A progressive era for India?

The primary focus of development policy must shift decisively to expanding opportunities for the underprivileged

The recent election results show that the electorate of India has not shared fully the widely publicised optimism about our present and future economy.  Not that there is no recognition of the continuing growth of the economy. A person who surveyed individuals in Uttar Pradesh (UP) reported that when asked about their economic condition, they often said: “Yes, the economy is doing well but we are not better off!” This discrepancy between growth and income opportunities for the underprivileged is at the heart of the people’s assessment of policy performance.

The three decades since the liberalisation reforms of 1991 have seen the Indian economy growing at around 6 per cent per year, with its gross domestic product (GDP) increasing six-fold between 1990-91 and 2023-24. One measure of this is the purchasing power parity estimate of India’s GDP, which according to the recent assessment made by the World Bank, is $10 trillion or about 7.2 per cent of the global GDP.

With the sixfold rise in GDP, absolute poverty has come down. But we have also seen a rise in inequality. According to estimates in the World Inequality Database, the share of the richest 10 per cent in total national income has gone up from 35 per cent in 1992 to 58 per cent in 2022, with the share of the richest 1 per cent going up from 10 per cent to 23 per cent over this period. At the other end, the share of the bottom 50 per cent has fallen from 22 per cent in 1992 to 15 per cent in 2022. When it comes to wealth distribution, the scale of inequality is even higher.

The development strategy of this era has focussed on the liberalisation of private and foreign investment and related institutional reforms. But it has also involved official favouritism for some corporations and their rapid expansion to the top. Today, the top 10 corporations account for 22 per cent, and the top 100 corporations for 64 per cent of the total market capitalisation of over 5,000 listed corporations.

This focus on corporate expansion has been the driving force of growth promotion. Yet, except for a few IT companies, India’s corporations have not acquired what is necessary for the long-term growth prospects for the economy — a global standing comparable to what Chinese and East Asian corporations have already achieved. Corporations have focussed largely on meeting domestic demand, and the attenuation of growth for mass consumption items because of rising inequality has slowed down the investment and growth plans of many of them. One exception is their rising involvement in infrastructure development because of a shift in public policy.

In some ways, this focus on private corporate growth and the nexus between the government and some corporate conglomerates is similar to what happened in the United States during the Gilded Age (1870-1900), which saw rapid economic growth, heavy investment in infrastructure (mainly railroads), the expansion of  private finance, and the rising power of corporate giants. The key to this was the nexus between these corporate giants, described by some critics as “robber barons”, and the US government “pretending neutrality to maintain order, but serving the interests of the rich”.

What is truly interesting is the impact of the Gilded Age on electoral sentiment in the early years of the twentieth century when Theodore Roosevelt took over as President. The focus of politics shifted sharply to address the problems caused by the economic transformations of the Gilded Age and sought to address political corruption and the concentration of industrial ownership in monopolies. Politics in this Progressive Era was driven by social activism.  An optimistic interpretation of the recent Lok Sabha election results could be that we are seeing the beginnings of such a transition in India. Placatory moves like free rations and other handouts do not change opportunities for the poor. The results of the recent election show some evidence of emerging social activism that seeks better opportunities for the underprivileged, who are a legion in India because of its caste system and religious differences.

The driving force may well have been fears about what would happen to the caste-based reservation system. The importance of this political dimension can be seen in the support for a caste census and demands for reservation from communities like the Marathas. This type of caste-oriented reservation system is not a diversion from the concern about inequality, which should drive policy. The reality of inequality in India is that it is highly correlated with caste because of the close connection between caste and past inequalities, and with religion because of rising majoritarianism. The focus on reservation is the Indian equivalent of the rising demand for worker’s rights that led to progressivism in the West.

Can one see the unexpected rise in the votes for the Opposition as an indicator of the beginnings of a progressive era in India? A survey for the votes cast in UP, where a big shift in seats took place, does show a large share of Dalit and Muslim votes for the Opposition and a large share of upper caste votes for the ruling party.  This coincides with the difference in opportunities between the underprivileged and the privileged. But one must also note that this was not seen in some states like Madhya Pradesh, which are not very different from UP, an indication that our progressive era is still at a preliminary stage.

In my view, the election results indicate that the primary focus of development policy should not be the aggregate GDP or on making India the nth largest economy in the world. The focus must shift decisively to expanding opportunities for the underprivileged and the poorly employed. If a simple goal is required, it should be the extent of reduction in reported employment in agriculture (41 per cent, according to PLFS 22-23) and perhaps also in often unpaid employment in family enterprises (18 per cent, PLFS 22-23).

Last month, my column on “Priorities for the New Government” put forward an agenda that essentially focused on the employment generation goal, particularly in the low-growth states that are going to see a large increase in the working-age population. I had not anticipated the upsurge of concern from the underprivileged that we have seen in some of the election results. This, in fact, raises the political case for the priorities indicated last month, and development policy must now focus clearly on:

• Creating new productive jobs at a rate higher than the working-age population growth for about a decade. 
• Increasing the dynamism of small enterprises as  input suppliers or as initial suppliers of  final product for local demand.
• Using steadily improving physical and digital infrastructure and the rapid emergence of e-commerce and digital payment systems to connect the northern states, where job creation is a more acute necessity, to the higher growth southern and western states in national value chains.
• Trade policy that creates a strong corporate incentive to rapidly expand exports.
• In the longer term, a more effective system for skill development than what we have had so far.

Job creation should not be the by-product of a growth-oriented strategy. Rather rapid growth should be a by-product of a job-creating strategy. Will the Union government, which is intentionally not new, move towards this transition? 

desaind@icloud.com