Globalization and Economic Injustice in Modern India

This book is about the informalization of formal-sector jobs in India, that is, the transfer of jobs out of India’s modern industrial sector into an employment sector which is almost wholly unregulated. Rohini Hensman attributes this change to government policies which discriminate in favour of small-scale production and the informal sector and which encourage the relocation of factories to areas with weak union presence, rather than to globalization as such. As she points out, the policy framework which facilitates informalization, and the consequent shifts in employment patterns, both started to develop in the late 1970s and have continued ever since. Thus informalization of employment in Indian industry predates globalization, though the process did speed up in the late 1990s. Hence, primary responsibility for the worsening of employment conditions in Indian industry, attendant on informalization and casualization of (at least partially protected) formal-sector jobs, lies with successive Indian governments, rather than with pressures unleashed by the integration of the Indian economy with global trade and capital flows in the 1990s.

This argument is unexceptionable but also, I believe, inadequate. Integration of an economy as large as that of India with global commodity and capital markets necessarily leaves a large amount of discretionary policy space open to national government. This is especially so when capital inflows and outflows constitute a very small part of aggregate investment, and commodity trade a rather minor proportion of domestic output. In 2012, when its Gross Domestic Product (GDP) was approximately $2 trillion, India imported commodities worth $500.3 billion and exported commodities worth $309.1 billion (Central Intelligence Agency, World Factbook). The import bill for oil alone stood at about $140 billion in 2011–12. Thus, after more than two decades of globalization, exports accounted for only about 15% of India’s GDP, while imports constituted less than a quarter of domestic consumption and investment taken together; value of imports of goods and services other than petroleum products amounted to less than a fifth. At 30% of GDP, gross fixed investment constituted about $600 billion in 2012, but total Foreign Direct Investment into India was only around $10 billion. Hence international pressures, whether in the form of import competition, export exigencies or domestic presence of foreign investors, affect only limited segments of the Indian economy to any significant extent even now. It follows that what afflicts workers in Indian industries can hardly be explained without giving the pride of place to policy stances actively and deliberately chosen by successive governments in India, when other policy stances were indeed feasible.

Seen in this light, Hensman’s central argument is clearly right. Yet it suffers from two major inadequacies. First, it does not explain why the pace of informalization and casualization picked up substantially after liberalization of the external sector. Second, it does not explain why successive governments in India chose to favour the small-scale sector through discriminatory tax, credit and labour policies, to the detriment of large-scale organized capital and labour. Without an understanding of the causal linkages between trade and capital-market deregulation on the one hand, and greater informalization of formal-sector jobs on the other, trade-union and progressive strategies for better work conditions are left bereft of a coherent position on trade issues. Without an understanding of the political economy of state support for the small-scale sector in India, these actors are left without a coherent long-term political counter-strategy.

Trade liberalization did indeed cause substantial job losses in many import competing sectors. The effect was delayed for a few years immediately after the first round of import liberalization in the early 1990s due to the sharp depreciation of the rupee, which provided a limited and temporary reprieve to domestic producers. The exchange rate for the Indian rupee declined steadily from about seventeen rupees per US dollar in 1990 to around forty-one by 1998. However, globalization involved not only trade liberalization, but also...