(FROM Crisis of Neoliberalism and challenges before Popular Movements)
Behind periodic crises, said Marx more than 160 years ago, lurks a complex interplay of myriad forces, the most important being “the epidemic of overproduction” or overaccumulation of capital going hand in hand with increasingly skewed distribution of income and wealth.
Marx showed that capital’s frantic endeavour to overcome inherent constraints like mass poverty and inadequate demand leads to artificial credit-induced “forced expansion” or bubbles, which get deflated sooner rather than later. But this false prosperity built on debt always bounces back in the shape of sudden crisis – much like a rubber band getting stretched and snapping back – resulting in a recession/depression. Essentially, that is what has been happening with remorseless regularity, especially since the onset of the neoliberal policy regime.
Marx developed a perfectly dialectical approach to crises. On one hand, they constitute capitalism’s inbuilt mechanism for spontaneously and ruthlessly eliminating excess or over-accumulated capital, ‘so that the cycle would run its course anew’ (Capital). On the other hand, they achieve this in a manner that ‘paves the way for more extensive and more destructive crises, and diminishes the means whereby crises are prevented’ (Communist Manifesto) and leads finally to the ‘violent overthrow’ of the rule of capital (Grundrisse). It is from this approach that we have tried to comprehend the crisis of neoliberalism.
The central message emanating from the latest financial catastrophe and its aftermath is that global capitalism’s strategic response to the crisis of 1970s has failed. That was a three-pronged strategy comprising deregulation or market fundamentalism, globalisation and financialisation. Since these were the three pillars on which post-1970s capitalism stood – and, in certain parts of the world, flourished – the extensive damage they have suffered have left the whole imposing edifice tottering. This is why there is no end to aftershocks like the European Sovereign Debt Crisis. This is why, full five years after the onset of the crisis, the world economy is still in the doldrums.
But even a systemic crisis like the present one does not necessarily mean that the system is going to collapse anytime soon. The question is, who will bear the burden of the stubborn recession into which the financial catastrophe of 2008 metamorphosed? The common people? Or the big banks and corporate honchos – responsible for the breakdown yet bailed out by governments? An intense struggle to decide this all-important question is now going on across the world in multiple forms – intellectual debates, street battles and parliamentary struggles.
All of us must join the fight with all our might, for a rollback of the neoliberal policy regime and progressive reform now and ultimately for revolutionary transformation of this irrational, oppressive, inhuman social order.”
Did you think India will ‘shine’ again if somehow – say by wooing FDI, cutting subsidies and further opening up of the economy – the yesteryears’ high GDP growth could be brought back? And that will make us a happier people?
Think again. And get the basic facts right.
The current crisis notwithstanding, our country is considered an IT superpower with one of the world’s highest rates of growth in the number of dollar millionaires and billionaires, and Indian corporates spreading their wings in global skies. Affluent India revels in conspicuous consumption and unbridled accumulation. But the massive foundation that produces all the wealth remains mired in the dark depths of deprivation. Such cruel contrast, it is necessary to note, is a direct result of our highly skewed development strategy. As the Global Hunger Index 2012 Report says, “Between 1990 and 1996, GHI score [a lower score indicates lower incidence of hunger, and vice versa – A Sen] was falling commensurate with economic growth. After 1996, however, the disparity between economic development and progress in the fight against hunger widened... In two other South Asian countries – Bangladesh and Sri Lanka – GHI scores were also higher than expected but decreased almost proportionally with GNI per capita growth.... China has lower GHI scores than predicted from its level of economic development. It lowered its levels of hunger and under-nutrition through a strong commitment to poverty reduction, nutrition and health interventions, and improved access to safe water, sanitation, and education. ... India ranked second to last on child underweight out of 129 countries— below Ethiopia, Niger, Nepal, and Bangladesh. ... [W]omen’s poor nutritional status, low education, and low social status undermine their ability to give birth to well-nourished babies and to adequately feed and care for their children .... According to surveys during 2000–06, 36 percent of Indian women of childbearing age were underweight, compared with only 16 percent in 23 Sub-Saharan African countries...”
Well, such are the consequences of two decades of economic reform carried out by successive governments at central and state levels. So nothing short of a total rollback of the neoliberal policies imposed on us in the name of reform and development will lift India out of the morass. That, of course, should not mean a return to the bad old days, a new opening is always possible. An inclusive, egalitarian, gender-just, environment-friendly policy framework must replace the current devastating policy regime, which pushed the advanced capitalist countries into a severe crisis a few years ago (the recession and other problems are far from over) and is now doing the same to India.
Obviously, such a fundamental change can only be achieved through a hard, protracted struggle. Let us rise to the occasion, let us join this urgent battle.
AROUND 2004 the Indian economy finally seemed to take off – like a huge Dreamliner – and in three years reached the zenith of around 9 per cent plus growth rate. In 2008 it seemed to be passing through an air pocket and experienced a rude shiver, but somehow managed to get out of it. But the respite proved to be short-lived. By 2011 it was coming down, like a leaky hot air balloon. The descent, unlike the sudden crash of the US economy in 2008, was slow but sure.
The deadly combination of stagnating growth and persistently high inflation makes India a particularly negative story among emerging economies. While GDP growth rate remains below 5%, with industrial production in the organised sector contracting by 1.8% during October 2013 compared with the corresponding month of the previous year, the month-on-month retail price inflation touched 11.24 per cent in November 2013. In both cases, most disturbing was the element of consistency: October was the 12th consecutive month showing poor industrial growth, while the rate of retail inflation had been rising continuously from its already high level of 9.52 per cent in August 2013. Worse still, inflation was no more restricted to food items but was visible in both manufacturing and services.
Seen against the 9% average of 2003-08 and the initial aspiration of 9% plus for the 12th plan (2012-2017) period, the growth figures are extremely disappointing. That this is a consistent trend will be evident from the following summary of the growth profile made available by the Central Statistical Office on 31 May 2013.
Most worrisome perhaps is the rapid decline in the growth of gross fixed capital formation: from 15.0% in 2010-11 to 4.4% in 2011-12, and to 1.7% in 2012-13. This seems to suggest that a real turnaround is not likely any time soon.
Continuing its steady decline over the past one year and more, the rupee breached the “psychological benchmark” of Rs 60 to the dollar on June 26, touching an all-time low of Rs. 64.13 to the dollar on August 20, before settling down to Rs 63.25 at the end of the day. The same day in August it also breached the Rs.100 to the British pound benchmark and the euro too jumped to Rs 84.66 (from Rs 69.77 on April 2) to the rupee. On August 28 it hit a new record low of 68.85 against the dollar. Since then it has been hovering around Rs 61- 63 to the dollar, which is still about 12-14 per cent lower compared to last year.
The government, of course, is putting up a brave face. It seeks to hide the fact that the weakness of the Indian currency is not a passing shadow, that it is a reflection of the country’s bad economic performance in an overall sense as expressed in so many indices like the sharp fall in GDP growth rate.
In a more direct or immediate sense, the nosedive in the value of rupee stemmed from the widening current account deficit (CAD) on India’s balance of payments (BoP) on one hand and the burgeoning external debt on the other, both of which contribute to dwindling international investor confidence and had already provoked an exodus of foreign investment. The number of PE (private equity) investors in India from abroad has shrunk by 20% over the last two years. In FY (financial year, which is counted in India from April to March) 2012-13, Foreign Direct Investment (FDI) was down 38 percent from 2011-12. As per the simple rule of demand and supply, the short supply of the dollar – the international currency – makes it dearer in rupee terms, while increased speculative activities on the currency markets in crisis periods make matters worse.
As for the galloping CAD, two major factors are notable. First, a near 90% jump in annual gold imports (this by itself is suggestive of an economy in doldrums, because the yellow metal has always been the preferred asset of wealth-holders in times of extreme uncertainty) was one of the main causes for the trade deficit rising to $20.1 billion in April this year from $16.9 billion in May last year. The second factor is our huge oil import bill. With more than 80% of the oil requirements being imported, depreciation of the rupee is putting tremendous pressure on the national exchequer, which is, of course, being transferred to the common man in the form of higher oil and gas prices. Moreover, fuels being a universal intermediate, the higher prices of fuels enter into all other prices directly in production costs and also by affecting transport costs. It not only hits the common person with skyrocketing prices, but raises the prices of Indian exports too. So the expected advantage of a depreciated rupee in terms of export growth accrued to India only belatedly and partially. The net result was that India’s CAD increased sharply from less than 1% of GDP in the first half of the 2000s to 2.7% in 2010-11 to 4.2% of GDP in 2011-12, and to 5.1% in 2012-13. This is much higher than the 3% (of GDP) recorded in 1990-91, i.e., at the time of the crisis of 1991.
Another proximate reason why the rupee declined so sharply was the US Federal Reserve’s hint in early June this year that it could roll back its monetary stimulus, i.e., easy credit policy. For India the implication was that this would make external commercial borrowings (ECBs) much more costly for the Indian corporate houses and will harm foreign investors too. This possibility intensified speculative pressure on the rupee and, as noted above, pushed it beyond the Rs 60 benchmark. When, on July 11, the US Federal Reserve Chairman Ben Bernanke made a reverse comment to the effect that the state of the US economy won’t allow him to withdraw the easy money policy immediately, the rupee recovered to 59.32 per dollar. A second hint of monetary tightening in mid-August provoked the till then biggest fall of the rupee in currency markets as noted above.
But how does the appreciation and depreciation of the Indian currency relate to the US monetary policy? Actually what has been happening for quite some time, particularly since the abolition of capital gains tax in the 2003-04 budget, is this. Foreign Institutional Investors (FIIs) borrowed in dollar markets, where liquidity was in abundance and interest rates very low, and invested in stocks and commodity markets and real estates in developing countries, where returns were high, so as to earn huge profits by borrowing cheap and getting higher returns on these investments. The Indian government relied on these foreign investments to balance the CAD and support the rupee. During 2003-08, capital inflows averaging $45 billion per year easily wiped out the up to $15 billion CAD and exerted upward pressure on the rupee. It began to appreciate, reaching a record high of less than Rs.40 to the dollar in April 2008, and the Sensex too shone brilliantly thanks to enhanced inflows of footloose finance capital.
In the wake of the global financial crisis, however, international players found it necessary to book profits by selling their stakes in Indian markets and take the money out of this country to meet other obligations. This contributed to a drop in Sensex, declining GDP growth rate and a depreciating rupee, which fell to Rs.52 to the dollar in just one year, that is, by March 2009. Since then the downward trend in the exchange value of rupee has continued.
“Even as the CAD has been high, we have been able to finance it because of a combination of ‘push’ and ‘pull’ factors. On the push side is the amount of surplus liquidity in the global system consequent upon the extraordinary monetary stimulus provided by advanced economy central banks.... In trying to finance such a large CAD, we are exposing the economy to the risk of sudden stop and exit of capital flows. This will be the case to the extent capital flows in pursuit of short-term profits. Should the risk of capital exit materialise, the exchange rate will become volatile causing knock-on macroeconomic disruptions.”
D. Subbarao: “India’s Macroeconomic Challenges: Some Reserve Bank Perspectives”, RBI Bulletin, April 2013 (emphasis added)
In the era of global integration of financial markets, the inflow of finance capital thus depends considerably on the US credit/ monetary policy – going down when credit gets or is likely to get tighter and rising when there is abundant liquidity. Depending on these volatile flows can be dangerous, as the RBI pointed out early last year (see box).
In plain English, with a possible drying up of unpredictable in-flows, our country may find itself without the wherewithal to absorb the huge deficit and therefore in the grip of a sovereign debt crisis as experienced by Greece.
Anyway, from the extremely abnormal height of 6.5 per cent of GDP in Q3 of 2012-13, CAD came down to a still quite uncomfortable 3.6 per cent in Q4. There were several reasons behind this. As the RBI’s Financial Stability Report (FSR) released on 30 December 2013 observed, the delay in tapering in the U.S. Federal Reserve’s bond purchase programme allowed India to bring about adjustment in CAD and build buffers by replenishing its foreign exchange reserves. In the second half of 2013 the import duty on gold was increased from 6% to 8% and then to 10%, resulting in a decrease in import. Thirdly, as mentioned above, to a limited extent the weak rupee helped boost exports while a sluggish economy dampened growth in imports.
Coupled with the plummeting currency, another major concern is our growing external debt, which rose to $390 billion as of March 31, 2013 showing a 12.9% increase over the level at end-March 2012. The external debt to GDP ratio increased to 21.2 per cent at end-March 2013 from 19.7 per cent at end-March 2012. By end-September 2013 external debt just crossed the 400 billion mark.
In end-March 2012, India’s foreign exchange reserves covered 85.2% of our external debt; exactly a year later, it covered only 74.9% and dropped further to 69.3% at end-September. Nearly half of it ($172) consists of short term debt maturing around March next year. This is more than thrice the figure ($54.7 billion) in March 2008.
An important cause of this surge in short term external debt is large-scale borrowings (mostly debts of 5 to 7-years maturity) by Indian corporates at very low interest during the boom years of 2003- 2008. What the declining rupee means for these corporate borrowers is that they will have to pay back much more in rupee terms for every dollar they had borrowed. Naturally, they have pressed the panic button, which has set the alarm bells ringing in the corridors of power.
From the national perspective, no less worrisome are our net external liabilities, i.e., international assets (India’s loans to others and its investments abroad) minus international liabilities (India’s external debt and foreign investment in India). This figure has grown dramatically from $66.6 billion in March 2009 to $282 billion by December 2012 – a fourfold increase in less than four years! The servicing of the fresh foreign liabilities adds to the current account deficit, which may necessitate even larger capital inflows in the next round.
But we have ‘adequate’ foreign exchange reserves vis-à-vis our foreign debt, ministers and officials never tire of assuring us. What they do not say is that these reserves have been built up from inflows of foreign debt and investment, on which India pays high returns; whereas the reserves have to be invested abroad in secure assets such as US government debt, on which India earns very low returns. As N.K. Chandra pointed out in 2008, the net annual drain on account of foreign investment and debt by end-2007, as a percentage of India’s annual national income, was comparable to the percentage drained annually from India under the British Raj.
In the US and other advanced nations, reckless business practices of ultra-greedy financial institutions led to a banking crisis in 2007-08, which then metamorphosed into a recession. In our case it is the economic downturn that has put the banking system under severe stress today. It now transpires that the banks – public sector banks (PSBs) in particular – have been lending irresponsibly to big private entities and showing excessive leniency in recovering the loans and interests. The upshot has been a huge growth in non-performing assets (NPAs) and restructured accounts (cases where repayment of the principal and/or the rate of interest have been rescheduled to help the borrower) of Indian banks, with huge outstanding dues from the power, real estate, textiles and infrastructure sectors.
The overall picture is captured in the box below, but let us first look at a couple of specific cases.
Punjab National bank saw its bad loans rise by 4035 crore, or 40%, in the quarter ended December 31, 2012 while bad debts of Indian Overseas Bank rose by about 20%. The net profit of the latter shrank by 88 per cent to Rs 59 crore for the quarter ended March 31, 2013, against Rs 529 crore in the corresponding quarter last year. The decline was an outcome of provisioning for bad and doubtful debts and restructured/stressed accounts. During 2011-12, total NPAs of PSBs as a whole grew by Rs.39000 crore compared to only Rs.5000 crore in the case of private banks. State Bank of India’s gross bad loans increased to 5.56% of its total loans as of June 30 last year
As the Reserve Bank of India’s latest Financial Stability Report (FSR) released on 30 December 2013 pointed out, Banks are more at risk now than six months ago with a jump in both bad debts and restructured loans. Loans worth Rs 74,000 crore for 77 customers have been recast by the corporate debt restructuring (CDR) cell in the 12 months to December 2013, the largest amount reworked in any year. At Rs 3.25 lakh crore, the total stressed advances ratio rose significantly to 10.2 per cent of total advances as at end September 2013 from 9.2 per cent of March 2013. Moreover, inter-linkages among banks heighten the risk of what is called the contagion effect, where even one large house failing to honour its commitment might cause havoc in the entire banking system. The RBI also admitted that part of the problem was banks’ large exposures to big corporates. In sum, Indian banks which were small but less risk-prone compared to their huge Western counterparts, are rapidly shedding that distinction as they grow bigger.
Rapidly rising NPAs and restructured loans (RLs) on banks’ books are also expressed as alarming loan burdens on business houses. The case of Kingfisher Airlines Ltd. (KAIR) is telling. The carrier is controlled by billionaire Vijay Mallya, who was elected to the Rajya Sabha in 2002 and 2010 as an independent candidate from his home state of Karnataka. He received several awards both in India and overseas including the “Entrepreneur of the Year” at The Asian Awards, 2010. Ironically, that very year his airline was on the verge of collapse. He managed to avoid that by restructuring the 77.2 billion rupees of debt KAIR had run up buying airliners and adding routes during the economic boom. In April 2011 a significant part of the loans was converted into a 23 per cent equity stake in the airline, in order to reduce its interest and amortisation payment commitments. Very soon the carrier’s equity became almost worthless, inflicting a huge loss on the lenders. Yet the latter generously restructured the loans, offered better terms, extended repayment periods, and provided more credit to keep the unit afloat. A classic case of what economists call sending good money after bad!
With its financial situation going from bad to worse, in October 2012 the airline grounded its entire fleet after pilots went on strike to demand seven months of unpaid salaries, even as the company engaged itself in an out-of-court loan-restructuring process. Towards the end of the year he made news again by presenting three kilograms of solid gold to a temple as puja offering although he was not paying his Kingfisher employees their overdue salaries.
In February 2013, after a lot of legal wrangling, the lenders embarked on the way to liquidate the collateral and guarantees provided by the borrower to recover as much of their loans as possible. The process continues and it seems only a fraction of the sum involved will be ultimately recovered.
Another example of near-bankruptcy is the Deccan Chronicle Holdings Ltd (DCHL), better known as the owner of the newspaper Deccan Chronicle, erstwhile IPL cricket team Deccan Chargers, papers like Asian Age and Financial Chronicle as well as several other businesses. DCHL availed loan and credit enhancement facilities from Canara Bank totalling Rs 330 crore from August 2006 till March 2012. With continuous defaults, the bank declared the DCHL loan as non-performing asset in September 2012. It was also alleged that the company was trying to sell away the properties that were mortgaged to the bank. Interestingly, just a month before Deccan Chronicle was found fibbing about its assets, agencies like CRISIL were giving it high investment rating.
In mid-February last year, bank accounts of Sahara Group chief Subrata Roy and two Sahara Group firms were ordered to be frozen by SEBI. Immovable properties in the name of Subrata Roy were also attached. The market watchdog took these steps after being prompted by the Supreme Court, whose repeated instructions to Sahara Group firms for depositing the more than Rs 24,000 crore for refund to investors were ignored. The point that was not raised was what the SEBI and the RBI were doing all these years when “various illegalities” were being committed in raising of these funds from ordinary people who thought their interests were safeguarded by the two regulators.
The cases of Kingfisher Airlines, Deccan Chronicle Holdings and Sahara show how credit lines were extended even when they were bleeding and there was no prospect of them returning the money. All three companies are now engaged in a slew of legal battles filed by creditors.
However, such high-profile cases constitute only the tip of the iceberg. The combined debt of the top 10 business groups in India grew over five times in the past five years, from Rs 99,300 crore to Rs 5,39,500 crore. Indicating a trend of the times, when the likes of Adani, GMR and Vedanta were piling on debt, they were furiously acquiring assets all over the world. Adani bought mines in Southeast Asia and Australia, GMR was building the Malé airport in Maldives (where it acted most irresponsibly, leading to the cancellation of the contract) and Vedanta was busy snapping up companies everywhere. The total debt of these ten groups accounts for 13% of the bank loans, while the total volume of highly risky (from the standpoint of lending banks) corporate debt runs into Rs. 3.6 trillion.
So, from the plummeting rupee to the stressed banking system, trends are alarming indeed. But has not the Sensex been doing reasonably well despite the slowdown? Well it is, largely due to the cheap credit and easy money policies in vogue in the developed economies, which prompt investors to raise money at home at near-zero interest rates and use part of that to make portfolio investments in emerging economies at a much higher rate of return. So the Sensex remains high – before the world crisis, most of the time it was hovering around 20000, and following a steep but brief decline has been fluctuating in the 15000-20000 range since June 2009. But that does not in any way indicate strong fundamentals in the Indian economy, as we have seen above and shall see in the pages that follow.
So, the glittering Sensex notwithstanding, it is a stubborn and all-pervasive stagflation that the Indian economy finds itself in. Where has all the growth gone and why? A very pertinent question, it begets another: where did it come from and how? The stock official answer, and the reigning consensus among establishment economists, is that the high growth rates of recent years resulted exclusively from the grand bold restructuring initiated in 1991 (and can be restored by more daring reforms now).
Is it really that simple? Well, let us investigate.
THE neoliberal assertion that our country entered a relatively high growth track only since the nineties is contradicted by facts of history. Actually India’s growth story has passed through two distinct phases, both marked by very different policy regimes corresponding to the international trends of the times, with a transitional intermediate phase in the 1980s. Each phase initially yielded better results compared to the previous one but ended up in a crisis sooner or later, thereby calling for a policy shift. Actually in this respect the experience of the latest (post-1991) phase is not all that different from the preceding ones, as we shall see in the next chapter.
The so-called Hindu rate of growth
This strategy took industrialisation as the main lever of development and assigned the state a very prominent role in it through five-year plans. It was also marked by (a) regulated promotion of private capital preventing cut-throat internal competition through licensing and other control devices and (b) protection from foreign capital primarily through a restrictive trade regime and regulation of foreign investment through the Foreign Exchange Regulation Act (FERA). Purely financial investments were discouraged or banned; some sectors were kept out of the purview of foreign investors while caps on foreign equity holding were set in others; terms for technology transfer were regulated and foreign partnership with domestic capitalists was prioritized over FDI. These steps were necessary, at least deemed necessary, for the protection and growth of India’s ‘infant industries’.
This period, particularly the first half (1950-1965) saw considerable progress in basic industries, mining and power generation in the public sector and that facilitated development of light industries in the private sector. The continuing neglect of agriculture, however, began to exact a very high price particularly since the middle of 1960s in the form of acute food crisis, price rise and unemployment problem, generating waves of militant mass struggles and armed peasant upsurges under revolutionary communist leadership.
The ruling clique tried to meet the twin challenges of economic crisis and political unrest by taking recourse to measures like nationalisation of commercial banks and certain other sectors like coal mining and the “green revolution” as well as political intrigues and repressive measures, but never came to grips with the situation. To make matters worse, the four-fold hike in international crude prices in 1973 resulted in massive increases in petro-products (including fertilisers) prices as well as in the general price level (by as much as 22% in 1972-73 alone). Foreign exchange reserves were drained and recession deepened further. It was amply clear that the Nehru-Indira model had come to a dead end and some sort of reform was needed.
And that was inevitably attempted when objective conditions matured in the mid-1980s. On the world scale the Soviet model was rapidly losing its shine while neoliberalism had started replacing social democracy/welfare state frameworks; on the national stage the removal of Indira Gandhi
Material prerequisites had also matured by then. With state stewardship and assistance, the flabby Indian capitalist class gained the minimum economic muscle needed to step into the basic industries hitherto earmarked exclusively for the public sector in the Industrial Policy Resolution of 1956. Accordingly, the heavy/basic industries sector was gradually opened up to them. In the mid-1980s FERA was partially relaxed and foreign collaborations were more encouraged than before. Fiscal discipline was loosened, so the government could boost spending by taking advantage of the enhanced availability of foreign loans and investment. Easy accessibility of foreign finance also allowed large-scale import of food and other essential items to ward off price rise and resultant discontent. Thanks mainly to increased state spending and newly introduced incentives – including tax concessions – to industrialists, the Rajiv years saw an impressive 8% per annum growth in industry and average GDP growth rate surpassed the five per cent per annum mark for the first time.
The carefully calibrated relaxation or liberalization of 1980s would by its own logic lead to further restructuring sooner or later; in 1991 an opportunity presented itself, as is the norm in capitalism, in the shape of a crisis!
The accelerated growth since mid-1980s was achieved at the cost of (a) heavy domestic borrowing, which pushed the gross fiscal deficit of governments (at the centre and in states) to 12.7% of GDP by 1990-91 (b) since these deficits had to be met by borrowings, the internal debt of the government accumulated rapidly, rising from 35 percent of GDP at the end of 1980-81 to 53 percent of GDP at the end of 1990-91 and (c) foreign exchange reserves which stood at $1.2 billion in January 1991 was depleted by half by the middle of the year, barely enough to last for roughly 3 weeks of essential imports (in other words, India was only weeks way from defaulting on its external balance of payment obligations). The caretaker government under Prime Minister Chandra Shekhar secured an emergency loan of $2.2 billion from the International Monetary Fund by pledging 67 tons of gold as collateral, which was airlifted to London.
There was a public outcry when it was learned that the government had pledged the country’s gold reserves against the loan but, as Montek Singh Ahluwalia would write later, the historic crisis “became an opportunity for unveiling more systemic economic reforms.”
The new spate of reforms, however, did not provide any significant fresh impetus to growth in the short or medium run. It stayed at 5.8% during 1990-96 and at 6% when the entire decade of 1990s is considered – only slightly higher than what was achieved in 1980s. It was only since 2003-04 that a new level of high growth was attained, and that for no longer than five or six years.
An important question arises at this point: how do the different phases relate to one another and how do we characterise them? Interestingly, authors who emphasise the role of the 1991 reforms (Arvind Panagariya in India: The Emerging Giant (2008) for example) tend to belittle the first tranche of liberalisation in 1980s and the noticeable rise in growth rate that accompanied it; while those who take due note of the latter often view this as a departure from “socialism”. Thus Arun Kohly in his latest publication Poverty Amid Plenty in the New India (New Delhi, Cambridge University Press, 2012) views the change that took place in 1980s as a “shift away from socialism” (p 12). Similarly, in his entry on Growth Experience in the Oxford Companion, B Subramanian writes that in the 1980s “The Congress went from being hostile to private business to mildly supportive and eventually quite supportive”
But was the ruling Congress or the Central government really ‘anti-business’ in the pre-1980 period?
Well, a keener observation from the Marxist viewpoint would reveal that it was not. One of the first to draw attention to this cardinal fact was Charu Mazumdar. At a time when official Marxists were eulogising the state sector as a socialist element in the mixed economy, he pointed out as early as in 1965 that the public sector actually served the interests of private capitalists. The latter needed the products of basic industries for setting up light industries geared to quick profits, but could ill afford the heavy investments and long gestation periods required for founding steel, coal, power, petroleum and such other industries on the required scale. To fill this gap and to supply steel, power etc. on a non-profit basis or even at subsidised rates to the private sector – such was the role assigned to the public sector in the first phase of development of capitalism in independent India.
Indeed, there was nothing socialist about it. Nor was there an iota of hostility to private, including foreign, business interests on the part of Congress government, except perhaps in platitudes of economic nationalism and ‘mixed economy’, which were ‘politically correct’ as well as economically advantageous in those early years of the Republic. And the policy shifts – in 1980s as well as in early 1990s – only marked separate junctures in the same continuous evolution of capitalism in India, with the state always trying to faithfully promote the interests of monopoly big bourgeoisie with different policy regimes suitable in different national-international contexts. As regards attitude to foreign capital, tensions in government policy often reflected conflicts within Indian bourgeoisie itself. As Sojin Shin points out, in the early 1990s “the Associated Chambers of Commerce & Industry (ASSOCHAM) argued in favour of the need for free flow of foreign investment while the Federation of Indian Chambers of Commerce and Industry (FICCI) opposed the liberalisation of FDI policy. The FICCI, whose membership is dominated by the indigenous business groups, felt that “the final judgment on whether or not such investment is desirable should be left to the Indian entrepreneurs”. The so-called Bombay club, comprising a section of Indian big business represented by the Bajaj, Birla, Thapar, Modi, Godrej, Singhania and some others, also voiced some initial resistance.
With this overall historical perspective, let us now survey the present policy regime, including the genesis of the current economic crisis in India.
ABOUT a decade after US President Ronald Reagan flagged off the Neo-liberal Express from Washington DC, it finally reached New Delhi in 1991, with Finance Minister Manmohan Singh at the driver’s seat. Just as in the 1950s and 1960s the strong appeal of socialism in India and abroad was utilised by the bourgeois-landlord state to give a socialist tinge to the “mixed economy”, so the new set of reforms drew legitimacy from the neoliberal TINA (There Is No Alternative) gospel.
As the crowning glory of this policy regime, people often talk of the exceptionally vibrant growth achieved during 2003-04 to 2009-10. Not only in terms of GDP growth but on some other in dices too, new ground was really broken. Growth was no longer restricted to the services sector, but after a long gap extended also to manufacturing. Savings and investment grew at unprecedented rates. Along with liberalization of import and foreign investment rules, in certain sectors technology improved too. This served to intensify competition and led to major improvements in productivity. Indian corporates were reaching out to foreign lands with great gusto – no longer only to underdeveloped countries but to advanced economies as well – mainly through the merger and acquisition (M & A) route though.
To a significant extent the high growth was an externally induced (rather than internally generated) phenomenon. After China, India had become one of the most favoured destinations of financial inflows while many other developing countries also had a similar experience. In our case this was largely facilitated by concessions offered to indigenous and foreign investors. One major step was the abolition of the long-term capital gains tax in the 2003-04 Budget, which for all practical purposes converted India’s equity market into a tax-free enclave and led to a surge of investments from foreign institutional investors (FIIs) and others. The surge was more or less maintained in subsequent (until recent) years. That the exchequer lost an important source of revenue in the capital gains tax was, needless to say, nobody’s concern.
The enhanced inflow of foreign capital was mostly in the nature of footloose financial investments in the bourses and in speculative activities in commodity markets and to some extent also in the real estates sector. This component, while contributing to the growth of GDP, stimulated the real productive sectors of the economy to a very limited extent.
However, the liquidity generated by large inflows of foreign capital made credit cheaper, which in its turn stimulated industrial growth in at least three ways. First, it financed purchases of auto-mobiles and triggered an automobile boom, further facilitated by expansion of highways and expressways. Second, it financed a boom in investment in housing and real estate, thereby promoting the production of construction materials and generating large number of (casual) jobs. Third, people in upper income brackets were getting rich quicker, for many of them effective income tax rates were falling, and happy with the opportunity to purchase large varieties of imported and indigenous consumer durables, apartments, etc. with borrowed money, they were on a spending spree, contributing to the expansion in demand for “lifestyle products”. All these were reflected in a rapid rise in the share of personal loans in total bank credit. Expansion in debt-financed consumption and investment was thus an important proximate cause behind GDP growth.
A second factor might be located in export growth in certain segments like software, petrochemicals, metals, gems and jewellery etc. Much of the export boost came from extraneous causes, i.e., from favourable changes in world market conditions not related to India’s economic performance. For example, the growth in iron and steel industry – including the highly polluting sponge iron segment – and consequently, also in coal and iron ore extraction, was largely induced by a surge in global demands caused by, inter alia, the construction boom in China in preparation for the Beijing Olympics.
To an extent the growth in exports resulted also from better competitiveness: according to the Global Competitiveness Report 2005-06 prepared by the World Economic Forum, India moved from the 55th Place in the world in 2004 to the 50th the next year in the Growth Competitiveness Index. This was particularly true of software exports, which grew from less than $1 billion in FY 1996 to nearly $23 billion in FY 2005 and more or less maintained the growth until recently. This has been the main driver behind the sharp rise in services exports as a whole, where India’s comfortable position as a net exporter helped substantially to reduce the big and growing negative balance in merchandise trade.
Among the comparative advantages that helped the growth of Indian enterprises in the sectors mentioned above, the foremost was certainly the low-cost human resources: not only cheap labour but also – and in some cases like pharmaceuticals, software and IT-enabled services (ITeS) this is considered more important – in technical and managerial skill at half to one-fourth cost relative to what needs to be incurred in the West. Another advantage is that India boasts the world’s second largest (after the US) English-educated population (this advantage, however, may not last long because the Chinese are rapidly catching up). At the level of infrastructure, however, India remains miles behind China and this is acknowledged to be the main bottleneck to growth. On the other hand, other developing nations too are entering the lucrative off-shoring market. So India’s comparative advantage will be sustained only until such time as other cheap-labour countries can create a labour force with similar levels of skills.
Another important contributor to growth was the large remittances sent by Indians working abroad – particularly the large number of manual workers who send home the lion’s share of their incomes. This money, earned abroad and spent in India, caters to the growth of the internal market while a fraction is invested in small-scale undertakings and provides a healthy boost to the employment-generating informal sector; at the same time it helps strengthen our foreign exchange position. However, with the onset of global recession this source partially dried up, and so did income from software and ITeS (information technology enabled services) exports.
Among other stimuli, an important one was the extraordinary profit bonanza made available to big corporates in the shape of huge concessions doled out by the state. This led to a sharp rise in investment in certain branches of industry and services. For a few years the satisfactory growth rate continued without BOP headaches because, in addition to high export earnings and remittances, there was more than enough inflow of foreign capital. The other problem – inflation – was very much there, but was thought to be within tolerable limits. One reason was that the strong rupee helped keep the imported oil bill and other import costs in check.
The unprecedented growth rate, however, did not light up the lives of those who with their labour made this possible.
Under capitalism growth is never, it cannot be, egalitarian. But in the neoliberal phase remarkable gains for capitalists and the rural rich have come only at the cost of extreme losses for the labouring people. In addition to the well-known cases of large-scale eviction for ‘industrialisation’ and other forms of corporate plunder, the normal process of capitalist exploitation is intensified in several ways. While extraction of relative surplus value is enhanced by introducing latest high-speed plant and machinery, effective working hours are extended by various means – for example by cutting down and strictly monitoring recess periods available to workers – to squeeze more of absolute surplus value out of the workers’ toil. Secondly, casual/contract labour is extensively used even for permanent jobs to reduce the wage bill. Though illegal, this is easily done thanks to the existence of a large and growing pool of industrial reserve army, which also serves to depress the general wage level. Thirdly, pay commissions and bipartite/tripartite wage agreements are being increasingly delayed, subverted and even scuttled to erode real wages or keep them stagnant.
What is the net outcome of all these? Writes C.P. Chandrasekhar in the article The Roaring 2000s (The Hindu, 10 May 2012):
“Since the early 1990s, when liberalisation opened the doors to investment and permitted much freer import of technology and equipment from abroad, productivity in organised manufacturing has been almost continuously rising. Net value added (or the excess of output values over input costs and depreciation) per employed worker measured in constant 2004-05 prices ... rose from a little over Rs. 1 lakh to more than Rs. 5 lakh [between early 1980s and 2010 – A Sen]. That is, productivity as measured by net product per worker adjusted for inflation registered a close to five-fold increase over this 30-year period. And more than three-fourths of that increase came after the early 1990s.
[However,] “the benefit of that productivity increase did not accrue to workers. The average real wage paid per worker employed in the organised sector, calculated by adjusting for inflation as measured by the Consumer Price Index for Industrial Workers [CPI(IW) with 1982 as base], rose from Rs. 8467 a year in 1981-82 to Rs. 10777 in 1989-90 and then fluctuated around that level till 2009-10. The net result of this stagnancy in real wages after liberalisation is that the share of the wage bill in net value added or net product ... which stood at more than 30 per cent through the 1980s, declined subsequently and fell to 11.6 per cent or close to a third of its 1980s level by 2009-10.
“A corollary of the decline in the share of wages in net value added was of course a rise in the share of profits. ... [T]he years after 2001-02 saw the ratio of profit to net value added soar, from just 24.2 per cent to a peak of 61.8 per cent in 2007-08. These were indeed the roaring 2000s!”
It is thus a highly paradoxical ‘success story’ with a virulent anti-poor bias that we witnessed in our country all along the post-reform years. And now it is clear that this has adversely affected growth itself in the longer run. A good many economists (not necessarily Marxist or post/neo-Keynesian) have held inequality as one of the major causes behind the crisis and recession in the West. In Europe, the income shift towards the upper classes led to a dampening of aggregate demand, while in the US the same trend – thanks to the ‘American way of life’ and the policy of debt-driven growth – was accompanied by an alarming fall in savings and increasing indebtedness. In Europe economic slowdown resulted directly from a fall in demand and that earlier than in the US. In the latter case, recession, which was artificially postponed through asset bubbles for a period, came via a sudden and acute financial crisis caused by credit and deficit explosion. In both instances, reduced purchasing power of the people was a fundamental reason for recession. In our country the great relative decline in the purchasing power of the working class, as enumerated by C P Chandrasekhar (see above), has had a long term recessionary effect comparable to that in Europe.
The Indian growth pattern is such that it aggravates existing disparities not only across classes but also in terms of economic sectors and geographic regions. The outcome is that we have a highly asymmetrical economy that is “large in size ... but strange in shape”, as veteran Marxist scholar Perry Anderson puts it:
“The country now occupies a prominent place in every prospectus of BRIC powers, where the Indian economy is the second largest in size, though in many ways strange in shape. Manufacturing is not its pile-driver. Services account for over half of GDP, in a society where agriculture accounts for more than half the labour-force, yet less than a fifth of GDP. Over 90% of total employment is in the informal sector, a mere six or 8 percent in the formal sector, of which two-thirds are to be found in government jobs of one kind or another. In India cultivable land is forty percent more abundant than in China, but on average agricultural yields are fifty percent lower. The population is younger and growing faster than in China, but the demographic dividend is not being cashed: 14 million new entrants into the labor force each year, just 5 million jobs are being created.
Nonetheless, growth averaged some 7.7 percent in the first decade of this century, with savings rising to 36 percent of GDP – double the respective rates of Brazil. But compared to China, with roughly the same size of population and similar starting-points in the 50s, India scarcely shines, as Pranab Bardhan has shown in his masterly analytic survey of the two countries, Awakening Giants, Feet of Clay.
The urban-rural disparity has also aggravated. The NSSO in its 66th round of quinquennial survey for monthly household expenditure, released in July 2011, showed that for the year 2009-10, average rural spending was Rs. 1,053 and urban spending was Rs. 1984. The new survey when compared with a similar survey made in 2004-05 showed that the average monthly expenditure in urban India increased by Rs. 832 as compared to just Rs. 492 in rural India.
The latest survey also revealed widened expenditure disparity between the richest and the poorest, especially in urban India. In urban areas, the difference in monthly expenditure between the richest 10% and the poorest 10% increased from 4.8 times in 2004-05 to 9.8 times in 2009-10. Rural India witnessed a lesser hike in this expenditure difference – from 3.2 times in 2004-05 it rose to 5.6 times in 2009-10.
The economic growth achieved in our country is indeed lopsided and distorted also in the sense that it deviates from the normal course of capitalist development where abolition of feudal/semi-feudal property relations not only improve productivity but also greatly enhance the purchasing power of agriculturists, thus expanding the home market for manufactured goods. In this way, industry gets the much-needed demand boost, pulling up mining, transport and other sectors and absorbing labour released from agriculture. An agrarian society evolves into an industrialised country, with the lion’s share of GDP coming from industries, and creates a solid base for the third phase where services sector becomes the principal growth engine. But in our country the middle stage of industrial predominance was never reached (largely on account of continuance of the semi-feudal fetters on productive forces and the stagnant internal market for manufactured goods) before the services sector became the fastest growing one thanks mainly to the extraneous stimuli of business process outsourcing in the West. Thus, the burgeoning services sector, certain high-tech capital intensive industries, a few extractive industries and real estates and construction happen to be the more important areas that have witnessed robust growth, even as agriculture and labour-intensive old industries like jute textiles and engineering tend to stagnate and decline. After 20 years of restructuring, agriculture, industry and services contributed 14.62%, 20.16% and 65.22% respectively
It is crucial to remember that since the industrial revolution, no country has become a major economy without becoming an industrial power; it is very doubtful if India can prove itself the sole exception in the longer run. As of today, the relative weight of the services sector vis-a-vis industries is much greater in India than in China and this is certainly not a sign of good health.
India now ranks very high in the global production of many minerals that it produces not for its own use but increasingly for exports. For instance, in 1995-96, only 1.4% of the bauxite produced was exported; by 2007-08 this figure had shot up to 47%.
Disproportionate expansion of the services sector creates a false impression of development without actually improving the quality of life for the vast majority. Even as the basic material needs of the working people are not met, the country is flooded with various types of services – leisure, entertainment, tourism, a greater variety of shopping malls and restaurants, and financial services (e.g., specialised/personalised banking) to cater to all such needs. Expenditure on these items enters GDP calculations and creates a statistical illusion of “India Shining”.
Similarly, the growth process has bypassed the most backward states and regions and has been concentrated in a few already developed states and upcoming regions (such as the Gurgaon-Manesar industrial belt).
Another basic problem with the present growth model is that, like the so-called green revolution, it depends on and caters to a very thin layer of population: the rich and upwardly mobile urban and rural middle classes. The other constituency the growth model relies on happens to be a considerable foreign clientele (for example, the BPO sector fully and the software sector mostly depend on overseas demands). By excluding the bulk of the population this growth model sets an inherent limit to its sustainability, which has now been crossed.
For all these shortcomings, India did experience, as we saw above, a significant growth rate thanks mainly to a tidal wave of footloose financial capital attracted by the vast Indian market and the lucrative concessions offered by the Indian state. When that wave suddenly stopped in 2008, naturally the Indian economy too received a big jolt. The shock came most conspicuously in the shape of millions losing their jobs in garments, footwear and leather and other areas as exports started falling rapidly. In 2008 itself and in the textile sector alone, some 7 lakh workers – majority of them women – were rendered unemployed.
For a more detailed, stroke by stroke analysis of the progression of the recent crisis, we quote rather extensively from an ICRIER (Indian Council for Research on International Economic Relations) Working Paper (No. 241, published in October 2009) titled The State of the Indian Economy 2009-10:
“The global crisis got transmitted to India in January 2008 with the beginning of a massive withdrawal of FII investments from India and the consequent crash of the equity market ... (Stage 1). There had been a net FII disinvestment of US$13.3 billion from January 2008 to February 2009 (14 months) in contrast to a net investment of US$17.7 billion during 2007 (12 months). This was followed by a massive slowdown in ECBs by India’s companies, trade credit and banking inflows (Stage 2) from April 2008. Short-term trade finance and bank borrowings from abroad swung to outflows of US$9.5 billion and US$11.4 billion respectively in the second half of 2008-09. The crisis struck the foreign exchange markets by May 2008 and the rupee fell by about 20 per cent from May to November 2008 (Stage 3). The Reserve Bank of India intervened heavily to support the rupee by selling dollars, leading to some depletion of the stock of reserves. By mid-September 2008, the crisis gripped India’s money market (Stage 4). The drying up of funds in the foreign credit markets led to a virtual cessation of ECBs for India, including the access to short-term trade finance. The collapse of the stock market ruled out the possibility of companies raising funds from the domestic stock market. Indian banks also lost access to funds from abroad.... All these put heavy pressure on domestic banks, leading to a liquidity crisis from mid-September to end-October 2008. …
From September 2008, the trade sector collapsed (Stage 5). In the second half of 2008-09, merchandise exports declined by 18 per cent against a growth of 35 per cent in the first half and imports fell by 11 per cent against a growth of 45 per cent in the first half. The growth in software exports dropped to less than 4 per cent in the second half of 2008-09 (38 per cent growth in the first half) and remittances declined in absolute terms by about 20 per cent in the second half (growth of 41 per cent in the first half of 2008-09)....
In the next stage (Stage 6), the crisis spread to the domestic credit market. The real economy deteriorated from September 2008, shown first by the sharp fall in export growth to 10 per cent in that month from about 35 per cent during April-August 2008, and negative growth thereafter; virtually negligible or negative growth in industrial output from October 2008; and negative growth in central tax revenue collection, also from October 2008. Business and consumer confidence began to ebb leading to a decline in overall demand. By November 2008, the situation had fundamentally transformed. Expansion of bank finance to the commercial sector slumped to Rs.609 billion during the four-month period, November 2008 to February 2009, just about a quarter in comparison with the expansion of Rs.2,362 billion during the same period a year ago .... This was primarily due to a sharp fall in demand for funds as investment and consumption dropped. It was also partly due to banks becoming extremely risk averse with the perception of default rising considerably.”
What did the Government of India and the RBI do? The Working Paper continues:
“The major policy response to the crisis came in the form of loosening monetary policy and administering fiscal stimulus packages. There were a few other measures like the relaxation of ECB rules, raising the cap of FII investment in debt etc.
... Through successive steps, the RBI brought down the cash reserve ratio (CRR) from 9 to 5 per cent, the statutory liquidity ratio (SLR) from 25 to 24 per cent, the repo rate from 9 to 4.75 per cent and reverse repo rate
The RBI opened a special window for banks to lend to mutual funds, non-banking financial companies (NBFCs) and housing finance companies. The central bank also opened refinance facilities for banks, the Small Industrial Development Bank of India (SIDBI), the National Housing Bank (NHB), and the EXIM Bank besides introducing a liquidity facility for NBFCs through a special purpose vehicle (SPV), and increasing export credit refinance.
The central government announced three successive fiscal stimulus packages: one in early December 2008, the second one in early 2009 and the last one in early March 2009. These included an across-the-board central excise duty reduction by 4 percentage points; additional plan spending of Rs.200 billion; additional borrowing by state governments of Rs.300 billion for plan expenditure; assistance to certain export industries in the form of interest subsidy on export finance, refund of excise duties/central sales tax, and other export incentives; and a 2 percentage-point reduction in central excise duties and service tax. The total fiscal burden for these packages amounted to 1.8 per cent of GDP.
The growth in GDP dropped to 5.8 per cent (year-on-year) during the second half of 2008-09 from 7.8 per cent in the first half.... The lower GDP growth can be attributed partly to the decline in private consumption growth to just 2.5 per cent in the second half of 2008-09 from ... an average consumption growth of 8.5 per cent in the whole of 2007-08. Private consumption growth dropped further to 1.6 per cent in the first quarter of 2009-10. The growth in fixed investment declined to 5.7 per cent in the second half of 2008-09 from 10.9 per cent in the first half and an average of 12.9 per cent in 2007-08. The growth in fixed investment dropped further to 4.2 per cent in the first quarter of 2009-10. Government consumption growth, on the other hand, rose steeply to 35.9 per cent in the second half of 2008-09 from just 0.9 per cent in the first half and 7.4 per cent in 2007-08. The sharp rise in government consumption growth cushioned the drop in growth of other components of aggregate demand and prevented a larger fall in GDP growth in the second half of 2008-09.” [Emphasis added]
The aforesaid package of monetary and fiscal stimuli – drawn up largely on the lines of measures adopted in the US – helped promote credit-financed consumption (first in the public sector and then to some extent also in the private sector) and infrastructural investment in PPP model (in many cases without proper cost-benefit assessment, as we shall see in the next chapter) while financial inflow from abroad was restored rather quickly thanks to the huge infusion of liquidity through stimulus packages introduced in the US and other advanced economies. These and some other factors combined to bring the GDP growth back to 8% in 2009 and then to 9.9% in 2010-11.
Such a fortuitous conjecture, however, was destined to be short-lived. Before long, high inflation struck again, with food price inflation being particularly high in some periods. The main causes were rising import costs (increasingly caused by, inter alia, the declining value of rupee), growing fiscal deficit of the wrong kind (i.e., spurred not so much by state spending on productive, employment-generating sectors/activities as by wasteful expenditure and “revenue foregone” and other concessions to the rich), cuts in subsidies and the neoliberal practice of leaving even administered prices to the vagaries of markets.
In an attempt to arrest inflation, the RBI raised interest rates repeatedly. This dampened debt-financed private consumption as well as investment, adversely affecting growth. Capitalists and their spokesperson Finance Minister repeatedly demanded, in increasingly aggressive tones, that the interest rates must be lowered in order to regenerate growth. But stubborn and often rising inflation would not permit the country’s central bank to abandon its responsibility of controlling price levels. So the Chidambaram-Subbarao clash continued, until a rapprochement was arrived at in January-February 2013, with the RBI agreeing to make credit cheaper by moderately lowering interest rates and the Finance Ministry taking fiscal conservatism to the extreme through drastic reductions in public expenditure both in actual terms in the current fiscal year as well as in budget provisions for the next year (see below).
The reconciliation was only to be expected because both the finance ministry and the country’s central bank work under the intellectual hegemony of international finance capital, although their immediate priorities and compulsions may differ and give rise to occasional frictions independently of who happens to be RBI governor. On this basis was started a new round of crisis management.
WITH the first signs of deceleration of growth in India since 2009-10, economic and political agencies of high finance were back at their old game: pressuring New Delhi for more concessions and further opening up of the economy. The government was criticised for “policy paralysis”, the PM was personally attacked and the credit rating agencies threatened to – and actually did – downgrade India’s creditworthiness. As usual, Indian big business and corporate media were singing the same tune. To be sure, the government was always willing to fall in line but the sheer unpopularity of the proposed reform measures and calculated opposition on the part even of parties (like the BJP) which are actually in favour of such measures and even some constituents of the UPA, held back its hand. But not for long. After some dillydallying, towards the end of 2012 the Congress decided to go on the offensive once again from the side of big capital. It was expressed in several forms: a booster dose of reform, budget 2013 and an unending series of anti-people, pro-corporate policy decisions. Instantaneously, the avalanche of admonitions turned into a spring tide of profuse praise. “The lion roars again”, it was announced in praise of Manmohan Singh. For ordinary people, harder days were in the pipeline.
In September 2012, at one go price of diesel was hiked by Rs.5 a litre, subsidy for LPG cylinders halved, sectors like multi-branded retail, civil aviation and broadcasting were opened up for foreign investment and shares of several profit-making public sector units were put up for sale.
Among these, the one that attracted the people’s ire immediately was the severe curtailment of subsidy on LPG cylinders and the steepest-ever hike in the price of diesel. The latter, even the government could not deny, was sure to result in a hike in transport costs which, in turn, would impact on food prices. The government’s claim that the hikes were justified in the light of losses suffered by oil companies was exposed as a shameless subterfuge on at least two counts. One, all the oil and gas companies had recorded substantial net profits. Secondly, it was pointed out, the government has to pay huge subsidies on diesel only because it collects a still larger amount in duties; if it decided to raise this amount by taxing the rich and improving revenue collection, no subsidies would have been required!
In addition to straightforward withdrawal of subsidies, the government has also devised a set of indirect methods of doing the same. The arbitrarily determined, ridiculously low poverty line has already disentitled a huge number of poor people from bare necessities like low-cost food and shelter.
The decision that invited the sharpest debate in addition to protests on the street was the green signal to FDI in multi-brand retail. The government claimed that this will result in investment in cold chains and therefore in lower prices by “eliminating middlemen”; it was pointed out that in the fruits and vegetables sector, where a cold chain infrastructure was most needed, data from developing countries indicated that prices in new supermarkets were generally higher than in existing retail shops. The officials asserted that existing retailers will not be harmed. But data from Latin American and South Asian countries showed a significant decline in the number of small shops and in the market share of open air vendors consequent upon the entry of foreign retail chains. The Indian Government claimed that many new jobs will be created when new shopping malls come up. That this was a pure deception was easy to understand, because by no stretch of imagination the employment potential of capital-and-technology-intensive shopping malls can come anywhere near that of labour-intensive kirana shops.
The policymakers’ most potent argument was that corporate retailers would buy directly from farmers and other small producers, who would get better prices with the elimination of middlemen. This might seem plausible in the abstract, but not to those who are familiar with ground realities in our country. Most purchases for corporate retailers occur through contract farming, which leaves the farmers at the mercy of the big players. Even otherwise, rarely can small farmers access the supply chains because the latter insist on arbitrary quality standards and prices. Furthermore, the powerful retailers can start with better terms for the producers and, once the old middlemen are thus elbowed out of competition, use their monopoly positions to squeeze the unorganised small suppliers in a buyers’ market. All these and many other pitfalls have been thoroughly exposed in a huge and growing number of studies by institutions as well as individuals in India and abroad.
Finally, the government spoke of various “checks and balances” to protect the interests of small producers and retailers. That these are nothing more than false promises was proved when, for instance, the initial promise that foreign retail chains shall be required to source at least 30% of products from Indian small and medium enterprises (SMEs) was summarily waived in the case of Swedish furniture giant IKEA.
So on and so forth, arguments in favour of FDI have been de-molished one after the other. Even the Supreme Court accepted a PIL in January 2013 and asked the Centre to file a response on how it intends to safeguard interests of small traders. “Have you got any investments or just a political gimmick? Has the FDI policy brought some fruits?” it asked the government counsel. However, the court was not within its powers to rescind the executive decision. The government had its day. It rolled out the red carpet to retail MNCs like Walmart and Tesco, even as the latter were facing unprecedentedly massive protest in the West, in Los Angeles and New York for example.
Less protested on the street but strongly criticised in informed circles is the decision to open up pension funds and banking to global finance capital. Following the passage of the Insurance Law (Amendment) Bill, 2008 and the Banking Laws (Amendment) Bill, 2011, which provided a new momentum to the privatisation offensive, now there is also the Pension Fund Regulatory & Development Authority (PFRDA) Bill, 2011, which seeks to allow 49% FDI in the pension-PF sector. These moves will give free hand to the fund managers to play with billions of rupees of hard-earned money of the Indian working people to reap huge profits through share market speculations and by other means.
That the RBI is in full concurrence with the Government of India on the question of further opening up our financial sector was made clear by R Rajan late last year in Washington. Forgetful of the catastrophic collapse of American banks and financial institutions only a few years ago, he issued an open invitation to the banking giants of America to gobble up Indian banks. “That is going to be a big big opening because one could even contemplate taking over Indian banks, small Indian banks and so on ...if you adopt a wholly owned subsidiaries structure ... we will allow you near national treatment”, he told a gathering of representatives of the American financial establishment.
The country has no choice but to invite foreign investment, said P Chidambaram in his budget speech. An obvious understatement, it meant that the government was prepared go to any length to try and revive capital inflows at any cost. This was the main thrust of the budget proposals, and remains the cornerstone of the government’s economic thinking as a whole.
And what do suppliers of foreign finance, particularly their most vocal representatives, the credit rating agencies (CRAs)
It was the railway budget 2013-14 that anticipated the austerity thrust to be fully manifested in the general budget. Not only were freight, fare and sundry other charges (such as cancellation charges for reserved berths) steeply hiked, steps were taken to deregulate fares and freights by linking these to variable fuel prices, which effectively meant that with every increase in the price of diesel or electric power the railway fares and freights will automatically rise.
As for the general budget, P Chidambaram earned kudos from vocal proponents of fiscal orthodoxy by (a) restricting fiscal deficit for 2012-13 approximately at the budget estimate (BE) i.e., 5.2% of GDP despite a slowdown in revenue growth and (b) promising to further reduce the deficit to 4.8% of GDP in 2013-14.
The first he achieved by drastically reducing both revenue and capital expenditure in the financial year just ended: total Plan expenditure being Rs.90,000 crore less than the budgeted amount. Almost all sectors from agriculture and rural development to social services have experienced the cut. The much-touted MGNREGA gets Rs.33,000 crore, the same as in the previous year. In both school education and health, allocations have been increased merely by 8% compared to the previous year’s budget, which means practically zero increase when inflation is taken into account. As per the revised estimate 2012-13, total capital expenditure is a drastic 18% less than budgeted while central assistance to states is also 14% less than budgeted. In fact such drastic cuts in expenditure, which depress effective demand and slow down capital formation, are partly responsible for the deceleration we are already experiencing.
As for the second – the promise to further reduce the fiscal deficit – the FM finds himself in a tight corner. Data released by the government on the last day of 2013 showed that the fiscal deficit in the April-November period was already Rs.5.09 trillion, against a budgeted target of Rs.5.42 trillion for the whole year to next 31 March. It was obviously not possible to keep the deficit within 0.33 trillion during the remaining four months. The problem, as usual, lay in expenditure exceeding the budget and revenue collections falling below estimates in a backdrop of slowdown. Given the government’s fiscal orthodoxy, the upshot in all probability will be further cuts in state spending. In that case the economic benefits of a healthy state spending – promoting infrastructure, creating jobs and thereby augmenting domestic demand when export markets are shrinking, improving the conditions of life and therefore productivity of the masses – will be lost. With slower growth of GDP, tax revenue will shrink further, making it more difficult to meet targets of fiscal consolidation. The entire exercise will prove counter-productive, just as the austerity programmes in countries like Greece and Spain have.
The budget was not shorn of tokenism either. A case in point is the surcharge (one-time, one-year levies) on individuals with an annual taxable income of more than Rs 1 crore and on domestic and foreign companies with taxable incomes above a certain limit. The fact of the matter, however, is that this ‘burden’ is more than offset by continuing discrimination in favour of property income (no tax on dividends, no long-term capital gains taxation of share transactions, and no inheritance tax).
Among the steps taken to keep foreign investors in humour, the most shameless was the backtracking on the General Anti-Avoidance Rules (GAAR). Introduced only the previous year (2012) by the then Finance Minister Pranab Mukherjee, its purpose was to prevent the misuse of law to ‘legally’ avoid (as opposed to illegally evade) tax payment by foreign investors. But this thoroughly just and rational decision was soon put on hold, first for one year when Mukherjee was kicked up the ladder and Manmohan Singh temporarily assumed charge of the finance portfolio, and then, in January 2013, for another two years. However, the very mention of GAAR on budget day generated much adverse reaction on the part of investors and the finance ministry had to promptly clarify that all that was required of foreign institutional investors was tax residency certificates to continue to enable them to avoid paying tax on the income they earn on the investments they have brought in from Mauritius. Additionally, it was clarified that GAAR provisions will apply only on investments made after August 30, 2010 and that too only above a threshold of Rs.3 crore in tax benefits. All these assurances were necessary, it was said, for restoring and sustaining the confidence of foreign investors (and – this was left unsaid – also of Indian investors who prefer the Mauritius route of “round-tripping” to avoid tax).
Another symbolic gesture of appeasement was to be seen in the volte face on the Vodafone tax case. The Vodafone-Hutchison Essar deal of 2007 involved transfer of shares of a foreign company (Hong Kong-based Hutchison) on Cayman Islands, that is outside India, which indirectly held the shares of an Indian company (Hutchison-Essar, since renamed Vodafone Essar and currently known as Vodafone India). In one of India’s biggest tax controversies, with the Tax Authority demanding approximately $2.5 billion in capital gains tax from Vodafone and additional penalties in a similar range, the Supreme Court held in January 2012 that indirect transfer would not be taxable in India. The SC also dismissed the review petition filed by the Union of India and the Tax Authority in February 2012. The Supreme Court directed the tax department to return the Rs. 2,500 crore deposited by Vodafone in compliance with an interim order. The apex Court’s order was seen as a victory for Vodafone. In response, the then Finance Minister Pranab Mukherjee amended the Income-Tax Act, 1961 with retrospective effect to undo the Supreme Court’s judgement.
Following this, international and domestic investors began to raise concerns about investing in India. The government then appointed a committee under tax expert Parthasarthi Shome to look into the issue. The Shome committee promptly recommended the reversal of Mukherjee’s decision regarding GAAR and withdrawal of the demand on Vodafone. Both recommendations were accepted in principle and conciliation with the MNC arrived at, even as P Chidambaram kept visiting the US and other Western countries begging for foreign investment and meeting foreign investors in Delhi.
Moreover, as if to flood the country with all types of foreign funds, the government further eased ECB rules also. ECB limit for NBFCs, including IFCs (Infrastructure Finance Companies) under the automatic route has been increased from 50 % to 75 % of their owned funds, including the outstanding ECBs. The limit for automatic approval has also been increased from $100 million to $200 million for the services sector (hospitals, tourism, etc.) and from $5 million to $10 million for non-government organisations and micro-finance institutions.
But this is a short-sighted policy that directly contradicts RBI’s stated policy stance of “discouraging debt flows”. It will further enhance our external debt and interest burden, the ill effects of which we have already discussed.
With the SEZ avenue of corporate loot coming up against powerful mass resistance and the land acquisition legislation getting delayed, in early 2013 the UPA cabinet took a bypass route – that of administrative reforms aimed at speeding up economic deregulation. Thus in the name of clearing the obstacles to growth, the government set up a pair of high power supra-ministerial bodies mandated to use authoritarian discretionary powers to sanction industrial/business projects by overriding principled opposition from official and non-official bodies. One is the Foreign Investment Promotion Board (FIPB) and the other, the National Investment Board (NIB). The latter was soon renamed as Cabinet Committee on Investment (CCI) and placed under the chairmanship of the Prime Minister, so as to make it all-powerful.
In whose interest were these bodies founded? Facts speak for themselves.
It was at the instance of the FIPB that, as already noted, IKEA was allowed to sidetrack the condition of accessing at least 30% of products from Indian SMEs. At the time of founding NIB/CCI, the finance ministry observed that it was needed because green clearances were holding up the country’s infrastructure development and growth. This was strongly contested by the Ministry of Environment and Forests (MoEF) and others like the Delhi-based Centre for Science and Environment (CSE) and the Bengaluru-based Environment Support Group (ESG). “The board is patently undemocratic, anti-federal, counter-intuitive and an extremely dangerous proposal and it militates against the national interest, compromises good governance, and imperils our cherished constitutional legacy,” said the coordinator of ESG. But the FM had his way and the CCI was set up as a fast track supreme arbiter working for industrialists. In a matter of two months, that is by March 2013, it gave the nod to projects worth Rs. 74,000 crore, stuck for years due to lack of various clearances. Most of these projects are in the infrastructure and energy sectors (mainly coal, oil, power) and they involve large scale evictions and damage to the environment. In several cases, objections raised by Ministry of Defence and Oil Ministry, the Defence Research and Development Organisation (DRDO)/Indian Air Force (IAF) were overruled. Interests of local communities as well as overall environmental and security concerns were thus sacrificed on the altar of ‘development’.
Minister of state Jayanthi Natarajan wrote to Prime Minister Manmohan Singh expressing concern over setting up of such a body. She pointed out that the NIB was to set deadlines for granting clearances which includes environmental clearances, for ultra mega projects of Rs 1,000 crore and above. The project proponents could approach NIB if they were aggrieved by the decision of MoEF. But an ordinary person’s right of appeal to the board, if aggrieved by the project, was not recognised. She noted that her ministry in no way has ever stalled projects and had granted environmental clearances to as many as 181 coal mine projects in the 11th Five Year Plan and alleged that the proposed changes in the environmental clearance procedure would have far-reaching consequences on the way the MoEF runs.
The rational position was not acceptable to top industrialists and therefore the Congress high command; Narendra Modi also raised the bogey of a ‘Jayanti Tax’. Following the party’s dismal performance in the Assembly elections at the end of 2013, the Congress, desperate to appease big business and step up investment before the Lok Sabha polls, removed Natarajan from the cabinet on December 21. Two days later Veerappa Moily, who had already proved his mettle as Petroleum Minister in the service of the likes of Mukesh Ambani, was given the additional charge of MoEF.
The environment ministry had, in 2009, made it mandatory to get the consent of all the gram sabhas whose lands were involved in projects like roads, transmission lines and pipelines that pass through several villages and vast forest land, in order to protect the rights of scheduled tribes and other traditional forest dwellers under the 2006 Forest Rights law. The CCI or Cabinet Committee on Investment ordered a roll back of this “hurdle” but Natrajan was willing to follow the law of the land and Supreme Court directives on the matter. For that crime and for doing her duty she lost her job. After approving projects (including Posco steel) worth Rs 1.5 lakh crore in the first three weeks, Moily said in mid-January that in another month he will clear 55 more projects.
Subsidisation of the corporate sector by the state has assumed scandalous proportions in recent years. Exemptions handed out to the corporate sector in annual budgets gives us one straightforward indication and the amount adds up to more than Rs 5 trillion in the last eight budgets. As we have noted earlier, the corporate sector is the biggest recipient and defaulter of loans extended by Indian public sector banks – and despite the gloomy economic scenario banks are loaning out huge amounts to their corporate clients, the total volume of highly risky corporate debt running into Rs. 3.6 trillion.
Here is another example. We often hear that thanks to reforms, the private sector is now playing a big role in infrastructure development, which is so crucial for national prosperity. What is kept secret is the fact that this is just another way of milking the public cow for earning private profits (and praise). In the aviation sector for example, a host of private players started operation with much aplomb and fanfare but almost all of them – Kingfisher being only the most sensational, tip-of-the-iceberg case – have since gone into the red, with burgeoning defaults on the huge loans from (mostly public sector) banks. An even larger sum of money – Rs.2,69,165 crore – has been lent to private power projects, many of which, being neck-deep in trouble, are habitual defaulters. The government on one hand is trying to bail out these projects with subsidised coal supply and other concessions and on the other hand making periodical cash infusions into the banking sector – to the tune of Rs.20,157 crore, 12,000 crore and 15,000 crore respectively in FY 2010, 2011 and 2012 – so as to maintain the required capital adequacy ratio. Both ways, it is public resources that the government is arbitrarily siphoning off to the private sector whether directly or indirectly through (PSBs).
Just as the SBI has been the worst sufferer in the Kingfisher case, so also in most other instances PSBs had to bear most of the burden. The reason is that the government pressures them into lending to these high-risk ventures, which private banks generally steer clear of. This is clearly manifested in available data. During the period FY 2009-12, bank credit grew at approximately the same rate in state-owned and private banks: by 19.6% and 19.9% respectively. But the volume of restructured loan grew at a compound rate of 47.9% in the case of public sector banks, compared to only 8.1% in the case of Indian private banks. Foreign banks acted even more prudently during this difficult period. The loans they advanced grew at a modest 11%, i.e., more than eight percentage points lower than their Indian counterparts, and they religiously avoided lending to the risky infrastructure sector. The result was that their restructured loans decreased by as much as 25.5% during the same period. Clearly, the worst performance of PSBs on this score is to be attributed not to their presupposed inefficiency, but to the government’s policy stance of providing all conceivable help to big capital even where that entails huge losses for the lending banks, i.e., ultimately for the national exchequer.
Going ahead in the same direction, the government has now conceded big business houses’ long-standing demand that they be allowed to set up their own banks. The latter are very happy, for now they will be able to take easy loans from public deposits. Such banks can confer undue advantages in lending to their own business concerns by breaking norms of prudent banking (very low interest, extra leniency regarding repayment etc.) thereby jeopardising the interests of other shareholders of the bank. That is why Nobel laureate Joseph Stiglitz said in Mumbai In January 2013 that corporates should not be allowed to enter the banking space as it has the potential to create conflict of interests. As one perceptive analyst quipped, the best way to rob a bank is to own one!
It has been argued that the move would serve to extend banking services to more people, including those in rural areas. Does past experience justify such expectations?
When doors were thrown wide open to foreign and domestic private banks (though not to existing corporate entities) in the 1990s, the number of scheduled commercial banks first rose but then declined as banks were closed on grounds of non-viability. The share of rural branches in the total fell from 58 per cent in 1990 to 37 per cent in 2011. The population cover also worsened: from 13,700 per bank branch in 1991 to 15,200 in 2001 and close to 16,000 by the end of the first decade of this century. Moreover, there was a sharp decline in the share of priority sector advances in total non-food credit: from 40 per cent in 1990 to 33 per cent in 2012. The shares of agriculture and the small-scale industrial sector came down to 12.2 and 6 per cent respectively in 2012 from 16.4 and 15.4 in 1990.
It is futile to expect that the new breed of corporate banks would tread a very different path and serve any useful social purpose. Of course, the real purpose – that of opening yet another channel of private corporate plunder – will certainly be served.
To judge the new decision in perspective, the Indian experience tells us that public ownership to some extent influences the behaviour of bank managers trained as public servants not to succumb to the lure of quick profits, and this helps avoid the US-type banking crisis. The period since 1993, however, has witnessed a steady retreat from the dominance of public ownership by means of (a) grant of greater space for foreign banks (b) grant of licences to new private banks and (c) considerable dilution of public ownership in the nationalised and state-owned banks by significantly increasing the share of private equity ownership. The latest decision allowing corporate entry is yet another retrograde step in the same direction, one that further strengthens corporate control on the banking sector and goes directly against the needs of small business and the small account-holders.
The government never tires of waxing eloquent on its commitment to inclusive growth, but in real life contradicts itself in every step. The latest example is the land acquisition Act passed last year, which seeks to satisfy the hunger of big business by dispossessing the toiling millions.
Deceptively titled “The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement”, the new Act actually leaves the field open for accelerated and unfettered transfer of agricultural land without any effective provisions of compensation or resettlement.
The Act is essentially about the procedure to be generally adopted – exemptions are always allowed as ‘a demonstrable last resort’ – for acquisition of land by the state. ‘Private purchase of land through private negotiations’ is completely outside the ambit of this entire legislation. And contrary to the text of the 2011 draft, the final version does not specify any limit for such privately negotiated private purchase (read corporate land grab by hook or crook) and leaves it entirely to the whims and fancies of ‘the appropriate government’.
The acquisition of land by the state is legitimized by invoking ‘public purpose’. The new Act has evolved a most flexible definition of public purpose by virtually including any and every purpose other than agriculture! Any supposedly strategic purpose is obviously designated as public purpose and that includes ‘purposes relating to naval, military, air force, and armed forces of the Union, including central paramilitary forces or any work vital to national security or defence of India or State police’ or ‘safety of the people’. And then all kinds of infrastructure projects, industrial corridors or mining activities and investment or manufacturing zones designated in the National Manufacturing Policy, and projects for sports, health care, and tourism also come within the purview of ‘public purpose’. Private hospitals, private educational institutions and private hotels are excluded, but public-private partnership projects where the ownership of the land continues to vest with the government or private companies involved in any activity defined as ‘public purpose’ are all covered by the Act. In other words, the pursuit of private profit is also being sanctified as ‘public purpose’.
A major grievance against the 1894 Land Acquisition Act concerned the forcible nature of the acquisition where the affected people had little say. The government claims to have addressed this aspect and the new Act requires the state to obtain 70% prior consent in the case of acquisition of land for public-private partnership projects and 80% consent where land is being acquired for a private company. But no prior consent is needed where the state acquires land for its own use or for Public Sector Undertakings.
Instead of seeking the consent of the affected people, the Act talks about consulting concerned local bodies and conducting a social impact assessment study and getting it evaluated by an expert group. The recommendations of the expert group are however not mandatory and any government can overrule them provided the ‘reasons’ are recorded in writing. Moreover, the requirement of a social or environmental impact assessment study does not arise if and when any government invokes the ‘urgency’ provision relating to any strategic purpose.
Next comes the question of compensation, rehabilitation and resettlement. Here again, the question does not arise in cases of ‘privately negotiated private purchase’. A private company attracts the provisions of compensation, rehabilitation and resettlement only when it requests the state to acquire some land over and above what it has already purchased. It has been widely seen that land acquisition affects a whole lot of people beyond the owners of the concerned land plots. The new Act recognizes this reality while defining ‘affected families’ but leaves out the landless from the ambit of compensation. Those who suffer displacement are offered something by way of rehabilitation and resettlement, but landless agricultural labourers and share-croppers or people engaged in sundry professions whose livelihood is affected by land acquisition hardly get anything.
Beyond the direct loss of land and livelihood, acquisition of agricultural land, existing or potential, adversely affects food security. The new Act has a small section entitled ‘special provision to safeguard food security’ which however offers no concrete safeguard. Projects that are ‘linear in nature such as those relating to railways, highways, major district roads, irrigation canals, power lines and the like’ are exempted from this provision and recent experience clearly shows that huge amounts of agricultural land are being diverted in the name of expressways and corridors. Acquisition of agricultural land is however not restricted to only such projects of ‘linear nature’. The Act allows acquisition of all kinds of agricultural land including irrigated and multi-cropped land for any project in ‘public purpose’, and that too, without specifying any limit.
At a time when India needs to increase food production and increase the actual area under cultivation, the state is thus paving the way for a steady decline in effective availability of agricultural land thereby pushing the country into a more acute food and agrarian crisis. What kind of growth can take place on this foundation, and for whom?
Now, leaving apart for a moment the question of the desirability of the seven sets of measures outlined in this chapter, will they prove effective in bringing back the high growth rate of yester years? That hardly seems to be the case. Even the big ticket reforms – read new concessions to big capital – are in most cases failing to produce expected results. Thus, last year’s relaxation of the cap on foreign investment in almost all sectors was immediately greeted by South Korea’s Posco scrapping its $6 billion project in Karnataka and the world’s largest steel maker Arcelor-Mittal withdrawing its $12 billion steel plant project in Orissa. And there is nothing to be surprised about such setbacks. Given the fragile state of the Indian economy, it is only to be expected that profiteers from abroad would not show much interest investing in this country. The actual experience over the past one year (in the case of FDI in retail for example, where their response was less than lukewarm) amply proves this.
Similarly, the poor prospects of the economy are prompting many an Indian businessperson to invest more abroad than in the home country. Their pragmatic approach was authentically voiced by noted industrialist and FICCI ex-Vice President Y K Modi at the 76th convention of FICCI held in December 2013. In reply to Rahul Gandhi’s appeal for brisk investment he said he would not invest in India just because she needs it, but only in the interests of his concern and its shareholders; otherwise he would prefer investing in other countries.
To take another instance, there is hardly any progress in the matter of opening corporate banks. Following Value Industries, promoted by Videocon’s Venugopal Dhoot, Tata Sons has withdrawn its application for opening a new bank. A few other prominent players like Mahindra Finance have announced they preferred to stay away from the field.
Clearly, the spell of Manmohanomics is over. What remains, and is growing profusely, is a pair of its toxic by-products.
AS Marx pointed out long ago, “The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie”. In other words, business-state or business-politics nexus is an essential ingredient of capitalist polity. This has been the case in our country too ever since the Indian state was born.
However, since in a parliamentary system the government also has to take some care of the voters, a continuous tug of war ensues between the popular masses and the exploiting rich, with each side trying to influence and bend state policy in its own favour and the outcome is determined, within the broad limits of the system, by the balance of forces between the two sides. In the Indian context, in proportion as the capitalist class became more powerful economically, it came to exert ever stronger political influence on successive governments. This became glaringly visible since 1980s and the more so since 1990s, when the role of the state was changed from regulator of the economy to facilitator of investment.
So what is now popularly called “business-politics nexus” is the product of a long process of evolution, which has now reached a stage that needs a new name to adequately describe itself. That term is crony capitalism or simply cronyism, where “crony” refers to old friends or favoured ones to whom undue privileges/concessions/lucrative posts are offered irrespective of their merits
Similarly, we all know that economic scandals or scams – corruption in more general terms – are nothing new. What is new is the incomparably larger scale of corruption today, which is a gift of neoliberalism. This will be evident if we compare pre-1991 economic scandals with recent ones. Take for example the Bofors scandal. It involved a ‘mere’ 64 crore rupees. Even after adjusting for inflation, the figure would now come to, say, 300 crore rupees. The 2G spectrum scam involved Rs. one lakh seventy-six thousand crore! That is, nearly 600 times the Bofors amount!
Also take a look at the amount of money being illegally siphoned off our country to Switzerland and other tax havens. According to a report prepared by the US-based research body Global Financial Integrity, in the 60 years between 1948 and 2008, more than Rs 20 lakh crore has exited the country in this way. Nearly half of this drainage occurred in the 1992-2008 period, i.e., in 16 years, while about a third occurred in just 8 years of the 21st century.
These mind-boggling figures show that the eclipse of the “license-quota-permit raj” – yesteryears’ convenient whipping boy for rampant corruption – did not lead to any decline in the menace. On the contrary, all-pervasive liberalisation, privatisation and globalisation have thrown the floodgates of corruption wider open. The 2G scam, it should be noted, surfaced recently but had its origin long ago – during the booming 2000s. The same is true for most other scandals that came to light after the deceleration in growth rate started. This shows that the period of the biggest leap in growth rate was also the one marked by the biggest explosion in corrupt practices.
So what is new is that the age-old collaboration between politics and business has now developed into a coalescence of the two in the crucible of power. The Vadra-DLF deals and the operations of Gadkari’s Purti group of companies give us an idea of the intricate ways in which political influence is converted into corporate wealth with impunity and the latter is further used to buy necessary ‘connections’. But it is not the “political class” alone that is to blame. A whole host of companies and conglomerates, both old and new, have revelled in ill-earned profits in all kinds of scams involving, for example, modernisation of airports, allotment of coal blocks or even purchase of trucks and coffins for the armed forces. In some cases, such as the Tatra truck contract, foreign MNCs are involved, while in some others like the sale of 2G spectrum, companies which took part in the bidding without the required expertise or capacity, offloaded majority stakes to foreign players at huge profits. Moreover, a good many big players routinely take capital out of the country by illegal means like transfer pricing, mis-invoicing and hawala.
Cronyism and scams are to be condemned not just on moral and political grounds. No less serious are the economic consequences. This is excellently brought out in the essay “The Great Indian Hope Trick” by Ruchir Sharma.
“Under the current regime of drift in India, crony capitalism has become a real worry. Widespread corruption is an old problem, but the situation has now reached a stage where the decisive factor in any business deal is the right government connection. When I made this observation in a September 2010 Newsweek International cover story titled ‘India’s Fatal Flaw’, I was greeted as a party spoiler. Top government officials told me that such cronyism is just a normal step in development, citing the example of the robber barons of nineteenth-century America. (See how Sharma refutes this argument at the end of these excerpts – A Sen)...
“Since 2010, the issue has exploded in a series of high-profile scandals... India’s place on Transparency International’s annual survey of the most and least corrupt nations fell to number 88 out of 178 nations in 2010 – down from number 74 in 2007. India is approaching the point that Latin America and parts of East Asia hit in the 1990s, when a backlash started to form against economic reforms because any opening up of the economy was seen to favour just a select few. The first stirrings of the middle class discontent appeared in 2011 as many urban Indians started to rally behind social activist Anna Hazare.”
Is there a link between the crony-scam double menace and excessive concentration of wealth? Yes there is, says Sharma, and draws attention to certain special features and trends of Indian capitalism, notably its disproportionately top-heavy nature and stagnation at the summit, which militate against growth:
“... [T]he country has no wealth inheritance taxes. But wealth at the top is exploding, perhaps faster than in any other country. In 2000 there were no Indian tycoons among the world’s top-one-hundred billionaires, and now there are seven, more than in all but three countries: the United States, Russia and Germany. In this category India outranks China (with one) and Japan (with zero).
“A rule of the road: watch the changes in the list of top billionaires, learn how they made their billions, and note how many billions they made. This information provides a quick bellwether for the balance of growth, across income classes and industries. If a country is generating too many billionaires relative to the size of its economy, it’s off balance.... If a country’s average billionaire has amassed tens of billions, not merely billions, the lack of balance could lead to stagnation. (Russia, India and Mexico are the only emerging markets where the average net worth of the top-10 billionaires is more than $10 billion.)...
“If a country’s billionaires make their money largely from government patronage, rather than productive new industries, it could feed resentment (which is what sparked revolt in Indonesia in the late 1990s). Healthy emerging markets should produce billionaires, but the number must also be in proportion to the size of the nation’s economy; the billionaires should face competition and turnover at the top; and ideally they should emerge predominantly from productive economic sectors, not cosy relationships with politicians.”
It would be interesting at this point to see how the biggest billionaires actually emerge in our country and what level of monopoly power they can reach. As an example, let us cast a glance at Mukesh Ambani, who with net worth of $21.5 billion has retained his title as India’s richest person for the sixth year in a row.
It is an open secret that the shifting of Jaipal Reddy from the Ministry of Petroleum and Natural Gas towards the end of 2012 was effected to help Reliance Industries raise the price at which they can sell gas from the Krishna-Godavari (KG) basin. Reliance had earlier demanded a steep rise in the price of gas from the previously agreed (the contract was valid up to 31st March 2014) $4.2 per million British Thermal Units (mm BTU) to more than $14 mm BTU – i.e., by more than 300 per cent. In a note prepared for the Empowered Group of Ministers (EGoM), Reddy had pointed out that acceptance of RIL’s demand would mean an additional profit of Rs 43,000 crore ($8.5 billion) to the company in 2 years even at current levels of low production and impose an additional financial burden of Rs 53,000 crore ($ 10.5 billion) on central and state government. This would in turn mean either higher electricity and fertilizer prices in the country, or a higher subsidy burden on the government. On these very valid grounds he turned down the request. The company retaliated by reducing production by half, falsely claiming that this was on account of technical hitches. It had also refused to allow a full audit of its operations and put pressure on Reddy alleging that “policy logjams” had been holding up investments in their facilities. The Congress High Command surrendered to the blackmail. Reddy was shifted to the portfolio of Science and Technology and a docile Veerappa Moily brought in. Thanks to the bribe power of RIL, the principal opposition party and the corporate media remained almost silent about the whole episode till “India Against Corruption” substantially exposed the case.
The change immediately proved effective. When in mid-2013 the Comptroller and Auditor-General (CAG) complained to the concerned Ministry about RIL’s failure to cooperate in the audit of the KG-D6 gas block, Moily gave RIL a clean cheat. About a month later, in September, the CAG again lodged a complaint with the government that the company was withholding information on important issues and once again it was of no avail.
All this is nothing new. Back in 2006, Mani Shankar Iyer was replaced by Murli Deora, who was quick to sanction the enhancement of RIL’s capital expenditure estimate from $ 2.39 billion to $ 8.8 billion (which meant a big tax advantage) and of gas price from $2.34 per mm BTU to $ 4.2 per mm BTU. It seems as if, right from Ram Naik in Vajpayee regime
There have been many other irregularities too, all condoned by successive governments. For example, RIL signed a contract with National Thermal Power Corporation (NTPC) in 2004 to supply gas for its power plants at $ 2.34 per mm BTU for 17 years and a similar contract with Reliance Natural Resources Limited (RNRL). However, RIL went back on its word. Under RIL’s pressure, an EGoM headed by Pranab Mukherjee revised gas price in September 2007 to $ 4.2 per mm BTU. NTPC and RNRL were forced to accept gas from RIL at the enhanced price, allowing the latter a huge extra profit.
In July 2011 the company sold 30% stake in 21 of 29 oil blocks to British Petroleum at $ 7.2 billion with government approval, much like the sale of coal blocks and spectrum for 2G telecommunications by some of the original allottees at huge illegitimate profits.
In a word, RIL is allowed to behave as if it owns the resources, ignoring the fact it is but a contractor hired by Government to extract gas, which is owned by the people of India. Moreover, the performance of the company in terms of capacity utilisation, cost of production etc. has been much worse than public undertakings in petrochemicals. Thanks to such shameless state patronage, in FY 2011 it earned more than Rs.20,000 crore in profit, while its revenues exceeded Rs.2.5 lakh crore.
And more was yet to come. Using the fig-leaf of the so called “expert” Rangarajan Committee
The RIL empire is not limited to petrochemicals, oil, natural gas and its original breeding ground of polyester fibre. It now covers special economic zones, fresh food retail, high schools, life science research, stem cell storage services and what not. It boasts 95% stakes in Infotel, a TV consortium that controls 27 TV news and entertainment channels including CNN-IBN, IBN Live, CNBC, IBN Lokmat and ETV in almost every regional language and owns the only nationwide licence for 4G broadband. The emperor controls the “Mumbai Indians” IPL team and his residence “Antilla” has 27 floors, three helipads, nine lifts, hanging gardens, ball rooms, weather rooms, several swimming pools, gymnasiums, six floors for parking and there are 600 employees to serve their master.
It is not difficult to estimate what could be the combined wealth of the Ambani family had Mukesh not separated from his billionaire brother Anil. In April last year he became the first individual from the private sector to be provided with Z category security, because he is “a national asset”, as a spokesperson of the Indian Government put it.
To come back to Ruchir Sharma,
“Crony capitalism is a cancer that undermines competition and slows economic growth. That is why the United States confronted the problem and moved to take down the robber barons by busting up their monopolies in the 1920s. Ever since the passage of the anti-trust laws, the American economy has seen constant change in its ranks of the rich and powerful, including both people and companies. The Dow index of the top-30 US industrial companies is in constant flux and, on average, replaces half its members every 15 years. India’s market used to generate heavy turnover too, but in late 2011, twenty-seven – 90 per cent – of the top 30 companies tracked by the benchmark Sensex index were holdovers from 2006. Back in 2006 the comparable figure was just 68 per cent.... This is emblematic of a creeping stagnation at the upper echelons of the elite...”
It is not that Sharma denies the high growth rate and certain strong features of the Indian economy. But he believes that the hullabaloo about the growth ‘miracle’ is nothing but an illusion – much like the rope tricks Indian street magicians used to play in colonial India, from which he derives the highly suggestive title to his essay.
Like Sharma, Raghuram Rajan (previously Chief Economist at the IMF, brought in first as Chief Economic Adviser to the PM and then promoted to the Governorship of RBI) used to be highly critical of what he saw as ‘privatisation by stealth’ (his version of what we call accumulation by dispossession/encroachment?). He argued that the predominant sources of wealth in India are land, natural resources, and government contracts and pointed out that after Russia, India has the largest number of billionaires in the world per trillion dollars of GDP. “If we let the nexus between the politicians and the businessmen get too strong”, he warned, “we could shut down competition. That could slow us down tremendously...” (Times of India, Jul 31, 2010). Rajan also warned about the possibility that the emerging oligarchies could control major businesses and consequently government policy and lead the country to a middle income trap due to corruption and cronyism – as evidenced in countries like Mexico. It is another matter that now Rajan is ensconced as the RBI Governor and we hardly hear him say anything about the pitfalls of cronyism.
Meanwhile, the power of cronies is growing apace. The Radia tapes have demonstrated how Members of Parliament, under the influence of corporate lobbyists, acted to benefit specific corporations on a host of policy issues. Rather than punishing the guilty, it is being proposed that lobbying should be legalised even as the official Lokpal Bill says that such corrupt conduct by elected representatives cannot be investigated by the Lokpal. Indeed, extrapolating what Mukesh Ambani commented in a private conversation, we can say all ruling parties have really become “apni dukan” – own shops – of the biggest corporate houses.
The issue of black money is one that is raised now and then, hotly debated in every public forum, demands and promises are made for unearthing it, and then with the dust slowly settling down, other issues come to occupy the centre stage. What we are left with are updated estimates of black money, even as the parallel economy goes on flourishing more vigorously than the official economy.
Soon after independence, Cambridge economist Nicholas Kaldor had estimated the size of India’s black economy at 2-3% of its official or “white” GDP for the financial year 1955-56, and a Direct Taxes Enquiry Committee (Wanchoo Committee) had arrived at an estimate of 7% of white GDP for late 1960s. Arun Kumar in The Black Economy of India (Penguin Books, New Delhi, 1999) estimated the size of India’s black economy as approximately 40% of its white GDP for the financial year 1995-96. From Kaldor’s to Arun Kumar’s estimate, it is a 16-fold increase in the relative size of the black economy. As per Kumar’s estimates for 1995-96, around four-fifths of India’s black gross domestic income is generated through legal economic activity, and overwhelmingly this tends to be property incomes rather than incomes derived from business or other work.
The latest document on this topic is the Government of India’s White Paper on Black Money which, as expected, is only an exercise in mass deception. It does not call for abolishing the most widely used methods of money laundering, such as participatory notes (PNs) – an instrument which allows a foreign investor to invest in Indian securities but remain anonymous to Indian regulators. Nor does the document disapprove of the preferential routing of foreign investment through Mauritius, Cayman Islands and Singapore (which is frequently used by resident Indians for “round tripping”, i.e., for investing black money in their own companies and also by foreign investors to avoid payment of taxes) even after admitting that huge investments coming in from these tiny states could be black money re-entering India as “white”. And the big question – the actual amount of black money in India – was left totally unanswered.
NO unbiased observer would deny that the economic situation in India is indeed frustrating. Nor would anyone say things were any better in the past. More than 60 years have been spent blaming this or that economic model/strategy and this or that political party/coalition for this sordid state of affairs. Is it not high time we recognised it as a grave systemic problem basically caused by internal deficiencies and distortions and further accentuated by the global economic turmoil? And searched for a real solution – radical but practicable, difficult and time-taking but achievable step by step?
Well, this search could be facilitated if we spared some time looking at the recent international experience. Since the Indian context is very different from those of the world’s richest countries like the US and Germany, it would be of little help discussing their cases. As for troubled countries like Greece, Cyprus, Iceland etc., the central lesson is that stringent austerity measures imposed in these countries under pressure of international finance capital have proved absolutely counter-productive. These economies have been contracting for years together as a result of expenditure cuts while people’s hardships are growing, compelling them to overthrow governments – even recently elected ones like the pseudo-left government in Iceland in April last year – and staging powerful street protests (as in Turkey and Brazil very recently). If anything, the experience in these countries can only teach us what we should not do.
Positive lessons can of course be learnt from Latin America. Led by Cuba and Venezuela in particular and ably supported by other countries like Bolivia and Ecuador, the Bolivarian Alliance for our Americas (ALBA) is building an alternative to the US dominated trade with the aim of regional economic integration based on cooperation for mutual social welfare, bartering and economic aid. To further deepen Latin American integration and challenge American domination, ALBA has been followed up with CELAC (the Community of Latin American and Caribbean States) comprising 33 sovereign countries in the Americas excluding the USA and Canada. These are highly inspiring and instructive collective endeavours; something which countries in the Indian subcontinent could perhaps try and emulate, with the largest among them taking the lead.
Again, we can gain some useful insights from the experience of our major northern neighbour. Both India and China are ancient Asian nations with close cultural and economic ties spanning centuries; currently both are poster boys of globalisation, economic reform and high-speed capitalist development. Yet, as we shall just see, apart from structural differences there are subtle but vital differences in the political attitudes and economic policies of the two governments, which account for very different results of reform.
Everybody knows that our country attained independence two years before China did. It was in a better situation at that time in terms of industrialisation and availability of cultivable land as well as several mineral resources like coal and iron. Pranab Bardhan, however, gives us some more interesting information:
“India was slightly ahead of China in 1870 as well as in the 1970s in terms of the level of per capita income at international prices, but since then, particularly since 1990, China has surged well ahead of India. India’s per capita income growth rate in the past two decades has been nearly 4 percent. China’s has been at least double.”
In other words, the strategy of opening up and reform in the era of globalisation has been incomparably more successful in China than in India. There are many important reasons, not the least being the much stronger fundamentals built up in China in the pre-reform decades despite many mistakes and the disastrous economic impact of the Cultural Revolution.
There is a common misconception that China’s spectacular growth in recent, i.e., post-reform decades have been export- driven from the very start. Bardhan, however, has shown that “in terms of growth accounting, the impact of net exports on China’s growth in the period 1990-2005 has been relatively modest compared to the impact of domestic investment or consumption. Second, China had major strides in foreign trade and investment mainly in the 1990s and particularly in the subsequent decade; yet already between 1978 and 1993, before those strides, China had a very high average annual growth rate of about 9 percent. ...much of the high growth in the first half of the 1980s and the associated dramatic decline in poverty happened largely because of internal factors, not globalization. These internal factors include an institutional change in the organization of agriculture, the sector where poverty was largely concentrated, and an egalitarian distribution of land-cultivation rights, which provided a floor on rural income-earning opportunities, and hence helped to alleviate poverty. Even in the period since the mid-1980s ... domestic public investment in education, agricultural research and development, and rural infrastructure has been a dominant factor in rural poverty reduction in China.”
Thus, right up to 2005 domestic investment and consumption, with state spending leading the way and great emphasis laid on agriculture and rural economy, played the major role in both poverty alleviation and GDP growth, the two – unlike in India – marching hand in hand at least to some extent. This, together with the decisive non-dependence on foreign capital, is an important lesson to be drawn from the Chinese experience.
Secondly, Beijing did concede many conditions or demands of the WTO and imperialist finance capital to integrate itself more and more closely with the global capitalist economy and to lure MNCs to relocate part of their manufacturing operations to China. But all this was done with a long-term vision of strong economic nationalism (whether this could be construed as part of building socialism is an entirely different debate) that stands in complete contrast to the blatantly comprador attitude of successive Indian governments. Often enough the present PM and FM speak and behave like agents/ apologists of imperialism
Third and most relevant in the current context is the prompt, flexible and independent (in relation to the constant flow of sermons and allegations from Washington) policy decisions the Chinese government has been taking in the national interest. In a way this was much more difficult for China than India because the degree of integration with the global (especially American – so much so that the two economies came to be described as “Chin-American”) capitalism was considerably higher.
James Petras wrote about a “revolving door from Wall Street to the Treasury Department to Wall Street”, with top bosses in private financial institutions joining the US Treasury to ensure that everything Wall Street needs are easily granted and then return to the private sector in higher positions. We witness in our country a variation of such “revolving door” between the Breton Woods Institutions and the economic apparatus of the Indian state.
The trend became conspicuous since 1990s, when aping America in almost everything became standard practice with Indian policy-makers. Manmohan Singh himself was Alternate Governor for India, Board of Governors, IMF, during 1982-85. Montek Singh Ahluwalia, an Oxford graduate who worked in the World Bank under Robert McNamara in early 1970s and for some time also with the IMF, was appointed Secretary, Department of Economic Affairs under Finance Minister Manmohan Singh, before becoming Finance Secretary in April 1993 despite protests by IAS officers who were annoyed that such a post was given to a non-IAS officer. He served as a member of the Planning Commission from 1998 to 2001 and went back to IMF in July 2001. Three years later, he was brought back to India as Vice-Chairman of the Planning Commission. In recognition of his exemplary service in helping impose IMF-inspired neoliberal policies – by fabricating figures (recall how he scaled down the poverty line) and other means – he was awarded Padma Bhushan in 2011.
Another high profile appointment was that of Raghuram Rajan, who served as Chief Economist at the IMF from October 2003 to December 2006. In November 2008, Manmohan Singh appointed him as an honorary economic adviser and in August 2012 he was appointed as Chief Economic Advisor (CEA) to the Government of India. In September 2013, he became the governor of Reserve Bank of India.
Not that there is no reverse flow. Kaushik Basu, who was CEA before Rajan, has taken up the same position which Rajan had previously occupied: Chief Economist at the IMF. Then there is Dr. Rakesh Mohan, previously Deputy Governor of the Reserve Bank of India and also Secretary in the Department of Economic Affairs, who has recently assumed charge as Executive Director on the Board of the International Monetary Fund (IMF). In addition to India, Dr. Mohan will also be representing Sri Lanka and Bhutan on the Board of the IMF.
Thus in 2008 Beijing launched an economic stimulus package worth $585 billion. But unlike the bailout packages for the greedy banks responsible for the crisis in America and Europe, here the stress was on vastly improving domestic infrastructure (which served to ease, to some extent, the unemployment caused by closure of export-oriented industries while laying a broader base for future development) and lowering the currency exchange rate (to make Chinese exports more competitive in a tight market, ignoring threats of retaliatory action from the US and EU). The result was apparently brilliant: facilitated by an easy credit policy, the growth rate rose from 6.6% in the first quarter of 2009 to 12.1% in the first quarter of 2010.
But soon the government noticed symptoms of overheating, such as consumer price inflation and a housing price bubble. It took steps like curbing bank credit, and investment expenditures by public sector corporations. But such measures had only short-term effects. Moreover, much of the newly built roads, bridges etc. were lying largely unutilised. The government then opted for a major change in policy framework: a shift of emphasis from investment to consumption. For this purpose various measures were taken, e.g., tighter control on property speculation, including the revival of a 20% capital gains tax. As a result the contribution of investment to China’s growth came down from over 50% to about 30%, with a corresponding rise in the contribution of consumer spending. The Chinese government has expressed its readiness to accept some reduction in the “quantity of growth” for the sake of “improving the quality and efficiency of growth”.
The new approach to growth is also conducive to reducing inequality. According to figures released by the Chinese government, inequality rose when growth was high and fell when it slowed. To quote from an article in the online edition of People’s Daily, “China’s first release of the Gini coefficient for the past decade demonstrated the government’s resolve to bridge the gap between the rich and the poor.” Although the Gini has been falling, at 0.474 it is still well above the red line of 0.4 set by the United Nations. Drawing attention to this fact, Ma Jiantang, director of the National Bureau of Statistics, said, “the statistics highlighted the urgency for our country to speed up income distribution reforms to narrow the wealth gap.”
All this does not make China, with its rampant corruption and many other vices, a model for India to emulate. But of course we can criticality assimilate certain aspects or features of the ever-changing Chinese economy in keeping with our own conditions and priorities. The foremost among these is an independent economic policy geared to the people’s interests, a policy based on the concerned state’s autonomy in relation to global finance capital.
Periodic crises, we learnt from our brief dialogue with Marx in Crisis of Neoliberalism and Challenges before Popular Movements (see second and third covers of the present pamphlet), are an integral, organic, necessary part of capitalist accumulation. So the only way to really get rid of crises is to get rid of capitalism itself, to move towards socialism. Yes, socialism sans all dogmatic presuppositions, socialism conceived as a system where all means of production are socially owned, where everyone enjoys equal rights and opportunities, while free all-round development of each is a condition for development of all.
Well, this is our long-term goal. But we cannot leap-frog to that height from the abysmal depths of human degradation (partly hidden though by the glitter of a superficial and distorted capitalist growth) that our country finds itself in. We have to first unfetter the productive forces, especially in agriculture which still employs more than 50% of Indians, so as to create the material conditions for building socialism as a higher, more efficient form of economic organisation; and at the same time achieve genuine, participatory, people’s democracy as distinct from the parliamentary farce we are now treated to. For that we need nothing short of a people’s democratic revolution with agrarian revolution as its axis. The primary aim of this democratic revolution will be to sweep away all feudal remnants, abolish imperialist domination, restrain and control big capital by effective taxation, nationalisation and other means, and democratise the entire apparatus and mechanism of governance. It will usher in the rule of workers, peasants, progressive sections of middle classes and intelligentsia – i.e., a people’s democratic state – which will take care not only of our economic problems but attend to a broad spectrum of organically interlinked tasks ranging from thorough democratisation of society and polity to progressive cultural transformation. Victorious democratic revolution will in this way build the material and cultural prerequisites for an uninterrupted socialist transition.
With this general orientation, we can now try and jot down some of the basic points of a People’s Alternative to the official policy frame.
1. Overcome foreign capital fetishism and rely instead on generation of domestic demand and capital formation, for such a course alone can augment inclusive – and therefore sustainable – economic development. The reason behind the government’s craving for more foreign capital inflow is to be located not just in the top policymakers’ personal inclinations, though that is not unimportant. At a deeper level, it is the essential logic of the growth trajectory chosen by the Indian state with full concurrence of the monopoly bourgeoisie, both of which betray a comprador mindset of the globalisation era. The overall experience of the last two decades confirm that the long-term ill effects of depending on enhanced inflow of foreign capital as a growth steroid far outweigh the temporary and superficial benefits. So it is high time India got rid of this drug-addiction-like-syndrome. The latest decision of further relaxing the cap on foreign investment in a whole range of sectors including insurance, public sector banks, commodity and stock exchanges etc. must be revoked.
2. Let there be a development model that is people-centric and not geared to the interests of indigenous and foreign big capital. Reject the monetarist orthodoxy imposed by finance capital and the rating agencies. Stop arguing that all government spending must be indiscriminately reduced
3. Rather than imposing austerity on the working people, whose incomes stimulate demand and therefore the economy, curb the enormous wasteful expenditure on foreign trips, five-star living etc. of our ministers, MPs and top officials. As President of India Pratibha Singh Patil spent Rs. 206 crore on foreign tours (the highest ever), Rs.6 crore on a newly-fitted car, and after retirement, got a sprawling bungalow built for herself on military land in Pune. Again, as against Rs.47 crore budgeted for their tour expenses in 2011-12, Central ministers spent Rs.400 crore, compared to just Rs.56 crore in the previous year. The ruling politicians in our country have a special knack for innovating ways to fatten themselves on taxpayers’ money. When the penchant for jumbo ministries was sought to be curbed by statutory restrictions, leaders left outside the ministries began to be ‘adjusted’ as heads of newly floated paper corporations and in other lucrative positions. Such practices must be stopped. The ever-growing military budget and the huge expenditure on largely non-urgent space programmes must be curtailed to release funds for pro-people productive investments. And rather than fighting the CAG and the Supreme Court to save corrupt persons and practices, the government must take matching measures to punish the guilty and plug the loopholes in law and governance.
4. Stop behaving like a US agent and regional hegemon in South Asia, develop genuine friendship and closer economic relations with neighbours in particular and third world countries generally. Discard high-cost, high-risk atomic energy projects imposed on the nation by imperialist countries and the atomic energy lobby in India; stop handing over national resources to the likes of Mukesh Ambani and increase production/generation of energy in the public sector under effective workers’/public surveillance; ignore US pressure and access cheaper energy sources like Iran.
5. Scrap anti-farmer legislations like the SEZ Act and the new Land Acquisition Act, pass agricultural land protection legislation to stop the agony of eviction ‘for development’, introduce effective land reform measures and urban land ceiling Acts – to name a few measures that will promote inclusive development. Public investment in agriculture (irrigation, storage and marketing infrastructure etc) and allied sectors like poultry, dairy and pisciculture must be enhanced several times to strengthen the base of the Indian economy and ensure affordable healthy diet for all Indians.
6. Adopt a time-bound phased programme of regularising casual/contractual labourers, starting with those employed in government/semi-government undertakings, such as construction workers, honorarium-based workers in the social sectors, and so on. Such measures will go a long way in boosting the home market and thereby countering stagflation.
An alternative economic programme, incorporating but certainly not limited to the above proposals, needs to be formulated through open, broad consultations, widely propagated and fought for. While uniting with progressive and democratic forces in this struggle, the Left should try and leave its imprint on the democratic movement by consistently connecting every single issue of immediate concern to the broader, higher agenda of comprehensive social transformation. Take one instance – the issue of corruption.
In the foregoing pages we saw that with a distinct role reversal of the state from a regulator of private investment to its servile facilitator, with the rise of corporations too big to control, and the accelerated influx of predatory finance capital, we now have in place a new model of almost legalised, institutionalised corruption. Even there are instances where government officials and ministers collude with private interests to economically undermine PSUs, so that private players can expand their market share at the cost of the latter. The example of BSNL readily comes to mind – a case comparable to the KG basin gas reserve, which was discovered by ONGC with public money and then transferred to RIL for private plunder of these invaluable public resources.
In a situation like this, where political and corporate corruption feed on each other, the gang of four – neoliberalism, corporate plunder, cronyism and corruption – must be fought together, because they exploit and oppress us together. In other words, fighting corruption is not merely a matter of good governance and punishing guilty individuals. More important, it is about relentless struggle for basic course correction in policy, for a paradigm shift in the very orientation and mechanism of development and governance, with people’s economic and political empowerment at its core. We must therefore put forward concrete demands like protection of agricultural, forest and coastal land, and comprehensive rights of gram sabhas over these; confiscation of black money and illicit wealth; and nationalisation of mineral resources, extraction of which have proved to be the main breeding grounds of corruption and corporate plunder.
Then again, the movement should be directed not only against mega scams and macro issues, but equally against the all-pervasive everyday corruption at the micro level, such as in PDS, municipal and panchayat affairs, various schemes like the NREGA, and so on. This is crucial for building up the struggle from the grassroots, for involving the broad masses in this movement on the basis of their lived experience. Equally important, this must not remain a single issue struggle but advance as part of a broader movement informed by a vision of comprehensive change.
To conclude, the economic crisis is, and increasingly will be, leading to all kinds of social and political turbulence. Disillusionment, frustration and anger are developing among all but the most privileged. This is the time to push for an alternative development discourse. The Left must, rather than merely criticising the governments and ruling parties for the economic mess they have created, make full use of the situation for this purpose. The ongoing struggle for economic justice and thoroughgoing democracy must be led to its consummation.
