President Pranab Mukherjee will be delivering his first address to the joint session of Parliament that convenes tomorrow to begin this year’s budget session. Customarily this speech, cleared by the Union Cabinet, represents the balance sheet of “his government’s” performance in the last year and its vision for the next. There are many important issues that Parliament would have to consider in this session like the Lokpal, food security, converting the Justice Verma Report into legislation, etc. The main agenda, however, would be to consider and approve the budgetary proposals.
This year’s budgetary proposals come against the background of a severe economic slowdown. Though the finance ministry is contesting the Central Statistical Organisation’s estimation of 5% GDP growth this fiscal, reality suggests this to be closer to the truth. Industrial output has contracted by 0.6% in December on top of a similar contraction in November this year. For the nine-month period between April and November 2012, industrial production grew at a meagre 0.7%, compared to 3.7% last year. Worse, the manufacturing sector, which constitutes over 75% of the index, registered a decline of 0.7% in December. The consequent growth in unemployment comes on top of a relentless rise in prices with retail inflation at 10.8% in January 2013. The prices of vegetables are growing at the rate of 26%, edible oils by 15%, meat/fish/eggs by 14%, cereals and pulses by 15% and sugar by 13%. Clearly, the people are hoping that this budget will provide them some relief from this growing agony.
This apart, the budget would also reflect how India is responding to the continuing global crisis. The ILO’s special report on global employment trends for 2013 notes that in the fifth year after the outbreak of the global financial crisis, global growth continues to decelerate and unemployment gallop. By 2014, ILO estimates that over 205 million job seekers will remain unemployed, while an additional 100 million would simply drop out of the labour market. Over 35% of youth have not been able to enter into any employment. The report concludes by saying, “Income growth has come under pressure from rising unemployment (in India’s case, add inflation) putting downward pressure on real wages”. This, it says, is considerably lowering the level of economic activity due to a lower consumption capacity of the people.
Instead of concentrating on bolstering demand and consumption capacity of the people, global capitalism has been seeking to overcome its crisis in a manner that is only resulting in a newer crisis. The crisis that began with a sharp decline in the purchasing power of the people was sought to be overcome by providing cheap credit through ‘sub-prime’ loans. When these loans could not be repaid, the second phase of the crisis came with the global financial meltdown. In order to emerge from this crisis, those very financial giants that created the crisis were bailed out through humongous State-financed packages. This led to the third phase when corporate insolvencies were converted into sovereign insolvencies, leading to the bankruptcy of several advanced countries. In order to reduce governmental expenditures as a consequence, many of these countries have imposed severe ‘austerity measures’ leading to a further contraction in the consumption capacity of the people, which, in turn, heralded the fourth phase of the crisis, slowing down both growth and employment. The Guardian recently carried an obituary for the ‘welfare state’ and stated, “Instead of a book of condolences, there will be a special edition of the Guardian’s letter page.”
The fifth phase of the crisis is around the corner. The US has temporarily avoided falling off the “fiscal cliff”, extending its debt ceiling for three months. This is a mere postponement and even this implies an immediate fiscal squeeze of 1 to 1.5% of GDP without any resolution of the country’s long-term debt. The US’s current debt is larger than its GDP. With its GDP growth rate hovering around 2%, such a squeeze will mean a severe slump. Across the Atlantic, the IMF expects the Euro zone economy to shrink by 0.2% this year. The global economy is, thus, reaching back to its original cycle that began these phases of crises.
In this backdrop, the Indian economy can only be reignited by focusing on a massive expansion of our domestic demand. This can happen only when public investments are significantly raised to build our much-needed infrastructure while they would generate large-scale employment and consequently boost the aggregate domestic demand. This is the only course that is available in the current global scenario.
However, official thinking seems to suggest that this government may instead seek to stimulate growth by attracting large doses of international finance. Already, there is a large-scale opening up of our economy to FDI — in retail trade, insurance and banking sectors, in pension funds etc. The General Anti-Avoidance Rules (GAAR) have been deferred by two years. This has come as a great relief to foreign investors. This, it is hoped, would lead to higher levels of investment resulting in higher growth. Such a strategy simply cannot work because no amount of investment can lead to growth unless what is produced is consumed by the people. Given current realities, such a degree of consumption capacity simply does not exist among our people.
There is no dearth of resources if only large-scale corruption can be curbed and massive tax concessions to the rich are stopped. These can then be used to hike public investments that will put our economy on a sustainable growth path and improve the livelihood of our people.
Sitaram Yechury is CPI(M) Politburo member and Rajya Sabha MP
The views expressed by the author are personal