Wednesday, August 17, 2011

Perspectives of Indian Economy


 BY Youvraj B

Certain policy decisions transcend their visible peripheries and acquire more of strategic significance especially so when they read out political statement of the regime in response to changed socio-economic circumstances. Decision to de-regulate petroleum prices taken last year (in July 2010) is one of such. After creating rumble last year the issue is back on agenda after on 15th May OME (Oil Marketing Enterprises) declared price hikes in petrol by Rs. 5 and again on 24th June in diesel and LPG. Considering the onslaught of globalization over past 2 decades and commitment of UPA government under leadership (?) of Manmohan Singh to neo-liberalism, this should have been merely a step further in that direction. However significance of petroleum prices on socio-economics of the country and a peculiar backdrop of global crisis of capitalism highlights its strategic prominence. Country largely depends on import (around 85%) for crude oil and later profoundly influences union budget and overall economic scenario. Any upward surge in prices only fuels inflation higher. Considering this dependence on import and its knock on effect on inflation the petroleum prices were kept under regulation since 1973. Though Indian economy was ‘opened up’ in 1991 subsequent governments of both Congress and BJP repeatedly dodged the decision of deregulating these products for last 2 decades and maintained status quo. On this backdrop the decision taken by UPA government on this reflects major shift in policy & attitude in dealing with politically and socially sensitive issues that have bearing on economic growth of the country. With the view of analyzing changed circumstances that led to such shift in policy the article reviews the post-recession economy and draws out perspectives for the coming period.

Global Recession and Indian Economy –
Let us first consider the peculiar backdrop of global and Indian economy in 2010 when the decision to deregulate petroleum products was announced. The collapse of Lehman Brothers wrecked havoc in 2008 and Indian economy like other major economies went deep into coma. Though things improved marginally over next 2 years many of the economies were still in ICU. But not so for Indian economy. By 2010 it was well recovered. Share market index graphically illustrates this. On 15th Sept BSE (Bombay Stock Exchange) was at 14402. Following collapse of Lehman Brothers share markets all over the world raced to bottom and BSE too reached its lowest in next few weeks. After lingering at bottom for next 6 months the index turned northwards from March 2009 and on 25th May 2009 i.e. in merely 8 months it reached 14625, pre-crisis levels.
BSE
On the contrary Dow Jones (American Stock Exchange) took 20 months to regain its pre-crisis level.
Though complete meltdown of global economic system was somehow avoided, leading economies were still grappling hard in 2009 and 2010. On the contrary Indian economy showed the signs of relatively stronger recovery from mid-2009. Obviously it boosted the morale of Indian bourgeoisie and its rulers. The decision to deregulate petroleum prices well reflects the elated sprit and hence audacity of this class.
Analyzing the recovery –
Here we must analyze the recovery of Indian economy deliberating over its reasons and more importantly its character. The key role in this recovery was played by huge surge of liquidity in the market with carry trade in US dollars. In response to credit crunch Federal Reserve and ECB (European Central Bank) drastically reduced their interest rates as shown below.
Fed interest rate that was above 5% in 2007 was brought down to 2% through 2008 and has been maintained at lowest level of 0.25% from Jan 2009 till date. (Bank of England has maintained it at 0.5 %). Accounting into inflation, the funds were made available at practically negative interest rates. This was done to encourage capitalists to borrow money for investment that could generate employment, demand and get the jammed wheels of economy moving.
Interest rate in India too came down from 9% to 4.5% in 2009. Still that was significantly higher than that of advanced countries. Over next few months international speculators flooded Indian and other emerging markets with huge inflow of borrowed funds. In 2009 FIIs invested $ 17.23 bn in Indian market through this route flushing it with liquidity and share market index soared up.
Another factor was stimulus package declared by the government. In particular implementation of Sixth Pay Commission recommendations made additional funds available to public sector workers while huge tax sops were declared to corporate sector. This along with boosted liquidity and availability of cheaper credit boosted demand for industrial goods to some extent. Also giant stimulus package of $ 585 bn and investments in infrastructure by China benefited exports further boosting industrial production in second half of 2009. Subsequently IIP (Index of Industrial Production) reached 16.7 in Q1 of 2010.
The specific stage of liberalization of financial institutes in the country too played a significant role. Though liberalization was carried out in banking and insurance sector, nationalized banks and institutes still dominate the finance sector. Few like ICICI and HDFC banks with larger proportion of foreign capital holding do not reflect the general state of Indian finance institutes. The functioning of nationalized banks was re-oriented towards market in this period. Instead of financing priority sectors like agriculture, small scale industries these banks financed real estate, private automobiles and other commodities thus stroking and sustaining ‘debt driven consumption’ and in turn ‘consumption led growth’. However their sphere of functioning has been mainly domestic market. Consequently their exposure to US Sub-prime market was only negligible. C.V. Kamath, then President of CII (Confederation of Indian Industries) remarked that this exposure amounting to $ 450 mn could be less than 0.5% of banks’ balance sheet. (http://economictimes.indiatimes.com/Citi-UBS-like-subprime-debacle-not-to-repeat-in-India-Kamath/articleshow/3001816.cms) Of this $450 mn the share of nationalized banks was merely $90 mn highlighting their role in limiting the scale of exposure to the crisis. Of course the bourgeoisie and its executives in the parliament do not deserve any credit for this. Instead it was trade unions, left organizations and to some extent left parties that staunchly opposed wholesale privatization of public sectors banks. Was it not for this, the Indian economy too would have gone burst. What happened to Iceland speaks for itself. In 2007 the country with highest per capita income was declared ‘happiest nation’ on the earth. In the boom period 3 banks of the country invested feverishly in sub-prime market earning huge profits (and as usual IMF and other institutes applauded them for this). With onset of sub-prime crisis these banks literally went bust. Now the country with $ 14 bn GNP is weighed down under public debt of $ 100 bn.
During this period Indian capitalists resorted to indiscriminate job cuts to sustain their profit levels. This was true for not only unorganized but for organized sectors as well. Information Technology business depends solely on human labor and hence job cuts is the quickest way to prevent profits from dropping lower. IT companies in India brutally resorted to these tactics leading to large scale job cuts. For IT workforce that enjoyed feverish growth in 2000s the period was literally like reign of terror. An employee could receive a call from HR Dept anytime threatening to resign ‘voluntarily’ or else he or she could be blacklisted with NASSCOM (Software service providers’ association) precluding them from obtaining any other job in future. Thus for the very first time IT workforce experienced what could be termed as ‘dictatorship of bourgeoisie’. A worker of one of the leading IT Company harassed by HR bosses in this way ultimately lodged police complaint against the company. (http://articles.timesofindia.indiatimes.com/2009-12-03/software-services/28076769_1_wipro-employees-wipro-technologies-wipro-officials). Another worker from the same company committed suicide by jumping off 11th floor of the office. Given the vast experience of Indian bourgeoisie in dealing with such ‘trivial incidents’ no wonder the cases were suppressed. This however highlights the hideous and ugly face of IT capitalists masquerading as the blue-eyed boys of shining India.

Blissfully Ignorant Indian Bourgeoisie
It would not be inappropriate to classify the period of Indian globalization as pre-recession and post-recession given the scale and scope of global recession. Dialectical analysis of the changed global scenario and its implications on Indian economy holds key in drawing perspectives of Indian economy for the coming period. Though bourgeoisie has managed to orchestrate some kind of recovery globally things are far from being settled for them. Sovereign debt crisis in Europe threatens to pull the global economy into yet another deeper crisis; US has failed to achieve any structural growth while Britain, France, Germany too are grappling in the dark. Failure to achieve any spectacular growth and create jobs has led popularity ratings for Obama sinking lower. Though he is banking on ‘capital’ of killing Bin Laden to prevent his vote ‘bank’ from melting down, it is yet to be seen if such an ‘investment’ would be sufficient to earn ‘dividend’ of next Presidential election.
On this backdrop the performance of Indian economy stands out or at least that is how it is being projected – an economy that weathered the crisis owing to its strong fundamentals. Obviously what we discussed above exposes hollowness of such claims. Huge injection of foreign funds by global speculators in order to boost their profits and a particular stage of liberalization of Indian finance institutes really helped it avoid worst. And yes their (hereditary) ability to suck blood and sweat of masses through class and caste exploitation did play a critical role. A holistic view of the entire episode only highlights the fickle, flimsy and parasitic nature of its recovery and hence of Indian capitalism. A closer look at capital movement reveals it. In 2008 as clouds gathered thicker and thicker on markets investors started pulling out money and in first 9 months itself FIIs withdrew $ 11.1 bn from Indian markets. Indian bourgeoisie was badly shaken and BSE that was at 20,000 in Jan 2008 plunged to 10,000 in matter of 10 months. As a knock on effect INR (Indian Rupee) depreciated drastically from 39.20 to 48.86 and RBI (Reserve Bank of India) could somehow avert its further fall only by injecting $28.5 bn. If anything, it gives glimpse of how things could have moved had it not been for massive injection of dollars through carry trade by end of 2008. The crisis yet again underlined the neo-colonial character of Indian economy and its dependence (along with complementary nature) on global economy.
Blissfully ignorant, Indian bourgeoisie is cheering and celebrating its ‘strong fundamentals’. Quoting some of global leaders or those of IMF, WB they and media houses owned by them are creating jingoism devoid of any serious or objective analysis of the crisis. In reality this is the deepest crisis facing capitalism since 1930s and has had capitalist class all over the world deeply shaken by its sheer scale. On 20th Sept 2008 Finance Times, mouthpiece of global capitalists declared ‘Capitalism in Convulsion’. Tsunami of the crisis caused intellectual paralysis to bourgeoisie economists and intellectuals and few even frantically shuffled through Karl Marx’s ‘Capital’ in order to make sense out of what had happened. Though superficially, some of them attempted to ponder over the future of capitalism. Al Gore, former vice president of US declared ‘Time if up for short term thinking’ in one of the articles in Finance Times (dated 26th Nov 2009). The article discussed the myopic nature of erstwhile capitalism and called for ‘sustainable capitalism’. Michel Barnier, Commissioner (internal markets) of EU called for ‘Capitalism for entrepreneurs rather than capitalism for speculators’. Needless to say both had been day-dreaming.
And when we look at the Indian bourgeoisie intellectuals what strikes is complete lack of any serious analysis. Their analysis didn’t go beyond lame criticism of bankers’ greed and ritual mention of widening disparity in the country (for which their solution is to further accelerate the growth). As picture of India’s alleged recovery got sharper their tone got more and more confident and rather arrogant. They declared that the crisis vouched decoupling theory. Politicians and capitalists used to occasion to scratch each other’s back. Below incident indicates the arrogance of this class. In 2009 when stock markets rallied upward few commentators rightly expressed the fear of another bubble being blown up. Reacting to this Swaminathan Iyer, a leading bourgeoisie analyst advised investors to not to be worried and instead make max out of it commenting in Times of India (dated 22nd Nov 2009) “secret of staying ahead is to ride the bubbles when they are inflating and get off before they burst. Right now, it’s time to ride” As if 2008 never happened!
A huge paradox emerges when overall picture is considered. On one hand we have a global bourgeoisie deeply shaken by the crisis that exposed yet again the rottenness of capitalist system and its utter inability to progress human society and hence obsolescence of the system; on the other hand we have relative recovery of Indian economy on flimsy basis and Indian bourgeoisie that notwithstanding the reality has turned jubilant and arrogant as a consequence. The dialectic analysis of this contradiction would help the prognosis of the Indian economy.

Casino Economy and Intellectual Chauvinism
While intellectual bankruptcy is one of the reasons behind such smug and complacent state of bourgeoisie another is objective necessity to remain so. This necessity stems from organic character of capitalism. It is a mode of production inherently based on anarchy of markets. Without any central planning production is done at the perceived indications of market and with lust for higher and yet higher profits at the core of it. Consequently boom and recession are organic to this system. Finance capitalism has taken this chaos to yet higher level and could be termed as super-anarchy of markets. In fact it has reduced itself to casino economy. Last decade saw Investment Banks coming up with an array of sophisticated and complicated instruments like sub-prime lending to CDS (that Warrant Buffet calls ‘Weapons of Mass Destruction’) to swindle trillions of dollars that capitalists have accumulated over decades. It would be naïve to believe that these investment bankers holding masters degrees or doctorates from the most renowned universities in the world and with the most sophisticated means of knowledge at their fingertips betting on such huge sums were completely unaware of risks involved. But their belief on the sustainability of the capitalist system and the casino economy is the driving force that keeps them moving. As Karl Marx proved money is nothing but universal expression of value. Considered from this perspective these trillions of dollars do not even remotely have any relation to Value. And today this huge sum of money completely divorced from its Value is like a hanging sword on the head of Capitalist system. Even capitalist class and its intellectuals do have a vague idea of this. But having their stakes involved, they have no option of quitting but to only keep on betting. Long back foregone is the stage where surplus value extracted from labor could be put to use for further industrialization (and there is no going back unless devastation to the scale of world war takes place). And there is no alternative to speculation to keep its surplus value invested and further recycled into more capital. This is the objective (or material) necessity of the capitalist class that further begets intellectual necessity to whip up theories dwelling upon eternal exuberance of the system. In the period of boom or favorable changes on socio-political forum this intellectual necessity soon acquires the form of intellectual chauvinism. Francis Fukuyoma declaring ‘End of History’ following disintegration of Soviet Union is one such example. Another is ‘laissez-faire model of capitalism’ implemented by Alan Greenspan during his 20 years tenure from 1986 to 2007 as Fed Chairman. Mr. Greenspan rejecting any form of market regulation summarizes his ‘laissez-faire’ doctrine as "It is precisely the greed of the businessman, or, more appropriately, his profit-seeking, which is the unexcelled protector of the consumer." The doctrine that legitimized capitalists’ lust for profit only represents the chauvinism prevalent on Wall Street in 2000s following one of the longest periods of boom. The intellectual chauvinism doesn’t remain merely at intellectual level but governs its actions and maneuvers which in turn are offered social and legal legitimacy by such doctrines. This legitimacy has its own significance especially in liberal democracy and proponents of such doctrine are often cheered as champions of the society. No wonder Alan Greenspan, a devoted disciple of Ayan Rand’s Objectivism school that approves ‘laissez-faire capitalism’ as the only legitimate system exercised absolute power over Fed for 20 years.
Union Budgets of last 3 years –
Though Indian bourgeoisie is yet to reach such high degree of chauvinism, its arrogance is too pronounced to escape. A cursory glance at government decisions and policies over last 3 years reveals – Notwithstanding the scale of crisis, fundamental weaknesses exposed by it and pertinent questions raised on very future of capitalist system, the capitalist class and their executives in the parliament have made up their mind to go full throttle on the road of neo-liberalism. Deregulation of petroleum products was a key milestone in the journey. As mentioned earlier, rulers were well aware of its potential socio-political implications and hence it reflects strong determination on their part. Union budgets of 2010 and 2011 too consolidate this trend. In 2010 it reversed earlier policy of garnering more revenue through direct taxation than indirect tax and thus causing lesser burden on common man. By restructuring income tax (direct tax) slabs it offered huge tax sops to high income individuals and professionals. Resulting loss of revenue in direct taxes to the tune of Rs. 26,000 crore was compensated by steep hike in indirect taxes. Later amounted to Rs. 46,400 crore much higher than required to compensated for lost revenue due to direct tax concessions. Food and fertilizer subsidies were cut by Rs. 800 crore. Tax concessions to Corporate sector amounted to Rs. 4,99,340 crore, astonishingly 79% of total tax revenue.
Fiscal deficit conservatism is one of the core principles of neo-liberal policies. In 2003 India enshrined this principle by enacting FRBM (Fiscal Responsibility and Budget Management) act that imposed limits on fiscal deficit. In the period of crisis bourgeoisie all over the world resorted to Keynesianism and allowed fiscal deficit to inflate. India too followed the suite with deficit mounting to 6.7% in 2009-10 though immediately in the next budget it pledged to bring it down to 5.5%. Indiscriminate public expenditure cuts and indirect tax increases described above though making life precarious for working masses are nonetheless important to further fuel neo-liberal growth of the country.
Indian Economy – An adjunct to global capitalism
In last 63 years since independence Indian bourgeoisie has come a long way and is undoubtedly far stronger than many of its peers in other Asian and African countries liberated near around same time. Having said this in past 2 decades it has established a peculiar relationship with global capitalism under the auspices of globalization, the relation that is servile though complimentary as well to some extent. The neo-liberal framework of policies dictated by global capitalist institutions (including WB, IMF, credit rating agencies) now defines the operational periphery of Indian bourgeoisie. It not only dictates the overall direction of Indian economy but also prescribes parameters to assess its success or failure. Religiously obliging to this the modes de operandi of Indian capitalist class has been to score maximum on these parameters by exploiting its class monopoly along with pre-existing institutions of exploitations like caste and patriarchy it ‘inherited’. Everything dictated is pious and it has neither any will nor the guts to challenge any of these. When compared with its neighbor China that can assert itself strongly (in relative terms), the dwarfishness of Indian bourgeoisie stands out.
Two parameters in assessing the success of the economy are GDP or growth rate and tab on fiscal deficit. A country could be penalized severely by global capitalists if it fails to score on these 2 parameters leading to derailment of its economy. Even today any pull out of capital invested in markets by FII could cause havoc for Indian economy.
To uphold its position on global forum and thereby sustaining the inflow of global capital and thereby maintaining its higher growth rate mandates Indian bourgeoisie to further accelerate implementation of neo-liberal policies i.e. privatization, liberalization. Only by doing this it can keep Indian economy ‘attractive’ enough for global capitalists though considering ‘foot looseness’ of later that isn’t particularly easy. It requires more and more sectors of economy thrown open to FDI (Foreign Direct Investment), further disinvestment of public sector enterprises (including banks), keeping wages depressed to ensure steady flow of cheap labor and more importantly to sustain the consumption level in domestic market. Though domestic petroleum market is yet to be open to foreign players, its deregulation is a step in that direction. Yet another decision awaiting final nod and has global capitalists their mouths salivating is allowing FDI in multi-brand retail, market that is worth $ 560 bn. Single brand and wholesale cash and carry are already opened up for foreign investment and there is lot of pressure on government to do so for multi-brand. The decision process has gone quite far and it is matter of time that decision will be announced.
Real challenge is sustaining the consumption level or demand in domestic market. It is quite obvious that restructuring income tax slabs thereby making big tax cuts for higher income individuals and granting huge tax sops to big businesses was a move intended at fuelling demand on one hand and encouraging investment on another. These policies are inspired by what is termed as ‘supply side economics’, theory that blatantly proposes to offer higher tax rebates to rich and those filthy rich.
There are 2 aspects to this process of further accelerating liberalization and privatization. One economic and other socio-political. From economic stand point, though these policies could help sustaining the demand (or to be precise preventing it from depressing further) in short term, it would lead to imploding domestic market (that is already narrow) and capitalist economy based on it in longer term. As capitalist system is utterly incapable of achieving inclusive development creating mass employment and thereby wider base of consumers with purchasing power, it has to rely increasingly on smaller and smaller section of society for consumption. An example could be real estate. Boom in the real estate did contribute to boosting GDP. Though over last few years availability of cheaper credit along with increasing prices sustained the demand, in reality skyrocketed prices have simply pushed off millions of perspective consumers in cities from the market. As per recent survey 20% newly constructed flats in Pune are vacant. Experts comment that the trend is temporary due to higher interest rate and there is substance of truth in that. It directly boils down to the relationship between purchasing power and credit. In the absence of purchasing power of masses capitalism has often relied upon cheaper credit to stimulate market. Real estate is no exception and sooner than later the sector would stagnate. For other sectors that registered impressive growth over last decade it may not be possible to maintain growth rate. Best example is IT (Information Technology). Over last 10-12 years IT giants posted 20% YOY (year on year) profits on an average and this was simply dazzling. In this decade most likely its growth would considerably lower or at the best stagnate. The sector played an important role in expanding markets for various commodities in cities and hence any slowdown here will have knock on effect on other sectors as well (including real estate).
Under capitalist relations of production capitalist class denies of due share of wealth generated to working class (responsible for creation of that wealth) and subsequently it leads to contraction of market. This is an organic contradiction of capitalism and Indian capitalism is no exception. Faster the process of neo-liberalization is carried through; larger and deeper would this contradiction grow with Indian capitalist system heading for a major structural crisis.

Perspectives of Class struggle –
This is an economic aspect. Equally if not more important is another aspect – social and political implications of accelerating neo-liberal onslaught. To put it simply as onslaught gets brutal, wider and stronger would be struggles against it. Even today there are struggles against globalization all over the nation from POSCO to Jaitapur. Daring entire state machinery, military and police, masses are fighting tooth and nail. No doubt struggles would get fierce and this would not be merely quantitative but qualitative change.
When we think of elements of society that were worst hit by the globalization in past 2 decades – they have been small farmers that were already handicapped by caste based ownership of land and were further devastated by introduction of free market policies in agriculture; rural people who found their lands, the only means of subsistence being snatched away by capitalist vultures; and adivasis (tribal) living in the areas rich in natural resources. Free market policies ripped off very basis of their livelihood. The picture in urban area was ‘relatively’ different. Though working masses especially those in unorganized sector had more hardships in making both ends meet and thus surviving among rampant commercialization of everything around them, it was not as devastating as sections of society mentioned above. Discussing about organized working class we need to consider few things. In a way Globalization stimulated the economy that had been long stagnated (referred to as ‘Hindu growth rate”) in 1970s and 1980s. Subsequently there was an expansion of service sector in urban areas and new jobs created in IT, Finance sectors. With free movement of capital there has been abundant supply of commodities in market both indigenous and exotic; this coupled with liberal and cheaper supply of credit resulted in broadening of commodity markets in cities. LPG cylinder, 2 wheelers / 4 wheelers, telephone connection etc. that were earlier required to be booked months if not years in advance could now be obtained on the same day. Sprawling malls, 7 star townships, multiplexes, abundantly available electric gadgets - . The glitter and blitz of globalization was too dazzling for impoverished masses of the poor nation. It helped mass media and audio-visual media build an illusionary picture of growth and prosperity. It was obvious that these economic, social and equally important cultural transformations have had an effect on class consciousness of workers. Working class was already bogged down by historic defeats of trade union struggles in 1980s, disintegration of Soviet Union in 1991 and subsequent ideological confusions among left and lull in the movement. All put together resulted in working class disassociating itself from any struggles against globalization.
Obviously the process was not monotonous. In parallel working class was being attacked by large scale casualization, contract labor in both manufacturing and services along with intensification of labor. Rising inflation, privatization and gross commercialization of education, health and other public services have been rapidly transforming aspects of urban life. They are increasingly making struggle of survival harsher and more acute. Here what needs to be considered is parameters of life (and hence of consciousness as well) of working masses in cities are far different than those in rural or semi-urban areas. A working youth earning Rs. 10,000 in cities still has multiple issues haunting him –his marriage, buying home for his family, bringing up children and expenses of their education and health. Prevalent economic and social conditions weigh heavily against him and his desperate struggle for maintaining his social existence shapes his life and in turn his consciousness. As discussed above for India maintaining growth rate of economy is going to be increasingly challenging and reckless implementation of neo-liberal reforms based on ‘widening’ and deepening of class and caste exploitation is a pre-condition to it. And it is going to engulf urban working masses. In such times delusion of growth and prosperity so ingeniously built by capitalists and their media starts fizzling out rapidly and class consciousness escalates in leaps. Dimensions of exploitation hidden so far appears crystal clear to working class and it turns out to be a prologue to a new stage of struggle against not only the regime but the system.
The aim of article is not to pain the rosy picture of working class revolting tomorrow and uprooting capitalism. Instead it attempts to critically analyze the qualitatively changed economic conditions and social processes begot or influenced by these changes. Duly acknowledging the complications and challenges involved in subjective response of working class and its leadership, the analysis of the objective changes nonetheless helps gauge the renewed possibilities of struggles both locally and internationally.


1 Earthling’s comments:

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