Growth without pain
The Indian economy does not need reforms that prise it open for international finance capital but public investments that create jobs and spur growth. Sitaram Yechury writes.columns Updated: Jul 23, 2012 23:53 IST
It is now United States President Barack Obama’s turn to ‘advise’ (read pressurise) India to go in for big ticket reforms of financial liberalisation. He says that, “The time may be right for another wave of economic reforms”, that “In too many sectors, such as retail, India limits or prohibits foreign investment.” The pressure, thus, is to prise open our economy further for international finance capital to maximise profits at a time when the economies of the advanced countries continue to flounder in the current protracted global recession.
Obama’s comments should not be seen as an ‘one-off’ effort. Earlier, international credit agencies had downgraded ratings hoping to pressurise India to go in for further reforms. In April, Standard & Poor’s, one of the three major global rating agencies, reversed India’s outlook from ‘stable’ to ‘negative’. Its report titled ‘Will India be the first BRIC fallen angel?’ had the cheek to say, “Paramount political power rests with the leader of the Congress party, Sonia Gandhi, who holds no Cabinet position, while the government is led by an unelected Prime Minister, Manmohan Singh, who lacks a political base of his own”.
Following this report, Fitch Ratings revised India’s outlook from ‘stable’ to ‘negative’ in June. Of the three, only Moody’s retains a ‘stable’ outlook for India. All three agencies have virtually threatened that unless India goes in for further reforms, they will not improve the ratings which continue to be the yardstick for the flow of foreign investments into India.
There are strong suspicions that these agencies promote the agenda of international finance capital by manipulating their ratings. They had earlier given AAA rating to mortgage-based debt of companies like Enron. In 2008, on the eve of the global financial meltdown, they had given a similar rating to Lehman Brothers and the insurance giant AIG — the main players in the Wall Street collapse.
Another instance, in line with such pressures on India, is the July 16 issue of Time magazine, which had our prime minister on the cover, describing him as “The underachiever”. It says, “India needs a reboot. Is Prime Minister Manmohan Singh up to the job?” It goes on, “India is stalling. To turn it around, Prime Minister Manmohan Singh must emerge from his private and political gloom”. It urges India to go for a host of bold reforms.
There is a long list that all these pressures are demanding: opening up the retail trade sector for foreign investments, i.e. allow retail giants like Walmart to enter India; sharply reduce subsidies; decontrol the prices of diesel and other petroleum products; hike the foreign investment ceiling in the insurance sector to 49% from the current 26%; allow foreign investment in pension funds to go in for market investments i.e. speculation; allow foreign banks to take over Indian private banks.
The retail sector in India conservatively contributes 11% of the GDP and employs over 40 million people. According to the fourth economic census, 38.2% of rural and 46.4% of urban employment is generated in this sector. Permitting multinational giants in retail will only displace these millions into poverty and misery. India, to a large extent, protected itself from the global financial meltdown because it did not allow its financial sector to be open to international speculation. If the proposed reforms are implemented, then India will subject itself to international volatility and, thus, become extremely vulnerable. Allowing international speculation in pension funds and the insurance sector will ruin the lives of millions of working people.
Despite this reality, such pressures, unfortunately, seem to be working. Soon after Pranab Mukherjee resigned as finance minister to become the presidential candidate, the prime minister took charge of the ministry, chaired several meetings of officers, urging them to “reverse the climate of pessimism” and to “release the animal spirit”. He transferred 19 officers in the revenue department. Within hours, the anti-avoidance tax rules (GAAR) on foreign investments in India was put on review.
If the UPA 2 proceeds on the course of such reforms, then it may generate the so-called ‘feel good factor’ for international finance capital and India Inc. But for the bulk of Indian people, the situation will worsen. The opening up of the financial sector, where the life-long savings of the majority of Indian people are parked, will create uncertainty and insecurity for the future of millions. Further, none of these reforms will address, leave alone solve, the problems faced by the people like price rise, unemployment, poverty and misery.
The chair of the Planning Commission’s high level expert group on universal health coverage has estimated that as a result of high healthcare costs, 40 million Indians are annually pushed below the poverty line. The health expenditures of both the central and state governments put together is less than 1.4% of our GDP, one of the lowest in the world. Realistic definitions of poverty estimate that nearly four-fifths of Indian people, more than 80 crore, would be below the poverty line. Given this reality, the proposed reforms may enlarge profits for private capital but they would simultaneously enlarge the growing divide between the two Indias, heaping misery on the already groaning majority.
What the Indian economy and the people require is a significant growth in domestic demand through employment generated by public investments that can sustain healthy growth. The massive tax concessions, Rs 5.28 lakh crore as a stimulus to India Inc, resulted in the fall of industrial growth from 8.8% in June 2011 to minus 3.1 % in April 2012. Instead, if these monies were used for public investments, India’s growth story would have been different.
Sitaram Yechury is CPI(M) Politburo member and Rajya Sabha MP
The views expressed by the author are personal