Latest news with #MakingIndiaWork:TheDevelopmentofWelfareinaMulti-LevelDemocracy
Hindustan Times
4 days ago
- Politics
- Hindustan Times
TERMS OF TRADE: The political economy of welfare in India
Everybody, from fund managers in Wall Street to RWA WhatsApp groups, has an opinion on welfare in India. Many of them see this as an agent of economic doom which will destroy not just the fisc but also (poor) people's willingness to work. Then there are those who see this as the litmus test for a civilized society. Listening to the (often-wrong) psephologists on TV channels, one could very well come to believe that welfare is something which has come into existence, and, more importantly, political salience, only in the recent past in India. The story of welfare in India, however, goes long back in time, is significantly more complicated, and has been constantly evolving over the last century. Making India Work: The Development of Welfare in a Multi-Level Democracy, the latest book by Louise Tillin, a political scientist at King's College London, finally does justice to the task of putting together the longue durée narrative of welfare in India. It is a must read for anybody who wants to have an informed opinion, rather than just an opinion about welfare in India. India, among the many interesting things Tillin's book teaches us, was a founding member of the International Labour Organisation (ILO) in 1919. It was the first colony to be made a permanent member of its governing body in 1922. Even the US, a much older democracy than India, became an ILO member only in 1934. India's ILO membership spurred not just the formation of its first trade union (All-India Trade Union Congress) but also its first industry lobby (Federation of Indian Chambers and Commerce). Even domestic capital was keen to have a voice of its own rather than outsource it to our imperial masters. The national movement was actively engaged with both of these camps. The book also tells us how a planned visit and study by the economist William Beveridge, considered the architect of the modern welfare state, to India fell through because, B R Ambedkar, minister for labour on the Viceroy's Executive Council in 1942 refused to allow Beveridge to focus beyond the realm of industrial labour. Beveridge wanted to look at and study everything including the rural. The book also tells us how capital in Bombay was pleading with the colonial government to dilute social security obligations because it was facing competition from capital elsewhere where such regulations did not apply. It also tells us how the roots of political weaponisation and straight-jacketing of welfare go back to the first (and not the more recent) instance of Caesarism – rise of a charismatic leader – in Indian politics and how the political competition around it actually created a fiscal crisis in for the Indian state even in the 1980s. These are just some tidbits from the story which Tillin's comprehensive and much needed book tells us. To be sure, the book, which is a result of decades of research ranging from field visits in India to archives going back to the pre-independence era, is not just a mere reiteration of facts on the state and evolution of welfare in India. It also builds a nuanced argument about the mechanics and ongoing dialectics of the shaping of welfare in India and questions a lot of perceived wisdom around it. This edition of the column is inspired by a reading of Tillin's book – this author was invited to a discussion on the book – but also tries to critically place the debate around welfare in a larger political economy framework. Why is welfare important in a democracy? A liberal democracy has two mutually conflicting classes, labour and capital, trying to get the better out of each other. In the crudest form, the argument boils down to capital employing labour to generate surplus value. The former's returns (profits) can only be maximised if the latter's reward (wages) is kept as low as possible. The conflict between labour and capital sharpened significantly after the communist revolution in Russia in 1917. The working class started militantly demanding a bigger share in the value of production. This militancy triggered a huge backlash in large parts of western Europe which began with austerity and culminated in fascism in places like Germany and Italy. For those who are interested in a detailed story, there is excellent academic work to be read on the topic such as The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism by Clara E. Mattei and The Wages of Destruction: The Making and Breaking of Nazi Economy by Adam Tooze. For readers interested in a fictionalised take on the topic, a recently published blockbuster Italian novel (now translated) M: Son of the Century by Antonio Scurati gives a gripping account of the rise of Mussolini in Italy. Capital completely dominating labour is just one extreme of the tension between capital and labour in modern history. The other extreme, where labour triumphed over capital also did not lead to amicable outcomes. The Soviet Union, which abolished private property, ultimately became a victim of the economic contradictions of its own making. Chris Miller's book Struggle to Save the Soviet Economy: Mikhail Gorbachev and the Collapse of the USSR and The Triumph of Broken Promises: The End of the Cold War and the Rise of Neoliberalism by Frirtz Bartel go into the detail of how the socialist camp could not preserve the advances made by its working class because of a failure to get its macroeconomics right and ultimately collapsed under the weight of its own contradictions. That the Chinese success story has been built on the basis of a very different kind of 'socialism' than what existed in the likes of the Soviet Union only underlines this point. The rise of fascism as a reaction to communist militancy and collapse of the socialist block are, of course, extreme examples in the history of capitalism and democracy. Most major countries in the world managed to find a middle path by placating both labour and capital in a democratic framework and minimising conflict. These bargains are best understood by the Italian Marxist Antonio Gramsci's concept of the passive revolution which argued that the bourgeoisie often tries to minimise conflict by offering concessions to its adversaries including the underclass to maintain stability. The equally important question to ask, however, is not whether such a bargain between capital and labour has managed to preserve stability but also about the relative well-being of each class as a result of the prevailing bargain. It is on this question that political scientist Sudipta Kaviraj's critique of the passive revolution in India – first published in an essay by the same name in 1987 – offers a persuasive and still relevant take on the bargain between the capital and labour in Indian democracy. 'The tragic thing is that the crisis of ruling-class politics plunges not only the ruling bloc, which has ruptured its protocol, into serious disorder, but the whole country. An exhaustion of the politics of the ruling bloc does not automatically prefigure a radical alternative. It is a particularly sad chapter of a story which had begun with the promise of something like an 'Indian revolution', an understandably unpractical and sentimental beginning which promised to 'wipe every tear from every eye'. Even if we consider only the socially relevant tears, the promise is as distant today as at the romantic time when it was made,' Kaviraj writes. His critique, in a way, is very similar to the larger criticism of India failing to evolve as a 'rights-based' welfare regime where workers and citizens are conferred constitutionally guaranteed entitlements to provide a minimum standard of living. What went wrong with welfare in India? Answering this question, first and foremost, requires admitting that class conflict in India never took the form it had in advanced capitalist countries. An overwhelming majority of the working class in India has never been employed by the typical capitalist. Despite being at the cusp of becoming the third largest economy in the world, the average Indian firm still employs less than three people. The conflict between the bourgeoisie and the proletariat in India has therefore taken two primary forms: a struggle for terms of trade between the farm and the non-farm sector and demand for more welfare from the state rather than capital. With the evolution of the Indian economy, there have been two key developments which have minimised the importance of the conflict between the agrarian and the non-agrarian sector and increased the importance of the conflict around greater demand for welfare from the state. The first is the self-sufficiency of the country in food production from days of infamous 'ship-to-mouth' existence thanks to the green revolution. It has been accompanied not just by a rise in per capita production and availability of food grains but also the per capita procurement and distribution of food grains. There was a time when the state wanted to procure as much food as possible and farmers were unwilling to sell to the state because they could get better returns in the open market. Now it is the farmers who are demanding that the state buy their food at minimum support prices because the markets are not so rewarding. The second has been the falling importance of agriculture as a source of livelihood in India. While agriculture's headline employment share is still more than 40%, government's own data from sources such as the Situation Assessment Survey shows that the share of workers who are exclusively dependent on cultivation incomes has fallen drastically. As this share comes down further, the militant farmer is increasingly become a thing of the past in India and being replaced by the vulnerable migrant worker who can be employed in a construction site or delivering food in cities. The rise of welfare expectations vis-à-vis the state in India goes back to the Indira Gandhi years. In the middle of an inner-party struggle and a serious macroeconomic crisis, both Gandhi and the deep state realised that the planning experiment was struggling to deliver politically and economically. From the Garibi Hatao campaign of Indira Gandhi, which won her a landslide victory in 1971 to the 'capitalism with a human face' phase of the United Progressive Alliance (UPA) government to the welfare heavy rhetoric of the Narendra Modi government in the past eleven years, the nature of conflict in expanding the ambit of welfare to generate political capital has largely been the same: balancing political popularity with larger macroeconomic stability. As is obvious, there is a fundamental contradiction in this dialectic. The expectation for welfare is the highest at a time when the economy is in distress. But it is precisely at that moment when the fiscal ability to provide or expand welfare is also the lowest. What further complicates this contradiction in India is the fact that almost every political party faces a fundamental asymmetry in India. Its political legitimacy in a universal franchise-based democracy depends on support from the underclass. But for political finance it must draw on the support of capital which has much more stake in macroeconomic stability than the poor. As elections have become more and more expensive in India, this fault line has only worsened. The other fact which has worsened the pursuit of this balance is the fact that widespread economic precarity persists in India despite a phase of high growth in the past two decades. The choice, as far as the underclass is concerned in India is between chronic distress (in agriculture) and a consistent precarity while being a part of the informal economy across sectors. Minus the welfare cushion of the state, hundreds of millions of Indians can slip into acute distress as was seen during the pandemic in the country. The failure and success of reforms vis-à-vis India's welfare regime The fact that precarity still exists after three and a half decades of economic reforms and India is the biggest indictment of the core promise of reforms. The proponents of reforms, after all, argued that the shackles of license raj were holding back a successful economic transformation of India. To be sure, reforms have not been a complete failure when it comes to expanding the welfare net in India. This is what the left leaning critiques of economic reforms in India often get wrong. While India has not managed to expand things such as manufacturing and still faces large-scale precarity, reforms have helped the case of welfare on one crucial front, namely, enhancing the fiscal capacity of the Indian state to provide welfare to its people. This is best seen in the rise in per capita tax revenue of the state in the last four and a half decades. While the rise in revenue receipts of the Centre and the states between this period is relatively modest – it has increased from 17% to 21% or so – inflation adjusted per capita tax revenue has increased almost four-fold during this time. Economic puritans might scoff at this somewhat unconventional measure of per capita real revenue. But even they would agree that this number matters while designing welfare schemes for a large population. It is precisely because of the revenue generation fruits of growth – not matter how unequal in nature – that welfare schemes have proliferated in India in the past couple of decades. Also read: Terms of Trade: The great Indian political economy drama in six acts While reforms have expanded the welfare providing abilities of the Indian state, things are far from comfortable on the fiscal front. As expectations of greater welfare increase among the underclass and every election victory is increasingly being associated with a new cash transfer scheme in addition to what already exists, fiscal balance is being tested, both at the level of the Centre and the states. This often manifests itself as a zero-sum policy choice between preserving political capital or macroeconomic stability. The Bharatiya Janata Party (BJP) learned this the hard way when it went to the 2024 elections with a fiscally prudent budget and ended up losing its parliamentary majority. The UPA, despite delivering India's best ever growth performance under its watch, completely lost the confidence of capital because of its inability to manage the economy's deficits as well as inflation while trying (unsuccessfully) to buttress its welfare credentials for political gains. To be sure, this is not to say there are no differences between the welfare or larger political economy approach of the UPA and the Modi government. The latter, unlike the former, has mostly pursued asset enhancing welfare schemes which are not (seen as) inflationary via the wage price spiral route. Under Modi, there has also been a greater focus on attribution of welfare to the head of the executive. However, as has been discussed earlier, this is also a reflection of the resurrection of political Caesarism after 2014 rather than just economics. Another important differential of the Modi government, especially in the recent years, has been its strategy to sharply reduce the revenue deficit (revenue expenditure minus revenue receipts) despite the fiscal deficit continuing to be higher than what the FRBM target entails. Most welfare spending happens on the revenue expenditure head. The reduction in revenue deficit at a time when capital spending share has been increasing underlines a new fiscal contract by the current government. It is not just supporting the budget constraint of the poor via welfare but also spending money to ease India's supply side infrastructure deficiency which can potentially boost growth and (private) profits. Also read: The limits of welfarism The reason this approach has failed to boost growth, at least until now, is that external demand has turned bleak with the protectionist turn in advanced economies and domestic demand has lost some of its pent-up component after the pandemic. A vast majority in the country is barely managing to survive and anyway cannot be expected to drive growth. Unless external or domestic demand picks up, growth and therefore revenue cannot grow at higher levels. This also means that welfare levels cannot be enhanced further without jeopardising macroeconomic stability. A lot of commentators, including Tillin are optimistic about the role of federalism in carving out a new future for welfare in India. However, a retrograde rather than progressive turns await the welfare and larger political economy discourse on this route in this author's opinion. While state governments and politicians are feeling more tempted to offer greater welfare benefits, fiscal capacity of states to fund these schemes varies drastically in India. Bihar's per capita revenue, for example, is almost half compared to richer states in the south. What makes this tension worse is even the well-off states are now realising that their unequal growth trajectories have generated a very skewed upward mobility leading to an appetite for welfare spending which is not very different from poor states. This is exactly what is feeding the growing discontent with the in-built equity principle in India's fiscal federalism architecture where central taxes raised in richer states are shared with the not-so-rich ones. A move away from this principle will be a big setback to the fight for equality in India. So, what is to be done? It is common to hear two conflicting views about India's economic regime. The first is critical of it for doing very little on the welfare front and the other laments the failure to usher in radical reforms to boost growth. These binaries should be seen as the competition between labour and capital to further their interests in the democratic arbitration of class conflict. Does the fact that India has managed to preserve its democratic framework mean that the debate can be completely ignored? Such a take is not just cynical but also counter productive in the long run. Unless India manages to boost its current rate of growth, it would find it difficult to manage social security and macroeconomic stability in the not-so-distant future once our demographic dividend starts reversing. How does one resolve this contradiction then? It is useful to remember what India's first prime minister Jawaharlal Nehru told his party in the 1955 Avadi session of the Congress. 'We cannot have a welfare state in India with all the socialism or even communism in the world unless our national income goes up greatly. Socialism or communism might help you to divide your existing wealth, if you like, but in India there is no existing wealth for you to divide; there is only poverty to divide. It is not a question of distributing the wealth of the few rich men here and there. That is not going to make any difference to our national income,' Nehru said. Also Read: Politics, economics, social contracts: Why rerun of anger of '75 is unlikely The point of quoting Nehru seven decades later is not to mechanically reiterate his emphasis on growth rather than redistribution but to ask a different question. Why is it the case that capital in India has failed to kickstart the kind of value creation which countries such as China could achieve? A lot of the GDP divergence between China and India took place after economic reforms began in India. Nehru's question is best followed up by a question India's commerce minister Piyush Goyal posed to India's new age venture capitalists recently when he blamed them for just building trading platforms and selling ice-cream while Chinese companies are making advances in cutting edge manufacturing. The failure of India's capitalists is not just a result of reforms or lack of it. It is also a deeper, structural problem about the incentives India's political economy has generated for them. The question of welfare in India cannot be addressed without engaging with the larger processes of value creation and vice versa. It is here that our biggest success in the political managing this tension between capital and labour has also been our biggest failure. Both sides, especially their advocates, continue to think in silos blaming the other and its political benefactors for not doing what is needed. This has become a convenient but self-defeating alibi for not having a holistic critique of India's growth process in the post-reform period. Unless this changes, India will never be able to deliver on its true potential for either capital or labour. Roshan Kishore, HT's Data and Political Economy Editor, writes a weekly column on the state of the country's economy and its political fall out, and vice-versa
Hindustan Times
28-04-2025
- Business
- Hindustan Times
Grand Tamasha: The transformation of India's welfare regime
In India today, so many political debates are focused on welfare and welfarism. It seems that state after state is competing to offer the most electorally attractive benefits to its voters. The central government, for its part, has pioneered a new model of social welfare built around digital identification and direct cash transfers to needy households. A new book by scholar Louise Tillin, Making India Work: The Development of Welfare in a Multi-Level Democracy, examines the development of India's welfare state over the last century from the early decades of the 20th century to the present. In so doing, it recovers a history previously relegated to the margins of scholarship on the political economy of development. Tillin spoke about her book on a recent episode of Grand Tamasha, a weekly podcast on Indian politics and policy co-produced by HT and the Carnegie Endowment for International Peace. Till, who serves as a professor of politics in the King's India Institute at King's College London, is one of the world's leading experts on Indian federalism, subnational comparative politics, and social policy. On the podcast, she spoke with host Milan Vaishnav on what she calls India's 'precocious' welfare regime, the colonial-era debates over social insurance in India, and the pros and cons of the Nehruvian development model. The two also discussed regional variation in modes of social protection and the current debate over welfare and welfarism in India. 'When I describe India's welfare regime as being somewhat 'precocious', I'm actually talking about a certain kind of precocity that really is related to how India bucks what we might have expected at certain historical junctures for a country facing the challenges of economic development that India was,' Tillin clarified. She pointed to two specific historical moments in Indian history. 'The first is in the 1940s, when even before India has finished drafting its constitution and barely a year after it became independent from colonial rule, it legislates on a form of sickness insurance for industrial workers,' she said, adding that India did so before major world economies like the United States or Canada were able to introduce forms of health insurance. 'And the second element [of precocity] refers to another period of political and economic transition in India, that of economic liberalisation, where…unlike many other developing countries that faced structural adjustment somewhat earlier than India, India doesn't see retrenchment of social policies that we see in other countries,' she said. Nevertheless, Tillin's book finds that decisions taken in the early post-Independence era had enduring consequences. 'There's quite a disjuncture at independence,' Tillin argued, citing the birth of contributory social insurance which could have been the kernel of a more universal welfare state. But, 'instead what happened, especially from India's second Five-Year plan onwards, was a very deliberate strategy that India's planners adopted to favour capital-intensive rather than labour-intensive industrialisation,' she said. 'And that decision meant that, right at the outset, India ends with a very truncated welfare state, which protects only a tiny number of workers in the formal excludes the mass of India's workforce from its purview.' Tillin claimed this was a deliberate consequence of the Second Five-Year Plan which, to paraphrase PC Mahalanobis, 'sought to create a model of industrialisation that would protect an island of high productivity in a capital-intensive sector that would be low-employing.' One big takeaway of Tillin's book is that, while clientelism and resource constraints have severely rationed the provision of public goods and social benefits, Indians have engaged in deliberate debates about what an Indian welfare state should look like. She argued that scholars have often overlooked this fact. 'India, for all of its significance in scale and contributions to development theory, has not been so closely theorised as a distinctive welfare regime in its own right,' she writes in her book.
