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Mainstream, VOL 62 No 24, June 15, 2024

The Built-in Inequality in India’s Social System: Inclusive in Theory, Exclusive in Practice | Ajay Kumar Mishra

Friday 14 June 2024, by Ajay Kumar Mishra

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Inequality has ancient origins in India, embedded as it is in its social system, which encompasses caste, religion, gender, ideology, belief, language, and identity. These elements have categorised social systems into core, periphery, and semi-periphery, in line with Wallerstein’s analysis. The theories of Marx and Gramsci can be contrasted to expose the intrinsic class stratification within the Indian social framework. The argument is that India’s stratified social system underpins the capitalist mode of production, yet it still necessitates the state’s legitimacy and facilitation to ensure its continuity. Here dominant forces bring about institutional changes that perpetuate inequality through the creation of false consciousness. This study also explores the state’s role from antiquity to understand its operations within a society governed by a hierarchical structure. The paper indicates that the social hierarchy has historically impacted economic results.

ECONOMIC INEQUALITY IN India is socially determined. Many factors contribute to economic inequality, including high incomes, intellectual property or business ownership, successful investments, inheritance, or mere luck. However, the economic power derived from social privileges often goes unacknowledged in the rationalist, utilitarian discourse of capitalism. In a privilege-laden or feudal society, not only economic entitlements but also political and social entitlements are denied to all except a small minority of elite groups (Nayak 2012, p. 6). This economic power enables manipulation, creating a false consciousness by influencing the social system to uphold capitalist supremacy and its trickle-down effects.

The prevailing social system establishes a dominant knowledge system that signals and ensures the persistence of inequality as an ideological and political issue, rather than a technical or economic one as has been argued by the economist Thomas Piketty in his book ‘Capital and Ideology (2019)’. It also presents the case for a hegemonic spirit where both conservatives and liberals unite – capitalism influencing ideology that shapes the conscience to accept the dominant knowledge system.

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist (Keynes 1964, p. 383). Nobel laureate Angus Deaton has posited that the declarations of economists can often be anticipated based on their political leanings (Deaton 2022). This has limited the capacity of economists to acknowledge that neoliberal capitalism primarily benefits a small segment of the populace.

However, constructivists argue that states function not merely as political entities but also as social actors, insofar as they comply with norms and institutional frameworks that embody the values and beliefs of society. Institutions of knowledge have faced challenges adapting to societal changes due to rigid hierarchies. This has led to polarisation, power struggles, and a lack of diversity in perspectives, stifling intellectual growth in society.

The Indian Social System (ISS) cherishes the freedom of dialogue, debate, and dissent, which stems from societal diversity. However, the predominance of the upper and middle classes has made the ISS inclusive in theory, but exclusive in practice. The Social System has evolved but has been co-opted by dominant groups. These bodies of knowledge were known as the shastras, encompassing the domains of dharma (social order), artha (economics), kama (art and pleasure), along with the great epics – the Mahabharata and the Ramayana.

Property law, which has been a source of inequality, is explicitly defined. It encompasses the laws and regulations that oversee the ownership and utilisation of land, buildings, and other tangible and intangible properties. These laws, rooted in the principles of justice, equity, and fairness, aim to safeguard property owners’ rights and avert conflicts. They support the capitalist ethos that advocates for a robust state to uphold property rights. This focus on property rights has fostered a hierarchical social structure. 

The tradition of the ISS fosters disparities in opinion, resources, and outcomes, tracing back to the historical roots of India’s consistently poor democratic performance. India’s downgrade to ‘electoral autocracy’ status in 2018 marked a decline that has since worsened, positioning it among the most severe autocracies. The government’s ongoing curtailment of religious freedoms, intimidation of political adversaries and policy protestors, persistent suppression of minority and civil rights, and the muzzling of academic dissent have become widespread (V-Dem Report 2024, p. 25).
What led to this kind of deterioration of democracy?

This study uncovers the historical roots of inequality within Indian social and knowledge systems, suggesting that capital and property rights have been a fundamental force in shaping both domains. India’s social structure has endured, even as neoliberal capitalism has reinforced its hierarchical nature. Given that social and cultural elements remain unchanged, it can be argued that conventionally measured inequality shows little difference between contemporary and ancient pre-industrial societies.

Exploring the Notions of Inequality: Historically, the ISS has been rooted in a hierarchical value system that has often overlooked dissenting opinions, languages, beliefs, ideas, and norms. Popper’s concept of situational determinism has been used to synthesise economics and non-economics discourses conditioned by an understanding of history and culture, that support this argument (Popper 1962, p. 107). The phrase ‘situational determinism’ is derived from the method of economic theory and is described as ‘analysis of the situation, the situational logic’.

The analysis of situations, the situational logic, plays a very important part in social life as well as in the social sciences. It promotes the justification of logic based on the situation. For example, the validation of ‘rational utilitarianism’ or the ‘neoliberal consensus’ should be assessed according to the logic inherent in that particular social context. Marx, however, fails to take into account either how class structures, once established, will, determine the course of economic development or underdevelopment over an entire epoch, or how these class structures themselves emerge: as the outcome of class struggles whose results are incomprehensible in terms merely of market forces (Brenner 1982, p. 55).

The demonstration effect influences the consciousness and determines the economic determinism by persuasion instead of coercion. The compelling force further demonstrates the unlikelihood of a definitive peasant and labour revolt. This approach fosters a misguided perception of superiority within the prevailing ideology and beliefs, which discourages the inherent dissent across the social, political, cultural, and economic realms of Indian tradition, known for its history of discordant coexistence. For example, the Great Epics – Ramayana & Mahabharata, the Shastras and the Puranas – all depict these dissenting and conflicting interests, highlighting the inequality of opportunity and outcome.

The Caste System: The caste system is a significant aspect of inequality in India. Moreover, caste is not merely a principle of social division but a comprehensive system of life dealing with food, marriage, education, association, and worship (Nayak 2012, p8). Originating around 1500 BC, this hereditary social stratification is supposedly rooted in the occupational hierarchy. Ancient Indian society was believed to be segmented into four Varnas or castes: Brahmins (priests), Kshatriyas (warriors), Vaishyas (merchants), and Shudras (labourers), ranked hierarchically.

Beyond these, there were the ‘untouchables’ or Dalits (the oppressed), who were barred from interacting with the upper castes. These categories were further divided into thousands of sub-castes or Jatis, each with its complex hierarchy. Reading on castes, one is often led to wonder, what makes a group of people, a community, stay for thousands of years with just one occupation like burning the dead or carrying nightsoil. Nevertheless, the caste system is not the sole factor of disparity; aspects like gender and family background also contribute to societal inequalities.

The Manusmriti, a code of social stratification, emerging between the 2nd century BCE and the 3rd century CE, was not just a static legal code but a dynamic element interwoven into society’s fabric. It codified and justified existing social structures, reinforcing them. While known for establishing a rigid caste hierarchy, the Manusmriti also significantly influenced ancient India’s economic and land ownership patterns and to the identity ‘Hindu’ and towards ‘Hindutva’ politics – an agreed system of identifying the Other and exclusion. These ownership patterns, closely linked to the caste system, enabled the concentration of wealth and led to a persistent unequal resource distribution, the effects of which are still felt today (Paranjape 2022). It has permeated the civilisational heritage through folk traditions, shaping the lives of ordinary people and fostering a culture among the elite that shapes the ideological and political landscape of the state. This is achieved by creating a false sense of superiority through controlled information sources (a method known as ‘aryanification’). The convergence of the social elite and capital appears to be a natural alliance to secure their vested interests.
Interestingly, in India, this caste system cuts across religion and regimes.

Pre-colonial India was marked by social inequality due to its discriminatory system. Scholars contend that colonial rule necessitated compromises and alliances with the upper castes. Consequently, by aligning with the higher castes, colonial governance perpetuated the patterns of inequality that were intensified by the advent of capitalism (Saberwal 1979a &1979b).

The expectation was that the individualistic ethos of neoliberal capitalism, grounded in raw marginal productivity and task specialisation, would diminish non-economic discrimination. However, in practice, neoliberal capitalism, evolving from its foundational concepts of free market and division of labour, has fostered casteism. Firstly, both systems rely on the division of labour. Secondly, socioeconomic inequality serves as the lifeblood of both systems’ survival and sustainability. Lastly, the harmony between marginal productivity and rent-seeking behaviours is standard in both systems (Mishra & Rishi 2023, p. 116). Subsequently, the open economy produced mixed effects on the social structure.

Caste links to the Economy: The mix of low and stagnant land productivity, coupled with barriers to occupational mobility, meant that even with the expansion of agriculture, it did not lead to higher productivity or per capita income. In contrast, occupations linked directly or indirectly to trade were able to partially overcome the limitations of land productivity. Colonial economic policies, which favoured commercial interests, had little effect on agriculture, leading to sectoral inequality (Roy 2018, p. 19).

India, a victim of the capitalist and mercantilist trade policies of British colonialism, emerged as a highly unequal society at the time of its independence. A significant portion of its population’s wealth was in land ownership. During 1950-51, approximately 91.4% of the nation’s annual household savings were in physical assets such as land, dwellings, and gold. This figure decreased to 71.9% in 1970-71 and further to 60.6% in 1980-81, reflecting the increasing financialisation of wealth. According to a recent World Inequality Lab working paper, the share of national income received by the top 1% decreased from 11.5% to 6.1% between 1951 and 1982, likely due to socialist policies, but then consistently rose, reaching a peak of 22.6% in 2022. Similarly, the national wealth share of the top 1% declined slightly from 12.9% to 12.5% between 1961 and 1981, before skyrocketing, especially after 1991, to 39.5% in 2023 (Bharati et.al 2024). The evidence suggests that inequality is rooted more in social, political and ideological factors.

Social structures, types, and attitudes are coins that do not readily melt. Once formed, these entities tend to persist, yet various structures and types exhibit differing levels of survival ability, which becomes apparent when inferred from the dominant forms of the production process (Schumpeter 1942, p. 12). Ancient India achieved the high growth rates in its recorded history, comprising about 33% of the global economy in 1 AD. Indian merchants traded extensively from the West Asia to East Asia, causing Roman policymakers to lament the trade deficit with India. By 1000 AD, India still maintained the world’s largest economy, holding a 29% share. India’s merchant guilds, supported by temple banks, established an extensive trade network across the Indian Ocean and beyond.

However, by 1600, India’s contribution to the world economy had declined to 22.6%. Merchant guilds have played a pivotal role in mediating economic affairs, securing a significant portion of the economic wealth. This, in turn, has led to the prominence of merchant capitalism, which has flourished and sustained feudalism within a socially and economically stratified system (Maddison 2006). Thus, India’s historical legacy has been characterised by a high growth rate and a discriminatory social system.

This presents the question of whether India’s social system is incompatible with high growth and reduced inequality. However, this legacy suggests that divisive social systems, rather than economic performance, are the true culprits of inequality. The solution may lie in revising the ideas and knowledge that underpin economic policy, which could, in turn, address economic inequality.

Economic inequality is a natural outcome in a market economy where the market rewards individuals who excel at investing or managing capital. Investors who earn profits increase their share of wealth over time, while those who incur losses see their share decrease. For example, an entrepreneur with an innovative product that reaches billions can amass substantial profits and increase their wealth share. This process ensures that capital is controlled by the most effective investors, optimising resource use and expanding the overall economic pie.

However, the significant economic disparity observed in India today is not primarily a result of the free market rewarding the top 1% for their entrepreneurial skills. Rather, it is largely attributed to the top 1% receiving special advantages from the government, which shields them from market competition that could otherwise diminish their wealth share. This occurs in an economic context where real wages for most workers have stagnated or even decreased, particularly for regular and construction workers, in the last decade.

Evidence supports the effectiveness of structuralist guidance, which posits that social forces – comprising ideas, norms, languages, and beliefs – shape policies that subsequently affect economic outcomes. Furthermore, it reveals that persistently poor performance on democratic measures and increasing economic inequality leave an ideological mark that directs our conscience in shaping policies and discourses. 

The Notional Consent: The conclusion of the Second World War heralded the rise of the free market’s dominant spirit. Following this, the end of the Cold War set the stage for a more potent form of this spirit: neoliberalism that advocates for the state’s role in establishing and maintaining an institutional framework conducive to strong private property rights, free markets, a minimised Welfare State, enhanced individual liberty and freedom, and market mechanisms. For the neoliberal state to gain legitimacy, it must be internalised as an ideology within the state apparatus itself.

Due to the structural inequalities of Indian society, the majoritarian consensus hijacked and internalised by dominating neoliberal values, preserved structural social inequalities. This helps to perpetuate monopoly capitalism that relies on substantial changes in the policies and personnel of the state, leading to the creation of a financial oligarchy with the collusion of finance capital and state. Government acting in an oligopoly market with the collusion of the state and market, creates an oligarchy that is being influenced by Gramsci’s ‘manufactured consent’ of manipulation of the political and cultural landscape to provide consistent legitimacy to neoliberal framework.

The neoliberal revolution necessitated achievement through democratic means. Such a significant shift demanded the construction of political consent among a broad segment of the population to secure electoral victories. Gramsci’s concept of ‘common sense’ – the sense shared by the majority – usually underpins this consent.

Common sense arises from enduring practices of cultural socialisation that are deeply embedded in regional or national traditions (Harvey 2015, p. 39). Noam Chomsky highlights the role of language as a tool of control within liberal capitalist systems. The development and dissemination of ideas demand resources, and while opinions are not tangible goods that can be purchased or sold, their generation often mirrors the production of typical commodities.

The proletariat’s acquiescence to their exploitation has to be ‘manufactured’ by influential entities in society by creating ‘false consciousness’ of the supremacy of capitalism, encompassing both the state and corporate media. Chomsky notes, ‘A privilege of power is the capacity to craft history with the assurance of facing minimal opposition’ (Chomsky 2004, p. 167).

Democracy and the System Theory of Inequality: Neoliberalism advocates for the state’s role in establishing and maintaining an institutional framework conducive to strong private property rights, free markets, a minimised Welfare State, enhanced individual liberty and freedom, and market mechanisms that promote fair outcomes. It presumes that the state’s bureaucracy hinders reform and liberalisation and advocates aligning bureaucracy with the neoliberal state’s utilitarian theory and practicalities.

Contrary to popular belief, the neoliberal ideology does not call for the elimination of the state or bureaucratic intervention but rather for their transformation. The state has served as a semi-periphery, managing pressures from both the core and periphery within neoliberal capitalism. However, the deep-rooted hierarchical system and the waning of democracy have skewed the state towards the interests of an elite core group. The state’s focus on capitalism undermines democracy by promoting an essential connection between universalism, rationalism, and contemporary democracy, suggesting that constitutional democracy is a stage in the evolution of reason, associated with the rise of universal laws and morality. Democracy, however, does not require philosophical underpinnings, nor can its institutions be secured solely through rational. Democracy entrusts the creation of a knowledge system where rationality and universalism are not the exclusive pillars of knowledge creation and deposition. From this viewpoint, democratic action does not hinge on a theory of truth or concepts like unconditionality and universal validity. Instead, it involves a range of practices and pragmatic steps designed to convince people to expand their commitments to others and forge a more inclusive community. It involves mobilising passions and sentiments, multiplying practices, institutions, and language games that enable the emergence of democratic subjects and forms of will. Moreover, a pluralist democracy must also provide space for the expression of dissent and the presence of conflicting interests and values (Mouffe 1996, pp. 1&5).

The focus on rational and universal discussions about capital and inequality has legitimised meritocracy and wealth accumulation. In a majoritarian democracy, rational discourse has advocated for utility-based trickle-down economics, thus establishing a stratified and segregated hierarchy of resources and opportunities. Arthur Okun posited that societies must navigate a trade-off between perfect equality and efficiency (Okun 1975).
The capitalist narrative of trickle-down economics has overshadowed and invalidated alternative perspectives, even as India has become one of the most unequal nations globally. This has led to stifling innovative ideas crucial for driving and sustaining the capitalist system. Innovation determines an innovator’s profitability and fuels continuous creativity. Nonetheless, profitability is contingent upon competition and marketability, aside from innovation itself. When innovation is stifled, as indicated by India’s Gross Expenditure on R&D, which stood at 0.66% and 0.64% of GDP in the years 2019–20 and 2020–21 respectively, and has consistently hovered around these figures (R&D Statistics at a Glance, p. 1), the focus on profit-making shifts towards increasing selling power, often necessitating a monopoly in the market.

This can lead to labour exploitation, as seen in the diminishing wage rates. For example, the real wages of regular workers have either stagnated or decreased. Similarly, the real earnings of self-employed individuals have also seen a decline post-2019. In general, wages have remained subdued. In 2022, up to 62% of unskilled casual agricultural workers and 70% of such workers in the construction sector across India did not receive the legally mandated daily minimum wages (ILO 2024: India Employment Report, pp. xx-xxi).

However, there is a harmony between capitalism and democracy, as both systems promote competition in their economic and political spheres. Competition determines the most suitable leaders in both realms. A weak state that does not adequately support innovation and represent social stratification stifles alternative thinking and undermines the knowledge base and competition itself. This convergence of capital and democracy happens in the absence of any revolutionary or democratic challenge. Even when conflicts are acknowledged, it’s possible to find a compromise between social classes. Welfare states can be seen as examples of such compromises. Organised labour may abandon the pursuit of a socialist society and instead foster a relatively harmonious relationship with business, in return for some perceived mutual benefit.

The Different Needs: Maslow’s Hierarchy of Needs Theory posits that until humans’ basic needs – such as food, clothing, and shelter – are met, they cannot focus on higher-level needs, including esteem and cognitive needs. This facilitates the Welfare State’s role in upholding neoliberal ideology, as it becomes challenging to win the battle of ideas when people are less attuned to their cognitive needs, once their material needs are fulfilled.

Consequently, offering freebies becomes an attractive strategy for the government over implementing structural reforms. As a result, the existing structure of exploitation is preserved, perpetuating a rationalist utilitarianism where individuals are merely objects, leaving structural issues unaddressed.

This results in an oligarchic political economy where monopoly capital dominates the knowledge base, exalting neoclassical ideals of rationality, universality, and self-interest maximisation. This dominance over the knowledge system fosters a false consciousness regarding the supposed superiority of the individualistic capitalist ideology that it perpetuates. However, in ‘On Ethics and Economics’, Amartya Sen (1987) contends that engineering or procedural justifications have overshadowed the ethics-related traditions in economics. Furthermore, Sen observes that there is no evidence to support the assertion that self-interest maximisation as the most accurate reflection of actual human behaviour, nor does it invariably lead to optimal economic conditions. Yet, the drive for maximizing self-interest tends to dominate liberal discourse, implying a uniform pattern in growth and development.

Karl Marx had famously argued in Volume I of Capital that ‘Intrinsically, it is not a question of the higher or lower degree of development of the social antagonisms that result from the natural laws of capitalist production. It is a question of these laws themselves, of these tendencies working with iron necessity towards inevitable results. The country that is more developed industrially only shows, to the less developed the image of its own future’ (Marx 1867, pp. 6-7). It supports and rationalises state-mediated liberal models, namely neoliberalism.

The fundamental concept is that accumulation would result in increasing hoards of capital –the ultimate wealth and goal of the central antagonists, the capitalists, in Marx’s theory. These ‘stages’ would differentiate between wealthy and impoverished economies. In India’s burgeoning 21st-century economy, wealth is increasingly reaching the same disproportionate levels (relative to national income) observed during the severe economic downturns of the interwar colonial period. This phenomenon seems to manifest regardless of the development stage (Kumar 2019). Every stage of development aims to validate the neoliberal paradigm.

Wallersteins (1974) classification into core, periphery, and semi-periphery is pivotal in economic analyses of inequality and the knowledge economy, delineating levels of development and interdependence. This framework positions the state as semi-periphery, with the elite and poor representing the core and periphery, respectively. It also categorizes trade-yielding, land-yielding, and the emerging petty bourgeoisie within these divisions. The ‘elite’ core exerts dominance over the peripheral sectors through unequal exchange, extracting inexpensive raw materials, which goes beyond Lenin’s view of the periphery as merely a dumping ground for excess production.
Through neoliberal capitalism, the core engages with both the semi-periphery and periphery, exploiting and transforming them. The semi-periphery assumes a role more political than economic, acting as both exploited and exploiter, mitigating the periphery’s opposition to the core (Balaam & Dillman 2008, p. 91).

Similar to the semi-periphery, the Welfare State serves as a buffer between the burgeoning hegemonic bourgeoisie and the oppressed working class. The hegemonic force asserts the cultural and civilisational dominance of the bourgeoisie, often obscuring the inherent conflict in their relationship with the subordinate class. Class conflict typically benefits one side to the detriment of the other. Yet, even with acknowledged conflict, a class compromise is achievable. Welfare states are seen as such compromises, where organised labour abandons the pursuit of a socialist society for a more amicable relationship with business, in return for high wages, sufficient unemployment benefits, universal healthcare, paid holidays, and substantial pensions (Balaam & Dillman 2008, p. 84). Wallerstein posits that capitalists in core nation-states employ state authority to maximise individual profits.
Historically, the state has catered to economic interests, enhancing its machinery to serve the requirements of capitalist landowners and merchant partners (Wallerstein 1974). In a sense, it legitimises the operations of the capitalist class. Consequently, with the ongoing and implicit support of the state, monopoly or oligopoly markets supplant market competition.

No Longer Classical Class: Social system analysis has moved beyond Marx’s classification of society into two opposing classes: the bourgeoisie and the proletariat. The rise of merchant guilds in ancient India and Wallerstein’s semi-periphery concept suggest that the antagonistic relationship between the bourgeoisie and proletariat may be overstated in Marx’s framework. Often, their relationship is characterised more by cooperation than conflict. Therefore, social system analysis appears to be an enhancement of the Marxian model in explaining class dynamics. Furthermore, Wallerstein and Gramsci’s theories may better elucidate the nuances of inequality within the Indian social structure, which seems inherently aligned with the capitalist mode of production due to its emphasis on labour division and specialisation. This raises the question: does India’s social system harmonise with the inequalities arising from capitalism?

In addressing this, it is crucial to acknowledge the state’s role as a mediator that appears to endorse capitalism in the neoliberal context. Such social stratification leads to an oligarchy where a minority controls the political, social, and economic realms.

India’s social structure has influenced its knowledge base, shaping the historical foundations of property rights and capital accumulation. Its hierarchical social system has been fostered by government in the neoliberal paradigm. This structure permeates social organisation, dividing it into core, periphery, and semi-periphery sectors, and transforms the state’s role into a semi-periphery and safety valve for the elite ‘core’. This legitimises the core’s existence and relevance while suppressing revolutionary and progressive democratic forces. Consequently, social legitimation of inequality becomes institutionalised, giving it a life of its own. Concentrating wealth and economic inequality without limits are detrimental to any democracy. Moreover, the foundational principle of political and social equality in modern India starkly opposes the escalating economic disparity. Therefore, the path ahead involves abolishing such exclusive privileges to foster fairer competition within the economy.

(Author: Ajay Kumar Mishra teaches Economics at Lalit Narayan Mithila University, Bihar, India. The author has a PhD from the Centre for South Asian Studies, JNU, New Delhi, India and is also a member of Indian Political Economic Association and writes extensively on Democracy, Political Economy, and Governance)

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