4.2 Material capabilities
4.2.2 India: struggling out of a macro-economic crisis
After faltering and unsustainable reforms in the 1980s under Indira, and then Rajiv Gandhi, a severe macro-economic crisis hit India in 1991 – one that might have been weathered had India’s economy had a more stable fiscal base (Joshi & Little, 1993). The 1991 crisis manifested most noticeably in a decline in the valuation of the Indian currency against major foreign currencies through the first half of 1991 (Cerra & Saxena, 2002), a rise in the rate of inflation above 10% and an increase in the government’s fiscal and current account deficits (Joshi &
Little, 1994; Srinivasan, 2011). These factors culminated in a sharp drop in the country’s GDP from just below 6% in both 1989 and 1990 to 1.056% in 1991, as can be seen in the white section of Figure 15 below.
Figure 15: India’s GDP growth between 1987 & 1994
Source: Own graph based on data from World Development Indicators, World Bank (2015)
The increase in the current account deficit was brought on by three interconnected factors centring on the first Gulf War of 1991 and the collapse of Eastern Bloc markets following the collapse of the Soviet Union. The Indian Government’s reaction to the first Gulf War was to anticipate a rise in oil prices and buy considerable quantities on the spot market, which had the effect of draining the foreign exchange reserves (Ganguly & Pardesi, 2009). In addition, India not only had to foot the costs of repatriating over 100 000 workers from the Persian Gulf, but in
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so doing it also lost the foreign exchange remittances they provided when working overseas.
The dire financial straits in which these factors left India were compounded by the loss of Eastern European export markets – up to a 40% decline – brought on by the collapse of the Soviet Union at the end of the Cold War (Joshi & Little, 1993; Ganguly & Pardesi, 2009).
However, several authors have pointed to these exogenous shocks as being necessary, but insufficient, to cause the dramatic upheavals that followed (Joshi & Little, 1994; Ganguly &
Pardesi, 2009). Indeed, the liberalisation reforms were ushered in with a relatively small support base of pro-business and government interests – evidenced by, for example, crucial industrial-policy reforms being enacted by executive decision instead of through Parliament (Kohli, 2006).
Finance Minister Manmohan Singh introduced a range of “systemic reforms” to the economy over and above those required by the IMF and World Bank to which India had turned for financial assistance during the crisis (Srinivasan, 2011). As a result of the variety of interventions, India’s GDP strengthened between 1991 and 1994, as can be seen in Figure 15 above. Two concurrent geopolitical events may be considered as influencing Singh’s systemic reforms as opposed to more piecemeal reforms of the 1980s. The first of these two events have been alluded to above; the collapse of the Soviet Union undermined the India state’s longstanding application of a Soviet-style central planning model and heavy-industry based industrialisation strategy (Srinivasan, 2011). The rise of India’s great rival, China – apparently as it opened its economy to the world – can also be inferred as a pertinent factor motivating the extensive scope of the reforms. China had lagged behind India in per capita income, but this gap was rapidly closing (Srinivasan, 2011). Thus this period of reform was seen as a potential crossroads for the Indian economy – with one route leading to greater growth at the expense of human development, especially the poor, and another path leading to pro-poor growth with equity between people as a major driving force (Basu, 1993).
Robert Cox’s definition of material capabilities extends beyond the fiscal standing of a country to include the broader material circumstances faced by people. One measure of that is GDP, but arguably it is worth considering more indicators for a finer-grain picture. Below a selection of indicators draw a more complex picture of the material capabilities of the first phase.
The Human Development Index (HDI) is an institutionalised embodiment of this idea; indeed the UN Development Programme’s website states that “[t]he HDI was created to emphasize that people and their capabilities should be the ultimate criteria for assessing the development of a country, not economic growth alone” (UNDP, 2015a). As such the HDI is a composite
measure of three major dimensions, namely, the experience of a long and healthy life, the possibility of the attainment of knowledge, and a decent standard of living. The mean of the assessments of each dimension is expressed as a number between zero (extremely poor performance) and one (excellent performance). Countries are grouped into one of four categories: low human development, medium, high and very high. At position 135 out of the 187 countries analysed, India is towards the bottom end of the medium human development category. Historical figures are only available for the years 1980 and 1990, but these show a moderate improvement from 0.369 in 1980 to 0.431 in 1990. India’s improvement largely tracked the improvement of the South Asian regional average, although it was distinctly below the regional trend line, as can be seen below in Figure 16 (UNDP, 2015b).
Figure 16: UNDP Human Development Index trend from 1980 to 2013 Source: Own graph based on data from UNDP (2015b)
Given India’s low score on the composite Human Development Index, it is unsurprising to find that in 1988 more than half of the population (53.59%) lived below the international poverty line of US$1.25 a day (at 2005 international prices). Although data is not available for every year in this phase, the economic recovery of the 1992-1994 period brought down the percentage to just under 50% by 1994 (49.4%) (World Bank, 2015).
One example of the material circumstances of people is their access to sanitation facilities.
When figures begin in 1990 under a fifth of the Indian population had access to some kind of
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sanitation facility (a broad definition including flush/pour flush systems, pit latrines and composting toilets), and this number increased by less than 3% between 1990 and 1994 (World Bank, 2015). Another useful indicator of the populace’s material capabilities is the distribution of income across the population – an indication of the relative equality within the country. Data captures the immense disparity between the income earned by the top 20% of the population – over 41% of total income earned in 1988 – and the approximately 9% earned by people in the bottom quintile. In fact the disparity is such that in this phase the bottom 60% of the population cumulatively earned less than the top 20% alone (World Bank, 2015). What is noteworthy is that this ratio of earnings remained fairly stagnant throughout the first phase (figures are available for 1988 and 1994), not only between the highest and lowest quintiles, but across the spectrum.
This would indicate that domestic measures to address inequality were having very little effect in redistributing income across the population.
Energy is central to any economy as it is intrinsic to production of goods and services. Much like other developing countries (and indeed many developed countries) at this point in history, fossil fuels dominate the energy mix. Between 1988 and 1994 the percentage of fossil fuel consumed shows a slight upward trend but remains between 50% and 60%. Net energy imports15 as a percentage of energy use also increased – 5.68% of fuel used was imported in 1988 and this amount almost doubled to 11.81% in 1994. The contribution to the mix made by alternative, or clean, fuels and nuclear energy is negligible and remains under 5% for the duration of the phase - a trend in keeping with much of the rest of the world (World Bank, 2015).
The final graph in this sub-section is of the Greenhouse Gas (GHG) intensity of the economy:
the amount of emissions produced in order to produce one unit of GDP. Data are currently only available from 1990 to 2011. In 1990 India produced 687 tons of carbon dioxide equivalent (CO2e) gas for every million dollars of GDP produced; by 1994 this had been reduced to 662 CO2e – an indication that the economy was becoming more efficient at using fossil fuels to create GDP.
15 Net energy imports are the estimated energy use minus a country’s production of energy
Figure 17: Emissions Intensity of the Indian economy
Source: Own graph based on data from Climate Analysis Indicators Tool (CAIT) (World Resources Institute, 2015)
In this initial phase of the emergence of the climate regime, India is still very much a developing country shackled by domestic material constraints, as evidenced by indicators such as its low HDI ranking, low provision of sanitation facilities which are combined with high levels of poverty and income inequality. Characteristic of this phase is that material capabilities are inversely correlated with ideas – Manmohan Singh’s ideas of liberalisation are driven to a large extent by the lack of resources in the form of fiscal and current account deficits, etc. in other words, the very lack of material capabilities had an effect on the ideas prevalent at state level.
India’s economy was still essentially (despite reforms begun in the 1980s) an inward-looking import-substitution economy, and thus when subjected to a range of exogenous shocks emanating from the international arena in the form of oil price increases, loss of remittances and markets and so on, a macro-economic crisis developed. These exogenous shocks were necessary, but not sufficient, to bring about ideational change at the national level of the Indian state in the form of liberalisation. What tipped the state in direction of liberalising its economy and opening it up (however cautiously) to globalising forces were the ideas of a small elite within the newly elected (in 1991) government of Narasimha Rao. In Cox’s terminology these ideas could be thought of as an example of coherent patterns of thought of a smaller collective, because at this point the idea of liberalisation was not yet pervasive enough to be considered
“common sense” and defined as Cox’s other type of idea – that of the intersubjective or commonly shared mental image (Cox, 1981). Indeed commentators noted that the reforms of 1991 were introduced without much popular support and with contestation from both the left
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Figure 18: Intergovernmental Negotiating Committee meetings, venues and dates - also shown on Figure 10 above
and right wings of the political spectrum (albeit for different reasons), which are both characteristics of Cox’s second kind of ideas, namely ideas that are images originating from within groups or collectives.
India’s noted lack of material capability at national level very evidently contributed to shaping its ideational stance toward climate change at the international level. It justifiably viewed itself as a poor country, and furthermore as a poor country that had not contributed to the problem it was now jointly facing with other countries. India’s very low per capita emissions, not rising above 1.3 tons of CO2e annually in this phase (see Figure 10 above), were among the lowest in the world and in the vicinity of sub-Saharan Africa figures. India’s lack of material capability also caused it to remain more inwardly focused – toward all the poverty-related challenges it faced – instead of looking outward to the international community and its place therein.