Face of the Crisis

For India economic recovery remians fragile. New engines of growth have not yet been discovered while uncertainties persist in major monetary policies. What they say to the electorate is one thing but the ground reality is otherwise. In 2014 downward pressures are likely to worsen further, with other social and economic problems—over capacity in some industries, structural unemployment, environmental degradation and public security.

Those sections of the people, who were bewitched by the glitz of the New Economic Policy first launched by the Narasimha Rao-Manmohan Singh combine were severely shaken by the recession, but the corporate lords are frantically trying to impose their own pattern of development on the nation. They have now found a new champion, Narendra Modi, whose hands are drenched with the blood of minority community people. The hard fact is that the assertion of the corporate lobby in the realm of Indian politics is nothing new. In the nineties of the last century, they only began to cry for a total dismantling of the public sector and sale of public sector units to private owners at prices favourable to them. There are powerful political brokers and also influential economists who have long been advocating such a programme, and if the records of the first ten to fifteen years of 'economic reforms' are any guides, they are largely successful. For the last six or seven years or so, they are, however, a bit in trouble, and hence they are more overtly assertive in politics in the name of 'development'.

Of course there are those who, while resenting the open and overt dismantling of the public sector and abandonment of the path of 'planned economic growth' are prone to think in terms of the Nehru era, when the programme of building up a 'socialistic pattern' of society was launched with much fanfare. No doubt units in the heavy industrial sector were built by the state and a large number of technologists and engineers were engaged in them. But the idea of such a planning was mooted first by the Indian big business. If one compares the Bombay Plan drawn up by the Indian monopoly houses with the Nehru-Mahalanobis model one must be struck by the similarities that are by no means trivial. The state built up iron and steel factories, but it did not nationalize the TISCO. Again, the Indian big business did not then have the capacity to mobilize enough capital to build up basic and heavy industries and rather they were provided with cheaper inputs by the state sector. The social overhead capital that the state created also helped them. If the record of the growth of the assets of the Indian business tycoons during the first twenty years of planning is looked at, it will be found that the planning process did not impoverish them, but rather, enriched them. Tatas, Birlas and their fellow travellers, after consolidating their position, wanted to gobble up the public sector units, and stood firmly opposed to any significant state participation in economic activities. On the other hand, the Government of India fell into what may be considered a debt trap, through a process of massive borrowing from the IMF as well as huge amounts of commercial borrowing. The situation made the balance of payments position desperate and the so-called new economic policy was a response to this crisis. In order to tide over the crisis, the government adopted the policy of liberalization, which was the core of the new economic policy, with the arrived objective of curtailment of the role of the state in the economy, so as to encourage private initiatives, curtailment of all restrictions on imports and exports, and adoption of a policy of export promotion, called by some a forward-looking policy and finally opening the door for the free entry and exit of international finance capital.

One of the consequences of this liberalization was higher economic growth, which made it possible for the corporate-controlled press to sing paeans of praise in favour of Manmohan Singh and his aclolytes. During 1997-2006, this growth was impressive, some 7-8 percent per annum. But this growth was achieved almost exclusively by increased labour productivity rather than by increased employment. This increased labour productivity meant a lengthening of working day, and this process was immensely facilitated by the subcontracting of activities to the unorganized sector along with massive casualisation of labour. But this also gave birth to a class of high-salaried technical and managerial personnel, who provided a great deal of demand for the goods that are non-basic by Indian standards. The state actively helped in this process of growth by forcibly acquiring land and other resources for the corporates. Naturally this has led to resistance on the part of the dispossessed and the state has all along tried to dub all these resistance movements as Maoist.

Now liberalization is largely responsible for the growth in inequality, a rise in the Gini coefficient in both rural and urban areas. This inequality in turn propelled the process of growth. Coupled with it were greater integration of the Indian economy with the world market and the massive inflow of foreign investment, particularly foreign institutional investment. The recession that originated in the USA badly hit the Indian economy, particularly the foreign trade sector. This had its repercussions on the internal economy as well.

But there remains the huge problem of foreign debt, which is now around or a little above 400 billion dollars. How long can India go with such a massive debt burden? What is more disturbing is the growth in the amount of short-term loans, which suggests that the position of foreign exchange in the economy will not remain stable in the coming years.

So, no way out of the crisis is in sight, and there is the possibility that it will soon erupt in a more serious fashion.

Vol. 46, No. 32, Feb 16 - 22, 2014