Abstract
Capitalism is usually associated with inequality. The Indian variant of capitalism creates its specific structure of inequality. The recent trends of capital concentration in India, facilitated by the political decision-making, shape particular patterns of the rise in inequalities. The nature of capitalism in India is linked to the nature of capital concentration and the low bargaining power of the labour. The article discusses these links. The article discusses the recent attempts at social and political legitimization of the prevailing kind of capitalism under the current political regime. The focus is on long-term issues, and instead of a detailed account, the attempt is to paint a picture with a very broad brush.
Capitalism is usually associated with inequality. But the Indian variant has some particular features of both inequality and capitalism that require some elaboration. Also, the process of legitimization of both in the society and the polity is culture-specific and hence somewhat different in India than elsewhere. In this article, after briefly referring to the anatomy of Indian inequality, we’ll dwell on capital concentration and the low bargaining power of even formal-sector labour (not to speak of the vast masses of informal labour), and link these to the nature of capitalism in India. At the end we shall discuss the recent attempts at social and political legitimization of the prevailing kind of capitalism under the current political regime. The focus will be on long-term issues, and instead of a detailed account, our attempt will be to paint a picture with a very broad brush.
Contrary to the impression in some quarters, India is one of the most unequal countries in the world. This refers not just to the deep social inequality in terms of caste and other social stratification, for which India has been historically notorious—if anything, over the last few decades social inequality, while still high, has probably declined in aggregate, with some perceptible improvement for some hitherto subordinate groups. But we are primarily referring now to economic inequality.
Unfortunately, India does not officially collect data on income distribution. But official data do exist on wealth distribution (wealth includes land, real estate, livestock, jewellery and financial holdings). These data show that inequality of wealth holding by households has been very high and increasing in India over the last few decades. The Gini coefficient of inequality of household distribution of wealth in India is now almost reaching the Latin American range. The World Inequality Report suggests that the top 1% now holds about 33% of national wealth while the bottom half of the population holds about 6%; in 1991, these shares were 16% and 9%, respectively. 2
This wealth does not include items of human capital like education. If one crudely measures inequality in the distribution of human capital in the form of, say, years of schooling of the adult population, India is one of the world’s most unequal countries in terms of education, much worse than even Latin American countries like Mexico, Brazil or Argentina.
We have far less data on inter-generational mobility, a dynamic aspect of inequality. On the basis of data from the 2012 India Human Development Survey and the 2012 Socioeconomic and Caste Census, and looking at trends in educational mobility from the 1950–1959 to the 1985–1989 birth cohorts, Asher et al. (2021) come to the conclusion that upward mobility (measured as what is called bottom-half mobility, which is the expected rank of a child born to a parent in the bottom half of the education distribution) has remained roughly constant (and low) over several decades, in spite of large increases in average income and education in this period. Taking particular social groups and only males, rising mobility for the scheduled caste population is estimated to be almost exactly offset by declining mobility among Muslims.
The pattern of high inequality tends to generate a conclave-type economy where a limited part of the economy caters to a small affluent section demanding relatively capital-intensive and skill-intensive goods, whereas much of the general economy suffers from insufficient demand and underutilization of capacity, and thus low aggregate investment and employment. (A significant part of this general economy is not captured in the changes reported in the current GDP statistics, as in the absence of regular data for the informal economy much of the reported GDP data are on the basis of crude and often misleading projections from the data for the formal sector.) 3
Capital Concentration
The inequality discussed earlier is for households. What about corporate concentration? Marcellus investment consultancy has estimated that the 20 most profitable firms generated 14% of total corporate profits in 1990, 30% in 2010 and 70% in 2019. 4
Most evidence suggests that these profits were not due to innovations or large productivity rise, but mainly due to market power. The corporate concentration and inequality may be one reason (liquidity spillovers from world financial markets may be another) for the rather dramatic disjuncture today between the battered non-corporate real economy in India and the generally booming stock market. Even as concentration is increasing, in September 2019, the Government drastically reduced the corporate tax rate, which in one stroke resulted in a loss of revenue amounting to nearly half of the total health budget of the Government. (This is in addition to low capital gains tax and zero wealth and inheritance tax for wealth-holders.)
One could argue that the composition of most profitable firms may have changed over time. This was indeed the case in the initial two decades after liberalization (say 1991–2011) when there was quite a bit of ‘churning’ in the corporate world. Significantly, there was the rise of regional capital particularly in south and west of India in this period. There was also quite a bit of competition among these new business groups. Politically, this coincided with the rise of powerful regional political parties and their assertive role in the national political coalitions.
But now with single-party dominance and centralization of political power under a supreme leader since 2014 the political economy of the corporate sector constellation has changed to a kind of ‘conglomerate’ capitalism now. 5 Many of the new entrepreneurs of the earlier two decades became heavily debt-laden and enfeebled by the increasing capital-intensity of projects and by the demanding requirements of the new technology, including data-driven scale economies and network externality. Demonetization and an initially bungled implementation of Goods and Service Tax pushed the small and medium businesses to the ropes (and then the pandemic punched a crushing blow). This is also reflected in the heavy regional concentration of credit disbursal in the country; of the 717 districts, only 10 districts accounted for 54% of total credit disbursal by scheduled commercial banks in March 2020.
Market competition has shrunk. In most sectors, such as telecom, airlines, steel, cement, aluminium, paints, synthetic fibres, cars, trucks, tires and consumer electronics, there are only two or at most three players together having more than 50% market share. In key industries, the standard Herfindahl–Hirschman Index of industrial concentration, as measured by the Business Standard based on net sales, is particularly high now for aluminium, aviation, commercial and passenger vehicles, tires, copper, paints, steel and telecom. Protectionism in Government policy (atmanirbhar) has also limited the role of foreign competition.
The current regime seems to be one of crony oligarchy. Favours and special regulatory dispensations are often reserved for a select small number of large crony businesses. In some cases, rules and goalposts were changed midstream to help the cronies. There are many examples of this—including the story of airport acquisition by the Adanis (from running no airports to becoming the largest corporate handler of airports just within a few months); that of how after complaints were raised about the predatory pricing practices of Reliance Jio in the telecom sector in violation of earlier regulations of TRAI, the regulatory authority, the latter hastily amended the previous rules and changed the definition of ‘significant market power’ to ease the way for Reliance Jio; that of bending of pre-existing environmental regulations for Adani’s mines; that of multiple complex restrictions on entry of foreign retailers to favour Reliance Retail, and so on.
In six years, Mukesh Ambani who was the 40th richest man in the world in 2014 became the 4th richest man, with his net worth increasing four times in the period. In those six years, Gautam Adani’s net worth increased about three times. (Since 2020, it has gone up even more steeply.) Some of these favoured business houses, even when heavily debt-strapped, have very little difficulty in raising domestic or foreign money, as they enjoy a kind of implicit ‘sovereign guarantee’, both in finance and in navigating the murky waters of regulatory approvals. In Adani’s firms, most large investors are offshore funds (including some based in Mauritius).
Most of the sectors in which the crony oligarchs operate are in non-traded goods or sectors that are highly regulated, getting Government favours is much more important than the need to win in competitive foreign markets—not a single global champion has been created by these oligarchs. They are happier wallowing in mostly rent-thick domestic sectors. The new protectionist regime makes the imported inputs more costly, exports less competitive. It makes it difficult for India to be integrated into the global value chain; this results in a low-productive oligarchic autarchic economy. According to estimates by the Economist magazine, India’s share of billionaire wealth derived from ‘rent-thick’ or crony sectors has risen from 29% to 43% between 2016 and 2021.
In the period 2014–2021, public-sector banks have written off loans worth more than INR 8 trillion, and many ‘willful defaulters’ have robbed these banks largely with impunity (and with the help of the long-standing nexus between business and politicians and bankers). The Government has also undermined its own flagship Insolvency and Bankruptcy Code (IBC) to preserve its discretion in regulatory forbearance for promoters. (One Reserve Bank Governor resigned after objecting to such acts of undermining IBC.) The recovery of loans under the IBC process has so far been ridiculously low—the whole system is being brazenly gamed by the politically connected. In any case the accounting and regulatory standards are quite lax in the Indian corporate sector—some believe that nearly half of the listed companies in the stock market have accounting problems.
Now let us look at the other side in what is in effect a kind of quid pro quo process, of corporate money flowing to fill the ruling party coffers. The ingenious con game, called electoral bonds, introduced in 2017 in the name of electoral reform, allowed the copious flow of corporate funds, without any limits or disclosure requirement, from a small number of business houses mainly to the ruling party (whose takings are much more than all the other parties in the Parliament combined). Such bonds are tax-deductible, so in a way the taxpayers are subsidizing contributions to the ruling party. While the public do not know who the corporate donors are, these bonds are those of State Bank of India, it (therefore the Government) knows who the donors are. In a climate of fear this ensures that most of this dark money will go to the ruling party and not to the opposition.
No longer does the party need, as the regional parties earlier did, raising money from an odd assortment of smaller fish—the liquor barons or sugar barons or local real estate tycoons or PWD contractors. Now big national capital funnels ample money to the big national party, and is suitably rewarded in a crony-capitalist oligarchic system.
Some of these business houses also own media companies which carry out Government propaganda (often full of half-truths and outright lies), and which are often funded by ‘paid news’ of ruling politicians, apart from a regular supply of selective Government advertisements, denied to others. A group of investigative journalists, The Reporters’ Collective, recently found out that one of the surrogate advertisers for BJP in Facebook was NEWJ, a subsidiary of Reliance Jio, which pumped millions of rupees into Facebook promoting BJP.
Over time there has also been a change in the composition of the politicians in general. The median wealth of Indian politicians (even ignoring the serious understatements to the Election Commission) has increased substantially in the last two decades (as has their median crime record). The number of MPs with business as the declared profession has also increased significantly; in addition, many politicians coming from other occupation groups thrive in business after they get elected. They also sometimes have egregious conflicts of interest, getting to directly influence the regulations that will be relevant to their business.
On the Labour Front: Abortive Structural Transition, Job Famine and Weakening of Labour Institutions
Now from capital concentration we turn to the general weakening of labour under the current conditions of Indian capitalism. There was a time when the essential process of development was thought to consist of a structural transformation of the economy such that people can move from the low-productivity, often back-breaking, jobs of the agricultural and other such activities of the informal sector to better jobs in the manufacturing and service sectors. In the last three decades of the twentieth century, this kind of structural transformation has been reasonably successful in East Asia, providing millions of formal-sector manufacturing jobs to rural migrants.
This has been, however, much less successful in India, where most of the low-skill entrants to the labour force have crowded the low-productivity informal sector, including agriculture where 45% of workers still toil and produce only about 15% of GDP. More than three-quarters of workers in the non-agricultural sector are still in the informal sector or are informal workers (with few benefits) in the formal sector. In India, the success stories have been in the more capital- or skill-intensive manufacturing (like autos and pharmaceuticals) or skill-intensive services (like software or financial and business services). In other kinds of manufacturing where the low-skill workers have a better chance the expansion prospects have been low. The fraction of unskilled labour-intensive industries in India’s total merchandize exports declined by almost half in the first two decades of this century. The manufacturing percentage of total employment and of GDP have remained stagnant (and even declining in very recent years).
Since 1972–1973, when National Sample Survey started collecting data on Employment and Unemployment growth of employment has been in general rather sluggish, but in the last two decades, between 1999 and 2018, employment growth has decelerated, particularly for less-educated workers, and this does not always show in the unemployment figures, as discouraged workers (mainly women, but also men) have dropped out of the labour force itself. India now has one of the lowest labour force participation rates in the world. All this has ominous implications for both the economy and the polity, as the so-called demographic dividend with large numbers of young workers may, in the absence of job prospects, turn into a ticking time bomb. (Already the frequent vandalism and violence caused by youth gangs, vigilante goons, and lynch mobs is a distressing symptom of this.)
Even when jobs are created, there is a major regional discrepancy between job demand and supply. The burgeoning supply of young people is more in the large populous states of north India (where poor governance and infrastructural deficiency limit job growth as well as delivery of welfare services). But jobs when created are more in states in west and south India. Interstate migration acts as a partial relief but, given the staggering numbers, cannot be a solution if one wants to avoid large costs of dislocation and nativist unrest—already some states have announced job reservation for local workers.
There are several constraints in India on large-scale labour-intensive industrialization of the kind East Asian development has been associated with—inadequate infrastructure and lack of vocational education and skill formation, of credit, contract enforcement problems, red tape and inspector raj, etc. In addition, the government’s policy of continually encouraging foreign portfolio investment in India has kept the rupee overvalued, neutralizing the labour cost advantage in exports of labour-intensive products.
The business press and some liberal economists habitually put much of the blame for lackluster performance of labour-intensive industries on trade unions supporting stringent labour laws. But now many of those labour laws both in some states and at the central level have been changed. In any case trade unions (particularly of unskilled workers) are now substantially weaker than before, partly on account of the general drift of technology all over the world toward more capital- and skill-intensity, and increased capital mobility both across countries and across states in India. Even in the organized sector more than one-third of workers are now ‘contract labourers’ without security or benefits, sometimes working side by side with regular workers.
Twenty-nine earlier central labour laws have now been replaced and consolidated in four codes (although these codes have not yet been ‘notified’). While simplifying the tangled mess of old labour laws is a positive step, some of the new codes involve dilution of labour rights, particularly in the matter of job security and weaken the power of arbitration courts in industrial disputes. These codes were passed in the Parliament without any discussion, as in the case of the recent farm laws (now repealed), but so far organized labour has not mobilized any sustained protests as the farmers. This possibly indicates the low bargaining strength of labour organizations in India (apart from their numbers in the organized sector being much smaller than farmers).
Cheered on by short-sighted capitalists and their supporters in the financial media the Government is in effect pushing the economy toward more distrust, labour unrest and stagnation in labour productivity. This is already apparent in some of the ugly violent factory incidents that have attracted international attention. Take the case of such a recent incident when workers ransacked Wistron’s iPhone assembly factory near Bangalore. This is a factory which employed about 2,000 permanent workers and 7,000 ‘contract workers’ (without any job security or benefits), and there is no labour union. The grievances that inflamed many workers reportedly included non-payment or delayed payment of wages, an extension of the workday to 12 hours without much notice or consultation, inadequate safety provisions for women workers at the night shift, etc. The Taiwanese assembler company for the Apple Corporation has admitted its faults but this kind of backlash to unfair work conditions and arbitrary labour laws is unfortunate but not unexpected. Similarly, there has been substantial dilution, if not outright gutting, of workplace safety regulations, and many attribute the recent rise in industrial accidents in India to this wanton deregulation.
The capitalists and pro-business governments often do not realize that negotiating and co-managing job stability, safety, and welfare and training programmes with workers may be good for long-run productivity and profits, and that sometimes capitalism needs to be saved from short-sighted capitalists (as both Marx and Keynes had pointed out).
The Process of Legitimization of Lopsided Capitalist Development
With such capital concentration and unequal capital–labour relations, recent capitalist development in India has been tardy, lop-sided, anti-labour, and oligarchic, but the government presiding over this has not suffered from lack of electoral and popular legitimacy, judging from the national election victories for the ruling party and the popularity of its supreme leader. Apart from the elections, continuous cheer-leading and open sycophancy by large sections of business and the media have created an atmosphere of triumphal public acclamation. The leader’s oratorical skills, the massive cadre-based electoral machinery of RSS/BJP, clever crafting of alliances with different castes and sub-castes in different areas, access to a disproportionately large amount of corporate donations for election funds, and relatedly the disproportionately biased media campaign, and the disorganized nature of the opposition have all helped in the electoral legitimation process. But there are two other important factors that have worked so far in this legitimization process:
The Government has introduced some new welfare schemes for the poor, of which particularly the Ujjawala scheme for distributing cooking gas cylinders and the scheme for building toilets under the Swachh Bharat program have been quite popular, apart from continuing the large popular schemes of the earlier Government, for public food distribution, for rural employment, and for affordable housing for the urban poor. (Even when such schemes were continuation of earlier ones there was a substantial change in approach, from the earlier emphasis on citizens’ rights to them to now looking at them as the Prime Minister’s ‘gifts’.) Some of the new schemes have not been completely successful—for example, many poor households cannot afford the gas cylinders after the initial financial support runs out, or many people for various reasons do not use the toilets built—yet for electoral legitimacy what is important is that the ruling party is in full control of the branding and the effusive narrative of a massively successful program with full credit claimed for the Prime Minister for these ‘gifts’. (In this narrative even when a particular program does not quite deliver, the trick is to use a megaphone to talk about cases of actual delivery and embellish them, and to keep the public distracted by the announcement and hype about another spectacular programme.) In some programs the full blare of the narrative has been more important than the program itself: a recent parliamentary committee report (headed by an MP of the ruling party) revealed that in the first three years since the gender-equity program, Beti Bachao, Beti Padhao started, about 80% of the total budget on this program has been spent in publicity alone. There is also the widely publicized promise of supply of electricity and drinking water to each household which is paying political dividends long before substantial progress has been made in implementing these promises. The poor care for such welfare schemes (and the stories of these schemes reaching other people even in cases where they have not yet reached themselves, and stories about the announced but not-yet-materialized programs, indicating how much the leader cares for common people). In any case, they are not too much bothered about the Government being cozy with the crony oligarchs. (This is in line with the working-class followers of right-wing populist leaders in other parts of the world—some of these leaders being multi-millionaire plutocrats; the working classes are often more concerned about their economic and cultural insecurity than about rising inequality per se. I go into this issue in some details in my book, Bardhan (2022).) Centralization of welfare schemes and the direct transfer technology (of deposits in bank accounts) have successfully weakened the earlier intermediation by local caste leaders in the delivery process. It is also interesting that one side effect of centralized welfare schemes bypassing state governments, giving credit direct to the Prime Minister, has been to undermine or weaken state-level welfarist Chief Ministers (including those belonging to the ruling party). The majority of voters do care about jobs and food prices, and in these the Government cannot quite control the narrative, primarily because on the job front the performance has been inexorably dismal, and on the price front there is much that is outside the Government’s control (particularly on international fuel and other commodity prices). But here the ruling party’s non-economic narrative (amplified by WhatsApp and Facebook), political theatre, and religious spectacles kick in and have been powerful in countering and distracting from bad news in the economic front: ‘You see, under our supreme leader we finally have a chance to be a super-power, strong economically (don’t you see how the stock market is booming and how many ‘unicorns’—billion-dollar start-ups—are waiting for IPO) and militarily (don’t you see how valiantly our great helmsman is steering our ship in the treacherous waters full of neighbouring enemy countries, Muslim terrorists and infiltrators, and internal fifth columnists). And yet how pious the leader is, with sage-like looks and busy rebuilding the great Ram temple, reviving India’s ancient Hindu glory.’ The relentless pursuit of such-like narratives is part of the ruling party’s psychological warfare for which opposition parties are no match. Two particular aspects of the grip of this narrative require special attention. One is that over the last three decades, thanks to the political mobilization of various caste and regional groups the polity and society have become more fragmented, and in this arena of fragmentation the ruling party has cleverly used the image of a supreme leader who is above all these divisions, providing a symbol of reassuring muscular unity. The second is the superb micromanagement, in India’s bewildering patchwork quilt of castes and sub-castes, of tactical alliances combined with Hindu consolidation and ideological hegemony (so that a large fraction of even Dalits have voted for a party suffused with a hegemonic upper-caste ideology). These alliances have been helped by years of quiet work by RSS-affiliated ground-level workers in incorporating the iconic gods and historical leaders of marginal groups into the broad Hindu tent. Religion-based nationalism and Hindu majoritarianism (that provides a democratic veneer of numerical supremacy) plus populism which invokes a strong leader ‘embodying’ the popular will (manipulatively interpreted) and washes away the irksome encumbrances of liberal institutions, procedures and separation of powers (aided by a timid, compromised, or erratic Supreme Court that has for years allowed a dismantling of the basic constitutional rights), all constitute a potent form of legitimacy that the ruling party never tires of using, or the connected business sector of conniving. Nevertheless, it is doubtful how long-lasting such forms of legitimization can be. In the long run the odds are against drastic homogenization and cramming of the manifold diversities of Hindu society into the Procrustean bed of an invented, artificial, poisonous, religious nationalism. In particular, Hinduism has never been an organized or standardized religion and in a country of extreme linguistic, cultural and other diversities and powerful centrifugal forces, the project of ‘Hindi, Hindu, Hindustan’ or in particular the suppression of the civil rights of the world’s largest minority population in any one country (nearly 200 million Muslims, apart from other dissidents) is unlikely to be viable over a long period, at least not without giving up all semblance of democracy. Besides, social fragmentation of the kind that the ruling party is bringing about is likely to undermine the institutional basis of mutual trust and normative coordination that capitalism ultimately depends on in all societies. Many African countries provide stark examples of how distrust and disharmony generated by extreme social fragmentation make it difficult for either capitalism or democracy to thrive. (Already some people think, and business leaders have warned, that the poisonous political divisiveness that the ruling party is promoting for electoral exigency in Karnataka has started affecting the thriving business atmosphere there.) National security alarm gave the ruling party a major victory in the 2019 national elections even in the face of decelerating economic growth and declining job prospects for the youth, but ‘crying wolf’ may not work every time. The ruling party has won some important regional elections, but has also been defeated convincingly in some others, mainly in the south and the east of the country. Farmers recently won a significant victory against an arbitrarily formulated set of Farm Laws. In the near future civil disobedience movements and regional resistance against arbitrary laws that seem to violate the spirit, if not the letter, of the Constitution, and more generally violate the spirit of democratic culture and the principle of federalism that survive at the ground level in many places, are likely to grow and may provide considerable opposition, even though its reflection on electoral outcomes may not be immediate. As long as some semblance of democracy is to be maintained, the highly unequal capitalism and capital–labour relations that we have discussed in the earlier sections will require some political and normative legitimization that is viable in the long run, and thus the political regime will not be able to completely ignore these forces of resistance.
Footnotes
Declaration of Conflicting Interests
The author declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.
Funding
The author received no financial support for the research, authorship and/or publication of this article.