Aspects of India's Economy Nos. 44-46

India’s Runaway ‘Growth’: Distortion, Disarticulation, and Exclusion
IV. (3) Private Corporate Sector-Led Growth and Exclusion

Till the 1990s public sector expenditure gave some stimulus to demand for the production of large industry. The private corporate sector also soaked up cheap finance from State agencies, and enjoyed partial protection from imports of finished goods. Despite this comfortable environment, the underlying paucity of domestic demand – reflecting the condition of the vast majority of people – restricted the rate of industrial growth in India. And the nature of demand (i.e., for what types of products) skewed the pattern of growth, away from items of mass consumption such as cheap textiles, and toward elite consumption. This skewed, import-dependent pattern of production restricted employment creation by industry; and the sluggish growth of industrial employment in turn restricted the market for mass consumption goods.

Thus when spells of rapid growth occurred, they were distorted and self-limiting. The high industrial growth rates of the 1980s were unleashed by the relaxation of controls on industry, imports, and external borrowing. Given the Indian elite’s insatiable desire for foreign goods, and the propensity of Indian big business to operate as merchants rather than as industrialists, this relaxation was accompanied by a surge of foreign collaborations; this resulted in large imports and large trade deficits; this was in turn funded by foreign debt (not coincidentally, international banks in this period were hunting for borrowers). This culminated in the debt crisis of 1990-91. The further liberalisation post-1991 unleashed another bout of growth in the mid-1990s oriented toward elite demand; this petered out by the late 1990s, and was followed by another bout of stagnation.

It is yet to be seen how long the present bout of growth can be sustained. The proponents of the current policies argue that it is broad-based compared to earlier such bouts, that Government finances are in better shape, and that long-term trends in the international economy (in particular the growth of outsourcing) imply that growth of services exports will continue indefinitely. Let us assume there is some merit in these arguments. Regardless of whether or not growth continues, however, the pattern of industrial development taking place has some striking features which we need to note. These features help us understand whether, either now or in the future, the present trends will translate into the betterment of the people of India.

In fact the pattern of corporate sector growth, whether in industry or services, not only fails to pull up the rest of the economy; the present pattern of growth is based on exclusion, the fencing-off of the ‘growth’ sectors from the rest of the economy.

Explosive credit growth – turning from production to upper-class consumption
Encouraged by Government policy, and fed by massive foreign capital inflows, bank credit grew 227 per cent between 2001-02 and 2006-07, nearly three times as fast as GDP at current prices. This explosion has played a key role in the current expansion; and nowhere is the dualism of the economy more striking.

The ‘liberalisation’ of banking marked a major shift of finance from productive sectors to consumption. The RBI Annual Report 2006-07 notes that “the share of personal loans [i.e., loans for housing, education, automobiles, consumer durables, credit card expenditures, etc] in total bank credit extended by scheduled commercial banks increased from 6.4 per cent at end-March 1990 to 23.3 per cent at end-March 2006, driven by housing as well as non-housing loans. While the share of housing credit in overall credit rose from 2.4 per cent to 12.0 per cent, that of non-housing retail credit rose from 4.0 per cent to 11.3 per cent.”

By contrast, over the same period, the share of agriculture in bank credit fell from 15.9 per cent to 11.4 per cent, and that of small scale industry plummeted from 11.5 per cent to 6.5 per cent. The sectors employing the vast majority of the workforce in production now received less bank credit than the well-heeled received for consumption.¹

Booming credit-fuelled consumption triggers industrial boom
The really explosive growth in bank credit to housing and the real estate sector has taken place in the last five years. Outstanding bank credit to housing rose from Rs 894.49 billion at end-March 2004 to Rs 2.25 trillion at end-March 2007. The real estate boom has in turn spurred a boom in other sectors such as cement, steel, tiles, glass, various types of fittings (electrical, plumbing, furnishing), elevators, and consumer durables such as fans, air conditioners, and kitchen ranges. Average and peak capacity in the cement industry rose from 79 and 92 per cent in 2001-02 to 94 and 108 per cent in 2006-07, a historic high.²

Automobile manufacture (or assembly) has emerged in a few years as what the Economic Survey 2006-07 describes as “one of the key segments of the economy” (emphasis added). The production of passenger cars (including multi-utility vehicles) has grown from 0.67 million in 2001-02 to 1.5 million in 2006-07, and two-wheelers from 4.3 million to 8.2 million. Outstanding credit for the purchase of cars and two-wheelers has risen from Rs 460.2 billion in 2002-03 to Rs 1.09 trillion in 2006-07; 89 per cent of the new cars sold in 2006-07 were bought with credit, with loans covering 79 per cent of the value of the purchase.³

As industries catering to credit-fueled demand began using more of their capacity, they began to place orders for plant and equipment; thus the growth rate of capital goods production rose from -3.4 in 2001-02 to 18.2 per cent in 2006-07.

The linkage between consumer credit and the economic boom has been confirmed by the recent slowdown in industrial growth. In an attempt to control inflation, the RBI increased interest rates in six steps during 2006-07, and, with a lag, the automobile, real estate and consumer durables sectors all slowed down, bringing down overall industrial growth. Automobile sales growth halved in the first ten months of 2007-08 over the corresponding period of the previous year.⁴ Consumer durables production growth fell from 11.2 per cent in April-December 2006 to -1.3 per cent in April-December 2007. Cement growth slowed from 10.3 per cent to 7.2 per cent, and finished steel from 11.4 per cent to 5.6 per cent over the same period, signalling a slowdown in the construction sector. Thus overall manufacturing growth slowed significantly from 12.2 per cent to 9.6 per cent.⁵

The linkage between foreign capital inflows, consumer credit to the middle and upper classes, and an industrial boom catering to that narrow market is significant. It brings out how the spectacular growth of the economy is on a narrow and unstable foundation.

Strengthening the walls between different credit markets
There has never been a unified credit market in India: credit from banks and even cooperative societies was available only to limited sectors of the economy. Despite bank nationalisation and the considerable geographical and sectoral spread of formal banking since the 1970s, most of agriculture (and the rural areas in general), small-scale/household industry, and even the urban poor continued to rely for their production needs on the informal sector (moneylenders, traders, chit funds, and the like), the size of which has been grossly underestimated in official surveys. And for consumption loans, of course, the poor had to turn to moneylenders.

The banking system has operated as a channel for the outflow of such meagre savings as accumulate in the rural areas. The ratio of credit disbursed by banks to deposits received (the C/D ratio) fell sharply in the rural areas between 1991 and 2004, and rose sharply in the metropolitan areas. (The C/D ratio also fell or stayed the same for relatively backward regions – the northeastern, eastern and central regions, while it has improved for the western region.) So great has been the urban credit explosion that within a few years the banks have found the urban sector ‘saturated’, and have been resorting to ‘sub-prime’ lending (ensuring repayment through thuggery).

As striking as the exclusion of peasant agriculture from formal credit has been the exclusion of small scale industry, a major employer. Its share of bank credit has fallen to 6.5 per cent – less than half the level of 1972, which was before the setting of targets for priority sector lending. According to one columnist, “So underserved is this segment, and so acute is its hunger for credit, that at least one finance company is able to charge annual interest rates of 20 per cent or more while restricting the loan amount to a third of the value of the collateral.” When loans extend to only a third of the value of the small collateral, one can imagine the restriction on growth of assets of this sector¹¹ Micro-enterprises account for 99 per cent of small scale industries and the overwhelming bulk of employment in the sector, but, as revealed by a recent report of the National Commission for Enterprises in the Unorganised Sector (NCEUS), they are completely shut out of bank credit.According to Rakesh Mohan, deputy governor of the RBI, banks’ cost of lendable funds in 2005 was 7.5-8.5 per cent, but “The interest rates vary from 3-4 per cent on the lower side to 24-25 per cent on the higher side.”¹² Who was getting funds at below cost? RBI governor Y.V. Reddy stated bluntly that banks were underpricing the risk of loans to large borrowers and overcharging small businessmen and farmers.¹³Little has changed since then: Almost 79 per cent of the lending by scheduled commercial banks was at below the benchmark prime lending rate (BPLR) at end-March 2007.¹⁴ An official committee remarks that “small and micro enterprises get credit above Rs 2 lakh [Rs 200,000] at a rate 2 per cent higher than the PLR. In addition, there are several service charges, which further escalate the cost of credit. The result is that large enterprises receive credit at almost half the rate levied for the unorganised and small enterprises...”, i.e., 6 to 7 per cent as compared to 13 to 16 per cent.¹⁵ In effect, the capital-starved sectors of the economy have been subsidising the sectors gorged with capital.¹⁶

The deposits and outstanding credit of scheduled commercial banks (SCBs) by region and state also reveal extreme regional inequality, as can be seen in Table 1. The C/D ratios are abysmally low for the northeastern, central and eastern regions, which account for half the country’s population. Maharashtra and Tamil Nadu, on the other hand, have C/D ratios of over 100 per cent. However, even this does not bring out the extent of inequality; as the deposits are also higher in the better-off states, their share of total credit is even greater.¹⁷ Thus credit/person in the northeastern, central and eastern regions is between one-fourth and one-third of the all-India average; whereas in the western region it is more than two and a half times the all-India average. One should also remember that even within the western region it is only pockets that are flooded with credit: for example, in Maharashtra virtually all bank credit is concentrated in Mumbai-Thane and Pune.

While the regional chauvinist leader Raj Thackeray has whipped up riots in Maharashtra demanding that migrants from U.P. and Bihar leave the state, he has not raised any objection to capital from U.P. and Bihar migrating to Maharashtra. The difference between bank deposits and bank credit in U.P. is over Rs 900 billion, and in Bihar is almost Rs 320 billion; whereas in Maharashtra, as we noted, credit is higher than deposits. The migrants from U.P. and Bihar are merely following the capital that has flowed out of their states; were there sufficient investment in their own states, they would surely stay there.

Thus the banking system is working to reproduce and strengthen all the dualities we named earlier – between agriculture and non-agriculture, rural and urban areas, backward and relatively developed regions, small and large industry, dominant and oppressed castes, etc.

The ‘New Economy’
The information technology (IT) and information-technology enabled services (ITES) sectors have been at the forefront of growth in the last decade. One of India’s principal advantages in this field is a colonial legacy: the dominance of English in secondary and higher education, as well as in various important aspects of society and the economy. The educational system that once produced clerks for the Raj now excels in producing a cheap skilled labour force for multinational corporations. Of course, this means that the historical disparities in Indian society get reinforced by the success of these industries: one survey-based study finds that “one of the reasons for the IT industry’s success is that it has been able to tap the existing cultural capital of the urban middle classes (which consist primarily of high and middle castes) – including their educational attainments, knowledge of English, and some degree of westernised social orientation and habits. The IT workforce is drawn mainly from this section of society, and by providing new and lucrative employment opportunities it is in turn contributing to the reproduction and consolidation of middle class/upper caste domination.¹⁸ Another study calculates that “somewhere between 4-7 per cent of all Indians have the kinds of educated parents that characterise successful new entrants to the software industry”.¹⁹

By 2006-07 the IT/ITES sector (including engineering services and R & D and software products) accounted for 4.3 per cent of GDP, of which four-fifths was from exports. Yet it accounted for about 0.3 per cent of the country’s employment. Some reports project employment in this sector to double by 2010; in that case it will account for something like 0.7 per cent of total employment at that point. Whereas it will account for more than 6.5 per cent of the country’s GDP in 2010: In other words the IT/ITES share in GDP will be nine times its share in the workforce – an enclave within the Indian economy.

While IT/ITES employees save a much larger share of their incomes than ordinary workers, their expenditures are nevertheless sizeable and generate some further employment. But their spending patterns are very different from those of ordinary workers, who spend their wages on items such as foodgrains, textiles, footwear, and cheap industrial goods. By contrast, the growth of IT/ITES incomes will continue to boost demand for urban housing, automobiles, organised retail, hotels, air travel, mobile telephony, entertainment, foreign holidays, credit cards, banking services, insurance, and share market-related firms. All this elite expenditure will no doubt result in some indirect job creation in various activities such as domestic help, security, construction of residential accommodation/commercial space/roads, organised retail, hotels, transport, financial services, and so on; and spending by these sectors in turn will generate some further jobs. Nevertheless, in comparison with the same rupee expenditure on a wage good such as textiles which has extensive backward linkages, a large proportion of elite expenditure leaks abroad, and at any rate the additional domestic employment generated is very low. This helps explain why genuine employment growth has been so slow despite high GDP growth.

The operations of the firms themselves have strong external linkages, but weak linkages with the domestic economy: they purchase few inputs or capital goods from the domestic economy, and three-fourths of their output is exported. Their most important expenditure in the domestic market is on real estate. The effects of this can be seen in the extraordinary real estate boom. While this has boosted demand for steel, cement, and construction, most of all it has unleashed huge speculation in real estate. Hitherto little-known real estate sharks have become among the richest tycoons in the country: of the 54 Indian dollar billionaires listed in 2007 by the U.S. magazine Forbes, 7 are real estate developers, and one – Kushal Pal Singh, unknown a decade ago – is the fourth richest. More importantly, huge foreign funds have flowed to the real estate sector, directly and indirectly. Much of the real estate owned by these tycoons – and indeed directly by IT firms as well – has been acquired at relatively low prices from peasants in the vicinity of major cities.

This is not to suggest that the growth of exchange between the Indian economy and the world economy as such generates dependence and disarticulation (rupturing of organic linkages) in the former; its effect depends on the character of relations within the Indian economy. We have seen in the earlier chapter how the Indian ruling classes have developed historically through a process of disarticulation of the domestic economy, parasitic drain from the productive sectors, and dependence on imperialism. The mercantile activities of big business (in the real estate and financial sectors, marketing of imported goods, and export of cheap labour services) continue to occupy a prominent place in their overall operations, often predominating over their industrial activities. Parasitic classes continue to rule agriculture. Within this framework the growth of exchange with the world economy exacerbates all these regressive features.

Enclave development as official policy: the SEZs
An even more striking manifestation of enclave development is the Special Economic Zones. This is enclave development as official policy. The process of enclave development is not accidental; it is the inevitable consequence of an attempt to generate rapid growth on the base of a narrow market. The rulers’ argument is as follows: India cannot grow fast without foreign investment; foreign investment will not come to India as long as it lacks ‘world-class’ infrastructure; it is impossible to provide such infrastructure throughout the country in the near future; hence private capital should be invited to develop such infrastructure first in pockets of the country, insulated from the conditions around; as reward for this, both developers of SEZs and the units operating in them should obtain generous tax concessions.

Given that SEZs are to be insulated from the conditions of India, infrastructural investment for their needs will have little or no benefit for the rest of the economy. H.W. Singer’s remarks of six decades ago still hold true: “the productive facilities for export from underdeveloped countries, which were so largely a result of foreign investment, never became a part of the internal economic structure of those underdeveloped countries themselves, except in the purely geographical and physical sense.”²⁵

The profits of SEZ developers will be particularly attractive since the zones include elite real estate development such as hotels, malls, entertainment, and the like (the present rules stipulate a minimum of 25 per cent of the SEZ area be used for industrial processing, leaving the bulk of the area for real estate development). The most important inducement to invest is that both industrial investors and real estate developers will be given massive tax breaks – in the apt language of an earlier draft of the Act, the SEZs will be considered “foreign territory” for tax purposes. The finance ministry estimates that, for a total investment of Rs 3.6 trillion in the SEZs, the loss in taxes to the exchequer will be Rs 1.74 trillion. A large share of the SEZs are to be of the IT industry (indeed, two-thirds of the SEZs notified so far), which has already been growing rapidly without SEZs: it is obvious that these IT SEZs will not attract investment beyond what was coming anyway, but will merely divert investment to a tax-holiday area. The reason is simply that tax concessions for existing IT firms are due to expire in 2009; by this shift they will extend another 10 years. (The present minister of state for commerce has candidly termed this a “bypass surgery” for the relevant provisions of the Income Tax Act.²⁶) While this diversion is more blatant in the case of the IT SEZs, it is likely to be true of most SEZ investment.

To the extent SEZ investment is merely diverted from other areas, it cannot create net employment; and given that in many cases fertile agricultural lands are being acquired for the purpose, the net employment generated would be negative. The government is putting out contradictory and dubious estimates of the employment that would be generated. The RBI Annual Report 2005-06 says that eventually 0.5 million jobs would be generated with an investment of Rs 2 million per job; the Economic Survey 2006-07 says that by December 2009 0.89 million jobs would be created at Rs 660,000 investment per job (and if all 237 SEZs become operational 4 million jobs would be created at Rs 750,000 investment per job).

Given that fixed investment per employee in the organised manufacturing sector (which encompasses all manufacturing firms with 10 or more workers using power, and hence includes firms with very low capital-intensity) was Rs 600,000 in 2003-04, these claims of employment creation in SEZs appear extremely far-fetched. The entire surge in corporate sector investment over the past decade failed to create any jobs, since it was so capital-intensive. The proposal by the Salim Group of Indonesia for an SEZ in West Bengal (including a technology park, a knowledge park, a hotel complex, a health park and a golf course) claimed that 30,000 jobs would be created with an investment of Rs 440 billion, or nearly Rs 15 million investment per job. As we saw above, two-thirds of the SEZs are IT SEZs, which would have a pattern of investment similar to the Salim Group proposal. The Posco SEZ in Orissa is projected to create 13,000 jobs with Rs 510 billion of investment, or nearly Rs 40 million per job. One could generously guess that one job might be created per Rs 10 million investment in the SEZs; in which case, Rs 3.6 trillion of investment in SEZs might create only 0.36 million jobs. This is negligible by any measure – whether as a percentage of total employment (385-457 million by different measures in 2004-05) or of the addition to the labour force over the next few years (45-50 million over the next five years). At the same time, as we mentioned earlier, the finance ministry estimated that taxes lost as a result of SEZ exemptions would be Rs 1.74 trillion. Even a portion of this sum, if spent on employment-generation schemes or loaned to small producers, could generate vastly greater employment than the SEZs.

The SEZ Authority, which governs the zone, is chaired by the Development Commissioner, and includes three officers of the Central Government and two entrepreneurs or their nominees; there is no provision for representatives of workers (even if such provision were made, of course, we know how easy it is to select pliable ‘representatives’). The powers of various wings of the State machinery – police, judiciary, municipal – will be concentrated in the hands of the Developer of the SEZ and the Development Commissioner. Evidently, the SEZs are not only economic enclaves but political enclaves as well, to be run as so many princely states, with no pretensions to democracy.

Under the banner of ‘infrastructure’: Fencing off ‘development’
SEZs are also only one example of the much broader process of enclave development. It has become part of official policy in a number of sectors to fence off investment from the rest of the economy. In the transport sector, the policy is to direct investment to serve the developed regions and the elite. For example, the Railways plan to focus on building high-speed rail corridors between metropolises. Land along these corridors is slated for commercial development (supposedly for industry, but we have seen how the SEZs have been used as a cover for real estate activity); just the initial land acquisition for the first corridor would be 8,800 hectares.

Huge funds have been spent on the National Highway Development Project, most of all on the Golden Quadrilateral connecting the major metropolises, facilitating a massive expansion of automobile travel and other road transport between these points. This is India’s largest infrastructure project since 1947; by comparison the expenditure on rural roads is paltry and behind schedule, preventing the development of local markets. Similarly, the hundreds of flyovers which are being constructed across the metropolises at gargantuan cost, may benefit automobile owners, automobile manufacturers, and construction firms, but they are generally out-of-bounds for public transport and useless to the inhabitants of poorer, congested areas. Tellingly, the Bangalore-Mysore Infrastructure Corridor Project expressway is elevated and literally fenced off from the surrounding rural areas, in order to prevent villagers from crossing them and holding up inter-city traffic. The transport sector thus continues along the pattern of the development of railways under the Raj. And further in line with the same pattern, the highway, flyover, metro and railway projects offer huge bonanzas to foreign consultancy, engineering and equipment firms. The dedicated freight corridor between Mumbai, Delhi and Kolkata is to come up on fresh rail infrastructure, naturally, with Japanese aid tied to purchases from Japanese firms. The Japanese estimate of the cost is twice that of the Railway Ministry. The NHDP has been partly financed with loans from the World Bank, the Asian Development Bank and the Japan Bank for International Cooperation, and foreign engineering firms are major participants in it. The first line of the Mumbai Metro, to be built by a consortium of Reliance Energy and two foreign firms, is to be built on what is called ‘standard gauge’. Since broad gauge, on which the Indian Railways runs, was rejected for the Mumbai Metro, all equipment and spares for it now and in the future will have to be imported.

The corporate sector, sundry official committees and the media have long been been building up a drum-beat about the need for ‘infrastructure’. The Prime Minister has appealed to foreign investors to fill a purported $300 billion gap in infrastructure; without it, we are told, growth itself is threatened, and since the need for such ‘growth’ is beyond question, there is no discussion about what the infrastructure is for. If there were, it might reveal the distorted pattern of development associated with this infrastructure. For example, the expansion of airports, to provide for a staggering 25-30 per cent annual growth in air travel, is taken as indispensable; the Jawaharlal Nehru National Urban Renewal Mission has shelled out additional public funds to connect the privatised Mumbai airport to the express highway with a wide flyover; and those whose homes lie in the way must console themselves with having sacrificed their lands for national development. In fact, however, the entire infrastructural project is in the service of luxury consumption.

‘Infrastructure’ cannot be viewed in the abstract. It can serve either the productive sphere or purely mercantile activities; its significance depends on the economic environment in which it operates. Paul Baran cogently said that the effect of creation of infrastructural facilities

The land grab by SEZs is only one example, albeit a major one, of a much broader process under way of seizure of land and other natural resources by the private corporate sector and foreign investors. State governments are vying with one another for such predatory ‘investment’, offering large subsidies in the process (for example, the West Bengal government’s massive subsidising of Singur land for the Tatas’ car factory). State policy has embraced the private capture of natural resources, both directly in the form of inviting investment in extractive industries, and indirectly by permitting industrial projects based on captive mines. The public sector Oil and Natural Gas Corporation (ONGC) is the corporation with the highest profits in India, thus it would have had easy access to funds for a major exploration drive. However, throughout the 1990s ONGC failed to carry out major investments in deep-sea exploration (clearly on direction from the Government, which has always closely controlled its functioning). Thereafter successive governments have carried out seven rounds of the New Exploration Licensing Policy (NELP), under which foreign and Indian corporations, including the ONGC, bid for various Indian fields. Among the major gainers of this privatisation have been Reliance and Cairn Energy. Meanwhile ONGC is making large investments abroad (the largest being its $2.7 billion investment in the Sakhalin oilfield in Russia).

Perhaps the largest foreign direct investments (FDI) in India are to be made by steel firms like Posco and Arcelor Mittal aiming to capture India’s rich iron ore reserves, which are considered to be of high quality. According to various estimates cited in the press, the provision of captive iron ore mines by the Orissa government will benefit Posco by Rs 540 billion, Rs 960 billion or Rs 2 trillion over the life of the project (this being various estimates difference between the market cost of ore and the cost of mining it over the life of the project).²⁹ The Orissa government is also acquiring 6,000 acres for the project, including for the captive port being set up by Posco. Although some 10,000 cultivators earn their livelihood on part of the land to be acquired, growing betel, much of the land is recorded as wasteland or forest land, belonging to the State; hence the government claims that only 471 families will be displaced, since only 471 have title to their land.³⁰

The Central Government has done its best to accelerate the opening up of mining to foreign investment. The Anwarul Hoda Committee set up by the Planning Commission is based on the tenet that increasing investment in mining and extraction of minerals is as such beneficial, and must be accelerated. It has recommended eliminating the requirement of public hearings in the case of mines smaller than 50 hectares. It calls for an increase in the upper limit for a single mine lease from 10 sq km to 50-100 sq km – implying massive displacements. If, on the basis of a permission to survey, explore, or prospect, a firm finds minerals, it should be granted a lease to mine without a detailed environmental impact assessment. Similarly, lease renewals should be virtually automatic. It further recommends that the Centre have the right to allot a mining lease to any firm in case the state government fails to decide within the stipulated period.

Interestingly, the chief ministers of Orissa, Chhattisgarh, Jharkhand, and Rajasthan, the very persons who have been promoting the great handover of natural resources, have now voiced certain reservations in a memorandum to the Prime Minister in December 2007. This is of course a hypocritical exercise, and their motives are limited to ensuring that they too have a say in the decision-making process (and thus a share of the cream); nevertheless their comments are revealing. First, they demand that value be added to raw materials in the state in which they are extracted (the Hoda Committee has recommended that there should be no compulsory value-addition within the mining state, as it would deter investment in mining). Further, they demand that the states should be adequately compensated for the extraction of the minerals through a royalty based on value, the export tax on these minerals should be credited to the states, and five per cent of the profits from mining be set aside for social and economic development. Finally, they urge that the management and development of certain minerals of national importance continue to be reserved for state public sector units. They warn that the present trend “If followed to its logical conclusion... may result in a few multinational mining companies acquiring control over the vast mineral resources of the country that are essentially required for the domestic manufacturing industry.” Indeed this is the typical pattern of extractive investment in a third world country. Jamshedpur, run by the Tatas as a model town, is often cited as evidence that mining brings ‘development’ to a region; but what is striking is that a century of Jamshedpur’s existence has not brought development to the broader region around it, which is as backward as ever. In the memorandum’s telling phrase, “It is an irony that the mineral-rich states are the poorest states of the country.”³¹

This precisely echoes the titles of two recent reports brought out by NGOs. The Centre for Science and Environment’s Rich Lands, Poor People – Is Sustainable Mining Possible? reports that of the persons displaced between 1950 and 1991 for mining, not even 25 per cent were rehabilitated; of the displaced, 55 per cent were tribals. ActionAid’s Resource Rich Tribal Poor reports that in four states – Andhra Pradesh, Chhattisgarh, Jharkhand, and Orissa, 7.9 million hectares have over the years been acquired under the colonial (1894) Land Acquisition Act, displacing a population of around 10 million, more than two-thirds receiving nominal or no compensation, let alone rehabilitation. As for the claim that mining and mineral-based industries would create more employment, the CSE report brings out that the workforce in both sectors has actually declined by 20 per cent in recent years.

On the other hand, the CSE report describes the devastation of the environment by the existing pattern of mining – the clearing of forests, the failure to dispose of waste properly, the pollution of water sources. Between 1980 and 1997, permissions for clearing forests for mining were granted at an annual average of 20 projects and 2,030 hectares; between 1998 and 2005, the annual rate went up to 125 projects and 8,650 hectares. The Indian Bureau of Mines inspects 80-90 per cent of officially operating mines annually; it finds about 50 per cent of them violating environmental laws; it prosecutes about 10 per cent of the violators; and less than one per cent of the violators have operations suspended.

Whether for mining, for locating large industry, or simply for real estate, these giant grabs of natural wealth such as land, forest and minerals generally meet resistance from those whose land is to be acquired. This resistance is especially fierce because those whose land is to be acquired know how scant are the prospects for making a living in any other sector, whereas they are able to obtain at least subsistence from the land. Moreover, with displacement, their social networks are broken; without these networks, they are left even more defenceless against exploitation by sundry predators. Thus the acquisition of land, even where seemingly sizeable compensation is offered, requires coercion. Even if the State does not acquire lands under the Land Acquisition Act, and leaves it to private parties to carry out, the situation is grim for those facing acquisition: in the rural areas and parliamentary life of India it is easy enough to find various middlemen and toughs who divide, cajole, and finally terrorise villagers into parting with their land. Thus the last few years have been marked by violent clashes between villagers and the State, or the armed thugs of private firms, at a number of places: Kalinga Nagar, Kashipur, the Posco project, Singur, Nandigram, and various proposed project sites in Bastar have all witnessed serious clashes, some even massacres. It is even argued that the State-sponsored private militia in Chhattisgarh, the Salwa Judum, was organised in order to overcome opposition to a large number of private corporate mining projects to come up in the state.³²

Aside from the fact that the effects of these resource-captures are frequently devastating to people’s agricultural employment, their nutrition, and the environment, even the supposed benefits to the broader economy are transient. The natural resources being extracted are limited and irreplaceable; once they are exhausted, the investor can move on, leaving neither lasting assets nor employment, but only an environmental mess for the people to suffer.

The calculation of GDP, of course, does not take into of these aspects into account. Since the subsistence activities of the villagers, especially if they are tribals, are at such a low level that they do not contribute much to GDP, and the profits and salaries of the corporate sector are high by comparison, the elimination of the tribals’ subsistence and the seizure of natural wealth by the corporate sector shows up as an increase in GDP.

This giant capture of land and natural resources by the corporate sector is superficially similar to the ‘primitive (or primary) accumulation’ of capital which served as a necessary stage of capitalist development in Europe. Indeed it resembles that stage in its brutality and venality. But whereas the capital thus accumulated in the original countries of capitalist development was deployed in manufacturing activity that absorbed the bulk of the dispossessed rural labour force, such absorption is very restricted here. Nor is agricultural land being concentrated in the hands of agricultural capitalists farming with improved methods and supplying the market of the new factory labourers. Thus the country suffers the pains of primitive accumulation without its progressive effects.

The notion that growth of manufacturing or services industries is per se desirable is a form of fetishism. We need to ask questions such as “Does it create net employment (i.e., does it create more jobs than it destroys)?”, “Does it meet mass consumption requirements (either directly or by developing the capacity to meet these requirements)?”, “Does it squander the economic surplus on luxuries? Does it divert resources from more pressing priorities?” “Is it environmentally sustainable? Does it exhaust natural resources?”, “Does it uproot people?”, and so on. In fact one can cite several industries which, not as an avoidable by-product of their development, but as an essential part of it, harm the masses of people, and benefit only a small class. True, the so-called ‘value added’ by these industries contributes to the GDP; but this fact merely underlines the irrationality of using GDP as a measure of development. Let us take a few examples of these industries.

(i) The value added of certain industries actually grows with the exclusion of people from the market. The private sector in health has surged in the period of ‘liberalisation’. A study by the international consultancy firm Ernst and Young and FICCI estimates private hospitals’ revenue at Rs 620 billion in 2005-06, and projects it to exceed Rs 1.3 trillion in 2012.³³ A CII-McKinsey study puts current revenues from the entire healthcare sector at 5.2 per cent of GDP, and projects that revenues could reach 6.5-7.2 per cent of GDP by 2012. To bring this about, it wants Rs 1-1.4 trillion to be invested in hospitals and medical personnel (particularly as the share of inpatient care is projected to rise to almost half of total revenues). Of this investment, 80 per cent is to come from the private sector. The study expects that the private sector’s current share of revenues, about 80 per cent, would rise with the rich and middle class buying health insurance. Coupled with the expected growth of the pharmaceutical sector, it projects that the total healthcare market in the country could reach as much as 8.5 per cent of GDP.³⁴

One major opportunity for the corporate sector is the outsourcing of healthcare by the developed world: An earlier CII-McKinsey study projected that medical tourism (whereby foreign citizens visit India for treatment at corporate hospitals) could account for Rs 100 billion by 2012. The trend is already pronounced, with 150,000 medical tourists visiting India in 2004, a figure which is growing at an annual rate of 15 per cent.³⁵

However, medical tourism and the corporate healthcare industry divert scarce domestic medical manpower and resources from the requirements of the vast majority of people. This in a situation where the dominance of the private sector has already made healthcare unbearably expensive for the vast majority. In India 80 per cent of expenditure on health is out-of-pocket spending by patients; public health spending is among the world’s lowest as a proportion of GDP (0.9 per cent, falling from 1.3 per cent in 1991). Remarkably, the share of the health sector in India’s GDP, at 5-6 per cent, is double that of comparable countries such as China, Sri Lanka, and Malaysia (2.4-3 per cent); yet the latter countries have much better health indicators than India.³⁶ Internationally, countries with a smaller public sector in health wind up devoting a larger share of GDP to healthcare than comparable countries, and yet experience worse health indicators; the classic case among developed countries is the United States. In a sense, then, the very growth of the private sector in healthcare both leads to the growth of the sector’s share in GDP and the worsening health of the people.

The case of certain other services such as education, is similar: their value added (their contribution to GDP) is measured by the wages and profit of the institutions in the sector. Thus the growth of the private sector at the cost of the public sector is reflected in a rise in the GDP share of that service – even as it may mean the worsening of conditions for the majority of people.

Real estate
(ii) The development of the urban real estate industry requires the eviction (‘re-location’) of slumdwellers, the closure of manufacturing firms, and the eviction of hawkers from the areas to be gentrified or beautified. All these measures affect the employment and income of vast numbers.

Let us take the case of Mumbai. Here well over a million slumdwellers have been or are being ‘re-located’ in various drives (over 400,000 lost their homes in the brutal demolitions of 2004-05 alone, and over 450,000 are to be re-located for the expansion of the airport). A large number of small industries of Dharavi, perhaps the world’s largest slum, will not survive the impending ‘re-development’ plan, as they will be allotted a space too small for production activities.

Of the city’s 300,000 hawkers, it is proposed to provide only 17,000 licenses to hawk in 196 hawker zones. These zones must be further than 100 metres from religious and educational institutions and hospitals, and 150 metres from railway stations; nor are they to be in residential areas or on footbridges. At any rate, the license is to be valid for only one year. Whether or not this can be implemented, the harassment of hawkers will affect their employment and income.

Hundred of thousands of industrial workers have lost their jobs in the liberalisation (ie. post-1991) period in order for the land of their factories to be converted into real estate. To take the case of Mumbai’s textile mill lands alone, it was reported in 2005 that 585 acres (234 hectares) of mill land in central Mumbai was available for redevelopment; none of this will go to creating industrial employment. Since many of these lands were given on lease by the British Raj on the specific terms that they be used for textile mills, it would have been particularly straightforward for the Government to have taken over these lands, rather than treat them as the property of the millowners; it goes without saying that it did not do so. The development of urban real estate also increasingly spreads beyond the earlier city limits and encroaches on agricultural/fishers’ land, further destroying employment.

Even as the cities and their immediate vicinity witness large-scale conversion of industrial land to malls, luxury flats, hotels, and the like, state governments argue that industrialisation requires the large-scale acquisition of agricultural land. Perhaps the most vociferous exponent of this ‘industrialisation-needs-agricultural-land’ theory is the Government of West Bengal – the same government which spent two decades watching with with folded hands as factory after factory in the urban areas of West Bengal stopped industrial production and locked its workers out.

Retail industry
(iii) The development of the organised retail industry eats into the market of the unorganised retail sector, which is already precarious. It is estimated that 35 to 40 million people are employed in petty retail; encroachment of large retail firms on this sector will thus have a very large impact on employment. A recent Government-commissioned study by ICRIER, while endorsing big retail, reported that the sales of 50 per cent of small retailers surveyed, and 61 per cent of all retailers, had suffered as a result of the entry of big retail firms. According to Technopak, a consultancy firm, the share of organised retail firms in India’s total retail market will grow from a few percentage points at present to 20 per cent in five years.

In that case, the entry of organised retail firms in the present context merely serves to concentrate retailing margins in fewer hands, and renders small retailers unemployed without any alternative.

Environmentally damaging industries
(iv) What we mentioned earlier in the case of mining holds true more generally, namely, that GDP by its nature cannot reflect environmental costs (which among other things are also costs to the well-being of people). This is particularly strikingly illustrated by certain industries which in effect import destruction of the environment for the people at large, for a fee earned by the local industrialists. There are firms with directly import various types of harmful waste for dumping; others import ships or equipment (such as computers) to be scrapped, bearing harmful substances. A 2002 report of the Basel Action Network estimated that 50 to 80 per cent of the electronics waste collected for recycling in the U.S. was being disassembled and recycled under unregulated and unhealthy conditions in India, Pakistan, China and other developing countries. A 2005 report by Greenpeace, Recycling of Electronics Wastes in China and India found such recycling activities contaminated both the workplace and the surrounding environment, but there was virtually no Government regulation of these activities.

Half the world’s ocean-going ships end their sailing lives in India, most in Alang of Gujarat. Another Greenpeace study of 2005, End of Life Ships: The Human Cost of Breaking Ships, documents, with interviews and photographs, the horrific conditions at Alang. The authorities maintain no proper records of workers; indeed it is clear they do not want any record to be kept. Records of deaths are kept only by the employers, who naturally understate the number greatly. The workers fear for their jobs, and the employers do not tolerate trade unions. There is of course no monitoring of toxic waste-related diseases; sampling of the environment shows that workers exposed to deadly asbestos fibres 24 hours a day. All this is made possible by the feudal conditions in the rural areas. Local (Gujarati) workers are a minority; the bulk are migrant workers drawn from backward regions of Orissa, U.P., and West Bengal. It is estimated that there are about 800,000 workers from Orissa in Gujarat, 90 per cent of them in hazardous industries such as ship-breaking. A particular recruiting-ground is Ganjam district, which, despite its fertile paddy land and water resources, is marked by unemployment due to landlessness. It is estimated that one man in each household leaves the district in search of work, many traveling to Gujarat and Maharashtra. Adapada village, for example, has as many as 22 Alang shipbreaking widows and many Alang cripples. In the words of a worker from Khaling village, “If I go to Alang maybe one person will die, but if I stay five people will die.” The connection between feudal conditions and the conditions of labour in Indian industry could not be more concisely stated.

We cite these industries merely as instances, to illustrate once more the broader point that devastation of the environment and physical damage to workers and other people do not get reflected in the calculation of ‘growth’. Perhaps the state with the fastest-growing industrial sector in India is Gujarat, but it is also the most polluted; pollution is greatest in the two belts in which industrial investment has been concentrated since the 1980s, the so-called ‘Golden Corridor’ and ‘Silver Corridor’.

We may also take note here of certain other industries which, using the country’s backwardness, use the human body itself as a site for surplus extraction. India’s giant pool of poor and unemployed forms the basis for the boom in such strange industries as clinical trials, rent-a-womb, and illicit (but quite organised) organ export. For example, the factors that attract clinical research organisations (CROs) to India are telling: the low costs of conducting trials, the availability of trained humanpower and infrastructure, the ease and rapidity with which patients can be enrolled, and the abundance of people in India with health conditions of interest to the international drug market. A particular attraction to drug firms is that many potential participants in trials are ‘treatment naive’ – they have never received treatment for their illnesses. In the words of the website of one CRO, part of the “India Advantage” is “40 million asthmatic patients, about 34 million diabetic patients, 8-10 million people HIV positive, 8 million epileptic patients, 3 million cancer patients”.⁴¹ The Indian Government has recently decided to allow clinical trials in India simultaneously with other countries, despite the difficulty in Indian conditions of monitoring the health of participants in such trials – drawn largely, if not exclusively, from the poor. This is part of the Government’s effort to promote clinical trials as a ‘growth’ industry: according to Union health secretary P. Hota, “India has the potential and a great opportunity to emerge as a global centre for clinical trials. We need to have the right kind of institutions, right legislation, human skills and budgetary and other administrative support.”⁴² The number of externally-sponsored clinical trials in India reportedly has risen sharply after certain legislative changes in January 2005. The Maharashtra government reportedly plans to assist CROs in using its public health infrastructure for clinical trials. The Centre has allowed drug companies to fund trials through registered research trusts; they would receive 100 per cent tax exemption for their donations to such trusts.⁴³

Luxury industries
(v) There has been explosive growth in luxury consumption industries – airlines, automobiles, high-end mobile instruments and services, a multitude of other electronic gadgets, furnishings, designer clothing, malls, five-star restaurants and hotels, jewellery, art galleries. Indeed, there are now two tiers of luxury consumption: only the higher tier is demarcated as ‘luxury’ by the media.

Top bracket: There are a number of magazines now devoted exclusively to such luxury spending: for example, the India Today group magazine Spice (“Redefining Lifestyle”), Splurge (“The HT Luxury Magazine”), T3 India (“The World’s No. 1 Gadget Magazine”), the Business Standard publication How to Spend It (now re-named, more simply and forcefully, Spend). The universe of ‘lifestyle’ magazines is larger: for example, Vogue is to launch an Indian edition soon. Conferences are held of the luxury industry as such: The Hindustan Times has organised two conferences on luxury, and the Economic Times joined in with its “Dialogue on Luxury” conference in 2007. In October 2006 the Luxury Marketing Council (LMC), an international organisation of 675 luxury-goods firms, opened its India chapter. According to the head of the Indian chapter, much of its activity is educational, such as “instilling in the Indian public a proper understanding of luxury. ‘How do you educate them’, she asked, ‘about the difference between a designer bag that costs $400 and a much cheaper leather bag that functions perfectly well?’”⁴⁴

This explosion in luxury expenditure is depicted by the reigning orthodoxy as a positive sign of the growth of the economy. However, luxury consumption diverts a sizeable part of the economic surplus from re-deployment in productive uses. Moreover, while the luxuries of the Mughal era too diverted a large share of the surplus from productive uses, they did generate demand for a domestic industry manufacturing luxuries; whereas the post-colonial luxury market of third world countries is heavily import-oriented, and thus gives a far, far weaker boost to domestic demand – rather, it operates as a drain of surplus from the country.

For example, the number of private jets (which according to one report cost $12-56 million⁴⁵) has risen from 50 in 2005 to 120 in 2007, and is projected to reach 300 by 2010.⁴⁶ Assuming the average cost to be $20 million⁴⁷, the annual cost of purchase alone would rise from $700 million in 2005-07 to $1.2 billion in 2007-10. Sales of luxury cars such as Mercedes-Benz, BMW, and Porsche, imported fully assembled, have risen from 2,500 in 2006 to 4,500 in 2007.⁴⁸ Prices range between Rs 2.5 million and Rs 50 million.

Luxury real estate is a booming sector. The concept of ‘gated communities’ (luxury housing estates self-sufficient in facilities, separated from the surrounding area by physical barriers and policed by private security) has been introduced in India, and many returning non-resident Indians find their lifestyle there no different from that in the U.S.. For the top tier, of course, even this will not do. For example, Mukesh Ambani is building himself a 27-storey house (with the height of a regular 60-storey building) in one of Mumbai’s most expensive neighbourhoods, at a reported cost of $1 billion (Rs 40 billion – the size of a major industrial investment, or the combined annual budget of all the five Union territories). Equipped with three helipads and an air traffic control room, six floors for parking 168 imported cars, theatres, gyms, and various other necessities of life, the building is to house 6 family members and 600 staff.

As noted by the India head of the LMC, the satisfaction derived by the consumers of such luxury goods is based on their being demarcated as luxury goods. As larger numbers now drive cars, take flights, use mobile phones, and so on the rich need to shift to goods and services which are out of bounds for these new entrants. However, from our point of view, the luxury sector is much wider in the conditions of a poverty-ridden country like India, and includes various non-essential goods and services which can be afforded by a only a small fraction of the population. These are not produced to meet existing demand; rather, demand has to be created by means of advertising and other forms of promotion. While they are adopted at first by the wealthiest sections, wider social sections soon feel compelled to join in.

Air travel: For example, only around 1-3 per cent of India’s population travels by air.⁴⁹ Yet not only has air travel become a major industry in India: the Government has taken up promotion of the sector as a mission. Domestic and international air passenger traffic (combined) has almost doubled between 2004 and 2007. The latter is growing particularly fast; indeed, at 32.5 per cent in 2007,⁵⁰ reportedly faster than in any other country. The Railways have been reducing their air-conditioned class fares to recover customers who have shifted to air travel. This growth requires huge imports. In 2004 airline operators in India had only 125 aircraft;⁵¹ now, according to the Economic Survey 2007-08, the country’s 14 scheduled airline operators have 334 aircraft, and were given permission during 2007 for import of another 72. Further, the ministry has given “in-principle” approval for import of 496 aircraft, of which more than 250 aircraft are likely to be acquired in the next five years by scheduled airlines. In short, the Indian aviation sector has emerged as a gold mine for the world’s duopoly, Airbus and Boeing: the two have 400-450 aircraft on order from India.⁵² The price tag averages around $100 million per aircraft.

The growth of domestic private airlines has been fueled by foreign funds: for example, Goldman Sachs, BNP Paribas, and the Dubai government’s private equity fund have invested in SpiceJet, and HSBC in Jet Airlines. Private equity funds have also invested in the firms which have taken over Mumbai and Delhi airports. The rapid growth of the sector is one of the factors in ‘transport’ becoming one of the fast-growing heads of GDP. Yet, to return to the broad theme of this section, its contribution to GDP does not make it desirable per se: rather, it is a luxury enjoyed by a trivial percentage of the population, causing drain of foreign exchange in multiple ways (on import of planes and their servicing; on fuel; on profits of foreign investments in the sector), appropriating large areas in cities and their vicinity, and causing environmental damage. Far from being promoted, air travel should be minimised, particularly in a poverty-ridden country.

Automobilisation: Automobilisation too is a harmful luxury in India. At present car ownership is roughly seven persons per thousand; even if we assume there to be only one car per car-owning family and five persons to a family (neither assumption holds true for upper-income urban families), this represents less than four per cent of the population. Even if the market were to double with the production of cheaper cars like the Tata Nano, car owners would remain a small minority of the population. (The market for two-wheelers is five to six times as large as for cars; not only are their prices a fraction of car prices, but they are also much cheaper to run and maintain, and easier to park. Tata’s explicit aim with the Nano is to take market share away from two-wheelers.)

On the other hand, the growth of cars and two-wheelers (particularly the former) actually worsens conditions for those who do not own personalised transport: For the condition of bus transport is worsened by the growth of traffic. In the last five years, there has been a 43 per cent increase in vehicles on India’s roads, but only a 9 per cent increase in road space. As a result the speed of traffic in cities has slowed to 10-15 kilometres per hour.⁵³This in turn means that a given number of public buses can make less trips per day, and thus transport less passengers than they could have with less traffic. Indeed, a part of the middle class is driven to buy two-wheelers and even cars precisely because of the decline and crowding of public transport; this winds up reinforcing the trend toward crowding. (We are ignoring here the pollution effects of automobiles and two-wheelers.)The failure to check the growth of passenger cars and to promote public transport exemplifies the gross class bias in all of India’s urban planning. According to one writer, cars in India “occupy the lion’s share (75 per cent) of road space but meet less than 5 per cent of the travel demand. Buses, by contrast, occupy a mere 5 per cent of road space but deliver up to 60 per cent of commuter trips.”⁵⁴

Far from checking the growth of passenger cars, the Government subsidises the use of automobiles, and thereby boosts demand for the automobile industry in a number of ways and burdens public transport. It is important to realise that without these large subsidies, maintaining an automobile would have been prohibitive for all except a trivial section of the population, which is to say the market would have been far, far smaller. Secondly, the Government provides a number of direct subsidies to the automobile industry, through tax concessions, provision of cheap land, and even interest-free loans. We have dealt with these subsidies later in this essay.

The mall phenomenon: Only a small fraction of even urban India can afford to shop at malls, which largely house upmarket brands, and generally have to be reached by car. Some others come to gape at the displays and hang around, adding to what in marketing lingo is referred to as ‘footfalls’, but not to purchases; however, these are seen as nuisances by the mall-owners, who do their best to keep them out or prevent them from hanging around. It is possible that the market for malls has been over-estimated, but the frenzied growth in their construction has at least created a market for the real estate/construction industry. In 2002 India had 6 malls with 1 million sq ft; it had 90 with 19 million sq ft in 2007; and these figures are expected to triple in 2008.⁵⁵

India’s ‘middle class’
It is true that the market for luxury industries in India now includes what are called the ‘middle classes’. However, the term conjures up a misleading analogy to the sizeable ‘middle class’ of the U.S., Europe and Japan. By comparison this class is a small segment of Indian society. The media frequently uses a figure of 200-250 million for India’s middle class, but it is difficult to imagine the basis for this. The international consulting firm McKinsey uses a figure of 50 million for India’s middle class, or less than 5 per cent of the population.⁵⁶ According to the NSS 2004-05, about 89 per cent of the population spent less than Rs 37 per day (which was $0.83 at the then exchange rate).

India has a strange official definition of poverty, whereby those spending over Rs 12 per capita per day are considered ‘not poor’. The National Commission on Enterprises in the Unorganised Sector (NCEUS), has correctly highlighted the fact that the overwhelming majority of the population – which it estimates at 77 per cent, or 836 million people – are living on Rs 20 or less a day. It terms these the “poor and vulnerable” sections of the population. However, it is on shakier ground when it terms the entire remainder as “middle and high income”. The segment which it classifies as “middle income” is a large one (19.3 per cent of the population in the NSS 2004-05), with an average daily expenditure of Rs 37. However, Rs 37 per day was just $0.83 at the nominal exchange rate at the time, and less than $2.50 at revised Purchasing Power Parity rates for 2005⁵⁷ — far below the level that would be described as “middle income” in developed countries. Per capita income in the U.S., for example, was over $40,000 in PPP terms in 2005, or over $110/day.

As we discuss later, the really wealthy in India appear to be missing from NSS surveys; this distorts their findings. Those who are described here as “high income”, with a reported daily expenditure of Rs 93, are what in common parlance would be referred to as ‘middle class’. According to the NSS 2004-05, they constitute some 4 per cent of the population. Together with the wealthy – who would constitute two or three more percentage points – they would constitute the booming consumer market that is the darling of global investors.

Growth of luxury consumption a manifestation of growing inequality
The growth in luxury consumption is generally portrayed as a manifestation of India’s rapid economic growth. However, it is actually a manifestation of increasing inequality: it has occurred during a period of redistribution of income away from the base and toward the summit.

The suppression of the consumption of the vast masses of people is most visibly evident in the decline of their basic nutrition: in the rural areas, per capita calorie and protein consumption levels have declined by 5 per cent and 5.3 per cent between 1993-94 and 2004-5, and in the urban areas the former has declined by 2.5 per cent while protein consumption has stagnated. Rampant undernutrition is confirmed by appalling nutritional outcomes, which are refusing to improve. Half of India’s children are measurably undernourished, and the figures are high even in urban areas; two-fifths of rural women and one-third of rural men too are measurably underweight.

Conditions of widespread poverty have posed a fundamental obstacle to India’s industrial growth since the departure of the British. Equally, they have acted as a brake on the wishes of foreign investors. Foreign corporations and large Indian firms are in general not interested in trying to reach the vast, widely dispersed market of low-income consumers, for this is a market with very low profit margins. Thus they, and the institutions which represent their interests (such as theWorld Bank), are not interested in pushing about broader, long-term development on the expectation that it would yield them markets eventually. For (i) the time frame of such firms is short – their investments should yield profits in three to five years; (ii) there is no guarantee that even after a length of time it would be a high-profit market; and (iii) there is no guarantee that they would capture the market created by such development – some other local, smaller entrepreneurs might capture it. Thus they press, both directly and through institutions like the World Bank, for policies which concentrate income further among the elite, and in developed regions and urban areas, for these are the markets that they can reach easily, and which are highly profitable. The growth of the luxury industry in India is linked to the growth of economic exclusion of the vast majority.

Among the factors accelerating the concentration of wealth in this period has been the privatisation process. Privatisation has taken various forms: for example, the disinvestment of shares of public sector firms (or raising of capital by such firms from the share market); the sale of public enterprises with handover of management control to private firms; ‘public-private partnerships’ in the infrastructure sector; and the opening up of profitable sectors such as telecommunications hitherto closed to private firms.

(i) Virtually all partial disinvestment of shares in public sector firms has been carried out consciously at prices which are ‘attractive’ to investors, namely, at prices which yield investors a bonanza. This was deemed to be necessary to ensure the ‘success’ of privatisation. As a result, from the very first disinvestment, these sales have attracted wide criticism, including from the Comptroller and Auditor General (CAG). Gross irregularities in the very first round (1991-92) allowed a handful of buyers to depress prices to below the reserve price set; the CAG put the loss at Rs 34.42 billion on receipts of just Rs 30.38 billion. Going again by the need to ensure the ‘success’ of the disinvestment, only shares of profitable public sector units have been sold. The largest bonanza took place in March 2004, during the last days of the National Democratic Alliance (NDA) regime, when the Government earned Rs 153.32 billion from the hurried sale of shares of six firms, including the hugely profitable Oil and Natural Gas Corporation (ONGC). The Disinvestment Minister admitted that shares were being sold at a discount, but said “There’s very little that we can do as the disinvestment proceeds are required by [the Finance Ministry] by the end of the current fiscal to arrive at the magic figure of the fisc.”⁵⁹ Little wonder that FIIs keep pressing for further disinvestment.

(ii) Virtually every sale with transfer of management to private firms has handed over assets at scandalously depressed prices. Various disinvestments and outright sales have attracted sharp criticism from official bodies. Between 2000 and 2002 the Government sold and transferred nine firms to the private sector, among them Balco, Hindustan Zinc, VSNL and IPCL. The CAG found that the valuation of the firms’ assets was done without adequate time or “due seriousness”, riddled with irregularities. In several cases it found that substantial “surplus land” was sold along with the company; this suggests that real estate gains were the key motive to some of the deals (eg., Hindustan Lever’s takeover of Modern Foods). In some cases major assets (mines in the case of Hindustan Zinc!) were arbitrarily excluded from the valuation.⁶⁰ This report came on the heels of the CAG’s strictures against the Department of Disinvestment for the manner of sale of two five-star hotels in Mumbai. In brief, the entire process constituted a huge private plunder of State-owned assets.

(iii) The opening up of the telecom sector has been executed in such a fashion as to allow private firms to occupy the most profitable arenas – urban areas, mobile telephony – and leave the responsibility of extending landlines to the rural areas to the public sector. In fact, not only have private firms utterly failed to extend telephony to the rural areas in the circles awarded to them, but the meagre cesses collected from them to compensate the public sector for the costs of extending rural telephony are being wound up by the aggressively pro-privatisation Telecom Regulatory Authority of India. For several years the Universal Service Obligation Fund (USOF) was deliberately not disbursed to the public sector firms for its stipulated purpose (extending inexpensive landline telephony to the rural areas); as a result, around Rs 150 billion has accumulated and lies idle in the USOF. In a remarkable twist, this amount is now to be given as a subsidy to private mobile service providers to help them extend their operations to the rural areas.

The Electricity Act will allow private firms in generation to sell to select large consumers, rather than the grid; this will reduce the costs of the industrial consumers, boost the profits of the private generation firms, and worsen the financial condition of the public sector firms. The latter will be saddled with the losses of extending electricity to far-flung, low-consumption rural areas.

(iv) The Eleventh Five Year Plan envisages Rs 20 trillion (or $500 billion @ Rs 40/$) investment in physical infrastructure (electricity, railways, roads, ports, airports, irrigation, urban and rural water supply and sanitation) during the period 2007-12. This is estimated to be 9 per cent of GDP, up by 4 percentage points over the figure for the Tenth Plan (2002-07).

India’s savings rate surged by 11.3 percentage points between 2001-02 and 2006-07, and is projected to rise further in 2007-08 (to reach 35.6 per cent). Given this abundance, one would have thought it no problem for the public sector to find finance for the projected growth in infrastructure, either from its own surpluses or by borrowing. It should be noted that much of this activity is already profitable within the public sector: for example, airports, ports, and now railways are all profit-spinners. (Not all such infrastructure is desirable for genuine development; however, we shall not go into that question here.)

The Government, however, constituted a committee headed by a private bank chairman to produce a list of reasons why the public sector could not carry out the necessary investments, and argue that “public-private partnerships” (PPPs) were required. With such alibis, the Government has decided to promote PPPs to fill the alleged gap in infrastructure financing. Foreign direct investment up to 100 per cent is invited. Contracts have been awarded and projects are under way for 221 PPPs with an estimated cost of Rs 1.30 trillion ($32 billion). If ‘user charges’ do not sate private firms’ appetite for revenues, the Government would provide ‘Viability Gap Funding’ – which is simply another phrase for a Government subsidy to guarantee an agreed rate of return on investment. Further, infrastructure PPPs would enjoy generous tax concessions.

State assistance is on the way to step up the PPP drive. The publicly-funded India Infrastructure Project Development Fund would provide up to 75 per cent of project development expenses as an interest-free loan. The Government plans to set up an India Infrastructure Finance Company Limited to provide long term loans (no doubt, on generous terms) to infrastructure projects. The Central State governments and Central ministries are being provided with “technical assistance in the form of in-house PPP experts, financial/risk experts, Management Information Systems experts, and access to a panel of legal firms.” “Transaction advisers” from the Asian Development Bank are to steer the process.

(v) The tacit privatisation of health care and education with the retreat of the State from these sectors (expressed in the form of decline of State expenditure as a percentage of GDP on these heads) similarly widens disparities. The worsening state of nutrition (which we discuss later) is due not only to the deterioration in agricultural production but also to the Government’s tacit policy of privatisation of health, education, and transport: for this has forced the poor to spend more on these services, leaving less for food. The Planning Commission, in its Approach Paper to the 11th Plan, notes that “A very large shift, of at least five per cent of total private consumption, has occurred over the last decade from food to health, education and conveyance,” and expresses the hope that increased public expenditure on health and education can reverse some of this shift. This is the nearest it can get to saying that the privatisation has suppressed consumption of food.

While the neo-liberal programme condemns subsidies such as those on food and fertiliser, and the supposed subsidy on petroleum,⁶¹ it promotes an array of subsidies to the private corporate sector. These subsidies take various forms.

First, there are large transfers disguised in form of sums owed to the State by the corporate sector which the State makes no serious attempt to collect. Large borrowers with 11,000 individual accounts accounted for as much as Rs 400 billion of total bad debt of banks by 2001-02. Among public sector banks too high-value defaults involving 1,741 accounts over Rs 50 million amounted to Rs 228.66 billion. (Even these may be understatements, since banks tend to ‘evergreen’ corporate loans, providing fresh loans in order to prevent default.) Whereas banks frequently attach the entire property of defaulting peasant borrowers and even have them arrested, no such stringent measures have been taken with the big borrowers, and, unsurprisingly, efforts to recover bad debts have met with little success. Banks’ bad debts have been reduced over the last few years not largely by collection, but by lengthening the schedule of repayments, making provision for bad bad debts out of banks’ profits earned elsewhere, and infusion of capital by the Government into the public sector banks.⁶² Large uncollected tax arrears, amounting to about Rs 390 billion on corporation tax and Rs 200 billion on customs duty, excise, and service tax,⁶³amount to another implicit transfer to the corporate sector.

A second major subsidy is tax concessions. One should keep in mind that a tax concession is no different from a subsidy: it is the equivalent of the Government returning to the tax payer a portion or the whole of tax payable by him/her. The total of tax revenue forgone on corporation tax, excise duty and customs duty was estimated at Rs 2.36 trillion in 2007-08, which was over half the total revenues actually connected under these heads in that year. (Apart from this revenue forgone on personal income tax was Rs 421.61 billion, which was 35.5 per cent of the revenues from individual tax payers.)

The State makes large land acquisitions on behalf of the private corporate sector, using the colonial-era Land Acquisition Act (1894). Even where the State pays what it calls the market rate for such land as it acquires, private firms stand to benefit greatly: for the market rate is calculated on the basis of sale prices of land in the previous period. Not many land sales take place in the period leading up to acquisition, and such sales as take place may understate the price in order to avoid stamp duty. Moreover, once the private firm’s project is announced market prices for land rise sharply: by acquiring it on behalf of the firm at pre-project prices, the State saves the firm huge costs. Frequently the acquisition price does not even correspond to pre-announcement market prices: for example, in the case of Manimajra village, on the outskirts of Chandigarh, the difference between the open auction rates of land (bought by builders Uppals Housing and DLF) and the rate at which 626 acres has been/is being acquired by the Chandigarh administration for the Rajiv Gandhi Chandigarh Technology Park comes to Rs 53.78 billion. The beneficiaries include Infosys, Wipro, Bharti Telecom, and others.

Automobile industry: an instance of State subsidy
The State also extends loans, grants, and supportive infrastructure to the private corporate sector. Let us take the example of the automobile industry.

(i) State policy deliberately promotes the use of passenger automobiles against public transport. According to one study, the tax burden on buses in India is 2.4 times that on passenger cars. In Mumbai, cars make a one-time tax payment to the municipality of 4 per cent, whereas buses pay a 17.4 per cent tax annually.⁶⁴

(ii) Unlike the case in many developed countries, in India free parking space is made available for cars on city roads; and even municipal parking lots charge Rs 10 for 12 hours. According to the Centre for Science and Environment, transport regulators calculate the amount of land required to park a car at an average of 23 sq metres (which includes the space occupied by the vehicle as well as the minimum space needed to move it into and out of the space). At this rate, even paid parking comes at Rs 26/sq metre per month, or Rs 600 per month per vehicle. This is a tiny fraction – perhaps a few percentage points – of the rent for an equivalent space. (It is worth comparing this space to the standard space allotted to evicted slum families in rehabilitation projects: 21 sq metres, or 225 sq ft.) More to the point, it does not begin to meet the costs of road construction and maintenance in proportion to private automobiles’ share of road traffic.

(iii) Innumerable flyovers, bridges, elevated corridors, and so on are built in cities for the benefit of car owners; as mentioned earlier, these are generally out-of-bounds for buses. In 2005 Delhi was reported to be in the process of building 50 flyovers, at an average cost of Rs 400 million per flyover; the budget for a super ring road and elevated corridor on the existing ring road was put at Rs 40 billion. Mumbai has constructed an even larger number of flyovers, but much more expenditure is to come: for example, major bridges across the sea are coming up, with the Bandra-Worli sea link alone to cost Rs 13 billion.

(iv) We have already mentioned the National Highway Development Programme (NHDP). The estimated cost, at 2004 prices, of Phase-I and Phase-II of the NHDP, is Rs 650 billion (about half of this is complete); the estimated cost of Phase-III, which has been approved, is Rs 806.26 billion; and so on. The NHDP is funded by a cess on fuel as well as Government borrowings.

It may be objected that road and highway construction cannot be considered a subsidy to automobile users, and thereby the industry, since all road traffic benefits from it. However, this would be so if the costs of road and highway construction were recovered from private automobile users in proportion to their use. This is not done; instead the burden falls on public funds. Particularly in the case of urban roads, the overwhelming share of usage is enjoyed by private automobiles. Significantly, the Automotive Mission Plan, drafted by the private automobile industry and rubber-stamped by the Government in 2006, calls for highway development and urban flyovers as a measure of promotion of the automobile industry. (We describe this plan further below.)

If the full costs of road infrastructure were collected from automobile users, a very large percentage of them would find it impossible to maintain automobiles, and hence the market of the auto industry would shrink. Thus the auto industry is critically dependent on these indirect State subsidies. (This is particularly so because in the auto industry, bringing down costs per unit depends on achieving a certain minimum scale of production.)

The Government also directly subsidises the automobile industry in various ways, and is planning to expand this further. It has steadily brought down the rate of excise tax on small automobiles, from 24 per cent to 16 per cent and now 12 per cent in the latest Budget. (By comparison, the rate of excise on soaps and detergents is 16 per cent.) It is reported that 70 per cent of the cars sold in India qualify for this concession. The rate of customs duty on raw materials for the auto industry is now 5-7.5 per cent; and it receives a tax deduction of 150 per cent for R & D expenditure.

In 2006 the Government launched a 10-year Automotive Mission Plan (AMP) to develop India as a global manufacturing hub (i.e., an export base). The AMP was drawn up by the auto industry itself, with each sub-group chaired by the head of a top auto firm (Tata, Mahindra, Maruti). It was released by the Prime Minister as the plan of the Ministry of Heavy Industries. The AMP envisions a much larger programme of subsidy (see Box).

It would require a large exercise to calculate total State subsidies to the automobile sector. Ashok Mitra, former finance minister of West Bengal, has calculated the subsidies offered by the West Bengal government to the Tata Nano. Close to 1,000 acres of land has been acquired from peasants by the state government for Rs 1.5 billion and handed over to the Tatas, who are to pay trivial sums on the 90-year lease. Secondly, the state government has extended a loan to the Tatas worth Rs 2 billion at a nominal interest rate of 1 per cent (against the 10 per cent charged by banks); “the principal, one suspects,” says, Mitra, is never intended to be returned”. Finally, for the first 10 years the entire value-added tax on the Nano in West Bengal will be returned as a similar 1-percent-interest loan to the Tatas.⁶⁵ The total subsidy comes to Rs 8.5 billion from the state government alone. Subsidies from the Centre would be beyond this. How significant is the subsidy element in total costs? According to news reports, the Tata Nano was developed at a cost of Rs 17 billion, “including the cost of the plant that will build it”.⁶⁶

The AMP justifies generous tax concessions and promotional measures on the basis that India is to become an international “hub” for automobile production, thus expanding markets, GDP and domestic employment. However, according to its own projections, even at the end of the 10-year scheme, 71-78 per cent of sales would be domestic. Given the heavy foreign exchange costs of the auto industry, even if exports fulfilled the AMP’s projections for 2016, the industry might remain a net spender of foreign exchange. As for claims regarding GDP and employment, they are far-fetched and unsubstantiated.⁶⁷

Privatisation and subsidies have transferred giant assets and income streams to the private corporate sector during the ‘liberalisation’ era. The neo-liberal State has been a crucial support to the growth of the private corporate sector – the same corporate sector that calls for reduction of State intervention insofar as that intervention protects the poor and sectors such as agriculture and small-scale industry. The ruling circles are well aware of this dichotomy. Inaugurating a campus in May 2007, Manmohan Singh aired his anxieties: “I was struck recently by a comment in the media that most of the billionaires among India’s top business leaders operate in oligopolistic markets and in sectors where the government has conferred special privileges on a few. This sounds like crony capitalism. Are we encouraging crony capitalism? Is this a necessary but transient phase in the development of modern capitalism in our country?” Referring to the problems being faced by small-scale domestic enterprises, Mr Singh asked “Whether we, in the name of protecting them (big industry), encouraged crony capitalism? Do we have a genuine level playing field for all businesses?” He left his own question unanswered.

There can be little doubt that the period of ‘liberalisation’ has witnessed a sharp growth in inequality. One need not turn to Leftist economists: Even those working for FIIs and the International Monetary Fund (IMF) have pointed this out in blunt terms. Of course, their concern is that the widespread perception of inequality will lead to political instability, and thus derail the ‘liberalisation’ train.

Chetan Ahya, executive director of Morgan Stanley (MS), raises the alarm: “We believe the rise in inequality, when absolute poverty levels are still very high, poses a major political challenge.... in the long run, a high level of inequality can hurt growth on account of socio-political tensions.” Ahya says MS analysis “indicates that India has witnessed an increase in wealth of over $1 trillion (over 100 per cent of GDP) in the past four years – and that the bulk of this gain has been concentrated within a very small segment of the population.” He cites three measures:

1. Between March 2003 and May 2007, as share prices rose, the value of domestic shareholders’ holdings (i.e, excluding holdings of the Government and foreign shareholders) rose by $570 billion. According to the Securities and Exchange Board of India, only 4-7 per cent of the population owns equities. Even within this group, the ownership is likely to be highly concentrated as almost $350 billion of the increase is accounted for by promoters (controlling stakeholders of firms).

2. MS estimates the value of residential property to have risen by at least $300-500 billion. However, only an estimated 47 per cent of the population own a ‘pucca’ house (a house with walls and roofs made of stable construction materials). Even within this segment of ‘pucca’ housing, the higher-income classes own a large proportion of the area in terms of square feet. (Ahya could have added that the price rise has been highest in high-income areas, such as the well-off localities of metropolitan cities.)

3. MS estimates that the market value of India’s stock of gold has increased by approximately $200 billion since March 2003 to $370 billion currently. This too is concentrated in the top third of the population.⁶⁸

Further calculations of growing inequality have been made by an equally unlikely source. A recent IMF paper⁶⁹ warns that “the ability of the government to pass and sustain reform momentum depends on popular support. If large parts of the populations are left behind, even if only in relative terms, the viability of future reforms may be threatened.” On the basis of National Sample Survey (NSS) results, it shows that “Overall consumption inequality increased in the 1990s, particularly in urban areas, and within almost all states according to a variety of measures. While inequality was stable (in urban India) and declining (in rural India) in the 1980s, this trend was reversed in the 1990s. As real consumption growth was significantly higher in urban areas, the urban-rural gap widened.” Indeed, as the NCEUS has pointed out, consumption by the top 4 per cent of the population recorded in the NSS grew at more than six times the rate as consumption by the bottom 36 per cent of the population.⁷⁰

However, NSS data may fail to capture the real extent of inequality. Indeed, over the years the gap between national income data and NSS data for household consumption has grown sharply (see Table 3). National income data on household expenditure is generated by estimating the output of goods and services consumed by households; NSS data is gathered from asking people about their consumption of those goods and services. If respondents to the NSS are understating their consumption, this would show up as a gap between the total figure for consumption arrived at through the two methods.

Which section of respondents would understate their levels of consumption, or would tend to be left out of an official survey? It is unlikely that the wealthy would reveal to official surveyors their real levels of consumption expenditure. Indeed it is unlikely that the rich would cooperate with a time-consuming survey in the first place, as a result of which their consumption would not be captured in the NSS data at all. Thus according to NSS 2004-05, the top 4 per cent of the population have an average per capita expenditure of just Rs 93 per day, or Rs 2800 per month, which is scarcely credible; as we mentioned earlier, this corresponds to what we would normally call ‘middle class’ by Indian standards.

Table 3 depicts a growing divergence between the NSS and national income data. Taking the 1983 figure as 100, the national income figure would have reached 161 by 2003-04, whereas the NSS figure would be less than 125. This gap could be accounted for by the unsurveyed rich.

A recent study⁷¹ based on income tax returns calculates that the share of the top 1 per cent of Indian households in national income doubled between 1981-82 and 1999-2000; this increase in the reported income of the rich could account for around 40 per cent of the above-mentioned gap. (Interestingly, the steepest increase was in the income of the top 0.01 per cent of the population during the 1990s, ending the decade at 150-200 times average income for the entire population.)

Given that the rich have ways of hiding a large share of their income from the income tax authorities, and that landlords pay no tax at all, it is likely that the gap between the national income and the NSS figures could be largely explained by the failure of the NSS to capture the income of the rich. Thus inequality is likely to be far, far greater than even the grave levels depicted in the NSS.

This picture of a very skewed distribution of income or expenditure fits in with press reports of an even more skewed distribution of assets: namely, lists compiled by Forbes and Business Standard of the number of billionaires in this poverty-stricken country. Among the 10 richest persons in the world listed by Forbes (as of February 11, 2008), 4 are Indians – 3 if we exclude Lakshmi Mittal (who does not reside in India). In all there are 53 Indians on the list, with a combined net worth of $334.6 billion (about Rs 13.38 trillion). Their combined wealth increased by 75 per cent over the previous year. The number of billionaires in India was higher than China (42) and Japan (24), though slightly less than Germany (59). It is true that the size of the wealth of Indian billionaires might fluctuate sharply with share prices (much of the growth in the number of Indian billionaires and the size of their assets appears to be linked to the surge in share prices during the previous year), but that might be true of billionaires from many other countries as well.

Business Standard’s list of Indians with assets of over Rs 1 billion as of August 2007 comes up with a rather lower figure, perhaps partly because Indian share prices had risen steeply between the date of its list and that of the latest Forbes list. Nevertheless, the top 50 in the Business Standard list had combined assets of Rs 8.89 trillion, and the complete set of 533 rupee billionaires had assets of Rs 12.14 trillion. Again, for illustration’s sake, if we assume assets of Rs 600,000 per Indian household, the top 50 each owned assets equivalent to 300,000 Indian households. The 533 rupee billionaires would have combined assets of almost 8 per cent of the assets of all the households in the country.

Another way to get a sense of the size of the wealth of the billionaires’ wealth is by comparing it to India’s GDP. The wealth of the Forbes 53 would be around 28.5 per cent of India’s 2007-08 GDP; that of the Business Standard 533 would be around 29.3 per cent of India’s 2006-07 GDP.

Contrary to propaganda in the media, this proliferation of Indian billionaires is not an indicator of development but of underdevelopment. So skewed a distribution of assets is indeed the hallmark of third world countries. The narrow employment base, narrow markets, and stifling social order prevalent in these countries are capable of grinding vast masses to abysmal levels of poverty even as a handful of parasitic monopolists flourish at unimaginable levels. The “four big families” of China in the 1930s and 1940s, and similar coteries in various Latin American countries, pre-1975 South Vietnam, Indonesia, Philippines, and so on are familiar to students of history.

Not all the members of the establishment are ignorant of this history, or its significance: Namely, that all such countries have suffered acute political instability, in some cases leading to revolution. The Prime Minister gave vent to his fears at a May 2007 conference organised by the Confederation of Indian Industry (CII) on “inclusive growth”. First, in line with his statement earlier the same month on “crony capitalism”, he emphasised that free competition, not cartels, should reign: “Profit maximisation must be within the bounds of decency and greed (sic). The operation of cartels by groups of companies to keep prices high must end.”

Secondly, moderation and discretion should be observed in top salaries and in expenditure; “In a country with extreme poverty, the industry needs to be moderate in the emoluments.... Rising income and wealth inequalities, if not matched by a corresponding rise of incomes across the nation, can lead to social unrest...” Pointing to ostentatious weddings, he said that “Vulgar spending insults the poverty of the less privileged... and plants the seeds of resentment in the minds of have-nots.” He quoted Keynes to suggest that Indian capitalists, like the early capitalist class of Europe, should eschew accelerated consumption in favour of ploughing their surpluses back into their businesses.

Thirdly, he requested the corporate sector to display “corporate social responsibility”, without which it would be hard for him to introduce further pro-capital ‘reforms’: to be globally competitive, “you must work in a harmonious environment, an environment in which all citizens feel actually involved in economic growth and in which each citizen sees hope for a better future.” Unless workers felt they were cared for, “we can never evolve a national consensus in favour of more flexible labour laws aimed at ensuring that our firms remain globally competitive.”

Finally, he issued a grim political warning: “If those who are better off do not act in a more socially responsible manner, our growth process may be at risk, our polity may become anarchic and our society may get further divided. We cannot afford these luxuries.” (emphasis added)

The speech created a brief commotion, but no one mentioned its most curious aspect: It is traditionally expected that the State would act to check such developments as threaten the existing social order, by taking, if necessary, actions that restrict even the wealthy and powerful, in their own long-term interest. Evidently this option is not open to the Prime Minister. Under the present order, all the engine driver can do is plead with the speed-hungry passengers that the train is hurtling toward disaster – even as he shovels the coal. The UPA government, he assured the CII, would continue to create a friendly environment for the growth of manufacturing industry; corporates must facilitate more employment. “The Government has its role and responsibility but so do the better-off sections of our society. This is where I look to the CII for leadership.” (emphasis added)

Even as a tiny domestic elite has flourished in this period of rapid ‘growth’, foreign speculative investment has enjoyed dazzling returns: whereas net inflows of FII investments between 1992 and December-end 2007 stood at $70.78 billion, the market value of FII holdings in listed companies on the Bombay Stock Exchange stood at well over $251.5 billion at December-end 2007. One year earlier (December-end 2006), the market value of FII holdings was $128 billion. In the course of 2007, FII net inflows into India were $24.45 billion. In other words, the total of FII net inflows increased by 53 per cent during the course of 2007; but the market value of FII holdings doubled.

FII inflows are highly volatile, as admitted by the Economic Survey 2007-08. One gauge of the volatility is the proportion of net flows to gross flows of FII capital. That is, if FIIs invest $10 billion during the year, and during the same period remit $5 billion out of the country, gross flows are $10 billion + $5 billion = $15 billion; net flows are the surplus of inflows over outflows, namely, $5 billion; and net flows as a proportion of gross flows is 33 per cent. In the seven-year period from 2000-01, FII net flows/gross flows have generally remained below 13 per cent; in 2006-07 the proportion fell to just 3.3 per cent – that is, gross flows were $212 billion, and net flows were $7.1 billion. The frenetic pace of FII trading is also evident in other measures of volatility given in the Economic Survey.

A variety of investors operate on international capital markets, including individuals, banks, corporations, mutual funds, pension funds, and what are called ‘hedge funds’. The last are funds which invest the money of a small number of wealthy people seeking much higher than average returns. Manned by professional economists trained in the fine art of gambling, they engage in particularly risky and volatile activity across many markets. For this purpose they resort to ‘leveraging’, that is, they borrow heavily, sometimes 30 times their own capital. This also means that when their gambles fail they are much more likely to collapse, or to sell all their holdings in an attempt to pay off their debts, jolting the share market and the banks which have lent to the hedge funds. Hedge funds are not regulated by the authorities in their home countries, on the assumption that those who place their money with these funds are well aware of the risks of their investments, and the markets in those countries are large enough that they cannot be destabilised by such operators. (Of course, the latter is questionable, given that hedge funds are reported to manage assets of over $2 trillion; the U.S. authorities have had in the past to use public funds to bail out the hedge fund Long Term Capital Management, and more such cases are imminent.) In India, where the share market is small by international standards, the operations of such funds can easily destabilise the market.

In order to moderate the volatility of capital flows, the Indian authorities initially allowed only institutions which are regulated in their home countries, i.e., excluding hedge funds, to invest in India. However, hedge funds found a simple way to bypass this. Let us say a hedge fund wished to buy shares of an Indian firm. It would invest the money with a firm which was registered as an FII in India (the bulk of such business is controlled by five U.S.-based FIIs). The FII would issue it a ‘participatory note’ (PN), underlying which were shares of the Indian firm. Any dividend on the underlying shares would be passed on to the hedge fund (after subtracting a fee); and when the hedge fund instructed the FII to sell the shares, the capital gains on the sale would be similarly passed on to it. The hedge fund could even sell its PN to any other investor on the international market. In the last three years, such PN investments have been estimated to account at various times for between 40 and 52 per cent of all FII investment in India. PNs were used not only by hedge funds, but by any investor who was not registered to trade in the Indian stock market. It is common knowledge that Indian business families have stashed large funds abroad illegally; some of these were brought back via PNs either in order to enjoy high returns or to strengthen their control over their own companies. The same route could also have been used by any other type of shady investor, since it offers complete anonymity to the investor.

All this, of course, made complete nonsense of the attempts to regulate inflows, and the RBI repeatedly called for a ban on PNs. The RBI’s proposal was stoutly resisted by the Finance Minister until the end of October 2007. In the interim the massive surge in inflows destabilised the entire economy. On October 25, 2007, the Securities and Exchange Board of India (SEBI) finally brought in certain restrictions on PNs (the details of which we will not go into here), but at the same time liberalised the direct entry of hedge funds into Indian markets. Since then several of the world’s largest hedge funds (including the largest, fifth largest, and seventh largest), have received SEBI approval to operate as FIIs on Indian markets.⁷⁴ The returns on hedge fund investment appear to be even higher than for remaining FII investments. According to SEBI estimates, by July 31, 2007, PN holders had invested a total of $17.5 billion; the market value of their investments on that date was $86.3 billion.⁷⁵

Foreign investors enjoy an astoundingly generous tax regime in India. There is zero tax for Indians and foreigners on ‘long-term’ capital gains – that is, if one buys a share and sells it after one year, one pays no tax on any gain one makes on the sale. (All one has to pay is a transaction tax of 0.15 per cent of the value of the transaction.) On short term capital gains, too, much of FII investment pays no tax, since it comes in through the ‘Mauritius route’. India has had a ‘double tax avoidance treaty’ with Mauritius since 1983, whereby, among other things, capital gains on sale of shares in Indian companies by residents in Mauritius would be taxed only in Mauritius and not in India. Mauritius does not tax capital gains. Thus, with the operning up of the Indian economy after 1991, foreign investors made a bee-line for Mauritius, set up companies on paper there, and routed their investments to India through these conduits. Reportedly the largest foreign investor in India, in terms of both foreign direct investment and FII investment, is Mauritius, with the U.S. a distant second. Of course, if one took into account the ultimate source of funds, Mauritius would not be in the picture, and the U.S. would move to first place.

There is a separate category of foreign investor called ‘private equity’ (PE) firms, whose pattern of ownership is similar to that of hedge funds. PE firms do not operate on the share market, but directly invest in certain existing firms, or acquire them outright; for this reason they are classified as FDI. However, by and large they invest in order to sell out later, making large capital gains. To take just one example, the American PE firm Warburg Pincus invested $292 million between 1999 and 2001 in Bharti Tele-ventures; it sold the bulk of its stake in August 2004-March 2005 for $1 billion, while retaining a stake worth $700 million.⁷⁶ (This example underlines how, while Indian firms have emerged as important gainers from the privatisation process, foreign financial investors have been able to corner a large share of the rewards by investing in such Indian firms in the privatised sectors.) During January-December 2007 PE investment in India (excluding outright acquisitions) was reported to be over $8 billion.⁷⁷

Foreign investors have lobbied successfully for more sectors to be opened to them, such as the real estate and debt markets; commodity futures markets are soon to follow. In 2006, the growth in real estate rentals in four Indian cities was among the fastest in the world: Mumbai and Delhi, with 50 per cent and 33 per cent growth, respectively, ranked second and third. Bangalore and Hyderabad, with 25 per cent and 23 per cent growth, were in the top 12.⁷⁸ Returns are reportedly 20-25 per cent a year. Naturally, this attracted large foreign capital. J.P. Morgan estimates that an annual $2-3 billion is committed for the next several years from PE investors for Indian real estate projects.⁷⁹ Nearly two dozen U.S. private equity funds are reported to be raising money for investment in Indian real estate. Indian firms have also been making large external commercial borrowings for the real estate sector; when this route was shut off by the authorities, who feared a speculative bubble in the sector, the firms began disguising the borrowings as FDI. Foreign investors would borrow at low interest rates in the international capital market and lend to Indian real estate firms at interest of 13-15 per cent; the latter, earning much higher returns, could easily service this debt. Assocham claims that the turnover of the real estate sector will rise from $15 billion at present to $90 billion in 2015, at which point it expects FDI to be $15 billion.

The summit of the entire financial network is Mumbai, which is now being promoted officially as an international financial centre (IFC). The project of making Mumbai an IFC is a striking example of the fetishization of ‘growth’, and of the parasitic relation of this ‘growth’ to the economy as a whole. In 2003, the U.S. consultancy firm McKinsey put out a 32-page paper chalking out the changes required in Mumbai’s urban infrastructure, lay-out, and urban policies to make it a suitable host for international finance. The plan called for some Rs 500 billion to be provided by the exchequer, and the remainder from private investors; it envisioned a block-by-block demolition and reconstruction of the city. On the basis of this unsubstantiated document, the state government appointed a secretary-level officer to coordinate the work of various departments and agencies in implementing the McKinsey Vision. Various elements of the Vision have been implemented since: for example, the Urban Land Ceiling and Regulation Act, 1976, has been repealed.

More importantly, the Central government appointed the High Powered Expert Committee (HPEC) on Making Mumbai an International Financial Centre. The HPEC argues that the aim must be to make Mumbai a Global Financial Centre. Today, a firm (or even a Government) anywhere in the world wishing to raise funds from the world capital markets generally goes to merchant banks headquartered in London, New York, or Singapore. Housed in these cities are also firms that offer a range of services: international consultancy, tax management and accounting, management of assets and personal wealth. In these cities’ share markets, investors trade the shares of firms from around the world; in their foreign exchange markets the world trades in currency, including in complex instruments called currency derivatives. All these activities earn fat incomes. The HPEC argues that India can earn these incomes by making sweeping changes not only in Mumbai but in the entire economy in order to attract the full range of operators in international financial markets to set up shop in Mumbai and provide the range of international financial services. The HPEC envisions a large influx of expatriates, with Indians accounting for just 25-30 per cent of the employees in the sector.

In 2007, the HPEC laid down an elaborate and extravagant set of 48 requirements for making the city an IFC. Among them:

i. Achieve and maintain an average GDP growth rate of 9-10 per cent (from 2009 it is to be maintained at 10 per cent).

ii. Reduce the consolidated fiscal deficit of the Centre and states from over 8 per cent to 4-5 per cent of GDP by 2009. Reduce the debt-to-GDP ratio from 80 per cent at present to 65 per cent by 2009.

v. Open up investment in Government debt to foreign buyers without restriction. Remove the requirement that banks must invest a certain proportion of their assets in Government debt (the Statutory Liquidity Ratio).

vi. Open up Indian capital markets to hedge funds and other such speculative, unregulated foreign funds immediately.

vii. Focus the monetary authorities (the RBI) exclusively on managing the key short-term (‘base’) interest rate by 2009-10.

viii. Transfer all regulation/supervision of any type of organised financial trading from the RBI to the Securities and Exchange Board of India (SEBI) by 2008.

ix. Allow unrestricted entry of global legal and accounting firms operating in international financial centres by 2008.

x. Withdraw Government from ownership of financial firms, including public sector banks (PSBs); by 2008 its stake in PSBs should fall below 49 per cent, and 33 and 26 per cent in the following two years.

xi. Decontrol the opening of bank branches by domestic banks (immediately) and foreign banks (by mid-2008).

xii. Appoint or arrange to elect a City Manager, bring the governance machinery of the city under his/her full control, and establish an independent financial base for this post.

The HPEC went far beyond its brief (which was to draw up a plan to make Mumbai a regional financial centre, like Dubai), and it is not clear how many of its recommendations will be implemented, particularly in the context of the current slowdown in the global economy and the Indian economy. However, the Finance Minister in his 2007-08 Budget speech said that “It is my hope that we would be able to build a consensus on the key recommendations of the Committee, promote a world class financial centre in Mumbai, and realise the objective of making ‘financial services’ the next growth engine for India.” (emphasis added)

Prime among the HPEC’s recommendations is the implementation of complete capital account convertibility (CAC), treating foreign capital on identical terms with domestic capital and giving both complete freedom to flow in and out of the country.

Of course, international financial capital wants CAC, and whether or not Mumbai succeeds in becoming an IFC, the project will succeed promoting the idea. Already there is a considerable extent of CAC: most restrictions on foreign investment in India have been removed, restrictions on Indian firms borrowing abroad have been relaxed, most restrictions on foreign remittances have been removed, individuals have been allowed to send out $200,000 a year, and most importantly, Indian firms have been allowed to invest vast sums abroad.

Even this partial CAC has subjected the economy to buffeting by volatile flows of foreign capital, as we have discussed earlier. Once a country has an open capital account, it loses control of either its exchange rate or its money supply. Either way, it loses control over its domestic economy.

To repeat the earlier discussion, there have been huge inflows of foreign capital in different forms. These inflows tend to make the value of the rupee rise vis-a-vis the dollar. When this happens, the dollar price of Indian exports increases, and the rupee price of its imports falls, hurting India’s exports and increasing its imports. So the RBI has been trying to prevent the rupee from appreciating by buying up dollars from the foreign exchange market. These purchases have swollen the foreign exchange reserves from $107 billion in March 2004 to $265 billion at end-November 2007. These reserves are invested abroad in instruments such as U.S. government debt; that is, they become part of the giant net financial transfers worldwide from the developing economies to the developed countries. Since the return (to India) on such investment of the reserves is far lower than the return to foreign investors on their investment in India, this amounts to a bleeding of the country. In a period of rising foreign investments this may not show up as a net outflow of capital; instead it will show as a growing foreign ownership of domestic assets.

Further, when the RBI buys foreign exchange, it releases a corresponding amount of rupees into the economy. Banks, flush with funds, increase their lendings. Worried that foreign inflows could lead to inflation, the Government has been spending huge sums on ‘sterilising’ these inflows (i.e., selling debt instruments that soak up the addition to the domestic money supply created by these flows). The Government has to pay out vast sums as interest on these debt instruments: a sum of Rs 139.58 billion has been budgeted for interest payments on these instruments in 2008-09. This sum, a burden imposed on the country by foreign inflows, is comparable in size to the Rs 160 billion that the Government has allocated for the much-trumpeted National Rural Employment Guarantee Scheme in 2008-09; yet it has attracted virtually no comment. Even after issuing these instruments, as well as compelling banks to hold some of the inflows as cash, the RBI has neither been able to mop up all the inflows nor to mop up the entire increase in domestic money supply. This has led to steady appreciation of the rupee as well as a surge in bank credit over the past few years.

Apart from these costs, there is the continuous possibility of a sudden flight of capital from the country – the catastrophe experienced by so many countries in Asia and Latin America. Even under the existing foreign exchange regime, the effects of a sudden flight of capital would be severe: the rupee value would plummet, the consequently soaring prices of imports would jack up domestic prices, the central bank in a desperate attempt to stem the outflow would hike interest rates steeply, stalling economic activity. The overwhelming majority of the people, who have never had anything to do with share markets, and never enjoyed a paisa from the boom, would find themselves plunged into economic depression by forces outside their control.

At the reduced rate of the rupee, and with the overall depression of domestic economic activity, Indian assets would become wonderful bargains for foreign investors, strengthening foreign domination over the Indian economy. All this would be so even under the partial CAC existing; under full CAC, the outward flight of capital would be even greater, as the Indian elite could then quite legally send the their entire assets abroad, and foreign investors could speculate on the value of the rupee more directly and to a much greater extent.

While the current downturn in the economy might slow the march toward CAC, in the existing framework it is not simple for the Indian authorities to reverse that march. For any attempt to check inflows or outflows would be taught a swift and brutal lesson by foreign investors. The manner in which the stock market crashed with the entry of the UPA government in 2004 (only to revive once the new government propitiated foreign investors with massive gifts such as the scrapping of long term capital gains tax), and the manner in which FIIs humiliated the RBI governor when he talked vaguely of mild checks on foreign inflows, are a foretaste of the treatment foreign speculative capital will mete out to any attempt to restrict its movements. The larger the stock of foreign speculative capital in the country, the larger would be the effect of its flight. The present value of the stock of such capital is well over a quarter of India’s GDP. Hence only a State and social order prepared to accept such shocks as the temporary price of longer-term growth would be able to act against foreign speculative capital.

Unlike the commodity-producing sector or many services, financial sector activity as such creates nothing of use to the people; one cannot eat a financial service or enjoy it for its own sake. Its only rational role is to serve the sectors producing useful goods and services. Yet we find that the dominant school of thought treats the growth of the financial sector as an end in itself, to be promoted without reference to the benefit to, or effect on, the rest of the economy. The disproportionate, indeed frenzied, growth of the summit of India’s financial sector, even as the bulk of the producers in agriculture and small industry are kept out of the formal financial sector and starved of capital, strikingly illustrates the disarticulation of the entire economy and the continued subjugation of the productive sphere to mercantile and speculative capital.

Notes:

1. At the same time, in recent years the corporate sector has increasingly relied on their retained profits, the share market and foreign borrowings for its requirements of funds; this has deprived banks of a large share of the credit market, and driven them further in the direction of lending to consumers. (back)

2. Economic Times, 23/4/07. (back)

3. Business Standard, 16/3/07. (back)

4. Times of India, 13/2/08. (back)

5. Another factor in the slowdown was the appreciation of the rupee, which led to a slowdown in exports. (back)

6. EPW Research Foundation, “Increasing Concentration of Banking Operations”, Economic and Political Weekly, March 18, 2006, Table 5. The number of accounts in semi-urban areas too shows a fall. (back)

7. Reserve Bank of India, Annual Report, 2006-07. The semi-urban and urban population accounted for the remainder of the deposits and credit. (back)

8 .R. Ramakumar and Pallavi Chavan, “Revival of Agricultural Credit in the 2000s: An Explanation”, EPW, December 29, 2007. (back)

9. RBI, Report of the Technical Group to Review Legislations on Moneylending, 2007. (back)

10. Bank credit for micro-finance in 2005-06 was just one-fortieth the institutional credit disbursed to agriculture that year. Economic Survey, 2006-07. (back)

11. Andy Mukherjee, “High interest rates to hit demand for investment”, Bloomberg, 7/2/08. (back)

12. Quoted in Times of India, 26/10/05. (back)

13. “Banks in no hurry to hike rates for large companies despite RBI’s prodding”, Economic Times, 17/10/05. (back)

14. RBI, Annual Report, 2006-07. (back)

15. NCEUS, Financing of Enterprises. (back)

16. Indeed, small businesses which are vendors to big firms are generally forced to extend them interest-free credit; the big firms extract this by simply not paying their bills for months. (back)

17. Deposits would be higher because the head offices of the major firms would be in places such as Mumbai; hence even if profits were made on the basis of activity in Jharkhand or Orissa, funds would flow into a Mumbai bank account. It is true that credit may also be issued in Mumbai for investments that are to take place in Jharkhand or Orissa; nevertheless economic activity in Mumbai would stand to gain from the entire flow. (back)

18. Carol Upadhya, “Employment, Exclusion and ‘Merit’ in the Indian IT Industry”, EPW, 19/5/07. (back)

19. Anirudh Krishna and Vijay Brihmadesam, “What Does It Take to Become a Software Professional?”, EPW, 29/7/06. (back)

20. One research report based on a survey estimates that each IT job generates an additional 1.4 jobs in other sectors. CLSA Asia-Pacific Markets, Chain Reactions:Indian IT’s Impact on Economy, Consumption and GDP, February 2007. (back)

21. CLSA, op. cit. (back)

22. Business Standard, 30/9/07. (back)

23. A Department of Telecommunications study of 2004 found that most of the domestic telecom equipment manufacturers, and even the state-owned undertaking ITI, which till recently was the major equipment manufacturer, had become merely ‘traders’ by importing the equipment and supplying it to the service providers. – Sunil Mani, “The Dragon vs the Elephant: Comparative Analysis of the Innovation Capability in the Telecom Industry of China and India”, EPW, 24/9/05. (back)

24. Economic Times, 27/6/07. (back)

25. Quoted in Paul Baran, The Political Economy of Growth, Indian edition, 1958, p. 229. (back)

26. Economic Times, 18/2/08. (back)

27. Sunanda Sen and Byasdeb Dasgupta, “Labour under Stress: Findings from a Survey”, EPW, 19/1/08. (back)

28. Baran, op. cit., pp. 230-31. (back)

29. These figures are cited in Special Correspondent, “Posco deal: uneven playing field?”, Hindu, 19/8/05; Shankar Gopalakrishnan, “Posco: blessing or curse?”, Economic Times, 24/12/07; Aditi Roy Ghatak, “Posco venture: capital investment or exodus?”, Hindu, 23/8/05. (back)

30. Gopalakrishnan, op. cit. (back)

31. “MNCs can’t get mines on a platter: States”, Business Standard, 20/12/07; emphasis added. (back)

32. People’s Union for Democratic Rights, Delhi, Through the Lens of National Security, January 2008. (back)

33. Rahul Goswami, “Outpatient Inpatient”, Hindu, 27/1/08. (back)

34. “India’s healthcare spending to cross Rs 200,000 crore [Rs 2 trn.] by 2012”, Business Standard, 6/3/07. (back)

35. “Medical tourism: Heartburn in the U.S.”, Times of India, 18/12/05. (back)

36. Ravi Duggal, “Public Health Expenditures, Investment and Financing under the Shadow of a Growing Private Sector”, in Gangolli, Leena, Ravi Duggal, and Abhay Shukla, Review of Healthcare in India, 2005; citing a study by Indian Council for Research in International Economic Relations (ICRIER). (back)

37. Duggal, op. cit. (back)

38. Private final consumption expenditure from National Accounts data. (back)

39. Duggal, op. cit. (back)

40. Hindu, 12/1/08. (back)

41. Sandhya Srinivasan, “India as a research site”, paper presented at meeting of Centre for Social Medicine and Community Health, 2007. (back)

42. Times of India, 22/10/05. (back)

43. Srinivasan, ibid. (back)

44. “Maharajahs in the shopping mall”, Economist, 2/6/07. (back)

45. Times of India, 8/2/07. (back)

46. Business Standard, 9/3/07. (back)

47. This is a low figure: the Ambanis are said to have spent $250 million on six private jets. – Business Standard, 25/11/07. (back)

48. Economic Times, 25/5/07; Business Standard 1/2/08. (back)

49. The Economist (10/3/07) puts the percentage at 1 per cent; the New York Times (reproduced in the Hindu, 9/5/07) quotes an official of GMR Infrastructure who puts it at 3 per cent. (back)

50. Economic Survey, 2007-08. (back)

51. Economic Times, 15/11/07. (back)

52. “India’s airlines: losing money, buying planes”, New York Times (reproduced in the Hindu, 9/5/07). (back)

53. Sreelatha Menon, “Cars or scars?”, Business Standard, 24/1/08. Average speed in Delhi fell from 20-27 kmph in 1997 to 15 kmph in 2002 and 10 kmph now; in Mumbai it fell from 38 kmph in 1962 to 15-20 kmph in 1993; in Chennai, it is 13 kmph; and in Kolkata 7 kmph. -- Praful Bidwai, “Small cars, big problems”, Frontline, 15/2/08. (back)

54. Bidwai, op. cit. (back)

55. “Booming economy gives rise to mall mania”, Financial Times, reproduced in Business Standard, 23/12/07. (back)

56. McKinsey Global Institute, “The Bird of Gold: The Rise of India’s Consumer Market”, cited in “The coming boom”, Economist, 5/5/07. (back)

57. With Rs 45, one can buy more goods in India than one could buy of equivalent goods in the U.S. with $1 (which was worth Rs 45 at the exchange rate in 2004-05). Thus the purchasing power of Indian incomes is not reflected when they are converted into U.S. dollars at the exchange rate. To make international comparisons, figures are converted into an invented measure called Purchasing Power Parity dollars, on the basis of internationally comparable price levels. In December 2007, the International Comparison Programme released its latest estimates of PPP for 2005, on the basis of which India’s nominal GDP of $778.7 billion was estimated to be $2.34 trillion in PPP terms. (back)

58. The classification of mobile telephony as a luxury may be questioned on the ground that it has been adopted by large numbers in the urban areas: the number of mobile subscribers has reached 234 million by the end of 2007. However, unlike the case of commodities and services such as food, clothing, fuel, lighting, housing, education, and medical care, it is a service for which demand as such is generated by the suppliers themselves through heavy advertising, promotional schemes, ‘peer pressure’, and the like. The spread of mobile telephony in India is a complex social phenomenon worth study (the reasons for various sections becoming subscribers are diverse; hardly any mention is made of the pressures, economic and social, to own a mobile phone). The number of connections is not an accurate gauge of the actual usage: Much of the recent addition to the subscriber base has been of sections with low average revenues per user. The ratio of connections in urban areas to rural areas remains very high: with three-fourths of the population, rural India has less than one-fourth the telephone connections. The most profitable segment to the service providers is, of course, those with large disposable incomes, particularly among the youth. (back)

59. Quoted in C.P. Chandrashekhar, “To the market this March”, Frontline, 26/3/04. The minister also acknowledged with disarming candour that market manipulators had driven down prices of public sector shares in the days before disinvestment, in order to pick up the disinvested shares at low prices. When asked who the manipulators were, the minister said, “I have told them not to reveal. They realised what they were doing was not right.” He implied that some of the financial advisors to the disinvestment were themselves involved. However, he ruled out punishing them: “Punishing will lead to the collapse of the market.” – Outlook, 22/3/04. (back)

60. V. Sridhar, “Scam accounts”, Frontline, 6/10/06. (back)

61. In fact there is no subsidy on petroleum products as a whole. Central and state governments taxes on petroleum products amounted to around Rs 1.8 trillion in 2007-08. Petroleum marketing companies thus receive only a portion of the retail price of petroleum products. The loss that these companies make on sale of petroleum products could be eliminated simply by reducing the tax on them. Instead, this marketing loss is displayed by the Government as a ‘subsidy’ being paid to benefit the common man. (back)

62. Independent Commission on Banking and Financial Policy, Interim Report, April 2005. (back)

63. Receipts Budget 2008-09. (back)

64. Menon, op. cit. She cites a 2004 World Bank study as its source. (back)

65. “Santa Claus visits the Tatas”, Telegraph, 30/3/07. (back)

66. P. Sangameshwaran, G. Seshan, Bijoy Kumar, “What drives Tata Motors?”, Business Standard, 22/1/08. (back)

67. The AMP claims that the automotive industry employs 200,000 in vehicle companies, and 2,50,000 in component companies; no details are provided, and both figures look dubious. It goes on to claim vaguely that another 10 million are employed “at different levels of the value chain – both backward and forward linkages.” This remains a mystery; at any rate the claimed proportion of indirect to direct employment is over 22:1, surely fanciful. The GDP claims are inflated by using a figure of industry sales, rather than value added in the industry. (back)

68. “Globalisation, capitalism and inequality”, Economic Times, 9/7/07. (back)

69. “Inclusive growth”, India: Selected Issues, International Monetary Fund, February 2008. (back)

70. NCEUS, Report on Conditions of Work, p. 7. (back)

71. A.V. Banerjee, Thomas Piketty, “Top Indian Incomes, 1956-2000”, June 2003. (back)

72. NSS Report no. 500. As mentioned above, the households covered under the NSS evidently do not include the billionaire households. S. Subramanian and D. Jayaraj, “The Distribution of Household Wealth in India”, UNU-WIDER, October 2006, estimates that the Business Standard list for 2003, containing 178 richest households, accounted for 2 per cent of the country’s estimated wealth. (back)

73. That is, the sum of the assets of the NSS households and those of the billionaire households. (back)

74. “World’s largest hedge fund firm now in India”, Business Standard, 26/2/08. (back)

75. Statement in Lok Sabha by the Union Minister of State for Finance, quoted in “Five FIIs now account for 60 per cent of PNs”, Business Standard, 8/9/07. (back)

76. “A new frontier”, Economist, 10/9/05. (back)

77. James Winterbotham and Sridar Swamy, “M & As: A year of adventure for India Inc abroad”, Hindu Business Line, 7/3/08. (back)

78. Economic Times, 16/4/07, quoting a survey by the firm Cushman and Wakefield. (back)

79. Business Standard, 6/4/07. Emphasis added. (back)

80. Business Standard, 6/4/07. Emphasis added. (back)