NIAS/IC4HD ROUND TABLE

Devaki Jain

Assisted by Smriti Sharma

ADDRESSING ECONOMIC

INEQUALITY IN INDIA January 8th-9th , 2015

The Argument

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A review of the information and analysis that has emerged

from major global reports and books and articles, on the link

between the galloping increase in deep inequalities in wealth

and income and the theoretical and political underpinnings of

the current ideas on economic progress , has in my opinion

been a game changer. It has not only called the bluff on ideas

of “reform” inclusive growth etc but it offers a space for us to

reconsider other routes , other engines to GDP growth

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The main voices flagging Economic inequality as the “PROBLEM”

“Inequality Matters: Report of the World Social Situation 2013”, Department of Economic and

Social Affairs, United Nations, 2013 said:“In addition to inhibiting economic growth over time, inequality can also

generate greater market volatility and instability.”

Humanity Divided: Confronting Inequality in Developing Countries, United Nations Development

Programme Bureau for Development Policy, New York, November 2013“Economic progress in these countries

has not alleviated disparities, but rather exacerbated them. Increases in inequality over the last two decades were mainly on

account of trade and financial globalization processes that weakened the bargaining position of relatively immobile labour

vis-à-vis fully mobile capital.”

UNCTAD report, in 2010 said, “Wages would have to be perceived, not just as a cost of production, but as a major

source of aggregate demand, such that rising wage bills can actually propel economic recovery in slumps, and generate

conditions for stable growth. The inability of economic growth to create sufficient decent work to meet the requirements of the

labour force is a major part of the problem.”

International Labour Organization’s contribution 2014, to these discussions is the most pertinent,

being unintentionally linked to Piketty’s analysis.

It said, “It is time to reconsider the validity of these pro-capital distributional policies, and to examine the possibility of an

alternative path, one based on pro-labour distributional policies, accompanied by legislative changes and structural policies.”

OXFAM “Working for the Few: Political Capture and Economic Inequality” by Oxfam argues that such

deep inequality, where a few control the economy, will lead to policies that naturally support their interests.

Capital in the Twenty-First Century

Some Insights by Indian Economists

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In India, commentators on Piketty’s Book use the book to take off on the importance of factoring this growing danger, in working towards economic progress

Growing inequality within nations will likely be a growing area of concern in the coming years even as global inequality declines. It will be an important political issue in national politics, said Niranjan Rajadhyaksha

Mihir Shah in his article “Fairy tale capitalism,” published in the Indian Express, April 24, 2014, suggests that Piketty’s work underscores the need to address the legitimacy of capitalism amidst growing inequality.

TREND IN INEQUALITY IN INDIA

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Source: OXFAM BRIEFING PAPER, 2014

Can there be another kind of growth?

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One of the proposals for generating a more equitable GDP

growth track has been the proposal that we need to shift from

a strongly capital led growth mechanism to a wage, livelihood

led growth process. [Stephanie Seguino, ‘Rebooting’ is Not an

Option: Toward Equitable Social and Economic

Development’, in “Harvesting Feminist knowledge for Public

Policy” (eds. Devaki Jain and Diane Elson), SAGE

Publications India Pvt Limited, 2011]

The Indian Economic Landscape

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The characteristics of the Indian economic landscape offers a fertile soil for reversing the current reform process, and putting on the ground broad based growth that does not exacerbate inequality.

A close look at where GDP, especially the contribution to employment and manufacture, is coming from currently in India reveals the great potential that already exists, and simultaneously the neglect of this resource by the official data systems and policy

The hidden economic growth :

Small is Big

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Potential of Small farms

A recent paper, “Small farmers in India: Challenges and Opportunities” by S. Mahendra Dev of Indira Gandhi Institute of Developmental Research (IGIDR) suggests how small holdings is important for raising agriculture growth, food security and livelihoods in India. Small and marginal farmers account for more than 80% of total farm households.

“The global experience of growth and poverty reduction shows that GDP growth originating in agriculture is at least twice as effective in reducing poverty as GDP growth originating outside agriculture. Small holdings play important role in raising agricultural development and poverty reduction”, it says.

Growth of MSMEs sector 95-2003

Growth of the MSMEs sector 2006-2013

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Projected data for years 2007-08 to 2012-13

Source: Ministry of Micro, Small and Medium Enterprises. Annual Report(2013-14). New Delhi

0

20

40

60

80

100

120

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

Total Working Enterprises and Employment (in Millions)

Total Working Enterprises Employment

Contribution of the MSMEs sector

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It is estimated that this sector contributes about 45 per cent of manufacturing output and 40 per cent of total exports of the country and employs about 69 million persons in over 29 million units throughout the country. (Twelfth FYP, GOI)

MSME Sector has been consistently registering a higher growth rate than the overall growth of the industrial sector. According to the ‘Report of the working group on MSMEs growth for the twelfth plan’, the sector contributed 8.72% to the GDP in 2008-09

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“Productivity growth has been the most dramatic in the informal side of the

economy”, Equity strategist Neelkanth Mishra notes...

90% of India’s workforce is engaged in the informal economy, mostly in rural

areas, and about half of India's GDP is informal - it is not generated by

incorporated enterprises.

In 2005, India had 42 million enterprises in 2005 while it had less than a million

companies,

According to the Economic Census “The average employee count of these 42

million enterprises was 2.4 per unit

But he asks, why are these sources of half of the GDP, which engage 90% of

India's workforce, not reflected in the official GDP growth numbers? It remains

“invisible” because the definitions of India’s data collection systems do not include

it.

NCEUS, Arjun Sen Gupta Report (August 2007)

Interrogating Inclusive Growth by K P Kannan (2014)

“Can SMEs drive India’s growth?”:

Pronab Sen, Mint (February 12, 2014)

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“One of the reasons possibly why India has one of the lowest incidences

of youth unemployment is because it has one of the highest

shares of SMEs in its GDP. Thus, if youth unemployment is a

concern for policy, focusing on entrepreneurship is a better

strategy than supporting existing corporate enterprises.

….It may, therefore, be possible to achieve and maintain growth rates

of above 7% per annum without any significant improvement in the

global economy, relying mostly on the dynamism of the Indian

entrepreneur and the creation of financial space through government

fiscal correction.”

the MSMEs, Handicrafts, Handlooms as well as the Khadi Village

Industries have high proportions of SC/ST/OBC and minority

groups.

• The handloom sector alone provides employment to about 4

million persons of which 11% belong to the Scheduled Castes

(SC), 19% belong to the Scheduled Tribes (ST) and 45% belong to

Other Backward Classes (OBC); 87% are located in rural areas and

remaining 13% in urban areas.

• Employment in Handicrafts sector has risen to 7 million crafts

persons in 2011-12. Of the total, 25% crafts persons belong to the

Scheduled Castes, 5% are Scheduled Tribes and 23% belong to

minority groups.

•Khadi and Village Industries has another 14 million again with

strong presence of the SC and ST communities

Here in lies India’s gold. Not many other countries have such a

lively lower end of the economy.

If the same energy and attention given to the corporate(s),

India Inc as the media tells us, our GDP growth and

employment can be stable and inclusive

What the data tells me is that there are other engines in India

to generate GDP growth , and that these engines need to be

fired

A Qualifying Big Issue:

The poor condition of workers in the informal economy

It is well known that in these sectors – informal sector, the KVIC – wages,

working conditions for the workers are abysmal. In fact, the success is due

to the informality namely – no security for the workers. Hence those on the

left usually are not supportive of the informal sector .

However this is a field for action, both by the state and worker

organizations.

• Inputs from the state to provide both the backward-forward linkages

• Infrastructure support and

• Simultaneously bring them under the, Worker Protection Acts

• Build and strengthen Unions of informal and self-employed workers

New interest is building up in wages with a new report by ILO ,Wage and

income inequality.2014. This is being followed up by a Matching report on

wages in India. This report can be a platform for revival of worker

organizations and worker trade unions to strengthen the situation of

workers in this sector.

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“Way forward for India” In my view, the Way forward for India, is to argue for an employment led growth – can be called

wage led as a counter to capital led.

It is necessary to move away from the overwhelming presence and pampering of the corporate

sector, which comparatively is contributing less both to manufacturing and to employment

Blowing energy to the lower end of the economy would ensure that GDP growth will bubble up.

Diane and I have referred to this process as the “Bubbling Up Theory of Growth” in our book,

“Harvesting Feminist Knowledge for Public Policy: Rebuilding Progress” 2012. Sage Publications

We need to give currency to these ideas , to make them walk at the higher levels of policy making

The Secretary, of the ministry of MSMEs, appealed to me, saying please publish this , we are

asking for attention of the Finance and other ministries , but we are not being noticed in the big

league

Here then is a task before the partners in this round table, to make this theory overtake the

existing notion of reform. It might be possible as the rhetoric of make in India, and Made for

India and reference to Gandhi gives us the opening