Outlook Business February 2024

Marx is Dead. Long Live Surplus Value of Workers. Ideals of the proletariat, their commune and a proletariat dictatorship lay fossilised as painful photos of scores of migrant labourers walking many hundred miles to reach the safety of their village hit headlines in India in the early days of the first wave of Covid-19 in 2020. An indifferent bourgeoisie sat in the comforts of their home debating the timing of the national lockdown, letting out an occasional sigh for the unfortunate workers, while the migrant labourers walked across the country, fleeing not from a killer virus but something far deadlier than that: state apathy. These workers, mostly from the hinterlands of eastern and central India migrate in hordes every day from their villages to the western or southern states in…

Twenty-four-year-old Ajay Kumar is in a state of quiet anticipation. His short-lived vacation at his native village in the Purnea district of Bihar is soon coming to an end. In a matter of days, he must leave his family behind and make an eight-hour bus journey to the state capital Patna. From there, the young labourer will board the Sanghamitra Superfast Express, which will take him to the southern metropolis of Bengaluru in Karnataka. The 44-hour-long train journey will move Kumar from an annual per capita differential of around Rs 1,33,692 when it takes him back to a city where he cannot speak the local language and will have to toil 12 hours every day at a tile factory. But, for the promise of a better tomorrow and supporting his…

A finance commission, constituted under Article 280 of the Constitution for making recommendations for generally a five-year period, tells the Union government to redistribute tax revenues between the Union and the states according to the methodology prepared by it. For the states, the finance commissions’ devolution formulae, particularly the weight given to the states' population, often turn into a bone of contention. Figure 1 below depicts how various finance commissions tweaked their overall devolution formulae over the years to account for the changing dynamics among the states. The Thirteenth Finance Commission’s compilation of the reports of previous finance commissions has been relied upon to adjust for the changes in state boundaries brought about by the States Reorganisation Act, 1956 – The ordinals in the coloured rectangles above mean the respective…

Comment on the correlation between regional wealth generation and policymaking in India. The traditional story is that coastal areas benefitted from economic liberalisation due to ease of exports. This is emphatically not true for India; exports have not been a driver of growth or prosperity post 1991. The one exception was IT exports which has undoubtedly driven growth in Karnataka, Tamil Nadu and Telangana. But the main story is structural. Post 1991, India’s growth was marked by an increase in the share of services in GDP as well as an increase in the share of profits (at the expense of wages). Maharashtra, Gujarat and, to some extent, Tamil Nadu benefitted from these structural changes as the capitalist class and the financial sector were located in these regions, especially in the…

What explains the higher prosperity of western India in comparison to the eastern region? The historical root goes back to the British East India Company introducing the feudal zamindari system in the late 18th century in Bihar, Uttar Pradesh, Bengal, Odisha, Madhya Pradesh and Andhra Pradesh. The property rights of farmers were taken away. Zamindars prospered through revenue extraction from farmers. Not to forget the manmade catastrophe of the Bengal famine of 1943 that left approximately three million people dead, and destabilised and emasculated the agrarian economy of the east. In contrast, the British East India Company introduced the ryotwari system in Bombay and Madras presidency, which gave property rights to farmers who remained entrepreneurial, devoid of any feudal intermediation. One of the differentiators between eastern and western India is…

When foreign direct investment (FDI) started to flow into India’s liberalised economy, only a handful of states benefitted from the surge in investor interest. Foreign investors largely pumped funds into the growth hubs in southern, western and northern India, remaining indifferent to the central and eastern regions $295.17 BILLION is the total FDI inflow in India between October 2019 and September 2023. Maharashtra, Gujarat, Karnataka, Tamil Nadu and Delhi received a whopping 88% of this inflow! FDI share of states that benefitted the most from inflows between October 2019 and September 2033 Between FY2001 and FY24, India received $953.14 billion in FDI Figures for FY23 are provisional Figures for FY24 are up to September 2023…