On The Political Approach to the Current State of the Indian Economy – P J James

Paper presented for Central Party School in 2020

On The Political Approach to the Current State of the Indian Economy

P J James

Today Indian economy is confronting the worst contraction on record. Officially also, it is acknowledged as historic down-turn in 70 years. It is a fact that COVID-19 came when imperialism has been still reeling under the impact and repercussions of the 2008 global crisis. Now the pandemic has driven the world economy to a state of crumbling, the dimensions of which are surpassing that of the Great Depression of 1929-33.For instance, based on October 2020 database, IMF estimates a 4.4% contraction in world output in 2020. Except China which is expected to mark a growth rate of 1.9%, all leading countries will contract or represent minus growth- US(-4.3%), Japan(-5.3%), Euro Area(-8.3%) and UK(-9.8%). On the other hand, while the average growth rate of the so called “developing countries” is predicted to contract by -3%, that of India will be a staggering -10.3%.

According to Swiss bank UBS, by the dawn of 2020 itself, half of world’s net wealth belonged to the top 1% of the superrich; and top 10% of the population held 85% of total global wealth. Conversely, 90% of the people have only 15% of world’s wealth (and top 30% holding 97% of the total wealth). During the pandemic, world’s billionaires whose number rose from 2158 in 2017 to 2189 by mid-2020 increased their wealth by 27.5% during April-July 2020, to a record high of $10.2 trillion.

Its global consequences as manifested in surging poverty and unemployment are horrific. While IMF predicts a fall of an additional 90 million people in to extreme deprivation in 2020, ILO calculates an unemployment/underemployment of up to 2 billion people (58% of the world’s total labour force of 3.46 billion in 2019) in 2020 itself. According to the World Food Program, on an average, around 9 million people are dying annually from famine and hunger-related causes. Now, on account of the pandemic, this figure may skyrocket as there will now be 1.5 to 2.0 billion famine-vulnerable people, many of whom may die.

Indian Economy Facing The Worst-Ever Contraction

However, the present collapse of the Indian economy, as noted in the beginning, is quite unparalleled and the worst on record. Both International agencies and official Indian sources have acknowledged this. In continuation of a 24% contraction or negative growth for the first quarter of 2020, the IMF, in its latest World Economic Outlook, predicts a 10.3% contraction for the entire financial year ending March 2021, revising its earlier prediction of a 4.5% decline. This additional 5.8 percentage-point downgrade of Indian GDP is the worst in the world. Strikingly, IMF’s outlook for India is worse than RBI’s prediction of a 9.5% decline in GDP in the current fiscal year. A comparison of the sector-wise official statistics pertaining to the first quarter of the previous year (2019-20) with that of the current year, gives a more concrete picture. For instance, except agriculture, forestry and fishing (that shows a growth of 3.4% in the first quarter of 2020-21 compared to 3.0% growth in 2019-20), all other sectors are steadily contracting. Thus, 2020-21 quarter one contraction for mining and quarrying was -23.3% (4.7% in 2019-20), for manufacturing, it was -39.3% (3% in 2019-20), electricity, gas, water supply and other utility services -7% (8.8% in 2019-20), -50.3% (5.2% in 2019-20), trade, hotels, transport, communication, broadcasting services -47% (3.5% in 2019-20), financial, real estate and professional services -5.3% (6.0% in 2019-20), and public administration, defence and other services -10.3% (7.7% in 2019-20).

As such, according to independent analysts, the crisis is more deep-rooted and worse outcomes are in store. For instance, India’s former Chief Economic Advisor and World Bank Chief Economist Kaushik Basu have predicted the economy to shrink by around 12% in the current year. According to Arun Kumar, another well-known economist, India’s GDP decline in the current year will be around 50% and not 24% as officially claimed. This is because of the devastation of India’s unorganised/informal sector that provides 94% of total employment and yields 45% of total output produced in the country. Contradicting CMIE data, Arun Kumar also puts the actual unemployment figure at 20 crore. According to him, unless appropriately managed through policy interventions, the official optimistic projections for 2021 will remain as wishful thinking.

The massive decline of around 24% in India’s GDP, as officially estimated, in 2020 April-June quarter makes the size of GDP almost the same in size as that in the same quarter in 2015. Hence it can be said that the GDP level has leaped back by 5-6 years, more or less equal to the same level when Modi came to power. As a result, the past half-a-decade under Modinomics may be characterised as lost years for India. A comparison between Bangladesh, India’s neighbour would be more illuminating in this regard. According to IMF data, on an average, India’s per capita GDP has been 24 percent higher than that of Bangladesh during the last 5 years. But by mid-2020, India’s per capita GDP in nominal US dollar terms was $1876.53 (Rs. 1.25 lakh approximately) compared to $1887.97 for Bangladesh.

Consequently, in the 2020 Global Hunger Index prepared jointly by World Hunger Aid and Concern Worldwide, India’s rank slipped to 94 (among 107 countries) from 55 (among 76) in 2014. Most of the South Asian countries — Sri Lanka (64), Nepal (73), Bangladesh (75), Myanmar (78) and Pakistan (88) — are better off than India in this regard. As its manifestation, with 17.5% of world population, India is home to 22% of world’s most poor and hungry people. As a direct outcome of this destitution, with 37.4% of the underweight children, India has the distinction of having number one position in the world in this regard too. In the same vein, in the case of other indices such as Inequality Index (where India’s position is 129 among 157 countries), Happiness Index (144 among 156), Environment Performance Index (167 among 180), and so on, India’s deterioration continues unabated. With 18 million slaves (out of 46 million worldwide) almost entirely from the lowest rung of the caste system, India under Modi regime occupies number one position in Global Slavery Index too.

At the same time, amidst a 24% GDP contraction during the first quarter of 2020-21, as estimated by Forbes, within one year Ambani has his wealth increased by 73% from$3730 crore to $8870 crore, that of Adani by 61% reaching $2520 crore, and in that order for many billionaires such that the total wealth of the first 10 Indian billionaires rose to $51750 crore (approximately Rs. 38 lakh crore) during the same period. In general, as Oxfam has estimated, today around three-fourth of the additional income or wealth generated in India is gobbled up by the upper 1% of the super-rich (close to 60 percent of the country’s total wealth is in the hands of upper 10 percent of the population). If we exclude the 75% of the income appropriated by the upper 1%, then the per capita income of the 99% will be a paltry portion of the officially estimated Rs. 1.25 lakh. And if we exclude the organised sector and take the unorganised and informal sectors where 95% of the Indian workforce are depending for their sustenance (for which no detailed official data is there), then the situation will be too gruesome. It may be more horrific than what Arjun Sengupta, the then Planning Commission member had estimated a decade back—that 83% of Indians subsist on just Rs. 20 a day!

Analysis Of The Situation

The cause for this situation is now generally attributed to India’s lockdown which is acknowledged as the most coercive, the most stringent and most prolonged in the world, on account of its deadly restrictions on social and economic life. For instance, a study on the government responses to COVID-19 by the Oxford University, after comparing the pandemic-induced lockdowns that put the economy in a frozen state on account of disruptions in both movement of the people and supply chains in various countries, has attributed the highest “Stringency Index” of 100 to Modi government followed by Italy (with a Stringency Index of 95.2), Spain (90.5), Germany (81), US (66.76) and Japan (45). Revealingly, while all other countries resorted to lockdowns when the number of infections reached around 100000, the strictest lockdown in India was superimposed when the total infections were just around 5000 in the third week of March 2020. While putting the entire economy in a frozen state leading to a devastation especially of the informal sectors that provide sustenance for vast majority of the toiling masses, in the absence of any worthwhile intervention for containing the pandemic, the lockdown that lasted for almost 2 months utterly failed to get the pandemic under control, with the number of corona-virus cases crossing 7.6 million (by the beginning of the 3rd week of October, while these lines are written), second only to the US.

COVID-19, The Immediate Cause Only

The government and corporate media in India now firmly claim that the economic collapse with all its manifestations is caused by the corona virus pandemic. This is also endorsed by IMF when its chief economist Gita Gopinath referred to the “great lockdown” of India. But this forms only a partial explanation and not in accord with concrete facts. On the other hand, a closer analysis reveals that the elements of the present crisis and the consequent irreversible economic downturn got a new turn since the advent of Modi in 2014. In fact, COVID-19 is only the spark and not the root cause triggering the present crisis.

That is, while the post-meltdown crisis has been a continuing process at the global level, India’s economic collapse under Modi regime, though connected with many external factors, is to be understood as different in many respects. For, as highlighted by several international and Indian studies including that done by the Economic Research Department of SBI , the Indian economy was ‘relatively immune’ from the global meltdown of 2008 and the country’s GDP had been growing at 7-8 % on an average up to 2014-15. This also prompted neoliberal centres to characterise India as “the best-performing economy” in the world during the years immediately following 2008 meltdown.

Thus, in retrospect, it can be seen that the ongoing economic collapse of India has been inseparably linked up with the complete transformation of the Indian state as a “facilitator” of corporatisation and the consequent far-right shift in economic policies under Modi regime. For instance, without any qualm, immediately after coming to power, the first step that Modi did was the abolition of the more than six-and-a-half decade-old Planning Commission, the last remnant of state-led development, and its replacement by a corporate-bureaucratic think-tank called NITI Aayog and entrusting the task of policymaking with it without even consulting the parliament. To transform the State as corporate-investor-friendly, and to rapidly improve India’s indices pertaining to “ease of doing business” and “global competitiveness” as laid down by Bretton Woods twin (and, of course, fully in tandem with the far-right economic philosophy of RSS that guides the Modi regime), what followed was a pan-Indian extension of the ultra-rightist Gujarat model that uninterruptedly flourished under Modi’s chief ministership. Mimicking China’s export-led growth, the flagship “Make in India” initiative was announced in September 2014 with the declared aim of transforming India into world’s manufacturing hub, creation of an additional 100 million jobs in the manufacturing sector and raising the proportion of manufacturing from 16 percent to 25 percent of GDP by 2022. However, what happened is the opposite and today this proportion has further fallen down to around 13 percent. The foreign capital that rushed in taking advantage of liberal tax, labour and environmental regulations under the cover of “Make in India” mainly went into money-spinning speculative activities, as capital that flowed in was least interested in employment-oriented production. Consequently, “Make in India” transformed India into a dustbin corporate-speculative capital on the one hand, and a dumping ground for capital and consumer goods from imperialist sources ranging from US to China.

Modi’s 2016 Demonetisation superimposed on the people in the guise of a surgical strike against black money was an ingenious move to whiten the black money with the most corrupt corporate black money holders on the one hand, and suck out whatever left in the arteries of common people by denying them cash which is the life-blood of the informal sectors and essential for people’s daily transactions, leading to a further concentration of wealth with the corporate-financial elite closely connected with the ruling regime. In the process, the whole economy remained in a paralysed state. This was followed by GST that deprived the states of their Federal right of resource mobilisation and shifted the tax burden on the shoulders of common people and on the unorganised sectors.

Though Modi came to power in 2014 claiming to generate an additional 2 crore jobs every year, according to independent estimates, by the beginning of 2020, i.e., on the eve of the pandemic, the country had lost around 14 crore jobs since 2014. And India today experiences the worst unemployment in recorded history. Almost 50 percent of the people is still clinging to agriculture for their sustenance though the contribution of agriculture to GDP is only around 15 percent as of now. Modi’s input-output pricing policies pertaining to agriculture and its forcible integration with world market coupled corporatisation policies have pauperised the peasantry. Over the years, corporatisation of agriculture had displaced large sections from agriculture altogether.

Though concentration of income and wealth under Modi is of unprecedented proportions, only 1.5 crore Indians are effective direct tax payers (including corporate and personal income taxes) and in spite of extreme concentration of wealth and inequality, Indian corporate tax rate at 15 percent is the lowest in the world. The direct tax-GDP ratio in India is stagnating at around 5.5 percent which also is the lowest in the world. If the upper 10 percent of the wealthy sections are brought under the tax net, together with 30 percent corporate tax prevailing when Modi came to power (during the 1970s, the highest rate was up to 90 percent), the direct tax-GDP ratio could have easily been raised to 20 percent.

To compensate for this biggest loss in direct tax revenue arising from tax rate reduction, along with the increase in indirect tax burden on the people through GST, Modi has been resorting to the biggest-ever loot of the broad masses by sky-rocketing prices of petroleum products (mainly through raising taxes and cesses on petrol, diesel, cooking gas, etc.), and by this alone during 2014-20 the regime has amassed an additional amount worth Rs. 17.5 lakh crore compared to the UPA regime. Ironically, the average world crude oil price (India imports around 80 percent of its crude oil requirements) during the entire Modi regime has been around one-third of what it was during the previous UPA rule, and following declining global demand in the context of COVID-19, global price is now hovering around one-fourth of what it had been a decade ago. Meanwhile, declining government revenue from direct and indirect taxes(the latter mainly on account of loss in people’s purchasing power) coupled with corruption (though Modi came to power on an anti-corruption plank and with the promise of bringing back Indian black money from foreign tax havens and putting Rs. 15 lakh in to the account of each Indian citizen, under him India became a “flourishing example of crony capitalism” and the most corrupt country in Asia) and loss to exchequer in manifold ways, etc., are resulting in an unprecedented growth in India’s debt-GDP ratio to around 85 percent during the Modi period. To cap it all, an unprecedented loot of public wealth through disinvestment of PSUs and plunder of public sector banks through the creation of NPAs by corporates are flourishing without any let up.

The anti-people nature of this government is self-evident in its reluctance to distribute at least a portion of the huge stock of food grains among the starving millions including the migrant workers who were condemned to bear the brunt of the coercive lockdown. In spite of Modi regime’s anti-farmer policies including the latest pro-corporate central agricultural legislations, India is ranked second in food and agricultural production. As such, the total food grains stock (rice plus wheat) with FCI has topped 100 million tons by mid-2020. On account of grave storage challenges, millions of tons of this grain stock are prone to decay, and the government could have effectively and quickly liquidate the heavy burden of storage by immediately distributing this among the needy, vulnerable and destitute sections through a free-grain scheme. But true to its fascist character, except certain window-dressing (eg, the announcement to distribute 5 kg wheat/rice for 3 months among the poor as part of Aatmanirbhar), the government least interested to distribute the food grains among the tens of millions of poor including the migrant workers.

To be precise, prior to COVID-19, the neoliberal-corporatisation policies pursued by Modi government have been driving the country to an economic contraction of unprecedented proportions. Now the pandemic is again used as an opportunity by the corporate-saffron fascist regime for stimulating the corporates by its far-right agenda more aggressively. For instance, the recently announced so called “Aatmanirbhar Bharat Abhiyan” is another cover for an unprecedented “stimulus package” for those whom Modi regime characterises as “wealth creators” (a synonym for most corrupt corporate looters). Aatmanirbhar Bharat is a vulgar imitation of the earlier prognosis of “Make in India” (of late, “Make in India” is replaced by the new catchword “Assemble in India for the World” in accordance with the “Global Value Chains” hypothesis recently put forward by World Bank)and what envisaged now is the outright sell-out of remaining key and strategic sectors including mining, transport, defence, banks and insurance, space exploration, power distribution, health research, and entire frontier technologies to foreign and Indian corporates. No doubt, such “supply-side” interventions belong to the same genre of pro-corporate stimulus packages pursued elsewhere by neoliberal centres. Revealingly, out of the Rs. 21 lakh crore Aatmanirbhar package, what addressed to the vast majority of toiling and oppressed masses is only around Rs.2 lakh core or just one percent of the country’s GDP, the remaining straightway going to corporate coffers.

On Understanding the Present Economic Collapse

Obviously, for fascists, crises are new opportunities, and the corporate-saffron fascist Modi regime is no exception to this rule. Using COVID-19 as a cover, Modi.2 is now engaged in an aggressive wealth transfer to corporate looters on the one hand, and imposition of heavy burdens on the backs of common people on the other. Of course, as can be seen, there has been a constant economic downturn under Modi-1 and Modi-2, and the GDP contraction cannot be only due to the pandemic or the severest lockdown. Ironically, as we pointed out earlier, corporate wealth accumulation is flourishing without any let up even as the economy and all its components are going down—private consumption expenditure contracted-26.7%, exports-20%, construction-50%, investment and services (including trade, hotels, communication, transport and broadcast)-47% respectively and so on in the context of the pandemic. In the ultimate analysis, all these variables could be seen directly and indirectly linked up with gross value addition, production, employment and earnings ofthe people. Therefore, it is important to understand this irreversible declining trend under Modi regime with respect to the logic of corporatisation (“wealth creation” as the govt. officially puts it) vigorously pursued by it.

From its very inception, Modi government’s concentrated effort has been to create an ‘investor-friendly” atmosphere for the corporate speculators. In the guise of unleashing the “animal spirit” of the most corrupt corporate giants, unprecedented tax give-aways and exemptions along with steep reduction in corporate tax rates have become regular feature of all budgets and extra-budgetary measures since 2014. Now at 15 percent, Indian corporate tax rate is the lowest in the world. Corporate companies are exempted from paying Dividend Distribution Tax (DDT), audit exemption for adapting to cashless transactions up to Rs. 5 crore, amendment in Indian Company’s Act for abolishing penal steps against those violating it including non-adherence to Corporate Social Responsibility (CSR), and so on. Even profit-making PSUs are disinvested at throwaway prices to be gobbled up big corporate companies. Leading corporates were allowed to build-up huge non-performing assets (NPAs) with public sector banks that pushed the banking system to crisis. Elimination of all restrictions to the free entry and exit of foreign corporate capital and similar other steps were also initiated in a systematic manner.

But this unparalleled wealth transfer to corporates in the guise of boosting production and employment has, instead of positively contributing anything to employment-oriented production, rather led to horrific proportion of wealth accumulation by both foreign and domestic corporate giants who diverted a major component of this wealth to terribly destructive speculation and money-spinning activities. Even banks, financial institutions and mutual funds have become reluctant to deploy the immense funds at their disposal for productive investment. Still under the so called ‘expert’ advice from neoliberal centres, red carpet has been continuously laid down for attracting foreign capital. And the economic situation which was bad in the pre-Covid situation has become worse, or as is conceived by many, the economy which was already in the ICU is now put on the ventilator. Thus, Modi government’s wholehearted embrace of the logic of corporate capital-i.e., if left free capital today invariably goes to the most profitable avenues- has pushed Indian economy in to a vicious corporatisation-stagnation trap. Its ultimate outcome is the explosive growth of the most corrupt and parasitic corporate class sucking out wealth from the real economy through manifold ways while remaining at the sphere of speculation.

Lenin in his theory of imperialism had already explained much on the character of fictitious or speculative capital –an aspect briefly noted by Marx too in Capital. Today under neoliberal imperialism, speculative capital that develops exclusively in the financial sphere by sucking out value from the real economy without any real link with material production has become the dominant form of capital. And this is the essence of economic contraction and crisis today. India today is in the firm grip of a vicious circle—i.e., lack of investment in employment-oriented productive investment leads to lack of jobs resulting in lack of income and purchasing power for the masses, which in turn leads to lack of demand for goods and services and market contraction that lead to lower or lack of profit from the productive sphere which again pulls back investment in spite of repeated corporate “stimulus packages” by the government. As this vicious circle of contraction/stagnation strengthens, Modi government which rolls itself back from all investments, in tune with neoliberal diktats, is coercively superimposing heavier and heavier burdens on the shoulders of the people. All avenues at the disposal of corporate-saffron fascism are deployed not only against workers and all oppressed including dalits, adivasis, minorities, women and even children, but also on political opponents and dissenters. Obviously, there is no shortcut, and the only option is a political alternative capable of resisting and defeating this horrific situation.

On Immediate Options and Political Alternative

Obviously, from the perspective of Marxist political economy, the alternative to this corporate-fascist offensive is to break the logic of neo-liberalism itself, which calls for an appropriate broad-based, nationwide people’s movement led by revolutionary forces capable of imparting death blows to corporate capital. The immediate requirements or slogans for initiating such a process are there in the Draft of the Common Minimum program for building the Anti-Fascist Front already proposed by CPI (ML) Red Star (see, “ Appeal to All Revolutionary Left Organisations”, Red Star, August 2020). The specific economic demands (items 3-8) mentioned in it, for instance, if urgently implemented, will ensure more purchasing power in people’s hands and will provide a boost to productive economic activities. Though reactionary sections of corporate capital may still keep aloof from investment, it will definitely prompt sustainable agriculture, encourage medium and small industries to actively come forward to boost production and employment, which can break the vicious circle of economic stagnation.

Together with this “demand push” (as against “supply side”) initiatives, demands for reintroducing progressive corporate taxation, wealth and inheritance tax, abolition of regressive indirect taxation including the neoliberal GST that puts disproportionate burden on the people, introduction of redistributive wage and universal social and security and gender-specific policies, ensuring quality public services including water, health and education, total elimination of burden of unpaid work especially by women, guaranteeing elder care as well as child care, ensuring minimum wage sufficient enough for adequate standard of living, regulating ratios between lowest and highest wages and earnings, price support programs for peasants, reasonable restrictions on financial dealings and ban on speculation, capital flight, illicit financial flows, etc., anti-monopoly and anti-corruption policies, strengthening public sector and reversal of disinvestment and denationalisation policies and so on can appropriately be incorporated in to the minimum program. This shall form the stepping stone towards a sustainable political-economic alternative capable of resisting and overcoming the hegemony of corporate capital.

(Party School Paper for 2020)