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Nigel Harris

India: Capitalism and Revolution

(July 1972)

From International Socialism (1st series), No.52, July 1972, pp.23-30.
Transcribed & marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

This article is the first part of an analysis of the Indian crisis. The second part, which will appear in our next issue, examines the politics of the Indian left with particular reference to the key state of West Bengal.

The people who live in the Indian subcontinent are about a quarter of the people of the backward countries. With the population of China and south-east Asia, this region constitutes the heart of the problem of backwardness. If the income per head in Asia could be raised steadily, then the world system could be shown not at all to have exhausted its potential. If capital accumulation could be seriously advanced here, if some perceptible development could begin (and by ‘development’ we mean, not just increasing the stock of machines or the proportion of income generated in industry, but a clear and continuing shift of the labour force out of agriculture into industry) then perhaps world capitalism could look forward to another lease of life. The decisive confrontation could be postponed until the millions of Asia had been properly incorporated as proletarians.

Discovering why this perspective is unrealistic from the Indian end requires us to understand in some detail what has happened to the attempt by the new ruling class of independent India to raise the rate of capital accumulation. The attempt has foundered not simply on the immediate demands of predatory imperialist powers, but rather on a much less specific range of obstacles, all arising from the purposeless and sporadic development of the world market. The enormous potential of the world economy cannot, in present circumstances, be fused to the demands of Indian development. The imperialist impoverishment of the past hangs over the present, making it – in conjuction with present circumstances, virtually impossible to develop.

The Indian ruling class set out in 1947 with high hopes of establishing an economically independent and expansive segment of world capitalism. Now India’s rulers are being driven, step by painful step, to relinquish any such ambition. Each move they attempt to make, despite temporary successes, sooner or later comes face to face with either the intractable class stalemate at home or the intractable division of the world abroad. They are reduced to hanging on as the best that can be hoped for. To survive at all in such unpromising circumstances becomes a victory. Increasing military and police expenditure is the one area that really shows expansion.

Yet social paralysis and economic stalemate can continue for surprisingly long periods of time, particularly where one section of the ruling class feels that to settle with the other section will seriously jeopardize the entire social order. Despite an expanding labour force and increasing unemployment, despite increasing misery and hostility on the land, despite a rate of increase in the organic composition of capital that makes mockery of the sea of poverty in the country, despite a whole range of problems that seem insupportable, nevertheless the existing order survives. Indeed, some people regard the existing political order as stronger than it has ever been. For is it not correct that, after a debilitating economic crisis (the worst in the experience of India’s rulers) and the virtual disintegration of the ruling Congress, Delhi has been able to undertake a war in East Bengal with resounding success and Mrs Gandhi has been able to annihilate her political rivals at the polls? Almost, it seems, both the main foreign and the main domestic challenges have been decisively beaten.

The appearance is only part of the surface phenomena. Underneath, things look very different. Indeed, the Indian ruling class is no exception in this respect. For the paradox – increasing weakness with an appearance of rising strength – only parallels the position of more powerful capitalist (private or State) countries. The similarities do not end there, since all the obsessions of the advanced capitalist countries afflict India. Within India, the decisive relationships of the world system are reproduced, the patterns of domination and exploitation, of technology and output. In certain respects, indeed, India is in advance. Being one of the weaker segments of the world system, the reaction of the Indian ruling class to crisis, to a weakening of its world position, forces it to innovate in ways less developed in more developed countries. The combination of truncheon and Left-wing rhetoric, edict and populism, as a mode of political control is well advanced in India, Ceylon, Pakistan and Bangladesh. The singularly vital role of the Communist Party in adding a ‘progressive’ gloss to increasingly authoritarian rule also provides lessons for dominant powers.

1. The development of the Indian economy

The 1971-2 Annual Report of the Ministry of Industrial Development makes gloomy reading. It shows that the growth rate of Indian industrial production declined from 7.1 per cent in 1969, 4.8 per cent in 1970 to 2.2 per cent in the first nine months of 1971. After the severe recession of 1965-8, it had been generally assumed that the economy was now climbing rapidly out of the trough. But now it is clear that expansion was temporary: the problem is much more deep rooted than just the result of the poor harvest of 1965-7. Even the 1969 performance was poor; the Indian economy ought without much difficulty to be achieving a rate of industrial growth of 10-15 per cent each year.

The government claims that the current decline is the result of shortages of vital industrial inputs arising out of the limited capacity in a number of key industries (steel, non-ferrous metals, tractors, cement, paper, fertilisers). Yet all the evidence points to a problem of excess capacity in most key industries. The Indian economy has consistently been plagued with the problem of the underutilization of capacity, but at the moment some two out of every five industrial enterprises are producing less than 60 per cent of what they could. The steel shortage – coinciding with a gross underutilization of the existing steel capacity in the public sector – has now been offset by the import of some two million tonnes, yet this has still not produced a dramatic upturn in the engineering industries. In any case, the greatest decline in output has been in industries that are not vitally dependent upon the key inputs listed by the government – leather and fur products (a negative growth rate, −15.2 per cent), transport equipment (−11.9 per cent), cotton textiles (−7.9 per cent). If anything, the metal industries (+10.3 per cent) have tended to pull the index of production up.

The government’s argument is designed to show that the problems are temporary and will soon be eased. The official explanation of the downturn does not mention what appears to be the real source of difficulty. To understand that we need to explain what caused the earlier period of industrial expansion, roughly speaking through the second (1956-61) and third (1961-65) five year plans. The second plan injected a massive dose of investment into the economy in a short space of time in order to build as rapidly as possible a capital goods industry. This investment pushed the whole modern sector of the economy forward. The limits of growth were set by the balance of payments on the one hand and the course of harvests on the other. The push was sufficient to raise general industrial output a great deal and industrial employment a little, but certainly not sufficient to establish ‘self-sustaining growth’ (whatever that is) nor relieve the two main constraints.

In the sixties, defence expenditure – following the border clash with China in 1962 and the war with Pakistan in 1965 – increased very rapidly (in money terms, by some 41 per cent per annum from 1961-2 to 1970-71). This, along with the failure of two harvests in the mid-sixties forced a major cutback in public investment. The economy was pushed into slump. Neither the 1969 revival nor much improved harvests have been able to compensate for the continued slack in public investment.

The downturn forced the government to scrap the pretence, if not the rhetoric, of national planning. There was a ‘plan holiday’ for three years before the Fourth Plan (1969-74) began. Even with the beginning of the Fourth Plan, public investment did not revive – in the first two years of the Plan, it was some 25 per cent less than in the last year of the Third Plan (1965-6). In any case, the Plan was increasingly remote from Indian reality. For example, ‘black money’ – money concealed from the taxman – has grown faster than the national income for a long time and now constitutes a parallel economy. A recent government committee estimated that in 1961-62, Rs.8,110 million (very roughly £405 million) escaped the tax man; in 1965-6, Rs.l2,160m (£608m); and in 1968-69, Rs. 14,000m (£700m) (a dissenting note to the Committee’s report argues that these figures are underestimates, and the real total for 1968-9 should be Rs.28,330m and for 1969-70, Rs.30,800m). Whatever the facts – and the estimates can never be accurate – the rough size and rapid growth of black money makes all financial statistics in India suspect. With a volume of cash of this size outside the planners’ net, national planning becomes even more than usual inspired guesswork.

Defence expenditure has also eaten into development resources. The declared defence budget (as opposed to all the expenditure on defence which comes under other – apparently civil – expenditure heads) has risen from Rs.2,809m in 1960-61 to Rs.14,084m in 1971-72. Originally, this scale of expenditure was supposed to be designed to prevent Chinese and Pakistani military threats. No-one now believes that the Chinese are likely to attack India, and Pakistan has just been decisively defeated. However, there is no question now of reducing the scale of defence expenditure. It has assumed a life of its own, and indeed there is boastful talk of supporting India’s new role as a Great Power in South Asia with a defence budget of Rs.20,000m. Whatever illusions some of the military planners might have, the present size of the armed forces of India will no doubt be primarily useful in holding down Indians. If that is the task, then the size of the budget becomes explicable. To assist the new Bangladesh government against opposition within Bangladesh (as appears to have been guaranteed in the Indo-Bangladesh treaty and currently executed in Indian military operations against the Mizos and tribal insurgents in the Chittagong Hill Tracts) or to help Mrs Bandernaike put down her critics certainly would not require so much military expenditure.

Other forms of ‘non-development’ expenditure have also increasingly robbed the Plan of resources. Civil non-development expenditure has been expanding by some 37 per cent per year through the sixties. But in any case, the Plan appears to be increasingly marginal to government activities, more an exercise in public relations rather than economic strategy. In the Fourth Plan period so far, the government has undertaken 30 industrial projects that were not part of the Plan, abandoned 12 projects that were and made little or no progress on 55 other Plan projects. It is hardly surprising that Plan and expenditure diverge so widely; for example, in 1969-70 some 26 per cent of the Plan allocation for central sector organized industry remained unspent at the end of the year.

The decline in planning matches the decline in public investment. The cut in government investment between the third and fourth plans had the greatest effects on the industries created and sustained by the heavy industrial programme of the second plan. The capacity of the capital goods industries was expanded in the expectation that government demand would remain high. Yet with the end of the third plan, the government postponed even replacements and modernisation, let alone expansion. The declaration of a ‘plan holiday’ in 1967 was followed by a series of bankruptcies. The cut in the demand for steel not only afflicted the steel plants, it led to the financial weakening of, for example, coking coal mines (the government nationalised them in order to prevent unemployment). Machine tools and metal products were particularly badly hit, and are still operating at 50 per cent or less capacity. Railway wagon builders had expanded capacity to some 40 thousand wagons per year in the expectation of continued growth, but the railways then cut their purchases from 26 to 10 thousand per year. Formerly the government purchased half the national cement output and a third of paper production; now it takes a third and a quarter respectively.

The decline in public investment drove down private investment and savings (the rate of capital formation as a per cent of national income dropped from 13.2 (1965-6) to 9.6 (1970-71). This increased urban unemployment and so cut the demand for retail goods – for example, cotton textiles, leather goods etc. Inflation further hit working class consumption, producing an all round contraction of the urban market.

Within the cities, these various changes seem to have produced a shift of income from workers, manual and salaried, to the self-employed, professional and business strata, a shift which is probably dramatically large if we had any idea of the ‘black money’ flows. One estimate suggests that the real wages of factory workers fell by 7 per cent between 1965 and 1970. By contrast, the expansion in upper class incomes has produced a boom in those industries catering for upper class consumption, in particular the consumer durables industries (the output of which has increased by some 50 per cent over the past six years). But these industries – refrigerators, fans, air conditioning, household appliances – account for only about 5 per cent of consumer expenditure, so that their growth could hardly stimulate the whole economy. Small though the upper income market is, the tastes of the rich play an enormously powerful role in the distribution of private investment, and so the distribution of public sector output (e.g. steel for cars). Public transport in India is appalling, yet private motor car manufacture is receiving increasingly heavy priority (apparently regardless of the impact of the spread of cars on the urban transport system and the massive investment in roads that then becomes ‘necessary’). Of late, the government has licensed what it laughingly calls ‘the People’s Car’; it will sell for a price (about £950) which, on the official income statistics, may just come within the purchasing range of less than a million of India’s 547 millions. In political terms, the prosperity of the middle and upper classes has restored their morale and been a factor in Mrs Gandhi’s electoral success.

More important in the perspective for Indian development than the shift between urban classes has been the shift between industry and agriculture, between city and country. Good harvests and high government prices have moved income into the hands of the rich peasants at the expense of the urban working class paying high prices for its basic foodstuffs and of the government (the foodgrain price index, 1961-62: 100, reached 203.9 by 1970-71). Yet the increase in rich peasant incomes – like that of the urban upper classes – has not been able to stimulate the overall economy. Increased returns have too often gone into hoards, speculation and conspicuous consumption. Taking the cash out of the circulation system is in effect a forced deflation of the urban economy. To that deflation has been added the effects of the government’s policy in trying to damp down inflation by radically increasing taxes (three times last year, supposedly to pay for the refugees) to end deficit financing.

This outflow of income to the rural areas (or at least, to certain rural areas) is only the tip of the iceberg. For the struggle against the rich peasantry is rapidly becoming the most urgent single task in making possible any further phase of rapid development in India. The analogy is not exact but the second plan in India could be seen as Delhi’s attempt at the Soviet first five year plan – but without collectivisation. The fourth Indian plan is the re-establishment of Bukharinism. Whereas Stalin broke unequivocally with the Russian peasantry in the first Soviet plan period as the precondition for rapid capital accumulation, the second Indian plan was an attempt to industrialise by stealth without taking on the rural ruling classes (of course, a serious attack on the rich peasantry – including here the landlords and large landowners – would seriously have jeopardised the social order; Nehru did not have a mass Communist Party as his instrument of power). The creation of a heavy industrial structure ought to have made it unnecessary to drain resources out of agriculture into urban industry; once it matured, the public sector should have generated resources capable of bearing the brunt of capital accumulation without taking on the peasantry. Indeed, in India’s industrial strategy, the public sector ought to have played the role of those State farms that, in Russia’s agricultural strategy, the Left Opposition saw as the means to feed the growing cities without affronting the peasants.

However, the performance of the public sector has been nothing short of catastrophic. Far from providing a regular stream of savings on the basis of which further development could take place, the massive losses made by the nationalised corporations have been a constant drain on available resources, making further development even more difficult than would otherwise be the case. At the moment, for example, the public Ranchi Heavy Engineering plant is said to be unable to operate at over 20-25 per cent of capacity; the Durgapur and Rourkela steel plants at 40 per cent of capacity; cumulative losses on the public sector steel plants reached Rs.1,300m in 1970 on an investment of Rs.10,250m. The rate of profit on capital employed in the public sector is said to be 2.5 per cent (give or take a few statistical tricks), a return that would prompt any ordinary capitalist to move his capital into something else.

Although agriculture was never neglected to the degree some people now suggest, nevertheless it seemed to the government that in the first three plans, poor agriculture was the Achilles heel of the Indian economy. That agriculture needed a massive increase in inputs was a viewpoint which accorded exactly with that of the richer peasantry. The rate of growth of industry in the first three plans was nearly three and a half times that of agriculture. Now, however, the pattern has been reversed – in the past five years, industrial growth has been only half that in agriculture (6.5 per cent per year). Yet the expansion of agriculture has not done what the government said it hoped for, it has not produced rapid industrial growth, only a richer stratum of peasants.

The ‘green revolution’ in India is almost a textbook example of the paradox of capitalism – each increase in output seems only to make conditions worse. Leaving aside the social effects of the expansion in wheat output where it has occurred, it is difficult to see how agricultural expansion could be much of a stimulus to the overall economy. The returns to agriculture are concentrated in very few hands, too few to generate a real expansion in demand. Commercial crops have not been much improved by the recent changes, so there has been no decline in the price of industrial raw materials that might assist the industrial economy. In any case, industry has in the past twenty years moved further and further away from agricultural processing industries. As in the world economy generally, the creation of synthetic and substitute raw materials has decreased industry’s dependence on agriculture. The weight of chemicals and engineering in total industrial production has increased from about 20 per cent in 1951 to nearly 40 per cent in 1965. Chemical substitutes (polyester, nylon, PVC, polyethylene) are displacing cotton, jute and wood products. In certain respects this trend is disastrous for the Indian economy, for it usually means decreased employment (for example, of peasants growing cotton) and increased imports of crude oil (for the petrochemicals industry). Plastic sandals at very low prices are afflicting the leather industry. On the railways, the rapid change over to diesel trains is displacing the indigenous coal industry, again to the advantage of international oil companies. [1] The dominant pattern of the world economy is imposed on the internal economy, despite all contrary efforts.

Nevertheless, the Indian government has put an increasing volume of its resources into agriculture. In addition, the terms of trade have moved against the cities throughout the sixties. The price of finished manufactured goods, as a percentage of the price of agricultural commodities, moved from a high of 130.1 in 1963-4 to a low of 71.5 at the bottom of the agricultural recession in 1967-8. The expansion of agriculture after this last year has not at all changed the situation. High food prices – sustained by the government purchasing system -with an industrial recession have only continued to drain out of the cities. Again, it needs repeating, that only the narrowest stratum of rich peasants gain from this situation; the mass of peasants with very little or no marketable surplus remain as poor as before.

The government’s declared aim of developing agriculture (which is why foodgrain procurement prices were originally set so high) fits exactly the views of entrenched rich peasant groups in each State Congress party. It follows that conflict between agriculture and industry is reflected in the conflict between the States (the provincial governments) and the Centre, a conflict we will return to later. The logic of the second plan was to impose on the territory of India a geographical division of labour – for example, heavy industry was concentrated in the area of coal and iron sources in eastern India; Bombay became the main centre of petrochemicals and light manufacturing; Andhra, Punjab and Western Uttar Pradesh were major foodgrain producers. But the growth of State level power has steadily eroded any such division now. Food surplus States do not want to be dependent for industrial goods on other States; industrial States do not want to be dependent on other States for their foodgrain supply. As a result, the food surplus States are busy developing industry, whatever the cost, and food deficit States are developing agriculture. The two most recently proposed steel mills, for example, are to be located far from the supply of coking coal (and one of them is even far from a port to which coking coal could be brought or the output shipped out), both in food surplus States and remote from the main heavy industrial zone of India. On the other hand, Maharashtra – with a poor arid soil (but the Bombay industrial region) is attempting at very high cost to reach self-sufficiency in foodgrains, regardless of the cheaper supplies of foodstuffs available from its food surplus neighbours. West Bengal, also an industrial State, is attempting to follow suit. The growth of State-level economic autonomy moves the development path away from that course which fosters the interests of the national capitalist class, the national government and the nationalist petit bourgeoisie [2], and in favour of the interests of the local State petit bourgeoisie (including the rich peasantry). Given that the threshold concentration of resources required to launch and sustain development is rising all the time, this fragmentation of resources makes development increasingly difficult.

What makes the problem of the collision between the rural and urban ruling classes so urgent is the growth of unemployment. [3] For there to be stability, the Indian ruling class must be able to provide a steady and increasing stream of jobs some semblance of hope. Yet the cost of providing one new job is rising each year as the technology of industry changes in accordance with the world system as a whole – petrochemicals displaces the cotton, leather, jute industries without making up anything like the employment. At the moment, a rate of growth of industrial output of 8 to 10 per cent per year will not absorb much of the existing reserve army of labour; very soon, a twenty per cent rate of growth will not do. The world economy’s growth rate does not compensate for the domestic deficiency. Nor, despite the fond hopes of some people, is agriculture a place where surplus humanity can be shunted and forgotten. The prosperity of the rich peasantry (as well as its aggregation of the biggest chunk of resources put into the land) is likely to stimulate the introduction of labour saving equipment on the land in the longer term, and that will force people out of agriculture rather than making for more employment. More and more the modern economy threatens to degenerate into, on the one hand, the absurdly uneconomic public sector, sustained by taxing the cities and on the other, a small booming private sector for the high income market of the rich, rural or urban – a distant replica, on a very much smaller scale, of the US, European or Japanese consumer markets.

The government’s response to the failure of the industrial economy to grow has been to nationalise anything which was threatened with closure and to relax the ban on the entry of private companies into certain areas reserved for the nationalised industries. In the former case, the government has taken over recently the Bihar coal mines, Indian Copper, a number of heavy engineering companies, some 41 textile mills (it is considering acquiring another 67 ‘ailing’ textile mills). The public sector has become enormous within the modern economy. Of the 101 largest companies operating in India, 30 are publicly owned and include the nine largest companies; the 30 companies hold 60 per cent of the assets of the 101 companies. The largest private group (Tatas, with 9 of the 101, including the largest private company in India, Tata Iron and Steel) has total assets of Rs.4,860m; the largest company of all, the government’s Hindustan Steel has assets of Rs.10,270m (Tata Iron and Steel’s assets are worth Rs.l,860m). Twenty-seven of the 101 are foreign owned with combined assets of Rs.7,600m (23 per cent of the total).

However the concept ‘private’ is increasingly blurred. For not only are private companies now operating in fields reserved for the government, not only are ‘joint ventures’ spreading (in joint ventures, few of the restrictions on private companies operate, but private profits are made with government money), but also an increasing volume of public money flows into private companies, usually without any particular obligations. The government, either directly or through public financial institutions, holds some 31 per cent of the equity in the three largest private companies; if it converted all its loans to equity, it would hold 60 per cent. On average, the government holds 16 per cent of the equity of private companies, but the proportion sometimes rises as high as 50 per cent.

Despite much empty rhetoric about curbing capitalist excesses, the Indian government is heavily involved in ensuring that private capitalism continues to be profitable. Private business has not, by way of recompense, succeeded in restoring economic growth. For the private sector depends for its survival on public investment, on the kind of expansion of demand that took place in the second plan. But where are the resources for such an expansion to come from? Increasingly, for the private capitalists, agriculture is the only source for further capital accumulation. The rich peasants have been protected from taxation, their assets expanded at the expense of urban savings and their revenues enhanced out of urban tax revenue. The capitalists, rather than the socialists, are the people with the most powerful economic – if not political – interest in squeezing the kulaks.

The government by contrast refuses to take any clear positions. At most there is a rhetorical commitment to taxing agriculture, but in practice the issue is unlikely to be pressed very far. At the moment, the government is trying to rationalise the failure of Indian industry to grow. In a recent ‘keynote’ speech, Mrs Gandhi argued that for far too long India had sacrificed social ustice to the ruthless pursuit of economic growth. Now the abolition of poverty’ must be the first target. She did not explain how poverty is to be abolished without economic growth. The latest Planning Commission document in preparation for the Fifth Plan repeats these brave phrases, jutting the fleshpots of economic growth behind it. In practice, the strategy of the plan is unlikely to be much changed – there is to be more expenditure on rural employment and social service schemes. Since the allocation set aside in the Fourth Plan for these purposes was not fully used, it is difficult to see all this flurry – the ‘New Economies’ as it is grandly called – as any more than a more than usually cynical propaganda exercise. India has not achieved a high economic growth which can now be refused in favour of social justice.

2. Centre and States

The conflict between the agrarian and the industrial ruling classes, between rural and urban, is partly reflected in the collision between the Centre – the Government of India – and the States. Here there is space to mention only two elements in this connection – the financial relationship between the two, and the issue of agriculture’s privileged position in the national economy.

Industrialisation of the backward countries has pushed many of them further and further into debt. Repaying and servicing the debt consumes a larger share of export earnings, and this in turn often threatens to stifle all further development. Formally – but only formally – the internal relationship between Delhi and the States shows the position. In March 1951, the States had an outstanding debt of Rs.2,450m (roughly £122m); by the end of the current financial year, the cumulative debt had reached Rs.87,580m (or £4,739m). The rate of increase is of the order of 165 per cent per year. Within this debt, loans from the Central Government have increased fastest – at about 195 per cent per year. However, the burden of repayment and interest payments has grown faster – they took 52 per cent of loans in 1965-6, 86 per cent in 1969-70. In the current year, payments to the Centre will exceed the size of its loans to the States.

The Centre’s loans to the States represent its power of bribery. They are a lever to influence the States’ behaviour, so that if the rate of lending is negative, that represents a decline in Delhi’s power rather than the stranglehold of international lenders over some backward countries. For Delhi, there are few sanctions against defaulters, and none against the aggregate of States. The Minister of Planning, alarmed at the size of the debt, recently banned further loans. The only result has been an equally alarming increase in the States’ overdrafts on their accounts with the central bank. The overdrafts make a mockery of any attempt at monetary or credit control policies by the government. The Minister, nothing daunted, banned an increase in overdrafts, but he cannot possibly hold such a ban and risk the bankruptcy of a State.

For an individual State, the situation can be alarming, and prompts various State Chief Ministers to demand greater economic autonomy. The non-Congress government of Tamilnad constantly complains at the ‘reverse flow of aid’ and Karunanidhi, the Chief Minister, has talked threateningly of his party, the DMK,. being a Tamil Awami League and prepared to lead a similar struggle to that which took place in East Bengal. The Kerala State government which includes Congress, has made similar threats, demanding that the State’s debts be written off and the financial neglect and strangulation of the State be ended or a new Bangladesh movement will arise to free Kerala. There are similar threats in other States, and the Communist Party of India (Marxist) has taken up the same position in West Bengal.

Yet they are only threats for the real balance of power lies ultimately with the aggregate of States. Individual States may feel – rightly – oppressed, but they are more interested in bargaining than breaking with the Centre. For they need the Centre. Each local bourgeoisie struggles to secure its unchallenged domination in each State against national forces, but also needs national forces to protect itself against ihe possible revolt of its own local people. The threats are attempts to squeeze more out of Delhi in competition with other States, not the first step in secession. As will be seen later in the case of West Bengal, the intervention of the Centre can be vital in protecting the local ruling order against its local challengers.

Where the real power of the States is most clearly seen is when they combine against the Centre, when their nearest interests are at stake. In particular, agriculture – part of the sphere of responsibility of the States – touches all most sensitively. The powerfully entrenched position of the rich peasants within each State Congress has ensured that land reform legislation has largely been effective, that agriculture has been kept largely untaxed and that a significant flow of resources has been diverted into rich peasant hands.

In the sixties, particular rural groups have grown strong on this rich diet. In the Punjab – on the basis of the new wheat technology – annual income per head has increased from Rs.307 (1961) to Rs.854 (1970), and if that is the average figure, the rich farmers must have done very much better (the Punjab’s foodgrain output has increased from 2m tons in 1950-51 to 6.5m tons in 1969-70). Nor is this phenomenon simply the result of the new hybrid seed, for in Andhra Pradesh the larger rice growing farmers are very prosperous. It is said that tractors are now replacing bullocks even among the smaller farmers (who find it cheaper to hire a tractor for short periods than keep bullocks all the year round). Army officers and civil servants have been induced to retire into farming because it is such a lucrative way to make money and escapes all taxation. Congress Ministers are not averse to dabbling in land speculation (contravening the land reform laws at the same time) either in their own names or that of their wives.

The prosperity of the richer farmers is purchased in part at the expense of the poorer farmers. The growers of hybrid seed have been favoured with the lion’s share of irrigation water, fertilisers, pesticides and so on, all of which deprives the poorer cultivator of his share. The market is so favourable, also, that landlords and richer peasants are eager to grab as much land as they can. The violent incidents between share croppers or labourers and larger farmers seem to be increasing. Last November, for example, ten share croppers were shot dead, four burned alive in their huts and thirty five wounded when thugs in the employment of local landlords set out to teach them a lesson; the sharecroppers were trying to prevent the landlords seizing a piece of their land. The granaries can be full while there are starving people. Right at the moment there is famine among the poorest tribal people of part of Bihar State (the Paharias), but Bihar State has announced it is within sight of ‘self-sufficiency’ in food grains.

To lower the permitted size of land holdings (the ‘ceiling’), it has been argued, will make available land for large numbers of landless peasants. To introduce the stringent taxation of rich peasant agriculture will produce a flow of resources for development without a radical restructuring of Indian society. To lower the present price at which the government buys wheat – indeed, to eliminate government wheat purchases altogether -will simultaneously save the central budget a considerable sum and force the rich farmers to grow crops neglected in the present agricultural boom, either commercial crops or other foodstuffs vital for the national diet (e.g. pulses). But to achieve any or all of these desirable ends requires the Centre to subordinate and compel the State Congress parties to execute Delhi’s wishes.

Mrs Gandhi’s victory in the last elections was seen as achieving this subordination. Before the March elections in some 16 States, the prime minister supposedly vetted the leaders and candidates of every State Congress, securing in each case loyalty to her programme (to lower the land ceiling) and dismissing any who seemed doubtful in loyalty. At the same time, the government’s Agricultural Prices Commission (APC) produced a report (which every year seems to reach the same conclusion) arguing that the highest production cost for wheat in India is about Rs.50-55 (and the lowest, Rs.38) per quintal, yet the government’s purchase price is Rs.76; the APC urged that the government’s procurement price be cut, depending on the type of wheat, by between Rs.4 and 8 per quintal, scarcely a very dramatic reduction.

It was thought the combination of Mrs Gandhi’s purge of Congress (and humiliation of State Congress leaders) and her election victory would ensure that the wheat price, the land ceiling and the agricultural taxation proposals would be easily achieved. Yet very little had changed in reality. The basic balance of power remained the same, Mrs Gandhi may have increased the loyalty of her party members to herself, but only on condition that she refrained from injuring the interests of their supporters. Immediately after the election, Mrs Gandhi’s personally selected Chief Minister of the Punjab announced that the Punjab Congress would not be lowering the land ceiling in that State. Four days later, the Chief Ministers met in Delhi. Despite the Finance Minister’s alarm that the total government wheat bill had increased recently from Rs.350m to Rs.1,200m, the Chief Ministers threw out the proposal for a cut in the wheat price. Indeed, the irrepressible Punjab Chief Minister argued that, since it now cost Rs.80 per quintal to produce wheat, the procurement price ought to be raised. The meeting went further, for it successfully extracted a promise from the government to increase the proportion of the wheat crop it was obliged to buy and refrain from unloading government wheat on the market without consulting the States.

Only three States grow wheat in significant volume, but the others – with the exception of West Bengal, now the most loyal of the loyal – rallied round to support the threatened agrarian interest. In return, no doubt, the three wheat growers will support other States on issues close to their interests (for example, Gujerat’s demand for the government to guarantee the price of raw cotton). Outside the Chief Minister’s meeting there was remarkably little dispute about the wheat price; none in the lower house of the national parliament; in the upper house, members – regardless of political party – condemned the APC recommendation. So far as the government is concerned, it looked as though it recognised the inevitability of its defeat beforehand and put up no real fight. Mrs Gandhi did not put her reputation to the test by attending the meeting and fighting for the APC proposals.

The balance of power revealed by this encounter means little can be expected of the proposal to lower the land ceiling or increase agricultural taxation. The government has already shunted the former proposal into a committee of enquiry as if information was the main obstacle to taxing the kulaks. Last year the Chief Ministers refused to accept an agricultural tax to pay for the Bengali refugees, so it is doubtful whether a committee report this year will soften their obduracy. They have a powerful ally in the central Minister of Food and Agriculture. He has recently performed sterling service on the land ceiling issue. The ceiling to be most drastically lowered was to apply to ‘perennially irrigated’ land, and the Minister last month kindly defined this as land irrigated for at least ten months of the year from government canals and wells. The rest of the land – including land irrigated from private water sources (mainly tubewells) – is accounted as ‘dry’ and therefore subject to much more generous land ceilings. On this definition, ‘perennially irrigated’ is rare and proportionately becoming rarer. At the moment, about 22 per cent of India’s cultivated land is irrigated (though probably not for anything like 10 months per year), and about half of this from government water sources. The expansion of private tubewells has been a boom industry for the past ten years, all through the years of so-called harvest failure. Government and banks have pushed the financing of private wells hard, and rich peasant profits have also assisted. Indeed, the spread of tubewells is something of an index of the prosperity of the richer peasants -at the end of the third plan, there were something like 80,000 private tubewells in the country; in the years of slump and harvest failure (1966-9), another 175,000 were built; and during the fourth plan, yet another 190,000. So the Minister’s definition must have caused an audible sigh of relief in rich peasant households round the country (the Minister’s explanation – that this was the definition standard in all the previous land reform legislation – only made matters worse).

3. West Bengal

The impact of the crisis of the sixties on the working class has been most powerful in the State of West Bengal. Of all the States, this is the one most dependent upon the national economy for its prosperity. It is also the State where the left was strongest and yet now has been most decisively defeated. West Bengal and its immediate environs were designed to be the heavy industrial zone of India. Five major steel plants, the major part of the coal and iron ore mining industries, heavy engineering plants and a very large chemical fertilizer plant, railway wagon and repair workshops were all concentrated here. In the Calcutta Metropolitan District, a quarter of India’s engineering capacity is located, much of it in heavy engineering. Vast sums have been poured into the area to sustain the growth of the capital goods industries. Between 1959 and 1965, investment in the larger factory sector (units employing 50 or more workers with power, 100 or more workers without power) increased at a compound rate of 21 per cent per year (by contrast, income increased by 12 per cent per year and employment by 5 per cent per year). Capital per worker has consistently been high and increasing rapidly; it increased by 147 per cent in the same time period. The other major employer in the West Bengal industrial sector is jute, an old and declining industry.

The result of this industrial mix is that what was a serious recession in India in the last half of the sixties was a slump in West Bengal, or rather in the industrial heart of West Bengal, Calcutta. It inflicted grave damage on the working class, its organisation and morale.

Registered factory employment in the Calcutta Metropolitan District (CMD) fell by nearly 100 thousand between 1965 and 1969 [4], whereas it rose by nearly 16 thousand in West Bengal as a whole. Of the decline, engineering lost 29 thousand, jute 55 thousand. Even the upturn of 1969-70 scarcely affected engineering at all and at the end of last year, still only 40-50 per cent of capacity was being used. The jute industry, strongly assisted by the war in East Bengal (the other major jute producer, then part of Pakistan), did make some recovery in 1970-71, putting on 20 thousand new jobs (the rest of the CMD lost 2 thousand jobs at the same time). If Bangladesh’s jute manufacturing industry recovers soon, however, it may mean a return to slump for West Bengal’s jute industry.

In addition to unemployment, wages have not at all kept pace with price inflation, particularly the increase in food prices. The total real wage bill in West Bengal is said to have declined by 7.5 per cent between 1965 and 1968, and per capita real wages by 3.3 per cent. The large inflow of refugees in 1971 cannot at all have improved the situation since food prices must have been further inflated and wages depressed by the willingness of refugees to work for virtually any pay. Even most recently, there has not been much improvement. In the year ending October 1971, registered unemployment increased by 220 thousand which, on the normal ratios used, suggests a total increase in unemployment of three quarters of a million.

Worker reaction to this catastrophic economic performance has been to wage a bitter and savage struggle for survival against the attempt by employers to offload their problems on to them. The physical decay of Calcutta, now notorious as an example of neglect, only exaggerates the open class warfare that has occupied the city for the past five years. Take for example the number of workers in dispute as a percentage of all workers in registered factories; this proportion was about 14 to 15 per cent in the fifties; it rose to 18 per cent in 1966, 32 per cent in 1967 and 1968, and 85 per cent in 1969. Or take the per cent of man days lost to total man days worked; this rose from under 1 per cent to nearly 5 per cent in 1970 (both sets of figures include lockouts; nearly half the disputes involved lockouts, and the average duration of lockouts – 45 days – was three times that for strikes). Or take the rate of political murders: as officially estimated (or almost certainly underestimated), these rose from 108 in 1969 to 1,169 in 1971, the year of the Congress ‘clean up’ of Calcutta.

The government has devoted less and less of its attention to trying to raise the economic level of West Bengal, more and more to trying to beat opposition into the ground. Thirteen battalions of the Central Reserve Police – the Central government special police force – along with several thousand local police and, from time to time, army units have been required just to hold the CMD together. West Bengal’s expenditure on the police has risen from Rs.l60m in 1966-67 to Rs.450m this year. This scale of spending means little can be raised for development. Maharashtra State (the other most industrialised State) raised Rs.2,250m for its 1972-3 development plan; West Bengal has raised Rs.750m.

The central government has now begun to push in some cash to the CMD economy (during President’s rule last autumn, and with the help of the abolition of Calcutta Corporation). With its simultaneous policy of massive physical repression, it is hoped the State can be restored to ‘normal’. So far the government’s policy has been successful, and indeed has been ratified by the substantial increase in its popular vote at the elections in March. Factory disputes, violent clashes on the streets, political murders, all seem to be declining. The number of gheraos (locking up the managers in their offices until they agree to negotiate) at the notorious trouble spot, Durgapur steel plant, has declined from 517 in 1969 to 20 last year.


1. The story of the relationship between the Indian government and the international oil companies is only one of the more extreme examples of the relationship between international capital and backward countries. In the four years up to 1970, the oil majors in India remitted to their foreign parents some Rs.550m (£27½m) in profits, dividends and gross remuneration on an aggregate capital employed of Rs.1,090m (£54½m). Most of this profit was earned, not on refining or prospecting, but on marketing. In any case, the companies have illegally expanded their capacity from the permitted throughput of 2.9m tonnes per year to 10 million tonnes.

2. These issues were discussed in the earlier articles, India: A First Approximation, IS 17 and 18, Summer and Autumn 1964.

3. The notion of ‘unemployment’ is difficult to define in a country like India so that there are no reliable statistics on the number of unemployed. The Register of Employment Exchanges covers only a small proportion of those actually out of work and is biased towards urban, educated middle class unemployed. Nevertheless, the number on the register has increased quite rapidly – from 3m in 1968 to 5m in 1971; the rate of increase per year has accelerated from 10 to 25 per cent over the same period. In addition, according to the Census, the proportion of the population in the labour force is falling – from 39 per cent in 1961 to 34 per cent in 1971.

4. If we count the ‘lost employment’ as the difference between the actual employment in 1970 and what would have been total employment in 1970 if the trend between 1951 and 1965 had continued, then 326,000 jobs were lost; cf. A.N. Bose, A Note on the Economic Development Programme for the CMD, mimeo, 1972, paper for the Regional Studies Association Conference, Calcutta, 1972.

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Last updated: 24.6.2008