Indian Economy: A Rocking Horse Galloping Forward — IV

[(This is the fourth and last part of a four-part article on the current state of the Indian economy by Kobad Ghandy. The author is a Marxist/Maoist thinker, incarcerated in Tihar Jail; he has written two books: one on the Indian economy (Globalisation: Attack on India’s Soveregnty, 2004) and the other on the world economy (Capitalism in Coma, 2009). The first, second and third parts of this article appeared in this journal’s May 5, 2012, May 19, 2012 and May 26, 2012 issues respectively.)]

Market Fetishism or Necessities for Allround Growth

Seeking necessities and reasonable comforts in life is one thing; it is quite another to destroy nature and even man (his values) to serve the God of the Market. One does not grudge the middle-classes a decent lifestyle; what one does condemn is the obscene wealth (white and black) in the hands of the top one per cent on the one hand, and the excruciating poverty of the 70 per cent on the other.
This market mania is primarily promoted by the media (newspapers and TV) as also the film industry. Advertising, serials, films etc. all act to debase our values, create the urge to buy more and more items, and promote the lifestyles of the ultra-elite (film stars, cricket stars, corporate barons). Today it is these media barons intertwined with the corporate world and politicians (who primarily own the mainline media), who are the main promoters of market obsession and cultural trash. So, one gets the absurd situation where only 31 per cent of the rural households have latrines, but 55 per cent have phones (mostly mobile). The youth will beg, borrow or steal to mimic the latest fashions on TV/films (we see this even in Tihar), but will not show an iota of concern for the multitudes living in hunger and destitution. The media has effectively numbed our sensitivities, warped our emotions, destroyed our creativity, and reduced us, particularly the bulk of the middle classes, to robotic cogs in the market machine.

It is not that the market per se is bad; its growth and development is a pre-requisite for the industrialisation of the country. But, the focus should be on what the ordinary masses and middle classes need. The masses are in need of toilets, clean water (not Bisleri at Rs 15 per litre), cheap cooking fuel (63 per cent in rural area still depend on firewood), affordable medicines/hospitals, a hygienic environment (drainage etc.), and, most important, food/vegetables/fruit at reasonable prices and uncontaminated with pesticides and chemicals. Also, to this we should add the basic needs of the middle classes like consumer durables, white goods, computers/internet, phones etc. But, instead what we find is an obsession with the luxury market, five-star hotels and real estate, tourism, the beauty industry, SUVs etc.

To understand this phenomenon of why the Indian market functions in this way, we need to take a look at where the money lies in our country. For, it is this and this alone that determines what items are given priority. If, for example, 70 per cent do not have enough money to afford toilets, then toilets will not be made. But, if the one per cent have pots and pots of money to purchase jewellery, then jewellery will be produced and not toilets. Why, even the Finance Minister will remove the two per cent hike in excise duty on jewellery, but not on the items of necessary consumption!

Who Comprise the Market?

Is it the 70 per cent who can hardly afford two square meals a day? Or is it the roughly 25-30 per cent middle classes, or is it the ultra-rich one-to-two per cent? According to a recent NSSO study (The Times of India, April 29, 2012), about 60 per cent population in the States live below the poverty line and buying power is concentrated in the top 30-35 per cent of the population. This would comprise the latter two sections. Of course, they also try and penetrate the ‘bottom of the pyramid’.

As far as the middle classes go, we can, to an extent, estimate their market reach from the fact that 68 per cent of the entire retail market (of Rs 25.8 lakh crores) is merely on groceries—that is, necessities for existence—while the balance of Rs 8 lakh crores ($ 150 billion) would be on white goods and other consumer durables. This in fact is not such a big market, given that the middle classes are being squeezed by spiralling inflation and lower earnings. Except for government employees there have been systematic attacks on their earnings, the latest being the huge cut in the interest rates of Provident Funds from 9.5 per cent last year to 8.6 per cent now. This affects all, even the government employees.

As a report in Moneylife stated: “Between 2000 and 2005 the middle classes gained much—cars and flats within six months of getting jobs. Post-2000 the story is different. Realty, education and healthcare have all turned so expensive that they have spun out of reach. An average 25-year old cannot now afford a flat; an average 35-year old’s biggest worry is to afford his child’s education; and an average 45-year old’s biggest worry is the ability to cope with galloping medical expenses which are rising at twice the official inflation rate.”

Though this section still provides a sizable market due to its share size, a large part of it comprises government employees, police and Army personnel. They swallow up 25 per cent of the government expenditure. These are not productive, create nothing and, in fact, live off others’ productivity (hard earned tax money). For example, only Mayawati’s security cost Rs 26 crores per year. They no doubt consume and add to the market, but it is like the proverbial black hole—absorbing everything, emitting nothing. They do not add to the dynamics of any economy but act as a leach on it. It is this section too that gets a small part of the booty (trickle-down effect) from the black economy.

On the whole a vibrant productive middle class is limited. This can be seen from the extent of internet connectivity in India as compared to other countries. For India it is a bare seven per cent while it is 30 per cent for Russia, China and even Brazil.

Now let us turn to the two extremes—the super-rich and the super-poor.

Ultra-rich

At the top of the ultra-rich are the 2.5 lakh households (1.2 crore people). These have gained disproportionately and due to their phenomenal wealth would comprise an important market. In the 1980s they cornered five per cent of the national income, while in 2010 it was 15 per cent. Besides, it is primarily this section that generates the bulk of the black money (about 40-50 per cent of the GDP). If this too was included, their share of the national income would be about 20-25 per cent.

They comprise 55 households having $ 1 billion (Rs 5000 crores) net worth, 70,000 households worth $ 5 million (Rs 25 crores), and 1.7 lakh households worth $ 1 million (Rs 5 crores). These figures do not include primary residences (like Mukesh Ambani’s ‘Antilla’), collectables and consumerables, and of course the black money. The wealth of these total High Net Worth Individuals (HNWIs worth over $ 1 million) grew from $ 477 billion in 2008-09 to $ 582 billion in 2009-10—that is, by 22 per cent—in just one year.

Similarly, if we look at the money amassed by politicians, an example could be found in the recent UP elections. The average individual assets of the 285 re-contesting MLAs for the 2012 UP Assembly elections increased from Rs 1.21 crores in 2007 to Rs 3.56 crores in 2012—a growth of 194 per cent or 39 per cent per annum!!! Again, these are only the legally declared amounts and do not include the pots of black money.

Even the earnings of some of the top owners/CEOs of big business houses have jumped in the last one year, though the companies’ profits have been falling. At the top of the list are the Maran couple whose pay package increased from Rs 74 crores in 2010 to Rs 130 crores in 2011; Navin Jindal’s increased from Rs 49 crores to Rs 67 crores; the Birlas’ increased from Rs 29 crores to Rs 40 crores. The list could go on and on—the incomes of two top executives of Dabur doubled in just one year from Rs 5.5 crores to Rs 11 crores each.

But this is not all. Foreigners have been coming in, in hordes, not merely at the top but even the middle-level management—as though Indians are not good enough. This brings back memories of the British Raj where they earned exorbitant salaries as compared to their Indian counterparts. Even today they are paid by Western standards and are depriving our middle classes of jobs. Their numbers are increasing at the rate of 15-20 per cent per annum and they have reached a total of 40,000. Of course, with their huge salaries and perks they may add to the market: but this too is likely to be limited as they would mostly purchase imported goods.

Super-poor: Real India

At the other end of the spectrum you get the impoverished 70 per cent—the bottom of the pyramid, who comprise the bulk of our population: the REAL INDIA. Katju, quoting NSSO figures, stated (June 4, 2011): “the average monthly expenditure of an Indian farm house-hold is Rs 503, of which 55 per cent was on food, 18 per cent on clothing and footwear, leaving little for education and health”, let alone other commodities.

The 2011 Census states: 70 per cent of our rural households have no latrines, 60 per cent use firewood to cook, 45 per cent have no electricity and only 18 per cent have tapped water from a treated source (polluted water is a major source of disease). The government has de facto privatised water purification, they maintain poor standards so that the sales of mineral water, aquaguard and other purification equipment go up—but for those who cannot afford these they must suffer disease. Half of India’s households have no drainage system, which existed even 4000 years ago in the civilisations of Mohenjodaro and Harrappa!!

No doubt the big business houses seek to penetrate this section too, pushing necessities like salt, soaps, detergents, medicines etc.; but this takes place at the cost of the local industry which gets crushed.

Can any country really develop when such a large section of its population is maintained in such an acute state of backwardness? But companies, TNCs, policy-makers could not care for this mass—they are to be sacrificed at the altar of high-end markets, where the real moolah lies. A vast black economy, low direct taxation, tax holidays etc. ensure that the latter grow and grow; increasing indirect taxation, cuts in welfare and subsidies, reduction in social schemes etc. ensure that the former, already deprived, are pushed further down. Unfortunately, it is precisely this policy that has been formulated in the Approach Paper to the Twelfth Plan.

With the wealth and income of the top one-to-two per cent increasing at such a fast rate, it is no wonder that the market for high-end products is also expanding fast.

High-end Markets Aim for the Sky

Luxury goods, beauty products, five-star hotels, business aircraft and even what is now called ‘designer weddings’ are all expected to grow by leaps and bounds. Such positive predictions only mean that the policy is being geared to give even more money into the hands of this top one-to-two per cent, notwithstanding a slowdown in the overall economy.

India’s luxury goods market, which has been growing by 20 per cent, is expected to grow from the present $ 4.8 billion to $ 14.7 billion by 2015—that is, a three-fold increase in three years.

Mackinsey estimates that India’s beauty industry, including cosmetic surgeries, will grow to $ 5 billion by 2015.

India’s five-star hotel industry has been witnessing a massive growth. The number of rooms increased from 1.45 lakhs to 2008-09 to 1.63 lakhs in 2010-11—that is, an increase of 6000 per year. And just in the last one year Taj has opened five hotels and Hilton six. ITC has just opened its biggest hotel in Chennai with 600 rooms, and Mariott plans 100 hotels by 2015. It is estimated that by 2021 some 1.5 lakh more rooms will be needed.

The business aircraft market (jets and helicopters) is set to grow from 600 aircraft in 2011 to 1780 aircraft in the year 2020—a potential business of $ 12 billion.
And, of late, there has been a phenomenal growth in the Indian wedding industry: growing at 20 per cent annually and estimated already at Rs 1.5 lakh crores. The budget range for a so-called ‘Designer-Planned Wedding’ ranges from Rs 50 lakhs to Rs 20 crores. We also see how such weddings are being promoted in the media, not to mention the films. Who can afford such weddings except those with pots of black money and the corporate bigwigs?

If these predictions of market growth in such spheres is to come true, particularly in a period of economic downturn, it will require even more concessions to the super-rich and corpo-rate world. And at a time of spiralling fiscal deficits, such money can only be got by cutting welfare measures to the poor and increasing tax (indirect) on the middle classes (for example, petrol, diesel, LPG, electricity, water etc.).

Though such a type of growth may keep the GDP figures high, it is unsustainable in the long run, for two reasons: first, because it does not bring the bulk of the Indian people into the growth process; and second, because the unproductive expenditure will continuously increase, acting as a burden on the economy. As we go to the press the rupee continues its slide and has fallen further to nearly Rs 54 to the dollar, and even the Finance Minister has begun talking of a possible Balance of Payments crisis.

People-Centric Growth

Notwithstanding the continuous double-digit inflation over the past two to three years, the Planning Commission in March this year reduced the rural and urban poverty-line figures from Rs 26 to Rs 22.42 and from Rs 32 to Rs 28.65 respectively. Even a servant in the Planning Commission head’s house would know that these figures are ridiculous. But then why do they repeatedly churn out such figures? One, of course, is that they live in ivory towers and would probably know more about the US and five-star culture than about the Indian people. The second is that the poor are dispensable and one should not ‘waste’ subsidies on them.
Here the question is not merely of a policy paradigm. It is of a mindset that lacks humanity and stems from the grab-what-you-can menta-lity. To hell with the poor, to hell with the eco-logy, to hell with the country; I must grab what I can. Though wealth does not trickle down with the GDP growth, this grab mentality cer-tainly does. We see it, in its crude manifestation, in Tihar. We see it with politicians, we see it with a big chunk of the middle classes. We see it even among the poor who are forced into this situation in order to survive. It is also promoted by the media wherein it is made out that not to grab is foolish, naïve. And the smart alecs are those who can grab the most, swindle the maximum. Probably the Planning Commission is the smartest of them all. Hail the God of the Market; Death to Humanity.

As long as this mentality prevails, the result will be the same whatever the system be called—capitalist, socialist, communist et al. We just need to take a look around the world to see similar policies (and results) no matter what the system is called. We have a host of new-age gurus who talk of humanity, but their approach is divorced from the daily economic and social activities. They act more as a balm to sooth the guilty conscience from our bad deeds.

In today’s atmosphere it is inconceivable to have a people-centric system divorced from a change in culture. Priorities need to be reversed to ‘first the people then only the market’ or, the market to serve the people, not the other way round. In addition, the people’s interests today are intrinsically bound by nature’s interests—restoration of the ecology. Besides, it is man’s interaction with nature that can help bring out the best in both. As Jung once said, “I am fully committed to the idea that human existence should be rooted in the earth.”

But to help bring about this change, the government’s policy must be reoriented to restoring nature and the people associated with it. Big cuts in unproductive expenditure, cuts in the huge concessions/bailouts to big business, tapping the black economy, hiking customs duties (except on essentials) etc. can mobilise vast funds which should be used to rejuvenate the earth through schemes of watershed manage-ment, afforestation, top soil recovery etc. and the peasant be given the land he tills. Also, the people who till the soil should be empowered (in the true sense) and they should get the bulk of the value of their produce (that is, the middle-man’s vice-like control should be destroyed).

Such a policy will rejuvenate the lives of about 65 per cent of our people, this will stop the flux into the urban areas and should encourage a reverse migration—from living in urban ghettos to a sustainable and growing rural economy. Those affected will, to some extent, be the super-rich and blackmarketeers; but the country will gain. In fact, these 65 per cent will generate a huge market far greater than that lost to the super-rich. This, in turn, will generate industrialisation in the backward regions resulting in real growth. Such steps will help reverse the structural deformities outlined in the first part of this article and bring some symmetry to the economy.

Meanwhile, it is reported that both Britain and Spain have gone into recession. The euro crisis has deepened. The conflagration in the West will scorch the Indian subcontinent unless there is a serious rethinking and reversal of the pro-West policies—at least somewhat along the lines adopted in many Latin American countries. India should not sink into a Greek-like scenario.

(Concluded)