No. 68, June 2017

No. 68 (June 2017)

Widening the Gulf

III. How One Class Enriches Itself at the Expense of Another

What, then, accounts for the growing divergence and inequality that the Survey itself reveals?

In the first place, it is a mere myth that the ‘free market’ equalizes outcomes across society and the global economy. In fact, any market is only a social institution, the product of a history of the exercise of political power. When that history has placed the control of resources in the hands of particular classes and countries, and spawned vast inequality of wealth, the ‘free market’ continuously reproduces and perpetuates that inequality. Had the free market dogma been reality, the vast inequalities prevailing across the globe would have disappeared long ago. But in fact historical experience has proved that capitalism concentrates wealth at one end of the pole and the vast mass of labouring people at the other, imperialist countries at one end and underdeveloped countries at the other. As Marx noted, “If the free-traders cannot understand how one nation can grow rich at the expense of another, we need not wonder, since these same gentlemen also refuse to understand how in the same country one class can enrich itself at the expense of another."1

Casting aside such ideological blinkers, we need to look at Indian society as it actually is. We need to look at the structures which determine the paths along which the social surplus will flow.

What sort of trade, between whom, with what impact?
(i) Even if the Survey were right in saying that there is a high level of domestic trade, the question is whether that trade is narrowing the gaps between regions, or expanding them. For example, if certain regions principally export raw materials or low value-added commodities, while others perform higher value-added activities, then the trade between the two regions can simply reproduce the underdevelopment of the raw material exporter in various ways. Precisely this is what is indicated by the Survey’s data (cited in the previous instalment of this article).

In fact, to this date, the extremely uneven pattern of regional development still bears, to a large extent, the imprint of colonial rule. Certain regions supply minerals, agricultural raw materials, and so on, but are woefully underdeveloped in industry; some other regions supply dirt-cheap labourers in the millions to the metropolises and construction sites around the country (and even abroad). The major metropolises stand like islands in a sea of backwardness, with abject rural backwardness less than a couple of hours’ drive from their limits.

Nor is the growth of inter-state trade evidence of a unified market, since there are dividing lines within each state as well. The domestic market is deeply divided across different segments. Because mass poverty prevails (linked ultimately to the absence of radical change in agrarian relations), the market is narrow. India’s vast unorganised sector largely caters to local consumption demand from the labouring poor, in which the margins are relatively low and less attractive to the organised sector. (The unorganised sector also, to an extent, caters to demand from the organised sector for material and labour inputs, but here too it obtains only low and insecure margins, as the organised sector has a better bargaining position.) So growth in the organised sector does not automatically flow to the unorganised sector.

Is the growth of inter-state trade necessarily a good thing? It is largely organised sector firms which can engage in long-distance trade, either within themselves or with one another. But the overwhelming bulk of employment is in small and micro units, whose markets are local. Local markets for these small firms are poor, so they survive largely by keeping their margins very low. For example, income per worker from rural informal sector enterprises is even lower than in agriculture.2

In order for growth to lift the vast majority of enterprises, demand among the poorest sections would have to grow, and thus expand local markets for items of mass consumption. Precisely the opposite is occurring.

Elite market

(ii) The focus of the organised sector is the narrow elite market, concentrated in the urban areas, though it makes partial inroads into the markets of the unorganised sector. Elite consumer demand is influenced by the latest global tastes and brand names, and capital-intensive production/trading catering to such demand generates limited employment. Inflows of foreign investment target this elite demand, which alone offers profit margins attractive to foreign investors.3 The growth rate of consumer durables, largely consumed by the better-off, has consistently been faster than that of any other use-based category of industrial production. The structure of organised sector industry has steadily shifted over the years, so that the share of items of mass consumption has declined relative to the share of luxury consumption.4

One expects that people will demand more services when physical commodities – food, clothing, housing, etc – are relatively plentiful. But in an economy in which people’s basic needs for such commodities are woefully unmet, such a transition to a services-based economy is strange, and indicates severe inequalities. The share of services in India’s GDP has risen from 43 per cent in 1990-91 and 57 per cent in 2010-11. Meanwhile the shares of sectors producing physical commodities have fallen or stagnated. Agriculture and allied activities’ share has fallen from 30 per cent to 15 per cent over the same period. The combined figure for the share of industry, construction and mining has actually stagnated at the same level for two decades.

The services sector includes diverse components, including trade, transport, communication, public administration and defence, education, and healthcare; but the fastest-growing has been “finance, insurance, real estate and business services” (FIRE), whose share of GDP galloped from 12 per cent to 17 per cent over the same period. One study has put the contribution of the services sector to the change in GDP growth since 1980 at more than four times that of manufacturing. Indeed the same study estimated that FIRE had contributed to 37 per cent of the change in GDP growth since 1980.5

Even as this dramatic shift of income shares took place, there was not a corresponding shift of employment. This means that the bulk of the workforce remains crammed in low-income sectors.

In order to sustain organised sector growth, it becomes necessary for the State policy to keep replenishing elite demand, even, if necessary, at the expense of broader demand. (For example, the State must fund highway and urban road infrastructure for private automobiles even at the expense of more basic health, education, and nutritional needs; create infrastructure for civil aviation even by displacing peasants or slumdwellers; funnel bank credit to buyers of cars, flats and luxury goods even at the expense of credit to small units and peasants; provide large subsidies to the corporate sector and share market investors even at the expense of welfare expenditures; and so on.) This entire process keeps reproducing two poles in industry, the organised sector and the depressed unorganised sector. Thus the unorganised sector, in which more than 85 per cent of workers are employed, garners only about 45 per cent of national income.

Jobless growth
(iii) Given the nature of this growth, it cannot create enough jobs. During India’s recent boom years (2003-08, 2009-12), large inflows of foreign capital occurred, bank credit to consumers and industry expanded manifold, a surge of investment took place, the stock market indices rose by multiples, the assets of corporations and the wealth of the top 1 per cent rose at an unprecedented pace, but employment growth appears to have slowed.

The ability of growth to create employment6 halved between the 1990s and 2000s. The Economic Survey 2014-15 confesses: “Regardless of which data source is used, it seems clear that employment growth is lagging behind growth in the labour force.” Between 2001 and 2011, the labour force (all those employed or looking for work) grew at the rate of 2.23 percent per year, whereas actual employment grew more slowly, at about 1.4 percent per year.7

In particular, organised sector employment has grown at a snail’s pace,8 actually shrinking as a percentage of the workforce. This has forced vast numbers to seek ‘refuge employment’ in micro-units with one or two workers.

Fragmented labour market and migration

(iv) The Economic Survey 2016-17 claims that the scale of long-term migration is much larger than earlier estimated. But, even if this were true,9 physical mobility across district or state borders is not the same as upward mobility. India’s labour market is not unified; rather, it is divided into separate worlds, and even into tiny fragments.

-- In the first place, only 8 per cent of those employed are in formal employment, with social protection. The other 92 per cent of workers are informally employed (i.e. without security or other legal benefits), either in the unorganised sector (84 per cent) or in the organised sector (8 per cent).

-- Besides, the labour market is highly stratified, by caste, religion, language, region, and gender. These barriers also largely determine access to education, especially higher education. These barriers to a large extent decide the incomes of people. Thus the per capita consumption expenditure for ‘General’ category households is about 80 per cent more than for Scheduled Castes, Scheduled Tribes, and Muslims.10

-- Eighty per cent of Dalits and 92 per cent of Adivasis live in the rural areas, and they are more dependent on agriculture than other communities; apart from this, they find work largely as low-paid casual labour. Muslims are concentrated in low-income self-employment.

-- Three-fourths of women workers are in agriculture. Most strikingly, the percentage of working-age women in the labour force (the Labour Force Participation Rate, or LFPR) is less than one-third the percentage of working-age men in the labour force.11 As a result, the overall LFPR for India is among the lowest in the world. Moreover, women’s wages are considerably lower than men’s, partly because they have less access to decent employment, but they are also paid less for similar types of work. While wages for regular jobs in urban areas are relatively similar across states, wages for rural casual work vary widely across states, since they are determined primarily by local labour market conditions. Moreover, there are wide disparities within states, underlining the fact that labour markets even within states are not integrated.12 For example, Maharashtra and Gujarat, two of the most developed states, have some of the lowest casual rural wages in the country (ranks 17 and 18 out of 20 states).13

All these divisions and social oppressions help keep down the wages of the labourers, and keep them from uniting against the ruling classes.

All measures of aggregate wage inequality show a rise since 1983, mainly as a result of the gap between a high income elite and the rest.14 In the services sector, which now constitutes the bulk of GDP, we find the biggest gulf between a high-paid elite sector, with a tiny fraction of the jobs, and the overwhelming majority of very low-income earners in retail and other services.15

There is a large migrant labour force – perhaps 80 million, by one estimate.16 But most migration is short-term, such as in the construction industry, with workers returning to their villages within months. The labourers flowing across such borders are traveling largely to low-paying, insecure jobs – e.g., in construction, seasonal agricultural labour, security services, and sweated manufacturing.17 While the income from such work may be higher than in their villages, the difference is not large enough to lift them out of poverty.18 Even a small improvement in income from locally available employment can draw migrant labourers back to their native places.

Studies indicate that “Rural migrants are finding it increasingly difficult to move permanently to urban areas along with their families. The economic and non-economic costs of moving to cities are prohibitively high, as are the barriers to formal employment markets and avenues of self-employment. But the result is not less migration but more circulatory and seasonal migration to cater to the accumulation needs of high urban growth."19

Many migrant workers are brought in gangs, with one or the other form of bondage, or at least village/kinship ties.

As a result, even long periods of corporate-led growth have a weak impact on wages. Thus real wages of factory workers declined from 1995-96 to 2006-07; even though they rose thereafter, in 2013-14 they were still lower than the level of 1995-96. Real agricultural wages stagnated from 1999-2000. Thereafter the large growth in construction employment in the 2000s, along with improved agricultural growth and NREGS employment, appear to have brought about a rise in real agricultural wages from 2007-08; but since 2012 this trend sharply reversed, till by the end of 2014 real wages began to decline once more.

Replenishing the reserve army
(v) Even when labourers migrate seasonally out of backward, low-income areas, this does not necessarily lead to a shortage of labour in those areas, and a consequent rise in wages there. One reason, as we mentioned above, is that most of the migration is short-term. Secondly, other aspects of neoliberal State policy conspire to depress employment and incomes in backward regions, and so keep replenishing the reserve army of labour. The reduction of Government expenditure depresses demand in rural areas and more broadly in backward areas. The tacit reduction of public sector credit to agriculture, the reduction or withdrawal of public procurement, and the dismantling of public extension services leave peasants more vulnerable to various parasitic forces, such as moneylenders and traders.

Moreover, forcible acquisition of land and resources in backward areas leads to displacement of peasants, pollution of their environment and consequent destruction of their livelihoods, and so on. Negligible jobs are generated in large extractive projects, either directly or through backward linkages. Employment in mining has remained at virtually the same level since 1991, even as output has more than doubled in real terms,20 and in future employment is likely to actually decline with mechanisation.21 Take another case: Very large lands were acquired for Special Economic Zones (the Comptroller and Auditor General caustically remarked that “Land appeared to be the most crucial and attractive component of the scheme...), and they received tax holidays of over Rs 1.75 lakh crore, but they generated 93 per cent less jobs than they promised.22

Evidence presented in a new study23 indicates massive underpayment in land acquisition, compelling the Supreme Court to invalidate 95 per cent of acquisitions challenged in the last three years, and to increase compensation paid in 86 per cent of them. As another study24 pointed out, pre-1991 coercive land acquisition by the Indian State was largely for public sector projects – dams, steel towns, industrial areas, and mining. These projects no doubt caused harm to large numbers of displaced people, but they were provided apparent legitimacy by the provision of some jobs (including some to the displaced), the development of indigenous industrial capacities, and the creation of backward linkages with ancillary industries and the domestic economy. The post-1991 coercive acquisitions by the State, however, have been of land for private capital, in areas such as private sector infrastructure, real estate, and mining. These projects have been far less productive or labour-absorbing, but they have delivered extraordinary profits (a case study finds a profit of 439 per cent for the corporate firm through the land acquisition, while the overwhelming majority of those whose lands were acquired reported having less income, eating less food, and suffering an overall loss). Such acquisitions “are simply a new form of class redistribution mediated by the state.”25 It is this which explains the increased, and very widespread, resistance to land acquisition in the period of neoliberal reform.

Privatisation: strengthening the barriers
(v) The reduction of public sector activity and Government expenditure, which the Survey celebrates as liberating, in facts strengthens the various constrictions and barriers which keep people in poverty. Privatisation narrows educational and job opportunities for socially oppressed sections, and gives a free hand to various private monopolies to extract surpluses from the people.

Trade and deindustrialisation
(vi) The Survey extols India’s trade liberalisation and consequent high trade figures. But, while external trade provides export markets, imports also eat into Indian markets. In the net, India runs sizeable merchandise trade deficits.

Trade liberalisation depresses employment in diverse ways. Liberalisation of agricultural trade has ceded portions of the Indian market to imports: for example, today half of the country’s edible oil requirements are met by imports. Equally disturbing is the ‘premature deindustrialisation’ induced by the dismantling of tariff and other barriers to imports, as described by an important study:

Under British rule, traditional industries were destroyed and millions of people were thrown out of employment. Some modern manufacturing industries developed. But these were not sufficient to prevent the fall in the proportion of the people dependent on industry, leading to deindustrialisation.

The phenomenon of deindustrialisation has again become relevant in India in the context of the impact of economic reforms. Development efforts under India’s planning strategy after independence, despite the limitations, did succeed in improving the industrial situation. But like British rule, reforms have made the situation worse... we find that India has started experiencing premature deindustrialisation...26

The article proceeds to substantiate in detail the baneful effects of trade liberalisation on manufacturing output as a percentage of GDP, organised sector employment, and self-reliance in a number of key manufacturing sectors.

Further, as the import of capital goods grew rapidly during the past two decades of globalisation

and liberalisation, labour intensity in the factory sector declined steeply: In the 2000s, the number of workers employed per unit of capital in the factory sector fell to a little over one-fifth the level of the 1980s.27

Together with the displacement of domestic production by imports, increasing capital-intensity accounts for much of the jobless growth in the organised sector.

India does run a surplus on external trade in services, which thus reduces its combined deficit on goods and services. But its services exports (e.g. software, BPO), while generating huge savings for firms abroad, and huge profits for Indian capitalists, generate only a handful of jobs. The entire Information Technology (IT) and IT-Enabled Services sector accounts for less than 0.5 per cent of employment. Even this small flow is now drying up, with a steep drop in fresh recruitment. The future of the industry itself, hitched to foreign demand, is murky.

FDI: Penetrating the Indian market

(vii) Far from developing India and bridging the gap in per capita income between India and the advanced countries, foreign investment, in both its forms (foreign institutional investment – FII – in the stock market, and foreign direct investment – FDI – in the corporate sector) captures Indian assets and leads to a net drain, the size of which is comparable that under colonial rule.28 FII investment creates no productive capacity or jobs, and is volatile; but much of even FDI is composed of speculative flows of capital, mostly engaged in acquiring existing Indian assets rather than setting up fresh productive capacity. FDI liberalisation has been a total failure in bringing in technologies with which to reduce import dependence.29

Rather, foreign investors have used the new opportunities mainly in order to gain access to the Indian market. Moreover, since FDI comes bundled with relatively capital-intensive technology, even fresh capacity set up with FDI can displace large numbers of jobs in India, for example in the retail sector.

External integration, internal disconnect
(viii) Given this distorted pattern of growth, there is an increasing disconnect between different sectors – agriculture, industry, and services (apart from a disconnect within each sector). Where once growth in, say, agriculture would be accompanied by growth in industry or services, or vice-versa, that is no longer the case. An RBI study notes that “Empirical estimates indicate that there is a weakening of inter-sectoral linkages in the post-reform period in India. Major dilution in the strength of the relationship has occurred in the case of linkages between: (a) industry and services sector and (b) industry and agriculture sector....”

At the same time as the internal linkages of the economy have weakened, its external linkages have strengthened. The same RBI study notes: “services sector linkages have increased relatively more with the rest of the world than the domestic economy..."30 In another study, the RBI finds that Indian industry too has become more closely ‘coupled’ with the international economy.31

The increasing external integration of the Indian economy has accelerated its internal disarticulation, the disconnect between its parts.  

*          *          *

In brief, it is the very processes which the Survey celebrates as the victory of the ‘free market’ that prevent the social surplus from being directed to create all-round, evenly spread, equitable, and job-creating growth. Rather, these processes direct the surplus to the summit of the economy, perpetuating the underdevelopment of some regions and the relative development of others, the poverty of vast masses at one pole and accumulation of wealth by a tiny minority at the other pole. They squander and degrade the nation’s most productive and precious resource: its vast, diverse, labouring people.



1. Karl Marx, “On the Question of Free Trade”, (back)

2. (back)

3. For the period 2005-08, only 21 per cent of FDI came into manufacturing, and 11 per cent in IT and IT-enabled services; the percentage flowing into both of these dropped sharply over the period. On the other hand, finance, construction and real estate, telecommunications, trading and other services accounted for an average 59 per cent of FDI flows, its share more than doubling over the course of this period. – K.S. Chalapati Rao and Biswajit Dhar, “India’s FDI Inflows: Trends and Concepts”, ISID Working Paper, February 2011. (back)

4. The weight of consumer durables in the Index of Industrial Production has been repeatedly revised upward, while that of capital goods (productive investment) has been repeatedly revised downward, with each new base year of the index. Whereas earlier the weight of capital goods was more than six times that of consumer durables, the two are now about the same weight. The weight of consumer non-durables – items of daily consumption – used to be more than eight times that of consumer durables; now it is only two and a half times. (back)

5. Pulapre Balakrishnan, M. Parameswaran, “Understanding Economic Growth in India: A Pre-requisite”, EPW, 14/7/2007. (back)

6. That is, the ‘employment elasticity of growth’, a measure of how much increase in employment is generated by each percentage point of GDP growth. (back)

7. Economic Survey 2014-15, p. 11. (back)

8. According to the Ministry of Labour, organised sector employment was 26.7 million in 1991, rising to only 29.6 million by 2012. (back)

9. The Economic Survey’s claims regarding long-term migration have been questioned: Ishan Bakshi and Sanjeeb Mukherjee, “Economists hint at deviations in migration numbers”, Business Standard, 28/3/2017. (back)

10. Social, Economic and Educational Status of the Muslim Community in India, A Report (Sachar Committee Report), 2006, p. 153. (back)

11. Economic Survey 2016-17, p. 161. This is partly because the various types of work carried out by women, which are essential to social reproduction, are socially underrated, are not calculated as part of GDP, and are not considered ‘employment’. Thus despite the fact that the total number of labour-hours put in by women are more than the corresponding figure for men, their contribution to ‘GDP’ is a fraction of that of men. (Economic Survey 2015-16, pp. 199-200.) However, the gender difference in ‘employment’ also points to the combination of the paucity of such work, and the social barriers to women entering such work on equal terms with men. (back)

12. The coefficient of variation across states for regular urban work is 21.8 per cent, but for casual rural work it rises to 31.6 per cent. India Labour and Employment Report 2014 (ILER), pp. 99-100. (back)

13. Ibid. (back)

14. Ibid., p. 102. (back)

15. Compared to the industrial sector, the services sector pays 32 per cent more to its regular workers on an average, but 8 per cent less to its casual workers. In this sector, dualism is not only strong, but is also increasing. – ILER, p. 99. (back)

16. Ravi Srivastava, “Labour Migration in India: Recent Trends, Patterns and Policy Issues”, cited in ILER, p. 64. (back)

17. One study points out that the Census shows a rising workforce in agriculture while the National Sample Survey shows a declining one: some of those who get counted as agricultural workers in the Census are shown as construction workers in the NSS. -- J.J. Thomas and M. P. Jayesh, “Changes in India’s Rural Labour Market in the 2000s: Evidence from the Census of India and the National Sample Survey”, Review of Agrarian Studies, January–June, 2016. (back)

18. “NSSO data also show that almost half of the incremental non-agricultural employment generated in India in the first decade of the 2000s was in the low-wage sector of construction.... It is notable that even as construction’s share in total employment in India rose sharply, from 5.7 per cent in 2004–5 to 10.6 per cent in 2011–12, its contribution to India’s GDP hardly changed (7.7 per cent and 7.8 per cent respectively in these years).” Thomas and Jayesh, op. cit. (back)

19. ILER, p. 64. (back)

20. According to NSS data, employment in mining and quarrying was 2.6 million, or 0.5 per cent of total employment, in 2011-12; this figure is the same as 2004-05. (Santosh Mehrotra et al., “Explaining Employment Trends in the Indian Economy, 1993-94 to 2011-12”, Economic and Political Weekly (EPW), 9/8/2014.) Further, Ministry of Labour data for the organised sector show that organised sector employment in mining and quarrying was much lower, at 1.1 million in 1991 and 1.2 million in 2011-12. (Economic Survey, different years.) However, GDP in the sector has risen (in constant, 2004-05 rupee terms) from Rs 46,909 crore in 1991 to Rs 85,028 crore in 2004-05 to Rs 110,725 crore in 2011-12. (RBI, Handbook of Statistics, 2015-16.) Thus the output per worker has more than doubled, but there has been virtually no increase in employment. (back)

21. See Centre for Science and Environment, Rich Lands, Poor People: Is ‘Sustainable’ Mining Possible?, 2008, p. 61. (back)

22. Reserve Bank of India, Handbook of Statistics on the Indian Economy, 2013-14, Table 142. (back)

23. Centre for Policy Research, Land Acquisition in India: A Review of Supreme Court Cases, 1950-2016, 2017, available at The data we have cited refers to cases in the last three years, i.e., since the passage of the Land Acquisition, Rehabilitation and Resettlement Act, 2013. (back)

24. Michael Levien, “From Primitive Accumulation to Regimes of Dispossession: Six Theses on India’s Land Question”, EPW, 30/5/2015. (back)

25. Ibid. (back)

26. Sudip Chaudhuri, “Import Liberalisation and Premature Deindustrialisation in India”, EPW, 24/10/2015 (back)

27. Kunal Sen, Deb Kusum Das, “Where Have All the Workers Gone? Puzzle of Declining Labour Intensity in Organised Indian Manufacturing”, EPW, 6/6/15. (back)

28. N.K. Chandra, “India’s Foreign Exchange Reserves: A Shield of Comfort or an Albatross?”, EPW, 5/4/2008. (back)

29. Rao and Dhar, op. cit. (back)

30. RBI, Annual Report 2009-10, p. 18. (back)

31. RBI, Report on Currency and Finance, 2008-09, pp. 242-292. (back)


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