anti-employment, then how come the IT industry which is extremely capital intensive, continues to be one of the highest generator of employment in India? There was a similar fear about labour becoming redundant with the introduction of Information Technology and yet along with India’s IT industry, the banking industry continues to be one of biggest recruiters of young people in India with recent reports stating that Indian banking system would hire around 200,000 banking profes-sional in the next few years even when application of informa-tion technology is reaching new heights in banking with each passing day. This vindicates the decades of lost opportunities for India when restrictions of investments and technology stifl ed India’s growth. Shouldn’t we call it faulty planning? While planning is extremely crucial for the growth and the future of an economy, planning cannot be done by bureaucrats sitting in air conditioned offi ces with secure futures and assured salaries. And when planned by such people, every nation is doomed to collapse. The end result is what happened to India during the days of state-managed-socialism. India because of its idiosyncrasies lost opportunities even while China evolved its own version of socialism. It realised the incredible intrinsic value in the very essence of economy of large scale production and literally captured the imagination of the whole world. One doesn’t require to be a rocket scientist to deduce the fact that when anything is produced in large scale then the per capita cost of production eventually comes down and thus the price, while in case of producing the same thing in small quantity, the cost goes up which in turn raises the price. In 1960’s the defi nition of Small Scale Industry in India entailed any industrial unit with not more than Rs 5 lakhs of investments. Shockingly even today the defi nition of SSI veers around the investment tag of around Rs 1 crore and if it goes beyond that, then it loses that status of Small Scale Industry. Now consider a company like Tata Consultancy Services. This company, with revenues of $6 billion and assets of around $4.36 billion, today employs

149,564 people. For decades this company was stifl ed by the agonies of license raj. Now, if it were to be restricted till date under the clauses of SSI, could it have created employment for nearly a hundred and fi fty thousand people? Could it have inspired a $60 billion plus IT industry which is growing at more than thirty percent per year? For the fi rst forty years, it was this kind of self defeating propositions that destroyed India’s potential of creating jobs for its people. Can we call that era which stifl ed India's growth or made India lose opportunities a truly socialist era? Even today there are several items which are reserved for the small scale sector while if one looks just beyond India’s boundaries, in China, those very products like say soft toys are produced in such enormous economy of scale that no other nation in the rest of the world can compete with them. Eventually what has happened is that India’s romantic illusions of socialism and

upliftment of poor crash landed while China has been extremely successful in bringing out a substantial proportion of its population out of poverty. In the Policy Brief No 11 of ADB by Sebastian

Morris, Rakesh Basant and R Nagaraj,

namely Small Scale Industries In The Age

of Liberalization, it is stated, ‘The

unstated but manifest assumption in

policy has been that small fi rms need

essentially to be protected.. In the past this

approach sought to develop small fi rms

as an integral part of the Mahalanobis strategy. It was then

believed quite wrongly, as subsequent developments and the

historical experience of Japan and elsewhere in the late industri-

alization context reveal,that the traditional, typicaly handicraft-

based, industries producing a wide variety of consumer

products could gradually and through continuous investments

and upgradation of technology evolve into modern medium and

small enterprises (SMEs). This assumption could at best have

been right for a minuscule fraction of the small fi rms which were

largely household-based. Protection from large fi rms was

integral to the Mahalanobis strategy. Protection was sought to be

built, inter alia, by the ban on capacity addition in industries

like textiles in the mill sector. Such bans continued until 1984, to

the great detriment of the Indian economy. This measure and

overvaluation of currency negated completely the industry’s

potential to ride the postwar penetration of manufactured goods

India, because of its idiosyncrasies lost opportunities

while China evolved its

own version of socialism



markets of the advanced capitalist countries.’ It further states that, ‘Ever since the Mahalanobis Plan regional development

was seen as integral to the development of small fi rms. Small

fi rms were seen as locatable virtually anywhere as long as the

basic physical infrastructure, water, electricity, roads, etc could

be provided. Simplistic statements, such as steel plus electricity,

with a policy of regional dispersal equals regional development

almost became dogma. The neglected truth was that small fi rms

are greatly dependent upon agglomeration economies and

access to city serving functions. The result was disastrous.

Industrial estates that lacked access to reasonably sized central

places failed. The survivors had to overcome and bear the

high cost of inappropriate location. Many SMEs were pushed

into inappropriate locations through fi scal and other conces-

sions and administrative measures. Not given enough time to

overcome location-related infi rmities, as these push measures

were retracted, they became unviable and

closed down.’ From this perspective the Chinese planning with respect to national development has been far more pragmatic as they were not reluctant to evolve and take cue from some of the better concepts of the First World countries. With respect to so called SSI, they not only never tried to immune them from competition, big investments or agglomeration, on the contrary, instead of pushing them to faraway places in the name of balanced development, China created the Special Economic Zones for creation of better facilities for them and for access to international market and world class infrastructure. The net result today is that most of the SSIs in India fail to compete with Chinese products which are not made by big entities but by unknown, ubiquitous Chinese companies in very large scale. And this is exactly the point where the likes of Dhirubhai Ambani differed from the government. For them the concept was simple that if the increase in the scalability of production eventually reduces their cost which in turn would help the companies to sell it at a lower price which would benefi t the consumer also, then why that policy shouldn’t be pursued? Yet the Indian govern-ment’s fi xation with licensing system was so high that whoever was thinking big was considered a criminal. Ironically whatever Dhirubhai Ambani talked about almost three

decades back, today those very policies are implemented by every industry be it telecom, insurance, banking, or the manufacturing industry. But the problem with Indian policy planners was that they considered planning for the nation as their exclusive fi efdom and no one beyond the politico-bu-reaucratic class had any right to infringe into that. Should this version of socialism be called more nationalistic than the American version of liberal capitalism or the Chinese version of market socialism?

Thus, because of all these, the alienation of the young educated mass started in India from the very time India started with the concept of state planning. The sixties and seventies had witnessed a whole new generation of young Indians who were politically very active and were passionate about the cause of a new India. Many of those who were graduates and post graduates from India’s elite universities

and colleges wanted an economic revolution through entrepreneurship but were devastated by the kind of suffocating environment that was created in the country. Business in essence was looked down and business-men were always tagged as sinners to the extent that in most of the Bollywood fi lms till the early 1990’s, the stereotype image of a villain in evert fi lm used to be that of a crooked businessman involved in smuggling, trading of

counterfeit products, drugs and heist while the protagonist was a typical angry young man, forever unemployed and unrecognized. He would simply not get the job because given the restriction on companies to grow beyond a point, there was a limit on how many people they could have employed at any point of time. So, a new candidate could only be em-ployed when an old one dies, or when he has infl uential contacts or was in a position to pay bribes. Today does anyone need to pay a bribe to get into any private sector company? Not really, for the simple reason that as the economy has been gradually released from the clutches of license raj, the expansion of the economy and consumerism meant more people were needed to produce, sell, market, promote and service the expanding customer base. India’s 500 million subscriber plus telecom market means an incredible number of jobs created both directly and indirectly in the manufactur-

China never tried to immune its

cottage industry from competition through myopic policies like SSI

reservation

W H A T N E X T ?


ing of cell phones, selling of cell phones and connections, branding, maintenance of networks and in after sales service. Had there been a restriction on the number of cell phone that could be manufactured in a year or had it been reserved for the SSI, could it have created the kind of economic revolution and empowerment of the common man that happened in the last one decade?

It was essentially because of this kind of myopic and self serving policies that the educated class of India got alienated from the very cause of India. The best of the lot preferred to exit the country than to get suffocated by the bureaucracy which would simply not let talent to thrive. The exodus that started because of disgruntlement is continuing till date and those who were considered worthless or never given their real worth in their own country, went abroad and created a brand out of the abbreviation NRI which stands for Non Resident Indians and which continues to be one of the most powerful diaspora commu-nities in the world with an estimated net worth of more than $1 trillion. Compare this with the GDP of India which is a shade above $1 trillion now and one would realise how faulty our planning has been. While 20 million NRIs have net worth of $1 trillion, around 1.15 billion resident Indians produce goods and services worth $1 trillion in a year out of which 400 million live below the poverty line and 60% remain disguisedly unemployed in agriculture which continues to be unviable because of faulty state policies and control. Imagine had they been given the right kind of environment and nourishment here, India's GDP would have been almost twice of its present one. Add to it the $1.5 trillion of black money stashed in Swiss Banks, India's GDP would have been nearly at par with China's Now if it is not so, who's to be blamed for that?

When the exodus started, many of the so called socialists started terming it ‘brain drain’ and often accused the NRIs as being selfi sh and unpatriotic. But Dr. Abid Hussain had perhaps said it right that brain drain better than brain in the drain. Consider the case of Pranav Mistry, presently a PhD student at the MIT. His invention of the concept of Sixth Sense is about to revolutionise the world of information technology and user interface. But imagine if Pranav had

stayed back and been in some universities of India say in Kanpur or Lucknow or any other city. Would his invention have got the kind of attention or acknowledgement that he is getting now? Would it have even been considered worth? That’s the real question. That is the kind of mockery of new concepts and ideas that had forces millions of talented people to leave the country. Can a system which forces its best people to leave for greener pastures be called socialsim? One simply has to look at the condition of the Indian universities today and the kind of perpetual decay they have gone through. Where does JNU or Univesity of Delhi stand today? Why are'nt they anywhere near to the likes of Cambridge or Oxford? While the exodus of the quality people continued, policy planners carried on with their undeterred experimen-tation with a faulty concept of development. The drying up of employment opportunities because of the stifl ing policies of

the government was the fi rst step while the creation of a whole new generation of unemployable youth was the second. Throughout the whole forty years of socialism in India, its development ironically remained city centric. Good schools, good roads, good colleges, good universities, good amenities, good banking, good infrastructure were all concentrated in the cities much akin to the way it was during the British era. Life or lives beyond the cities never

mattered. It was and still it is in the cities that the elite and the middle class live and everything is always meant for them starting from the subsidy on education, to subsidy on fuel to subsidy on LPG — albeit in the name of common man. One just has to simply visit any of the government colleges in New Delhi and witness the kind of expensive cars parked outside the campus. Those are the cars in which students come to study in the colleges where they pay a pittance of a fee in the name of socialism. The amount they pay is perhaps less than they spend during their one time recharge of cell phone. And it is more ironical that even today the families of the richest Indians get a subsidy of around Rs 300 on every cylinder of cooking gas they buy while 400 million poor Indians who don’t even get two square meals a day don’t even know that a scheme like this perhaps exists. With respect to education there was and there still continues to be a paradigm differ-

Dr Abid Hussain had said that brain drain is better

any day than brain in the drain



ence between the kind of education being imparted in the cities vis-à-vis the villages of India. So while one can easily fi nd quality English medium schools both in private and government arena in cities, in case of villages, not only the schools were of bad quality, there was a concerted effort to keep the pedagogy in vernacular languages devoid of any kind of English education which eventually made them completely uncompetitive in the long run even while the politico-bureau-cratic class continued to send their progenies to private convent schools and then abroad for higher education while giving battle cry against English medium schools in India and privatization of higher education. Unfortunately it was India’s era of planned period and its faulty planning that eventually led to the rural-urban divide that is plaguing the country today. The very defi nition of rural India would make things clear. Even today in India, rural means a place devoid of sanitation, healthcare, electricity, roads, quality education system or awareness. Is this the way to empower people? And can we call that socialism? If today India's has a pathetic ranking of 134 in the Human Development Index of UNDP Human Development Report, it is primarily because of this city centric development that continued in India since independence. And yet that city centric planning too hasn't made Indian cities anywhere near the global bench-marks be it on the parameter of road, healthcare, effi ciency of the municipal corporations or law & order. Not that the essence of planning is at fault as has been vindicated by the planned liberalisation of the Chinese economy but what has been at fault in case of India has been its bureaucratic planning which completely kept itself immune from new ideas and changes happening all around the world.

To take it further, let’s take the example of the act called Monopolistic and Restrictive Trade Practices Act or the MRTP which was created to contain the concentration of resources in the hands of a limited number of companies and entailed that no company should have more than 25% market share. We will come to that issue later but let’s fi rst under-stand the nuances of MRTP and how it was detrimental to India. In the Indian market of operating systems, Microsoft almost has a 92% market share and yet most of us don’t

generally buy original software for personal use. Now going by the era of the socialist India, Microsoft would have been censured by the Indian government for breaching the 25% market share. Imagine if that law had still existed in India, the extent of havoc it could have created in terms of computer penetration and empowerment of the common man. MRTP failed to restrict the concentration of wealth in the hands of few because the ones with the right kind of contacts contin-ued to get licenses but what it eventually did was completely destroying the competitiveness of the Indian industry. When the economy got liberalised, the cracks got revealed as many of the conglomerates whose businesses had fl ourished through political contacts eventually withered away while only the genuine ones who had envisioned the future and were truly competitive survived. In fact a larger economy of scale and volume game eventually increases effi ciency and

reduces the price of the product. Moreover, in spite of MRTP, there was no control on the monopolies of the government which continued to wreak havoc. Take for example, the Indian Railways which is still a monopoly and in the name of India’s mascot of social engineering, has been reduced to a milking cow by politicians for their self serving agendas. While every year newer trains are announced, no one bothers about the broken tracks,

unrepaired bridges, safety norms or hygiene. Is there a count of the number of accidents that happen in railways every year and how many die in that? Is there a count of the number of robberies, molestation, kidnapping happen every year on the rail passengers? Why is it that most of the passengers till date have to travel in the most inhuman conditions in railways? Why is it that today it is easier to get a plane ticket in case of an emergency but is next to impossible to get a train ticket? Does a company require fourteen lakh employees to run a company? Why is it that in spite of having 1.4 million employ-ees it fi nds diffi cult to provide security guards and a compul-sory doctor in every train? Why can’t Indian trains be run the way trains in Europe or Japan or even in China runs? Why have we allowed the railways to become some sort of personal fi efdom of the ruling parties? Why can’t it be run profession-ally the way Delhi Metro is run? At times given the kind of

MRTP destroyed competitiveness

of Indian industry but failed to limit

concentration of power in the hands of few

W H A T N E X T ?


free passes and freebies are given to employees, it seems that Indian Railways exist only for its employees and not for the people. In fact the Indian Railways is an ideal example of the legacy of the socialist era and how organisations were run then without any kind of accountability. The same was there in the era when there were no private banks or private courier or insurance companies or to be more precise, an era when there was no direct competition to the government monopo-lies. One doesn’t need to be a rocket scientist to gauge how India was then. One conversation to any elderly or middle aged person would reveal the kind of harassment one had to go through while visiting a government bank or the neigh-bourhood post offi ce. In fact up till the late nineties, when competition from the private sector was still not prominent, customers of public sector banks had to literally be at the mercy of the bank employees while going to fetch money from their depos-its. This doesn’t mean that the nationali-sation of banks was wrong but what it means that job security and lack of competition that came along with nationalization ensured that the customer was relegated to the back-burner and was considered more of a burden than anything else. Indian organizations were simply not customer centric. There were jokes that a letter was posted by a man though government postal service to his parents in native home and a month later he had arrived there but the letter was yet to arrive. When people went to banks to fetch their own money out, the disdain, apathy and misbehav-iour of staff used to come as free of cost compliments. And the least said about infl ated telephone and electricity bills, the better. The ubiquitous Indian telephone run by the Depart-ment of Telecommunication, Government, before the advent of telecom revolution from the late nineties, didn’t use to work on two days, on the day it rained and on the day it didn’t rain. It would not run till the time the palms of many in the hierarchy get greased. The conditions of the government hospitals were even worse. Can anyone explain as to why there’s only one AIIIMS for a country with such a vast population? And then why is it that very hospital is half the time reserved for the treatment of the VVIPs while the patients who have come from the far fl ung areas of rural

hinterland continue to languish in the corridors? Why the socialist planners did never envisage the need of having an AIIMS like hospital in every subdivision of every district of India? Why was every good amenity kept as exclusivity of the elite? Was it this kind of socialism that was supposed to create national fervor and make the nation stronger? Was it this kind of socialism that was supposed to empower the common man? Forget everything else, municipal corporations till date cannot even produce water worth drinking. Thus, in every city and town worth talking about, packaged drinking water is a norm than an exception. None trusts the municipal water unless there is an undying urge to become a victim of Hepati-tis or Cholera. Water-borne diseases continue to be one of the biggest killers in rural India.

While entrepreneurship was never considered as a viable option to empower the nation, the planners always considered that private companies would be unable to make big investments. Thus the government took it on its own the responsibility to make giant investments in basic industries. While many of them were actually successful, the need to keep the balance sheet on track was never given its due importance. Thus, throughout the socialist era, the government borrowed heavily from the international develop-

ment agencies but failed to convert that in the creation of real time assets resulting in massive external debt for the country. Projects which could have been fi nished in fi ve years time took twenty fi ve years to complete being caught in controver-sies resulting in cost and time overrun to the extent that the projects eventually became fi nancially un-viable. The Sardar Sarovar Dam on river Narmada is an ideal case in point. Moreover lack of accountability made sure that no one really kept a tag on where the borrowed money and the black money were going. Incidentally recent reports state that the extent of Indian black money kept Swiss bank accounts stand at $1.5 trillion which is just a shade higher than India’s GDP. This money is primarily one made by the politico-bureaucratic class as well as the torchbearers of India’s crony capitalism that milked India for forty long years. The common man was as helpless as he was during the British era or probably he was better off during the British era in certain respect. Police had

The amount of Indian black

money stashed in Swiss Banks accounts is a

staggering $1.5 trillion



become completely subservient to the political class and going to courts meant becoming a pauper given the cost and time implications. Media was censored and there was nothing called television media the way it is now. Doordarshan that came into existence later on was autonomous only on paper as everything was scripted to suit the government. It was nothing more than a stooge.

The late sixties saw the chest thumping by the Indian government over a much publicised Green Revolution which, it was time and again stated, was about to make India self suffi cient in food production. While the Green revolution indeed increased the productivity of Indian agriculture through the introduction of high yielding seeds and extensive use of chemical fertilizers, could our social planners guaran-tee that no Indian would go to bed half fed or malnourished? Unfortunately while the strangulating hold of the government on the agricul-tural marketing and procurement of food grains have ensured that India’s state owned godowns are brimming with food grains bought from rich farmers of Western Uttar Pradesh, Haryana and Punjab at hefty prices, even today 400 million Indians go to bed malnourished every night. Unfortu-nately the faulty system of procurement makes sure that food grains continue to rot in the mandis and the government prefers this than to actually transport that food grain and distribute it through the public distribution system among the destitute. It’s an irony that today when the price of cell phones and consumer durable products are coming down thanks to market competi-tion, the archaic laws that still govern the agriculture sector make sure that the prices continue to soar. While the cynics and fl ag bearers of the Malthusian theory might say that it is the increasing population whose pressure is to be blamed, then how come the increasing demand of cell phones have been able to crash the prices in the telecom market which has eventually empowered the common man?

For the Doubting Thomases again, even if one considers these justifi cations as lopsided then I just have one question. How come an amazingly well planned economy with some of the best leaders of the time, for all the big talks of laying the foundation of the Indian economy, eventually ended up

putting the economy on the brink of bankruptcy in 1991? And how come in just seventeen years time, that very economy which was on the verge of bankruptcy emerged as a dark horse for the future and became a trillion dollar economy? This, not to say that planning or socialism is not good but to vindicate that market economy eventually helps in reaching the goals of socialism if socialism is all about empowering the common man. In today’s environment the common man has been empowered by the media much of which can be wit-nessed by how it played a critical role in making the rich and the mighty pay for their sins. It’s not that cases like that of Jes-sica Lall, Priyadarshini Mattoo or the Nitish Katara never happened before but those days in the era of monopoly of Doordarshan, no one would have dared to raise voice against the politico bureaucratic class. The contrast is even more

prominent between the way wars were covered by the media during 1962 and that of the Kargil War in 1999. The way private media championed the cause of the hapless foot soldiers who have always been used as pawn by the babus sitting in Delhi, during the Kargil War created massive awareness and patriot-ism among people. Today in the era of market economy, the educated youth do not sit idle and can somehow get a job without having to pay bribe to anyone.

In seventeen years' time the contours of the Indian economy has changed much with awareness spreading all around, the effi cacy of education being realised by the common man, plethora of job avenues opening up and a whole new genera-tion of young Indians jumping into the bandwagon of entre-preneurship by giving up their cozy jobs while the market economy, call it for its own selfi sh reasons or whatever, has been successful in forcing the government to improve infra-structure and bridge the rural urban divide. Even today if there still exist a deep divide between the urban and rural India, then it is not because of market capitalism but for the lack of it. The sixty percent of the population who depend on agriculture still get a pittance for their produce while the middlemen with their stranglehold of the agri-market con-tinue to rule the roost forcing the end customer to pay a hefty price. Bringing organised competition in the agri-economy would not harm the farmers as is being propagated by the

Why did India was on the verge of

economic collpase in 1991 if it

always had great leadership to steer

it through?

W H A T N E X T ?


vested interests. Instead, it would make the market transpar-ent and increase purchasing power of the rural lot and restrict migration to cities through the creation of necessary physical and social infrastructure in that place. Gurgaon is a case in point as to how private investments can transform a place. In fact the entire stretch along the Jaipur Highway is getting developed one after another from Gurgaon to Manesar to Bhiwadi thereby reducing pressure on the exiting cities. Likewise a whole new generation of Indian private companies with ability to compete globally has proved our socialist leaders wrong. Today Infosys, TATA, or the Reliance are as much pride and prowess of India as the good PSUs like BHEL, IOCL or NTPC is. Together they have made a far more stronger India today than what it was two decades back. A trillion dollar economy, a near $ 300 billion forex reserve, a strong Diaspora with a trillion dollar of assets under their control, one of the fastest growing economies of the world, a fast emerging consumer market have all helped in making India a nation worth taking pride in. In this respect China is even a better example as to how planning of the economy has made China one of the biggest giants in the world. Films like Rang De Basanti or Chak De have created a new genre of patriotism among the youth of this nation

Nationalism in this case is not just about the citizenship but the nation to which one actually has his roots. Otherwise how would one explain the phenomenon so often evident during cricket matches between England and India when played in England wherein one would fi nd a disproportionately high number of Indian fl ags being waved in Oval or Lord’s and the gallery blued by a swarm of sky-blue jerseys to the extent that one would often misconstrue it as a match being played in India. Thus the question is why do people of Indian origin who have migrated to England several decades back still feel more allegiance to India than UK even when they hold a British passport? Why does an Indian on a trip to UK feel the effervescent warmth of a person of Indian origin as if someone from his own family has come, when he steps in an Indian owned restaurant in downtown London? Or say, what makes Indians take nationalistic pride and even consider it as a sort of reverse

colonialism when the TATA Group acquires British compa-nies like Corus or JLR? After all it’s just a giant conglomerate with huge cash reserves acquiring another giant. Isn’t it? Or is it much more than that? Similarly why do Indians consider it as an insult and a blow to their pride when the Taj Heritage Hotel was literally decimated by the Pakistani terrorists? Is Taj just another hotel of a business house or it has transcend-ed the boundaries of private ownership and has become the very symbol of India’s resurgence? Or why is it that Ratan Tata takes it as a personal challenge to resurrect the bruised hotel after the 26/11 siege and vowed to make it run again within twenty one days? Why did, one of the fi rst things he did after the siege was over was to hoist an Indian fl ag and through it sent a message to the perpetrators across the border that India cannot be cowed down by such heinous acts? Why is it that Indians all across the world were on fi re and felt so much for the victims that they were all willing to go for an all out war against Pakistan? Or say why couldn’t

Indians residing in US or UK just shrug it off as just ‘another incident’ and carry on with their normal life? Why did they feel the same passion as was felt by every resident Indian or the people of Mumbai on that dreaded day? Why couldn’t they feel more allegiance to the company they work for than to the ones in a distant nation which was once their place of birth? Thus one may conclude that it is just a fallacy that globalisation is all about permeating the boundaries

of nations. On the contrary globalization is nothing but a mere medium to make the nations stronger. For, the enor-mously powerful twenty million strong Indian expatriate community with more than a trillion dollar of asset under their fold, essentially works as an extension of India’s increas-ing clout, be it through forcing the American government to change policies in favor of India or sending back remittance to motherland, the annual amount of which touched the magic fi gure of $50 billion in 2008. Incidentally when India went for the nuclear tests in 1998 and faced the American wrath through Economic sanctions, it was the NRI commu-nity which came to India’s rescue by participating in the Resurgent India Bond through which India mopped up $5billion to tide over any foreign exchange crisis. Thus the

The Diaspora of any

country is no way less

nationalistic than the resident

citizens



essence of a strong expatriate community and the effi cacy of its die hard nationalism towards the country of origin was vindicated beyond doubt. The same can be stated for the Jews across the world and their passion for Israel. For China, the whole essence of its introspection, metamorphosis and eventually becoming the game maker in global business, has nothing to do with its communist or say socialist ideology to become the global hub for manufacturing for delivering low cost products for the poor and the downtrodden. Rather, for China the whole essence of globalisation i has been nothing but a medium to reach that very zenith of political, ideological and military success which Mao had perhaps envisioned long time back. This medium, for China, is perhaps more effective than the purest version of communism which they felt was rather self-defeating. It has been vindicated by the fact that in the last three decades, China’s meteoric growth has not only been a spectacular exemplifi cation of how globalisation can help in mitigating poverty but has also shown how it is a great leveller. In fact such is the reach and omnipresence of Chinese goods nowadays that its almost next to impossible to fi nd any product in Europe or even in US which is not made in China. Likewise the outsourcing of business processes by US based compa-nies to India has created such paranoia of job losses in US that the quintessen-tial torchbearer of globalization and open economy has started advocating protectionism and tax incentives to companies who decide to stop the outsourcing. Similarly, such is the extent of the Chinese impact that European companies have no option but to outsource manufacturing to China in order to remain competitive, thereby creating massive unemployment in the whole of Europe. Today Europe is not just clamouring for protection, but even in the very formation of European Union, individual countries are wary of each other. Today the West European nations are concerned about the massive migration of low cost workers from East Europe to West Europe as the integration process East European states in European Union starts. The Icing on the cake is the fact very fact that UK is still very paranoid about surrender-ing its currency of Pound Sterling for Euro presuming that surrendering Pound Sterling would tantamount to almost

giving up the essence of its sovereignty. Even today there is a strong under current of nationalism among the otherwise developed nations of Western Europe. If one goes by the display of passion during the soccer matches in the FIFA World Cup or Euro Cup, it still seems that most of them are still driven by the legacy of their colonial and empirical wars of the past. In essence, the more the storm of Chinese and Indian onslaught is increasing, the more protectionism in the garb of nationalism is spreading across Europe.

Yet the whole essence of growth and resurgence of great counties is as much because of good leadership as it is because of planning, patriotism and unity. It is the leadership of Putin that resurrected Russia after its near collapse in the nineties. It is similarly the leadership and vision of Deng Xio Ping and his calibrated reforms of the Chinese economy from 1978 onwards through the Bottom-Up approach and embrac-ing of market socialism that created the wonder called China today which can literally dictate terms to US. Yet leadership

is not just about political leadership only but includes business leadership as well. So while USA’ s prowess is as much because of legends like Bill Gates, Steve Jobs, Larry Ellison, Jack Welch, Michael Dell or Henry Ford, it is also as much because of the successive presi-dents of the United States of America who foresaw the importance of having a functional, equitable and an institution based democratic society where ‘ahead of time’ ideas can be incubated, nour-

ished and blossomed in the right way. Sadly in India our education system has been able to cerate mature and vision-ary political leadership. Politics here have been reduced to family business. In essence, an entrepreneur as a visionary can only do as much as the society in which he is aspiring to unleash his ideas for the future, allows him to do which in turn depends on the visionary policies. Let’s imagine for a change that a college dropout named Bill Gates walks up to a banker in India and in the era when the Mainframe machines were a norm than an exception, he proposes a revolutionary idea of making an operating system to operate which, one need not be a hardware engineer and that he would need a loan from the bank to start a business of commercially making such operating systems. Now would that Indian

Both political and business

leadership are equally needed

to steer a nation towards true

welfare

W H A T N E X T ?


banker give money? Well chances are high that he would actually think it as a crazy idea to innovate or invent some-thing for business purpose as for him and his society, the work of invention is that of the scientist and not of a businessman. Sadly, his society or its political leadership have never understood the magic of making a business out of invention, innovation or improvisation. So Bill Gates’ proposal would surely have been rejected. But even if the banker had been a little more enterprising than what he is permitted to be and even if he had agreed to lend money, he would surely then have asked for a collateral as a security for the loan he is giving. Well, if budding entrepreneurs had enough property to give as collateral, they would have never gone to bankers. But then in countries like India, the very thought of giving a loan to a budding entrepreneur without asking any collateral in return would be termed blasphemous, and if the banker actually does so and the business fails, he would surely be behind bars for gross violation of rules. Thus, in this country, banks give business loans only to those who already have money and therefore it is so very diffi cult to fi nd too many young men holding on to their convictions against all odds and make the next big thing happen. It’s not for nothing that the likes of Dhirubhai Ambani or Narayan Moorthy are exceptions in this country. What Indian Inc. does today, Dhirubhai started doing it nearly thirty years back in an era when business was looked down and the licensing system was throttling the remaining few. The price that he had to pay for being a visionary and crusader against the self defeating licensing system was that he became half paralyzed, thanks to all the trauma, censure and agony he had to go through for being a thinker. It never probably happens this way in US. And thus it is easier to locate a successful entre-preneur over there than here while those in business prefer to go with the tide and cash in on it instead of thinking about the next big thing. Thus the West makes the products and we in India service it. It’s still not the other way round. Socialism in real terms was never meant to discourage the youth and follow the rules laid down by dead theorists. Sadly in India it happened like that.

More than fi ve decades back John F Kennedy had once

stated, ‘Roads in America are not good because America is rich.

America is rich because her roads are good.’ This only exempli-fi es that the phenomenal growth of the US and the rise of US global corporations was not incidental but an outcome of political leadership and its nationalistic fervour to see the rise of the nation through entrepreneurship and economic dominance. The rise of hundreds of Japanese Fortune 500 companies which catapulted Japan to become the second largest economy of the world, barely a few decades after its humiliating defeat in the Second World War was also an outcome of political leadership’s vision to erase the infamy of fascism tagged to Japan and transform Japan’s image in the world as a pioneer of technology and innovation. Thus market economy for japan, like US was a route to further the cause of nationalism. Israel's incredible feat in terms of not just being

able to survive in one of the most diffi cult neighbourhood amongst enemies all across and thrive as one of the most effi cient and technology driven company can only be attributed to their conviction of never allowing the dark days of holocaust return ever again. Being a nation of mandatory military service and also as home to one of the highest incidence of entrepreneurship in the world Israel has been trans-formed by the zeal of young Jews to

defend and prosper their holy land. It is unfortunate that in India the whole concept of leader-

ship development has only remained restricted in business schools and that too has remained restricted with respect to running companies effi ciently. However, there’s a limit as to how much business leadership can achieve till the time political leadership of a nation creates the right kind of business environment. In the American Presidential system of governance the president elect makes his own cabinet which comprises of eminent people from the industry and the intelligentsia. And they need not be the members of US Congress or Senate. Therefore policy making is more attuned to what would be benefi cial to US companies and thereby to US economy unlike in countries like India where for decades successive government took pride is crucifying business houses, not realising that there cannot be employees without employers and there cannot be welfare without fruitful

India has consistently failed

to create and nurture both

visionary political and business leadership



employment. This vindicates again as to how for successful nations state planning and private entrepreneurship worked not against each other but with each other. Wherever each worked against the other, it led to collapse. Thus, it’s not the fault of the Indian bankers. In the US, being a college or school dropout doesn’t carry any stigma. Moreover, innova-tion and original thinking is always appreciated. Over here people always scoff at every idea that originated here and given importance to it only when the West or say the First World endorse it. Be it spirituality, Yoga, or Indian culture or creativity… the list seems endless.

The biggest company of US is nothing else but US Inc. So long it survives and remains the most powerful; every other company of US would survive. Thus there cannot be any great company in a badly managed nation. That’s why political leadership is so very important. And if leadership is all about vision and then working towards materialising it, then that vision is as much required in running a nation as it is required for running a company. Sadly in India, for all the big talks of leadership, not many from the industry seem to be interested or involved in real time policy making. Contrast this with Israel or US where majority of the heads of states had stints in the armed forces of their respective nations. In Singapore, the legislative members are some of the highest paid executives of that country. And the rest is history.

In essence change would only come when things change inside the parliament. Therefore, without entering that place, merely shouting from the periphery would not change India’s destiny. India can only be a truly welfare state when the inherent ineffi ciencies of the state and the support system are taken care of and entrepreneurship is allowed to fl ourish in every nook and corner of the nation since it's only then that jobs would be created through the unleashing of India's intrinsic potential. Jobs invariably would mean more pur-chasing power and welfare. If that happens then it can only happen when India reaches anywhere near the predictions of Goldman Sachs on BRIC economies. And if India has to go anywhere near the predictions of Goldman Sachs on the BRIC countries, where it has been stated that by 2050 India would be the third largest economy of the world (with a GDP of $38 trillion plus), it cannot reach that place (from the present GDP of $1.2 trillion) merely by depending on outsourcing of work from US or by fl ocking to US in large number and neither by remaining glorifi ed workers of US

MNCs. For that dream to come true, it is not only important to have the right kind of political leadership and passionate seasoned technocrats who would take care of institutional frameworks but India would also require a thousand more Dhirubhais, NarayanMoorthys and Ratan Tatas. Sadly, one wonders as to how many of the B-school graduates have that in them to sacrifi ce twenty years of their prime life for one single dedicated cause which would not only a create world class company or institution but would also inspire others to follow the footsteps? Can they come out of their comfort zones, give up their lifestyles, passion for brands and have ‘guy next door’ simplicity like Bill Gates in their demeanor? Can they hold on to a company for ten long years even when it’s not generating money and wait for that perfect moment, the way the promoters of Infosys held on to the dream of Infosys for ten long years till liberalisation was ushered and opened a new vista for the entrepreneurial Indians? In spite of all the big talks of leadership, isn’t this country actually ending up creating followers only? Or why is it that those who were college or school dropouts worked better with their gut feeling and instincts and created world class organiza-tions while most educated people merely end up managing the companies set up by them? Is state controlled education killing the natural instincts of risk taking, passion and though process among our youth, be it in political or business leadership? Are today’s practitioners becoming prisoners of dead theorists? And is it because those who never ventured in higher education and thus remained free birds with free minds ended up being the best creators and leaders of the world? Well… it’s only then when young Indians would join the political and business mainstream that would create a powerful nation the Israel has been where socialism, capitalism or globalisation would all be tools for betterment of the -ism called Nationalism. It's only then that a true welfare state would be created where all are for one and one is for all the way it has been in Israel where they went for a war with the Hezbollah, in 2006, just because one Israeli soldier was taken prisoner by them. Need any better example of socialism?


reflect the offi cial policy or position of the organization. A very

small portion of this write-up by the same author was published

in the magazine The Human Factor of Planman Media)

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