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Thursday, November 1, 2012

The Poverty Industry


Poverty  is an industry sustained, perpetuated and continuously reproduced by the State. It is possibly the most lucrative sector of the parallel  ‘rent’ economy which supports  and funds our politics. It provides sustenance to millions of contractors and businessmen who function as the back end of  the poverty supply chain. It is the main source of income for the parasitic officialdom that adds value- nuisance value- to the  poverty reproduction process. It gives nourishment to vast numbers of economists and policy scientists, NGO activists, and of course in a category by themselves-members of the NAC and the Planning Commission.

If only this was heavy handed sarcasm ! The frightening reality is that the  contemporary Indian State survives on poverty as an industry and this industry needs the  poor  to exist in large numbers to consume its products and services. While a small  shrinking of the market through some incidental  trickle down effect  of real growth could be tolerated, any genuine reform which can catapult the growth rate or ensure a more direct redistribution of wealth will never be permitted. Indian politics today, revolves around the State and the unprecedented rent seeking opportunities that open up when one captures  State power and the size of this ‘rent economy’ is mind boggling .

The business itself is not limited to visible ‘ poverty alleviation’  programmes but to a range of activities and State interventions  taken in the name of the poor. It is both insidious and perverse. Perverse, because even genuine, well meaning intentions get converted into the most devious stratagems for extracting rent , disempowering the poor and conserving them in a state of poverty. Insidious, because the politics of poverty uses the rhetoric of social justice to disguise its true intent. 

 At the heart of this thesis are three  interrelated questions . What  constitutes poverty and what are its determinants ? Why do the poor continue to stay poor in spite of billions spent on them and for them (but never by them) ?   And who gets enriched by the poor staying poor ?

Poverty is difficult to define because of its multi dimensionality, but we do know that it is a  denial of choices, opportunities and resources leading to a life of deprivation, insecurity and degraded environmental conditions. This denial is structural in which the poor are forced to be in a situation of perpetual subordination, inferiority, dependence and powerlessness. They cannot engage with the economy and society except through a relationship of dependence on their superiors and on terms determined by them.

Who are these superiors?   The Great Unthinking Left automatically concludes that these are the owners of capital who fatten themselves on surpluses created by an exploited working class. Their conclusions have to fit predetermined theoretical categories irrespective of whether those categories correspond to actual conditions. The fact is that the majority of  organised industrial capital  needs a good, strong, and stable market  for its products and services. Poverty depresses this market and prevents growth.  Capital, inherently and by definition cannot survive without growth and therefore poverty and backwardness are its enemies not its friends. Yes, capital needs commodification of labour, its relationship with labour is problematic, often exploitative, but it does not need vast numbers of poor.

So who needs the poor and whose interests are best served if the poor remain poor? 

One of the biggest flaws in our understanding of India’s political economy is a very inadequate understanding of the Indian State. Recalling the sociologist, Hamza Alawi’s famous thesis, we know that  at their independence India and Pakistan inherited a State  apparatus which was ‘overdeveloped’ in relation to the development of classes in society. The subsequent growth of the Indian State has not just been independent of the development of classes, it has spawned the growth of the State as a class by itself - in that its interests, its ideology, its network of connections, its way of working can be differentiated from other classes in civil society. In fact it is not just a class, but almost a universe in itself, with its own processes of accumulation and legitimation, its own economy and its own contradictions. This universe consists not just of the politicians and the mandarinate but a vast group of contractors, traders, fixers, touts, mafiosi groups, academics and activists, and business empires built around State monopolies. They derive their businesses from the State and their lives are inextricably intertwined with the State and the use of State power in thousands of different ways.

Broadly categorised, there are seven different ( though overlapping)  business sectors. The most obvious is the one in which the business opportunities arise from implementing  poverty  related  schemes,(NREGA, for example) programmes, projects for the State, including hard core areas like infrastructure building, civil works, labour contracts, transportation etc and soft core areas like academic research, statistical surveys, measuring poverty levels and providing a multiple variety of feedback  and evaluation reports etc. 

The second set of businesses are related to the State serving as a  gigantic market  for products and services procured by it either for consumption or for redistribution. Again the range is vast- from paper and stationery products to military stores,  to food and nutrition products, to medicines and healthcare products, to e-governance services and so on.  Not all but a substantial part of this is  related to State expenditure on poverty.

The third set is derived from State monopoly on scarce resources- land, forests, minerals, hydrocarbons, river waters, terrestrial and satellite spectrum, to list a few. While the relationship of these businesses to the Poverty Industry is indirect, poverty provides an umbrella justification for continuing monopoly ownership and control over the resource, and preventing local communities in whose habitats the resources are located, especially tribal groups, from claiming any ownership rights or any share of the benefits of commercial use of the resource. it is extremely important to keep local communities at bay and in a relationship of subordination and dependence to the State and its contractors/ collaborators. Maintaining poverty is vital to these interests as is resisting any genuine  transfer of political power to   communities and local governments.

The fourth set revolves around State subsidies, specifically subsidies on food grain, fertiliser, diesel, kerosene and LPG. These are very high volume transactions and the value chain is very long and complex offering opportunities for illegal gains and mediation at every stage- procurement/ import, transportation, warehousing, sorting, grading, packaging, wholesale distribution and retailing. The trade is conducted with  complete opacity almost entirely through State owned monopolies which allows everyone to pretend that there is a ‘social’ benefit being served and therefore the monopoly must be maintained. 

The fifth is in the related areas of  the controlled trade in certain essential commodities-- pulses, edible oils and sugar where periodic policy interventions are taken for the sake of price stabilisation  and/ or for protecting  and furthering farmers’  interests or the interests of poor consumers. Again a class of contractors and subcontractors, agents and middlemen effectively control the trade and run huge empires with very high levels of liquidity and abundant availability of cash- an extremely useful asset for maintaining a cosy relationship with the State apparatus and the political class. 

The sixth, relates to the business of credit for the poor- rural credit, farm credit, differential rates of interest credit, micro credit, credit for women, credit for micro enterprises, credit for artisans and craftspersons, credit for self help groups, co-operative credit - it is a business which runs into  many, many billions. There are many ways through which the flows are channelled to a chain of intermediaries, both outside the system and within, creating a new class of billionaires.


Ironically, farm sector credit often  become a means of strengthening and fattening the  same conventional money lender/ arhtiya who was sought to be replaced by the organised banking sector in the first place. What happens is something like this. A farmer needs finance for a variety of consumption needs during the year which are not necessarily related to agriculture. Farm loans from the commercial banks or cooperative credit institutions are available only for very specific purposes e.g mechanisation, pump sets for irrigation, fertiliser. The trade in these products and services is also controlled by the same arhtiya. This arhtiya helps his client farmer obtain a cheap loan by fabricating the necessary paperwork  for him and then converts it  into a cash loan at an extortionist rate of interest. As the farmer is now more bound than ever to sell his produce at harvest time  to the Arhtiya the risk of defaulting on repayment is minimal. This provides universal satisfaction. The credit institution can meet its lending targets and be assured of recovery. The moneylender gets to make money using someone else's funds. The farmer gets to meet his consumption needs so no one needs to complain.



The seventh is the alcohol trade- not the manufacturing, but the distribution and retail of it. The relationship  of this trade with poverty is only because  State policy interventions for  curbing alcohol consumption of the poor are seen as welfare measures, which require a control , licensing and taxation regime of incredible complexity and a vast staff infrastructure to administer this regime. The regulatory framework is quintessentially designed to leak and to provide maximum opportunities for, literally, siphoning off, vast sums through tax evasion. 





These seven business ‘verticals’, if they can be so called, share many common characteristics. Poverty provides the legitimacy, the social justification for their sustenance. Mass poverty also provides the volumes. The businesses are intimately connected with the State apparatus and in fact, are derived from it. They require State owned monopoly  organisations/ institutions to  ‘channel’ them and provide the cover for illicit operations. Most of the businesses are either carried out in cash or convert banking transactions to cash transactions through ingenious methods. All the income streams are through blatant tax evasion-income tax, vat, sales tax, excise,royalty payments, custom duties and therefore require a very close collusive relationship with the State machinery.Many of the businesses require the use of  criminal coercion and violence to quell resistance from the people as well as  from honest officials. All the businesses require the poor to be powerless and dependent on the State for their survival.

A significant feature of this perverse, State sponsored and State derived capitalism is that it is dominated by the owner/ promoter capitalist having a clutch of closely held companies, sole proprietor firms, partnerships or at best private limited, unlisted companies which rarely feature in the media. The main players remain in the shadows and are generally confined to life in private farmhouses,  only occasionally providing glimpses into their opulence. Their social circles are populated mostly by underworld musclemen, backroom politicians, sleazy bureaucrats and a bevy of ‘ladies of the night’. Many tend to be deeply religious and are major  cash donors to temples and little known religious trusts. Some occasionally dabble in the film industry. Unless their progeny bring them notoriety by smashing their BMWs or Lamborghinis or Porsches, they keep a low profile. Once they cross a certain threshold of wealth, acquired through collusion ( mostly illicit ) with the state machinery, some of them foray into legitimate corporate businesses- real estate development, hotels and resorts, malls and multiplexes, infrastructure contracts on a larger scale, energy -- being the favourites. Many continue to retain  the original, collusive, trading dominated, cash generation  opportunities even as they gradually shift focus to more respectable corporate businesses. The cash businesses are important to retain collusive control of politics and the corporate profile critical to gaining respectability and opening windows for success in legitimate enterprise. Many of today's corporate giants have grown in this fashion.


Two aspects of this perverse form of capitalism have to be highlighted. The first is the manner in which it reduces all politics to ‘realpolitiks’ such that underlying the text of any political issue is a subtext of greed, venality and  hard  nosed political horse trading. So differences  between political parties in political philosophy, ideology,  principles, values and strategy are completely hypocritical and opportunistic and meant only to mask the competition for gaining control over State power and the Poverty business. Most political battles, therefore, have value  primarily as a kind of charade played out to keep alive the pretense of fighting for principles and values. Indeed, the charade has a sufficient degree of realism to make some players believe that there is a genuine clash of philosophies, but the primary purpose of maintaining such differences is to ensure that each political formation/group retains the loyalty and allegiance of its  specific constituencies. However, these differences can be happily abandoned when it comes to the actual exercise of State power. Alliances between different political groupings can be formed and reformed, changed and shuffled  around with insuperable ease because everyone in the game knows what the ‘real’ issues are. Politics is therefore, intrinsically and inherently corrupt in the Indian context.

While this may be a universal phenomenon, the major difference with western capitalist societies is threefold.  Firstly, the larger share of capitalist development in those societies is on account of legitimate entrepreneurship  and technological innovation, unrelated to the State and most business opportunities lie outside the arena of the State. While sharp business practices, unethical conduct, insider trading, exploitative labour relations, irresponsible environmental  management and all the attendant ills of capitalism may be rampant, the businesses themselves are not derived from the State. The State may serve as an instrument for protecting and furthering class interests but it does not constitute a class by and for itself. Secondly, the realm of politics and public policy is a real world where differences in approach, in philosophy, in values actually matter and people vote on the basis of their own ideological/political perceptions. It matters, for example, what position a party or a candidate takes on taxation, on government spending, on gender, on arms control, on foreign policy and so on and differences do not disappear once votes have been won. In our context, on the other hand, such differences are a kind of shadow play and of no import once power has been captured. Thirdly, there is a vast sphere of social, economic and cultural activity in which the State has no role whatsoever. The realm of the Private is much bigger than that of the Public, unlike us where the Public sphere encroaches into every aspect of our daily lives creating a relationship of perpetual dependence on the State such that permissions have to be obtained for almost any and every human activity. The State dominates our minds in ways that are quite unthinkable there. It is this relationship of dependence that virtually guarantees the persistence of poverty as a permanent feature.

The second aspect that deserves being highlighted is the conundrum of ‘black money’. Conventionally, it is assumed that evaded taxes constitute the black economy and that most of this wealth  is  either spent on real estate, diamonds, gold  and conspicuous consumption or secreted away in tax havens abroad. The situation is a little more complex. There are those  who are engaged in regular business activities but do not like to pay taxes and therefore resort to various means of tax evasion - undervaluation of property, benami transactions, under and over invoicing of transactions,  but the main source of their revenues  are  legitimate business activities. The only illegitimate part is the evasion of taxes. Such businessmen maintain approximately 60 to 70% of their income in ‘black’ but most of it goes into either lifestyle related consumption or real estate or gold and diamonds.

This  kind of ‘black’ income sustains  a substantial part of our economy and through ‘conspicuous consumption’ such as opulent weddings supports the hand and cottage sector. It creates massive self- employment and independent livelihood opportunities and it enables the  conservation and the continued nurture  of hand based skills. A grand wedding, for example, generates very lucrative incomes for a vast number of people- from the person producing hand made paper for the invitation cards, the graphic designer, the wedding planner, the event management team, the dressmaker, the embroiderer, the weaver of fine fabrics, the tailor, the bangle maker and the bangle seller, the mehndi artist, the caterer, the cook, the waiter, the tentwallah, the ghorawallah, the brass band, the entertainers and the performing artists, the gift basket maker, and of course the producer/grower of fruit and vegetables and flowers, poultry, meat and food grains.One fat Indian wedding, thus, generates more useful and productive employment, nurtures and gives sustenance to non alienated, creative, skilled labour than a dozen leaky, wasteful and dependence creating poverty amelioration schemes. So ‘black’ money spent in the country and going into the  domestic economy  is actually more beneficial than ‘white’. A substantial part of the black money  consumption oriented spending becomes ‘white’ through the payment of taxes like VAT.

The second set of black money generators, on the other hand, are those  who have made their money through illegitimate activities, mainly by using their access to State power to siphon off and criminally misappropriate taxed resources. These ‘white’ taxed resources, therefore, are the ones which go into the secret chests of the political parties, the pockets of a bloated and corrupt officialdom and the hidden vaults of the captains of the poverty industry. As the bulk of this income is gained  through illegal and corrupt means it is necessary to secrete  it  to foreign tax havens. The bulk of the ‘black’ money in foreign bank accounts is, therefore, generated, I suspect, by these ‘white’ taxed revenues.




Lumping all capitalists as uniformly evil and not being able to differentiate between those who are a part of this nexus  between the State, politics and poverty and those who are not, can blunt the edge of any democratic resistance and subvert any genuine reform, however well intentioned it may be. Our tools of understanding of both Indian capitalism and the Indian State have to be honed substantially to be able to know whom to build alliances with and whom to fight against and what kind of reform strategies to formulate. This  parasitic form of capitalism, which feeds on and fattens itself on the State, prevents genuine capitalist growth, is infinitely more exploitative and completely perverts the political process. It has a strong vested interest in perpetuating poverty and in maintaining a constant and continuing state of disempowerment. Organised  industrial capital on the other hand requires  stable, effective demand and much lower levels of inequality for its growth. It is therefore a natural ally for carrying out reforms aimed at reducing the State and adopting non statist, market friendly instruments of growth and inclusion. 

Is there a way out ? Obviously, for poverty to disappear the following things have to happen- the stranglehold of the Big State on the economy and on politics has to go, the focus has to shift from State led ‘inclusion’  and devious redistribution to straightforward growth led by the organised corporate sector with the State confined to physical infrastructure creation; direct and conditional income transfers to the poor have to replace programmes guaranteeing  wage slavery and dependence; the poor have to be democratically empowered to find their own ways out of poverty with women  (in particular the girlchild)  forming the avant-garde; women have to be made the custodians of ecological and environmental assets and eco services and compensated for their stewardship; high technology interventions have to be used to mainstream the craft/ hand/ artisanal sector to economic growth  processes and new  business models designed to make decentralised, boutique units the principal means of value added production for localised markets as well as  for high value, eco sensitive export markets; communities have to have decision making powers with appropriate technological assistance in the use of natural resources available in their habitats.

 But why should an entrenched rentier State allow this to happen and why should it allow its rent seeking opportunities to be circumscribed? All that and more has to be the subject of another long essay. Suffice it say that there are emerging windows of opportunity in the resurgence of federalist and devolutionary impulses in the polity, demands for greater autonomy and more decentralisation, the ascendance of women as a political force and the growth of private sector industry unconnected with the State . How these trends can be made use of to forge new alliances towards transforming politics as well as economics is the real challenge.