IMG-20170926-WA0003Prof Anthony P. D’Costa is Chair and Professor of Contemporary Indian Studies and the Director of the Development Studies Program at the University of Melbourne. Earlier he was the A.P. Möller-Mærsk Foundation Professor in Indian Studies and Research Director at the Asia Research Centre, Copenhagen Business School. Before that, he was with the University of Washington for 18 years. He is the author or editor of twelve books on global steel, Indian automobile and IT industries, globalization, development, innovations, industrial restructuring, and global capitalism. His most recent publications (as editor or author or co-author) include Changing Contexts and Shifting Roles of the Indian State: New Perspectives on Development Dynamics, Springer (forthcoming); The Land Question in India: State, Dispossession, and Capitalist Transition, Oxford University Press, 2016; International Mobility, Global Capitalism, and Changing Structures of Accumulation: Transforming the Japan-India IT Relationship, Routledge, 2016; After Development Dynamics: South Korea’s Engagement with Contemporary Asia, Oxford University Press, 2015; and Transformation and Development: The Political Economy of Transition in India and China, Oxford University Press, 2012.

He is a strong critic of the idea of a New India after the 1991 reforms and subsequent developments and argues that India’s development fate is pretty grim with no clear or easy solutions to the problem of unemployment and underemployment. He predicts that despite a relatively fast rate of economic growth, vast swathes of the population will continue to wallow in poverty and impoverishment. To quote him from one of his recent publications: “At best India is likely to have islands of advanced capitalism, with most of the rest wallowing in the quagmire of an impoverished and unequal society that is partly of its own making, but also the structural result of its participation in the world economy.” Prof D’Costa has been fellows of the East West Center; Japan Foundation; American Institute of Indian Studies; Fulbright-Hays; Korea Foundation; Social Science Research Council, NY; and UN University’s World Institute of Development Economics Research, Helsinki. He completed his MA in economics from BITS, Pilani and his Ph.D. from the University of Pittsburgh in the US.

Arjun Sen of caught up with him during a recent visit to Kolkata. The following are the excerpts from an interview with the globally reputed political economist, scholar in India studies and author Prof Anthony D’Costa:

1. Let’s start with a typical, populist, journalistic question. What’s your take on demonetization and implementation of GST in India during the last few months? How will they impact the Indian economy and what are the implications for the Indian as well a global economy as a whole?

IMG_0181Both these topics have been well-addressed by academics in India and abroad. I don’t have much to add except to repeat some of these ideas. Both demonetization and GST on the surface seem to be necessary. On the one hand, you have corruption in the country on a grand scale where unaccounted income and ill-gotten earnings are cheating the Indian public of their right to public resources since taxes are not being paid. If demonetization can separate the legal from the illegal income/ cash and impose a penalty on the latter then it is society’s gain. On the other, the GST
has been aimed to integrate the Indian market by eliminating the various taxes, also known as Octroi, imposed on goods when entering a state, city, or town from another state/ location. Not only does the arbitrary Octroi rates imposed by different states and other authorities hike the final prices of products, but the far more arbitrary bribery that takes place at state and city borders to avoid the Octroi, adds to the moral decay of everyone involved. Hence, a uniform, predictable tax ought to create greater efficiency with prices closer to costs. The problem is that both of these two populist policies have been unmitigated disasters. Demonetization did away with 86 percent of the cash in the Indian economy but no bigwig swindlers were caught. Consistent with jugaad, the owners of illicit income found a way to launder their money through the formal banking system. In the process, low-income households, workers, and the informal sector that rely on cash transactions suffered heavily. There is no doubt the effects of demonetization will continue to hurt the poor and one should not be surprised if the overall growth rate falls this year and the next. The reason: India’s informal sector employs 85-90 percent of the workers. The problem with GST has been its implementation with utter confusion, on the one hand, hurting small and informal businesses and rolling back some of the elements underpinning GST on the other.


The lessons in both cases are clear. The current government does not believe in consulting with key stakeholders. Bold ideas are dreamed up behind closed doors with no mechanism for critical feedback and corrections. This also reflects the erosion of Indian democracy where the citizens are subject to the whims and fancies of leaders, and where the leaders have not thought through the huge backup infrastructure that would be necessary for implementing these populist policies. If the government had been optimistic about the success of its demonetization programme, which it must have, it should have made sure there was enough cash for everybody who demanded their bank notes be exchanged. The government was caught napping, a classic example of sloppiness but at the expense of the people.

2. If we go by your publications, you seem to be very pessimistic about India. You have said that although there are a few policy options for the Indian state and big corporates to try and solve some of the pressing socio-economic issues facing India, ultimately, they will not be able to solve the problems of poverty, inequality, and unemployment (and underemployment). What does that imply for the large majority of Indians, especially young people? What about all the talk about the “demographic dividend”? Isn’t there any ray of hope for young Indians, especially those who are now students in colleges and universities?

me podium 2There is a fine line between pessimism and being realistic. I like to see myself as the latter, call me the half-empty glass academic. We live in a world of uncertainty and doubts will always be there. More importantly, we live in an economic system, which increasingly rewards those who already have, no different from the winner-takes-all process. This does not mean everyone else is shut out from the winnings. There are some who against all odds do make it. This is where the human agency takes form and against all odds people strive to do better, to reach new goals, and struggle to get their next meal. My pessimism, if you will, about India (and for many other late developing countries) is that the scale of poverty, inequality, and unemployment is staggering. Now India and China have both dented their poverty rates considerably such that their combined contribution has reduced the level of global poverty. But if poverty levels are defined by those earning more than $1.90 a day, what does it really say about poverty? What kind of existence does an Indian have earning say INR 130/day? Is that adequate to live a meaningful life? The challenge is what would it take to lift people not just above poverty since that could be done with INR 200 per day, which is unlikely to change the objective conditions of these people. Now that’s an interesting question. We are likely to be more successful in raising people above the poverty line but not at all clear as to how to go well beyond the poverty income for everyone. If let’s say demonetization was really effective and the government hauled in massive revenues through fines and penalties, then certain types of well-designed public expenditures would go some ways to address poverty. In fact, following Piketty (2014) progressive taxes is an important way to address inequality and poverty in India. The problem is, as the demonetization scheme demonstrated, the failure to catch the crooks is also likely to be repeated in making people with high incomes pay higher taxes.

But poverty, despite its interlocking characteristics, such as caste, education, health status, and gender can be tackled if there were to be plentiful jobs. Most of us do not inherit wealth, we earn a living, which means mostly we work for someone else. So long as there is growth in the demand for labour it is a good thing, though, in these days of globalization, rising wage costs can signal the business to find alternative sites or find ways to control labour or seek state subsidies. Employment creation everywhere has become all the more difficult and for India, it is a humongous challenge with about 16 million new workers estimated to enter the workforce every year. Is this the glamourous demographic dividend we periodically hear about as India’s advantage? Of these 16 million, the question is how many will find jobs? Forget about meaningful jobs or jobs for which they were trained for. This is the twenty-first-century dilemma.


A detailed response is not possible but suffice to say job creation is today’s dilemma, not just in India but in advanced capitalist countries (ACCs) as well. While India has the scale problem, the ACCs have the problem of too much accumulated capital. Their economies have become mature and markets saturated. This is capitalism’s dilemma – excess capacity is driving down prices, while lack of purchasing power (poverty, lack of jobs, inequality) globally is not giving rise to demand. In this context, businesses innovate and introduce more technologies and automation for both competitive and strategic reasons. In places like India, with abundant labour, the technology option though selectively used is nevertheless part of the business strategy as well, especially, if they have to compete at the global level. In this context, it is not hopeless for young people in India. Some of them will get the jobs that
they have been trained for, especially when capital in its ever-expansionary form will find a “spatial fix” for profitability by locating in places like in India. But the initial euphoric expectation of lots of jobs with deregulation and liberalization has given way to more somber understandings. Manufacturing has become capital-intensive and automated, even in India and India is faced with premature deindustrialization. This means India’s young must find some alternative niches in the service sector. Since not all can be IT engineers or neurosurgeons, India’s young must think of new types of skills, occupations, and markets. Those that are not technically specialized should embrace versatility, an internationalist outlook, quick learning abilities, and good communication skills, including perhaps Mandarin or Japanese. But there is every possibility, given the basic supply-demand mismatch, for many to be underemployed in the wrong jobs or not at all.

There is another point that needs to be emphasized. The importance of job creation cannot be understated. However, what about the jobs that exist that are on the verge of destruction? I am thinking of the millions of people who make a living in the handloom sectors, including the saree weavers in Dhonekhali and Shantipur villages. Such artisanal work is to be valued not only for their aesthetic sensibilities but also because they provide livelihoods. These are occupations that are disappearing rapidly and with product substitution, changing tastes, competition from power looms and so on, the demand for artisanal products is likely to witness a secular decline. Aside from the fantastic craft skills that get lost with the disappearance of jobs, India’s numbers for the underemployed and unemployed is likely to worsen. One solution, though never perfect, is to intervene in the handloom sector on moral economy grounds and encourage a form of cultural nationalism that would valorize and authenticate the products made by India’s craftspeople.

3. A lot of people, primarily Indians, have made a career out of writing about or story-telling about or film-making about or painting about India’s poverty, inequalities, and underdevelopment. Take, for example, Satyajit Ray, the only Indian to have ever won an Oscar. His most famous film Pather Panchali ends with a snake entering the dilapidated and abandoned premises of the protagonist – an image of hopelessness. Your huge body of work, no doubt very impressive and scholarly, seems to suffer from the same charge – you argue about the hopelessness of India’s developmental aspirations. How would you defend yourself against that charge?

IMG_0412My brief response here follows what I said in question two. The hopelessness arises from the scale of the problem with too many people looking for work. It may be a demographic problem but witness China’s experience. They did it in a way that nobody else did. That does not mean China does not have the employment problem. In fact, it has cut-throat competition among young graduates. However, because China’s economy is continuing to expand and new local businesses emerge, young Chinese face a more positive future. Timing is important. The operative word is “lateness”. Late industrialization is possible as in many East Asian countries, China, and India to some extent. However, the later you enter the capitalist development process, the challenges get tougher. Take Bangladesh for example. A poster girl of export-driven economy. But it seems to be stuck with textiles. Is it moving up into something else? Why do accidents like the Rana Plaza happen? More competition means race to the bottom and when workers are on the defensive capital is on the offensive. For India, it is no different. India finds itself in a changed world. While it has found opportunities such as IT and auto, for example, there are not that many people employed by these sectors. In the absence of solving the basic agrarian transition, late entry means that one part of India remains in the early phases of capitalism with all the distortions let loose by colonial masters and post-independence structural rigidities. The persistence of the informal sector and India having missed the manufacturing bus means that the young and the restless will have fewer options than what might have been possible.


4. You have argued that the persistence and continued existence of petty commodity producers (PCPs) in India is a hurdle towards the emergence of India as a mature capitalist economy like the West and Japan or even some of the so-called Asian Tigers. One question arises from this viewpoint. What about the fact that SMEs comprise the backbone of all mature economies, for example, contributing the most innovation, more than 40 percent of total production, more than 40 percent of total exports and nearly 60-70 percent of all employment in OECD countries (                                                                               

This is a complex issue. But let me quickly say that SMEs in mature sectors size-wise are much larger than India’s. Second, SME’s in the advanced capitalist countries have been part of an ecosystem where technological learning, skill upgrading, and innovation are integral elements to their competitive survival. This is not the case with India’s SMEs. Third, production today is a very complex business with a considerable degree of vertical disintegration and outsourcing/offshoring arrangements. Where a specific business in the value chain is located matters. For example, there are petty commodity producers in Dharavi in Mumbai whose products enter a multinational’s final output. So, the question is, why does the business in Dharavi not grow to get out of Dharavi and become a multinational itself? It cannot for many obvious reasons but the most important one in this era would be that the multinational controls the entire value chain.

Take Apple for example. It designs, sells, and markets the iPhone. It doesn’t manufacture. Foxconn of Taiwan does use Chinese labour. Chinese workers get about 3-4 percent of the total revenues for the phone, whereas Apple gets more than 50 percent. This is because Apple controls the value chain. SMEs in India are important but they are disposable partners in the long production chain. They are heavily dependent on the buyers and are often exploited by them.

(To be continued….)

–  Arjun Sen
Special Correspondent, Kolkata

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