Why Can’t India Take Off?

At times infuriatingly provocative, the author in this book has chosen the allegory of the mythical phoenix — a bird which is unable to rise from the ashes of the past — to explain India’s growth and development trajectories, writes Sanjoy Bagchi

The Caged Phoenix: Can India Fly?
Author: Dipankar Gupta
Publisher: Penguin
Price: Rs 550

Why can’t India take off? Dipankar Gupta is seeking an answer to that question in his book, The Caged Phoenix. He wants to find out the constraints that are holding back the country. He would like to “understand the nature of India’s growth and why large sections of the population have still not experienced development.” He explains that the difference between growth and development is pivotal in a democratic society; while growth can be “statistically impressive”, it would not yet constitute “development” because large sections of society are still in “abysmal poverty”. He is perplexed by the fact of “this remarkable growth rate (that) is accompanied by poverty, by ethnic tensions and by identity politics.”

Gupta is a sociologist, not an economist, nor a political scientist and his approach is different. He is exploring the parameters of a “sociological analysis” to explain the contradiction. He is not moved by the facile argument that “our commercial unproductivity is because of traditional caste prejudice against commerce.” Nor will he accept that “caste and not the underdevelopment of industrial capital is hugely responsible for India’s impoverished reality.”

The fine print of the Indian economic boom reveals an almost stagnant agriculture sector, a buoyant service industry, rising merchandise exports, strong small-scale and unorganised areas of production, and stagnant employment, if not decline, in organised sectors. At the same time, the country continues to be very low on the international scale of human development indicators. He identifies some telling anomalies. The miraculous growth of the service sector conceals the miniscule proportion of the country’s vast number of educated unemployed. He finds that more than a quarter of the sector’s FDI is attracted into its small-scale zone and that it is “making quite a killing by successfully exporting white-collar coolie work.” Its growth has not led to an employment boom.

Gupta has noticed that “in contrast to China, the flow of foreign exchange to India is primarily for short-term portfolio investments.” He does not point out that foreign investment in China is mainly for manufacturing in the SEZs along the coast, where the country’s labour laws do not apply, while India’s organised production sector continues to be strangled by deterrent labour legislation leading to rigidity in its labour market.

Gupta has cited the case of India’s cotton textile industry which used to be an “important index of the Indian economy” and which has now been converted into a rapidly expanding small-scale sector at the cost of the traditional mills. The reality is that the mill industry that used to be the country’s largest producer, the largest employer, and the largest exporter was deliberately killed in the decades following Independence by the Congress that nurtured a contemptuous disdain for the organised private sector. It was prevented from expansion and rejuvenation; it was denied modernisation by saddling the schemes with impractical conditions; and it was choked with production and price controls until the whole industry suffered from obsolescence and became sick. Then the Congress’ trade union delivered the coup de grace with a prolonged crippling strike. And the field was opened for the informal small-scale (that had appeared at first as an illegal sector) to capture the cotton textile sector.

Gupta has examined four principal aspects in depth and tried to find the linkages among them. The first of them is the small-scale and informal segment of production, the second is the status of the rural economy, the third is concerned with the influence of caste and fourth is the role of the nation state.

The small-scale and informal sectors are dominated by merchant-producers. The units are generally closely related, supplementing the production efforts of one another. The organised sector often uses these segments for outsourcing a range of goods and services which are then marketed under its own brand names. Its growing importance is mainly on account of its dependence on cheap unskilled labour and its employment has shown a remarkable expansion over the years.

Gupta sneeringly observes that merchant-producers “profit by producing cheap and selling dear.” I wonder if he has come across any segment of production that produces dear and sells cheap, except perhaps the inherently inefficient public enterprises whose goods and services are often produced at artificially inflated costs and then sold below the costs of production to fulfill so-called social objectives. Such enterprises are made to survive by large wasteful infusions of state funds. The latest example is the case of Air India whose continuance has been guaranteed by a prime minister-cum-economist for the sake of his party’s prestige and socialist credentials.

Since the production costs of the merchant-producers are low, they are “at the forefront of the export sector” with whose fortunes they are closely linked. They are more vulnerable to the changes in international demand and currency fluctuations. This applies to all major export segments like carpet-weaving, clothing and knitting, gems and jewellery, etc.

There is hardly any production area, except the heavy industries, which has not been penetrated by the informal and unorganised sector. One of its attractions to the small entrepreneurs is almost total absence of trade union activities. This permits them to deny legal wages and other benefits to the labour. “As a rule, contract workers get paid less than regular workers and are often unable to access their provident fund and retirement benefits.” They are also deprived of the statutory bonuses. Being migrant workers, they are completely at the mercy of the employers. The sector continues to thrive on cheap labour; there is no incentive for improving their skills; it is the main destination for the unemployed; and, it dominates the export trade of the country.

Gupta calls rural India “the hollowed village”. The rapid growth of population has led to fragmentation of holdings reducing their average size to uneconomic levels. “What land reforms and land redistribution could not accomplish, demography and subdivision of land holdings have done to land ownership.” Agriculture has ceased to be the mainstay of agrarian economy. Gupta is struck by the “emptying out of rural India, emotionally, economically and obviously in terms of numbers too.” The continually growing number of small farmers of uneconomic holdings is forced to seek off-farm employment in “urban sweatshops” among the ever expanding small-scale informal industries.

The Gandhian concept of thriving, self-contained villages is no longer valid. Agriculture as a way of life has ceased to be viable. The rural social structure is rapidly changing; “the joint family is disappearing; the rural caste hierarchy is losing its tenacity; and the much romanticised harmony of village life is now exposed as a sham it perhaps always was.” Gupta believes that among the farmers of all categories, uncertainty of their agricultural future is largely the reason for them to leave the village and “even migrate to foreign lands.” He is convinced that migration is “not on account of pure distress but rather because of a lack of hope for the future.” It is a devastating conclusion but there is no reason to doubt it.

“The National Agriculture Policy as it stands today is largely a document full of good intentions but with no practical import.” What the owner-cultivators really want is a good floor price for their crops, spot payments for their products, some sort of insurance against price fluctuations of cash crops, timely supply of electricity, and reasonable input prices. The National Policy hardly assures these demands.

Sociologists revel in the theme of caste and Gupta is not an exception but his perceptions and conclusions are much more precise and incisive, and his treatment more systematic. At the outset he makes it quite clear that “consciousness of caste and religious difference are not necessarily responsible for the huge delivery failures of successive Indian governments.” He goes on to claim that “there is a fundamental error in the proposition that a democracy can succeed only if people are culturally unencumbered and can shake off all traces of prior primordial associations.”

Gupta finds that “caste has never stood in the way of political mobilisation and the secular demand for economic betterment.” He points out three reasons why caste cannot explain political outcome: First, because no caste is large enough to form a political majority in any constituency; second, because caste and politics cannot be correlated as most voters are not “professional casteists”; and third, because no caste, as a caste, thinks well of any other caste. Since rural India votes outside “pure caste considerations,” surely it cannot be held “responsible for India’s inability to come to the top or to explain its lack of public infrastructure, or its inability to provide quality level public goods.”

Caste identities entered politics primarily “to stake claims to jobs, educational opportunities as well as to positions of power” in direct competition against others. Gupta correctly observes that caste and religious identities are obsessions of the politicians who stoke them for their own personal gains. VP Singh picked up the spurious Mandal report from the shelves to preserve his own political position (and Arjun Singh pushed the same card for the same reason). The votaries of OBC reservation do not share the objective of caste extirpation; instead they want its perpetuation to maintain personal vote-banks. “It is so unfair to the millions of poor rural Indians who have had nothing to benefit from the caste politics of the rural rich.”

On the role of the nation state, Gupta contends perceptively that politicians manufacture ethnicities and minorities for electoral gains. “Those in power, and those hungering for power, play the religious/ ethnic card for collective action without responsibility.” Politicians are “a class by themselves” who while pursuing their selfish interests hoodwink the people into thinking they are serving them. “The power-wielders are clearly callous to the needs of the public that elect them, and contrary to being servants of the people, they soon make people their servants” by dispensing patronage. Gupta’s verdict is that “we truly do not deserve the leaders we get.”

This is a thought provoking book; and often infuriatingly provocative. It is closely argued, supported by field research and eminently readable. Gupta has chosen the allegory of a mythical bird, the phoenix that is unable to rise from the ashes of the past, to explain the Indian conditions. The phoenix made the first attempt at liberalisation in obedience to the dictates of the IMF during the PV Narasimha Rao Government. It was really able to spread its wings and free itself more under the Vajpayee Government. The successive Manmohan Singh Governments, owing allegiance to its old theology, are content with the status quo. The phoenix remained trapped in the “conjoint effect of status differentials, extreme scarcity at the lower levels, and inaccessibility to institutions of democratic governance.” Despite the high growth rates, India continues to be a prisoner of ideology.