India's Two Economic Faces

The reality of “two Indias” has been a subject of much socio-economic attention, a stark reminder of the apathy of the richer component of Indian society toward the country’s poor. It is evident when the passenger next to you at a traffic jam in New Delhi rides in a BMW, when a girl wearing Prada ignores a street urchin in tattered clothes, or when a national daily newspaper runs a story on obesity in Indian cities alongside a smaller piece on the ineffectiveness of the state’s public assistance program.

Indeed there are two faces of India: A country where the 9.2% growth rate is complemented by 77% of the population's living on less than 20 rupees (about 50 cents) a day; a country, whose 55 billionaires live alongside over 300 million others who live without basic everyday necessities.  

How can these two Indias coexist? Purely economically speaking, it could be argued that this a transitional phase. As processes of liberalization spread, “poor India” will cease to exist, and one unified “middle class and rich India" will develop. However, this analysis is simplistic and not entirely true. 

In reality, the opposite is happening: Inequalities are increasing and a greater proportion of people are moving into unregulated jobs. The reality is ironic — it serves the logic of liberalization and economic growth to keep a large section of India poor, in other words, to perpetuate the existence of two Indias.

How? The answer lies in competitive advantage being a key attribute in India’s growth. In theory, after liberalization set in, firms were forced to innovate, and less competitive firms were pushed out of the market. This process is lauded as a mark of efficiency in conventional economic theory. The reality, however, saw competitive firms shift to capital-biased technology, displacing labor and contributing to unemployment. Marxists define this process as “primitive accumulation” where labor that is unable to compete in the free market is deprived of its means of production and has to enter wage relations as a consequence.

What is of particular relevance to the Indian context is that most of this "dispossessed" labor is not absorbed by the regulated formal economy or left unemployed, but is concentrated in the informal sector (the unregulated and unorganized economy). The informal economy in India constitutes about 93% of the workforce; it falls outside the ambit of the state’s regulation and therefore does not follow factory laws, minimum wage laws, or entitlements to basic working conditions. This would explain why this labor is available in such abundance and so cheaply.

Why has the Indian government not controlled the growth of the informal sector and has not pushed more labor into the formal economy, which would be the rational course of action? Setting aside India’s competitive edge as an answer, the reason for this is again evidenced in the rationale of liberalization; a state that is in the process of gradually retreating cannot extend adequate support to individuals that are increasingly being displaced by economic processes. The state then, unable to provide assistance, turns a blind eye to the unregulated economy where excess labor is able to find employment and earn a living, thereby perpetuating the cycle of “two Indias.”    

Two Indias are here to stay — at least, for now. But, perhaps it is worthwhile to ask ourselves: Will the vicious cycle pay off?   

Photo Credit: Wikimedia Commons