The immense growth in inequality in the neo-liberal period inevitably creates a crisis in the economy, so that even the acceleration in growth rate claimed for this regime does not last long. The regime is characterised by a shift of income from the working people, that is, the workers, the peasants, the agricultural labourers, the petty producers and those employed in the unorganised sectors, towards those sections of the population to whom economic surplus accrues; this shift entails essentially a shift from the poorer segments of the population towards the richer segment.

Now, the poor have a higher propensity to consume out of their incomes than the rich, so that every such shift in income distribution has the effect of bringing down consumption relative to what it would otherwise have been. There is no obvious reason why investment should increase to compensate for this fall; in fact, on the contrary, investment, which can be taken as a given magnitude in any particular period, responds to the change in consumption and hence itself also comes down as a result of the fall in consumption. The economy, therefore, moves into a crisis. The government can neither prevent nor counter such a crisis of overproduction, for while monetary policy is a blunt instrument that is incapable of making any difference, fiscal policy that can make a difference is hamstrung by the neoliberal structures within which the economy is placed.

Advertisement

The government’s spending cannot increase aggregate demand unless it is financed either by enlarging the fiscal deficit or by taxing the rich. Taxing the poor, who consume the bulk of their incomes anyway, and then spending the proceeds, as already mentioned, will only change the composition of aggregate demand, but not raise its magnitude. Both these ways of raising resources for financing government spending to raise aggregate demand, however, are opposed by globalised finance, which therefore makes fiscal policy ineffective for combating the crisis.

The crisis, somewhat delayed globally by the asset price bubbles in the US, the “Dot-com” bubble in the 90s and the “housing bubble” in the early years of this century, finally burst forth in 2008. In India, its impact was further delayed for a while by a counteracting fiscal effort, but eventually manifested itself towards the end of the tenure of the UPA-II government. This manifestation has been less in the form of GDP growth: the government started a new series of GDP estimates in 2011-12, which, even according to the Chief Economic Advisor of the time, Arvind Subramanian, overstate the growth rate of the economy and hence camouflage the crisis. But the manifestation of the crisis in terms of accentuated poverty and unemployment is unmistakable.

I mentioned earlier that between 1993-94 and 2011-12, there had been a significant increase in nutritional poverty; this increased even more significantly between 2011-12 and the next NSS large sample survey in 2017-18. In fac,t the 2017-18 survey showed such a dismal picture that the Modi government withdrew its results from the public domain, and decided to change the method of data collection, which makes the results of the latest survey, in 2022-23, non-comparable with the earlier ones. From the 2017-18 findings that were briefly available, it seems that the per capita real consumption expenditure in rural India had fallen by 9 per cent compared to 2011-12! The percentage of the population unable to access 2200 calories per person per day in rural India had exceeded 80 per cent; even if the urban percentage, which is not known, is taken to be only 60 per cent, the overall poverty ratio was well over the ratio for 2011-12. This dismal picture is commonly attributed to the disastrous policies of demonetization and the introduction of GST (both of which incidentally are part of the neo-liberal strategy); but, while it is not possible to find out which element contributed how much, the effect of the world capitalist crisis arising from the immanent tendencies of neo-liberalism, must also be reckoned to have played a role.

Unemployment data in India are extremely difficult to come by, because we do not have in reality a neat division between those fully employed and those fully unemployed. Employment rationing here takes the form of people getting work on some days but not on others, and a rise in unemployment simply means a lesser number of days of work, or a lesser number of hours of work per day; even a measure of such a lesser magnitude of work gets clouded by the large number of persons who are “self-employed”. There is no doubt, however, that by 2019, even those who are counted in NSS as “chronically unemployed” had risen sharply, indicating a clear worsening of the situation; indeed the “chronic unemployment” rate in 2019 was higher than at any time in the preceding 45 years (the earlier peak being reached in the wake of the first oil shock). Since then, unemployment has remained perennially high, though the official figures camouflage it: the magnitude of women’s unpaid work has increased significantly, which is counted officially as employment, even though it actually constitutes a symptom of unemployment.

The unofficial employment estimates available from the Centre for Monitoring the Indian Economy which ask people whether they consider themselves as employed, show a clear increase in unemployment; in fact, the unemployment rate of late, according to the CMIE, has been generally higher than at any time in the past. What is more, the CMIE shows that the number of persons employed has not increased at all over the last five years, which constitutes a grim scenario, though how much of it is because of the pandemic, how much because of the lingering effects of demonetization and GST (which dealt crippling blows to the petty production sector) and how much because of the world capitalist crisis, remains a moot point.

Excerpted with permission from Socialism and the Indian Constitution, Prabhat Patnaik, Speaking Tiger Books.