India: What Ails the Giant?

India: What Ails the Giant?

The west routinely celebrates the Indian economy as a stirring giant, but the worsening plight of the rural poor tells a different story: A conversation with Prabhat Patnaik.


Between 1997 and 2005, one Indian farmer committed suicide every thirty-two minutes in India. Since then, it’s dropped to one suicide every thirty minutes. Last year, India fell two spots to rank 128th in the UN Development Program’s Human Development Index–behind El Salvador, Guatemala, Botswana, Sri Lanka and the Occupied Palestinian Territories. Yet, even in the face of massive rural and substantial urban distress, pundits continue to praise India for being a “powerhouse economy” and a “stirring giant.”

The agrarian crisis is the most glaring–yet mostly ignored–aspect of economic policy gone wrong in India. In a country where more than two-thirds of the population is engaged in some form of agriculture, the agrarian sector has been the hardest hit. Since India’s economy was opened up in the late 1980s, successive governments have withdrawn their support to Indian farmers competing against billions of dollars of government financial aid to their counterparts in the United States, causing the worst economic and humanitarian crisis in India since independence in 1947. Many farmers are killing themselves over debts of as little as a few hundred dollars.

Prabhat Patnaik, professor of economics at Jawaharlal Nehru University in New Delhi, is one of many who blame the current crisis on the Indian government’s retreat from agriculture, adherence to WTO-imposed reductions on import duties and the thrust toward neoliberalism. He has been a vocal critic of their negative impact on the Indian economy.

The 62-year-old professor is vice-chairman of the State Planning Board in the southern Indian state of Kerala and was the chairman of the Second State Finance Commission. He is the author of several books, including Economics and Egalitarianism (1991), Whatever Happened to Imperialism and Other Essays (1995) and Accumulation and Stability under Capitalism (1997). He answered questions recently at Columbia University, where he was delivering a series of lectures.

Do the pundits have it right? Is India truly the powerhouse they claim it is?

The rate of growth means nothing to me–and in that, John Stuart Mill is my illustrious predecessor. The object, instead, is to raise the living conditions of the bulk of the population. Mahatma Gandhi said that one must wipe away the tears from every Indian’s eyes. Yes, there was a period of high growth, but there also was sharply increased inequality and absolute misery for a certain population. According to one Washington, DC, study [by the International Food Policy Research Institute], our malnutrition index is below that of Ethiopia. So in terms of nutritional poverty, there has been an impoverishment of the people. In 1993-94, 74.5 percent of rural India did not access the poverty level. In 2004-05 the figure was 87 percent. In 1993-94, 57 percent of urban India did not access it, and by 2004-05, the number went up to 64 percent.

Why are people more impoverished now?

It’s the high rates of labor productivity. High growth doesn’t alleviate poverty because it doesn’t absorb labor. In any society–especially India and China–that has been colonized and de-industrialized, there’s unemployment, underemployment and disguised unemployment. Take the shoeshine boy–that’s disguised unemployment. These people are poor. And because they exist, they pull down the wage rate of employed people to subsistence level. So the existence of this army of laborers is the root cause of poverty. Unless employment begins to rise, poverty won’t disappear.

The Kerala model used to be famous for its universal healthcare and high literacy rates. Can you explain what has worked and what hasn’t?

[Kerala has had a Communist government for many decades.]

Well, in Kerala’s history there were widespread land reforms. But now those reforms are being threatened. There are private plantations that have hundreds of acres of land; government land is being grabbed [by private interests]; people are being dispossessed; there is real estate speculation. The tax revenue hasn’t increased in Kerala, so government expenditure hasn’t increased. It’s behind what’s required to maintain the high levels of healthcare and education. So the model is falling apart.

What can be done to stop it?

Kerala is in acute crisis because it’s functioning within India, which is governed by neoliberal economic policies. In Kerala there is significant cash crop production. International prices are falling, so there have been high suicide rates among the farmers. Also, there aren’t many industrial units in the state. Ninety-five percent of people are engaged in petty, small-scale, unorganized production. These sectors have also been hit. We are trying to set up a debt-relief commission on a case-by-case basis. The National Rural Employment Guarantee (NREG) scheme is also helping a lot. It puts income in the hands of peasants and other petty producers. To survive, you renovate, upgrade your technology. If that happens under capitalist conditions, you will be thrown out of employment. We’re trying to do it on a cooperative basis. What you lose out on wage income, you gain in profit income. It’s an attempt at development from below, which doesn’t destroy small producers and adds value. We also do IT and tourism in Kerala; those are our sunrise industries.

Can you talk some more about the NREG? What does it mean for poor people in India?

To my mind, the NREG is the most important piece of legislation in post-independence India. It gives you the right to apply for work, and if you’re not given employment in fifteen days, you’re entitled to unemployment allowance. It promises you up to 100 days of work per household. The government doesn’t know the significance of this scheme, because people are not aware of their rights and are not demanding them, but awareness is growing. I’ve visited Wayanad district in Kerala several times, where the NREG is actually making a difference to people. When people get this extra money, they can spend it and help other businesses.

What are the differences in economic policy between the BJP [Bharatiya Janata Party] and the Congress party governments?

Both the BJP and Congress are following neoliberal policies. But you have to remember that it’s not just the Congress that’s in power now, it’s the UPA (United Progressive Alliance), a coalition government that is supported by the left. So it’s UPA versus BJP. Thus the left is putting a check on the neoliberal thrust of the government.

Why isn’t the government doing anything to relieve rural distress?

The eleventh five-year plan says we need “inclusive growth”–that’s the government’s admission. So the government is supposed to intervene to take the benefits of growth to the people. But intervention can also answer the demands of the few. To meet the increasing demand for holidays abroad, the government is forced to increase the number of airports rather than spend on healthcare for the poor. Government investment gets pulled in the direction of elite demand, so there’s less money left to build roads in villages. What the government should have done earlier is income redistribution, public transport investment.

Why aren’t the farmers protesting?

In India, the form the protests are taking is suicide; it’s an inward-looking protest. Usually, the peasant class gets organized through middle-class leaders and intellectuals. Unfortunately, the middle class is a big beneficiary of neoliberal policies. The middle class in India has seceded from the country, from what’s going on with the peasantry. There are some peasant movements, for example against the Special Economic Zones, where the government has seized land from peasants ostensibly for industrial development but in some cases for land speculation. But there are no big peasant movements.

Why isn’t the left doing more?

The left parties are demanding government debt relief commissions, but [Prime Minister] Manmohan Singh has still not given debt relief, only interest relief and debt rescheduling, so they can pay later. But that doesn’t write off the loan. When Singh went to Vidharba [district in the state of Maharashtra, one of the worst hit by the farmers’ suicides], he did not promise price support to the peasantry. Everybody wanted raw cotton prices to be remunerative to peasants, which they are not. [But] that would mean going back on the neoliberal agenda.

Do you think the forthcoming US recession will have any impact on the Indian economy?

A. Prime Minister Singh and [Finance Minister] P. Chidambaram are saying that the US recession won’t have much of an impact, since India is not a substantial net exporter. It’s true that we import more than we export. But if there’s a recession in the United States it will push down prices for primary commodities. And if cash crop prices drop, that could lead to more farmer suicides. This would also be true of Africa and other similar societies. That’s the trade effect: world prices for commodities go down relative to manufacturing prices, so peasants become impoverished unless there’s a procurement scheme [price supports] or tariff protection. But the current government is following the WTO’s neoliberal policy and gradually eliminating both tariff protections and procurement schemes.

What are your thoughts on the hype around microcredit?

After bank nationalization in the 1970s, there was substantial credit going to the countryside. But rural institutional lending has declined in recent years because commercial banks have closed down many of their rural branches. Commercial banks are now into credit cards, not rural credit. In the place of institutional lenders like the commercial banks, private village money lenders are thriving, often on the basis of bank loans which they access and then pass on at usurious interest rates to the peasantry. You say, Yes, yes, they’ll be taken care of by microcredit. But that’s a sop, at best.

Much of this microcredit is not for productive purposes. It’s for consumption. Microcredit also has a high rate of interest–the National Commission on Farmers said that interest rates should be reduced to 4 percent for rural peasants, and yet it sanctions a 25 percent rate in microcredit for poor women. In addition, microcredit is allowing the proliferation of a new breed of moneylenders. If I organize a microcredit society, I become an intermediary. There’s no limit on the number of such societies that I can belong to. That becomes my business. Microcredit actually separates the poor from credit. We should force banks–as Indira Gandhi did–to go into the countryside and support priority-sector lending. The banks are supposed to give a certain percentage of their loans to agriculture, but they’re not doing so. Instead of punishing them, we’ve widened the definition of agriculture. So if Coke sets up a plant in rural India and uses some agricultural raw material, that passes as an agricultural loan.

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