People's Democracy

THE budget, this year, will come in the background of the devastating Gujarat earthquake. It would indeed be ironic, to say the least, that this should be the excuse for imposing further burdens on the people. Through these columns last week, we had shown the incredulity of such an excuse or pretext. However, more appalling is the fact that the massive reconstruction efforts in Gujarat are being seen in official circles as a godsent opportunity to revive a sluggish economy. It is a sign of our times that death, destruction and misery caused by an earthquake, should be seen as an opportunity for making profits!

This budget comes after the `reform’ process or liberalisation, privatisation and globalisation (LPG) policies have been under implementtion for a full decade. Today there are cries for "second generation reforms", i.e, a further opening up of the economy to facilitate the loot by MNCs and foreign capital. These concerns have been highlighted in the recently released recommendations of the Prime Minister’s Economic Advisory Council. The document entitled, "Economic Reforms: A Medium term Perspective", is a blueprint which completely surrenders India’s economic sovereignty. For agriculture, it recommends

• removal of all controls on private stocking (read hoarding);
• virtual elimination of government purchase of foodgrains;
• clearing the way for foreign and MNC operations in the dairy sector;
• doing away with any subsidies;
• facilitating entry of foreign seed companies and exempting them from land ceiling laws (sic), and so on.

For industry, the recommendations are

• reduction in the average import duties from 34 per cent to 12 per cent, by 2005.
• complete dereservation of the small-scale sector;
• across the board privatisation of the PSUs;
• labour reforms to facilitate large-scale retrenchment, and closure of industrial units without prior government approval;
• social infrastructure such as health and education handed over to the private sector and NGOs with the government abdicating all responsibility.

Finally, on the fiscal front, the recommendation is

• a fiscal responsibility legislation that cripples the state governments from expending resources, however little, for people’s welfare.

These recommendations are nothing else but a recipe, under globalisation, for "more state for capital, less state for the people", i.e, facilitate greater profits for capital; abandon all responsibility to provide elementary livelihood for people.

Such appears the direction of the coming budget. All these recommendations of course, come under the ostensible plea of "improving, the living standards of the people and removing poverty".

Consider the diabolic logic. On the one hand it is stated that speedy economic growth is necessary to improve living standards through employment generation and to achieve greater equity. On the other hand, the essential prerequisite to achieve such growth is stated to be downsizing bureaucracy (i.e, employment) and large scale retrenchment and labour laws to "hire and fire" workers without providing any security.

In other words, for an uncertain and nebulous growth of employment and equity at some future time, increase unemployment and widen inequity today. That is, to generate employment in the future, create unemployment today! Such is the diabolic logic of the current reform process.

Yet what has such brazen anti-people and pro-profit logic achieved? Every single economic parameter associated with the "reforms", is showing a perceptible downturn as the country prepares to face the 2001-02 budget. Advance estimates have lowered the projected growth rate by a full one per cent. Key industrial sectors have shown a decline in performance which, unless reversed, are leading to a recessionary situation.

Agriculture has plunged into two successive years of stagnancy, leading to the rate of growth of foodgrain production falling below the population growth rate. Even the much tom-tommed Information, Communication and Entertainment (ICE) sector is showing similar disturbing signs. FDI flows have declined, and India’s international credit rating has been downgraded. The balance of payments deficit is burgeoning, and according to the Comptroller and Auditor General (CAG), the total liabilities of the government has risen to over 16 lakh crores of rupees. For some time now India has found itself in an external debt trap, i.e, borrowing in order to service earlier borrowings.

The budget, if it is to be an instrument propelling economic activity, should address itself to reverse these trends. If however, this is sought to be done through an export-driven strategy, then we shall end up in a greater mess. This is because of the slow-down which has begun in the US economy, which in turn will accelerate a global economic slow-down.

US output growth declined to 2.2 per cent in the second half of 2000, compared to 5 per cent in the previous year. Job cuts and downsizing have begun triggering growing unemployment. The NASDAQ index (governing the ICE sector) fell by 50 per cent by the end of 2000 compared to March. With a recession appearing imminent round the corner, US imperialism will seek to emerge out of the crisis by intensifying economic exploitation of the third world countries including India.

In this situation to seek growth in India through greater integration with the global economy, would be suicidal. Rather India will have to address its problems mainly on domestic considerations.

The main reason for the downturn in the Indian economy, contrary to the ruling official explanation of shortage of capital, is the contraction of aggregate demand in the economy. And the reasons for this slacking of growth relate directly to the declining developmental outlays, and all important capital formation expenditure during the course of this decade of "reforms".

This is rooted in the government’s ideological principle that the state must withdraw from all economic activity and leave everything to the omnipotent "market". In so doing it totally ignores (or is oblivous?) of the fact that no country, from the USA to socialist China, has ever built its economic and social infrastructure relying only on private enterprise.

The record is that developmental outlays have declined from 18.7 per cent of the GDP in 1993-94, to 17.8 per cent under the budgetary estimates for 2000-01. Provision for capital formation during this period, has fallen from 5.8 per cent of the GDP, to 3.9 per cent under the budgetary estimations. When the revised estimates come in, as has been the experience, these figures could be much lower for 2000-01.

Unfortunately, the present Vajpayee led dispensation is obsessed with its fundamentalisms and, thus, unable to address these concerns. In politics, it is communal fundamentalism and in economics, it is fiscal fundamentalism. Concern with a fiscal deficit upsetting economic calculations through an inflationary spiral, arises only under conditions of supply constraints. But the government boasts of an over $ 40 billion foreign exchange reserve, and a stock of foodgrain of over 40 million tonnes. Any growing demand for goods as a result of a higher deficit placing more money with the people can be met by such accumulated stocks. The concern about controlling the fiscal deficit lies elsewhere - in reality, it is directly related to servicing debt rather than kick-starting the economy through substantially increased public investment.

Therefore, if finding proper solutions are the concern, then this budget must see a decisive increase in public investment and domestic capital formation. The latter is crucial to ensure a degree of stability for the future.

The obvious question arises as to the sources of revenue mobilisation for such increase in public investment. Bold measures will have to be undertaken in this direction. Presently, central tax revenue share of GDP in India is one of the lowest in the world, being 8.5 per cent in 1998-99. This should be increased to at least 10 per cent which, on the basis of `back of the envelop’ calculations, would earn close to Rs. 30,000 crores.

Secondly, efforts must be made to recover the rearly Rs 80,000 crore locked up as non-performing assets (read defaulting loans) in the public sector banks. The bank unions have provided the full list of the corporates who have these outstanding debts with the banks.

Thirdly, an amount of Rs. 62,392 crores is outstanding on account of income tax, corporate tax, customs duty and central excise duty as of 31.3.2000 owing to the government. (unstarred question 221 of July 25, 2000 in the Rajya Sabha). Of this, the outstanding corporate tax alone is Rs. 28,348 crore. Instead of simply mouthing their concern for the earthquake victims in Gujarat, the corporate sector would do better to settle these dues! This will more than cover the estimated loss of over Rs 20,000 crore caused by the earthquake. Why is the government not proceeding to recover this amount. Does one need any further evidence of the corrupt politician-bureaucrat-businessman nexus?

Fourthly, India must seriously consider the introduction of a Tobin Tax (the name comes from the person who first proposed such a tax) on all foreign exchange transactions. This will not only garner resources, but also ensure the very necessary measure of preventing speculative capital flows that wreaked havoc on the South East Asian economies. A mere 0.25 per cent tax, for a total of exchange transactions exceeding $ 100 billion an year, would yield a revenue of nearly Rs. 12,000 crores.

These four measures by themselves would yield nearly two lakh crores of rupees. This can be utilised to inject substantial doses of public investment, leading to larger employment, stimulating domestic demand. There are many other measures besides available - taxing the rural rich; making wealth tax applicable not only to fixed property but to all financial assets and so on.

Another serious concern of this budget should be to reconsider the destructive potential of withdrawing quantitative restrictions (QRs), which the government has promised to complete by April 1^st, this year. Its impact on agriculture has already ruined the lives of crores of people. The prices of a large range of products have plummeted due to cheaper imports (Rs. 650 to 450 per quintal of paddy, Rs. 1,500 to 460 per quintal of groundnut, Rs. 2,500 to 1,600 per quintal of cotton, coconut prices have fallen from Rs. 10 to 2 per nut, rubber from Rs. 60 to 16 per kg, coffee from Rs. 58 to 30 per kg between 1999 and 2000).

It would be quite erroneous to conclude that such a fall in prices will benefit the common consumer. It is the traders who make super profits. And this Vajpayee government has permitted foreign firms to operate in both wholesale and retail trade in India. (So much for "Swadeshi"!) The depth of the suffering of the peasantry, as a result, can be gauged from the fact that over 800 suicides of farmers have been reported in Andhra Pradesh alone during the last three years, 91 suicides in 2000 alone.

Already the fear is stalking the industry and other sections, of inundation of consumer goods from abroad once the rest of the items are freed from QRs in April this year. The impact of this cannot be over exaggerated. The consequent process of deindustrialisation, ruination of the small-scale sector, one of the largest employer in the country and ruination of agriculture, would land India in a pathetic plight. The protection of domestic agriculture and industry will have to be undertaken through increases in import tariffs, incidentally permitted under the WTO agreement. Japan, for instance, protects its farmers through a huge import duty on rice. However, the signals emanating from the finance minister (obviously based on the recommendations of the PM’s economic advisory council) point to the exact opposite of further reducing import duties. This would be disastrous, tantamounting to handing over India’s economic assets to foreign capital.

The answer to India’s economic problems is not to be found in a nebulous concept of "further reforms". What has to be clearly spelt out to the country is reforms for whom and in what direction? Privatisation of the public sector, i.e, selling the family jewels to meet the daily expenditure makes neither economic nor common sense. It only facilitates greater profits to foreign and Indian monopoly capital.