People's Democracy

THE Vajpayee-led NDA government has reacted to the current economic recession that is getting worse, in the only predictable manner that is by now expected of it. It has set up a cabinet committee to provide "stimulus to the economy." Many such committees have come and gone. The Vajpayee government holds the record for setting up the maximum number of committees, and also the record for minimum output from such committees.

Indications from the first of such meetings reveal that the pro-reform enthusiasts have finally recognised what we have been saying for a decade. The basic problem with the Indian economy lies not in a shortage of capital as much as in the continued shrinking of the domestic market. With the adoption of a strategy of the government’s withdrawal from economic activities for a decade, the ‘reforms’ have marginalised the government's spending which is the main lever of providing employment and thus generating domestic demand. With the manufacturing sector going into the worst of recessions during this decade, the ground realities seem to be forcing the government to accept this fact. Under pressure from the IMF and World Bank and its preoccupation with fiscal fundamentalism, the Vajpayee government enforced a "saving" of budgetary allocations in various sectors to the tune of Rs 1,56,191 crore during its last two budgets --- Rs 77,370 crore in 2000-2001 and Rs 78,821 crore in 2001-2002. This was done to satisfy the IMF requirement of a lower fiscal deficit.

By doing so the government ensured that employment opportunities dwindle and the domestic demand further contracts. The latter also contracted because the main source of revenue for the government during the entire ‘reform’ period has been indirect taxes which eat into the (propensity of) spending by the common households. Reports indicate that in order to kickstart the economy, the Vajpayee government is now envisaging to spend Rs 75,000 crore during this financial year. If it materialises, it may to some extent arrest the recession. But, given the track record of this government, to expect that this would materialise may be as good as asking for the moon.

What is both ominous and contradictory is the fact that the government has also decided to set up a group of ministers to work out ‘reforms’ in labour laws. If the budget speech of the finance minister is any indication, these ‘reforms’ would lead to what the corporate world wants --- a "hire and fire" policy. In addition to the already growing retrenchment, such ‘reforms’ in labour laws will see a large-scale displacement of people who are already employed. This in turn would further shrink the overall demand in the economy as more and more people would hit the roads with the loss of jobs.

Reports also suggest that the government is speeding up the process of downsizing its staff. In his budget speech, the finance minister had indicated that the government would abolish 66,000 jobs every year for the next five years. This comes at a time when there is a virtual freeze on employment in the government and the public sector. Hence, once again, by swelling the ranks of the unemployed, the government is moving towards a further contraction of the domestic demand.

Thus what the right hand gives, the left hand takes back. If such is the package, then instead of kickstarting the economy, the government would be kicking the economy into a worse shape. The burdens on the people are bound to increase as the government would seek to balance its accounts to match its increased expenditures. While giving concessions to the rich and the corporate sector, the envisaged governmental expenditure would in all probability be financed by more indirect tax hikes. It would only compound the disaster.

If the government is really serious about breaking out of this vortex of recession, then this spending must be further enlarged. And this should be financed not by hiking the existing levies or administered prices but by taxing the rich and realising the legitimate dues owed by the rich and the corporate sector. The outstanding tax dues alone amount to more than Rs 1,60,000 crore. The bad debts with the nationalised banks and financial institutions, owed by the corporate sector, amount to an additional Rs 80,000 crore or more. This money has to be put back into the economy. These two measures alone will be able to finance large social and economic infrastructure building programmes. Further, if the opportunities now being provided by the finance ministry to evade legitimate tax revenue through the "Mauritius route" and the like are ended, additional thousands of crores can well be mobilised.

But alas! This government has neither the political will nor the competence to ensure that this happens. Vajpayee must be told once and for all that the people will not tolerate any further attacks on their livelihood.