(Weekly Organ of the Communist Party of India
(Marxist)
Vol. XXXIII
No.
19
May
17, 2009
EDITORIAL
Lengthening
Shadows Of Global Recession
THE country is paying a very high cost for the state of denial of both
the Congress and the BJP on the impact of the global economic
recession. Mired as they are in the neo-liberal mindset, both are
living in an illusion that the current recession is a case of the
normal rise and fall of the capitalist business cycle. The current
recession, as we had repeatedly shown in these columns, is caused by
the structural inadequacies of the capitalist system and is, therefore,
a crisis of capitalism and not due to lack of or faulty regulations or
excessive greed by a few captains of international finance.
World Bank's Global Economic Prospects (GEP), 2009 says: �What began
six months ago with a massive de-leveraging in financial markets has
turned into one of the sharpest global economic contradictions in
modern history�. It continues to say: �Global GDP is expected to
contract by 1.7 per cent in 2009 which would be the first decline in
world output on record�.
�The deceleration in economic growth in low-and middle income countries
as a group is expected to match the deceleration in high-income
countries. The developing world is anticipated to see growth fall from
5.8 per cent in 2008 to 2.1 in 2009, a drop of 3.7 percentage points,
similar to the fall in high-income economies (drop of 3.7 per cent from
0.7 per cent to minus 3.0 per cent). This highly synchronous
growth collapse cannot be solely explained by trade linkages, but
illustrates also that developing countries have been directly hit in
their domestic economies by the financial crisis. The reversal of
capital flows, collapse in stock markets, and in general the
deterioration in financing conditions have brought investment growth in
the developing countries to a halt, and in many developing countries
investment is sharply declining.� (emphasis added)
This is precisely what we had analysed and anticipated in these columns
in the past. On this basis, we had argued that unless there is a
quantum leap in public investments, domestic demand and employment
cannot be shored up. Without this, the economy cannot be stimulated for
growth and to prevent the slide to recession. Unfortunately, the
Manmohan Singh government has paid little heed to this. We had even
stated both on the floor of the parliament and outside that the general
elections cannot be used as an excuse to postpone such a decision as
this would have damaging and possibly irreversible impact on our
economy.
Given their state of denial, this refusal to sharply increase public
investments has had its inevitable effect in the sharp drop in our
industrial output. India's industrial output dropped to an
alarming minus 2.3 per cent growth in March 2009. Of this, the
manufacturing sector, which has nearly 80 per cent weightage in the
Index of Industrial Production (IIP) fell by a whopping minus 3.3 per
cent.
Foreign Direct Investment (FDI) in India has been estimated to have
dropped by over 55 per cent � from $4.4 billion in March 2008 to $2
billion in March 2009. India's exports have declined for the
seventh consecutive month in April 2009 amounting to a fall of 33 per
cent. Similarly, imports contracted by 35 per cent. While this may
narrow the trade deficit, the export targets for 2008-09 are much less
than even the revised scaling down done by the commerce ministry.
Notwithstanding the bombastic claims made regarding India's GDP growth
rates by the government, the GEP has estimated the current growth rate
this year to be 5.5 per cent projected to fall to 4 per cent next
year. Apart from having a devastating impact on employment (with
reports of various agencies indicating that over a crore of jobs have
already been lost and many lakhs returning from foreign lands having
lost jobs there), this sharp fall in the growth rate has increased the
level of poverty in India with the GEP estimating that we are now only
ahead of Sub-Saharan Africa in terms of population below the
poverty line with over a quarter of Indians �living in extreme poverty�
living on less than $1.25 a day. In terms of purchasing power parity,
this tallies with the estimation of the Arjun Sengupta Report of 78 per
cent of Indians living on less than Rs 20 a day.
Given this reality check of our economic fundamentals, it is clear that
the Indian people need to brace themselves for much harder economic
conditions in the near future. This can be prevented only by the new
government substantially hiking public investment that will generate
both employment and demand while, at the same time, building the much
needed economic and social infrastructure in the country.
People's Democracy