Structurally Adjusting the Poor to Death

Author: L.C. Jain. PhD


RD. Tata, the Indian steel industrialist narrated this story at a conference: When he was a child, his father wanted to indulge him on his birthday with whatever present he wanted. The boy asked for a donkey. The father got him one.

He took the donkey and kept it in his bedroom to play with it. When he got up the next morning the donkey was not there. Only a heap of dung was left. He looked all over the place but the donkey was nowhere. Finally, he thought it must be in the dung. He sat on his knees and turned the dung upside down. Still the donkey was not to be found. It was not in the dung.

People Priority

When I look at the subject, "New Economic Policy and Health Care,"--I don't know how new it is--I turn it around and look for the people and I do not find the people included! I feel an important word has not been mentioned. It is people.

When we say health care of the people, it is indeed a primary concern. But it becomes a secondary issue when we do not have the people in it.

Increasing Growth--Increasing Unemployment!

Changes are being made. The belief behind them is that an increased (economic) growth-rate will deliver us. In the last eight to ten years, our growth-rate in fact has been high. It was for a very long period--for nearly three decades--at an average of 3.5%. Now the growth rate has turned upside down from 3.5 to 5.3! What happened during this period?

The employment growth-rate used to be 2.8 when the growth-rate of the economy was 3.5. But when the growth-rate of the economy shot up to 5.3, the growth-rate of employment crashed headlong from 2.8 to 1.3. This has been so for the last eight years.

Population has increased and brought new entrants into the labor force, and the labor force is increasing at the rate of 2.6. Our growth-rate of employment is at 1.3. Just half of it.

We must look at the reasons why the employment growth rate of 2.8 has now become 1.3. We have to dissect it.

Stock Exchanges and Starvation Deaths

This dissection will show that in the manufacturing sector, which is considered to be the engine of growth, production has gone up. What is called output has gone up. Investments have increased. Profits, too, have increased.

The news from the stock exchange says that the share market never had it so good. The Bombay Headline was: "The Share Values Shot Up From 50% to 450%."

At the same time, "Frontline" carried an investigative report regarding starvation deaths of handloom weavers in Pochampally and other areas in Andhra Pradesh.

The two phenomena were happening at the same time--the boom in shares and starvation deaths. These starvation deaths are painful.

Textile Policy Murders!

But the process through which these starvation deaths came about is more painful. They came about because of the structural changes we are now talking about in the new economic policy.

In fact, it was introduced in the 1985 Textile Policy. The policy called for "Structural Changes" in the textile industry.

What Were the Structural Changes?

The policy changes meant that hand weaving would not receive protection because it stood in the way of modernization. The hand weaver produced cloth of the cheaper variety for the poor people who were going naked! The "kind-hearted" government could not bear to see anybody going naked! Therefore they said they would now allow the mills complete freedom to produce any variety of cloth and any quantity of cloth, and to import the latest machinery for spinning and weaving.

Because the poor mills might not have funds for that, the government created a fund of 750 crores ($US 25 million) modernization of the textile industry. And because some of the mills were so poor that they might not have adequate share capital to raise the additional loans, part of the 750 crores would be available to the mills to borrow as share capital loans at the rate of 6% interest.

This "structural adaptation" was backed up fully by the liberalization of imports on the one hand, and liberal purse strings opened on the other through the Industrial Development Bank of India (IDBI). IDBI raised the 750 crores to 1,500 crores.

I wrote an article on the end of the handloom industry and how millions of handloom weaves would be out of jobs. I knocked at the doors of eighty Members of Parliament. There was a response. A very rigorous debate was raised in the Parliament.

For the first time and the last time in my life, I went to Parliament to listen to the debate. Many of the members said that I must go because they were going to raise this issue.

The Honorable Minister said that they had worked out this scheme very carefully and he guaranteed that there would be an additional one million jobs created for handloom weavers. He said, "The fear that they will lose their jobs is completely misplaced and we are going to prove that." Now the investigative report, which "Frontline" has brought out, shows that these weavers have really been "structurally adjusted" to death!

Yarn And Even Cotton

The Investigative Report explains that the import substitutes we had practiced for so long would not work. For this reason, we had to go for export promotion. It explained also how our export earning would enable us to finance our development.

In fact, what the government allowed was the wholesale export of yarn which the handloom weavers used. The policy-makers understood that if you allowed more than six million kilograms of yarn to be exported, there would be distress among handloom weavers. Nobody has invented a way of producing cloth without yarn! You need yarn for the weavers to produce cloth. Now, due to a foreign exchange crisis, the yarn was exported. Then--to ensure that somebody may not produce more yarn--even cotton was exported.

These weavers are now being advised by many economists: "Your future lies in exports....You are producing this variety of cloth which has no future. Produce for the foreign market, and paradise is awaiting you!"

No Cushion, No Resources

In Pochampally, where starvation deaths have been recorded, the weavers were in fact producing for the foreign market. But when the yarn itself was exported, they were not able to keep their commitments. They could not meet the obligation of the contract, so the contract was canceled.

The exporter may have a petrol bunk or a building to rent to the Canara Bank, or some other sources of income. He has a lifeboat to save himself but the weavers were drowned; they had no cushion, no resources.

Labor-intensive Technologies?

Our finance minister said in his budget speech that the long-term aim of the policy is a labor-intensive mode of production in the country. After the employment growth-rate had fallen from 2.8 to 1.3, he speaks of 'long- term.' He doesn't say how long-term the wait will be. People should be alive to get the benefit! They should not die as in Andhra Pradesh and other parts of the country.

Foreign investors are being invited to come. The foreign investors have done a very good job in their own countries, but labor employment was not their problem. Their entire technology has been developed from the point of view of doing with less and less manpower. They will produce goods and produce profits--tantalizing profits--but we will have widespread unemployment and lack of purchasing power.

Dim Prospects for Export

We are being told that these structural changes will deliver the country as a whole. And perhaps some of it--if it materializes--could be justified. What are the prospects?

To increase our exports we need a market. Thirty per cent of our market was with the Soviet Union and East European countries. That relationship has collapsed because those economies have collapsed. In America itself, there is a recession. So, too, in the western economies in general. In the next two or three years, the prospects for us to retain even our present exports, let alone increase them, are not going to be bright.

Devaluation Dilemma

At the same time we have devalued the rupee. By this economic mechanism, imports are intended to become more expensive, and become restricted, while exports become more rewarding. A chap who gets one dollar gets Rs. 25/-now, instead of Rs. 18/-. The theory is that exports will be promoted and imports will be reduced.

Since the export market is not yielding much ground and there are reports that export performance during this period suffered, I don't think export will improve.

Import inputs which were going into production are already 30% higher on this account. We were already suffering from a two-digit inflation. The increase in the cost of imports have compounded the prices further.

Ever-growing Expenses & Prices

There is a deficit because government revenues are not enough to meet their expenditures. They have been trying to pay salaries with loans from the market. They are paying heavy interest. In this year's budget thirty-two thousand crores have been provided to pay interest charges.

The question has to be asked, "If interest charges alone come to thirty-two thousand crores, who is consuming that big loan?"

Many companies are taking big loans. They are declaring heavy dividends and their shares are going up. That means that they are putting it to some productive use. But the interest charges, which were 24 thousand crores in the last government budget, and 32 thousand crores which is budgeted now, could be 40 thousand crores next year.

Deficits and Interests

Now we are told since we are leaving things to the market we will de- bureaucratize. It is a very sensible proposition. Many people in the country have been wanting that.

But if you look at the official budget expenditure, the number of government employees, excluding those of the defense and public sector, was forty lakhs ($US 400,000) in 1990-91. In 1991-92, the budget increases from forty lakhs to forty-two lakhs ($US 420,000). Pay and allowances have shot up because of the number of employees. This means a government deficit.

Now that the prices are increasing, within weeks or months, the bureaucracy will demand another dearness allowance installment. Because its pain cannot be borne by the "kindhearted" government, whenever the price index rises, the government immediately compensates it with one more dearness allowance. Now once you put in the dearness allowance installment, because the number of employees has increased, it will be a vast amount. It will put more pressure on prices, which will rise further.

Structural Adventure Not Adjustment

Unfortunately, as I see it, this will not be a structural adjustment only. It will be a "structural adventure." The roof will collapse not only on the heads of those who have designed this 'roof without columns,' but on everyone's head!

Agriculture--A Better Bait

What are the columns on which this roof could be supported? I said employment growth-rate has come down from 2.8 to 1.3. Unfortunately, it has come down even in agriculture--less than a half percent in the last eight years.

The reason is that only 10% of the agricultural area is being utilized. Out of 450 districts, 15%, that is 50 districts, produce a surplus which is purchased at the cost of 3500 crores a year by the Food Corporation of India. Trucks and trains are mobilized to distribute this all over the country. This also has to be subsidized. In between, some rats will eat "small rats" and "big rats" all combined! A lot of grain-leak-out takes place in this process.


About 75% of the agricultural area is known as rain-fed area. Our dry agricultural lands can, according to Dr. M.S. Swaminathan, produce twice as much as at present if there is enough water. Unfortunately, we don't have enough water. We could conserve water using the water-shed-development principle by which we can store water when God sends it through rain, and not allow it to run out to the sea.

If you allow it to run off to the sea, as we are doing now, it carries off the top soil and the productivity of agriculture goes down. Then come the environmental hazards which all the environmentalists have been talking about. All these effects are inter-related. Three-fourths of the agricultural areas offer vast potential for employment for increasing food production.

There is no better food security for our people than to have the food in their own area. A study in Kerala headed by the eminent economist Dr. K. N. Raj has shown that the hunger of the poor is tackled much better when food is produced near the place where the poor live.

If you depend on the public distribution system or on the market, their chances of getting food are remote. But, if food happens to be produced in their own villages, chances of their getting it, whether as part of wages or by increasing their ability to buy, is much better. If you look at the entire economic policy, there is no mention of this.

The planning of water sheds is required to hoard and store water in dry areas from which water could be diverted to other areas. Here, we can use the help of science. Our scientific community is in a position to help local communities do better. But we require the help of institutions to mobilize the people.

Bring People to Participate

What we have at present is a village level worker in each village. Above him is the Block Developmental Officer, above him the Special Commissioner, above him the Deputy Commissioner, above him the Development Commissioner, and above all the Rural Development Ministry.

The ministry in Krishi Bhawan has 15,000 employees doing Jawahar Rojgar Yojna and Integrated Rural Development projects. They spend about seven thousand crores of rupees every year.

The new Planning Commission, under Mr. Pranab Mukherjee, went to the National Development Council and recommended that this seven thousand crores of rupees should not be spent on various schemes. It should be given on a prorata basis, to the local village panchayats (elected village leaders). The rural development ministry should be instructed to pool these funds into a common pool called integrated development of rural areas. The National Development Council approved the scheme on 23 December.

Within seven days the Prime Minister issued a statement saying that the Jawahar Rojgar Yojna and Indira Vikas Ratna projects should not be pooled because there was danger that they would become village sponsored schemes and not centrally sponsored schemes. Then the political mileage for the party would be lost!

This decision doesn't provide a mechanism for a local plan or guidelines. As an example, the Jawahar Rozgar Yojana project operates activities according to a if the country were produced in a factory.

There is no diversity there. But there is diversity in each village, diversity of an enormous character. Therefore, you need the eyes of the people, their imagination, their resources, their innovative character, all pooled together for the task of moving Mother India forward.

The objective of "full employment in ten years," especially in view of the new policies, is a farce. Agriculture offers potential but if it is handled the way it is done now even the agricultural potential will not be developed. Panchayat institutions and local institutions are essential for doing it.

What we require is micro-level area planning by local representative bodies to whom all resources can be given. Every attack on poverty and unemployment will be better achieved by mobilizing the local institutions.

Eating Apple Bit by Bit

Once decision-making is decentralized, shared with large numbers of people, you make more decision-making centres, 2600 mandal panchayats versus one state headquarters or 20 deputy commissioners. Half of the 2600 might work well. So you begin there. We say, if you can't eat a full apple, you can eat it bit by bit.

Will the Political System Survive?

What I have to say to you is rather grim. I wish I had some more cheerful news. But I turned the dung around and I could not find the donkey.

I would plead with you, for one thing. No matter in which area you are working, whether you are in the medical profession or any other profession, the system of governance in this country, the political government must be of concern. Freedom will have to endure many generations. If freedom is to endure, the economic system cannot be allowed to go amok.

As Julius Nyerere says, "Armies are not required to move across the continents to bring colonialism. It is now brought through the financial system." It is brought through the operation of the economic system; brought through the operation of trade policies.

Now is the time for our self-awareness, our self-assertion, our willingness to suffer and forego, and to endure some privations.

On the other hand, if we want to barter away the future of our children and settle into a bargain, it will make our political base shaky and economic base uncertain. Then we would not be entitled to be called a wise generation.