Wednesday, 6 March 2013

Why are we so poor?

This is my latest quest, after my previous (ongoing) quest to understand Independence and Partition. Reasons for the current status of India are diverse; you cannot pin it down to any one reason alone. There is the historical perspective of colonialism, and the political perspective of poor governance. Both are equally important; both need to be looked at in detail in order that we get close to the reason for India's poverty. This is a recent quest for me; so I freely admit that I may be off-the-mark somewhere; any suggestions are more than welcome. 

First, we need to understand one thing: the conventional reasons that are oft-quoted for India's poverty are way off-the-mark and totally inaccurate. By that, I mean poor governance. Poor governance is only partially responsible for the continuing poverty that afflicts India; the core reasons lie elsewhere. More of this is covered in the section on the political perspective. 

From my earlier post:
The per capita income of the bottom 20% of India's population has not changed (as a percentage share) since 1978. That means, the bottom 20% of our population has not benefited at all from our economic boom. This is also confirmed by consumption patterns: with the consumption by the bottom 20% of the population being static @ between 0 - 1 growth%, in complete variance with the 3% growth registered by the top layers. While in the 1990s, India's Gini Coefficient was 0.32, it has now gone up to 0.38. The top 10% now make 12 time the bottom 10% - as opposed to 6 times in the 1990s.  

As per Putting Growth In Its Place

"But looking at contemporary India from another angle, one could equally tell the following—more critical and more censorious—story: “The progress of living standards for common people, as opposed to a favoured minority, has been dreadfully slow—so slow that India’s social indicators are still abysmal.” For instance, according to World Bank data, only five countries outside Africa (Afghanistan, Bhutan, Pakistan, Papua New Guinea and Yemen) have a lower “youth female literacy rate” than India (World Development Indicators 2011, online). To take some other examples, only four countries (Afghanistan, Cambodia, Haiti, Myanmar and Pakistan) do worse than India in child mortality rate; only three have lower levels of “access to improved sanitation” (Bolivia, Cambodia and Haiti); and none (anywhere—not even in Africa) have a higher proportion of underweight children. Almost any composite index of these and related indicators of health, education and nutrition would place India very close to the bottom in a ranking of all countries outside Africa."

And the numbers are not too different if you consider even the bottom 40%... think about that! BPL numbers do not mean we have pulled people out of poverty!

The Historical Perspective
First read The Mahatma:  I came reluctantly to the conclusion that the British connection had made India more helpless than she ever was before, poltically and economically.. . . Before the British advent, India spun and wove in her millions of cottages just the supplement she needed for adding to her meager agricultural resources. This cottage industry, so vital for India's existence, has been ruined by incredibly heartless and inhuman processes as described by English witnesses. Little do town dwellers know how the semi-starved masses of India are slowly sinking to lifelessness. Little do they know that their miserable comfort represents the brokerage they get for the work they dofor the foreign exploiter, that the profits and the brokerage are sucked from the masses. Little do they realize that the Government established by law in British India is carried on for this exploitation of the masses. No sophistry, no jugglery in figures can explain away the evidence that the skeletons in many villages present to the naked eye. I have no doubt whatsoever that both England and the town dwellers of India will have to answer, if there is a God above, for this crime against humanity which is perhaps unequalled in history

Note the underlined statements in the quotation from The Mahatma above. This establishes the income disparity between the villages and the towns. The income inequality that you see today has its underpinnings in our colonial past. An examination of this past will bring it out in the open, almost beyond any shade of doubt. 

The core reason is the systematic planned destruction of both the agricultural as well as the industrial base of the nation. In agriculture, they played havoc by forcible cultivation of Indigo and to some extent opium. This disturbed the food chain; further farmers were deliberately not paid for both crops. Land tax was increased from 18% to 50-60%. The farmers were not allowed to store seed and grains for food. Frequently, this left no grains, farm produce or seeds - which meant starvation. This has been recorded by both Indian as well as British observers in several sources. There are minutes of Parliamentary proceedings available that show admissions from the British rulers that regions under British rule have been reduced to poverty not known anywhere else on Earth, Similar is the well-understood case of Indian Industry, which was systematically destroyed. Duty of 80% on home goods, and 20% on British Goods effectively outpriced Indian manufacturers, leading to starvation and death as large numbers of units closed.

The intrusions in the farming landscape meant unmitigated disaster and ruin for India's hitherto well-off villages; with the cycle of crops being broken, lack of seeds and grain, and no protection (unlike earlier), the lot of the farming community degraded quite rapidly. Even today, take a look at the poorest sections of India: most of them were under direct British rule for the longest amount of time. The economic cycle was interrupted; leading to ruin. There was no development work undertaken for the welfare of the community. With the fall of the farmers into ruin, the entire village economy took a hit, and went on a downward spiral. 

The condition in the towns and cities was no better; the industrial and handicraft units were broken up due to lack of business driven by the lopsided duty structure, with imports being taxed @ 20% and home products @ 80%. The influx of cheap imports broke the back of the economy in combination with the destruction on the farming landscape. Merchants guilds - a reality since harappan times in India- ceased to function; millennia-old trade routes were disrupted as they came under British control, and the cost of home-produced goods sky-rocketed. This broke the chain, the economic cycle; bringing the economic engine to a standstill. This also had its impact on the rural sector, as handicrafts, and rural goods trading also suffered. Now these were traded by the Brits, who are on record stating the lack need to pay for them. This was a frequent reality with goods being "purchased" and not paid for. No brickbats - this is a matter of documented record. Even a Brit PM is on record on this matter. 

And this is the story, in a nutshell, of how one of the 2 greatest trading engines in the history of Earth crashed to its nadir. By the second half of the nineteenth century, the destruction was complete; nothing remained of the once-great Indian trading and manufacturing powerhouse. The towns fared slightly better thereafter, since the Brits needed people to run their administration; that let in modern education. This restoked the engine; the existing capital rose in the form  of some manufacturing units of initially textiles in the late nineteenth and early 20th centuries as some Indians tried to restart it. They faced heavy opposition: Indians were not allowed to have textile mills, it was supposed to be imported. The machinery that was to imported was stalled on several occasions; when procured it was further delayed at customs - every form of harassment was tried- leading to some just giving up. Others didnt; and thus started the rise of the towns and cities of India. 

But rural India had no such initiative for them... and were left as they were! The per-capita income was nearly stagnant during the first half of the 20th century... this is a figure that tells the tale.

The Political Perspective
This was the scene when India became independent. The status of agriculture was terrifying; there was no growth in any sector; there were no industries - only a textile sector and a nascent steel plant. India had nothing; it was at zero. The morale of the nation had been broken by 200 years of the most brutal exploitation known to mankind. This was what our political masters had inherited. This problem was on a scale not known anywhere else on earth; the scale of the challenges facing India were unique and have no precedent anywhere on Earth on a similar scale. Repeated famines were hitting India - with each causing millions in death toll. The tasks facing the incumbent government were stupendously and horrendously arduous and beyond description; they further had no experience - and no one else did either, for no one had faced such a terrfying spectacle ever. And that is why, despite their many failings which I shall subsequently cover, I have nothing but respect for the founding fathers; what they achieved is a miracle. In retrospect we can say that they might have done better - but I submit anyone can say that with the benefit of hindsight. They deserve our respect and our gratitude - what they did, they did to the best of their abilities and with no one but themselves for advice. No one else had to face such a horrendous spectacle ever - not on this scale. Respect - thank you, Sir... all of you! 

Thus we can see that India was already poor when she became independent. Given the scale of the destruction, it was always going to be a difficult, long and arduous climb spanning decades. But that does not mean we did not commit mistakes.  We have made only 2 mistakes since independence, in my humble opinion:

  • Governance: we have failed to deliver to the people. That is something for which there can be no excuse. These problems stated below have created a people who are unaware, and are unprepared to reap the advantages of the freedom we now enjoy. They have not been developed, which is a developmental and Governmental failure of monumental proportions. This has meant continued stagnation, as agricultural productivity did not grow, meaning lesser produce and money in rural markets; underdeveloped and unregulated rural markets; uneducated people etc. We have created an unweildy and unresponsive bureaucratic class in the bargain. The problems can be identified as:

    • Absent or inappropriate Health Services in Rural India
    • Lack of even basic educational facilities in Rural India
    • Leakage in funds allocation to the priority sector and villages
    • Lack of even basic amenities in certain villages
    • Resultant continuing Urban Migration
    • Severe shortage of needed infrastructure in the hinterland
    • Very low knowledge transfer from universities to Rural farmers, entrepreneurs etc; this has nothing to do with the internet: here I am talking about upgrading farmers with latest techniques; awareness of opportunities that arise with economic growth; awareness of technological developments that can be used to generate business etc
  • Corruption: this is the single most significant drag on our growth. This has its impact on every segment of the economy from the farmer to the agricultural mandis; from the rural mandi gundas to the urban thiefs; from the corporate scams to the governmental scams... there is not a sinble aspect which does not carry this rider...

We started out as poor in the beginning; the scale and magnitude of the problem was so terrifyingly horrendous, that it was always going to take time. We went wrong in only one vital aspect: lack of focus on inclusive growth; lack of rural infrastructural development; lack of focus on human development and lack of control on governance leading to an unwieldy administration that is now more of a drag than a help...

It is my ongoing quest to understand the current status of India in terms of governance, as well as the the policies - economic and otherwise - that have lead to this and the path forward...

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