India's informal economy

India Working: Essays on Society and Economy by Barbara Harriss-White; Cambridge University Press, Cambridge, 2003; pages 316, Rs.950.

BARBARA HARRISS-WHITE has been producing remarkable work for two decades in the varied field of development issues. Much of this work has drawn on insights from her fieldwork in northern Tamil Nadu and she uses these insights to illuminate important questions of wide relevance. In this valuable and provocative book she engages with a range of debates, drawing the reader into an intense argument right through the book's 300 pages. I found myself disagreeing with several of her arguments, but I learnt a great deal from each one of them.

The book is not an easy read. It is densely written and its heavily footnoted text draws on a vast and diverse array of academic research. However, it repays close attention from the reader. Harriss-White tries to do something that few development economists try to do - she attempts to set the economic data on India within its socio-political contexts. This is a task that mainstream economists do not even think of attempting since they are not willing to acknowledge that economic reality is very different from the abstract models they prefer to study. For this reason, Harriss-White's book deserves applause and wide readership.

The book's focus is on India's informal economy, what Harriss-White calls "the economy of the India of the 88 per cent". This term is used since more than 74 per cent of the population is rural and another 14 per cent lives in towns with a population below 200,000. The remaining 12 per cent lives in metropolitan cities (page 1). The informal economy generates 90.3 per cent of all livelihoods in India and 60 per cent of the country's net domestic product (page 5). Her study of the informal economy leads us, as well, into the country's black economy, with which the informal economy overlaps at several points.

Harriss-White's central argument in the book is that "the social structures of accumulation" in India create "the matrix through which accumulation and distribution take place" (page 13). She argues: "In the India of the 88 per cent, it is clear that a range of non-State social structures, and the ideas and cultural practices attached to them, are even more crucial for accumulation than they are in industrial societies. Six, in particular, are explored in this book: the structure of the workforce, social classes, gender, religion, caste and space" (page 15). Thus her book has ambitious goals - she tells us that it seeks "to describe and analyse the economy of India's 88 per cent" by examining the socio-cultural and political elements of "the social structures of accumulation". It also hopes "to contribute, however modestly, to the analysis of contemporary capitalism" in India (page 15).

Harriss-White draws primarily on data on small-town India, arguing that this is where one can best examine "the non-corporate (economy) in which 88 per cent of Indians live and work" (page 239). To delineate the micro-economies of small-town India where the "intermediate classes", who are her main focus, reside, she draws on her own field research from northern Tamil Nadu.

Harriss-White's research on the local economy, seen within its cultural matrices, is insightful. This "field economics", focussed on the business classes in their daily dealings with each other, with their workforces and with the local state, reveals the ways in which the local economy is very tightly - though "informally" - controlled and regulated by these mercantile business classes. Her detailed documentation of the business methods of these "intermediate classes", shows the ways, mainly hidden but sometimes brazen, by which the state's control is neutralised and rendered harmless, competition is eliminated, and new entrants kept out of the market.

Harriss-White argues that throughout India small-town and rural economies are dominated by these intermediate classes, which are constituted by "a loose coalition of the small-scale capitalist class, agrarian and local agribusiness elites, and local state officials" (page 241). The interests of the intermediate classes are significantly different from those of corporate capital. Harris-White argues that the former "directly appropriate the returns to rents of all kinds and are able to do this through oligopolistic collusion in markets and through structures of regulation that remain hardly touched by liberalisation. They connive with local officials to secure the protection of rents and of the state resources they capture. They seek state subsidies, but more importantly they secure beneficial concessions by influencing policy in its implementation.... Their evasion of tax is the equivalent of a major subsidy to [their] mercantile accumulation, while depriving the state of capacity and legitimacy" (page 241).

Harriss-White argues that it is these intermediate classes that are, in fact, the dominant segment in India's economy. She defends this thesis by arguing that the informal economy, in which the intermediate classes are hegemonic, "accounts for two-thirds of Gross Domestic Product (GDP)" and that "at least half of the informal economy is `black'" (page 246). This is why she characterises the informal economy as "anti-social" - it is regulated by the intermediate classes and ruled by their narrow values based on self-interest.

Harriss-White further argues that the size of the intermediate classes is growing and a "new wave of small capital, based on primary accumulation, is reinforcing and expanding the informal and black economy, intensifying the casualisation of labour and transferring the risks of unstable livelihoods to the workforce" (page 246). The severely exploited labour force is radically subordinated and "labour is regulated through the social structures of gender, religion and caste, and of local markets" (page 241). Her study of the local hegemony of the intermediate classes leads her to conclude: "Fraud and tax evasion are part and parcel of Indian capitalism.... The bulk of the economy is beyond the direct control of the State... . Countering this literally anti-social economy calls for the emergence of a more robust and active culture of collective accountability" (page 247).

It is impossible to do justice to the richness and complexity of this book in a short review. Among the many interesting issues that it raises are arguments relating to the impact of India's religious pluralism on the structure of its economy and the question of whether capitalism in India is proving to be the "social solvent" that it was widely expected to be (page 245). A major contribution of this book is its discussion of the debates on "industrial clusters" (or "industrial districts") in India. Here Harriss-White argues that the overly positive view of "industrial clusters" and "flexible specialisation" in India, that currently prevails, is quite mistaken. Her arguments here are well taken. She points out that industrial clusters are a common, not exceptional, form of development in India. Low technology is usual in these industrial districts. Contrary to what cluster theory enthusiasts, whose numbers are growing, claim, most industrial clusters do not have the "developmentally positive potential" (page 208) shown by highly exceptional clusters like Bangalore and Tirupur. In fact, most industrial clusters in India excel in the "super-exploitation" of workers, especially women and children (page 222).

Importantly - and this is a fact that cluster enthusiasts often choose to ignore in studied silence - a lot of field research shows that entrepreneurs demonstrate "a complete disregard for anything other than private profit". This, coupled with "the inadequate and negligent enforcement of effluent standards" by the co-opted state, has resulted in vast tracts of agricultural land being rendered unfit for agricultural use, while large sections of local populations have been deprived of their sources of drinking water, because these are now toxic (page 237). In Tamil Nadu such disasters have occurred in the Palar Valley (due to tanneries) and in Tirupur (due to the hosiery industry). The state has remained indifferent or slow and extremely reluctant to act against the entrepreneurial class (page 237), with whom it is in close collusion. The result is that the burden of these "negative externalities", created by highly profitable (and much admired) industries, falls, crushingly, on those least able to bear this environmental disaster - the virtually disenfranchised rural poor.

The book's postscript turns to the contemporary political context. Entitled, "Postscript: proto-fascist politics and the economy", it examines "the key elements of fascism" and "the class origins of fascism" in order "to evaluate the prospects of fascist currents in India" (page 253). While this is helpful, even more interesting is Harriss-White's argument, made at several points in her main text, that, in the final analysis, it is likely to be economic reasons that lie behind Hindu communal attacks on Muslims, even though these are camouflaged and covered up in political rhetoric about "religion" and "Hindutva". This argument is extremely persuasive, especially given the fact that anecdotal evidence so far suggests that this was the motivation behind the Bharatiya Janata Party's supervision of the shocking pogroms against Muslims in Gujarat in 2002.

Harriss-White's book, with its pragmatic, undeterred attention to the unlovely realities of the structuring forces behind the economy, is a wake-up call. It documents the strength of the powerful political and institutional forces that rule the economy today, in unholy alliances that have institutionalised corruption and fraud, making them an accepted, everyday part of the economy. These hegemonic forces have created almost overwhelming obstacles to the possibility of "democratically determined accountability" (page 247).

But, though overwhelming, these forces and their "anti-social economy" can and must be challenged. To do so requires, as a first step, a dispassionate recognition of the reach and nature of the ugly political and economic realities that encircle us. In this task this book is a useful guide.