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NOTES AND REFERENCES

doi:10.1093/hwj/dbt019
Advance Access Publication 21 August 2013

Globalization and Economic Injustice

in Modern India
by Indraneel Dasgupta
Rohini Hensman, Workers, Unions and Global Capitalism: Lessons from India, Tulika
Books, New Delhi, India, 2011; xix 415 pages; ISBN: 978-81-89487-78-2.

This book is about the informalization of formal-sector jobs in India, that is,
the transfer of jobs out of Indias modern industrial sector into an
employment sector which is almost wholly unregulated. Rohini Hensman
attributes this change to government policies which discriminate in favour of
small-scale production and the informal sector and which encourage the
relocation of factories to areas with weak union presence, rather than to
globalization as such. As she points out, the policy framework which
facilitates informalization, and the consequent shifts in employment

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1 Walter Benjamin, Grandville, or the World Exhibitions, in Walter Benjamin,

The Arcades Project, transl. Howard Eiland and Kevin McLaughlin, Cambridge, MA, and
London, 1999, p. 7.
2 Georg Simmel, The Berlin Trade Exhibition (1896), as translated in Alexander C. T.
Geppert, Fleeting Cities: Imperial Expositions in Fin-de-Sie`cle Europe, New York and
Basingstoke, 2010, pp. 2835.
3 Encyclopedia of Worlds Fairs and Expositions, ed. John E. Findling and Kimberly D.
Pelle, Jefferson NC, 2008.
4 Most recently, Great Exhibitions in the Margins, University of Wolverhampton, 2627
April 2012.
5 See Douglas Murphy, The Architecture of Failure, Alresford, 2012, especially pp. 4460.
6 Jean-Louis Cohen, The Future of Architecture: Since 1889, London and New York, 2012,
pp. 11, 26.
7 Jean Baudrillard, The Beaubourg Effect (1981), republished in Rethinking Architecture
a Reader in Cultural Theory, ed. Neal Leach, London and New York, 1997, p. 212.
8 Roland Barthes, La Tour Eiffel, in Roland Barthes, Andre Martin, La Tour Eiffel, Paris,
1964. For the first complete English translation of this essay see AA Files 64, 2012, pp. 12431.
9 Barthes, La Tour Eiffel, p. 124.
10 Julie Rose, Translators Afterword, Barthes, La Tour Eiffel, p. 132.
11 T. Vijayaraghavacharya, The British Empire Exhibition 1924 Report by the Commission
for India for the British Empire Exhibition, London, 1924, p. 21.
12 Virginia Woolf, Thunder at Wembley (1924), reprinted in Virginia Woolf, The Crowded
Dance of Modern Life, Harmondsworth, 1993, p. 42.

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patterns, both started to develop in the late 1970s and have continued ever
since. Thus informalization of employment in Indian industry predates
globalization, though the process did speed up in the late 1990s. Hence,
primary responsibility for the worsening of employment conditions in
Indian industry, attendant on informalization and casualization of (at least
partially protected) formal-sector jobs, lies with successive Indian governments, rather than with pressures unleashed by the integration of the Indian
economy with global trade and capital flows in the 1990s.
This argument is unexceptionable but also, I believe, inadequate.
Integration of an economy as large as that of India with global commodity
and capital markets necessarily leaves a large amount of discretionary policy
space open to national government. This is especially so when capital
inflows and outflows constitute a very small part of aggregate investment,
and commodity trade a rather minor proportion of domestic output. In
2012, when its Gross Domestic Product (GDP) was approximately $2
trillion, India imported commodities worth $500.3 billion and exported
commodities worth $309.1 billion (Central Intelligence Agency, World
Factbook). The import bill for oil alone stood at about $140 billion in 2011
12. Thus, after more than two decades of globalization, exports accounted
for only about 15% of Indias GDP, while imports constituted less than a
quarter of domestic consumption and investment taken together; value of
imports of goods and services other than petroleum products amounted to
less than a fifth. At 30% of GDP, gross fixed investment constituted about
$600 billion in 2012, but total Foreign Direct Investment into India was only
around $10 billion. Hence international pressures, whether in the form of
import competition, export exigencies or domestic presence of foreign
investors, affect only limited segments of the Indian economy to any
significant extent even now. It follows that what afflicts workers in Indian
industries can hardly be explained without giving the pride of place to policy
stances actively and deliberately chosen by successive governments in India,
when other policy stances were indeed feasible.
Seen in this light, Hensmans central argument is clearly right. Yet it
suffers from two major inadequacies. First, it does not explain why the pace
of informalization and casualization picked up substantially after liberalization of the external sector. Second, it does not explain why successive
governments in India chose to favour the small-scale sector through
discriminatory tax, credit and labour policies, to the detriment of large-scale
organized capital and labour. Without an understanding of the causal
linkages between trade and capital-market deregulation on the one hand,
and greater informalization of formal-sector jobs on the other, trade-union
and progressive strategies for better work conditions are left bereft of a
coherent position on trade issues. Without an understanding of the political
economy of state support for the small-scale sector in India, these actors are
left without a coherent long-term political counter-strategy.

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Trade liberalization did indeed cause substantial job losses in many

import competing sectors. The effect was delayed for a few years
immediately after the first round of import liberalization in the early
1990s due to the sharp depreciation of the rupee, which provided a limited
and temporary reprieve to domestic producers. The exchange rate for the
Indian rupee declined steadily from about seventeen rupees per US dollar in
1990 to around forty-one by 1998. However, globalization involved not only
trade liberalization, but also relaxation of capital controls, both for inflows
and outflows. Large capital inflows kept the rupee relatively stable for about
a ten-year period from the late 1990s onwards. Between 1998 and 2002, the
rupee continued its depreciation, but at a much slower rate: by 2002, one US
dollar was selling for about forty-eight rupees. Thereafter, the exchange rate
actually appreciated, so that by 2008 the rupee was back to its 1998 level of
approximately forty-one to a dollar. This did lead to significant job losses in
the Indian large-scale manufacturing sector: import-substituting industries
were forced to downsize because imports became cheaper, while export
growth lagged because of a relative loss of competitiveness consequent on a
stable rupee. Most observers agree that over the two-decade period since the
early 90 s, neither the trend growth-rate of manufacturing in India nor that
of exports from the manufacturing sector showed any significant increase
over the pre-reform period. As manufacturing faced increasing pressures of
global competition, relatively protected jobs in this sector vanished in their
millions. Thus Hensmans argument that globalization, interpreted as
relaxation of trade and capital-market controls, had little to do with job
losses in the formal sector, appears incompatible with the evidence.
Most of this job loss was inevitable once India joined the World Trade
Organization (WTO). Large-scale manufacturing in India was receiving
significant rents because of protection: a part of this rent was being shared
with workers in this sector. Conversely, the presence of such large
contestable rents was precisely what incentivized the formation, expansion
and persistence of unions in this sector. Trade liberalization, unless
associated with a sharply depreciating rupee, was bound to reduce this
rent and make workers in these industries worse off. However, continuous
depreciation, by increasing Indias oil import bill beyond sustainable levels,
would have led to a foreign-exchange crisis. Thus capital-market liberalization, and aggressive courting of foreign capital, followed logically from
import liberalization consequent on joining the WTO. To maintain foreign
investors confidence, India needed to keep its budget deficits low. This led
to sharp downsizing and, in some cases, privatization of public-sector units,
which in turn generated further job losses in the organized sector. One may,
as Hensman does, quite reasonably take an ideological position in favour of
free trade even from a Left perspective. But it is misleading to argue that
freer trade had little to do with large-scale losses of relatively protected jobs
in the organized manufacturing sector in India, and their replacement by illpaid, casual and informal employment.

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Hensmans advocacy of globalization, understood as free trade under

WTO rules, seems somewhat simplistic in the light of both modern trade
theory and the historical record of restricted trade in furthering developmental goals. It is well known that infant-industry arguments for protection
are not always without merit, that Big Bang trade cum financial liberalization need not dominate gradual opening up, that trade and investment blocs
among structurally similar economies may sometimes be better than those
among very dissimilar ones, that freer movement of goods, services, people,
financial capital and company ownership across national boundaries do not
necessarily add up to the same thing. Debates over membership of the
European Union and the Eurozone, attempts to develop Bolivarist (Latin
America specific) alternatives to US-dominated trading blocs and financial
structures, disagreements over the direction in which regional trade blocs
such as the Association of South East Asian Nations should evolve,
continuous flux in WTO negotiations: all these point to the limitations of a
view which perceives the world in terms of a binary between free trade and
autarchy. Opponents of globalization, unlike the straw-person in Hensmans
analysis, are not necessarily espousing autarchy: they are typically arguing
for a different set of trading rules. One may certainly claim that the current
WTO framework governing international trade is, in some sense, the best
one available. But then the contending arguments need to be addressed at
greater theoretical and historical depth than Hensman does here.
Hensman is quite correct in pointing out that from the late 1970s
onwards successive governments increased firms incentives to subcontract,
casualize and informalize employment through preferential tax treatment
and provision of various subsidies to the small-scale sector, which was
deliberately kept outside the ambit of labour laws. However, she fails to
engage with the political economy of this phenomenon at any depth. The
social base of large-scale capitalism was extremely narrow in India even as
late as the early 1990s. A few large business families dominated the scene:
their great market power buttressed by their links with the Congress Party,
often going back to the days of Gandhi and Patel. Challenges to the
Congress Party from the late 1960s increasingly came from the disaffected
petty and local industrialists and trading elements, who felt their economic
space being squeezed by the state and big-business nexus in an environment of pervasive regulatory controls. These sections were largely behind
the Swatantra Party and the Jan Sangh in the 1960s. The Janata Party was
essentially responding to pressures from these elements when it decided to
pamper the small-scale sector: Indira Gandhi merely played catch-up once
she came back to power. In key states such as Andhra Pradesh, Tamil
Nadu and Karnataka these sections reached political maturity in the
1970s, and found stable organizational articulation in regional parties such
as the Telegu Desam in Andhra Pradesh, the two Dravidian parties in
Tamil Nadu, and various mutations of the Janata Party in Karnataka over
the next two decades.

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Given that the Indian state was building capitalism within the
framework of an electoral democracy, this denouement was inevitable.
Socialist rhetoric notwithstanding, the state was essentially engaged in
breeding a broad-based class of industrial capitalists from a mass of
informal bankers, small and medium traders, rich farmers and artisanal
producers. Large business provided election funding and was rewarded
with protection, but it was really the small, indeed tiny capitalists, both
urban and rural, who provided the electoral numbers and social depth
necessary for the survival of the system. Pampering of the small-scale
sector was inevitable under the circumstances.
Such pampering did yield tangible benefits as well. The social base of
entrepreneurial capitalism has expanded rapidly in India over the last three
decades. Upstarts have displaced traditionally dominant family-controlled
big business houses such as the Birlas as the leading players in many key
sectors, others such as the Tatas have been forced to modernize and become
globally competitive. Enlargement of the social basis of entrepreneurial
capitalism and accumulation has brought sections of many formerly
marginalized groups closer to substantive political power, certainly in
Delhi but even more so in many regional capitals. To a large extent, it was
this non-traditional upstart capitalist class which provided, and continues
to provide, the core support base for both internal and external liberalization: they perceive the old command economy, the licence permit raj, as
having been played under rules rigged to favour the traditionally dominant
family-controlled big business houses, with their historical ties to the
Congress Party. Without the hot-house growth of the small-scale sector in
India through the kind of discriminatory tax and regulatory policies that
Hensman excoriates, it is highly unlikely that there would be any politically
salient domestic constituency for trade liberalization, which she extols, in
India today.
The price that has been paid for this broadening of the social basis of
entrepreneurial capitalism is a commensurate restriction of the tax base, and
thus the fiscal muscle, of the Indian state. According to the Central
Intelligence Agencys World Factbook, taxes and other revenues constituted
less than nine per cent of the countrys GDP in 2012, putting India ahead of
only Sudan, Nigeria, Puerto Rico and Burma in this regard. Other measures
yield a slightly higher tax to GDP ratio, but one that is nevertheless pathetic
by global standards.
Whatever the key politico-economic processes that have led to the current
state of employment relations in India, the basic problem remains, as
Hensman correctly points out, that over ninety percent of the workforce
today enjoys practically no protection or regulation of work conditions, and
this proportion is rising as better protected jobs are outsourced,
informalized or casualized. This leads to growth being associated with
worsening income inequality. Worsening inequality increases social tensions
and sporadic low-level conflicts. By restricting the social basis of the

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domestic market for consumer goods, it also jeopardizes the long-term

sustainability of growth itself. Without sufficiently strong and sustained
expansion in domestic consumption demand, the economy becomes
increasingly reliant on exports. India thereby becomes more vulnerable to
recession or low growth in other countries.
So what is to be done? Hensmans prescription, like her diagnosis, is
unexceptionable, but only at a level so general as to make it unhelpful. She
argues that the informal sector has to be formalized: all employment
contracts have to be brought under the ambit of protective laws. This has
to be supplemented by a comprehensive universal social-welfare system,
funded at least in part by a drastic reduction in military expenditure. A
quick reality check is useful at this stage. According to the Stockholm
International Peace Research Institutes Yearbook for 2012, India spent
2.6% of its GDP on military expenditure in 2012. Indian defence
expenditure has typically stayed at roughly 2.5% of its GDP over the
last decade. Given a per capita nominal GDP of about $1,600 in 2012, this
translates to a per capita nominal expenditure of about $40, and of about
$100 in purchasing power parity terms. The arms race between Indian and
Pakistan is certainly risible, but these numbers do not suggest that even
complete demilitarization would free up a significantly large amount of
resources for welfare programmes. Financing of a comprehensive socialwelfare system therefore has to come almost entirely from domestic
redistribution. Is this currently feasible? Per capita output of India in 2012,
measured in terms of purchasing-power parity, was about $4,000. Roughly
speaking, North America, Western Europe, Australia and Japan achieved
this level ninety to a hundred years ago, southern Europe seventy to eighty
years ago, Brazil, sixty to seventy years ago, and both Sri Lanka and
Bhutan about ten years ago. No capitalist country in twentieth-century
history has managed to put in place even a remotely comprehensive socialwelfare system before its per capita GDP reached at least double this
amount, despite being in competition with a serious systemic alternative in
the Soviet Union for most of the period. The welfare state took off in
Western Europe only after the Second World War, developed weakly,
grudgingly and by fits and starts in the US from the New Deal to the
Johnson administration, and is still an unfinished business in Latin
America. Going by this historical record, there is simply no way one can
realistically expect even a modest, but comprehensive and well-functioning,
welfare system in India for another two decades or so. Human-development rankings of a country over the medium term have also generally
tended to mirror its per capita income rankings: India has not been
exceptionally good at converting income to human development, but it has
not been exceptionally bad either.
Thus, given any realistic assessment of the redistributive capacity of the
Indian state, a doubling of per capita income over the next fifteen years or so

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appears a necessary condition for a minimally effective universal welfare

system to be in place by, say, 2035. This would require the state to step up
investment in infrastructure sharply, which cannot occur unless the tax to
GDP ratio is dramatically increased. The tax to GDP ratio in turn cannot be
increased significantly unless incomes originating in the small-scale, informal sector, including agriculture, are brought under the ambit of tax laws,
and tax evasion in the formal sector substantially reduced. Improved
infrastructure is also necessary to generate economies of scale, incentivizing
the consolidation of production in fewer, but much larger, units and
agglomerations. Without such consolidation and attendant concentration of
workers, neither unionization nor public regulation of workplace conditions
can proceed far.
Soaring cost of land constitutes the biggest obstacle to a large-scale
improvement in infrastructure. Over the last decade, both key infrastructure projects and large industrial investments have been stalled in many
parts of India by opposition, often violent, from peasants to land
acquisition. The kulak lobby has used its political clout to push
compensation demands to absurd and unsustainable levels. The governments failure to come out with a set of effective and reasonable national
guidelines for rehabilitation measures, essentially a reflection of its
inability to confront rentier and realtor interests in land, has further
complicated matters. Hensmans analysis is silent on this critical issue. This
silence is eloquent, for it highlights a fundamental contradiction between
the logic of her theoretical position and the ground-level politics of her
preferred political agents. Hensmans theoretical position in favour of
greater formalization must commit her to the superseding of petty peasant
production by large-scale, globally competitive, modern industry. Yet
leading constituents of the New Trade Union Initiative, to which Hensman
repeatedly expresses political affinity in the book, have adopted the exact
opposite position on the ground. For example, NTUI affiliates and leading
organizers played an aggressive role in violently driving out Tatas small
car factory project from Singur in West Bengal to Sanand in Gujarat, even
though over eighty percent of the land-losers had accepted the compensation package offered in Singur, and eighty percent of the construction
work had already been completed. This project has already created many
thousands of relatively well-paid formal-sector manufacturing jobs in
Gujarat, while Singur has turned into a complete basket-case: the disputed
land remains mired in litigation. Hensman exhibits a distressing abdication
of intellectual responsibility when she brings up the Singur case as an
alleged example of pampering of corporate interests, but does not pause to
critique the utterly destructive and self-defeating movement that did major
damage to West Bengals attempt to rejuvenate its industrial base. The
examples can be multiplied.

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Indraneel Dasgupta (indraneel@isical.ac.in) is Professor of Economics at the

Indian Statistical Institute, Calcutta and a Research Fellow of the Institute
for the Study of Labour (IZA), Bonn. His work in microeconomic theory
has focused on foundational issues in revealed preference theory. His
research in the areas of development economics and public economics has
addressed aspects of intra-household distribution, charitable donation,
group inequality, identity conflict and class antagonism.
doi:10.1093/hwj/dbt020
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Seen in this light, it is evident that the interests of the working class in
India today are best served by the attenuation of private-ownership rights
over the disposal of a scarce natural resource, namely land, in favour of
far greater public control. If not outright nationalization of all land, this
implies at least a much more vigorous, intelligent and consistent use of
existing eminent-domain powers of the state to build up high-quality
infrastructure at low cost for a post-agrarian economy. The interests of
the working class are thus naturally contradictory to those of the kulaks
as well as the middle peasantry in the current evolutionary stage of the
Indian economy. The broader universalist demands of the working class
for an effective welfare system, and for a core set of workplace rights
irrespective of ones sectoral location, are both predicated on public
control over land.
It is thus the substantive supersession of private property rights in land in
India, rather than the feel-good, largely symbolic, articulations of proletarian internationalism favoured by Hensman, that holds the political
programmatic key to the advancement of the working class in India over
the next few decades. It is only the organized mainstream left in India today,
in particular the much-reviled Communist Party of India (Marxist) in West
Bengal, that has staked out a consistent position in favour of public control
over land as a necessary condition for industrialization that benefits the
entire working class. Hensmans non-engagement with the issue ultimately
renders her overall analysis, much like the government policies she critiques,
evasive at its core.