It gives little satisfaction to feel vindicated by this column’s prognosis that capitalism’s prescription to overcome the economic crisis set in motion by the 2008 financial meltdown would lay the seeds of a deeper crisis leading to a double dip recession. Millions of people the world over have become victims of this strategy to convert corporate debt into sovereign debt. The staggering amounts of bailout packages to those very financial corporations who, in the first place, generated the crisis resulted in huge governmental debts.
While corporate balancesheets today look handsome and their executives are receiving hefty bonuses, the governments are implementing severe austerity measures to meet the debt burdens. This has severely crippled the livelihood status of billions the world over. Little wonder that the anti-Wall Street protests continue to swell.
A snowballing political fallout has begun. Greek prime minister George Papandreou resigned last week after having threatened to go for a referendum on whether Greece should continue with the European Union and, hence, break from the Euro. This would have set in motion a crisis for the EU itself, consuming other European economies including Germany and France and hurtling the global economy into a vicious recessionary spin. A hasty transitional government of ‘national unity’ has been cobbled up hoping to restore political stability and calm the nerves of a turbulent global financial market. This, however, appears unlikely with the Greek people up in arms against growing unemployment, severe cuts in social sector spending combined with increasing working hours, lower wages and pensions. Greece has already been rocked by an unprecedented number of nationwide strikes.
Italy’s prime minister Silvio Berlusconi has resigned after dominating the country’s politics for 17 years. Italy has accumulated a debt of 120% of its GDP. Interest rate on government bonds touched 7%. This was the rate at which first Ireland and then Greece and Portugal were forced to seek bailout packages. The new government that follows is forced to implement a severe austerity package for saving, to begin with, 60 billion euros. This includes a freeze in salaries, increase in the retirement age and an increase in value added tax (VAT). All measures that will mount further miseries on the people.
Spain appears to follow suit. It has reported an unbelievable zero growth rate this year. Its unemployment rate has reached 22% and has accumulated an unbearable debt burden. The US itself continues to remain embattled. Like the earlier effort to overcome the crisis by converting corporate insolvencies into sovereign insolvencies laid the seeds of the current crisis, the current prescription of seeking to emerge from this crisis by meeting the costs of sovereign debt by imposing greater burdens on the people is laying the seeds of another deeper crisis. This is bound to push the world into a depressionwhose dimensions could well be worse than the catastrophe of 1929.
These severe austerity measures will further sharply reduce the purchasing power in the hands of the vast majority of the world’s population compounded by mounting unemployment. This, in turn, would further depress manufacturing output and the consequent fall in the levels of aggregate demand would also adversely affect trade and commerce that will have a ripple effect on the global economy.
The hope that India will remain unaffected by these shocks is, alas, proving to be a mirage. The confidence exuded by our prime minister at the recent G 20 summit in Cannes notwithstanding, all indicators show that the Indian economy is not only slowing down, but it also appears already to be in its grip. Manufacturing output has fallen to its lowest levels in two years. The index of industrial production (IIP) declined for the third consecutive month in September to 1.9%, down from 6.1%. In the first half of this year, industrial growth dipped to 5% as against 8.2% a year ago. This would lead to still fewer job opportunities and salary freezes impacting upon the growth of domestic demand negatively.
This comes on top of a sharp decline in the growth of exports that has been plummeting continuously since July when it hit 81.79%. It has now come down to 10.8%. Even with imports remaining volatile, the trade deficit has burgeoned to $92 billion and is expected to breach $150 billion this fiscal. The slowdown in global trade has already impacted our textiles and apparel sectors creating a serious unemployment situation as, after agriculture, this sector is India’s largest employer.
While these developments create a bleak future for the vast masses in India, the existing livelihood status itself is being severely assaulted by the relentless rise in the prices of all essential commodities. Despite all claims of controlling inflation, food inflation is now around 12%. Vegetables are costlier by 26%, pulses by 14%, fruits by 12%, eggs, fish and meat by 13% and milk by 12%.
Under these circumstances, the cries by India Inc. for further financial liberalisation to facilitate the flow of international finance capital will only spell further ruin for the people of India. Instead, for the sake of the aam admi, UPA 2 must be forced to stop giving further tax concessions to corporate houses and the rich (a whopping R5.2 lakh crore, in the last two budgets). This has not led to larger investments and consequent growth as envisaged. Unless people’s purchasing power rises, no investment can be sustainable. Such concessions, instead, should be collected and invested for building our much needed socio-economic infrastructure generating jobs and enlarging domestic demand.
Sitaram Yechury is CPI(M) Politburo member and Rajya Sabha MP
The views expressed by the author are personal