Black Economy India Arun Kumar Pdf Reader
NITI Aayog has had its first meeting with the economic experts. This was crucial since the government is trying to revive economic growth. The economy has experienced slow growth in spite of the revised national income data that has indicated faster growth. Industry, exports and so on, have shown tepid growth in recent years. The National Democratic Alliance’s electoral promise of an economic turnaround seems elusive in spite of its accelerating “reforms” by liberalising foreign direct investment (FDI) flows and land acquisition policies to signal its pro-corporate sector and big business inclinations. The budget is first a macroeconomic exercise and then a micro one catering to sectors of the economy. Two contradictory macroeconomic views are emerging from the government and its policy advisers.
The black economy in India Arun Kumar Snippet view - 1999. Common terms and phrases. Amongst amount argued banks become black incomes black.
This is similar to the policy dilemma that the United Progressive Alliance faced earlier. The first view is to have a larger fiscal deficit so as to boost demand.
The other view is to cut the fiscal deficit to keep the credit rating agencies (proxy for financial interests) happy so as to prevent a downgrade of the economy. The Finance Minister favours the latter view and argues that a fiscal deficit imposes a burden on future generations who will have to repay the debt. This conservative view assumes that resources are constrained, so if the government spends more, the private sector has less to spend. But that cannot be true when the economy has spare capacity and can produce more. Increased government expenditures then boost the economy and lead to more investments via the accelerator. If increased spending is financed by increased direct taxation, that is even better. This is feasible in India since direct taxes are around 7 per cent of GDP which is low when compared to most other countries.
But a government trying to signal its pro-business inclination would not wish to raise direct taxes like income, corporation and wealth taxes. Actually, tax rates need not be raised but only the concessions given in taxes (these are called tax expenditures and amount to 4.5 per cent of GDP) need to be curtailed to get more resources. But this may also be seen as anti-business. The other possibility is to tap the black economy (more than 50 per cent of GDP, according to me.) This requires political will which is not yet visible. The business community, the largest generator of black incomes, would see this also as anti business — it has been opposing introduction of general anti avoidance rules (GAAR).
Even if the economy grows faster due to the reduction of the size of the black economy and businessmen gain, they fear it since a bird in the hand is worth two in the bush. The NITI Aayog meeting does not seem to have considered these deeper issues. Advice was sought from former bureaucrats, journalists, industry lobbyists and academics. Media reports suggest a lack of coherence in the discussion or in the advice given.
Some of the invitees had been present in the Finance Ministry pre-budget meeting last month. So, what was the point of the meeting now when it did not lead to clarity on long-term issues?
Further, the time for incorporation of policies in the budget is over since most of it would have been formulated by now. It may have been better to circulate for comments a discussion paper on the Indian economy’s slowdown and its global interlinkages. India’s current economic dilemma has global roots. The eurozone, Japan and Russia are in trouble, the Chinese economy has slowed down and the U.S. Economy is the only big one that has improved. In such a scenario, increasing exports in a big way would be difficult.
Declining commodity prices (like that of petroleum goods) signal a weakening global economy. Uncertainty is deepened by the arc of instability due to failing states, from Afghanistan, Syria, Iraq, Libya, Nigeria to East Africa. The war in Ukraine and the rise of IS are compounding the problem. Greece threatens the economic stability of the eurozone. The new government there is defying the dictates from the world of finance and has promised to end the austerity regime hoisted on the people of Greece. The Greek Prime Minister is telling the European powers that the economic rules of integration of the weaker economies of Europe into the eurozone need change. He is arguing that a substantial portion of the debt resulting from the earlier wrong policies needs to be written off.
The other troubled economies of Europe — Portugal, Spain and Italy — are under increasing political pressure to follow Greece’s example. President Barack Obama has proposed increasing taxation of the rich while giving more to the middle classes to reverse the growing inequity there. This move not only has a political strategy underlying it but also economic reasons that favour it. Given the Republican domination in the legislature and their conservative inclinations, it is unlikely that this proposal would be accepted any time soon. But, other countries would be forced to think about the idea, especially in the context of the developments in Greece. These policies promoted shadow banking and all manner of opaque financial instruments that created economic instability. A casino economy emerged with speculation leading to a fictitious boost in paper wealth, promoting a false sense of well-being among individuals and increased consumption by them.
As inequality increased dramatically, and there was the marginalisation of the vast majority, there followed the “Occupy Wall Street movement”, termed as the “99% v the 1%” and which also popularised the term, “Main street versus Wall street”. The dilemma currently facing Indian policymakers reflects these global trends. India’s rightward drift started with the Emergency in 1975 when Sanjay Gandhi marginalised the left of Centre thinking in the Indira Gandhi government. The trend continued during the Janata regime and thereafter under the Indira Gandhi government which had to approach the IMF for adjustment in 1980. Rajiv Gandhi, under considerable influence of the liberalisers, pushed this tendency faster. With the New Economic Policies in 1991 and the emergence of the World Trade Organization (WTO) in 1995, there was a paradigm change, with the policies of finance capital becoming entrenched.
For India, which remains very poor and very unequal, policies based on the interest of finance capital and a narrow section of society can only spell disaster. These policies push markets and technology-based solutions which marginalise the individual. The underlying idea is that if making democracy work is difficult, substitute it with technology. Those lacking faith in democracy and social institutions are (in the name of the poor) pushing an autocratic agenda based on greater use of technology. The hard work of creating and nurturing institutions that can deliver to the people and strengthen democracy is sought to be circumvented.
So, one of the key proposals today is to push Goods and Services Tax (GST) even if it does not suit the needs of the vast unorganised sectors of our economy and benefits the MNCs and big business. The hard work of making taxation simple and effective and shifting to direct taxes is hardly on the agenda.
Creating a large number of jobs is secondary to cash transfers, bullet trains for the elite and smart cities for the upwardly mobile. The flyovers of Delhi were built to ensure smooth traffic flow but now have speed bumps to slow down vehicles and which leads to jams. The technological solution failed because the institutional design of management of urban traffic is flawed and that is because policymakers did not go deeper into the problem in their urge to provide quick fix technological solutions. The NITI Aayog could throw light on such long-term issues (with solutions that are not just economic or technological but also social and political) of strengthening democracy, building institutions, regaining policy space and so on. The Director of the Indian Institute of Technology (IIT), Delhi, has resigned because he was sought to be marginalised by the Ministry of Human Resource Development (HRD). The faculty and alumni of IIT have come out in his support but the issue festers.
Unfortunately, this has little to do with the real problem facing IITs — a lack of adequate faculty and little cutting-edge research. Even before the indiscriminate expansion of the IITs began, these institutes faced a shortage of faculty; at times to the extent of 40 per cent. The IITs face a reverse filtration of talent. The best obtain a B.Tech degree and either leave for foreign shores or move on to study management. The second best continue pursuing higher degrees which in turn leads to a weak research programme. Like IIT Delhi, other institutions of higher education in the capital have also been in the throes of crisis.
Autonomy being eroded These are not isolated institutional problems. They are generic in nature and can be found to exist in different degrees in almost all institutions. What plagues Delhi University once prevailed at Jamia Millia Islamia and Aligarh Muslim University. A shortage of faculty and the use of ad hoc teachers affects almost all universities. The key problems confronting higher education in India are quality, equity, access and financing. In the last 10 years, there has been a massive ad hoc expansion of Central Universities, IITs and Indian Institutes of Management resulting in a shortage of faculty by 40 to 50 per cent. Established older institutions are doing a bit better but not much since about 33 per cent of the positions at Delhi University and JNU lie vacant.
Shortage by itself does not reflect the extent of the problem since quality of faculty is crucial. Appointment of ad hoc teachers at salaries close to minimum wages and for years at a stretch is demoralising and results in a deterioration in quality. Our education system is plagued by the separation of teaching and research. Knowledge is largely acquired through rote learning of notes or reading books that are a “cut-and-paste job”. Thus, understanding is at a discount.
Consequently, many Indian intellectuals tend to be “derived intellectuals”, recycling knowledge from the West. Exams are mechanically passed by “mugging up” material which is then promptly forgotten. Knowledge is neither assimilated nor converted into wisdom. The result is that the system largely produces people with indifferent quality and where industry complains of a lack of skills. Some faculty in order to be popular dilute standards and supervise three or four times the number of research students prescribed under University Grants Commission (UGC) norms. There are others who run non-governmental organisations and institutions outside JNU.
The result is a conflict of interest and where academics with little time for research supervision allow anything to pass. There is a lack of leadership at JNU but this is true of other institutions also where decisions are not made on time.
All this is symptomatic of a lack of a vision of higher education in the entire system — from the Ministry to the UGC to the institutions of higher learning. The Ministry and the UGC expect their diktat to run, little realising that their demands from these institutions may not suit all. “One size fits all” and “standardisation to achieve standards” is anathema to higher education. Such prescriptions damage the better institutions as has been the case with the introduction of the mechanical Academic Performance Indicator (API)-based recruitment and promotions. Rather than ensuring quality, this move has led to the emergence of poor quality journals, conferences and so on and the promotion of mediocrity.
It is undermining the autonomy of academics which is crucial in fostering accountability to the long-term interest of society. The HRD Minister’s conclave with the vice-chancellors of the Central Universities in September suggested fundamental changes in the running of these universities. Since the Central Universities are some of the premier universities in the country, what they do becomes the model for other universities. Therefore, it is important to know whether what was discussed would help resolve the problems of these universities. The same vice-chancellors who created the problems described earlier are now heading the committees working on the proposed changes. Apparently, a council of the vice-chancellors of the Central Universities, with the Minister of HRD heading it, has been proposed.
In addition, all the Central Universities are to be brought under a common Act, there is to be a common curriculum, a teacher’s recruitment board, transferability of students among these universities and so on. If any of this is implemented, the autonomy of Central Universities will be severely eroded. This was the programme of the United Progressive Alliance government and is perhaps being pursued because the bureaucrats of the Ministry are driving the agenda. Independent intellectuals are seen as being troublemakers and are harassed. Mediocre academics, realising that they cannot excel academically, resort to petty politicking and/or become sycophants of those in power in order to climb the ladder. Those at the top take the support of the latter group and adopt the principle, “show me the face I show you the rule” It is this group that violates rules secure in the knowledge that the authorities will not act against them.
They bring a bad name to higher education and erode the accountability of the institution. The government has announced a slew of programmes like ‘Make in India’ which depends heavily on a strong research and development capability which in turn requires a dynamic system of higher education. The claim that India has arrived on the world stage rings hollow without an independent technology base. It is no wonder then that we are forced to borrow technology from China for bullet trains or ask the U.S. To help clean our cities.
The ‘Swachh Bharat’, ‘Clean Ganga’ and other such campaigns require citizenship which a democratic and inclusive education system can deliver but a purely formal education system cannot. Unless the crisis in higher education is tackled, the government’s best laid plans can be derailed. In brief, higher education in India suffers from a lack of a democratic leadership that understands its true nature. Those heading these institutions are usually the favourites of those in power (political or money). They largely implement the agenda of their masters and, therefore, do not feel the need to be accountable to the academic community. To them, accountability is personal and not institutional or societal.
They undermine the autonomy of the democratic bodies of universities, like the academic council through threats and inducements. Some institutions have no unions that can balance the autocratic behaviour of their heads. Thus, the erosion of the autonomy and accountability in institutions of higher learning is both from within and without. This is the biggest challenge before an India that aspires to arrive on the world stage. Yusuf Meherally was in the vanguard of India's struggle for independence who played a leading role in peasants' organisations and trade unions.
He was imprisoned eight times during the freedom movement. The 'Quit India' slogan coined by him was adopted by Gandhiji for India's final Nationwide campaign for independence. One of the founders of the Congress Socialist Party, Yusuf Meherally wrote, 'I hate ugliness and cruelty and that is why I am a socialist. My socialism is based on aesthetic and ethical premises and not on Economics.' In the words of late Dr. Zakir Hussain, the Vice President of India, 'It was the primeval sorrow of Man for what Men do to each other, knowingly or unknowingly, which moved him.'
( www.yusufmeherally.org). It is this philosophy and the growing all round inequity in society that made me choose the topic of this talk. Historically, most societies known to us have had disparities whether looked at in terms of living standards or other aspects of life. Earlier, the differentiation between various groups of people was less for many reasons but perhaps above all because there was a greater sense of justice associated with equity due to the higher value attached with community life which seems to have eroded over time. Atomization and alienation of individuals are responsible for this decline and led to a greater acceptance of inequity in society. Disparities are of course multi-dimensional with political, social, historical, cultural, geographical, economic, etc., factors contributing to them.
These reflect themselves in differences in living conditions (including housing), access to health and education, in environmental factors or differentiation in incomes and wealth, etc. The differentiation may manifest itself in terms of gender, class, community and caste. All this gets embedded in social consciousness and, therefore, inequality takes societal, cultural and civilizational forms. Consequently, inequality becomes difficult to tackle (reduce) or deal with. Present day India is characterized by growing inequality (See Graph I ). On the one hand, we have the largest number of poor people in the world and on the other hand, we have a large number of billionaires. The number of billionaires is larger than in many other much richer countries than us.
We also have the largest number of malnourished and the largest number of illiterate people in the World. Inequality across the nation is also substantial with regional disparities growing over time ( Table 1 ). Is equity in society a natural state of affairs? History tells us that is not so.
Equity is a social construct and each society has had its own ideas about it. In India, during the colonial rule, there was not only extreme poverty among the masses but society had become highly iniquitous with a small well off elite class created by the colonial masters to rule the country. After independence in 1947, society strove to not only eliminate poverty but also reduce inequity. Government was given a large role in this and policies were pursued to achieve these ends. The policy paradigm adopted in 1947 had the underlying view that individuals are not responsible for their problems of poverty, illiteracy, ill-health, etc.
These were seen to be the result of social processes hence characterized as social problems which had to be solved by the nation as a whole ( Kumar, 2013 ). These tendencies need to be understood in a historical context. Societies in the developing world were disrupted by colonization and India was no exception with its colonization beginning around 1750. This left a deep mark on Indian society; its social dynamics was disrupted by the colonial masters to suit their own ends of control and exploitation. It linked the Indian elite to interest of the foreigner rulers and distanced them from the common people of India.
As Macaulay said in his Minutes of 1835 that there was a need for a class intermediate between the rulers and the common people of India. There was a hegemonization of the thinking of the Indian elite.
The impact of disruption was on every aspect of Indian society. Agriculture, industry, education, etc., were all impacted and the effect persisted after independence ( Kumar, 2013 ). Society as a whole lost dynamism. Consequently, the leadership at the time of independence was enamored of western modernity and wanted to copy it quickly. This bias introduced contradiction in government’s policies with the ruling elite in pursuit of western modernity going for a top down model of development. This marginalized the vast majority and aggravated inequality. Thus, while the government paid lip service to the poor and to equity in society, its overall policies did not work to reduce inequality in society even though specific policies were supposedly working in favour of the poor.
The former dominated while the latter could not achieve their goals. The growing black economy undermined all policies – marco and micro – so that general development was set back with consequent ill effects for the marginalized. Policy failure due to both the top down approach and the growing black economy was visible from the mid 1960s. This only worsened as the years rolled on with the downgrading of planning and the failure of the public sector to mobilize resources.
The final nail in the coffin for the state dominated economic policies came with the Iraq crisis in 1989. India found itself in a debt trap in 1989 due to its embracing massive consumerism in the 1980s based on imported goods (especially, petro products). The foreign debt rose from $10 billion in 1980 to $ 90 billion in 1990. The crisis starting in 1989 led to a shift in policy paradigm in 1991 to `marketization’ (See Section V). While markets always existed, marketization was new. The state retreated in favour of capital with `market friendly state intervention’. Solutions to problems lay in the market – removal of poverty, employment, education and health.
Individuals had to accept blame for their own problems and society was largely absolved of its responsibility. However, after the collapse of the South East Asian Tiger economies in 1997, this was called `crony capitalism’ and the World Bank changed its line to a pure market based growth strategy called `growth at any cost’. The US economy was booming on the back of the asset bubble in the financial markets. The Fed chief, Alan Greenspan, pronounced that `markets are self correcting’ and there is no need to intervene in them.(The Age of Turbulence:2007, not sure, but in this book he has presented this ideology as per the sources on the internet). Government of India also pursued this strategy and under it, all costs have fallen on the workers and the environment. This has aggravated inequality further. Rising inequity since the mid-1970s is a global phenomenon ( Picketty, 2014).
The welfare state put into place after World War II, following Keynesian prescription faced the crisis of stagflation after the mid-1960s. Consequently, these policies were largely replaced by the neo-liberal economic paradigm. Thatcher came to power in 1978 and argued that `There is no alternative’ (TINA) and attacked the Trade Unions. Reagan became the President of the USA in 1980 and he pushed these policies. Given the weight of these countries in the institutions of global governance, like, the IMF and the World Bank, these institutions also pushed the developing world to adopt more conservative, market based policies which came to be known as the Washington Consensus ( Williamson 1989). Soviet Union which used to help the developing countries balance the pressures from the Western powers itself started to falter from the mid-1970s due to growing inefficiencies and corruption. From 1980, when Reagan announced the Star War programme, the collapse of the Soviet economy set in.
The weight of defense expenditure became too much for them to sustain. By the mid-1980s it was clear that the developing countries would have to deal with the Western powers on their own and India was no exception.
Thus, the Western powers were emboldened to introduce the new issues in GATT in the Uruguay Round of negotiations in 1986. The collapse of the Soviet bloc in 1989 was sudden and capitalism become dominant. All important religions and philosophies talk of equality among people.
Our Constitution talks of equality of all before law. Why then does it not come about? People are born equal (except when there are genetic problems) with the same social potentialities but it is in terms of their social existence, they become unequal. The potentialities of individuals get modified by social processes – where one is born, the social status of the family and so on. These become the sources of inequality in society. Even if there are natural differences amongst different people, it depends on society whether they would be treated as equal or if not, how unequal. Equity is a relative idea which specifically recognizes the differences amongst individuals.
According to principle of equity, equals should be treated alike while unequals need to be treated unequally. For instance, two individuals with the same level of income should pay the same amount of tax. Those with different levels of income ought to pay different amounts of tax. How unequal should the treatment of unequals be is for society to decide.
There is no one rule for it since different societies value equity differently – some more and others less. Societies are not in a stationary state and are buffeted by new ideas and influences from outside so that they keep responding to different factors. Existence of inequity and changes in it are both causes of tensions in society.
Any time there is change in the prevailing level of inequity in society, there is a build up of tension. Whether it is an increase or a decrease in the prevailing levels of inequity there is resistance from those who lose out.
Both existence of inequity and changes in it can disturb social harmony. In post independence India, income relativities have been disturbed significantly. The nature of the elite changed and businesses started playing a more dominant role. In a democracy, like, in India, those in control of larger numbers also played a significant role and tried to get a larger share of the national pie. The peasantry/ rich farmers fall in this category. The judiciary and the executive consisting of the police and the bureaucracy (who were essential to the colonial rulers for their continued hold over the country and hence constituted the elite of the country) slowly lost out to these upcoming groups.
There was a reaction to this via the instrumentality of the black economy. In spite of these limitations, traditionally, economists have principally measured disparities in terms of skewdness of incomes. More recently, there have been attempts to take into account multi-dimensional factors by constructing indices like, the human development indices but as is usually the case, they suffer from a certain degree of arbitrariness about the weights attached to their different components. Of course, different societies may view each factor differently and assign different weights making inter-society comparisons difficult.
Even in income terms, comparisons across nations may be difficult since the exchange rate used may have a degree of arbitrariness. The present age is one of selling everything from self to one’s reputation to the Taj Mahal (Bunty and Bubbly style). Advertisers depend on creating a feeling of dissatisfaction amongst the people and especially the young; contentedness amongst individuals is a casualty. Sex and violence are used to sell products and this both commercializes them and also creates a sense of dissatisfaction in people. Hence material progress is disjointed from being happy. Notions of freedom are used to justify any checks on irresponsible advertising.
People are posited to be strong and able to discriminate between what is or is not good for them. However, the entire exercise of advertising is to weaken people and catch them at their weakest. Its psychological impact on people, especially children, needs careful analysis. Since 1991, while agriculture grew at about 3.1 per cent per annum, non-agriculture has grown at around 7.5 per cent.
Arun Kumar Photography
While agriculture still employs more than 50% of the work force, its GDP share is only 14%. In contrast, the Services sector employs 30% of the work force but it contributes more than 60% of the GDP. Thus, those in agriculture are the majority but marginalized in national income.
Since agriculture is concentrated in rural areas and services in the urban areas, this disparity is leading to a growing rural-urban divide. Further, since the backward states are predominantly agricultural, they are lagging behind the advanced states which have a dominant contribution to the services sector. Finally, since agriculture employs largely unorganized workers there is a growing divide between the unorganized and the organized sectors ( Kumar, 2007a ). It is accentuating the disparities between the top 3 per cent (elite) and the bottom 40 per cent broadly those around the poverty line. ( Graph II shows that the decadal rate of growth was unchanged). The growing disparity is also based on the post 1991 concentration of resources in the hands of the private corporate sector which is investing in the organized sector and mostly in the advanced states except recently when it is investing in buying out natural resources.
Thus, agriculture is receiving hardly 10% of the investment (for 50% of the work force) and is lagging behind in productivity and wages. It is hardly generating new jobs ( Kumar, 2005a ). In contrast, the corporate sector is investing but in capital intensive activities and is, therefore, shedding jobs in a kind of jobless growth. Consequently, overall, few jobs are being generated and this is resulting in rising under employment.
Growing problems of employment generation and rising disparities have led to increased political and social instabilities in India. There have been violent protests against land acquisition for projects and setting up of SEZs. Agitations for reservations and affirmative action have often turned violent since the government is seen as non-responsive and pro-corporate sector. Growing corruption has added to a loss of faith in the government which is seen to be working against the poor and in favour of the rich and the corrupt. As mentioned above, data indicate, the process of marketization of society has led to growing economic disparities in India since 1991. The pre existing disparities have worsened. While economic growth accelerated in the Eighties and went up from an average rate of growth of 3.7% between 1950/51 to 1980/81 to 5.3% in the Eighties, disparities remained in check.
In the Nineties, this rate of growth was maintained but with rising disparities (Kumar, 2005b). After 2001/02, the rate of growth accelerated further to about 8.5% for 5 years but the disparities increased even faster ( Kumar, 2007a ).
Third, the notion of welfare under the markets is based on the idea that `more is better’ and leads to consumerism. This leads to demand for higher incomes to enable greater consumption. It justifies consumerism but that leads to environmental problems which affect the poor more than the well off and aggravate disparities through health effects ( Kumar, 2006b ).
This principle also implies that sacrifice is stupidity so equity through transfers should be resisted and cannot be considered to be welfare enhancing. Fourth, the market notion of `let prices prevail’ is used to justify the retreat of the state.
Thus, in the labour market minimum wage laws are diluted and unemployment dole is frowned upon. Subsidies are considered to be distorting so they need to be withdrawn. This impacts prices of basic goods and the welfare of the poor since they are able to afford less of them.
In fact, unemployment is considered to be desirable as a means of disciplining labour and this accentuates disparities by causing a downward pressure on wages. Sixth, marketization has led to the notion of people as homo-economicus and `rational individuals’ working solely to maximize their profits.
They are atomistic individuals. Optimization has become an important tool in Economics. There are benefits and losses of every action of economic agents and they optimize their gains to improve their welfare. There are no absolutes and everything becomes relative.
There is an optimum level of smuggling, tax evasion and so on so the existence of ills of society are justified and need to be tolerated as rational. Hence principles are less important today. These philosophical changes lead to the acceptance of the idea that the poor themselves and not society are responsible for their poverty.
This makes inequalities acceptable. In this line of argument, it does not matter that markets fail and have done so more and more. The ideology of the `free market' which helps the better off sections is used to justify their privileges in society and to further them.
The marginalized and the less marketized sections of the population fall behind due to marketization and resent this change. Economic growth has come to depend on the actions of the capitalist elite. Mobility of capital has helped it to extract concessions from different countries. Thus, taxes in country after country have been lowered in order to attract capital. Labour laws have been diluted across countries for the same reason. Within different countries too, capital has been able to extract concessions from society on the ground that it is the source of growth.
Belief in welfare state has been replaced by an exclusivist and elitist model of development. Thus, inequality has become the cause of more of it. Democracy has been truncated in country after country. During the recent global economic crisis the `Wall Street’ dominated over the ` Main Street’ and that led to the revolt of the 99% against the 1%. People in country after country have lost their right to choose their path of development.
International Finance Capital is deciding that by propagating the notion of market `efficiency’. Thus, national rules are subservient to the global demands of WTO provisions.
India’s food security or patent laws have to be as per the dictates of global capital. Equity through taxation has been diluted due to concessions in direct taxes. There has been talk of replacing direct taxes by VAT or moving from progressive taxation to proportionate taxes.
Both these shift the focus of taxation from making post tax income distribution more equitable to less equitable. Large concessions on property income had any way dented the progressivity of taxes on high incomes ( Kumar, 2013 ). The number of public goods that generated some equity have also been reduced and now the emphasis is on shifting to the levy of `user charges’ for public goods. The growing black economy implies rising illegality and is anti-social.
It is currently estimated to be around 50% of GDP in India so is both systematic and systemic. It is concentrated in the hands of 3% of Indians and results in huge additional inequity which is not captured in data ( Kumar, 1999:75-78 ). So, in 1995-96, the disparity between the top 3% and bottom 40% in the income ladder was 12:1 in the white economy it became 57:1 if the black economy is included.
So, the real disparity in society is a result of the black economy. It makes social action difficult by leading to growing alienation of individuals. The black economy leads to policy failure and social waste. It results in less of tax collection and, therefore, to shortage of resources for development and lower expenditures on essentials like, health and education. Further, the money sent for development is siphoned out and that makes expenditures less effective.
Consequently, expenditures do not lead to outcomes. Often due to it, resources are wasted, like, roads are poorly made and repeatedly repaired rather than new roads built. Thus, the rate of growth is shown to be less than the potential rate of growth by 5% due to the existence of the black economy ( Kumar, 2005c ). The Indian economy instead of being a $1.8 trillion economy could have been a $14 trillion economy this year. Thus, roughly $12 trillion of development is being missed out every year. This is a major cause of the growing inequity.
Globally, black incomes earners are using tax havens to both take their capital out of their national territories as well as round trip it back to their countries. The tax havens are also used by the corporate sector to siphon profits out of the developing countries via transfer pricing or under and over invoicing of exports and imports. Illicit flow of funds from India has resulted in loss of opportunity of about $1.2 trillion since 1948. The MNCs like, Amazon, Google, Apple, etc., are taking billions of dollars of profits out of the USA to Ireland. Leaders of parties do not encourage criticism within parties.
Leadership which used to identify with the poor by living simply has given way to one which socializes with the rich and copies its style of existence. Parliamentarians with designer clothes, gold and diamond watches and fancy cars are now a common sight. These people when they get to power subvert democracy to make gains. Even the leadership of the marginalized sections has rapidly got corrupted under the influence of this undemocratic politics based on vote bank politics. They feel they can only win elections if they have big money and not because they have the support of the citizens. The result is unresponsive and unstable politics, a weak democracy and a shift away from the politics of achieving greater equity in society.
Society has a civilizing aspect and even if there are natural differences among people, they can be overcome because of the potentiality of social thought and social organization. Civilized societies protect their weak since they recognize the potential of each citizen. Thus, society has to regain its domination and counter growing marketization and atomization. Altruism is basic to people. This is being denied in the race for competition. Youth is robbed of its best years and atomized. Its idealism and energy are largely turned into cynicism.
To conclude, while many factors are responsible for inequality in society, only some of the important ones have been dealt with in this paper. The historical and international roots have been pointed out and the importance of marketization, the black economy and some macroeconomic factors have been highlighted.
While the market marginalizes the marginal, the failure of the free market framework is further accentuating the problems. The large and growing black economy as indicated by the growing levels of corruption is vitiating the problem of inequity by taking the issue out of the realm of the social. Thus, today while the need to promote equity in society is greater, the predominance of economics over other disciplines and the economic system resulting from one-way globalization and the growing marketization are marginalizing the quest for equity in India. Even the marginalized social groups that should fight for equity are affected by these factors and their struggle gets subverted by their leaders.
Capitalism is not known to produce equity but this feature has been known to lead to its periodic crisis. The present juncture is also one of continuing crisis because of rising inequality in society. The Indian ruling elite has made the struggle for achieving equity irrelevant by ignoring it but they do so at their own peril.
Statement of Arun Kumar Assistant Secretary of Commerce for Global Markets and Director General of the U.S. And Foreign Commercial Service International Trade Administration U.S.
Department of Commerce Before The House of Representatives Committee on Foreign Affairs Subcommittee on Asia and the Pacific “U.S.-India Relations under the Modi Government” July 24, 2014 Introduction Chairman Chabot, Ranking Member Faleomavaega, and members of the Subcommittee, thank you for the opportunity to speak about the Department of Commerce’s role in promoting U.S. Business abroad along with increasing investment into the United States and specifically our engagement with India. The Department of Commerce’s International Trade Administration (ITA) strengthens the competitiveness of U.S. Industry, promotes trade and investment and ensures fair trade through the rigorous enforcement of our trade laws and agreements.
ITA’s efforts are driven by the needs of our primary constituency – the U.S. Business community. India is a huge country with an enormous market that significantly underperforms in the context of its commercial relationship with the United States. With a new government in charge, the timing may be right to materially improve our bilateral trade relationship, which could translate into greater opportunities for U.S. Despite all of the economic and commercial challenges we face in India, it is an important global partner and key player in the region. In 2010, President Obama said the United States-India relationship will be “one of the defining partnerships of the 21st century” and that the United States “seeks prosperity – a strong and growing economy in an open international economic system.”1 From 2000-2013, United States-India trade in goods and services has grown from $19 billion annually to $97 billion.
Having recently returned from India where I met senior Government of India (GoI) officials, chambers of commerce, and leaders of U.S. And Indian businesses, I would agree that the potential is indeed vast. A U.S.-India Strategic Dialogue (SD) meeting is scheduled for July 31, 2014 with the participation of Secretary of State Kerry and Secretary of Commerce Pritzker. The Dialogue will build on the newly elected Prime Minister Modi’s agenda to return India to robust and sustainable economic growth. The Importance of India The commercial importance of India to the United States is growing: it is the world’s third largest economy (after the United States and China) measured by GDP in terms of purchasing power parity ($6.78 trillion in 2013), the tenth largest in nominal GDP ($1.88 trillion), and the eighth largest consumer economy.2 It has an urban middle class forecasted to reach 400 million people and a significant 'affluent class,' both of which translate into high-potential markets for U.S. India is currently a relatively small market for the United States, in terms of total U.S. Exports, highlighting the potential opportunity for continued growth.
Manufactured goods such as diamonds, gold, and jewelry; aircraft and aircraft parts; and machinery are among the leading products that the United States exports to India. (See table below.) Top U.S. Goods Exports to India in 2013. Product Value of Exports in $ Share of Total U.S.
Goods Exports to India Diamonds, Gold, and Jewelry $5.8 billion 26.4% Aircraft and Parts $3.0 billion 13.5% Machinery $2.2 billion 10.3% Electrical Machinery $1.3 billion 6.0% Medical, Analytical, and Measuring and Checking Instruments $1.3 billion 5.9% Carbon Black, Coal, Petroleum Coke, and Petroleum Oils $1.3 billion 5.8% India Total $21.8 billion 1.4% (Share of U.S. Goods exports to the world) World $1,579.6 billion - Source: Census Bureau, Global Trade Atlas (accessed June 30, 2014) Top U.S. Services Exports to India in 2013. Service Value of Exports in $ Share of Total U.S. Services Exports to India Travel (for all purposes including education) $7.3 billion 54.4% Transport $2.0 billion 14.7% Other business services $1.1 billion 7.9% Telecommunications, computer, and information services $961 million 7.1% Charges for the use of intellectual property not included elsewhere $890 million 6.6% Financial services $567 million 4.2% Maintenance and repair services not included elsewhere $332 million 2.5% Government goods and services not included elsewhere $270 million 2.0% Insurance services $88 million 0.7% India Total $13.5 billion 2.0% (Share of U.S. Services exports to the world) World $687.4 billion -.Source: U.S. Bureau of Economic Analysis, Table 1.3.
International Transactions, Expanded Detail by Area and Country; and Table 1.1, U.S. International Transactions (for U.S. Exports to world). Release date June 18, 2014 for both tables.
A priority for ITA is to expand commercial opportunities for U.S. Exporters in India through the promotion of U.S. Exports of goods and services and improved access to the Indian market. Another priority is to increase direct investment in the United States from India. These efforts are part of a broader Administration effort to increase prosperity in both countries and complement bilateral efforts to enhance regional and global security.
This ultimately strengthens democracy and civil society around the world. ITA’s presence in India, with a total of seven posts (New Delhi, Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, and Mumbai), gives it the largest footprint of any ITA operation outside the United States in terms of number of locations in one country.
In Ahmedabad and Bangalore, the Commercial Service is the only U.S. Government agency present and supports the U.S.
Mission in India as a whole. In cooperation with local Indian business chambers, we operate 13 American Business Corners (ABCs) in second- and third-tier cities in every region of India to promote U.S. Goods and services exports as broadly as possible. Since we opened the first ABCs in 2012, they have recorded 60 export success stories and one foreign direct investment success. Supporting U.S. Companies ITA understands the value of exports and its direct correlation to job growth.
ITA plays a vital role in the needs of American companies seeking to do business in India. The Indian subcontinent is one of the largest and most diverse markets served by ITA. ITA, through its U.S. And Foreign Commercial Service (Commercial Service), whose mission includes to help U.S.
Companies enter new markets and expand exports in current ones, currently has staff in over 100 cities in the United States and at U.S. Embassies and Consulates in over 75 markets around the world. ITA’s Commercial Service in India currently has 63 employees, including ten Foreign Service Officers and 53 locally-employed staff. They are located in seven offices which provide broad geographic coverage in a varied and decentralized market. The India-based Commercial Service staff also includes Officers supporting two other Commerce Department bureaus (Patent and Trademark Office and the Bureau of Industry and Security), raising the total Commerce staff count to 72. The geographic dispersion of the Commercial Service’s India-based staff reflects the decentralized way business is conducted in India and accounts for the strong and influential role of India’s 29 States. While the potential for export sales into such a vast market is striking, the challenges in India are significant, and ITA will continue to explore opportunities for improved market access for U.S.
Dr Arun Kumar
Businesses with the new Government of India. ITA’s proactive support for U.S. Firms exporting to India helps American companies become more competitive in the Indian market. ITA maintains staff at the Asian Development Bank (ADB) in the Philippines where we provide information to U.S. Companies on projects funded by the ADB. India is the biggest borrower from the ADB in the region as its infrastructure needs are substantial.
This year, Commercial Service India began developing a closer working relationship with ADB staff. The demand for infrastructure growth in India will increase the demands for capital and ITA stands ready to help U.S.
Exporters tap into these projects as they come online. ITA also runs the Advocacy Center, which coordinates U.S. Government advocacy for small, medium, and large U.S. Companies in various sectors to assist in winning government contracts across the globe. In regards to India, between FY 2010 and 2013, ITA recorded advocacy wins with estimated contract values of $5.2 billion and U.S. Export content of $5.0 billion.
So far in FY 2014, we have successfully helped U.S. Companies win $4.2 billion in contracts, all of which was U.S. The Advocacy Center currently has $30.9 billion in proposed contracts in the India portfolio, including $15.1 billion in U.S. Export content, for which the U.S. Government is an advocate abroad.
Meeting the Challenges of Doing Business Doing business internationally can be risky and confusing for companies, particularly the small- and medium-sized enterprises that are at the core of ITA’s mission. ITA’s policy efforts are geared toward improving short-, medium- and long-term successes in international commerce. We do this in four ways: 1) by providing direct support to U.S. Companies, using existing tools and relationships to help resolve commercial problems; 2) by opening markets and working with foreign governments to improve the business climate; 3) by representing U.S. Business interests during trade negotiations; and 4) by helping to enforce our current trade agreements. As noted previously, India is our 18th-largest goods export market, and the United States-India commercial relationship holds great potential for growth.
However, the current level of U.S. Exports is actually rather small for a market of India’s size. There are many issues that limit our trade from reaching that potential. Companies need to be aware of and vigilant about these issues before attempting to enter the Indian market. These include protection and enforcement of intellectual property rights (IPR); localization requirements; high tariffs and other import charges; market access barriers for certain services sectors; a difficult regulatory and bureaucratic system that often lacks transparency and predictability; and corruption. ITA provides direct support for real-time business needs; its goal is to monitor and work with other U.S. Agencies to ensure that India implements and adheres to its trade agreement obligations and otherwise affords market access for U.S.
ITA uses its close relationship with U.S. Industry, as well as its understanding of India’s political, cultural and business climate, to ensure that India is fulfilling its obligations and that our companies are able to compete with domestic firms in that country. Our network of foreign and domestic commercial officers, locally-employed staff, and industry experts in Washington, D.C and trade specialists around the country work closely with U.S. Firms to help them overcome barriers to doing business in foreign markets. Let me highlight some key initiatives where ITA plays a critical role to facilitate U.S.
Companies’ success in the Indian market. ITA leads the public-private U.S.-India Commercial Dialogue (CD). The CD has been effective in facilitating information exchanges between government and private-sector experts on standards and regulatory procedures.
In March, we renewed the CD for its eighth two-year term. ITA also chairs working groups on biotechnology, life sciences and civil aviation and infrastructure in the public-private High Technology Cooperation Group led by Commerce’s Bureau of Industry and Security. ITA has chaired the working group on industrial tariffs and non-tariff barriers under the Trade Policy Forum led by the Office of the U.S.
Trade Representative (USTR). We are supporting the technical discussions on a bilateral investment treaty (BIT) with the Indian Government that are led by USTR and the State Department.
A BIT could provide added confidence to investors, deepen our economic relationship, and support job creation and economic growth in both countries. Business with Buyers Overseas and Attracting Investment Back Home ITA provides numerous tools to help U.S. Companies learn more about the Indian market, and meet potential clients, distributors, and partners. ITA organizes trade missions and trade events, and provides market research, export counseling and customized support to companies looking to export to India. In fact, the Commerce Department is organizing an executive-led trade mission to India in February 2015. The mission will introduce U.S.
Firms to India’s rapidly expanding ports and marine technology market. Given the new Government of India priorities in infrastructure (Rail, Roads, Power, Ports, Airports, Water and Energy), the Department is re-doubling its efforts to increase U.S. Exports and to align them with the priorities identified by the Government of India. As demonstrated in the table below, each year ITA’s customers are reporting more export successes by new-to-market clients in India.
Since 2010, more and more U.S. Companies have been exporting to India. Year Export Successes New-to-Market Clients 2010 464 121 2011 498 144 2012 470 185 2013 763 401 ITA prides itself on helping U.S. Companies, especially small and medium-sized enterprises (SMEs). For example, Avazzia, Inc., a Dallas-based SME manufacturer of electro-stimulating pain management devices, contacted its local U.S. Export Assistance Center with the goal of selling its products and services in India’s growing healthcare market.
The Mumbai Commercial Service office provided a Gold Key Service to Avazzia, that is, our in-country ITA staff researched the local market and arranged face-to-face meetings for the company with numerous potential distributors and agents in India. Since receiving these services, Avazzia Inc.
Has entered into a distributorship agreement with a Mumbai-based company and shipped its first order to India, recording a new-to-market success. Enforcing Domestic Trade Laws ITA is in charge of enforcing the antidumping duty (AD) and countervailing duty (CVD) laws, and also has statutory authority to monitor trade agreement compliance3. Through enforcement of trade remedy laws and ensuring that our trading partners abide by their international commitments, ITA provides U.S. Businesses and workers the opportunity to compete on a level playing field both in the United States and abroad. With respect to our trade remedy laws, our AD and CVD investigations are conducted in a fair, objective and transparent manner and in accordance with U.S. Law and our international obligations.
AD and CVD proceedings afford all interested parties involved the opportunity to participate and defend their interests. Enforcement of the trade remedy laws plays an important role in supporting the USG’s goal of advancing a progressive trade agenda. As of July 7, 2014, ITA maintains the following AD and CVD orders and ongoing investigations with respect to India: July 2014 Antidumping Countervailing Products India Orders 14 8 Consumer goods, paper products, steel products, agricultural/aquaculture products, and chemicals India Investigations 3 3 Various steel products In addition, ITA helps U.S. Businesses, including small and medium-sized companies, overcome foreign government-imposed trade barriers to gain access to and fair treatment in India, as well as to the rest of the world.
ITA monitors foreign governments’ compliance with trade agreement obligations and engages with these governments when problems arise. This includes working closely with U.S. Producers and exporters subject to foreign trade remedy actions to track their interactions with the foreign administrating authorities. For example, ITA supported Diebold, a Canton, Ohio-based manufacturer of automated teller machines (ATMs), in its efforts to gain duty free access to India's information technology (IT) sector. India had determined to not classify Diebold’s machines as the type of machines eligible for duty free access under the WTO Information Technology Agreement, subjecting them instead to duties of 30 percent. ITA, in cooperation with other U.S. Government agencies, intervened successfully in dialogue with the Indian Commerce and Finance Ministries asking them to reconsider this decision.
As a result, India re-classified the machines, reducing the tariffs Diebold owed from 30 percent to zero, and giving it continued duty-free access to an over $100 million market. Foreign Direct Investment (FDI) While our trade promotion activities are pivotal to improving the U.S. Economy, inward investment also contributes significantly to job creation and economic growth. ITA is seizing this potential and has been working diligently around the world to let investors know that the United States is open for business.
In total, U.S. Subsidiaries of foreign companies accounted for one-fifth of total U.S. Exports, showing the important relationship between trade and investment. In 2012, Indian companies’ stock of FDI in the United States was valued around $9.0 billion.4 Between January 2003 and May 2014, 331 investment projects were announced by Indian firms in the United States, led by the following sectors: software and information technology services, business services, financial services, plastics, and industrial machinery.5 Conversely, as of 2012, U.S. FDI into India was valued at more than $28 billion.6 While India is not our largest source of FDI, it has great potential.
In terms of average annual growth over the past five years, India is the eighth-fastest growing source of FDI in the United States, with a compound annual growth rate of 17.8 percent.7 U.S. Subsidiaries of Indian firms employed over 45,100 U.S. Workers in 2011, with an average yearly salary of $64,922. Subsidiaries of Indian-owned firms have invested $39 million in research and development in the United States, and in 2011, they contributed more than $1.9 billion to U.S. Goods and service exports.8 The United States is the world’s largest free and open market with a longstanding open-investment policy.
SelectUSA is the federal-level resource for firms and U.S. Economic development organizations (EDOs) and acts as the only U.S.
Government-wide program to attract, retain, and grow business investment in the United States. In 2013, the Department of Commerce hosted the SelectUSA Investment Summit. The Investment Summit connected 1,300 participants, including 456 foreign or multinational firms, with more than 200 EDOs. India was one of the largest delegations with a total of 39 investor participants. SelectUSA, while relatively new, has proven to be a successful program and has had direct success in working to attract India-based investment to the United States. For example, on May 1, 2014, North Carolina Governor Pat McCrory announced that Shri Govindaraja Textiles Private Limited (SG Mills) will open its first U.S.-based operation in Eden, North Carolina, investing more than $40 million and creating 84 jobs over the next two years. Based on the success of last year’s summit, SelectUSA is organizing its second Investment Summit, to be held on March 23- 24, 2015 in Washington, DC.
Conclusion The United States remains actively engaged in India. The ITA will continue to expand our contacts with the new government in New Delhi, with the Indian state governments – where so many decisions are made - and with U.S. And Indian businesses and business organizations in order to promote exports of U.S. Goods and services. We are looking forward to enhancing this relationship with the upcoming U.S.-India Strategic Dialogue (SD) and other forums where we can actively engage with the Indian government. Footnotes 1 Remarks by the President to the Joint Session of the Indian Parliament in New Delhi, India, November 8, 2010,.
2 World Bank Indicators for 2013: GDP (Current US$); and GDP, PPP (current international $); and Household final consumption expenditure (current US$). 3 2nd Reorganization Plan No. 3 of 1979, which amended 19 USC Sec. 2171 (describing the functions of the United States Trade Representative under the Trade Act of 1974), assigns the Secretary of Commerce “general operational responsibility for major nonagricultural international trade functions of the United States Government, includingmonitoring compliance with international trade agreements to which the United States is a party.” 4 2nd U.S.
Bureau of Economic Analysis, Historical-Cost Foreign Direct Investment Position in the United States and Income Without Current-Cost Adjustment, by Country of Foreign-Parent-Group, 2012, by UBO (Ultimate Beneficial Owner) (Accessed July 3, 2014) 5 2nd Source: FDIMarkets.com 6 2nd U.S. Bureau of Economic Analysis, U.S. Direct Investment Position Abroad on a Historical-Cost Basis: Country Detail by Industry, 2012 (accessed July 3, 2014). 7 2nd Calculated from U.S. Bureau of Economic Analysis, Historical-Cost Foreign Direct Investment Position in the United States and Income Without Current-Cost Adjustment, by Country of Foreign-Parent-Group, by UBO (Ultimate Beneficial Owner) (Accessed July 3, 2014) – by UBO (Ultimate Beneficial Owner) 8 Anderson, Thomas, U.S.
Affiliates of Foreign Companies: Operations in 2011, Survey of Current Business, August 2013, U.S. Bureau of Economic Analysis.