20 December 2010

Modern Technology, Economic, Political and Social Systems

Reference: Modernity - The Modern or Industrial Age

System
Agricultural Age
Industrial Age
Technology*
Agriculture
Industry
Economic system
Feudalism
Capitalism
Political system
Monarchy
Democracy
Social system
Caste
Class

*By technology I mean the production system.

13 December 2010

The Techno-Economic Foundation of Society

Reference: "Technology, Economy, Politics, Culture"

1. Human society has, broadly speaking, five main aspects:
a) Society itself (the social system)
b) Technology
c) Economy
d) Politics
e) Culture

2. The nature of the society is determined by the technology and the economy.

3. Politics and culture are determined by the society, the economy and the technology.

This can be illustrated as:
Where:

4. Politics and culture form the top layer.

5. Society forms the middle layer (or the core).

6. Technology and economy form the bottom layer.

In other words,

7. Technology and economy determine the nature of the society.

8. Technology, economy and society determine politics and culture.

That is,

9. Technology and economy form the foundation of society.

10. Or, we can say that society has a techno-economic foundation.

See Karl Marx's base-superstructure theory.

07 December 2010

India, the Caste System, and the Urban Middle Class

1. The caste system is bad/evil.
2. The caste system is backward (medieval/feudal).

These two statements sum up the views of (urban) middle class Indians about the caste system. Other adjectives like 'shocking', 'disgraceful' and 'shameful' can also be used.

The central truth about India's urban middle class (especially its upper caste Hindus) vis-a-vis the caste system is the deep sense of shame and guilt it has about the latter. And the most profound effect of this shame and guilt is the state of denial it has produced among them. (Urban) middle class Indians believe:
3. "The caste system does not exist."
4. "Even if the caste system exists, it is not important."

1 and 2 are correct. 3 and 4 are wrong. But 1 and 2 do not imply 3 and 4. The caste system does exist. And it is important.

But in a limited sense, the (urban) middle class is right. Caste does not exist in their world. Firstly, they go to school/college, play, study, make friends, work, eat and drink freely with people of other castes – regardless of "higher" or "lower" caste. Sometimes they even marry outside their caste. Secondly, they also see all people as equals ("equal in the eyes of God and the law"). They don't judge people by their birth, but instead by their qualities (character, honesty, hard work, manners, etc). On both these counts they are correct.

But it is one thing to say that caste doesn't matter to you, and another thing to say that caste doesn't matter to the country. The urban middle class makes up only 5% of India. But the majority of the country is rural and agricultural (70%). And here, caste doesn't merely exist; it is everything.

If you are born in a village, your caste decides what work you do, who you play, study, make friends, eat and drink with. It also decided which candidate or party you vote for. Therefore, the caste system does exist. And it is important.

Then what is the solution? The solution is not to pretend that caste doesn't exist, or that it is not important. The solution is to confront it, understand it and come to terms with it. Trying to understand something doesn't mean one is trying to justify or defend it. And understanding the caste system is a must if we want to understand India completely. Especially if we are interested in the problems of rural India – where caste is the dominant reality.

The caste system is deeply unequal and unjust. Some of its worst excesses – like untouchability – are cruel and inhuman. Nobody can justify or defend this system. But just as nothing is completely good, nothing is completely evil either. The caste system was a social system that evolved under certain conditions to meet certain needs. With all its failings and drawbacks, we must remember a few things:

1. The caste system helped the Indian civilisation to survive for 5000 years. (Where are Sumeria and ancient Egypt today?)

2. It helped India to survive 2500 years of foreign invasions – including 1000 years of foreign rule. (Where are Persia and Babylonia today?)

3. It maintained social order, stability and peace. India is perhaps the only major country never to have had a social revolution (France/Europe 1789, Russia 1917, China 1949) or a civil war (America 1861).

4. It preserved our culture and our way of life. (Where are ancient Greece and the Roman Empire today?)

5. Most importantly, the worst excesses of the caste system began during – and due to – the period of foreign rule: Turkish, Mughal and British.

In conclusion, caste was the social system of an agricultural society (as against an industrial society). The caste system has served its purpose. It has now reached its expiry date. As India industrialises and urbanises, the caste system will fade and eventually disappear.

The paradox is: How did such a liberal and tolerant way of life as Hinduism produce such an unjust and unequal social system?

05 December 2010

Society, Social System and Social Groups

Q: What is society?
A: Society is a group of people living together.
(This is the simplest/crudest possible definition)

How did society begin? What was society like in the beginning?

Initially man was a hunter-gatherer. He lived in small groups and always kept moving around, looking for food. So initially there was only one task or role: hunting and gathering (or at most two: men hunters and women gatherers). This situation continued for most of man's 2,00,000 years of existence.

Then, 12000 years ago (in 10,000 BC) man invented agriculture. He could now produce food. This brought about three revolutionary changes. One, he could now produce food in one place, instead of moving around all the time. So he started living in one place. Thus villages were born. Two, he could now produce food in a large quantity. So the group no longer needed to be small; it could now be big. Thus the size of the group (that is, village) increased. Three, the new system of food production was efficient. That is, if n people needed to be fed (the size of the group), all the n people did not need to work in food production. Only m (<n) people needed to produce food. The remaining n–m people could do other work. Thus other work (non-food-production) became possible. It also became necessary.

Because, as the size of the group increased, other tasks/roles became necessary. The group had to be defended from the attacks of other groups. The people also had to settle disputes that arose within the group. Meanwhile, man was at the mercy of the forces of nature, and he tried to placate these forces. He started seeing these forces as living beings (that is, gods) and worshipping them. Thus religion was born. These religious activities had to be carried out. Also, as man gained knowledge about the world, this knowledge had to be given to the next generation. Thus two new tasks – defence-law&order and religion-education – were born. The people who handled these tasks were the warriors and priests respectively.

So society now consisted of three groups: priests, warriors and the common people (engaged in food production). Even food production became split into two tasks: owning the land and running the activity, and actually doing the work. So the common people were now split into two groups: farmers and labourers. Thus society now consisted of four groups: priests, warriors, farmers and labourers.

Other things than food also needed to be produced: clothing, houses, tools, etc. The people who made these – the artisans – were manual workers, like the farm labourers. Thus non-food-production activities increased, and the people engaged in these activities also increased. For the sake of efficiency, these non-food-producers started concentrating in a few villages, which became larger. Thus were cities born. And also civilisation (from Latin 'civitas' = "city"). A region now consisted of many villages and a few cities. The different cities and villages started producing different goods, and exchanging them with the goods produced by other cities and villages. Thus was trade born. The people who carried out this activity – the merchants – were wealth creators, like the farmers.

Thus society was now divided into four groups: priests-scholars, warriors-rulers, farmers-merchants and labourers-artisans. (In ancient India they were called Brahmanas, Kshatriyas, Vaishyas and Shudras respectively.)

CONCLUSION:

1. As society became more complex, the number of tasks/roles increased.

2. Efficiency can be achieved by division of labour and specialisation.

3. So each task/role was assigned to a different group, and each group performed its own task/role.

4. Thus society was divided into different functional groups, and these functional groups made up society.

Therefore society can be seen as a system that consists of different (functional) groups. And these groups form the units of the social system.

Thus 'society' is not a single homogeneous entity. Society (and civilisation) is all about complexity, division of labour and specialisation. Society is made up of social groups. Wishing that these different groups did not exist is as good as wishing that society itself (that is, civilisation) did not exist.

My earlier post on the Varna system had talked about this in brief.

28 November 2010

Agriculture and Rural Development (ARD) in India

We have seen how agriculture and rural development are both essential for the industrialisation of India. In fact they are closely linked to each other. They are two sides of the same coin. Instead of talking about "agriculture" and "rural development" as two separate entities, it makes sense to talk about them as one entity: "agriculture and rural development" (ARD).

27 November 2010

The Importance of Rural Development in India

Development/industrialisation is accompanied by urbanisation. So we should focus on urban development, not rural development. Right? Wrong!

1. Improving agriculture is a must for industrialisation. Agriculture is carried on in villages, so rural development is needed to improve agriculture.

2. Industry needs a literate labour force. But most of the people live in villages (70% in India). So rural development is needed to increase the education level of the majority of the population.

3. Finally, rural development is needed to reduce the migration of people from villages to cities. The current rate of rural-to-urban migration in India is unsustainable. It is much more than the rate at which industrial jobs and urban infrastructure are growing. So rural development is a must to slow down the rural-to-urban migration.

Here is another argument for rural development (based on the factors of production).

26 November 2010

Agriculture and Industrialisation in India

Earlier I had said that development of agriculture is a pre-requisite for industrialisation. Let us look at this claim in more detail.

What are the requirements of industry?
1. Capital
2. Labour
3. Market

1. Capital: Improvement of agriculture increases output and thus creates the capital needed for industries. This is particularly important in the initial stages of industrialisation, when the industrial sector is small and the economy is pre-dominantly agricultural.

2. Labour: Industry needs literate workers unlike agriculture, which can manage with illiterate labourers. In an agricultural country, a vast majority of people are illiterate (40 crore in India). Education depends on income. So to turn the illiterate agricultural labourers into literate workers for industry, we must first increase their incomes. That is, we must increase the productivity of agriculture (Wage = marginal productivity of labour).

3. Market: The purchasing power of people must be increased so that they can buy the products made by industry. Most of the people are employed in agriculture (50% in India today). Hence we must increase agricultural incomes by improving agricultural productivity.

One can argue that requirements 1 and 3 are not absolute. Capital can be got from other countries (foreign investment). Goods can also be sold in other countries (exports).

But requirement 2 still remains. If nothing else, agriculture must be improved to raise the income, education and health of the majority of the people – who work in the agricultural sector. By the way, this is not just to make people eligible workers for industry. This is also why we are industrialising in the first place. In other words: health, education and income are both the ends and the means of development/industrialisation.

That is why development of agriculture is a must for India to industrialise.

21 November 2010

India's Role in the Industrial Revolution

The Industrial Revolution happened in Britain during 1775–1850. It gave birth to modern industry – a new system of production based on machines and factories. For the Industrial Revolution to happen, three things were needed:

1. Capital – to build the machines and factories
2. Raw materials – to produce the goods in the factories
3. Market – to sell the manufactured goods

All three were needed in large amounts for the Industrial Revolution to kick off:

1. Capital: After the Industrial Revolution started, the huge profits it generated could provide the capital for further industrialisation. That is, the process could become self-sustaining. But how was the process to begin in the first place? Where could such a large amount of money be got from?

2. Raw materials: The Industrial Revolution needed vast amounts of raw materials at cheap prices. Where were they to be got from?

3. Market: Finally, a vast captive market was needed to sell the manufactured goods at a handsome profit. Where was it to be found?

The first country to answer these three questions would be the birthplace of the Industrial Revolution. In the second half of the 18th century, one country did find the answer to these three questions: Britain. And its answer was India.

On 23 June 1757, the English East India Company defeated Siraj-ud-Daula, the Nawab of Bengal, in the Battle of Plassey. The British thus became masters of east India (Bengal, Bihar, Orissa) – a prosperous region with a flourishing agriculture, industry and trade.

The East India Company started collecting revenue from this region and sending it to Britain. This provided the capital. It also started seizing raw cotton from the cotton farmers and sending it to Britain. This provided the raw material. Finally, it brought the manufactured textiles from Britain into India – without any duties or tariffs – and sold them here. This was their free market.

Thus India provided all the three ingredients of Britain's Industrial Revolution: capital, raw materials and market.

It is not a coincidence that the Industrial Revolution began less than 20 years after the British conquest of east India. Nor is it a coincidence that the engine of Britain's Industrial Revolution was its textile industry. Before the Industrial Revolution, India was the world's number one textile manufacturer and exporter. When you have conquered a country, what better industry to enter and dominate, than the industry dominated by the country you now rule – and whose economy you now control?

Subsequently, of course, Britain conquered the whole of India, thus giving it more capital, more raw materials and a larger market – which helped to accelerate its Industrial Revolution. Needless to say, India's economy was devastated in this process.

Thus the Industrial Revolution was built on the grave of the Indian economy. The Industrial Revolution was made in Britain, but it was funded by India (against her will).

The Industrial Revolution gave birth to the Industrial Age, or the Modern Age. Thus, though the Modern Age was inaugurated in Britain, the real driving force behind it was India.

That was the role of India in the Industrial Revolution (and consequently, the birth of the Modern Age).

Thus Britain did not "make India modern". The truth is the other way around. It was India that helped Britain to become modern.

15 November 2010

Mr Rahul Gandhi's Education (and Report Card)

Q: What is Rahul Gandhi's education?
A: He did his M.Phil in Development Studies at Trinity College (Cambridge University) in 2005.

Here is his report card:

SubjectMarks
Development Economics65%
Institutions and Development62%
International Economic Integration66%
National Economic Planning and Policy58%

14 November 2010

The Importance of Studying History

Q: What is history?
A: History is the study of man's past.

Right? Wrong!

History is NOT the study of the past.
History is the study of the present.
It is the study of how the present has evolved from the past.

The past is not the end of history. It is only the means.
The end of history is the present.
By knowing the past, we can understand the present.

History is also the study of the future. If we know how the present has evolved from the past, we can also know how the future will evolve from the present.

That is why we must study history.
Not to know the past.
But to understand the present.
And to anticipate the future.

That is the importance of studying history.

12 November 2010

The Three Periods/Stages of India's History

India's history can be divided into three periods or stages:

Duration
Period
Politico-Economic System
Dominant Religion
.
1. 3000 BC – 712 AD
Ancient
Traditional
Hinduism
.
2. 712 AD – 1947 AD
Medieval
Feudal
Islam + Christianity
.
3. 1947 AD – today
Modern
Industrial
Hinduism

18 October 2010

The Modernisation of India

Modernisation is industrialisation (accompanied by urbanisation). So after Independence, Nehru embarked on an ambitious program of industrialisation, to make India a developed country. He (and we) failed miserably. 63 years after Independence we are still a developing country. What went wrong with the modernisation of India?

To find the answer, we looked at India's economic history in more detail. We studied the science of industrialisation – development economics. And we looked at the success of the East Asian countries.

We found that all these different sources give us the same answer. To modernise/industrialise successfully, a country must focus on three key areas:
1. Agriculture
2. Rural Development
3. Primary Education

Modernisation may be industrialisation, but a country can't industrialise straightaway. There are some essential pre-conditions to be met. Industrialisation can begin (and be sustained) only if people have a certain minimum level of education, health and income. For this we must first increase the productivity of agriculture, as a majority of the population works in the agricultural sector. This can happen only if we provide basic infrastructure (schools, clinics, roads, water, electricity) in villages. Finally, basic literacy and numeracy are a must for industry; so every person must have these skills.

Thus, agriculture, rural development and primary education are the pre-requisites for modernisation/industrialisation.

This is a counter-intuitive answer: to industrialise and urbanise, we must work on agriculture and rural development.

16 September 2010

Development Economics

Q: What is economics?
A: Economics is the science of how man satisfies his wants. More formally, it is the science of how man produces goods and services, and distributes them.

This is the standard definition of economics. But is it correct?

Economics was born when Adam Smith wrote "The Wealth of Nations" in 1776. This coincided almost exactly with the beginning of the Industrial Revolution (1775–1850). The Industrial Revolution was the second great Revolution in human history, after the invention of agriculture in 10,000 BC. It marked the end of the Agricultural Age and the beginning of the Industrial Age (Modern Age).

The science of economics developed as the Industrial Revolution progressed. The development of economics paralleled (kept pace with) the industrialisation of the West. This is an important point, so obvious that it is overlooked. Economics is a modern/industrial science; it is a science of the Modern/Industrial Age.

Thus economics is not merely the science of the production and distribution of goods and services. It is the science of how goods and services are produced and distributed in a modern/industrial economy.

What difference does it make?, you might ask. There are two differences:
1. Economics is built on certain assumptions that are true in an industrial economy – like perfect markets, perfect information, perfect competition. But these assumptions are not true in an agricultural economy.
2. Economics deals with industrial economies. It doesn't tell agricultural economies how to industrialise. In other words, economics analyses a steady state. It doesn't tell us how to attain that steady state.

This is classical or traditional economics – the stuff we study in any economics book.

Till World War 2 economists looked only at the industrialised parts of the world: Europe, USA, Japan. It was only after World War 2 that they started looking at the majority of the world that was still agricultural/industrialising. Thus was born a new branch of economics – development economics (or growth economics) – to:
1. Deal with agricultural economies, with their imperfect markets, imperfect information, imperfect competition (deviations from the assumptions of classical economics).
2. Tell us how agricultural economies can/should industrialise*.

Development economics is a vast and diverse field. It deals with topics as widespread as poverty, inequality, population growth, education, health, agriculture, industry, urbanisation, environment, etc. Thousands of papers are published every year in technical journal journals. But because the subject is so new, vast and diverse, there are very few books that give a comprehensive introduction to it.

The few good books are:
1. Economic Growth (2009) – David Weil
2. Economic Development (2003) – Todaro & Smith
3. Development Economics (1998) – Debraj Ray
(I recommend reading them in this order)

Robert Lucas, winner of the Nobel Prize for Economics in 1995, said about development economics:
"The consequences for human welfare involved in questions like these are staggering. Once you start thinking about them, it is very hard to think about anything else."
Amen.

*This is why growth/development economics is the nearest thing we have to a "science of industrialisation/modernisation".

15 September 2010

Education, Health and Infrastructure in India

In the previous post we identified the key ingredients of economic growth and development. The first/top three are:
1. Education
2. Health
3. Infrastructure

Education-health-infrastructure (E-H-I) – this is the "mantra" for development according to the current discourse in books, newspapers and magazines. Sounds like common sense, doesn't it? Well, not exactly.

It turns out this "common sense" (E-H-I) is a specific school of thought in development economics – the "market-friendly" school. And the market-friendly school/approach in turn is a branch of a broader school of thought – the "neo-classical revolution" of the 1990s.

Anyway, if we accept the E-H-I formula, the questions arises: E-H-I for whom? and where? The discussion/debate on economic policies in India takes place mainly in the English-language media (ELM). This ELM is by and for the middle class of the metros – the metro middle class (MMC). Now the "India" of the ELM and MMC consists of just the 8 metros. So when the ELM says "E-H-I", what it really means is E-H-I for the metros.

So "education" means more IITs and IIMs. "Health" means more super-speciality hospitals. And "infrastructure" means more international airports. This is what education, health and infrastructure mean to the MMC and its mouthpiece, the ELM.

But the metros account for only 7% of India's population. The vast majority of India – 70% – lives in villages. So that is where we must focus. Thus "education" means not more IITs and IIMs, but more primary schools in villages. "Health" means not more super-speciality hospitals, but more clinics in villages. And "infrastructure" means not more international airports – but drinking water, sanitation, roads and electricity for India's 6,00,000 villages.

All this is nothing but rural development.

14 September 2010

The Secret of Economic Growth and Development

What is the secret of economic growth and development?*

Wealth is created when certain inputs are combined to produce some useful/valuable output. These inputs, or factors of production, are:

1. Land – Natural resources (soil, water, sunlight, coal, iron ore, etc)
2. Labour – The human input of production
3. Capital – Physical inputs of production (ploughs, tractors, computers, etc)

To increase the wealth created, we must increase the amounts of the inputs. A country grows or develops economically when its factors of production increase. Let us look at each factor.

Land is more or less fixed, so we will ignore it.

Labour has two aspects – quantity and quality. Quantity has no effect on wealth – the increase in production due to more labour is cancelled out out by the increase in consumption. Quality of labour is determined mainly by two things: education and health. The more educated and healthier a worker, the more he/she produces.

Some capital is privately owned, like machines and factories. Some capital is publicly owned, like roads and electricity. Publicly owned capital is nothing but infrastructure, which is provided by the government. Privately owned capital is due to investment, which is funded by savings.

However factors of production by themselves are not everything. How effectively the factors of production are combined to produce output is also important. This effectiveness is called productivity.

Now productivity consists of two parts:
a) The knowledge of how to combine the factors of production.
b) The effectiveness with which this knowledge and the factors of production are combined.
(Yes, there is a little hair splitting here)
The first we call technology. The second we call efficiency.

Knowledge/technology is a result of research and development (R&D). Efficiency is an outcome of a country's economic policies and institutions.

We can thus summarise the determinants of economic growth:
A. Factors of Production
a) Labour
1. Education
2. Health
b) Capital
1. Infrastructure
2. Savings
B. Productivity
1. Knowledge
2. Efficiency

Or we can simply list the key requirements for economic development:
1. Education
2. Healthcare
3. Infrastructure
4. Savings
5. Knowledge
6. Efficiency

*This framework is from "Economic Growth" (2009) by David Weil.

29 August 2010

Primary Education in the East Asian Miracle

From "The East Asian Miracle: Economic Growth and Public Policy" (World Bank Report, 1993):

Creating Human Capital

In nearly all the rapidly growing East Asian economies, the growth and transformation of systems of education and training during the past three decades has been dramatic The quantity of education children received increased at the same time that the quality of schooling, and of training in the home, markedly improved. Today, the cognitive skill levels of secondary school graduates in some East Asian economies are comparable to, or higher than, those of graduates in high-income economies.

Enrollment rates are higher at higher levels of per capita income. But the HPAEs' enrollment rates have tended to be higher than predicted for their level of income. At the primary level, this was most obvious in 1965 when South Korea, Hong Kong and Singapore had already achieved Universal Primary Education – well ahead of other developing economies. Even Indonesia with its vast population had a primary enrollment rate above 70%. By 1987, East Asia's superior education systems were evident at the secondary level. Indonesia had a secondary enrollment rate of 46%, well above other economies with roughly the same level of income, and Korea had moved from 35% to 88%, maintaining its large lead in relative performance. In part as a function of their success in increasing enrollment, the East Asian economies have also been faster to close the gap between male and female enrollments.

A common, though imperfect, measure of educational quality is expenditure per pupil. Between 1970 and 1989, real expenditure per pupil at the primary level rose by 355% in Korea. In Mexico and Kenya, expenditure rose by 64% and 38%, respectively, during the same period, and in Pakistan expenditure rose by only 13% between 1970 and 1985. These dramatic differences reflect mostly differential changes during the period in income growth and in the number of children entering schools, both of which favoured the East Asian economies. A somewhat better measure of school quality is the performance of children on tests of cognitive skills, standardised across economies. In the relatively few international comparisons available from such tests, East Asian children tend to perform better than children from other developing regions – and even, recently, better than children from high-income economies.

28 August 2010

Agriculture in the East Asia Miracle (Asian Tigers)

From "The East Asian Miracle: Economic Growth and Public Policy" (World Bank Report, 1993):

Introduction

East Asia has a remarkable record of high and sustained economic growth. From 1965 to 1990 the twenty-three economies of East Asia grew faster than all other regions of the world. Most of this achievement is attributable to seemingly miraculous growth in just eight economies: Japan; the "Four Tigers" – South Korea, Taiwan, Hong Kong and Singapore; and the three newly industrialising economies (NIEs) of South East Asia – Indonesia, Malaysia and Thailand. These eight High Performing Asian economies (HPAEs) are the subject of this study.

Dynamic Agricultural Sectors

Typically, as an economy develops, agriculture's share of the economy declines. The six HPAEs with substantial agricultural sectors – Indonesia, Japan, Korea, Malaysia, Thailand and Taiwan – have been making this transition more rapidly than other developing economies. But the decline in the relative importance of agriculture in the HPAEs is not because agriculture has lacked dynamism. Across developing regions, agriculture's share of output and employment has declined most and fastest where agricultural output and productivity have grown the most. From 1965 to 1988, growth in both agricultural output and agricultural productivity was higher in East Asia than in other regions. Many factors contributed to the success of agriculture in these economies. Land reform (notably in Korea and Taiwan), agricultural extension services, reasonably good infrastructure (especially in the former Japanese colonies), and heavy investments in rural areas (notably in Indonesia) all helped.

East Asian governments have actively supported agricultural research and extension services to speed diffusion of Green Revolution technologies. Their substantial investments in irrigation and other rural infrastructure hastened adoption of high-yielding varieties, new crops, and the use of manufactured inputs, such as fertiliser and equipment, to cultivate them. In Taiwan, during the 1950s, 45% of the growth of agriculture was due to rising productivity, much of which resulted from government programs.

Information on the allocation of public investment between rural and urban regions is limited, and it is difficult to make good comparisons among economies, but available data suggest that the HPAEs have allocated a larger share of their public investment to rural areas than did other low- and middle-income economies. Of critical importance in this respect has been the build-up of infrastructure – roads, bridges, transportation, electricity, water and sanitation. There has been a more even balance between rural and urban public investment in sanitation and water facilities in Indonesia, Korea and Thailand than in other developing economies. The data on rural electrification also suggest that the HPAEs with rural sectors have, on average, more effectively provided electricity to rural areas. Since the early 1980s, electricity has been universally available in the rural areas of Korea and Taiwan. Malaysia and Thailand have made great strides in rural electrification. Indonesia has not done as well, but even there the relative disparity between the urban and rural sectors is smaller than the disparity in economies with approximately the same per capita income (Bolivia and Liberia) or the same population (Brazil).

Equally important, however, were the typically low levels of direct and indirect taxation on agriculture in East Asia. During the past three decades, dozens of governments in other regions, eager to promote industrial growth, have funneled surpluses from agriculture to industry through taxes, food price controls, and pro-industry allocations of public investment. Less overtly, governments have favoured manufacturers, and hurt agriculture, by overvaluing currencies and protecting domestic industries that manufacture agricultural inputs and the goods purchased by rural households. The exchange rate that results from restrictions on manufactured imports reduces the domestic currency proceeds of agricultural exports. Industrial protection acts as a hidden tax on agriculture, raising the price of agricultural inputs to subsidise industry. Direct interventions include export taxes and price controls, while indirect interventions also take account of industrial protection policies and real exchange rate overvaluation. Both Korea and Malaysia have substantially lower taxation of the agricultural sector than the comparators, and in Korea the agricultural sector receives positive protection. Thailand's taxation of the agricultural sector was similar to South Asian levels in the 1960s and 1970s but fell in the 1980s while taxation in South Asia was rising.

20 August 2010

India's Education System/Policy: Primary Vs Higher

In the previous post I talked about primary education, and not just "education". The emphasis is deliberate. India's education system/policy suffers from a serious distortion. There is too much focus on higher education, and too little focus on primary education. It should be exactly the other way around.

What is the purpose of education? To train people for employment. (Yes, there are other purposes of education: teaching children to become good citizens and good human beings; teaching them values and morals, creative thinking, etc. But these things can/should be taken care of at the primary level itself; they shouldn't wait till college)

Now the employment opportunities/requirements in a modern economy are like this:


So an education system must turn out workers in a similar pattern:


Our education system is like this:


See the mismatch between figures 1 and 3?

So the government must focus exclusively on primary education, and leave higher education to the private sector. Those who want to go to college but cannot afford the high fees must take bank loans. They should repay the loans with the salaries from their high-paying jobs.

I know this argument is the height of hypocrisy, coming from someone who is himself the beneficiary of a heavily subsidised higher education (at REC/NIT and IIT). What to do?

19 August 2010

India's Development: Best Strategy/Policy

What is the best strategy/policy for India to achieve development? The answer* is to focus on these key areas:

1. Primary Education
2. Agriculture
3. Rural Development
4. Women's Empowerment

1. Primary Education
The government must focus only on primary education. It should get out of higher education, and leave it to the private sector. All public resources for education must go to primary education. No public resources/subsidies must go to higher education.

2. Agriculture
Agriculture is the foundation of any economy. Agriculture provides the foundation for industry. Without a strong base in agriculture, an economy cannot industrialise. A strong agricultural sector is a must for industrialisation.

3. Rural Development
70% of India lives in villages. Our metros cannot provide adequate infrastructure and employment to their existing population (7% of the total). How on earth can they cope with more rural migration? Imagine the situation if this 70%, or 85 crore people, were to land up in the 8 metros. Basic infrastructure (drinking water, sanitation, roads, electricity) and employment opportunities (agro-based small industries) have to be provided in villages.

4. Women's Empowerment
Finally, everything boils down to the woman. Everything depends on the woman: education, health, nutrition, employment – everything. So if you focus on the woman, you take care of everything else. Women-centric development programs are needed.

*Economic Development (2003) by Michael Todaro and Stephen Smith

PS: The authors also talk about another important issue – healthcare.

18 August 2010

"Economic Development": Todaro and Smith

Contents of "Economic Development" by Michael Todaro and Stephen Smith (2003, 8th edition):

A. Basic Concepts
1. What is Development?
2. Developing countries
3. Developed countries
4. Development models - 1 (Classical)
5. Development models - 2 (Recent)

B. Internal Issues
6. Poverty and Inequality
7. Population growth
8. Urbanisation
9. Education and Health
10. Agriculture and Rural Development
11. Environment

C. External Issues
12. Trade theory
13. Trade policy
14. Deficits and debts
15. Foreign investment and aid

D. Towards Development
16. State vs Market
17. Financial and fiscal policies

I have read half of this book. Chapters 9 and 10 are the best and the most important chapters of the book, in my view.

17 August 2010

Economic Growth and Development: Definition

What is the definition of economic growth and economic development? What is the difference between the two?

1. Economic Growth is an increase in economic output. It is a quantitative change.

2. Economic Development is more than just an increase in economic output. It is the change of an economy from one stage to another (higher) stage. It is a qualitative change.

In particular, economic development is the change of an economy from the agricultural stage to the industrial stage. So,

Development = Industrialisation ?

We have seen that this is an incomplete view. More correctly,

Development = Agriculture + Industry + Services
in that order

16 August 2010

India's Economy and Development: Agriculture, Industry, Services

Imagine a pyramid:




How would you build this pyramid? Like this:




Or like this:




The second method may look nonsensical. But that is exactly what we Indians are doing, with our economy and development. The pyramid is a country's economy:


The bottom layer is Agriculture, the middle layer is Industry, and the top layer is Services.

The first method shows how today's developed countries (Europe, America, Japan) have grown. First they developed their agriculture, then their industry, finally their services.

The second method shows how India is developing – in an upside-down fashion. First we developed our services. Now we are developing our industry. We have yet to start developing our agriculture (so the last step is more hope than reality). This is exactly the reverse/opposite of the first method.

Gunnar Myrdal – the winner of the 1974 Nobel Prize for Economics – said:
"It is the agricultural sector that the long-term battle for economic development will be won or lost."

15 August 2010

The Three Stages of the Industrial Revolution

The Industrial Revolution occurred in three stages:

1. Agricultural revolution (1700 – 1800)
2. Industrial revolution (1800 – 1950)
3. Services revolution (1950 – )

Usually when people use the term "Industrial Revolution" they mean only the "industrial" part of the Revolution (the second/middle part). But the above version give a more complete picture.

The Industrial Revolution marked the transition from the Agricultural/Traditional Age to the Industrial/Modern Age. So people jump to the conclusion that modernisation means industrialisation. Though industrialisation forms the core of modernisation, it is not its only component. As seen above, the agricultural revolution is a pre-condition for industrialisation.

09 July 2010

Poverty: How Many Are Poor In India?

What is the extent of poverty in India? How many poor people are there in India?

The World Bank defines moderate poverty as living on less than $2 (PPP) per day and extreme poverty as living on less than $1.25 (PPP) per day.

Here is the poverty data for India and some other countries:

Country
< $1.25/day
< $2/day
India
42%
76%
Indonesia
21%
54%
China
16%
36%
Brazil
5%
13%
Mexico
2%
5%

This means 90 crore Indians live in moderate poverty and 50 crore Indians live in extreme poverty.

Source: Wikipedia

25 June 2010

India's Rate of Industrialisation/Modernisation Since 1991

A country's GDP growth rate can be taken as a measure of its rate of industrialisation/modernisation (I/M). After Independence, India opted for an inefficient industrial system - socialism - and industrialised/modernised at an average rate of 3.5% per year. More than four decades later (in 1991) we switched to an efficient industrial system - capitalism. Here are the results:

Year
Rate of Industrialisation/Modernisation
1991
1.06%
1992
5.48%
1993
4.77%
1994
6.65%
1995
7.57%
1996
7.56%
1997
4.05%
1998
6.19%
1999
7.39%
2000
4.03%
2001
5.22%
2002
3.77%
2003
8.37%
2004
8.28%
2005
9.35%
2006
9.67%
2007
9.06%
2008
6.07%

Notice how the rate of I/M increased to 7%+ in the mid-1990s and later to 9%+ in the mid-2000s.

Source: World Bank (via Google public data)

20 June 2010

Literacy Rate: India and Other Countries

Here are the literacy rates of India and some other countries:

Country
Literacy Rate
India
66%
Brazil
90%
Indonesia
92%
China
93%
Russia
99%
Japan
99%
France
99%
Germany
99%
Britain
99%
America
99%

Source: United Nations Development Program Report (2009)

19 June 2010

Per Capita Income (PPP): India and Other Countries

Here are the per capita incomes (PPP) of India and some other countries:

Country
Per Capita Income (PPP)
India
$ 3,100
Indonesia
$ 4,000
China
$ 6,600
Brazil
$ 10,200
Russia
$ 15,100
Japan
$ 32,600
France
$ 32,800
Germany
$ 34,100
Britain
$ 35,200
America
$ 46,400

Data from CIA's The World Factbook
PPP = purchasing power parity

03 June 2010

Marx: The Modern/Industrial Age and Modernity

Karl Marx and Friedrich Engels in the first chapter of "The Communist Manifesto" (1848):

1. On the Modern/Industrial Age:

In the earlier epochs of history, we find almost everywhere a complicated arrangement of society into various orders, a manifold gradation of social rank. In ancient Rome we have patricians, knights, plebeians, slaves. In the Middle Ages (we have) feudal lords, vassals, guild-masters, journeymen, apprentices, serfs.

The modern capitalist society that has sprouted from the ruins of feudal society has not done away with class antagonisms. Our epoch, the epoch of the capitalist class, possesses, however, this distinct feature: it has simplified class antagonisms.

Thereupon, steam and machinery revolutionised industrial production*. The place of manufacture was taken by the giant, modern industry; the place of the industrial middle class by industrial millionaires, the leaders of the whole industrial armies, the modern capitalist.

The capitalist class, during its rule of scarce one hundred years, has created more massive and more colossal productive forces than have all preceding generations together. Subjection of nature's forces to man, machinery, application of chemistry to industry and agriculture, steam-navigation, railways, electric telegraphs, clearing of whole continents for cultivation, canalisation of rivers, whole populations conjured out of the ground — what earlier century had even a presentiment that such productive forces slumbered in the lap of social labour?

2. On the nature of modernity:

Constant revolutionising of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguish the capitalist epoch from all earlier ones.

All fixed, fast-frozen relations, with their train of ancient and venerable prejudices and opinions, are swept away, all new-formed ones become antiquated before they can ossify.

All that is solid melts into air, all that is holy is profaned, and man is at last compelled to face with sober senses his real conditions of life, and his relations with his kind.

*The Industrial Revolution

24 May 2010

India's States and Europe's Countries: Population

Here is a comparison of the population of India's states and European countries:

European Country
Population (crores)
1. Germany
8.2
2. France
6.3
3. Britain
6.2
4. Italy
6.0
5. Spain
4.7

Indian State
Population (crores)
1. Uttar Pradesh
19.7
2. Maharashtra
11.2
3. Bihar
10.0
4. West Bengal
9.0
5. Andhra Pradesh
8.4
6. Madhya Pradesh
7.1
7. Rajasthan
6.8
8. Tamil Nadu
6.6
9. Karnataka
5.9
10. Gujarat
5.8

14 May 2010

Technology, Economy, Politics, Culture - 2

Karl Marx in the preface to his "A Contribution to the Critique of Political Economy" (1859):

1. In the social production of their existence, men inevitably enter into definite relations, which are independent of their will, namely relations of production appropriate to a given stage in the development of their material forces of production.

2. The totality of these relations of production constitutes the economic structure of society, the real foundation, on which arises a legal and political superstructure and to which correspond definite forms of social consciousness.

3. The mode of production of material life conditions the general process of social, political and intellectual life.

4. It is not the consciousness of men that determines their existence, but their social existence that determines their consciousness.

5. The changes in the economic foundation lead sooner or later to the transformation of the whole immense superstructure.

6. In broad outline, the tribal, ancient, feudal and capitalist modes of production may be designated as epochs marking progress in the economic development of society.

See "Technology, Economy, Politics, Culture" (T-E-P-C)

08 May 2010

Degree of Urbanisation: India and Other Countries

Q: How much of India is urban?
A: 30%

Here are some countries and their degree of urbanisation:

Country
Urban Population
India
30%
China
43%
Indonesia
52%
Japan
66%
Russia
73%
Germany
74%
France
77%
America
82%
Brazil
86%
Britain
90%

Data from CIA's The World Factbook. The definition of "urban" is different for different countries.

08 April 2010

India's Tribals/Adivasis and Naxalite/Maoist Violence - 2

Arundhati Roy on India's tribals/adivasis and the Naxalite/Maoist violence*:

This legacy of rebellion has left behind a furious people who have been isolated and marginalised by the Indian government. The Indian Constitution, the moral underpinning of Indian democracy, was adopted by Parliament in 1950. It was a tragic day for tribal people. The Constitution ratified colonial policy and made the State custodian of tribal homelands. Overnight, it turned the entire tribal population into squatters on their own land. It denied them their traditional rights to forest produce, it criminalised a whole way of life. In exchange for the right to vote, it snatched away their right to livelihood and dignity.

Over the past five years or so, the governments of Chhattisgarh, Jharkhand, Orissa and West Bengal have signed hundreds of MoUs with corporate houses, worth several billion dollars, all of them secret, for steel plants, sponge-iron factories, power plants, aluminium refineries, dams and mines. In order for the MoUs to translate into real money, tribal people must be moved. Therefore, this war.

This CSR masks the outrageous economics that underpins the mining sector in India. For example, according to the recent Lokayukta report for Karnataka, for every tonne of iron ore mined by a private company, the government gets a royalty of Rs 27 and the mining company makes Rs 5,000. In the bauxite and aluminium sector, the figures are even worse. We're talking about daylight robbery to the tune of billions of dollars.

There are no teachers in any of the schools, Chandu says. They've all run away. Or have you chased them away? No, we only chase police. But why should teachers come here, to the jungle, when they get their salaries sitting at home?

The perennial problem, the real bane of people's lives, was the biggest landlord of all, the Forest Department. Every morning, forest officials, even the most junior of them, would appear in villages like a bad dream, preventing people from ploughing their fields, collecting firewood, plucking leaves, picking fruit, grazing their cattle, from living. They brought elephants to overrun fields and scattered babool seeds to destroy the soil as they passed by. People would be beaten, arrested, humiliated, their crops destroyed. Of course, from the forest department's point of view, these were illegal people engaged in unconstitutional activity, and the department was only implementing the Rule of Law.

When the Party is a suitor (as it is now in Dandakaranya), wooing the people, attentive to their every need, then it genuinely is a People's Party, its army genuinely a People's Army. But after the Revolution how easily this love affair can turn into a bitter marriage. How easily the People's Army can turn upon the people. Today in Dandakaranya, the Party wants to keep the bauxite in the mountain. Tomorrow, will it change its mind?

Most of the people, including those in the PLGA (People's Liberation Guerrilla Army), have a haemoglobin count that's between five and six, when the standard for Indian women is 11. There's TB caused by more than two years of chronic anaemia. Young children are suffering from Protein Energy Malnutrition Grade II, in medical terminology called Kwashiorkor. "It's an epidemic here, like in Biafra," the doctor says, "I have worked in villages before, but I've never seen anything like this." Apart from this, there's malaria, osteoporosis, tapeworm, severe ear and tooth infections and primary amenorrhea — which is when malnutrition during puberty causes a woman's menstrual cycle to disappear, or never appear in the first place. "There are no clinics in this forest apart from one or two in Gadchiroli. No doctors. No medicines."

Niti talks about the range of agricultural problems they have to deal with. Only 2 per cent of the land is irrigated. In Abujhmad, ploughing was unheard of until 10 years ago. In Gadchiroli on the other hand, hybrid seeds and chemical pesticides are edging their way in. "We need urgent help in the agriculture department," Vinod says. "We need people who know about seeds, organic pesticides, permaculture. With a little help we could do a lot."

*"Walking With The Comrades" (Outlook, 29 March 2010)

India's Tribals/Adivasis and Naxalite/Maoist Violence - 1

Arundhati Roy on India's tribals/adivasis and the Naxalite/Maoist violence*:

Right now in central India, the Maoists' guerrilla army is made up almost entirely of desperately poor tribal people living in conditions of such chronic hunger that it verges on famine of the kind we only associate with sub-Saharan Africa. They are people who, even after 60 years of India's Independence, have not had access to education, healthcare or legal redress. They are people who have been mercilessly exploited for decades, consistently cheated by small businessmen and moneylenders, the women raped as a matter of right by police and forest department personnel.

If the tribals have taken up arms, they have done so because a government which has given them nothing but violence and neglect now wants to snatch away the last thing they have — their land. Clearly, they do not believe the government when it says it only wants to "develop" their region. Clearly, they do not believe that the roads as wide and flat as aircraft runways that are being built through their forests in Dantewada by the National Mineral Development Corporation are being built for them to walk their children to school on. They believe that if they do not fight for their land, they will be annihilated. That is why they have taken up arms.

In 2008, an expert group appointed by the Planning Commission submitted a report called 'Development Challenges in Extremist-Affected Areas'. It said, "the Naxalite (Maoist) movement has to be recognised as a political movement with a strong base among the landless and poor peasantry and adivasis. Its emergence and growth need to be contextualised in the social conditions and experience of people who form a part of it. The huge gap between state policy and performance is a feature of these conditions. Though its professed long-term ideology is capturing state power by force, in its day-to-day manifestation, it is to be looked upon as basically a fight for social justice, equality, protection, security and local development."

They (the tribals) asked why when the government says that "the Writ of the State must run", it seems to only mean that police stations must be put in place. Not schools or clinics or housing, or clean water, or a fair price for forest produce, or even being left alone and free from the fear of the police — anything that would make people's lives a little easier. They asked why the 'Writ of the State' could never be taken to mean justice.

*"Mr Chidambaram's War" (Outlook, 9 November 2009)

02 April 2010

India Vs Bharat: Modern-Industrial-Urban Vs Traditional-Agricultural-Rural

India and Bharat. Two different countries. Or at least, two different parts of the same country. "India" is industrial/urban/modern, while "Bharat" is agricultural/rural/traditional.

This is a popular theory. Then the question arises: Exactly how much of the country is "India" and how much is "Bharat"?

The answer depends on exactly what criterion you use to divide the two:

Divide
Parameter
IndiaBharat
1. Industrial – AgriculturalEmployment
(Industry + Services vs Agriculture)
50%
50%
2. Urban – RuralLocation
(Cities + Towns vs Villages)
30%
70%
3. Rich – PoorIncome
(Middle Class vs Lower Class + Poor)
10%*
90%

*My estimate for 2010.

Thus we can identify different 'India's and 'Bharat's.

Now these categories (industrial-urban-modern and agricultural-rural-traditional) do not merely represent differences in occupation, location and income/lifestyle. They represent something much bigger. They represent two different ages in the history of man: the Agricultural Age and the Industrial Age.

Now historical Ages differ from one another materially, no doubt. For example, they differ in food, clothing, shelter, tools, etc. But they also differ from one another "mentally" – that is, in mindset or worldview. By mindset/worldview, I mean the sum total of a human being's tastes, interests, opinions, attitudes, outlook, values, norms, knowledge, awareness and beliefs. Each Age has its own mindset/worldview. Accordingly, there is an Agricultural Age mindset/worldview and an Industrial Age mindset/worldview.

Now if we take this mindset/worldview as a criterion, where do we draw the line between 'India' and 'Bharat'? Firstly, when it comes to mindset/worldview, the "urban" vs "rural" classification (30% vs 70%) is misleading. A more correct division would be metro vs non-metro. This reduces 'India' from 30% to 7%, and increases 'Bharat' from 70% to 93%. That is, considering mindset/worldview as a criterion, the 8 metros are on one side and on the other side are not just the 6,00,000 villages or the 5,000 towns but also the 400 "cities" (so called just because their population is more than 1 lakh). So we have:

DivideParameterIndiaBharat
4. Metro – Non-metroLocation (Metros vs Cities + Towns + Villages)7%93%

Now in these metros, it is only the middle class that has an Industrial Age mindset/worldview, not the lower class or poor. So what we are left with is the metro middle class (MMC). What % is this group? The McKinsey study indicates that about 25% of our urban population is middle class today. That gives us an MMC of about 2%. So finally we have:

DivideParameterIndiaBharat
5. Mindset / WorldviewIncome + Location
(Middle Class and Metro vs Lower Class, Poor + Cities, Towns, Villages)
2%98%

Thus the real India–Bharat divide is 2%–98%. If you are reading this, you almost certainly belong to the metro middle class (MMC). That means you represent only 2% of India!

Note:
  • I have used the names "India" and "Bharat" merely because they are the most popular terms used to denote this divide. The more correct terms are Agricultural Age India/Bharat and Industrial Age India/Bharat (quite a mouthful). For me, India and Bharat are one and the same.
  • I am NOT saying that "India" (Industrial Age India/Bharat) is better/superior/preferable/more desirable than "Bharat" (Agricultural Age India/Bharat). I am merely noting the difference between the two.
  • I am NOT saying that the Industrial Age mindset/worldview is better/superior/preferable/more desirable than the Agricultural Age mindset/worldview. I am merely saying they are different from each other.

01 April 2010

India's Ranking/Position in the World Economy

Question: What is India's ranking/position in the world economy?
Answer: #12

RankCountryGDP ($ tr)
1America14.20
2Japan4.91
3China4.33
4Germany3.65
5France2.85
6Britain2.65
7Italy2.29
8Brazil1.61
9Russia1.61
10Spain1.60
11Canada1.40
12India1.22

Source: World Bank (2008 data)

17 March 2010

Max Weber: The Iron Cage of Capitalism

Max Weber on the iron cage of capitalism in "The Protestant Ethic and the Spirit of Capitalism" (1905):

The Puritan wanted to work in a calling; we are forced to do so. For when asceticism was carried out of monastic cells into everyday life, and began to dominate worldly morality, it did its part in building the tremendous cosmos of the modern economic order. This order is now bound to the technical and economic conditions of machine production which today determine the lives of all the individuals who are born into this mechanism, not only those directly concerned with economic acquisition, with irresistible force. Perhaps it will so determine them until the last ton of fossilised coal is burnt. In Baxter's view the care for external goods should only lie on the shoulders of the "saint like a light cloak, which can be thrown aside at any moment". But fate decreed that the cloak should become an iron cage.

Since asceticism undertook to remodel the world and to work out its ideals in the world, material goods have gained an increasing and finally an inexorable power over the lives of men as at no previous period in history. Today the spirit of religious asceticism – whether finally, who knows? – has escaped from the cage. But victorious capitalism, since it rests on mechanical foundations, needs its support no longer. The rosy blush of its laughing heir, the Enlightenment, seems also to be irretrievably fading, and the idea of duty in one's calling prowls about in our lives like the ghost of dead religious beliefs. Where the fulfillment of the calling cannot directly be related to the highest spiritual and cultural values, or when, on the other hand, it need not be felt simply as economic compulsion, the individual generally abandons the attempt to justify it at all. In the field of its highest development, in the United States, the pursuit of wealth, stripped of its religious and ethical meaning, tends to become associated with purely mundane passions, which often actually give it the character of sport.

No one knows who will live in this cage in the future, or whether at the end of this tremendous development entirely new prophets will arise, or there will be a great rebirth of old ideas and ideals, or, if neither, mechanised petrification, embellished with a sort of convulsive self-importance. For of the last stage of this cultural development, it might well be truly said: "Specialists without spirit, sensualists without heart; this nullity imagines that it has attained a level of civilisation never before achieved."

16 March 2010

Ugadi: The Indian/Hindu New Year

Today is Chaitra Shuddha Pratipada – the first day of the year in the Indian/Hindu calendar. The festival is celebrated as Ugadi (yugAdi) in Karnataka and Andhra Pradesh, and as Gudi Padwa (guDhI pADvA) in Maharashtra. This is
Happy new year! :-)

08 March 2010

The Three Periods in India's History

Based on the economic stages of history, we can divide India's history into the following three periods:

1. 3000 BC – 1947 ADAgricultural Age
2. 1947 – 1991Semi-Industrial Age
3. 1991 –Industrial Age

Industrial Age = Modern Age

02 March 2010

India 1991: Economic Reforms, Liberalisation, Capitalism

When the Industrial Revolution (1775–1850) happened, India was under British rule (1757–1947). The British did not bother to industrialise India. Nor did they allow Indians to industrialise on their own. As a result, India could not industrialise, and was stuck in the Agricultural Age. In 1947, India finally overthrew the British and became independent. Now she was free to industrialise/modernise and enter the Industrial Age.

There were two industrial systems: capitalism and socialism. In capitalism, industries are owned by individuals and enterprises. In socialism, industries are owned by the government. Jawaharlal Nehru, India's first Prime Minister (1947–1964), chose socialism. With socialism, India's economy grew at about 3% per year. In other words, India industrialised/modernised at the rate of 3% per year. This went on for 40 years. Nehru's daughter Indira Gandhi (1966–1984) and grandson Rajiv Gandhi (1984–1991) continued with socialism.

Then, in 1991, India became bankrupt. Things could not go on as before. Something had to change. P V Narasimha Rao, the then Prime Minister, did the unthinkable. He changed India's industrial system from socialism to capitalism. He dumped socialism and adopted capitalism. As a result, India's economy started growing at 6% per year – double the earlier rate. Later it started growing at 9% per year – triple the earlier rate. That is, after adopting capitalism in 1991, India's rate of industrialisation/modernisation has now tripled. India is now industrialising/modernising thrice as fast as she was doing during the period 1947–1991.

That is what is happening today. And that is the significance of 1991. People call it "economic reforms" or "liberalisation". In fact, the switch from socialism to capitalism was nothing short of a revolution*. As a milestone in modern India's history, 1991 is second in importance only to 1947.

*China had carried out its own revolution in 1978, in a much more decisive manner, with much more spectacular results.

21 February 2010

India, Modernity, Washing Machines and Women

The NCAER's study on the Indian middle class has some interesting data on the ownership of consumer durables in India:

Consumer DurableOwnership
Colour TV14.6%
Refrigerator13.4%
Scooter7.9%
Washing machine7.2%
Motorcycle7.1%
Car/Jeep0.3%

Now colour TVs, refrigerators and washing machines cost about the same. But the ownership of washing machines is about half that of colour TVs and refrigerators. It is comparable to the ownership of scooters and motorcycles, which cost about 5 times as much.

So the 'deficit' in the ownership of washing machines (compared to colour TVs and refrigerators) is about 7% of the population. This translates to about 1.5 crore families. That is, 15 million families can afford a washing machine, but haven't bought one.

What does this mean? It means 15 million Indian women wash clothes by hand – even though they don't have to. It means 15 million Indian women spend half their day washing clothes, from morning to afternoon, everyday – even though they don't have to.

What does this say about modernity in India?

06 February 2010

Degree of Industrialisation: India and Other Countries

How do we measure to what extent a country is industrialised? There is no economic indicator called "degree of industrialisation". A rough substitute would be the percentage of the population that is employed in the industry and services sectors (as against agriculture). Taking this as a measure, here are some countries and their "degree of industrialisation":

Country
Degree of Industrialisation
India
48%
China
60%
America
99%
Britain
98%
Germany
97%
France
96%
Japan
95%
Russia
90%
Brazil
80%
Indonesia
57%

Data from CIA's "The World Factbook".

05 January 2010

India's Major/Largest Cities

India has 8 cities with more than 50 lakh people:

RankCityPopulation*
1Bombay2.2 crore
2Delhi1.9 crore
3Calcutta1.6 crore
4Madras74 lakh
5Bangalore66 lakh
6Hyderabad64 lakh
7Poona55 lakh
8Ahmedabad54 lakh

These are India's major/largest cities. These 8 cities account for 50% of India's urban population.

*2010 estimates.

03 January 2010

The Size of India's Middle Class

Question: How big is India's middle class?
Answer: 5% (Yes, only five percent)

2001: NCAER

Income ClassMonthly Family Income*% of Total Population
Poor< Rs 7,500
72%
Lower ClassRs 7,500 – Rs 17,000
22%
Middle ClassRs 17,000 – Rs 85,000
5%
Rich> Rs 85,000
0.5%

2005: McKinsey

Income ClassMonthly Family Income*% of Total Population
Poor< Rs 7,500
54%
Lower ClassRs 7,500 – Rs 17,000
41%
Middle ClassRs 17,000 – Rs 42,000
4%
Upper ClassRs 42,000 – Rs 85,000
1%
Rich> Rs 85,000
0%

McKinsey also makes forecasts for the relative sizes of the different income classes for the years 2015 and 2025:

Income Class20152025
Poor35%22%
Lower Class43%36%
Middle Class19%32%
Upper Class1%9%
Rich1%2%

So McKinsey's picture is roughly like this:

Year
Middle Class
Lower Class
Poor
2005
5%
40%
55%
2015
20%
45%
35%
2025
40%
35%
20%
  • Middle class will increase from 5% to 40%.
  • Poverty will go down from 55% to 20%.
  • Lower class will hover around 40%.
*The original data gives the annual incomes. I have converted them to monthly incomes, and rounded them off.