May 24, 2015

A Simple Calculation

Prabhat Patnaik

A VERY simple calculation is enough to illuminate what has been happening in the Indian economy over the last few decades. In July 1973, I know from personal knowledge, the starting basic salary of an Associate Professor in a central university was Rs 700 per month. Nowadays the starting basic salary of an Associate Professor in a central university is about Rs 47,000 per month (which is the sum of Rs 39,000 and Rs 8,000 shown under two separate heads). The take-home pay of course is always larger than the basic salary, and there are certain benefits in kind, such as campus housing, which accrue to some. There is however, no reason to believe that the ratio of take-home to basic salary is any lower today than it was then; in fact if anything it is distinctly larger. Likewise there is no reason to believe that the ratio of kind benefits to the monetary remuneration is any lower today than then; again, if anything it is larger. It would be no exaggeration to say therefore that the nominal income of an Associate Professor in a central university now is almost 70 times what it was then. WIDENING GAP In 1973 on the other hand the procurement price of a quintal of wheat was around Rs 80; today it is around Rs1600, which is 20 times what it was then. What is true of university teachers is also true more generally of at least the upper salariat; and what is true of the wheat-growing peasants is true of peasants as a whole, and also of a whole range of petty producers like fishermen, artisans, and craftsmen. Even casual empiricism would suggest therefore that in the last four decades there has been a distinct relative worsening of the peasants and petty producers compared to the urban upper salariat. It may appear however that we are comparing an income (that of an academic) with a price (the procurement price given to peasants) which is illegitimate. But since the academics’ work-load, against which they get their basic salaries, has not increased during this period, their income itself simply reflects the price of their services, which has increased much faster than the price of the peasants’ produce. But let us get away from a mere “price-price” comparison to an “income-income” comparison. In 1973-4 the foodgrain output in the country was 105 million tones. By 2012-13, the latest year for which we have proper data, it had increased to 255 million tonnes. The advance estimates for 2013-14 suggest a somewhat higher figure and for 2014-15 a somewhat lower one; so, let us take 255 million tonnes as the average figure for the terminal date of the 40-year period, which makes it 2.4 times the base figure. The foodgrain producing population on the other hand may be assumed safely to have grown at the same rate as the “agriculture-dependent population” which itself however has grown at a smaller rate than the total population, owing to people shifting out of agriculture. If we take 1.1 percent per annum as the rate of growth of the “agriculture-dependent”, and therefore of the foodgrain producing population, a figure that is roughly borne out by official statistics, then this population at the end of the 40 year period would be 1.6 times what it was at the beginning. The per capita output of a foodgrain-producing peasant therefore would be one-and-a-half times what it was in the base year (2.4 divided by 1.6). And with the price-level being 20 times what it was 40 years ago, the nominal income of the average foodgrain-producing peasant would be about 30 times what it was 40 years ago, compared to about 70 times for the upper salariat. Put differently, if we take the prices of goods purchased, as also being 20 times what they were in the base period for all groups uniformly, then this would mean that a foodgrain-producing peasant is about one-and-a-half times as well off today as in 1973-74, while the upper salariat is three-and-a-half times as well off. Much the same result emerges from another simple calculation. If we take net domestic product at factor cost originating in agriculture as a whole (and not just the foodgrain sector) and divide it by the agriculture-dependent population (assumed to be growing at approximately 1.1 percent per annum), then we get the per capita nominal income of this population. Deflating it by a Consumer Price Index (say the Index for Industrial Workers), we find that an average agriculture-dependent person has a real income today that is again roughly one-and-a-half times what it was in 1973-74; but an average member of the upper salariat has a real income today that is three-and-a-half times what it was in 1973-74. Not only has the gap between these two segments widened enormously, but a 50 percent increase in per capita real income for the agriculture-dependent population over a 40 year period (which is what its being one-and-a-half times the base year’s figure means) is extremely paltry. Besides, since the official price indices are notorious for underestimating the actual increase in the cost of living, inter alia because they do not take into account the effect of the privatisation of a whole range of essential services (which makes such services much more expensive), the increase in the per capita real income of the agriculture-dependent population must have been even more meagre than what the above figures suggest. Much of these 40 years coincide with the so-called “post-reform” period, or the period of “neo-liberal” economic policies. The above calculations therefore give credence to the often-expressed view that neo-liberalism has meant a substantial squeeze on the peasantry and petty producers, and substantial benefits for a segment of the urban middle class. To be sure it has conferred unprecedented benefits upon the top decile of households and in particular the top 1 percent of households. According to a Credit Suisse Report, the top 1 percent of households in India owned 36.80 percent of the total wealth of all households in 2000, while in 2014 their share had increased to 49 percent, which is higher even than the average for the world as a whole (48.20 percent in 2014) and much higher than for the United States, reputedly a highly unequal society, where this figure was 34 percent. But it is not only the rich and the super-rich who have benefited from neo-liberal economic policies. These policies with their obviously deleterious effects upon the vast mass of petty producers and workers, both in urban and rural areas, could not have been sustained, especially within a framework of electoral democracy, if they had not brought significant benefits to at least a segment of the urban middle class. And this they have. These benefits may not continue in the future, owing to the world capitalist crisis which is now beginning to affect economies like India. The Indian urban middle class too, like its European and Latin American counterpart, may soon come to feel the pinch of “austerity” and income loss, as the economy gets progressively enmeshed in crisis. It may then get radicalised like the middle classes in those countries, and usher in a fresh era of radical politics of the sort that has thrown up Syriza and Podemos, not to mention a host of Latin American Left and Left-of-Centre governments. But as of now, this middle class, at least a substantial chunk of it, has benefitted from and supported the neo-liberal regime which has thereby remained politically afloat despite the squeeze on petty producers. ECONOMIC ATROPHY The change that has occurred in this respect in the Indian economic and political landscape over the period of neo-liberalism is best understood by contrasting it with what went on earlier. A host of distinguished economists from Ashok Mitra to Sukhamoy Chakravarty had argued in the early seventies that the terms of trade between agriculture and industry in India, which were determined by the policies of the State (since India was insulated from the terms of trade movements in the world economy under the protectionist regime that prevailed at the time), were shifting secularly in favour of agriculture, owing to the political pressure of the landlords and the kulaks. Since such a secular shift did not lead, beyond a point, to any acceleration in agricultural growth, but resulted in a squeeze on the share of surplus elsewhere in the economy (including what accrued to the State) and on the real wage-rates everywhere, it became a cause of economic atrophy. Whether the economic atrophy that had engulfed the country in the late sixties and early seventies was actually caused by this, is a matter that we need not go into here. But the shift in the terms of trade in favour of agriculture was a much noticed and much debated point which remained pertinent till the mid-seventies. (Many saw Indira Gandhi’s “Emergency” as marking a hesitant break from this and constituting the first tentative step towards a “structural adjustment” programme that invariably squeezes peasant agriculture, an impression confirmed by her taking an Extended Facility loan from the IMF shortly afterwards, though it was not fully availed of). What we have had under neo-liberalism is a final break from earlier trends, a remarkable change in the economic scenario, where the “price” paid to the surplus producers in the agricultural sector has risen much less than the “price” charged by sectors outside of agriculture, whether manufacturing or services. While the bulk of the workers, both in urban and rural areas, do not figure in the list of beneficiaries of either regime (and looking at the real wage rate here is not enough, as one has to look at days of employment too and hence earnings as a whole), and the bulk of the landlords and rural rich do figure in both lists (since their fingers are in so many pies), the switch in the positions of the urban middle class on the one hand and of the mass of the peasantry on the other, is striking. The urban middle class’s disillusionment with the earlier dirigiste regime and its enthusiastic embrace of neo-liberalism (which may not of course last long), can be easily understood in this context; and likewise the peasantry’s distress which has resulted in over 2.5 lakh suicides over the last 15 years. Things however are coming to a head, since the “development” agenda, for which a constituency has been created in the middle class, is now being stoutly opposed by a peasantry threatened with destitution through being dispossessed of land.