the Sensex has now registered a 24% fall from its highest level.
This has inevitably impacted on the growth of unemployment in the country. It's now reported that at least 123 cotton and fibre textile mills in the organised sector have closed down resulting in the layoff of 44,681 workers. The Apparel Export Promotion Council estimates that over 45 lakh people have lost their jobs in the textile sector, the largest employer after agriculture in our country. About 65% of our textile exports are to the US and the European Union (EU). With both of them on the brink of a severe recession, the situation in India can only worsen.
Spain has become the fourth EU country to be bailed out. A €100 billion bailout plan has been approved by European finance leaders. Spain has already spent €15 billion to bailout its smaller banks. The European Financial Stability Facility (EFSF) has a corpus of €440 billion. It has already given bailout loans of €18 billion to Ireland, €26 billion to Portugal and €145 billion to Greece. With this bailout for Spain, the remaining corpus would be only 30% of the envisaged lending capacity of €500 billion for the European stability mechanism, which is slated to come into effect by July 1. In other words, the eurozone crisis can only worsen and threaten the EU itself.
India's chief economic adviser has warned that India will face the adverse effects of this crisis and its "waves will come up on our shore in a big way". Despite this, reflecting a typical ostrich mentality, the commerce ministry has announced a supplementary Foreign Trade Policy on June 4. Several sops have been announced, estimated at over Rs. 1,200 crore, to promote India's tumbling exports. While India's exports grew by 21% in 2011-12, to touch $303.7 billion, they crashed to a mere 3.2% this year, despite the severe depreciation of the rupee. Depreciation would make our goods cheaper in foreign lands, which should normally increase their sales. This, however, is not happening because of the deepening global economic crisis and recession. Yet, UPA 2 has adopted a seven-point strategy to increase India's exports, despite the recent sharp decline to $360 billion.
The world has seen a sharp deceleration in global trade from a 13.8% growth in 2010 to 5% in 2011 and the World Trade Organisation (WTO) forecasts a mere 3.7% in 2012. This can well lead to a slew of restrictive trade practices in many countries, in pursuit of protecting their economies, which will have an adverse impact on our exports. In this context, the Rs. 1,200 crore package to promote exports will end up helping exporters and won't increase the volume of exports. The latter requires a growing demand for our products in foreign lands. This cannot be created by granting fiscal concessions at home. Further, export growth requires Indian manufacturing to face severe competition from countries like China and even Bangladesh (in apparel exports, which is our largest net export earner). These concessions, therefore, will only protect the profit margins of Indian exporters at the expense of a mounting fiscal deficit.
Rather than working towards reversing our economic slowdown, UPA 2 seems to be concentrating on the revival of larger profits to India Inc and international finance capital. This has found expression with the calls for GenNext reforms from the recent Congress Working Committee (CWC) meeting. The privatisation, with sizeable foreign financial participation, of pension funds is in the offing. Likewise, reforms seeking to increase foreign financial participation in the insurance sector and granting foreign banks the right to take over private Indian banks appear to be in the pipeline. These reforms were on the agenda of the neo-liberal trajectory since 2004. However, they were prevented by the Left parties during UPA 1. This resulted in the relative insulation of the Indian economy from the devastating impact of the global financial meltdown of 2008. This shield, so to speak, is now sought to be ripped apart.
The revival of the Indian economy can only take place by enlarging the levels of domestic demand. This is currently being squeezed due to the relentless price rise and sharply widening economic inequalities. This can be reversed only by banning all speculative trading in essential commodities and, importantly, generating large-scale employment through significant public investments in building our much-needed infrastructure. There is no dearth of resources for this, if only the massive tax concessions granted in 2011-12 (nearly Rs. 5.28 lakh crore), which exceed our fiscal deficit (nearly Rs. 5.22 lakh crore) are withdrawn this year.
Internationally, it is accepted that a 3% deficit level is, in fact, healthy for economic growth. Instead of doling out such concessions, if these legitimate taxes were collected, then we could have partly reduced our fiscal deficit and used the rest for large-scale public investments. This will, in turn, generate employment and substantially increase the aggregate domestic demand. This will put our economy on the path of a healthy revival. This can only happen when UPA 2 abandons its misplaced hopes of an economic revival on the basis of granting greater tax concessions and enlarging profit margins.
Sitaram Yechury is CPI(M) Politburo member and Rajya Sabha MP
The views expressed by the author are personal