Manufacturing is down. Tax revenues have grown at just half the projected rate. Nonperforming assets (NPA) of banks keep piling up. Fresh investments are meagre despite freeing corporates from environmental and labour right safeguards. Yet, so reports the government, India’s GDP growth rate has surpassed that of China braving all these dismal indicators. If the MidYear Review had given a figure of 5.5 per cent, it has now been revised to 7.4. Statistical jugglery couldn’t come worse than this! Modi has gone all out to woo foreign capital with his flagship program of ‘Make in India’. He and his colleagues believe that they can capitalise on the slowdown in the Chinese economy and the rise of labour costs to attract foreign capital with the promise of cheaper labour and cut back of regulations.
This optimism is not shared by the RBI Governor, Raghuram Rajan. He cautions that there may not be much of an external market since the global economy still hasn’t recovered from crisis. The solution in the short run, proposed by a number of others too, is a massive injection of government funds into infrastructure building. The 12th Plan targeted approximately 60 lakh crore rupees investment in infrastructure. Most of this was to be through PublicPrivate Participation, i.e. joint investment of the government and private firms on terms favourable for the latter. The MidYear Review admits that this has been “less than successful”. That’s a rather mild way of putting it. Infrastructural credit growth dipped from 35 % in 201012 to less than 15 in 201314. Most big infrastructure companies are heavily indebted. And that is true of most other corporates too. The Review admitted that over indebtedness in India’s corporate sector is amongst the highest in the world.
The debt to equity ratio is 70%. This puts great stress on the banking system, further limiting its capacity to push credit. Around 1020 per cent of the lending of public sector banks is reported as NPA or restructured loans — Rs. 2.7 lakh crore NPA and Rs. 3.6 lakh crore restructured advances. The Jan Dhan program of the Modi government, opening zero balance accounts for all households, has saddled them with another heavy burden. The forced savings imposed on people through compulsory depositing of cooking gas subsidy may offset this to some extent. But, the outflow of funds driven by the promised overdraft facility and the costs of maintaining crores of dead accounts will still remain as dead weights.
Moreover, most of these funds will go to unproductive expenses, a trend inevitably strengthened by the reality of economic hardship, no matter what growth figures say. Data already shows a significant increase in the share of non-business activities in debts taken by households in both the rural and urban areas. The Modi government may take refuge in cooked up growth figures. And the Congress may preen that their UPA was after all not that inefficient. Yet, what emerges from all these details is the pathetic fact that the high growth which was being trumpeted was overwhelmingly realised through heavy indebtedness, Indian and foreign. It is now desperately searching for a new ‘fix’.
To push this junkie economy, massive capital investment must come, either from the government or from foreign investors. Though the Public Sector has a cumulative cash reserve of nearly 2 lakh crore rupees, they are pressed by lower profits. Unless a conscious decision is made to bear losses in investments that won’t yield profits in the short run, the managers of these funds won’t be willing to take the step. Besides, even if they do so to the degree sought by the government, it wouldn’t make much of a difference. Under UPA2, PSU investments from their own funds went up from Rs 193,737 crore in 201213 to Rs 257,641 crore in 201314, as a result of what the previous finance minister describes as a ‘diktat’. Yet that didn’t reverse gloomy growth figures.
Moreover, if this is ultimately adopted as a way out, it would then be an admission that the public investment driven economic policies of the NehruIndira period were not that bad! That model, by the way, was also dependent on imperialist technology and capital. Its crisis had prepared the grounds for the wholesale sell out from the 1990s onwards under the banners of globalisation, liberalisation and privatisation. The advocacy of public investment by World Bank IMF products like Arvind Subramanian, presently Chief Economic Advisor to Modi, would thus complete the circle, leaving the lesson that nothing has really changed. In fact they have only got worse.
The economy stays afloat with the pumping in of crores of imperialist speculative capital. India is one of its favoured destinations. A hyped up growth that has really not raised the standard of living of the masses, has, on the other hand, really strengthened and added to the parasites preying on them. Coupled with the cutting down of the public distribution system and assistance to agriculture, small industry and handicrafts, this gave tremendous opportunities to these bloodsuckers to intensify their exploitation. The steep rise in the cost of living was a consequence of this. Ruling class ideologues and governments cynically dismiss this real reason and attribute inflation to the growing demand of the masses, taken as an index of their growing prosperity!
The cruelty of this excuse is starkly revealed in the fact that inequality in earnings has doubled in India over the last two decades, making it the worst performer on this count of all emerging economies. Reports say that the consumption of the top 20 per cent of households grew at almost 3 per cent per year in the 2000s as compared to 2 per cent in the 1990s, while the growth in consumption of the bottom 20 per cent of households remained unchanged at 1 per cent per year.
Even the IMF managing director Christine Lagarde had to point out that “…the net worth of the billionaire community (in India) increased 12 fold in 15 years, enough to eliminate absolute poverty in this country twice over.” Whatever may be the reasoning, high inflation at a time of slow down in foreign investments caused by the global crisis, finally upset the grand plans of the Indian ruling classes. Year after year, the gap between their projections and results widened.
Revenue kept falling and deficit management had to go beyond cutting subsidies to pruning planned investments. Interest rates were steadily raised to control inflation which in turn hurt investment and also added to the all round debt burden. Now the central index in this whole exercise, in fact a permanent driver since the 1990s, is the fiscal deficit; lowering it and keeping it under control. While this has its importance, it is certainly not the key index of an economy. The reason for its being considered so here is the diktat of imperialism and its agencies. So called fiscal discipline of Third world countries is a central criterion followed by imperialist governments, its agencies, credit rating firms and, most important of all, by financial speculators in deciding their preferences for flowing in capital.
Among them, the last category, imperialist speculative capital, is at present of utmost importance because it accounts for the bulk of foreign capital coming into India. If the fiscal deficit shoots up, the stability of the rupee will become suspect. The speculators will quickly pull out their investments and the economy will go for a toss. Therefore, the government, RBI and all concerned bodies are bound to keep cutting the fiscal deficit and restrict it within the ‘agreed’ limit no matter what it takes. And that ‘what’ can be pretty taxing.
Currently, it means that, despite the stressed conditions of the banking system, the NDA is forced to nearly halve the amount (from Rs. 11000 crore to Rs. 6990 crore) budgeted by its predecessor, the UPA, for recapitalising public sector banks. Even though an influential section of imperialist economists now advocate a proactive role for public investment as a means of driving the economy, there is a tight limit to the extent the government can splurge risking a widening of fiscal deficit. It must dutifully maintain course along the path of dependence to regular ‘fixes’ of foreign capital. There is yet another choke hold, the interest rate. Though all the ruling class pundits are silent about this, the high GDP indexed growth of the first decade of the century was heavily conditioned by easy credit at low interest rates supported by buoyant international financial markets. This in turn was made possible through reckless speculation breaking all barriers.
Once the run was over, the world was thrown into a financial crisis. Despite every evidence of criminal fraud by major transnational financial firms, the imperialist governments poured in crores to bail them out. Interest rates were pushed down to extremely low levels, even zero, in order to revive the economy. This led to a blossoming of the ‘carry trade’ where loans, at zero or near zero are taken in dollars or euros or yens and invested in countries like India in order to syphon off profits from the difference in interest rates. In the initial years of the crisis, India managed to maintain some growth. The volume of finance capital flowing in increased, particularly the part generated by the carry trade. While the Indian economy is now in a downturn, foreign institutional investment, that is investment in shares and bonds, has overall increased. This has everything to do with the carry trade,ultimately dependent on low interest rates in imperialist countries.
The moment there is any indication of interest rates rising there,this money starts to flow out quite rapidly. This was seen a year back when rumours were floating about an impending raise in US interest rates. Though that scare wore off,the threat is still real. The bottom line is that, for the present, interest rates cannot be reduced much for fear of driving away the carry trade so crucial to the stability of the Indian financial system. The real gain, of course, is for the imperialist speculators. Reports indicate that they are getting a very high return on Indian debt, especially government bonds. For all the claims made about the benefits of getting foreign capital, its real logic of making a quick killing can be seen from the fact that even in Foreign Direct Investment (FDI), that is supposed to actually build assets, 35 per cent of it went into the services and real estate sectors all the way from 2000 till 2014. Is it the case that India is really short of capital?
Well, lets keep aside the upper crust – comprador capitalists and feudal landlords – for the time being and consider this: three gold loan companies in Keralam alone have more precious metal in their vaults than the gold reserves of some of the richest nations like Australia or Sweden. If we add up all the gold pledged with the whole banking, cooperative credit sector, all of it all over the country, then the gold stock with households itself would be far, far above that of several wealthy countries.
Gold is one of the biggest import outgoings, nearly all of it unproductive. This is a creation of the inhuman social system existing here. People are forced to add to it bit by bit with any surplus obtained, since that is the security they can count on and the assured means for marrying off girls. Now, if we include the gold in the vaults of various religious centres, the illgotten assets of the ruling classes and their political agents, and those of imperialists, it is abundantly clear that what we really face is not a lack of capital. The imperialist finance capital ‘fix’ so desperately sought by our rulers comes from their nature as comprador. Their growth ‘highs’ are fleeting and, worse, exercises to demand bigger doses that will only draw the country and its people into more abject dependence.