Indian Economic Crisis – the Root and the Effect- A.B.Bardhan

Something akin to that has indeed occurred in the last few days. Sensex figure has plunged precipitately shedding more than a couple of thousand points. Rupee, the national currency of India, the symbol of its sovereignty and stability has collapsed. It fell head over heels in relation to the dollar. At the time of writing it has come down to
Rs 68.80 a dollar. Then it appreciated a bit, but there is no knowing what new depths it will plumb. Managers of the economy are hoping that it will find an ‘appropriate level’ at an ‘appropriate time’.

Indian economy is in deep crisis. Nobody can now deny or ignore this fact, hoping that the ominous signs will disappear and things will be back to normal.

 The rate of growth which touched 8.5 for some time and which the government touted as the second highest in the world has come down to less than 5 per cent. It is in fact hovering between 4 and 5 during the year 2012-2013, and in the quarter April to June 2013, it came down to 4.4 per cent, the lowest in 4 years.

 Communist Party of India (CPI) MP Gurudas Dasgupta poured out figures in Parliament to underline the depth of the economic crisis. The Index of Industrial production which is key to economic growth was 1.1 per cent in 2012-13 but it declined to – 1.6 per cent in May 2013 and then went down further to – 2.2 in June 2013. The decline continues unabated. In the service sector this is only 6.6 which is the lowest in last 11 years. In agriculture, the mainstay of our economy the rate of growth is only 1.1 per cent while the population continues to grow at 2 per cent. Consumption has gone down by 3.3 per cent since people don’t have money even to eat.

  The foreign exchange reserve, which was 300 billion dollars, has now come down to 275 million dollars. This is sufficient only for a few weeks or so. India is on the brink of insolvency. The shadow of 1991 hangs over the country. The prime minister has assured us that it is not so. After all India of 2013 is not the India of 1991.

For people of his thinking–i.e. the bourgeois elite, even the Food Security Bill, which has just gone through the Lok Sabha, is to be blamed. They consider every measure that is orientated to bring a modicum of relief to the poor as “populist”, an act of financial profligacy, as something that throws the country’s finances out of gear and spells disaster. They do not think so when a “package” is announced to bail out big business and corporates or when concession, are handed out to them. That according to them are necessary steps to stimulate the economy.

 Yet, in 2010-11 alone the corporate tax foregone was nearly Rs. 58,000 crore. In 2012-13 the estimated tax gone is Rs. 68,000 crore.

 It is true that the currency was devalued also in Brazil, Indonesia, South Africa, and Turkey among the newly emerging economies. But the rupee is the front-runner in a race to the bottom.

 The men who run our economy have no clue to the crisis that has overwhelmed them. Finance Minister Chidambaram is out to find alibis when he shifts the blame on others. He has also blamed his ‘predecessor’ for the financial mess knowing that his predecessor is in no position to reply.  Now that the American economy is on the recovery trail, he cites that as a reason for our disaster since capital is flowing out there for investment.

The country is witnessing a bout of sparring between the Finance Minister and the Governor of Reserve Bank of India (RBI). Mr Subarao, RBI Governor, has in a recent remark observed, “I do hope Chidambaram will one day say: I am often frustrated by RBI, so frustrated that I want to go for a walk, even if I have to walk alone. But thank God, the RBI exists.”

In the process of this economic tsunami the Indian people have suffered a loss of more than 2 lakh crores.

The present crisis in India is not an isolated phenomenon. Capitalism is in crisis. The world capitalist system is going through a prolonged recession. The European Union has been passing through a recession for over three years. Countries like Greece, Portugal, Spain, Italy are the main scapegoats of this downturn. The rate of unemployment in Greece has already reached the astounding figure of 27.6 and even three or four bailout packages have not been able to restore normalcy.

America itself had been going through a crisis beginning with the sub-prime loan crisis four year back, which witnessed the collapse of a number of American banks and financial institutions. The U.S. market shrunk putting pressure on exports from emerging economies like India. With the current signs of recovery in the U.S. the financial liquidity that has been set in motion by the U.S. Federal Reserve has led to a sudden out load of billions of dollars from countries like India, Indonesia and so forth, depreciating their currencies. The US pushes the effect of both its recession and its recovery on to the countries of the capitalist periphery.

Each country suffers the effect in its own specific way following from the economic policies that its government has been pursuing. In India the fiscal deficit and the current account deficit which coincided caused the precipitate fall in the stock exchange and the decline and volatility in the value of the rupee. It further unleashed speculative pressure on the prices of commodities in the market, both of gold on the one hand and vegetables on the other. 

Even Ratan Tata, who is close to the Indian ruling circles, was forced to remark that India has lost the confidence of the world. He also said that the Government was ‘swayed’ by vested interests in the private sector and policies had been changed, delayed and manufactured. Since Tata himself is ‘a vested interest in the private sector’ it will be interesting to know from him who is the vested interests he is pointing at.

 The CPI had initiated a debate on the economic crisis in Parliament on August 7, 2013. Gurudas Dasgupta charged, the country is facing an economic tsunami because of the reckless policies of the government. Non- performing government has generated a dangerous crisis, which is almost an economic disaster thanks to their incapacity and inability….. The livelihood of millions have been affected and crores of jobs have disappeared, while farmers were also in grave distress.”

What solution does the Finance Minister have to overcome the present crisis? Chidambaram begins by asserting, what we need now is not less reforms, but more reforms, not more restrictions but less restrictions, not a closed economy but a more open economy.” The 10-point plan that he has proposed to drag the economy out of the mess is a reflection of this resolve.

The first step in this direction is to stabilize the rupee about which there seems to be no positive proposal.

 The crisis is not a sudden development. It is not a bolt from the blue. We from the Left have been pointing towards all the portends that have eventually brought on the crisis. We have drawn attention. We suggested measures and campaigned for them so as to bring down inflation. The government persisted in taking steps which further fuelled inflation. Repeated hikes in the prices of diesel and other petroleum products were allowed to be taken. There is even talk of a further hefty rise in these prices. They are only kept pending because the crisis overtook any such step.

How did Chidambaram react to the devaluation of the rupee? While acknowledging that some government steps have contributed to the devaluation of rupee, he went on to blame the judiciary for barring or putting an elaborate process for mining, environmental clearance and land acquisition. He admitted that the government had allowed the fiscal deficit to be breached and current deficit to swell because of certain decisions. They were allowed to be taken.

 We demanded that measures should be taken against closure of many industries and manufacturing units which was causing tremendous job losses. Unemployment figures including lack of jobs for educated and qualified youth were soaring.

 The government talks of reforms. But what kind of reforms? The Left has been demanding land reforms, which should mean distribution of land to the landless that helps restoring the agrarian economy. The bourgeois landlord dispensation has baulked taking any such basic reforms. Our aim should be to create a people- friendly socio- economic order in the country.

It necessary to curb imports, particularly of luxury goods, and such goods that are manufactured in the country. At the same time all efforts have to be made to increase India’s exports with a view to ease the balance of payments in the country. The outflow of dollars has to be substantially reduced.

A spate of investments whether public or private has to take place in industries which contribute to job creation, and in the education and health spheres. The emphasis has to be on mobilizing domestic resources (which we do not lack) and domestic capital. Foreign capital is welcome, but it can play only a supplementary role. The objective is to improve the livelihood of our people which alone can be the basis of our future development. Development strategy borrowed from abroad, neo-liberal or any other, cannot help.

A decline in the basic parameters of the economy may be followed by occasional signs of recovery, which will no doubt be hailed by the beleaguered government spokesmen. But the main thing is the stabilization of the economy at some time in the future.

It is important to invest in people. At a time when it is essential to add to the purchasing power of our people, the government is engaged in further restricting the people’s capacity in the name of cutting down on expenditure. This always affects the poorer and toiling sections since what is curtailed is the social security outgo and the subsidies In fact the Left is pressing for fixing the minimum wage at a reasonably higher figure. At the same time Left is demanding pension to all elderly citizens at the rate of Rs.3000 per month.

 The crying need is to reverse the neo- liberal policies pursued at present, which only maximizes the profit of Big Business and Corporate houses, while condemning the majority to poverty and deprivation. Today a situation has emerged where the economic policies are dictated by the corporates for the benefit of the corporates. As long as that persists there may be marginal and occasional recovery while the general downturn and depression continues.

The fall in the value of the rupee, the chaos in the stock-market, the general decline in the economy, and the uncertainty and instability that prevails in the country has its political fall-out that threatens the democratic polity of our country. This requires a separate treatment.