People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 43

November 02, 2008



'Strengthen Our Real Economy By Increasing Public Investment'

We are carrying below considerably edited extracts from Sitaram Yechury’s intervention in the Rajya Sabha on October 22, regarding the current global capitalist crisis. Yechury was speaking on the Appropriation Bill moved by the finance minister to authorise payment and appropriation of certain further sums from and out of the Consolidated Fund of India for the services of the financial year 2008-09. The government has sought an extra amount of Rs 2,37,285.84 crore to meet its committed expenditures of the budget.

While this is a routine exercise for every government to fine tune its budgetary calculations to correspond to the changed circumstances, Yechury demanded that the approval of this Bill must be conditional upon two measures that the government must take in the interests of the common people. The first was to reduce the hikes in the prices of petroleum products as the international oil prices have fallen even below the government’s benchmark of $67 per barrel. A month ago, the international prices were ranging around $140. The second was to reduce the issue price of foodgrains released for the Public Distribution System as the international food prices have also considerably fallen.

In the course of the debate, Yechury raised the apprehension that these additional sums should not be diverted towards `bail out’ packages in the light of the global crisis. A discussion on the global crisis followed. These edited extracts were made in this context.

THE leader of the most unashamed votary of capitalism, The Economist, says "defending capitalism today paradoxically means State intervention." And then it goes on to say: "This week, Britain, the birth-place of modern privatisation, nationalised much of its banking industry. Meanwhile, amid talk of the end of Thatcher-Reagan era, the American government has promised to put in 2.5 trillion dollars into its banks. France's Nicolas Sarkozy says, 'Laissez faire is finished'." And, today's newspapers report: "Even the venerable Pope has ordered for Karl Marx's 'Capital' to read. And, he has said, "There is a penetrative analysis." The board of directors of the Deutsche Bank is today pouring over Karl Marx's 'Das Kapital'. This morning, the leader of the opposition was asking the finance minister, the government as well as the economists, including the former governors of Reserve Bank sitting here, as to what happened to the regulatory mechanisms, and how all these things failed. But that would be missing the wood for the trees.

It is not as though this crisis has happened because of some greedy persons who violated some illusory ethical norms that exist under capitalism. It is not as though the credit rating agencies failed. It is not as though the regulatory mechanisms did not fulfil their jobs. It is not individual weaknesses. There is a systemic weakness in the system of capitalism that needs to be understood. Marx noted, "With adequate profit, capital is very bold. A certain 10 per cent will ensure its employment anywhere; 20 per cent will produce eagerness; 50 per cent, positive audacity; 100 per cent will make it ready to trample on all human laws; 300 per cent, and there is not a crime at which it will scruple, not a risk that it will run, even to the chance of its owner being hanged". This is the nature and character of capital.

The kind of trillions of dollars of nationalisations that are taking place everywhere would put poor erstwhile Soviet Union to shame, literally, in comparison. The Economist is arguing that the only way to defend capitalism is through State intervention. And, therefore, Francis Fukuyama is confused now. When the Soviet Union had collapsed, he had written a great thesis that was celebrated all over the world saying 'End of History', 'End of Ideology'. Now he has written a piece saying 'Is this the end of capitalism'. Poor man! He wants the end of everything that is going on. Anyway, that apart, "The new regime of capitalism that comes, must be..." so and so, so and so and they state all that.


We have our understanding of global capitalism. Capitalism is a system that can never remain without exploitation and that can never remain without crisis. Now, whether we, communists and Marxists, are in a position to utilise the crisis for a social change, is a different matter. But the fact is that that system is ridden with both these things. Now, if that is happening globally, how should we in India react to that. The first reaction that had come out from the finance minister, who is here, was this. But before I come to his reaction, let me say that we are all living with a sense of complacency to think that we have insulated ourselves from this world crisis. Let me here quote the Washington Post editorial (dated October 20, 2008) title, 'Is Capitalism Dead?' What does it convey?

As for impact on India, I quote from the Nauriel Roubini's weekly updates in RGE Monitor dated October 17.

"India is taking a severe hit from global financial crisis with the stock market down over 50 per cent year to date. FII outflows crossing 10 billion dollars and the currency plunging over 20 per cent year to date. While the central bank is injecting liquidity, easing bank credit and capital inflows, cutting policy rate to contain risks to the financial sector and downtrend in asset markets, correction in the near terms seems inevitable. Double-digit inflation, high interest rates and global liquidity crunch will significantly impact domestic demand and industrial activity in 2008-09, pulling down the recent boom. Moreover, twin deficits both approaching 10 per cent of GDP pose a challenge as forex reserves decline."


This is an important international assessment that has been made. We may agree, disagree, but I think we should rid ourselves of any complacency that this crisis is not affecting us. This is affecting us, and in that context, I would only want the finance minister to actually let us know if he still adheres to what he had said as his first response after the collapse of the Lehman Brothers and the takeover of the Merrill Lynch and, of course, the bailout of the AIG. This is what the finance minister had said, “There is no cause for alarm as Indian banks are not exposed or vulnerable like a couple of banks in the United States”. Fine. Further, he said the government would pursue reforms "having regard to context, having regard to international situation, and having regard to our ability to keep regulations one step ahead of innovation". This if you see in conjunction with what was said at the end of 2007 referring to the delays in increasing the FDI limit in insurance sector to 49 per cent, giving statutory powers to the interim pension regulator and more voting rights to the foreign banks, etc., all the Bills that the Left had prevented. The finance minister had said, "The UPA government is keen to push ahead with the financial sector reforms as it has only 15 months left in power". This was on December 29, 2007. Now, what I would really want to know is, after this crisis, are we really going in that direction? If we are going in that direction, I think, there is going to be a very serious crisis that will come before us, which we are cautioning and warning against. We want this government to take measures to prevent that from happening. In this context, I would like to quote what the prime minister had said on September 30, 2008. "The foremost challenge is to insulate India from the ill-effects of the international financial crisis". It was the same prime minister, on March 18, 2006, when he told a global audience in Mumbai that the Reserve Bank of India would prepare a roadmap on full capital account convertibility to fully integrate the Indian financial system with the global financial system. Now, the same prime minister who said that then, is saying this now.

Very good, if the government has learnt the lesson from this thing in the past. But, if they have learnt, then, at least, during the four years, give the devil its due, 'if you call us the devil'. Give the devil its due that we stopped you from going into this mad rush of financial liberalisation, the pension privatisation was stopped, the insurance limit to be extended was stopped, your foreign banks taking over 74 per cent interests in Indian banks was stopped, and all these financial reforms that were going on, if you would have had that, today, if your pension funds were privatised, crores of our employees would also have been ruined along with this crisis. Today, if you had allowed the Indian banks to have foreign banks with 74 per cent of equity share, these banks would have also collapsed along with those foreign banks.


And, the bailout package which we would have to offer, we would not have been able to afford to do it. This bailout is also a very peculiar thing. Why do these crises actually happen? It is an ingenious way in which the capitalism operates in order to make quick profits. What is the normal economic logic? The normal economic logic is, if the profits which the capitalism makes is re-employed into production, then that production will generate further employment, that employment will generate further demand, and that demand will generate further industrialisation and, therefore, the growth. What is the shortcut that this finance capital employs? The finance capital is too eager, too impatient for very high and quick profits. What do they do? Instead of creating productive capacities and jobs, they tell people to take loans at rates lower than the prime interest rates. The term 'sub-prime' means interest rates lower than the prime interest rates. (This is so in this specific case of the recent housing loan mortgage crisis in the US. Sub-prime could also mean loans given to borrowers whose credit-worthiness is suspect) When people take loans and spend, capitalists make their profits because goods are being bought. But, when the time to make repayment comes, there is default. The person who took the loan is ruined. He is gone. The profit-maker has made his profits. But the system collapses because the money is not being returned. Then the bailout comes! In whose name? The bailout comes in the name of protecting the common man. He is already ruined. The bailout comes in the name of protecting the common man and you have trillions of dollars being infused! What a diabolic perfidy! The person whom you want to protect through the bailout has already been ruined. What you are doing in the name of bailing out is actually protecting financial institutions and creating newer avenues of profits for them in future and that is how this whole system here works.


What is it that we have to learn from here, if we have to? Learn something for our benefit and for our advantage. We have to ensure that the integration of the Indian financial system and the Indian economy into global financial system does not proceed in the same manner in which it was envisaged and continues to be envisaged by this government.

Therefore, what we would suggest and recommend are seven steps to protect ourselves from the global crisis. And these seven steps are: (1) stop relaxing measures for capital inflows, (2) tighten capital control and financial regulations, (3) stop efforts to deregulate and opening up of banking and insurance sector to sovereign capital, (4) scrap the new pension scheme and withdraw the PFRDA Bill, (5) provide uninterrupted credit to small and medium enterprises, (6) ensure bank credit to farmers and weaker sections, and (7) stabilise the Indian rupee.

This is the manner in which we can, to some extent, cope with this crisis rather than become partners to or party to the effect of this debilitating crisis for our country. But, instead, what is happening? You suddenly find today that the limit of FII that flows into the country has been increased. You find today that the Participatory Notes are being re-permitted, we do not know where this money is coming from, how it is being routed, apart from the security point of view, even from the speculative economic point of view, this is dangerous. Instead of actually curbing or curtailing this so that we are not drawn into the vortex of international financial capital speculation, you are today opening yourself up. In the name of what? In the name of increasing the liquidity in our economy, because that liquidity is important; according to them, that liquidity is important, otherwise our own financial system will come under shock because of crunch in liquidity and, therefore, the whole system may collapse! Why is that liquidity required? Because if that liquidity comes in, if loans are cheaper, there will be greater investment, and because of greater investment, there will be greater employment, because of the greater employment, greater demand, and, therefore, industrialisation and the whole cycle will go on. But, this money that is coming in is not going to provide you liquidity for productive investment. This money is coming in to make speculative profits because they are in great losses there; they want to come here to greener pastures to make profits in order to cut their losses!


Instead if the government with its resources increases its public investment in the country thereby generating direct productive capacities in the country which will in turn generate employment, which in turn will generate further demand, which in turn will generate further industrialisation, that is the way in which the real economy can be developed and can be sustained. This speculative economy of international finance capital has today got little to do with the economy in the positive sense of encouraging real economy, but it has lot to do in the negative sense of destroying real economy and that is exactly what is happening. We have seen in the past people, I mean, scavengers picking up the bones of what were once considered tigers in the South Asian countries, so called Asian tigers, and you have seen now the devastation that has occurred in large parts of the Western capitalist countries. Therefore, our urge is that you must today, apart from taking the seven measures, apart from reducing the prices of petroleum products and issue price of foodgrains, direct your major attention towards the real economy and increasing the productive capacities of our economy by increasing your public investments. The only way to protect ourselves from this international financial speculation is by strengthening our real economy through increases in public investment and that is what this government must be doing. I will again urge upon the government to reconsider very seriously all the new measures that they have taken in allowing Participatory Notes, increasing FII, etc., etc., and to change course and to come back to this course of increasing public investment for the sake of real economy.

(Sub-headings added - Ed)