For years, India has had its own growth model. One powerful engine of that model was primitive accumulation. Land was acquired at throwaway prices, while natural resources were practically gifted away to crony capitalists.

Another engine of accumulation was an endless supply of cheap underemployed labour, which kept wages down. A third engine has been light taxation of the rich, especially on capital gains and dividends. A fourth one has been pre-empting the resources of state-owned banks to prop up cronies.

Many other developing countries have similar economic regimes. Some of them make no bones about the outcome. Deng Xiaoping, who had the merit of not mincing his words, is reported to have said, “Let some people get rich first", when he embarked on his programme to liberalize the Chinese economy.

All economies need to accumulate capital for growth. England did it through the enclosure of common lands. The imperial powers did it through pillaging their colonies. The Soviet Union expropriated the kulaks. Modern China does it by a thoroughgoing system of financial repression.

The politics of development is nothing but the tussle about from whom the surplus is extracted and who appropriates the surplus. There has always been resistance by those who are dispossessed, from agrarian revolts during the enclosures in England to protests by workers in present-day China. The difference is that India is attempting development with all the constraints of a full-fledged democracy.

Thanks to democracy, the state has been forced, because of electoral considerations, to redistribute a part of the surplus.

Social welfare programmes and subsidies are also full of leaks, which serve the purpose of keeping the political patronage network functioning smoothly, while facilitating the process of primitive accumulation.

A similar logic is at work in the numerous laws that exist only in the statute books and are not implemented—they allow the essential process of capital accumulation to take place unhindered, while paying lip service to democracy. The reference to socialism in the preamble to the Constitution is a shining example.

There has always been a tension between the two objectives of accumulation and social amelioration. In the decades after independence, the growth objective was sought to be led by the state, aided by big capital. This went side by side with attempts to try and protect petty producers, both peasants and small industry.

The state was unable to cope with these contradictory demands, leading to a ballooning of the fiscal deficit in the late eighties and the crisis of 1990-91.

After 1991, the private sector came out from behind the skirts of the state and took over the task of leading growth. Indian capital also plugged itself into the global circuits of accumulation. The economy became more open, more competitive and more productive. Growth also trickled down to the masses and a dent was made in poverty.

By the early 2000s, savings and investment rates moved up sharply, laying the basis for future growth. Foreign portfolio capital began a love affair with India, sending stock markets soaring. Small wonder that the National Democratic Alliance government in 2004 declared that India was shining.

But the elections of 2004 suggested that all was not well. The India Rural Development report of 2013 points out: “Due to the widespread crisis in the agriculture sector between 1997-98 and 2003-04 and stagnation in wages and farm earnings, households were forced to look for other sources to supplement their income." A paper by Ashok Gulati says real farm wages declined during 2001-07.

The United Progressive Alliance government that came to power in 2004 started putting in place a safety net for the poor. As long as the global economy boomed and capital flooded into India, the money could easily be spared.

That didn’t mean, however, that the fights over resources were resolved. On the contrary, they became even sharper. Land, mining rights, special economic zones, forests, water, the environment, all became the loci of conflicts. Civil society agitations fanned popular anger over crony capitalism.

The state was forced to introduce legislation that mitigated some of these problems. Subsidies were increased, but the bulk of the increase was in oil subsidies, which benefited the rich far more than the poor. And for recalcitrant tribals unwilling to adjust to the new economy, there was always Salwa Judum.

The trouble started when the global financial crisis hit. Growth fell, tax revenues went down and tax concessions to spur growth bloated the fiscal deficit. At the same time, the welfare measures of the state and central governments, together with high growth in construction in some of the poorer states, led to real wages going up sharply.

The contradiction between accumulation and social welfare, papered over during periods of high growth, is now out in the open. Stubborn inflation is one symptom. Another is the long list of tax demands on businessmen and foreign companies.

Fig leaves have been thrust aside, the knives are out and they will be used mostly against the Congress. Big business is openly supporting Narendra Modi, the prime ministerial candidate of the main opposition Bharatiya Janata Party.

How can the contradictions be mitigated? A revival in growth will certainly help, but it’s likely that 9% plus growth was an aberration, brought about as a result of a debt-fuelled global binge.

The problem is that the scope for primitive accumulation has been narrowed, crony capitalism is now more open to scrutiny, civil society has become far more articulate and the masses now feel a sense of entitlement, at a time when there is no fiscal room.

Reviving the accumulation process under these circumstances is not going to be easy.

Manas Chakravarty looks at trends and issues in the financial markets. Your comments are welcome at capitalaccount@livemint.com

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