In a stratified society such as India, trickle-down economics do not work. Even in a society such as the US, which has a much lower stratification compared to India, trickle-down economics has not worked well. Historically, India has been a very unequal society due to the caste system and gender inequality, with different subaltern groups having different levels of education. According to political scientist Christoph Jaffrelot, castes in India are tightly knit cylinders, with each floating inside a bigger cylinder wherein they don't interact with each other. In an imperfect market, such as India, caste networks provide vital economic and social support. Ninety percent of all techies in the US, 97% of the richest 200 Indians and 95% of Union Secretaries in the Indian government are from the upper caste.
On top of the caste-based inequality, India ranks the lowest — excluding a dozen Islamic nations — on gender inequality. The Global Gender Gap Index 2021, published by World Economic Forum, ranks India 140 out of 156 countries surveyed. The opening up of the economy in the ‘90s has only exacerbated these cleavages. As and when the Indian economy opened up, the upper castes, mostly male, with the right education, wealth and social network capitalised on the ensuing opportunities, furthering the already existing cleavages. However, Tamil Nadu, ruled by Dravidian parties, through targeted interventions, affirmative actions and by spending on education, has bucked this trend, with inclusive growth taking place.
Graph above shows how growth picked up in TN compared to rest of India
However, the mainstream media and public opinion often term such government schemes for the poor and marginalised as ‘freebies’. A further argument is made against those schemes stating how they make the plebeian lethargic and unproductive. This argument is often made by the elite upper class/caste of society.
One highly criticised Tamil Nadu government scheme was the issuance of colour television sets to every household by the then Chief Minister M Karunanidhi. It was seen as a tactic to lure votes ahead of the 2006 Assembly elections. The notion that televisions are pure entertainment devices only added fuel to fire against ‘freebies’.
However, research published in Oxford University Press' Quarterly Journal of Economics has associated the introduction of television in villages with positive externalities on women’s empowerment. The research conducted in Tamil Nadu, Delhi, Bihar, Haryana and Goa, evaluates the impact of television in the attitudes and behaviour of women. It concludes that the introduction of cable television is associated with significant decrease in the acceptability of domestic violence, preference for a son and fertility, as well as increases women's autonomy in the household.
The Tamil Nadu government’s primary objective for this program was to enable women, particularly in the rural areas, to acquire knowledge for social and economic development. From these research findings, it can very well be argued that this unique non-traditional strategy of the Tamil Nadu government was one of the most effective, targeted interventions of the Dravidian administration to uplift and empower women. Historically, the Justice Party, precursor to the DMK, played a big role in women’s empowerment.
Subsequently, three areas in which Tamil Nadu achieved tremendous success- helping shrink traditional cleavages of caste, religion and gender- are attainment of educational outcomes, healthcare and inclusive industrial growth.
Success in these three areas are intertwined. Commendable results were achieved in the field of education in Tamil Nadu by Dravidian parties through a slew of financial interventions (freebies)- such as free mid-day meal scheme, free bus pass, free cycles and free laptops- and affirmative actions- including both horizontal and vertical reservations. Along with free colour TV, schemes to remunerate women graduates among others have paid huge dividends in the attainment of the educational goals of women.
Tamil Nadu’s graduate enrollment ratio at 49% is one of the highest in the world (US 37%), and is way higher than the Indian average of 29%. Tamil Nadu’s emphasis on affirmative action can be seen from its protest against NEET. By reserving 69% of the seats for OBCs, SCs and STs — along with reservation for students from rural backgrounds — TN has ensured education for nearly each and every social group. In fact, affirmative action pursued by Dravidian governments since 1967 are emulated by leading universities across the world. France’s elite Sciences Po, which produces 90% of French Presidents, top diplomats and civil servants has rescinded the entrance exam on the basis of positive discrimination and now has an affirmative action program. The book 'Tyranny of Merit' by Michael Sandel also associates entrance exams with severe discrimination against the poor, leading to major Ivy League universities indulging in some form of affirmative action programs. Attainment of education for people belonging to different social strata has led to increased aspirations for people belonging to the lower end of the social spectrum. This aspiration, coupled with right developmental schemes, stimulated the entry of people from non-upper castes into bureaucracy and other professional fields such as medicine, law, journalism etc that were mostly occupied by the upper castes.
Again, if one looks at industrial development in Tamil Nadu, it is unique to India. Tamil Nadu is one of India’s most industrialised states, behind Maharashtra and Gujarat. Gujarat and Maharashtra may have high per capita income levels compared to Tamil Nadu but that is due to extraordinarily high accumulation of wealth in the hands of a few super-rich corporate houses. According to the Dravidian Model by M Vijayabaskar and A Kalaiyarasan, Tamil Nadu has achieved diversity in both spatial distribution (spread of industrial units for example in Tirupur/ Sivakasi/ Vellore) as well as caste-wise ownership of industries.
From the above charts, it can be evinced that OBCs have a much higher share in ownership than compared to other states in India. The Economic Census 2013-14 shows that one in every four small Dalit enterprises are located in Tamil Nadu. The reason for the same profoundly lies in development politics of Dravidian parties (referred naively as ‘freebies’). Positive externalities of ‘freebies’, affirmative action and other similar schemes have led to increased aspiration and social capital along with democratisation of capital, allowing for entrepreneurial growth among different caste groups.
In fact, to revive the Indian economy, Tamil Nadu’s economic policy along with social policy is what the Union government under the BJP has to emulate to achieve inclusive growth. As Nobel laureate Abhijit Banerjee and other economists say the only way to propel the economy is by putting money in the hands of the bottom 60%. Spending on the poor creates a ripple effect on the economy.
And this is exactly what the Tamil Nadu government under MK Stalin and Finance Minister PTR Thiaga Rajan have done, by offering Rs 4000 to every female member of every household in Tamil Nadu and waiving off bus fare for every woman passenger among other things. The Finance Minister's proposal to increase property taxes, also falls in line with what leading economists- such as Thomas Pikketty and Joseph Stiglitz- have been proposing, to tax capital. Such economic policies have been pursued in Tamil Nadu over the last six decades and have given the state extraordinary dividends. Another misnomer is to say that these developmental schemes(‘freebies’) have led to increased debt. If one analyses the white paper published by the Finance Minister on August 9, it notes that the state’s finances until 2014 was perfect and its debt and fiscal deficit were within permissible limits. It was only after 2014 and more so after 2016, that the state's debt and financial situation worsened mainly due to corruption, reckless spending and plain inefficiency.
Dravidian politics always strives to uplift the downtrodden and puts money in the hands of the poor and those left out of the growth story. The Tamil Nadu government’s announcement on August 13 to reduce only petrol price is a master stroke. The price reduction affects two-wheeler users- a large percentage of the population- so by reducing the price by Rs 3, it will increase their disposable income, thereby propelling demand.
A cut in diesel prices, however, doesn’t help as much. Diesel vehicles are mostly used by the rich - SUVs and luxury cars. The counter argument for the same could be that reducing diesel prices reduces the cost of essential goods. This is a misnomer as diesel prices only contribute to 40% of transport cost and will translate to 40% reduction in essential goods - that is provided the lorry owners association decides to reduce prices.
As per Keynesian economics when you put money in the hands of the poor, there is a multiplier effect in the economy. For every Rs 3 spent the actual impact on the economy is on an average three times more - that is Rs 9.
On the contrary, BJP’s policies, since forming government in 2014, has been debilitating to the poor and the middle-class. By taxing fuel heavily - Indians pay the highest percentage of their income on fuel - BJP has taken money from the hands of the poor. By reducing corporate taxes drastically, it has put money in the hands of the super rich, thereby increasing the structural inequality within the country. In fact, the overall dependence of the Union government on indirect taxes is hurtful to the poor and the middle class. To rub salt into the wound, the Union government under the BJP has gradually reduced the percentage of GDP spending on education.
As studies point out, increase in inequality has been associated with reduced GDP growth and increased unemployment. Therefore welfare schemes of successive Dravidian governments, focussed on reducing cleavages based on caste, religion and gender, have in turn helped Tamil Nadu achieve a GDP growth much faster than most Indian states.
Therefore, welfare politics of Tamil Nadu, cannot be touted as ‘freebies’ but as economic necessities to propel inclusive and sustainable growth.
Dharanidharan Sivagnanaselvam is an alumnus of University of Oxford and Paris Institute of Political Studies (Sciences Po, Paris). He is an executive coordinator at Dravidian Professionals Forum and Co-founder of Oxford Policy Advisory Group.
Bethanavel Kuppusamy is a technology and social entrepreneur based in Hyderabad. He is an alumnus of the Indian Institute of Technology, Madras.