Is it Trickling?

After Mani Shankar Aiyar, it is the turn of Jagmohan to question the wisdom and direction of “reforms” and the trickle down effect- after 16 years, even he cannot find the trickle down effect promised by the Manhoman- Chidambram- Montek economics.

The disparities of income are mounting. While one third of our rural population lives only on Rs 12 a day, a fresh graduate from a Management Institute can get an annual salary of Rs one crore, that is, about Rs 25,000 a day. A recent World Bank report titled Global Economic Prospect (2007) – Managing the Next Wave of Globalisation, has observed: “India, a country with low initial inequality, is headed for one of the fast increase in income inequality anywhere”. In a country where millions remain hungry and diseased, the combined wealth of 36 richest Indians had touched dollar 191 billion in the year 2006”.

In the matter of poverty reduction, too, the performance of the Indian economy has been dismal. In absolute numbers. About 300 million Indians were below the poverty line in 04-05.

There is another method of measuring poverty – percentage of low-weight babies to the total number of babies born in a country. This percentage reflects more accurately the state of malnutrition; that is, the state of poverty. In India, the current percentage of low-weight babies to the total number of babies born is as high as 48. On this reckoning, the percentages of the Indians living in poverty should be taken as 48….

Ironically, the economic ‘reforms’ of 1991 are resulting in a swelling of the ranks of unemployed and under-employed persons. The Economic Survey (2006-07) has observed: “Employment growth in the organised sector, both public and private, declined during the 1990s. The annual employment growth in establishments covered by the employment-market and market information system of the labour ministry, decelerated from 1.20 per cent during 1993-94 to 0.38 per cent per annum during 1994-2004.”

The Planning Commission’s Approach Paper to the 11th Five Year Plan (2007-2012), too, has expressed particular concern over “the sharp increase in unemployment (from 9.5 per cent to in 1993-94 to 15.3 per cent in 2004-05) among agricultural labour households which represent the poorest groups”.(read on)

On a related note, Madhukar has a post on Manmohan Singh’s point on the salaries of corporate CEOs.

Cross posted at How the Other Half Lives

12 thoughts on “Is it Trickling?

  1. Poverty in relative terms has reduced since 1991. All studies prove it. Of course in absolute terms it is huge ; if there were no reforms, things would have been worser.

    Pls see :

    the cost of corruption, defence budget, and many other useless expenditure by govts contribute to huge deificts which are bridged by printing currency and by borrowing. all these,
    combined with population explosion has a cumulative effect on
    pverty and employment. blaming neo-liberal polcies for this
    cumulative effect is not correct.

  2. interest rates are directly proportional to inflation which is again proportional to fiscal deficts. this is a basic economic law from which there is no escaping. marginal Farmers and poor are forced to borrow at more than 36 % from usuary ; and the
    lending rates peaked during the socialist era.

    Gandhiji was able to borrow from banks @ 5 % interst rate for the khadi movement in 1930s. Bank rates were so low then !!

  3. an exchange of mails with a columnist in Hindu, who wrote :

    “Why this growth cannot trickle down ?”

    Dear Sir,

    Thanks for your thoughts. Appreciated.

    I believe that you are right about the industrial sector.

    However, employment has to be generated. There ARE alternatives. One has to have a two-pronged approach: growth-focused, low-employment industrial sector. Survival-focused high-employment service/agr sector. it can be done, with political will and vision.

    Or else we risk catastrophe…


    Athiyaman Karur R wrote:

    Dear Sir,

    thanks for your reply. As per the report growth
    without sufficient employment generation is not
    condusive to poverty reduction.

    But what alternative do we have ? something is
    better than nothing.. and population explosion
    may be one reaon, as labour size is growing too
    fast for job creation..

    Rigid labout laws forces indutry to adopt costly
    and labour saving high tech machines. We cannot
    imagine 10,000 workers working inside a complex
    on hire and fire basis (with safety stds, etc).
    If such a scenerio is possible (without millitant
    unions, rigids laws,etc),then things may be different.
    And most importantly, lack of proper and easy exit
    policy for sick units prevents new industries ; locks
    up capital and assets in litigation. it takes 10 years
    to wind up a large factory, which has failed…
    whereas in the west it is easy and quick.
    (for e.g, Amitab Bachan used the BIRF act as a shield
    to hide, when he was nearly bankrupt some years ago.
    such abuses of the Sick Industries Act, BIFR are

    Please do read :

    November 08, 2004
    Fettered by Unfettered Language
    Cafe Hayek
    Don Boudreaux

    Among the most loaded and most misleading phrases in
    popular use is “unfettered markets” – as in this
    sentence from an October 18th front-page article in
    the Wall Street Journal entitled “As Two Economists
    Debate Markets, The Tide Shifts”:

    As a product of Milton Friedman’s Chicago School of
    thought, which stresses the virtues of unfettered
    markets, Mr. [Eugene] Fama rose to prominence at the
    University of Chicago’s Graduate School of Business.

    No one in his or her right mind believes that virtue
    exists in markets that are unfettered. An unfettered
    market would certainly be awful.

    What Friedman, Hayek, Sowell, Walter Williams, Vernon
    Smith, Leland Yeager, Steven Landsburg, Bruce Yandle,
    Arnold Kling, and any other market-oriented economist
    you care to name (including yours truly) endorse are
    markets fettered principally by two general sets of

    The first fetter is competition – competition for
    consumer dollars, as well as competition for the best
    access to supplies.

    The second fetter is the common law of property,
    contract, and tort, all supplemented, when
    appropriate, by criminal law.

    Reasonable people might believe that such fetters are
    too weak or too distorted or that they otherwise fall
    short of the fetters imposed by statutes and by
    bureaucratic regulation. But no reasonable person can
    believe that the likes of Milton Friedman and Walter
    Williams believe that markets are best that are truly

    Indeed, one important reason prompting many economists
    to support markets is that markets embedded in the
    common law are likely to be more tightly and more
    appropriately fettered than are markets in which
    statutory and bureaucratic regulation play a large
    role. (Show me a protectionist tariff and I’ll show
    you firms that are released from some fetters.)

    The issue is not fetters vs. no fetters. The issue is
    what sort of fetters work best – what sort of fetters
    are most likely and most consistently to fetter firms
    and consumers to do what is best over the long run.

    Posted by Don Boudreaux in Myths and Fallacies | Cafe

    Related Post

    May 23, 2007 1:21 PM

    — Aseem Shrivastava wrote:

    > Dear Sir,
    > Thanks for your comments, obviously drawing on your
    > experience in the SSI sector, which has historically
    > employed a lot of the workforce, much more than the
    > large-scale organized private sector.
    > The story in the large-scale sector is quite
    > different. I refer you to the ILO study on
    > employment in Asia that I cited. It is attached.
    > I am arguing that the nature of Western technology
    > is such as to prevent much employment from getting
    > generated even in the best of conditions, with
    > regards to labor laws, unions etc.

    Dear Sir,

    With referenceto your open page artcle in The Hindu :

    Higher grwoth yields greater tax revenue to the govt,
    which it can spend on welfare. hence growth is good.

    Rigid labout laws prevent emplyoment generation in
    the organised sector. If a incompetent or lazy or
    dishonest employee cannot be fired or if the redundant
    labour cannot be laid off (to increase efficnecy and
    to cut costs) then new employment will
    be slow. And captial intensive machinery is used
    instead of mass labour production means,which should
    be reverse for India. China is different in this

    I am a SSI entreupreuner and we are vendors to major
    industry nearby. Unethical and irresponsible trade
    unionism in the buyer industry has made them outsource
    their production to vendors like us. We are more
    productive than them, in spite of less spohisticated
    machines and labour. And that company is in the verge
    of closure due to losses and high costs..

    Theory and practise are differet. Work ethics is as
    important for employment generation as any other

    the ‘paltry’ sums allocated for NREGS will leak, as
    rent seeking politicians and bureacrats will siphon
    off the major amount. It is an open secret and hence
    no one is enthusiastic about such schemes.
    Cost/benefit anaysis proves it. It may look good on
    paper but reality is different. Theory and prcatise
    are very much different.

    thanks & regards
    Chennai – 96

  4. KR Athiyaman: Perhaps the government itself should be privatized for the “ideal” trickle to happen… however, jokes apart, it has to be reiterated that the dominant economic ideas have remained in place despite the changes in governments at the center for the last 16 years, if not more. A more consistent dose of the doctrine can hardly be expected, unless one looks to Chinese one- party dictatorship as a model.
    As for the “all studies prove it”- these have been contested. But it
    is very evident in what direction movements of the poor are directed last decade or so- increasing appeal of naxalism, repeated defeat of the party ruling at the center and pursuing neo- liberal policies.

  5. We are not saying everything should be privatised like
    water supply, etc. but in areas where free competition is
    possible, competition thru privatisation should be encouraged.
    a good e.g is telecom. until the 90s the monopoly of BSNL
    resulted in waiting lists, huge unmet demand and corruption.
    liberalisation has made dramtic changes in this scenerio and
    now cellphones are affordable even to the poor workman or
    driver. will it be possible if there were no private palyers using MNC instruments, and in the old set up ? and remember the
    Sukh Ram affari, etc… billions in corruption..

    There is a acute shortage of buses all over the nation. the
    middle class and poor use them while the rest manage to use
    private vehicles. the govt monopoly and limited ‘permits’ of
    exisitng pvt bus owners resulted in a cartel and cronyism.
    it is stupid and sad to see humans travelling on old tin cans
    jam packed like sardines. and use of more and more private
    vehicles results in shrinking road space, pollution and traffic
    jams in urban areas. if this sector is decontrolled like telecom,
    then same results will folllow. auctioning of new ‘routes’ will fetch good money for the govt which can be used to subsidise
    rural buses and student free passes, etc. in my area, i knew about a bus ‘route’ being sold for Rs. 2 crores (Karur-dindugal) ; not even the bus, only the ‘right’ or ‘permit’ ;
    no new routes have been sanctoned for decadesm while the
    govt trnasport corps are in deep red due to corruption, top heavy mismanagement, overstaffing, etc. no one cares while the poor are desparate for transport to reach their workplace.
    Good intentions need not result in good results. nationalisation of buses has resulted in this mess. but i fear that the stats quo will continue as the cronyists, politicians and transport unions will manage to resist even partial privatisation with the help of leftists who are used as a shield for their selfish interests….

  6. Pls see this article in a capitalist magazine which has exposed the pathetic conditions of rickshaw pullers in N.Delhi. license raj and corrption is exploiting them to the core :

    I tried thru a CPM politburea member (who is our family freind)
    to try to do something about this. he shrugged it off. while holding forth about Amercian imprialism, etc, they are oblivious to such basic issues which can be rectified easily…

  7. and don’t forgot that we were on the brink of collapse in 1991 when we had pledge our gold for raising dollars. now we have a foreign exchange of reserves of USD 160 billion and raising.
    for the first time since 1947, Indian rupee is strenghtening
    against USD. until 1991 we had to borrow from IMF for bridging the foreign exhcnage defict. (world bank loans are different and are project specific like drinking water schemes, etc and are optional for us, while we had no choice except to
    go to IMF). without foreign exchange we cannot import the much needed petroloeum products, etc. Diesel is the life blood of any economy now. if rupee depriciates, price of petro products increse proportinately there by rising the cost of transport and production ; which results in price rise of all
    commodities and services. the poor are hit hardest and the crisis in agriculute is partly due to such inflation.

    now, we need not ever depend upon the much maligned IMF.
    Pls ponder the situation until 1991..

  8. (9): You probably meant the Chilean ambassador, Peru has had a right of center regime for many years.
    (10): The crisis in 1991 was a financial crisis not an economic one. Anyway, the swerve to the right began in the 1980s, after Mrs Gandhi’s return to power and accelerated during the late 1980s.

  9. yes, i meant Chile and instead typed as Peru.

    and all this talk about financial crisis and not economic crisis is mere semnatics. We were in a mess in 1991 due to reckless borrowing and tight controls and import substitution model.
    more people were impoverished due to wrong economic polices intiated by good men with noble intentions.
    the road to hell is paved with good intentions…

    As another saying goes, man will do the rational thing after trying all other options.

    and povety rates indeed has gone down since 1991 ; the debate is about the extent and not about the fact of redction in rates.

    there is an acute labour shortage in many areas….

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