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Growth and Exclusion by Prabhat Patnaik

The 11th five-year plan promised the nation “inclusive growth”. It marked a departure from the earlier official position that the “benefits of growth” would automatically “trickle down” to the poor, and that if growth was not actually benefiting the poor, then the reason lay in its not being high enough. The 11th plan, by contrast, conceded that the “benefits of growth” did not automatically “trickle down”, but argued that growth made it possible for the government to garner larger revenues to spend on the poor. Growth was not intrinsically inclusive, but made possible the pursuit of policies of “inclusion”. The 11th plan did not suggest a different approach to growth, or any change in the manner in which growth was to be achieved; it merely wanted, in addition, fiscal intervention to ensure that its benefits reached the poor.

Remarkably, however, if “trickle down” had been a chimera, “inclusive growth” has turned out to be no less so. If we take the proportion of population accessing less than 2,200 calories per person per day in rural areas and 2,100 in urban areas, which still constitute the official benchmarks for poverty, accepted even by the Planning Commission, we find that in 2004-05 the figures were 69 per cent and 64.5 per cent respectively. In 2009-10, the latest year of large sample National Sample Survey, the figures have increased to 76 per cent and 68 per cent respectively on a conservative calculation. (These estimates are by Utsa Patnaik). Thus, on the most elemental criterion and on the basis of the most authoritative official data, we find incontrovertible evidence of an increase in the incidence of poverty in the most recent period, the period of “inclusive growth”.

Two arguments are typically advanced against this conclusion of an increase in absolute poverty, but both are fallacious. The first states that with an increase in incomes a dietary diversification occurs away from foodgrains and towards meat, poultry and processed foods which, though it may entail a lower calorie intake, is indicative of an improved living standard. This argument is wrong for two reasons: one, even meat, poultry and processed foods require grains as input. If we take the magnitude of grains directly and indirectly consumed, the latter through meat, poultry and processed food, then we find a positive relationship, both in cross-section data among countries and also in pooled cross-section and time-series data, between per capita real income and per capita total grain consumption. In India, however, per capita total grain consumption today is lower than at the end of the 1980s, that is, before the introduction of neo-liberal policies, which is indicative not of an improvement in real living standards but of a deterioration. Two, this positive relationship also holds between per capita real income and per capita daily calorie intake. A deterioration in the latter therefore indubitably indicates absolute impoverishment.

The second fallacious argument advanced against the claim of absolute impoverishment is that the reduced food, and hence calorie, intake is because people now spend more on education and healthcare than before, at the expense of foodgrains; the apparent increase in malnutrition therefore is indicative not of immiserization but merely of a different, more ‘modern’, spending pattern. But even accepting that people are more concerned about healthcare and education for their children now than they were earlier, this is a phenomenon that has been occurring over a long period; it has not occurred suddenly during the 11th plan period. If we find therefore that within the space of a mere five years, 2004-05 to 2009-10, there has been a significant increase in malnutrition, even as healthcare expenditure has also gone up, then this can be attributed not so much to a change in preferences as to an increase in healthcare costs, which invariably occurs when healthcare is being privatized as in India; and this is precisely what constitutes immiserization.

This process of absolute immiserization did not begin in the 11th plan period. We get the same result, of an increase in the proportion of rural and urban population below 2,200 calories and 2,100 calories respectively per person per day, when we compare the 1993-94 NSS large sample findings with those of 2004-05 (Utsa Patnaik, Economic and Political Weekly, January 23, 2010). But the point is that this process of absolute immiserization has continued even in the period when “inclusive growth” was official policy.

The reason for this is that the growth we are experiencing is itself poverty-engendering. Steps toward inclusiveness can at best ameliorate this result partially, but cannot negate it altogether. They can at best ensure one step backward after two steps forward; but they cannot nullify the forward march of poverty under this growth strategy. The presumption underlying the entire discourse, whether of “trickle down” or “inclusive growth”, is that growth per se is a welcome phenomenon; we only have to ensure a widespread distribution of its benefits. But this presumption is wrong, since growth has distributive effects built into it. There is no such thing as ‘growth’ in the abstract; it always occurs in a specific manner, within a specific set of social relations and hence with specific distributional implications immanent to the manner in which it occurs. And the growth occurring in India today is necessarily poverty-engendering because, being located in the capitalist sector, it tends to destroy the petty production economy surrounding this sector.

The protection of petty production, including of peasant agriculture, had been a part of the programme of the anti-colonial struggle, and the dirigiste regime that came into being after Independence took a number of steps to protect and promote this sector which also fitted in with its general agenda of pursuing a trajectory of relatively autonomous national capitalist development.

The end of dirigisme and the ushering in of the neo-liberal regime entailed a withdrawal of support and protection of the State from the petty production sector: protecting peasant agriculture from the vicissitudes of world market fluctuation through tariffs and quantitative restrictions was sacrificed at the altar of trade liberalization; the interposing of the State between this sector and the multinational corporations gave way to a regime of free run for them as the State wound up its extension activities; subsidies to this sector, including in the form of cheap credit, were whittled down leading to a rise in input costs; the system of public procurement at remunerative prices was sought to be progressively wound up; the privatization of healthcare and education raised the cost of living of these producers; State-sponsored research activities of potential benefit to them got reduced in scope as State funding dried up under the pressure of “sound finance” (entailing a legally fixed ratio of fiscal deficit to gross domestic product); and public investment in irrigation and other infrastructure facilities for this sector also got reduced for the same reason. The net effect of these measures was to make this sector unviable, to the point where even ‘simple reproduction’ became impossible, leading to mass suicide of peasants. And much the same story of withdrawal of State support was repeated in the case of non-agricultural petty production.

The reduction of the petty production sector to unviability, which is an instance of what Marx had called “primitive accumulation of capital”, is an important hallmark of the neo-liberal regime. It lowers the per capita incomes of producers in this sector, and swells the number of persons looking for work outside of it. But the scope for recruitment into the organized workforce of capitalism, including those employed by the State, remains limited. This leads to an increase in the relative size of the “reserve army of labour” (camouflaged often as “informal sector employment”).

This process of rise in relative size of the reserve army of labour is necessarily poverty-engendering. On the one hand, it tends to keep down the real wages of the organized labour force; on the other hand, the per capita earnings of the reserve army itself (and even of petty producers who remain in their traditional occupations) are lower than what had accrued to such producers before they had been squeezed by the neo-liberal regime. The net result is absolute impoverishment of the working people.

The exclusive emphasis on GDP growth and the appeasement of corporate and financial interests as the means for effecting such growth are the hallmark of the neo-liberal regime. This will continue to engender absolute immiserization even if there is high growth. ‘Exclusion’ is built into such growth.