Annabel Bligh: Hello and welcome to India Tomorrow, a series brought to you by The Conversation’s Anthill podcast. I’m Annabel Bligh from The Conversation.
Indrajit Roy: And I’m Indrajit Roy, lecturer in politics at the University of York.
Annabel Bligh: In this episode of India Tomorrow, we’re going to be taking a look at India’s economy.
Indrajit Roy: India’s prime minister, Narendra Modi rode to power in 2014 promising economic changes. It was a key plank of his election campaign. We’re going to explore how he has succeeded – and failed – to transform the Indian economy.
Annabel Bligh: We’ll also hear how some constituents feel let down by Modi’s failure to deliver on some of the major reforms that were promised.
Kunal Sen: So Narendra Modi promised quite a few things when he won the elections in 2014.
Annabel Bligh: That’s Kunal Sen, director of the United Nations University World Institute for Development Economics Research and professor of development economics at the University of Manchester.
Kunal Sen: The first thing he promised was to create jobs, especially because of the sense there was a bit of a problem with jobs being created in the previous years.
Indrajit Roy: We’ll examine India’s jobs situation a bit later. It’s safe to say at the moment, though, that this is a very hot topic when it comes to India’s economy.
Annabel Bligh: But first, it’s worth noting that India’s economic growth on the whole is very impressive. According to the IMF, India is the world’s fastest growing major economy. Its growth even outpaced China’s in 2018.
Kunal Sen: Growth has recovered perhaps not back to the levels that India saw in around the first decade of the 2000s. Around the first decade of the 2000s economic economic growth rate in India was around 9% per annum which was very high, the highest ever India had actually seen in terms economic growth.
Annabel Bligh: But the economy has grown a lot more under Modi than before he came to power in 2014.
Kunal Sen: So there’s been some recovery and that is certainly something that has happened in the last few years, since Modi came to power.
Indrajit Roy: Kunal says that another big promise of Modi’s was around reforming the Indian state and its ability to deliver public goods like infrastructure, health and education.
Kunal Sen: On the question of reforming the Indian state, this was a very ambitious promise and some of this has been achieved. For example in electrification, there has been quite a major drive in rural electrification in many villages in India. We have now electricity being provided that wasn’t the case before. They also see significant achievements in sanitation, for example, infrastructure provision, roads and so on, particularly rural roads, which has happened in the last four-five years or so. So on that I would say that we have seen some delivery in terms of public goods. But there have also been big challenges. There have been big challenges around reforming the Indian public sector, which really hasn’t happened. Maybe that was something that was always very difficult to do.
Annabel Bligh: So that’s a kind of overview of how Modi has performed. One of the major policies that he implemented and that has dominated discussion of his time in office was demonetisation. Here’s Kunal again:
Kunal Sen: What he did was quite dramatic and perhaps not something that people expected, which was that on 8th November 2016 the government decided to essentially withdraw 500 rupee note and 1,000 rupee notes, the two major currency denominations, from the money supply and introduce a new 500 rupee note, along with a new 2,000 rupee note – we didn’t have 2,000 rupee notes denomination prior to this policy initiative. And that was done at a stroke of a pen.
Indrajit Roy: Overnight, this demonetisation policy made 86% of the country’s cash worthless. Everyone in India was given 50 days to exchange their old bank notes for the new ones.
Annabel Bligh: Indrajit, can you give those listening outside of India an idea of how much 500 rupees is worth?
Indrajit Roy: So, 500 Rupees could get you two decent meals in a place like Delhi. It’s slightly more than what a reasonably paid construction worker would be paid per day. So, wage rates in the sector are fixed at about Rs 350 per day, and 500 rupees is slightly more. So, construction workers would probably be paid a week’s wages in a bunch of 500 rupee notes. So these are bank notes are commonly used by people everyday and demonetisation therefore really was a dramatic move.
Annabel Bligh: So, yeah, demonetisation was geared toward delivering Modi’s campaign promise to stamp out corruption and, in particular, to remove black money and counterfeit notes from the Indian economy. Kunal says, however, that this isn’t exactly what transpired.
Kunal Sen: Now what actually was surprising was, now we have the estimates from the Indian central bank, is 99% of those notes have been returned to the banking system, which meant actually there were very few counterfeit notes. So therefore the rationale that the government had, that this was a way to get rid of counterfeit notes, didn’t seem to really work in practice.
Indrajit Roy: Not only did demonetisation not achieve its intended outcome, it gave the Indian economy quite a big shock.
Kunal Sen: When you withdraw money like that, in an economy which is quite reliant on cash, it can be a huge negative shock to the economy. And particularly in the sectors which are cash intensive, which is obviously the agricultural sector and the informal sector, for those sectors they face the brunt of this particular policy initiative because suddenly you’re in a situation when essential day-to-day activities need money, need cash, there wasn’t any cash. And that cash came back to the system quite late. It took a long time for the government and central banks, banking system to supply the new notes that were in, came into circulation after November 8.
Annabel Bligh: Kunal says that it’s hard to say exactly how much of a shock demonetisation had on the economy – largely because economists don’t have accurate data on the informal sector in India, which is a sector that includes the numerous micro and small-medium enterprises, and roughly comprises at least 80% of India’s workforce.
Kunal Sen: The estimates on the loss in GDP is around 1.5% of GDP, which is quite a bit. And given that that loss seems to have been concentrated in the informal sector, the agricultural sector, which is where most of the poor are, that would mean that not only did we see a big loss in GDP but we particularly saw a big loss in incomes of the working poor.
Indrajit Roy: But, Kunal told us, despite hurting the economy, demonetisation was not altogether unpopular with people he spoke to as part of his fieldwork.
Kunal Sen: Many people felt that Modi did a very brave thing, a very bold thing and many people felt that, “OK, we suffered” – and this is my own interviews with lots of poor villagers in different parts of eastern India. When I was talking to them, a couple of months after this particular demonetisation happened, their argument to me was, “Well, OK, you know we’ve lost some income, some ways to ways to maintain our livelihoods. But we think that the rich person in our village suffered more. And we feel that’s actually good that that person suffered more than I did and therefore I feel that this policy, as much as I think I got hurt from this particular policy, I think I support it.”
The perception that was there was that, “yes, we suffered”. But perhaps this particular policy was needed for the national interest and for that very important objective of trying to curb black money and to control corruption. And because we think that this particular policy is going to particularly affect those who are corrupt and those who have lots of money that they gain from illicit means, we actually think the policy is a good thing.
Annabel Bligh: Kunal was also quick to point out, however, that this is what people were saying in the immediate aftermath of the demonetisation policy and once the longer term effect of it began to kick in, people may have gone on to change their minds.
Kunal Sen: So for example there was elections in Uttar Pradesh not not very long after the demonetisation policy initiative that, where the BJP government did pretty well. But in the subsequent by-elections that we saw in Uttar Pradesh and other parts in India, the BJP government didn’t do so well. So it could well be that the initial perception was fairly positive. But as things turned out for those who are affected by this policy in a negative way their views might have changed over the over over the course of a year or so.
Indrajit Roy: The reason demonetisation caused an economic slowdown is because India is a cash intensive economy. Lots of people don’t have bank accounts and lots of workers will get paid in cash. Jens Lerche, reader in development studies at the School of Oriental and African Studies, explains how demonetisation affected all these people.
Jens Lerche: It meant a huge cash crunch because, of course, there weren’t enough new currency to go around. So, any sector or any people relying on cash had a problem. That meant small businesses, any cash-in-hand jobs. So construction, street vendors, people working in brick kilns, and so on, couldn’t get paid. So small businesses suffered and so did people in low-end jobs.
Annabel Bligh: Jens was also in India doing field work in villages just after the demonetisation policy was introduced and then again 18 months later.
Jens Lerche: I work mainly in villages. What I saw there was that many of the low caste, Dalit construction workers, that normally would be working in Delhi, Mumbai, the big cities, were back home because there was simply no work for them in the towns any longer.
Annabel Bligh: Jens also points to the lack of accurate data but says it’s clear that demonetisation, along with another Modi policy, the goods and services tax that was introduced in July 2017, had negative effects on a number of businesses.
Jens Lerche: But we know that this, together with what came the year after, namely the Goods and Services Tax, which is VAT, that was introduced. Which means that you pay the VAT as a small business but then you get it refunded afterwards, led to even more of an economic crunch on small businesses. Altogether, those two initiatives are estimated to have cost three to four million jobs. Some organisations claim that demonetisation led to a continued loss of jobs of around 1.5m. But these are tricky figures. Together there’s no doubt that both of them led to significant job loss.
Indrajit Roy: Jobs – the lack of them – has been one of the major disappointments of the Modi government. One of his key promises in 2014 was to create millions of jobs for young people and reverse what he called decades of “jobless growth”. Here’s economist Kunal Sen again:
Kunal Sen: In fact, if anything, it seems that Indian unemployment rates in India have increased in the last few years. The most recent estimate we have which has been leaked from the National Statistical survey organisation is that India has the highest unemployment rate ever in its history since independence. Obviously since we do not have access to the actual report, we can’t be sure about this information. But the general sense is that we haven’t seen the kind of jobs growth that was promised by Modi when he came to power in 2014.
Annabel Bligh: The Modi government has been accused of withholding jobs data in the run up to the election because of how bad the official figures are. But the latest employment survey, which was approved by India’s national statistics commission, was leaked to the Indian newspaper the Business Standard in late January and showed unemployment was at a record high of 6.1%.
Indrajit Roy: By a lot of standards 6.1% is not a bad unemployment rate. But for India it’s very significant, according to Jens Lerche, because there isn’t strong welfare provision in the country. And the unemployment rate was just 2.2% in the 2011-2012 financial year.
Jens Lerche: Now unemployment is uncommon in a country such as India because poor people have to work. So, people being without jobs to some extent is people that can afford not to work – educated people that have a family background that they can live off for a while. But, what we have seen here is jobs that have disappeared also within the agricultural sector and low end of manufacturing sector. So it does appear as if poor people are also losing their jobs here.
In fact for the first time ever we are seeing a fall in employment over a year in the Indian economy. I mean, there’s a huge population growth and the issue is normally whether job growth can keep up with the population growth. But, India has, in the words of Manmohan Singh, the ex-prime minister, gone from “jobless growth to job loss growth”. That is a problem. We haven’t got official data but data compiled by a reputable non-governmental research institute argues that employment has fallen 11m jobs in the last year.
Indrajit Roy: The leaked jobs data shows that the unemployment rate is much higher for people under 30 – something we’re going to hear more about in our next episode which is focused on India’s huge population of young people.
Annabel Bligh: It goes to show how India’s economic growth is not benefiting everyone. Now, all the blame for this cannot be laid at Modi’s feet. There are deep-rooted issues with the Indian economy which predate his tenure. But, Jens says, that demonetisation and the Goods and Services tax have not helped because they hurt so many businesses.
Indrajit Roy: More generally speaking, inequality is a big issue. Jens points to research which shows how India’s impressive economic growth has not benefited everyone.
Jens Lerche: Oxfam produces wonderful Oxfam inequality reports every year. Their view is that it’s only the top 10% of the population that really has benefited from that growth. Poverty has decreased in India. But proportionately it is the top part of society that benefits from this.
Annabel Bligh: And things are getting worse.
Jens Lerche: And so so the situation today is that if you take the top 1% of the population, they own more than half of all the wealth. And if you take the top nine billionaires, their wealth is equivalent to that of the bottom 50% of the population. So a very very tiny elite that owns the bulk of the wealth.
Indrajit Roy: A lot of this inequality falls along caste and regional lines, with poverty rates much higher among so-called lower castes, the ex-untouchables or Dalits and the scheduled tribes, who are also referred to as Adivasis.
Jens Lerche: There are certain sectors where the lowest, where the groups that are discriminated against, the Dalits and the Adivasis, will work. And that is in brick kilns, where you have appalling conditions; it is construction where you work very long hours and it’s very hard work; it is sanitation work, anything to do with human waste; and, it is also low-end factory jobs. If you are from a slightly better background, you are more likely to also have better education and you are more likely to have certificates that will mean you can gain access to proper industrial work. And if you are from higher caste, you may may end up in better jobs. So, there’s a clear hierarchy in the kind of jobs you get.
Annabel Bligh: Jens says the relationship between caste and inequality is incredibly stark.
Jens Lerche: Low-caste people earn just only a tiny bit more than half of what high-caste people do. They earn 56% of what high caste people do. That means that the caste-based earnings gap is actually worse than the gender-based earnings gap. Women earn less than men but low-caste people earn even less.
Indrajit Roy: The scheduled tribes, or Adivasis, make up a large pool of India’s migrant workforce who move to wherever there are work opportunities.
Jens Lerche: They end up in the worst jobs across sectors. We’ve seen that, we have, together with my colleague, Alpa Shah, we have done a major study of work at the bottom of the hierarchy in the modern sector. And it’s clear that wherever you go in India you will find Adivasis right at the bottom as migrant labourers. They will not speak the local language, they will not have access to the local social services, such as subsidised food. They will not have any political say because local politicians do not care about the migrant labourers. So, they can be treated much more harshly than the local can be.
Indrajit Roy: Actually a lot of migrant workers may not be able to vote in the upcoming elections because you can only vote where you are registered. And many will be registered in their home towns or villages – and it’s too far and too expensive for them to travel back to vote.
Annabel Bligh: So I know you’ve been working on a research project about India’s migrant workers, Indrajit. What have you found? How have they fared in recent years?
Indrajit Roy: So we’ve spoken to lots of people from Bihar state in India’s east who move to other parts of the country looking for better opportunities and what they would consider dignified work – you know, what they call ijjat ka kaam. A lot of what they find is precarious work and many people end up moving back to their villages where much of the work is in agriculture. But here too there are problems.
Annabel Bligh: Farmers make up a significant proportion of India’s population.
Nitya Rao: So when India got freedom 70 years ago it was almost 50-60% of the gross domestic product, was the contribution of agriculture.
Annabel Bligh: Nitya Rao is professor of gender and development at the University of East Anglia and she is an expert in India’s agricultural sector.
Nitya Rao: Now it’s about 15% or 10-15%. So it has come down, so there is a transition there with development. However, 50-60% of the population of India is still rural and still partly dependent on agriculture.
Indrajit Roy: So a lot of people are partly dependent because family members are leaving farming to try and find other jobs. Some in cities as we heard before, others in what is becoming a very diverse rural economy.
Nitya Rao: So that means they would still have some kind of backup within farming, at least 50 to 60% of the population, even though some member of the household may be diversifying into other occupations.
Annabel Bligh: In the last couple of years there have been a number of protests involving tens of thousands of farmers marching on the capital and other major cities.
Indrajit Roy: India’s agricultural crisis predates Modi. But, Nitya says, that farmers have been especially frustrated because in 2014 Modi promised to implement a number of reforms that had been recommended by the National Farmers Commission, a group that was set up in 2004 to identify the reforms necessary to alleviate the suffering of farmers.
Nitya Rao: So over the last decade or so, actually, the agrarian crisis has been building up because of both these factors – climate variability, which is of course beyond the control of the government. But also, of the lack of certainty about prices.
Annabel Bligh: Nitya points out that farmers’ fortunes are dependent on both the climate and the market. While they might not be able to control the climate, the government can help farmers when it comes to the market. They can do a lot to alleviate the suffering of farmers such as guaranteeing certain prices for crops or compensating farmers when harvests are bad and waiving the big loans that they have to pay for seeds and fertiliser.
Nitya Rao: The protests started escalating in 2017, about one and a half years or two years ago, over the summer, when, in the north Indian state of Madhya Pradesh, they had a very good harvest of pulses, which is a high value crop. And it was not procured by the government at minimum prices. So farmers, which required a lot of investment for growing pulses, they had to literally leave a lot of the pulses on their fields because it was a loss even to spend extra money for transportation, to take it to the markets, since they were getting a lower price, a price below their cost of input.
And thereafter, there was a series of such, crops specific in different parts of India. So there was tomato harvest in Uttar Pradesh State. And last year in Maharashtra, in November, there was a very big protest of about 10,000 farmers who came to the city of Mumbai, from all parts of the state, protesting for three things really. One is a minimum support price; second thing was drought compensation, because it had been a drought so they wanted compensation payments for drought; and the third thing was that they had all taken loans for inputs and they wanted a waiver of these loans.
Indrajit Roy: These protests have attracted a lot of attention – not least because of the visceral imagery that farmers have used to reflect the struggles they face.
Nitya Rao: I’ve seen also some protesters, farmers, actually from where I am, from the state of Tamil Nadu, when they went to Delhi, they were I think bearing skulls and so on, to symbolise that, you know, a lot of people were dying and they were almost like dead to people. So I think there was a lot of symbolism around death.
Annabel Bligh: So there is definitely anger toward the Modi government for failing to deliver on the reforms that were promised. But we’ll have to see how this anger from farmers plays out in the 2019 national elections. As with other sections of Indian society that we’ve heard about in this series so far, farmers are a diverse group. Religion, caste, class, and gender will all influence how farmers feel about the incumbent government and what kind of future they want.
Indrajit Roy: Before voting began in April, many thought that the issue of Kashmir, and the recent flare up of tensions with Pakistan, about which we heard in episode 3, might dominate the political debate. But actually, attentions are turning back to the economy, how it’s performed and what it’s done for different groups such as the farmers and young people.
Annabel Bligh: Yes, there are a whopping 84m first time voters in this election and these young people are the focus of our next episode:
Craig Jeffrey: Now unlike the same generation 25 years ago, that set of young people are very well aware of events in other parts of the world, which are streamed to them via their mobile phones, on the internet. They are increasingly in secondary school, including young women. And in school they’re learning to obviously dream big.
Annabel Bligh: Do subscribe to The Anthill podcast, if you haven’t already, so you don’t miss out on that. That’s in part 6 of India Tomorrow. You can read more of The Conversation’s coverage of India by academics from around the world on theconversation.com or follow us on social media. If you’ve got any questions relating to what we’ve been discussing in this series, please do get in touch via email on email@example.com or on twitter @anthillpod. We’ll put these to a panel of academics we’ve got lined up to discuss the election results at the end of May. And if you’re looking for a transcript of this episode, and other episodes in this series, it will also be available soon on theconversation.com.
Thank you to all the academics who spoke to us for this episode and to the journalism department at City University for letting us use their studios. The Anthill is produced by Gemma Ware and me, Annabel Bligh. Sound by Alex Portfelix. And an extra big thanks to my co-host Indrajit Roy.
Indrajit Roy: Thanks Annabel. See you next week.
Annabel Bligh: Thank you for listening. Goodbye!