Tax and Overproduction

Modis are dancing with joy as if they have hit the jackpot. They think their dream of 5-trillion economy is very much at the doorstep. By slashing corporate taxes at this juncture Finance Minister Nirmala Sitharaman has sent a clear message to investors that bad weather or good, they will remain major beneficiaries. But ordinary citizens earning 10 lakh rupees have to pay 30% tax while for the companies making Rs 1000 crore profit the effective payable tax will be only 25 per cent. Cutting corporate tax less than three months after a budget and four months before the next one is an act of desperation by a panic-stricken government.

In truth there are four Indias in 'India' or Bharat: the very rich, the very poor, those who are sandwiched in between and those who don't fit into any category and don't matter anyhow in nation building

Simply by reducing corporate tax will not automatically lead to higher consumption of goods and services. A genuine demand and consumption push can only come if GST rates are brought down, drastically, and across the board.

All the evidence, including even fudged official data, confirms that in almost all sectors of the economy, there is a big dip in demand leading to sizable cutbacks in production. And it is nowhere so pronounced as in the automobile industry. This glut in demand has resulted in fresh job losses on an unprecedented scale making the unemployment situation explosive.

Interestingly, capitalists all over the world are re-reading or re-learning capitalist laws as enunciated by Marx, hopefully to get rid of the overproduction syndrome. Industry, particularly the auto industry, worldwide is facing the acute crisis of overproduction. No doubt the cyclic order or disorder of overproduction and slam in demand is the root cause of decline of profits. They simply don't know how to minimise damage caused by overproduction. The net result: retrenchment of workers. Hundreds of thousands of workers are jobless today because of demand recession. What they dish out every quarter or period about GDP and positive growth rate is baseless—lies and lies. It is just concocted statistical jargons, having no relevance to ground reality.

Capitalist crisis comes, Capitalist crisis goes. But it doesn't show any sign of permanent solution. Patchwork is no solution—it only returns with vengeance and bites the entire society. The phenomenon of Trump seems to have boosted the morale of right-wing forces across the world and propertied class is now doubly encouraged to have tax cuts and government subsidies to maximise their margins of profits even in a situation of market slow-down.

Nearer home, Prime Minister Modi finds himself comfortable with Trump's company and indulging in austerity measures while allowing corporates to loot natural resources at the cost of climate and ecology and degradation of lives of tribal and indigenous people.

Whatever they say in public industry in general and automobile industry in particular, is facing acute crisis of overproduction. Auto majors want union government to protect their profits through massive promotion of sales. Industrialists, also demand reduction in GST rates so that the market price of cars and two-wheelers comes down to the affordable level of middle-class buyers. In other words they are demanding foregoing public revenue for the sake of protecting private profits of a few monopoly houses, both Indian and foreign.

Around 300,000 jobs, permanent and contractual, have already been destroyed in the high-profile auto industry and expected job loss in component units is likely to be more than double that figure. Total job losses in auto and component manufacturing units, taken together may cross 10 lakh or one million soon.

Major auto manufacturing companies such as Maruti-Suzuki, Hero Motor Corporation and Honda Motor cycles and scooters are located in Gurgaon and Manser industrial areas. There are roughly 1000 medium and small ancillary units supplying raw materials and auto parts to the assembly lines. And each of these units employs 20 to 200 workers. As 10,000 workers have already lost jobs, their families are on the edge. Transporters engaged in carrying autos and auto parts components are also hit very hard due to decline in demand.

Not that slow down in auto sector is an isolated event. It has impacted the entire economy making the lives of middle class people and daily wage earners more miserable than ever before. Rising levels of unemployment, declining real incomes, growing insecurity about the future, shortage of consumer demand has become a constraint to the growth in production, Companies are trying to cope with the situation by exporting capital to some backward countries leading to further job curtailment. What is produced cannot be sold—a peculiar situation.

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Vol. 52, No. 26, Dec 29 - Jan 4, 2020