Tuesday, September 24, 2013

The Current Economic Scenario

The Current Economic Scenario 
Arun Kumar
CESP, SSS, JNU
Rediff.com on September 12, 2013 
http://www.rediff.com/business/slide-show/slide-show-1-interview-why-indias-economy-is-in-such-a-mess/20130912.htm

1.      The rupee has fallen dramatically over the last few weeks. Any one particular reason that you’d say is the reason for this fall.
 The most obvious one is that foreign investors and Indian businessmen have lost confidence in the economy. This has led to the expectations of a declining value of the Re. Since the currency markets are notoriously speculative, there is speculation on the decline in the value of the Re. Often expectations are self fulfilling in a speculative market and that is why the Re has been falling rapidly since May 2013. Over the last two years it has fallen from its peak value of around Rs.44 to the dollar.
 The consequence of these self fulfilling expectations is that there is withdrawal of funds from India by say, the FIIs and NRIs. They feel it is better to withdraw funds before the value of the Re declines any more. Further, the exporters are delaying bringing back the proceeds of their sales abroad so as to make more money and the importers are importing more immediately so that they can take advantage of the cheaper Re at this point of time. Finally, to take capital out, there is greater under invoicing of exports and over invoicing of imports. All this is resulting in an increase in the trade and the current account deficits in the BOP which then justifies the fall in the value of the Rupee.

2.  The RBI has tried to stem the fall, but in vain. Was the RBI right in seeking to defend the rupee or should we let market forces decide the rupee’s value?
 The RBI’s steps may be characterized as `too little too late’. It should have defended the Rupee much earlier rather than when it has fallen below Rs.60 to the dollar. The market forces in a speculative situation are destabilizing so there is no market determined value of the Re. When the Re fell from Rs.47 to below Rs.50 then only the RBI should have intervened. This would have prevented expectations of a further fall from building. The RBI has had a kitty of $280 billion dollars in its reserves. It is true that this is based on borrowings of $ 380 billion. However, early intervention would have required small amounts of release while now it would require massive releases to correct the situation.
The RBI has been trying inflation control while in India inflation is not strictly a monetary phenomenon. It should have lowered interest rates to help spur growth. Inflation control in India requires supply side responses and a political will to stop speculative activities and to check the growing black economy. Black liquidity rushes in to speculate so any tightening of money supply by the RBI is undone by the funds from the black economy.

3.      Could the RBI and the government have done anything to stem the fall? Will the recent move at tightening capital account help the rupee?
 RBI by itself cannot control the value of the Re. Both fiscal and monetary policy instruments have to be used. The government has correctly set into motion steps to address the trade and current account deficits in BOP by curbing the inflow of inessentials like, gold.
While it is true that smuggling of gold may revive but overall the demand for gold would moderate and the outflow of foreign exchange on this account would moderate. It needs to be remembered that the inflow of gold increased from 160 tons per annum in 1992 to the current level of about 900 to a 1000 tons after liberalization of the import of gold in 1992. This has led to a massive out flow of foreign exchange.
Capital account restrictions are important since they stem the outflow of capital and foreign exchange. However, the government’s steps are half hearted and leave many channels for the outflow to continue. It needs to be remembered that in the 1997 Contagion in the SE Asian Tiger economies only Malayasia emerged unscathed because it imposed capital account controls. The IMF was critical of Malayasia at that time but later praised it for the management of the economy.
The government also needs to lower the fiscal deficit in its budget by raising more resources and investing more on the Plan account (rather than cutting it). It has been lowering Plan expenditures in the last few years by a whopping Rs.1 lakh crores each year. This has resulted in lower demand in the economy and a slowing economy. In a period when the private corporate sector is not investing enough, the cut in the plan expenditures has resulted in a fall in the investment rate of the economy from its peak in 2007-08 and that has adversely affected growth in the economy.
More resources can be raised by lowering the `tax expenditures’ in the budget which are running at about Rs.5.5 lakh crores (See Receipts Budget). Further, a moderate dent on the black economy of 50% of GDP can raise the additional funds required for maintaining the Plan expenditures budgeted for.
Finally, the investment model adopted by India is based on crony capitalism (more so after 1991) and this has collapsed since 2008 when major scams were unearthed and the public started reacting. Since then the politicians and the bureaucracy has become wary. The businessmen have also suffered with cancellation of licenses so they too are wary. Further, the public has lost trust in big projects that lead to massive displacement while the rich and the politicians make money. Thus resistance has built up to all major projects, like, power plants, SEZs, steel plants and mining projects. All these have stalled and there are cases of withdrawal of projects like, Arcelor Mittal and POSCO.
There is a need for transparent and market based investment in which the public can have confidence and where these projects appear to be in the national interest and not just to fill the pockets of the rich and the powerful. Such a model of investment has not emerged and that is why investment is suffering in the country.
Unfortunately, given the political uncertainty due to the weakness of the present government and the impending state and national elections and the uncertainty of who will come to power, private investors are holding back investments. This is not likely to change any time soon.

4.      Where do you see the rupee vis-à-vis the dollar at the end of the year?
 There is no way to predict the value of the Re even a few months down the line. If the government can successfully reverse expectations, the Re can strengthen and go back to Rs.55 to the dollar but if not it could breach the Rs.70 mark. The latter appears more likely at present given the uncertainties and the lack of confidence in the economy.

5.      How will the rupee fall impact the economy? For example, petrol prices will go up, and this might push up inflation even as growth remains stagnant. Are we back to the “stagflation” days?
 The fall in the value of the Rupee will result in the prices of all goods with import content to rise in price. Immediately the price of energy (petroleum products and coal) would rise and since this is used in all production all prices would tend to rise. Electricity, petrol, diesel, gas prices will rise. Energy is required for transportation so all goods will rise in price due to higher transport costs. All electronics goods, automobiles, etc., with high import component will see a price rise. Internal tourism will be adversely affected because of its import intensive character but foreign visitors may increase in number with the weakening Rupee.
In India, growth is not stagnant but it is still at around 5% per annum which is better than what the IMF prediction for the world economy is. Thus, Indian economy’s rate of growth remains better than the world average and this cannot be called stagnation. The rate of growth will fall as inflation rate rises. Employment generation which is a big concern for India will fall further and lead to persistence of poverty and more crime amongst the unemployed youth.
Exports will do better over time as the prices of Indian goods decline and this would help the growth of some sectors like, software, call centres, textiles and leather goods. However, the rise in exports will not be able to compensate for the decline in internal demand due to inflation. Hencve the rate of growth would tend to fall unless other steps are taken.

6.      What do you think should be done on a priority basis to stem the rupee’s fall?
 Answered as part of Question 3.

7.      Moving to the general economy, how much of the blame for the economic downturn can be blamed on external factors, and how much with the current government’s ineptitude?
 We are facing major macro economic imbalances in the economy.
On the external front, the Current Account Deficit in BOP is also a result of the slow growth in the major world economies – USA, Eurozone, China and so on. That is why the growth rate in exports has fallen while imports continued to surge due to import of energy and gold (prices of both of which rose or remained high). Now with the improvement in growth in US and Euro sone while Indian economy is weakening, capital has begun to go out leading to a decline in the value of the Rupee. Finally, the fear of tapering off of the Quantitative Easing (QE) by the Federal Reserve has made many believe that days of easy money are numbered and capital flows to emerging markets are set to fall. This has created the expectation that the currencies of emerging markets will decline in value and that is what is happening.
On the internal front, the high rate of persisting inflation, high fiscal deficit (kept in control by cutting plan expenditures) and falling rate of growth (especially in industry) reflect deep macro imbalances.
The internal and external factors have dented the confidence in the Indian economy and led to credit rating agencies repeatedly threatening a downgrade. Even though the performance of these agencies was not creditable during the crisis starting 2007, their actions are still influential with investors.
Along with these factors one can add the `policy paralysis’ of the present government since 2009 due to the surfacing of the various scams. The government has been busy warding off pressures due to these exposes rather than setting new directions in policy. Now with elections round the corner, investors will wait and watch and the government will have to get more proactive in encouraging growth through its actions.

8.      You have written that the problems we face is because are following a “borrowed development model”? But many would argue that 22 years of liberalisation has helped India far more than 44 years of state control policies ever did?
 We borrowed a development model in 1947 and another one in 1991 – both have been based on the notion of western modernity and not what India needed. Both have been based on a top down approach and not a bottom up one.  Both have depended on trickle down to the poor. The post 1991 path has not increased growth rates as much as the pre 1991 path did. Our average rate of growth in the period between 1950 and 1980 jumped by a factor of 5 as compared to that in the 50 years before independence. After 1991, the rate of growth has barely increased by 50% over the average growth rate in the 1980s and that too over a few years between 2003 and 2008. We are now back to around 5% rate of growth.
The growth in the last two decades is based on the achievements of the earlier four decades. Also, the growth rate has accelerated due to structural changes where the services sector has become dominant and the slow growing agricultural sector has become marginal to the growth story. Further, the present path is leading to massive disparities since the growth is concentrated in a narrow section of the population. Finally, poverty is changing its characteristics so that in spite of increase in incomes of the poor, poverty is persisting in its changed forms.
We are pursuing a policy of `growth at any cost’ with all costs falling on the workers and the environment. The cost of a deteriorating environment is borne disproportionately by the poor who live in poor conditions. Studies show that the health cost of the poor have risen sharply so that their increased incomes cannot compensate for the increase in the cost of living for them.
The new policy paradigm which has led to increased consumption by the middle classes and the well off hides a massive rise in social and political instability in the country. This has its hidden costs. Further, consumerism is the means used by the ruling class to divert the attention of the people from the real problems faced by them. But rather than provide the solution it is creating additional problems due to the rising expectations amongst the youth which is bombarded with images of high consumption in TV ads, serials, films, etc. However, there is no way that these expectations can be fulfilled since the organized sector jobs paying well are only 6% of the total jobs. 96% of the 12 million children joining the work force every year will have to take up low paying jobs in the unorganized sectors and they cannot fulfil their expectations. This is leading to terrorism and crime all around.

9.      If the current development model is flawed, then what is the development model best suited for India?
One has to go for an indigenous path based on social justice and equity. This does not mean a closed economy. Development has to be from below as suggested by Gandhi. That is what the government also now wants when it talks of inclusive growth but it lacks the will to implement such a path. Its flagship programmes are mere safety devices to take care of the problems its policies are creating. The alternative path would target productive full employment and not just investment. It would be based on an appropriate mix of various levels of technologies. It would create conditions for decentralized urbanization and decentralized development with autonomy devolved from the Centre to the States to the local bodies. It would curb the black economy to release resources from the present unproductive sectors and channel them to productive activities. It would be based on protecting the environment and making everyone not only literate but also creative through high quality education to all. Such a path was spelt out in the alternative budget presented in 1994 which also showed `how to make the desirable feasible’.


Wednesday, September 4, 2013

A Macroeconomic View of the National Food Security Bill

A Macroeconomic View of the National Food Security Bill
Arun Kumar
CESP,SSS,JNU
Mainstream, Vol Li, No 37, August 31, 2013

The National Food Security Bill (NFSB) has been contentious. Economic arguments have been presented against it confusing the public. The rich farmers are worried that farm prices would fall because cheap food would find its way into the markets. Businessmen argue that the economy would further slow down with an increase in the burden on the Budget. The elite say that subsidies and inflation would rise sharply due to profligacy. Unfortunately, most of these arguments are based on a partial economic perspective which ignores the full impact of the economic processes that the scheme would set into motion.
There is legitimate concern about corruption, diversion of food and the problems associated with the implementation of the provisions of the Bill. No doubt, given the state of governance in large parts of the country, the full implementation of the provisions of the Bill would take many years. Given that the Congress party may lose politically by bringing in the scheme so close to the next general elections, those whose expectations would remain unfulfilled by the time the elections are held would be disappointed. The moot question is: should corruption be the reason for not implementing what may be a good policy? Should the allotment of spectrum or of coal mines be stopped because there has been corruption in these cases? Can the baby be thrown out with the bathwater?
The case for the NFSB is a macroeconomic one. The nation has the responsibility to feed its citizens. However, due to a lack of incomes and the choices sometimes made by the individuals because of the social pressures, many are unable to buy enough food for their family and that is why there is hunger and malnourishment. Thus, hunger is not an individual problem but has its roots in the country’s macroeconomics. For instance, it depends on the nature of employment generation, the distribution of incomes, investment policies, global factors in an increasingly open economy (including consumerism), production technology encouraged by policies, position of agriculture in the economy and the related issue of terms of trade between agriculture and the other sectors. None of these factors can be changed by individual efforts.
The government, through its policies, deter-mines these macroeconomic factors. Since the launch of the New Economic Policies in 1991, the problem of unemployment, distribution of incomes and so on has got aggravated and worsened the situation of the marginalised in society. Hence in spite of growth, hunger persists. The government is the only entity that can provide the correctives and ameliorate hunger. In this sense, the NFSB is only a corrective to the market-oriented policies currently being pursued and does not resolve the fundamental economic problem of lack of adequate incomes of the poor.

Those who would benefit from the cheap foodgrain provided under the NFSB will get an additional income since they will buy a given amount of food for less. This would leave some money for buying other goods and services including more protein and vegetables. This amount could be substantial since 50 per cent-60 per cent of the budget of the poor is spent on food. If it is assumed that 50 crore people were already benefiting from various State level schemes under which they were getting cheap food, an additional 30 crore people would get the cheaper food and buy not only more food but more of other items of consumption. This would help reduce poverty in the country.
In the present situation of a demand slow-down and a falling rate of economic growth, there would be a stimulus to the economy. This boost would be strong since little of the additional demand would leak out of the economy as happens with the additional incomes of the well-off. Further, there could be additional requirements of infrastructure for storage and distribution of the additional food and this would result in more investment and, therefore, spur growth.
The implication also would be that the rate of inflation for the poor would fall. The total consumption of food would rise leading to an increase in the free market price of foodgrains. That would hurt those not covered by the NFSB and for them the rate of inflation would rise. The lower middle classes would be hurt but the others with inflation indexation can adjust to it. However, the immediate rise in inflation would be small since the government already has huge stocks of foodgrains which, when released in the market, would moderate the price rise. As of March 1, the food stocks were 62.8 million tonnes and with the procurement in the new season these would have increased to above 80 million tonnes while the buffer stock norm for July 1 is only 27 million tonnes. Thus, there is a lot of cushion to keep prices in check. But, as the extra stocks above the statutory requirement get exhausted in a few years, the prices would rise. To check this, the government would have to pursue policies to encourage an increase in output rather than resort to fire-fighting later on.
The higher free market price would lead to a higher price for the farmers and this could lead to an increase in supply. This would also mean that the government would have to give a higher support price to the farmers to be able to procure additional amount for expanded distribution. This would further incentivise the farmers to produce more.
Some argue that the poor do not need more foodgrains but require other items of food. This is only partially correct. Foodgrain availability (proxy for consumption) in India peaked in 1991 at 510 gm per person per day and declined after that (in 2001 by 18 per cent). This has been attributed to a shift in the consumption pattern. However, whenever the monsoons have been bountiful and food prices have dropped, consumption has gone back to around 500 gm.
This suggests that the consumption pattern may have shifted some but a lot of people are unable to buy adequate amount of foodgrains when the prices rise. The well-off consume more of foodgrains indirectly through consumption of animal protein but their consumption is hardly sensitive to prices since they have enough income. Thus, the fall in availability of foodgrains when the prices rise is a reflection of the squeeze of the consumption of the poor. The NFSB would help the poor by making their consumption independent of inflation. The implication also is that the current high foodgrain stocks are not an indication of food self-sufficiency in the country but of inadequate purchasing power of the poor. Further, as the NFSB gets implemented, India may have to import foodgrains unless the production rises.
It is estimated that the subsidy bill on food would rise to more than Rs 1,24,000 crores (around one per cent of the GDP). The additional amount over and above what is being currently spent may be around Rs 35,000 crores. This is insignificant compared to the Rs 5.5 lakh crores of tax expenditures (a kind of subsidy) given to the well-off in society or the revenue loss of Rs 20 lakh crores due to the black economy. The question then is: who should be subsidised? The choice should clearly be in favour of the poor. There will be additional expenditures on storage and other infrastructure. But, the total requirement of storage could decline since foodgrains would be distributed rather than held in the open where they rot adding to the subsidy burden. The losses of the FCI should decline since the food distributed would get some revenue, even if small, as opposed to its complete write-off when it rots and correspondingly the subsidy element could fall.

The real problem would be corruption and identification and delivery to the additional families to be covered. That is why some suggest cash transfer using the UIDAI cards. Examples of Brazil and other countries are mentioned but the recent public demonstrations in Brazil point to the prevailing corruption there. It is not obvious that the UIDAI would be free of corruption. Ingenuity of the Indian elite has fostered corruption in whatever scheme is launched. There is much corruption in transfer of money through banks and post offices. Already corruption cases are surfacing with regard to fictitious cards, etc. even when the scheme is not yet operational. Further, cash transfer may not lead to expenditure on food but diversion to other wasteful expenditures. That danger exists even when cheap food is given but it would be less than with cash transfer.
It is unfortunate that the NFSB was initially brought through an Ordinance rather than being implemented after approval in Parliament. This deprived the scheme of a political consensus which would have helped its implementation. However the politics plays out, in macro-economic terms the NFSB is highly desirable and reflects the nation’s commitment to its citizens and that would help in nation building.
arunkumar1000@hotmail.com

[This is an enlarged version of the article on the subject in Hindustan Times on August 21, 2013. —A.K.]

Sunday, August 25, 2013

Indian Economy and the Crisis of a Borrowed Development Strategy

Indian Economy and the Crisis of a Borrowed Development Strategy
Arun Kumar.
CESP,SSS,JNU.
Mainstream, Vol. Li, No 35, August 17, 2013 - Independence Day Special

Introduction: The Current Situation
The economic growth rate has been falling continuously while the consumer price inflation, current account deficit in the external sector and fiscal deficit in the Budget remain at high levels. The lack of confidence in the Indian economy is manifested by the sudden and sharp decline in the value of the rupee vis-a-vis the dollar in spite of the steps taken by the government and the Reserve Bank of India. The stock markets are also fluctuating wildly reflecting the uncertainty in the minds of the investors— both Indian and foreign. The policy-makers appear to be helpless.
The government has tried to talk the markets up but with little effect. The PM, Finance Minister, Deputy Chairman of the Planning Commission and Economic Advisor to the PM have all made pronouncements that the economic recovery is around the corner. These predictions over the last two years have been belied as the data in the Table shows. The rate of growth has fallen quarter after quarter since the fourth quarter of 2010-11.
It is true that the rate of growth is still good compared both to that of most other countries in the world or to the projections by the IMF (and others) of the expected rate of growth of the world economy. This growth is also comparable to India’s historical growth rate since independence. However, the current growth path is not comparable with that prior to 1991 because that was not creating inequality and unemployment which the current marginalising growth has been doing.
Post-1991, growth has been fuelled by the private corporate sector with highly capital intensive technology which does not generate much employment and also increases inequality in the economy. Most of the gains have been cornered by a few leaving little to trickle down to others. This is especially true for the marginalised sections like the unorganised sectors and especially the agricultural sector which still deploys more than half of the work force. The impact of the slowdown in the growth rate is that what trickles down becomes even less and those at the bottom of the pyramid suffer even more.
Coupled with the declining economic growth rate is a stubbornly high rate of inflation measured by consumer prices (roughly 10 per cent per annum). While the wholesale price index (WPI)-based inflation has moderated, it does not reflect the burden of price rise on the consumer. The WPI-based inflation rate does not reflect the rise in prices of services, like school fees or rents or telephone calls and so on. The consumer price index has only a few services; so it also under-represents inflation. The price rise results in shifting purchasing power from the consumers to businesses and thereby reducing the trickle-down and accentuating disparities.
Add to this the rising black income generation in the economy with corruption spreading and growing in scale. Since the black economy is concentrated in the hands of three per cent of the population, inequalities rise. By raising costs all round, the rate of inflation is raised. Further, the inefficiencies associated with the black economy result in wasteful use of capital and lower employment generation than is potentially possible. Through flight of capital it increases the shortage of capital and aggravates the current account deficit on the external sector and leads to BOP problems. Last but not the least, it results in the failure of policies so that targets are not achieved. It affects the collection of taxes and that raises the government’s budgetary deficits which leads to a cut-back in essential expenditures, say, on health and education.
In brief, under the New Economic Policies (NEP) with their pro-corporate sector bias and with a rising black economy, the combination of low rates of economic growth and persisting high inflation results in poor employment generation and mounting inequality. This is a dangerous mix since it can only lead to growing social tensions and political strife in the country 66 years after we achieved political independence.

Consumerism and Environmental Decline along the Path of Development
Sixty six years after independence, we have the largest number of poor people, illiterates and so on in the world. It is not that India has not made progress after independence but it is much less than what was expected. It is much less than what many other nations have achieved in a comparable time-span. India appears to be a case of many missed opportunities.
Further, at a very low level of consumption, India has one of the most polluted environments in the world. The pollution of water in the rivers and underground aquifers is phenomenal leading to increased incidence of various diseases. The pollution of air is also very high compared to even the developed countries and this is also resulting in health problems. The tragedy is that this is at a very low level of per capita consumption. What would happen when with growth consumption rises?
The causes of this high level of pollution are: a) the strategy of ‘growth at any cost’ without taking the environmental factors into account; b) the rampant corruption which leads to cutting corners in every economic activity with environ-mental protection getting the least priority; c) international division of labour which is resulting in polluting industries getting located in the developing countries; and d) rapid increase in consumerism.
Recycling of ships, plastic waste, lead acid, computer waste and so on is taking place in India. Dirty production of heavy chemicals and metals is also occurring here. Massive denudation of forests is the result of open cast mining, large projects for producing power, setting up of airports, expansion of road and rail networks and so on. It is said that development requires all this. Is this true? Not quite since environmental destruction lowers the welfare gains of material growth. It is like digging holes and filling them where there is activity without productivity. One needs to question the development model which postpones the costs to the future generations.
Underlying consumerism is a political strategy of the Indian ruling elite to divert the attention of the population from the present problems by involving them in consumerism. Those who can afford to consume more are happy at the availability of goods in the markets. Those who cannot afford can dream of one day buying these goods. There are those in the middle who aspire to lay their hands on the more exotic ones while buying some of the less exotic ones. Everyone is happy to live in the moment and the future be damned—a very short-term strategy and one that is inimical to building a strong nation and creates atomisation and alienation amongst the people.

The Internal and the External Economic Problems
The external environment for India’s economic development has deteriorated since the global crisis began in 2007. Due to the ongoing indiscriminate globalisation initiated in 1991, Indian markets have become more closely integrated with the world markets. The ratio of our exports and imports to the GDP have risen dramatically. Movements in the financial markets (like the share market) are now governed by those in the international markets. Commodity prices move in tandem with international prices like in the case of petroleum products and foodgrains. The result is that a crisis in the global markets leads to a crisis in the Indian economy.
Since the recovery from the recession starting 2007 was tepid in the OECD countries, the Indian economy also faltered soon after the recovery stalled there. The green shoots in the US economy in 2009-10 withered after 2010. Unemployment there has remained high and so has underemployment. Eurozone has gone back into recession and so has the British economy. The Japanese economy has been growing slowly and the Chinese economy has been slowing down recently. Thus, all the major economies of the world have been growing slowly or slowing down.
India’s exports have consequently suffered. (See Table) Imports have remained high because of the high prices of energy and India’s rising demand for energy. Further, due to uncertainty the demand for gold in India has remained high in a period when gold prices have risen globally. Thus, the gold and energy import bills have been high keeping the import bill high. This is the reason for the continuing high trade account and current account deficits. The problem has been aggravated by the high debt ($ 365 billion in September 2012) in relation to the reserves ($295 billion in January 2013) the country holds, and this prevents the RBI from intervening more aggressively. Further, the proportion of short-term debt in the total debt has increased since 2008 and this is the one that can evaporate quickly destabilising the position of the country’s foreign exchange reserves.
With the slowing down of the Indian economy, high rate of inflation and fiscal problems, the international community has been losing confidence in the Indian economy. Thus, the credit rating agencies have been threatening to lower India’s rating. This would lead to a higher cost of borrowing abroad and devaluation of the currency adding to the repayment burden. These would lead to an increase in the current account deficit. This sets up a vicious cycle of declining growth, higher current account deficit and lowered credit rating for India.
The rating agencies monitor the fiscal deficit of the country. So, the government has been trying to keep the fiscal deficit low. How is that being done? By cutting back on Plan expenditures (two years back by about Rs 1 lakh crore and in the last fiscal by more than that) and other essential expenditures. This is like chopping the nose to cure a cold. Cutbacks in a period of a slowing economy and demand shortage lead to further demand shortage and a further slowing down. Thus, the fiscal deficit target is being met by cutting back expenditures and not better management and in this sense the fiscal situation is out of control in spite of the fiscal deficit not rising dramatically. This strategy, which keeps the growth rate low, is bound to make the rating agencies lower India’s rating.
The savings and investment rate of the Indian economy fell after 2007. It has not recovered and, as the Table shows, it has fallen further in the previous two years. This is a cause of the slowdown in the economy. Both the private corporate sector and public sector companies are flush with funds but are not investing since the demand is limited. Thus, the government’s strategy of dealing with the problem has become the cause of the problem.
The current problem facing the economy is the external orientation of the policy-makers. They are sensitive to the wishes of the discredited rating agencies and multilateral agencies. This outward orientation of the policy-maker has marginalised the Indian population at large. No wonder, economic experts being appointed in the government are being imported from the US.

The External Orientation of the Indian Policy-makers: A Historical Perspective
India started in 1947 with a borrowed strategy of development which propagated the top-down approach. It was a mixed economy model based on the market economy in the West and the path of central planning from the Soviets. India’s ingenuity lay in combining the two paths but both were copied and based on trickle-down. This is called the Nehruvian strategy of development. The indigenous path suggested by Gandhi based on a bottom-up approach was rejected because the Indian elite wanted to quickly copy Western modernity and join the Western elite. Consequently, while a small elite did well, the rest had to plod along with the little that trickled down. This strategy paid lip-service to the poor and poverty removal. It met with crisis after crisis since the mid-1960s—failure of agriculture and consequent food insecurity, Naxalism, Emergency, rising strife, alienation and black economy and growing inefficiencies, repeated approach to the multi-lateral agencies for help/adjustment and support at high national cost and so on.
The path met its waterloo in 1991 and the strategy was changed from the mixed economy to the market economy with the state retreating strategically in favour of the private sector. The trickle-down declined further. This was characterised by the World Bank (earlier) as the ‘market friendly state intervention’. In the Indian context with its large black economy and high level of corruption this led to the strengthening of the ‘crony capitalism’ model of investment being followed in the country since independence. With the lowering of the priority to public sector the private sector became the dominant sector and it extracted huge concessions—like ownership of natural resources and cuts in taxes. The new strategy based on marketisation stopped paying even lip-service to the poor. We are embroiled in the numbers game of counting the poor without eliminating poverty which has constantly changed its face with growing consumerism and commercialisation of everything.
While the earlier strategy produced growth which was much faster than during the colonial period prior to 1947, it also kept the growing disparities in check (not that it reduced them). The post-1991 strategy does not even claim to reduce disparities because now growth is the key to development; distribution does not matter. The policy-makers recognise this factor and, therefore, have put into place policies to mitigate the ill-effects of the ongoing marginalising growth: MGNREGS to get some employment for the underemployed and for those who migrate from the poor areas to richer areas; mid-day meal scheme to get children into schools otherwise their parents will set them to work to supplement their family income; loan waiver scheme for farmers so that the indebted farmers can get relief and do not commit suicide in large numbers. Now there is the Food Security Bill which will hopefully provide more nutrition to the poor. Today 40 per cent of the women and children are malnourished and face disability and permanent poverty.
So, even after 66 years of independence, the government—dominated by the elite—remains insensitive to the problems of the people of India. It is continuing with the borrowed path of development which leads the nation from one crisis to the next without a solution—in fact, only non-solutions abound which result in the accumulation of more problems. To divert the attention of the people, the policy-makers have promoted consumerism in a big way leading to a huge environmental crisis and other problems. Thus, what the colonised mind of the Indian elite thinks is the solution has been the problem since independence and that is why the policy-makers currently appear to be helpless.
[Based on the author’s new book, The Indian Economy since Independence: Persisting Colonial Disruption, published by Vision Books, New Delhi]

The author is the Sukhamoy Chakravarty Chair Professor, Centre for Economic Studies and Planning, School of Social Sciences, Jawaharlal Nehru University, New Delhi. He can be contacted at e-mail: arunkumar1000@hotmail.com /nuramarku@gmail.com 



Thursday, July 11, 2013

UNDERLYING ECONOMIC ASPECTS OF MOVEMENTS AND INEQUALITY

UNDERLYING ECONOMIC ASPECTS OF MOVEMENTS AND INEQUALITY
Arun Kumar
CESP/SSS, JNU.
Published in Chaubey, N.P., Panda, D. and Pant, G. (Ed.) Peoples’ Struggles and Movements for Equitable Society. Allahabad : ISSA and N Delhi, DAANISH Books.

I.          SOCIETAL PROCESSES RESULTING IN GROWING INEQUALITY
There are myriad causes of inequity and inequality in society that are built into the prevailing social system. Hence working to change a few of these based on a partial understanding will not lead to the desired change towards equity or equality. A holistic vision is necessary whose various features are briefly sketched out in this article. It would have to include cultural, environmental, linguistic, economic, political, historical, sociological, legal, scientific and technological and other such aspects. Since this is a vast terrain for any paper to cover, the focus will be on the underlying economic aspects of inequality as they effect these dimensions of the problem and thereby reinforce social inequality.
In the dominant economic framework of the market, only lip service is paid to the idea of equity – distribution is not on the agenda of policy making. Only what is called `efficiency’, defined as the attainment of optimality in the markets is discussed (See Any basic Public Finance text book, like, Tresch, 1981). That is why the notion of `trickle down’ and growth as a means of eliminating poverty are the main features of discussion in development literature but not equality or equity.
While economics does not determine everything in society, it has become the single most important feature of social existence and this is due to changes at the philosophical plane. This would also help us understand why there has been growing acceptance of social inequality. At the conceptual/philosophical plane we need to be clear what we understand by people’s movements and equitable society. Further, why the former maybe a pre requisite for the emergence of the latter? Alternatively, one may ask whether equity or equality can be automatically achieved in society, that is, can they be the natural state of society?
People are born equal with the same social potentialities that anyone else has but it is in terms of their social existence that they become unequal. As they grow up, typically, the differentiation only grows. If this is so, differentiation is not a natural state of affairs but has a large social content? While genetic factors are different for each individual that only determines the innate abilities which may flower given the support and opportunities in life. It is this support in the form of education and health and other opportunities that depend on the nature of society and what view one takes of the individual and of social differentiation. The social position of individuals is determined by their role in society and not by nature. Even if there are natural differences amongst different people, it depends on society to decide whether they would be treated as equal or if not, how unequally.
Society’s view of Man determines how unequally different people are treated and this is itself based on the social strata they belong to and where in the hierarchy it is placed. The dominant sections decide on who gets what status and for their own benefit create hierarchies. This is justified as natural division to lend legitimacy to their view of society. Their sense of `justice’ is also based on this view of society. For instance, in a feudal society, to justify hierarchies, there is an inherent view of people as unequal. In a capitalist society that appears to have changed but inequity based on ownership of capital is taken to be natural and just. Structurally, there is more inequity between capital and labour than amongst wage earners but most of the discussion is on the latter.

*Based on the paper of the same title presented in the 31st Indian Social Science Congress in Mumbai in 2007.

II.        NATURE OF GROWING INEQUITIES
II.1      Philosophical components of inequality and inequity
Inequality and inequity are linked to the state of society, its institutions and its sense of justice. In turn these determine the link with nature of exploitation in that society and what role continuation of inequality plays in that society. For continuing inequality, the ruling groups are important and they maintain their control over the rest through an ideological hegemony.
The notion of justice in a society also emerges from the ideological hegemony. This hegemony has its impact on the oppressed or the ones considered lesser in the system. They are blinded to the obvious ills of the system and to the link of that with their own situation. They believe that there is no alternative and that this is the natural state of affairs. Hence even they consider it to be just and accept it. Thus, under feudalism, the serfs also had aspirations to be a landlord and thought it to be natural that they would be serfs under the landlord and give him the labour of their toil. Under capitalism the workers believe that they would one day be the owners of capital. So, under capitalism, even workers TURN capitalists in their belief. The spread of the stock market habit in the West and even in the developing world makes the oppressed believe that they are also capitalists.
In the present day male dominated world, successful women also adopt the male centric values of society and consider this to be the natural state of affairs. Most do not feel that they can or need to evolve a different set of values or different structures that would not exploit the weak. Powerful successful women like Indira Gandhi, Bandaranayke, Bhutto, Sheikh Hasina, Zia, in South Asia have made little impact on the position of women in society and continued or even furthered the oppressive systems in their countries. Ms. Thatcher made little difference in UK or little is expected from Ms. Merekel in present day Germany. Their model of politics is no different from that of the others and their agenda as oppressive as that of others. Sometimes it is even more oppressive as that of Ms. Thatcher or Ms. Indira Gandhi since they have to prove a point in a male dominated world. Successful women end up also exploiting the weak and other women. In Indian households, the mother-in-law has replicated the structure of oppression of women (the daughter-in-law) as much as the others have by being an active party to the system.
 Similarly, in the Indian caste ridden society, the oppressed, the Dalits have adopted upper caste values. While they were denied entry into temples, they instead of creating their own structures demanded entry to these very temples. The successful have also oppressed the others rather than evolving an alternative structure of power. Even though they have been oppressed by feudalism and capitalism they have when in positions of power hardly behaved differently.
Change comes through change in social consciousness and not just through the good intentions of the ruler. Those in power try to maintain their position and that implies maintaining a balance between the ruling forces. Thus, change has to come despite what those in power want. It requires the bulk of society to force the change on the rulers because they begin to believe in something different. This change in social thinking comes through movements and struggles that change the consciousness of society as a whole. Many an idea exist in society but do not get taken up till the time comes when they become acceptable because consciousness changes. Gandhi succeeded in the national movement leading to independence but not in getting rid of untouchability. The time for the former had come because the bourgeoisie put its weight behind the idea of independence but for the latter, society was not yet ready and is perhaps still not ready.
In Europe, feudal values and ways have given way to capitalist ones. Manual work is not considered to be degrading. Households clean their own houses and toilets. Most do their own basic plumbing and electrical work or even carpentry and painting of their house. In India that is still not so with the elite still shunning such manual work. This in spite of their considering the West as the symbol of success. They copy West’s consumerism but not its value system.
The failure of the Environmental movement over decades is because it has not yet succeeded in checking consumerism. In Europe, despite Green movements, consumption per head continues to grow leading to use of ever more resources and putting an ever growing load on Nature. Temporary scares over ozone hole are dealt with through technological fixes  without the realization that that only puts off the day of reckoning and possibly the tipping point will come sooner than later since new problems result from newer untested and untried technologies. Society does not have the time today to test the technology over a period of time to see what ill effects it may have. Too many changes taking place simultaneously create the confusion that what may appear to be acceptable in an isolated instance may not be so when coupled with others.
Perhaps a distinction needs to be made between struggles and movements. The former are more localized and the latter more generalized. The finer points of distinction may be understood through application of political and sociological theory? Pure economic theory (as it is referred to today) has little to say on this but political economy would also suggest that such a distinction in understanding needs to be maintained if we are to understand social processes. Unfortunately, in common parlance these distinctions are glossed over and the two terms are used interchangeably.
The process of social understanding is considerably hampered by the way knowledge is split up between disciplines. In Economics, students have little understanding of history or social processes. As Samuelson lamented in 1986, for students, economics begins in 1980 with game theory. For many, proving mathematical theorems is all that matters since social processes can be reduced to statistics or variables. That social processes are not deterministic and use of mathematics or techniques based on that have a limited role is not understood by many in the field of economics. Even in the natural sciences, it is an axiom that one studies the world as it exists and not a hypothetical one since then there would be an infinity of them and there would be no basis of discussion amongst the scientists. The social scientists have also to agree that they must study the world as it is and not a hypothetical one based on their assumptions which only enable them to use the statistical and mathematical tools. The limits of these techniques in understanding social processes are immaterial for a large number of economists of the present day. That their results are based on specific assumptions and do not have a universal validity is glossed over. Due to their distance from reality, they end up providing justification to the ruling elite for what it is wanting to do in its own interest.
The process of fragmentation of knowledge is aided by the methodological splitting up of the social sciences into different disciplines and sub-disciplines. Within Economics, the neo-classical school has little idea of the classical ideas or the political economy, etc. Professional training for management, engineering, etc., is devoid of wider social questioning because it is deliberately designed to leave little time for wider reflection. This process needs to be reversed through building a unity of knowledge and learning and introduction of inter-disciplinarity rather than multi-disciplinarity promoted in its name.
            The consequence of this splitting up of the social understanding is that non-solutions abound and a holistic vision of Society and Nature is hard to build. That is why while solving one problem, we end up creating many more and problems get compounded. Often mistakes are realized too late for them to be corrected so one ends up accepting them and only reducing their ill effect rather than eliminating the root cause of the problem.
The lack of a holistic vision results in the creation of non-solutions for the problems facing society. What is being done at one stage of development may be proposed as a solution for a society at a different stage of development. This is true of urbanization, mechanization and automation in production, etc. Thus, while trying to solve a problem several others arise and need further solutions, etc.
Education can play a large role in creating a wider understanding but today it is alienating for large sections of the population. It has largely become a source of replicating the system as it exists rather than posing a challenge to it to make society a better place. Most students are narrowly concerned with a career and the teachers think of their job as any other and show limited commitment. The space for what education should be has been ceded by the intellectuals to the businessmen, bureaucrats and politicians - those in power. This has led to its vitiation and the entry of political interests and those of big money to the detriment of the liberal education that people need to be become civilized and one that would challenge the existing orthodoxy for achieving social change. Because of its link with the power structures, it is also not interested in affording opportunities to many in our society who are the oppressed.
It is also important to point out that language has been used to obfuscate and confuse issues. For instance, in 1991, a right wing agenda in India was pushed through on the pretext of Reform and liberalization. When growth has been exclusive, the talk is of inclusive growth. The entire media, dominated by the corporate sector has been systematically used to spread the confusion and make out that things are better than they are and on the correct path. In this, forces from the Left and the Right are no exception. The movements and the public get confused by this and unable to be decisive.

II.2      Material Inequity in the world is both falling and rising.
While inequity has many dimensions, today when one talks of it one predominantly refers to the material one. That is measured in terms of per capita income or how much resources of society can one potentially command. After the Second World War, when the phase of decolonization ended, there were sharp differences between the advanced countries (largely the colonial powers) and the underdeveloped world (the former colonies). Such differences in per capita income have declined with many of the former under developed countries doing particularly well since the mid Seventies. One may mention China and the South East Asian Tigers as some of the examples. They have narrowed the gap with the advanced countries. India has also narrowed the gap since the early Eighties when its GDP growth rate went up to an average of 5.2%.
However, in most of these countries, the distribution has worsened with a small minority gaining rapidly and leaving the rest far behind. This is true in today’s two fastest growing and large economies, China and India. It is also true for the largest economy, the USA. Disparities are rising within each of the countries even if it is falling across countries. In fact, both in the USA and India disparities are greater today than say 60 years back. Thus, overall inequity is increasing even if in some parts it appears to be not the case.
This is due to the neo-liberal agenda being followed all over the world under the influence of the International Finance Capital which is imposing similar policies on all economies, big and small making them follow `growth at any cost’ with all costs falling on the poor. Today, Capital is on the ascendancy and labour (and Trade Unions) on the decline. The control of the financial structures by a few people in the world is a way of increasing their share of income and this results in marginalization of the marginal and increase in inequity. In India, today less than 0.1% of the population controlling big business is making more income (18% of GDP) than 53% of the population dependent on Agriculture makes (17% of GDP). More can be earned through speculation in real estate and the stock markets than through regular work. Simply moving capital around the world is enough. However, it is now clear that these trends were aggravating the risks of a growing financial bubble and now a collapse of the system as a whole and not just of the financial structures has set in (Kumar, 2008b). Even the largest and best informed structure, US Fed did not realize its seriousness and extent.

II.3      Inequality leads to more of it.
It needs to be understood that inequality becomes the cause of more of it unless society makes a conscious effort to reverse the trend and eliminate the causes of its existence and accentuation. This has been discussed in Kumar (2007). It is argued that the beneficiaries of this process believe that they are responsible for their own progress and the rest who are suffering in that situation because of their own actions and so they are themselves to blame. The successful ones demand more and more concessions and policies favouring themselves. This then perpetuates the divide and makes the chasm grow.
This is a natural consequence of the social belief that people are homo-economicus – rational profit maximizing individuals. In this view, progress is seen to depend on the actions of the elite – the business community and the professionals. The elite classes are pursuing this in a self-serving manner and pushing for their narrow self-interests irrespective of its impact on distribution. Capital is taking advantage of this philosophy. Its earlier belief in a welfare state has given way to this exclusivist and elitist model of development. This is aggravated by market fundamentalism of `dollar vote’ and the marginalization of the marginal by the market processes.

II.4      Markets, equality and changes in consciousness.
Here an important distinction needs to be made between `markets’ and `marketization of society’. The former is a purely mechanical device for the exchange of goods and services while the latter is the penetration of the market consciousness into all institutions of society – whether it is marriage or consumption. What was not commercialized, like, water, sea beaches, etc., have been commercialized and markets have been created in these areas/activities where no markets existed. The underlying idea is `efficiency’ based on the notion of Man as homo-economicus. It relies on the idea of the Economic Man to the exclusion of all else – social, political or cultural, etc. It suggests that economics determines all else in society. This has been internalized in society and has created the modern day hegemony with people increasingly accepting it and behaving accordingly. A consequence is that the deepest feelings Man had of emotions, sense of community and togetherness have been replaced by alienation and atomization and the individual reduced to being no more than a sophisticated machine (as suggested in the 28th Congress in Gandhigram).
The result is that anything is possible and Society has lost its innocence and the citizen has been hollowed out with lack of emotions – like a sophisticated machineTrust in society is a casualty. Family which was based on trust and emotional attachment is now a mere shadow of its former self. Atomized individuals can divorce at will. Adjustment to each other is difficult because all are profit maximizing. Feeling of guilt and self-doubt is a cost in a profit maximizing world which needs to be minimized so one is always in a mode of self-justification so that there is little scope of adjustment to the other. One’s own gratification is the most important. When `more is better’, then sacrifice is stupidity. But family, society, etc., are institutions that demand sacrifice to build them but this value has taken a severe beating and that is why these institutions are in a state of crisis even in the most advanced nations.
The use of sex and violence to sell products or to entertain people has reached new heights. It is targeted to exploit the baser instincts of people. It is used to titillate. Its psychological impact on people needs careful analysis. Amongst children, it shows up as confusion resulting in violent behaviour and psychological pathology. Large number of people are forced in the advanced countries to go for counseling or for psychiatric help. This trend is growing rapidly in the developing countries also like in India. In the name of maturity of people, the entertainment and advertising industries weaken people and arouse their baser instincts for achieving their narrow interests of selling more and profiting. Society has played a civilizing role and strengthened people but today the trend has reversed due to commercial interests. This has also weakened movements by creating diversions and individualizing the citizens and making collective action that much more difficult.
The growing black economy involves illegality (Kumar, 1999). Since society works according to rules/laws, the black economy is anti-social. It has been characterized as eating up the innards of society like termites, making it hollow. It is currently estimated to be around 50% of GDP so is both systematic and systemic. It is concentrated in the hands of 3% of Indians and results in huge inequity. It results in large amount of social waste and unproductive activities. It has led to growing criminalization and undermining of the work culture in society. It also results in the alienation of citizens and consequently makes social actions difficult. Thus, it aggravates the market based tendencies noted earlier. Unfortunately, it is one of the most neglected aspects of the Indian existence and is hardly studied or sought to be controlled.
One may ask, can material progress be the only yardstick of progress? Only in an atomized and alienated world where economic well-being is the end all. Clearly, under the circumstances, other aspects of society that take a beating lead to an impoverishment of people in those spheres. All the costs of treating development purely in economic terms are falling on the weak, the marginalized and the poor. While a wage maybe paid to a worker, if free goods of nature disappear, poverty becomes harsher as is the case with the landless in the rural areas or the slum dwellers in the urban areas (Kumar, 1997). Incomes have risen but so has poverty. Its nature has changed and it is incomparable with what it was in an earlier era.
Due to the short termism prevalent in society, environmental degradation has reached new heights. Due to the international division of labour, polluting industries are relocating in the developing world helping reduce pollution in the advanced countries. The impact of this on the poor in the less developed countries is that they work in polluted environments and suffer health damage so that increased incomes are mostly absorbed by the health related expenditures. One may recall Larry Summers’ argument that it is more efficient for people to die in the developing world (reported in the London Economist, February 8, 1992).
There are several kinds of confusion in the argument for material prosperity as the sole criterion for gauging progress of individuals and society. It does not necessarily promote feeling of satisfaction and contentedness amongst the individuals. In fact, in a capitalist society, it is the opposite since lack of satisfaction and contentedness is used to promote more consumption so as to make higher profits. Higher material consumption leads to environmental degradation and reduction in prosperity or welfare through greater disease. One may live longer but if it is as a vegetable, it is hardly progress.
            Finally, this economistic view of society results in short termism and lack of a long term view of Nature or Society. However, homo-sapiens have evolved over a billion years and since this Earth can survive for at least another 4 billion years one needs to keep the long term in view. However, the disjuncture between the long run of society and existence and the short termism of individual and society poses a grave danger to existence itself and that is the ultimate in the downside of the current so called `progress’.
Question of globalization as marketization needs to be understood. Its one-way characteristics need to be analysed for what it impact it has on people’s struggles. It also impacts the nature of alternatives that people conceptualize and the limitations it imposes on their imagination. In this context, the definitional issues are critical. They need to be sorted out, otherwise we talk at cross purposes.
II.5      Aspects of Science and Technology
Improvements in S & T are seen as essential to rising prosperity of Man. It is argued that as markets enlarge with rising consumption, they spur technological improvements. Thus a virtuous circle is propounded between prosperity and technology. However, S & T can potentially continue to advance independent of rising consumption – there is no essential relationship between them. Some of the greatest scientific advances took place during periods when consumerism was unknown and markets were entirely limited to the local. There have been periods in which a society has made rapid advances in S & T and the same society in different periods has lagged behind the rest. This is linked to the social structures and creativity of the population which is spurred in certain periods and suppressed in others.
Even if market size is important in some sense, it should not be confused with marketization and the accompanying consumerism. Cheapening of products due to technological advancement may increase affordability and consumption so that the market size appears to be linked to the technological development but the causation maybe opposite to the one suggested by the proponents of  markets. Some technologies show increasing returns to scale. This is a property of the technology and not of the size of the market. Finally it has little to do with marketization.
In India, the recent expansion of the use of cell phones or of air services and the earlier expansion of colour TV has to do with the economies of scale and not the nature of the economic system or the dependence on the market philosophy.
Nano-technology and bio-technology are amongst the most rapidly evolving technologies. Undoubtedly, they have a vast potential but both have come with their own sets of problems for society. Specially, the latter has associated with it the issue of bio ethics. Meaning of life and nature of future men are linked to it. Use of stem cells, cloning, bio engineered foods, etc., are raising issues that we are not able to cope with because we do not have the full understanding of the likely consequences.  We may create new forms of life that may pose a danger to life as it exists and, including to humankind. Potentially this could create a further divide between the haves and the have nots because the new technologies are likely to be quite expensive. The use of the genetic information to type caste people may result in classifications that will have consequence for our view of equity and equality. Possibility of creating unequal people has opened up and this is a deeply disturbing trend (possibilities of Animal Farm kind of divisions are opening up).
Information technology has already demonstrated the pitfalls associated with rapid changes in technology. A deep divide between the haves and the have-nots has opened up and there is talk of the growing digital divide. While many structures of social functioning like banks, insurance, stock markets, are deeply dependent on the use of information technology and computerization, many do not even have access to electricity or to stable supply of electricity. This increases the marginalization of the marginalized. The digital divide as it is referred to is leading to growing disparity in access to knowledge and to the creation of a new form of unskilled labour which is almost non employable. Thus inequity and inequality are getting aggravated and becoming acceptable in society.
The world has witnessed in the last century a rapid technological change the like of which has never been witnessed before. Internet and automation of the kind that exists today was not conceivable even twenty years back. Thus, society is living in a mist where the future is unclear and uncertainty has increased many fold and this is shaping social attitudes. Short termism and narrowing of horizons (both in space and time) follows which makes the emergence of movements difficult if not impossible. People become more atomized.
A bigger question is whether S&T has changed social consciousness in a basic way? Some of the best scientists and technologists have been most right wing and individualistic. Superiority of the white race for genetic reasons, etc., is being propagated by some of the best scientists. Attitudes of scientists are shaped largely by their social milieu rather than the other way round. The narrow specializations inherent in today’s S & T is isolating the scientists and technologists from the social and cultural milieu of society and therefore they have a sanitized view of social processes. Consequently, they have little understanding of issues of equity and equality.  They are affecting society in untold ways but without an understanding of what they are doing. This is a potentially dangerous situation. This is not to argue that the social scientists or those in fine arts have a good appreciation of the Sciences and that too is dangerous.
Presently, technology dominates over Man like never before and in a wide variety of ways is resulting in their atomization. For instance, the way communication technology has progressed, people rather than meeting each other prefer to use its impersonalized forms. Maintaining contact with a large number of people is like not having any depth with anyone. There is little time left for deeper interactions or for reflection. There is overload of information but that does not get transformed to wisdom.
Today, the impact of modern physics and bio-sciences on society is profound. Not only our understanding of life is altering in a fundamental way but of our very existence. We are confronted by the idea that the nature of space-time and existence may impose on us severe limitations in understanding our Universe or Multiverse. We are restricted to four dimensions whereas some argue that there may be many more. Can we ever know the truth?
The social implications of this are deep and may affect religion in a deep way. The problem with religion is its link with power and its consequent deviation from its original conception. It has behaved like other institutions of society and has often been an instrument of furthering inequality and inequity. It has served to perpetuate the rule of those in power and keep the people from revolting. It has created another layer of obfuscation amongst people which is hard to overcome due to the personal faith involved. Hence while at the individual plane it may remain relevant, at the social plane it has often played a negative role. Modern Physics while expanding our horizons about existence is also going to philosophically change our attitudes to life.

II.6      Growing gap in culture. Today, culture has become mass culture. That would have been alright but it is guided by a few very large firms that are in turn guided by commercial interests. This is overwhelming local cultures and they are finding it hard to survive in the competitive climate. Local theatre, music groups, etc., are floundering in the face of advances by the film world and entertainment by TV. The print media is also suffering as a result of the penetration of media into homes and the conversion of large number of people into couch potatoes. There is a tendency for the homogenization of culture and entertainment in apparently diverse fields.
Today, the European film world is a pale shadow of what it was till the Eighties. British, Swedish, French, Italian and Polish film industry has been marginalized by Hollywood and its all pervasive influence. It even dominates the thriving Bollywood which is in any case under the grip of western influences. Use of European locales and marginalization of Indian themes and of the concerns of the marginal sections is very visible. Themes are related to the NRIs and the well-off sections. Dreams are being sold so that the common man has an escape from the drudgery of the day to day life. Of course, there are exceptions (like, Bill Gates or Infosys people) but that is what they are.
What would sell is decided by the interests of the large firms operating in the entertainment industry and they leave little scope for the off-beat and others. Budgets are huge since the technology involved is sophisticated and expensive. To recover the high costs, large markets are needed which are created through high pressured advertising.
The film industry and mass entertainment are linked with creating false dreams and selling them, keeping people from facing reality and reflecting on it. They promote consumerism and at times suggest that cleverness means fooling others – depicting extreme alienation. This is in line with selling what can be sold by whatever means. The industry is also promoting cult of violence in politics and life or justifying and humanizing the mafia (Sarkar, Munna Bhai, Godfather and Don).
Today, it has become acceptable to sell one’s name for a price. Whatever can be commoditized should be and no negative value is seen to be attached to it because the biggest value is money. In contrast, this was alien to the earlier ethos. Certain things were sacrosanct; the things most prized by self and one’s name and fame were certainly in that category. The contrast between Don Bradman’s behaviour and that of Sachin Tendulkar is stark. They are comparable in terms of their achievements in cricket and in terms of their talent but Bradman never used his name to sell anything or run commercial enterprises. Times have changed.
Even what is holy or sacred is not so any more. Like, the Ganga or Godavari being polluted. Everything can be commercially exploited. Thus, there are no fixed points for people to follow. One violation of the earlier code of keeping things private and non-commercialized is followed by the next - nothing is sacrosanct.
The world of business sees an opportunity for itself and propagates more of violation of the current laws. Initiative is associated with creatively bending rules. No remorse or guilt need be associated with one’s actions in earning money. A Bacchan or a Hema Malini or an Aishwariya or a Khan selling things they would not want their children and grand children to consume is acceptable. Social conscience is to be minimized for maximizing one’s gains. What happens to others or to society as a result of one’s actions is immaterial. Money matters and not what social impact it produces.

III.       NATURE OF MOVEMENTS AND STRUGGLES
III.1     Movements and spontaneity.
Do movements occur spontaneously and when and how do they come up? Is there a design behind them or are they created by people? What is the nature of movements? To understand these issues, there is a need for political and historical study.
Clearly, there is no automatic tendency for movements to take place in society. Otherwise change would have been quick and social progress would have been rapid. There is no painless way through which changes comes about. Movements are the result of human and social interventions and perhaps emerge when society faces crisis (see next section) or is in the process of rapid change so that the accepted assumptions get challenged. The role of a strong leader is at times postulated as a pre-requisite to the movements. The process is iterative with change leading to movements which leads to further change.
Movements lead to change in social consciousness and result in basic changes including in its structures and institutions. For instance, the movements for women’s rights has made gender equality acceptable and produced changes in the structure of the family and the nature of work. Civil rights movements have led to basic changes in legislation and the way justice is administered. Anti apartheid movements have changed perceptions about the status of the groups considered racially inferior and anti caste and anti untouchability movements have led to changes in our perception about our position in society and about the work we do.
However, today, in India, there is political competition to capture the space generated by the movements. Political parties tend to coopt the movements for their own narrow ends. Unfortunately, this camouflages the real issues. Mere formalism takes hold and action is slow so that people tend to become cynical and the movement weakens.

III.2     Crisis in society and movements. Their inter-linkage.
It is often argued that crisis in society calls for change to overcome the crisis. This change is what inter links the crisis to the movements. However, no uni-linearity can be postulated. Movements may or may not be successful in leading to the desired change.  History is replete with examples of failures and set backs. Without direction, they may result only in growing cynicism and increase in the crisis in the lives of the people
For instance, today, there is widespread crisis in the lives of the ordinary people due to the civilizational crisis facing society, yet, movements are limited and are having a marginal impact on society. As already discussed, the environmental movement or the women’s movement have had limited success while the crisis in society is deepening. Perhaps this is because the vision encompassing each of the movements is limited and not based on a holistic vision. These movements need to fight together rather than singly to produce the required larger vision. Often, movements are not for basic changes but fight for incremental change with limited gains. This does not result in change in social consciousness at the fundamental level.
For this reason, perhaps there is need to distinguish between a movement and agitation/struggle which fights for limited gains. For instance, communist movement had a integrated vision of society which was radically different from what exists. One cannot talk of agricultural or women’s movement in the same vein. These are best referred to as struggles. In other words, there is a possible hierarchy in movements that we need to analytically recognize.
Practically, in the last century, we have witnessed struggles for women’s rights, for democracy, for ecology, for civil rights, against caste inequality and movements for national freedom, for establishing socialism and communism. There have been religious movements and emergence of fundamentalism.

III.3     Lessons of recent Indian struggles and movements:
Nandigram, SEZs and movements against displacement, like, in Narmada basin point to the many ongoing struggles. Maoist are active in large swaths of the nation. These are fuelled by basic injustice and a lack of responsiveness of the system – of the political process and the failures of the judicial system and its recent turn towards a more right wing framework. Any number of judgments reflect this swing.
There is hope from struggles of the dalits and women. They are leading to a rise in consciousness amongst the marginalized sections of our population. However, often this effect is being undermined by the growing corruption and the decline of the democratic institutions. Parties leading the dalits lack a long term agenda and have not been able to give a social lead. They do not propagate a framework for all oppressed and the leadership has lent itself to easy cooption by the current ruling interests of capitalism. The Bhopal declaration on the Dalit Agenda was only to further the capitalist framework amongst the Dalits and not to promote equity amongst them or in the wider society.
The dalits can legitimately ask, why should they be the vanguard of struggle for equity and not take advantage of what they can get from the system as it is. They suggest that the others, their oppressors, should also feel the pain of marginalization since they have suffered that for long. Hence they feel that the marginalization of the Indian upper caste ruling elite in the world is desirable. They also feel that if the international forces can be used to weaken the local interests that have oppressed them, there is nothing wrong with that. It is a bit like under the British rule when the dalit leaders wanted a separate voice because they felt the upper castes would not give them equality. This was seen as divisive and perhaps that is how the British used it. The vocal dalits perhaps do not recognize that collectively they would be the worst sufferers from such exploitation even if some of them gain. This is the lesson of the British rule in India. As the social conditions deteriorated, the dalits suffered the most. The backward castes also suffered more than the upper castes did.
The dalits have not provided the leadership on the issue of education by asking for compulsory education for all children and for a common school system giving excellent education or for 10% of GDP to be spent on education which is the only solution for a vast majority of the poor, dalits, backward classes and women. They dominate the Parliament and the legislatures but their own consciousness is that of the upper caste legislators. Without good basic education how can their community rise as a whole (Kumar, 2006)?

III.4     Nature of the political process/parties in the Democratic World.
In democracies the will of the people is supposed to be supreme and the political system is supposed to facilitate it. However, the political parties, the instrumentality of the democratic political process, the world over have come to be closely associated with vested interest. In the USA, there are well defined lobbies that are operative in Washington and determine the nature of legislation. For instance, they moved the financial system towards deregulation which has now resulted in the worldwide crisis (Kumar, 2008b).
This has also increasingly been the case in independent India. Role of big money and black money has grown in politics and made the politicians dependent on them and hence willing to do the bidding of the vested interests (Kumar, 1999). One is witness to buying of tickets in parties and seats in upper houses. Genuine representative leaders are few and far in between. They live a life of luxury rather than life of sacrifice as after independence. Today, many of them systematically thwart democracy rather than promoting it.
In India, the vote percentage has remained stagnant or even declined drastically in some states. If rigging and other malpractices are netted out, the vote percentage would be even less. Undoubtedly, people vote and have become more conscious of their power but who do they vote for in the present circumstances. This is aggravated by the decline of the institutions of democracy – legislatures, judiciary, etc.
Consequently, democracy has become formalistic. Parliamentary democracy does not offer a genuine choice to the people. Two party system in the US or UK or the multi-party system in India is not giving people real choices; the choice is between Tweedledee and Tweedledum. Parties are like vote getting machines in India and abroad. Mostly they are not based on ideologies and ideological differences but are variations on a given ruling ideology. No wonder, RSS has said in the Indian context that Congress (I) and the BJP can combine for the sake of national interest. Almost any party or individual can combine with any other to get to power and all in the name of public interest and stability. No wonder, politicians have rapidly lost credibility with the public which has increasingly become apolitical. `Good’ candidates are not available to fight elections because it is seen as a game of power, money and criminals.
In India, all this is illustrated by how the Congress emerged during the national movement and has been shedding different splinters after independence and in an accelerating trend since the Sixties. The Socialists and the Communists have followed a similar pattern of splits. When one finds an SP claiming to be a socialist party and packing its development body with industrialists of all hues or a CPI (M) going against the people of Nandigram in a brutal fashion, one has to ask `What is left of the Left in the formal Left?’
The trade union movement has fractured beyond repair and weakened. Its growth is linked to the association with the ruling parties so they follow a path of economism by delivering on some promises. Each political party sets it up as a front for maintaining a vote bank. When some TU group opposes the policies of the ruling party even that is often linked to the interest of the opposition and not of the workers. Hence the same group may have a different behaviour in different states.
JP movement raised hopes for democratization of the body politic but the Janata experience shattered that hope. In the late Eighties, the emergence of the National Front again gave hope for change but that also came to naught. The creation of coalitions under United Front, NDA and the UPA did not even arouse much hope because people have become cynical. Parties lack accountability to the people since they are seen to be non-responsive to the public. Their manifestos are seen to be meaningless. Prime Minister Morarji is reported to have said that the manifesto is drafted by the party and the government is not bound by it. Nothing could be more damaging to public accountability of the democratic political processes. This is a recipe for domination by the vested interests in the political process and a decline towards anarchy.
The anti-corruption movements initiated by JP in Bihar, the emergence of the Nav Nirman movement in Gujarat or the VP Singh initiated movement in the late Eighties have all been wasted and corruption has only grown. Movements were discredited and cynicism has increased. Corruption has become a discredited issue because the party that comes to power is found by the public to be more corrupt than the party they replace.  
Today there are many small and local struggles but none that command a national following, so that they have not transcended to being movements that can bring about social change. There are many difficulties in this and these need to be understood.

III.5     Difficulty of organizing movements and collective actions.
Society and its institutions are characterized by a narrowing of horizons both in space and time so that holistic perspectives are difficult to build. Individuals have become atomized and social relations have been marketized. Consequently, the social aspects of the individual’s existence have retreated. It is said that the market is `objective’ while the social aspects are `subjective’ hence less important.
This has resulted in the absence of a social understanding based on a holistic vision. The sub division of problems and looking at them market by market adds to this narrowness of the vision. In such a milieu, social groups find it difficult to devise an alternative to the existing which can only be at the grand level. For instance, the farmers or the workers are not able to propose a holistic alternative to what exists and oppresses them.
Struggles do not mature into movements and are unable to gain momentum which is the only source of change of social consciousness. The vested interests are able to claim that `there is no alternative’ (TINA) and claim legitimacy for themselves. This only aggravates the social crisis.
The ruling classes claim that there is no crisis and local problems and deal with them in that fashion. However, crisis manifests itself in the long run and not immediately so one could argue that not recognizing the crisis is not the same as its non-existence; it cannot be wished away. The rulers themselves have been facing growing difficulties at various levels and have not had a peaceful existence, a sign of problems/crisis.
The lack of a global society has also created difficulties in the path of evolving alternatives. Since capital is global there is need for global movements to confront it and its consequences. However, capital has also thwarted the emergence of global movements for obvious reasons. Labour has been kept divided and labour aristocracy has helped in this process. Similarly, on issues like opposition to the Dunkel Draft or on environmental degradation the developing countries have not been able to take a united stand in favour of the marginalized. However, it was perhaps too naïve to expect this to happen given that the rulers in the developing countries are themselves allied to the local elites and do not necessarily represent the interest of their people.
NGOs in various parts of the world have also often served the interest of the vested interests and of the advanced nations. The source of funding is often the big foreign NGOs, industry, governments and so on. Each one of them pushes their own agenda through their funding. This is not to argue that there are no genuine NGOs but to suggest that often they are under suspicion and a part of the growing public cynicism. Finally, they give relief to local populations they work with but do not necessarily politicize them to fight for their rights.
The difficulties arise because capital is far more homogeneous than labour and it is able to define its interests more clearly than the workers. Mobility of capital has added to its clout and the weakening of labour the world over. Capital is able to make various nation states and the states within the nation to fight amongst themselves and thereby extracts concessions. Anyway the rulers belong to the same class or are coopted into it.

IV.       CONCLUSION
The paper argues that societies as they are constituted have moved away from notions of equity and equality. The underlying cause is economic and this is reinforced by various other aspects of social existence – political, cultural, environmental, etc.. It is suggested in this paper that inequity leads to more of it in the present capitalist system and the crisis faced by society in the recent past is linked to it (Kumar, 2008a). The most immediate crisis in the financial sectors and the wider economy is a consequence of this trend (Kumar, 2008b).
Penetration of the economic aspects into all forms of social existence and viewing every aspect of existence in economic terms has created severe problems. Both for society and for creating movements to counter these tendencies. The idea of man as Homo-economicus needs to be challenged. The present crisis of society is linked to this idea which is a narrow one visible in say S&T or culture. Change becomes difficult because it is inter locked into so many aspects of social existence. Any solution to the present problems of society have to be based on a holistic perspective and a long term vision.
People are born with the same social potentiality but it is the societal processes that create differentiation. Society has a civilizing aspect and even if there are natural differences, society can overcome them because of the potentiality of social thought and social organization. Civilized societies protect their weak since they realize the potential of each citizen. Altruism is inherent to people but has got suppressed due to the atomization of the individual and the promotion of the race for personal achievement through competition and unmitigated greed. Today, the best of the youth is being robbed of its formative years and a wider socialization due to the race for material well-being at an early age. Its idealism and energy is being turned into cynicism.
Today, society has lost its innocence and the individuals the emotional depth they had. Anything that the market wishes for is acceptable and technology has become the hand maiden for rising exploitation and achievement of greater material well-being. The economic structures of society that proclaim that the citizen is strong and must be given individual freedom for their own needs undermine the strength of the individual and weaken them through consumerism and advertising.
Alternatives need to be formulated based on society’s own vision of its people. Movements are needed for this so that the social vision and the philosophy changes to non-exploitative forms so that a more humane society emerges. However, the very forces that create the problems in the first place also undermine the struggles and their trajectory to become movements. They also undermine the democratic political processes which could have been the sources of social change.
Only a self-confident global society would be able to overcome its differentiation and move to granting equality to all even if there are natural differences between one and the other.


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