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Domestic decoupling

Domestic decoupling
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First Published: Sun, Dec 26 2010. 06 58 PM IST
Updated: Sun, Dec 26 2010. 06 58 PM IST
That there are two Indias has been accepted for long. Indeed, the very first line of the Constitution—“India, that is Bharat…”—acknowledges the two, even as it tries to define them as one. The dichotomy has not only persisted, but has accentuated and manifested in different forms over successive decades.
In the 1950s, one India was “modern”, the other “traditional”; in the 1960s, one was “urban” and the other “rural”; in the 1970s, one “rich”, one “poor”; in the 1980s, “private” and “public”. Then, in the first year of the 1990s, the two were evocatively represented as “India” and “Bharat”, respectively. And now, there’s a “producer” India and a “consumer” India. And herein lie the seeds of an emerging, if not extant, crisis.
Underlying each duality has been an implicit ideological bias, whether it was in the debates over migration from rural to urban areas, or when poverty reached its zenith and slogans of income redistribution and garibi hatao were spouted endlessly.
The Bharat and India dichotomy, on the other hand, went beyond economics. It was deeply rooted in cultural nationalism, social values and political empowerment of the two Indias. It is not by coincidence that two major political parties campaigned with slogans of “Mera Bharat Mahaan” and “India Shining”, respectively, bringing these distinctions as well as their attendant tensions on to the streets.
In the modern era of globalization, the distinction between a producer India and a consumer one is in line with the most basic tenet of capitalism. And this duality borders on, though doesn’t coincide with, the class distinction.
Normally, this could have been an ideal situation for catalysing sustained growth; what better accelerator of growth than Bharat producing and India consuming, or the other way round? Tragically, that has not been the case.
The real crisis is that Bharat doesn’t consume what India produces; and India consumes what Bharat doesn’t produce. The consumption of energy and basic goods is a case in point. No one seems to be losing sleep over the sharp increase in the import intensity of consumption, which has more than doubled over the last decade.
Besides, what this represents is a national disarticulation that cuts across space, social strata, sectors and service providers, and is a result of the economic policies associated with globalization.
It seems to have been forgotten that for all its problems, the pre-1991 economic strategy held the country together because of its multiple linkages. For instance, wages, in a closed economic regime, were more than a mere cost of production. They provided the main source of demand, fuelling investment and, therefore, profits to the firms.
From a sectoral perspective, the articulation emerged from the forward and backward linkages among sectors and sub-sectors of the economy, helping to diffuse the effects of economic growth to the rest of the economy. The rise of one sector would start a multiplier process, fuelling not only consumption, but also intermediate demand and investment, and linking the production of goods and connected services, and reinforcing social hinges. The state would set maximum and minimum prices, production quotas, subsidize crucial sectors, and, of course, invest in basic industries and infrastructure where the private sector didn’t venture aggressively.
In the open economic paradigm since the 1990s, all these linkages have been considerably weakened, if not dismantled. New linkages are either not in place or have not been created. As a consequence, the economy is facing social disjunction. Wages no longer dynamize demand, but are a mere cost of production that should be maintained as low as possible.
To firms, the purchasing power of workers in other countries has become more important than that of local ones. This, along with increasing imports into the production process, is inducing disjointedness at the sector level.
The process of opening up the economy is tearing apart the multiple articulations that characterized the closed economy regime. Worse, social heterogeneity of the kind induced is reducing the efficacy of social policies.
The disarticulation between India and Bharat may, in the currently popular lexicon, be seen as decoupling of the two. So much so that a downturn in India may leave Bharat unaffected. Indeed, it is possible to suggest, with some conviction, that the global financial meltdown had a way too muted impact on India largely because it didn’t touch the shores of Bharat. Be that as it may, this decoupling is bound to impair the overall economic growth.
The bottom line is that the link between India and Bharat has been considerably weakened, if not snapped. In particular, its economic moorings have been dampened because of the new sources of growth that bear little backward linkages. This has fawned the dual crisis that has engulfed the nation—a structural crisis for the economy, and a systemic one for civil society.
Haseeb A. Drabu is an economist, and writes on monetary and macroeconomic matters from the perspective of policy and practice. Comment at haseeb@livemint.com
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First Published: Sun, Dec 26 2010. 06 58 PM IST