People's Democracy

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


No. 17

April 29, 2012






 A Recipe for Disaster


AS we go to press, the International Ratings Agency, Standard & Poor’s, has cut India’s outlook, in terms of being an attractive destination for international finance capital, from being `stable’ to `negative’.  It has now given India a rating of BBB (-). This is the lowest investment grade rating, a notch higher than “junk” status. 


This comes soon after (not necessarily related to) India’s Chief Economic Advisor’s comments in Washington that “thanks to coalitional democracy, there is some slowdown in economic reforms and decision making”.  He went on to add that India’s growth would pick up after 2014 general elections and India would emerge as one of the fastest growing economies in the world from 2015 onwards. 


Quite naturally, the cheer leaders of neo-liberal economic reforms in India have eagerly pounced upon these statements to urge the UPA-II government to “bite the bullet” and immediately initiate major financial liberalisation reforms. Specifically, they are seeking the immediate implementation of the Goods and Services Tax (GST), permitting FDI in India’s retail trade sector, permitting foreign financial corporates in the management of the pension funds upto 26 per cent, increase the foreign investment ceiling in the insurance sector from the current 26 per cent to 49 per cent and to remove or at least raise the 10 per cent cap on voting rights of foreign investors in Indian Banks.


The last of these three reform measures were kept on hold since the time of the UPA-I government due to the opposition by the Left parties whose support was crucial for that government’s survival.  Though the government refuses to publicly acknowledge and give the Left its due, by now it is universally recognised that India protected itself, relatively, from the devastating impact of the global financial meltdown of 2008 primarily because our financial sector was relatively insulated from international fluctuations and meltdowns.  Unwilling to learn from our own experience, these neo-liberal pundits are now pushing the UPA-II government to rush ahead with these very reforms, thus, making India more vulnerable to international financial fluctuations.  This would be disastrous for the Indian economy. It would be more disastrous for the Indian people because their life long savings parked in insurance and banking sectors to look after their livelihood post-retirement, would now be at the disposal of international finance capital to move around the world in search of higher profits.  This will ruin the livelihood security of crores of common Indians. 


While the CPI(M) will continue to oppose these reforms in the interests of the Indian people, the general refrain that coalitional compulsions are preventing decisive reforms from being undertaken is, at best, a flimsy excuse. Recollect that the UPA-I government went ahead with the Indo-US nuclear deal despite the opposition by the Left parties particularly when this violated the Common Minimum Programme which was the basis of the outside support extended by the Left parties.  UPA-I risked the survival of its government in its eagerness to upgrade its strategic links with US imperialism. Where were the compulsions of the `coalition dharma’ then? 


The truth of the matter today is the fact that this UPA-II government is drifting towards a directionless disaster.  Consider the argument that these financial liberalisation reforms are necessary to attract larger amounts of foreign investment which, in turn, is crucially required to reduce and control our growing fiscal deficit.  According to the budget documents, the total fiscal deficit now stands at Rs 5,21,980 crores or 5.9 per cent of GDP.  The budget documents show that in the same year, the total tax revenue foregone (i.e., voluntarily not collected by the government) amounts to Rs 5,29,432 crores.  If these legitimate amounts were, instead, collected, then there would be no fiscal deficit at all! 


Internationally, a three per cent fiscal deficit is considered healthy.  This works out to over Rs 2.5 lakh crores, given our current GDP.  If legitimate taxes were collected instead of doling out concessions to India Inc. and the rich and this amount was spent through public investments for building our much needed infrastructure, we could have  generated huge additional employment and the consequent  growth of domestic demand would have put India on the course of a sustainable healthy inclusive growth pattern. 


It is, therefore, not surprising that Standard & Poor’s has projected India’s growth rate for this fiscal to be not more than 5.3 per cent as compared to the government’s estimates of over 7 per cent.  While the international agency has done this on the basis of India’s “slow progress on its fiscal situation”, the reality is that in the current situation of a global economic crisis and recessionary conditions, India can accelerate its growth only on the basis of vastly enlarging its domestic demand by increasing the purchasing power amongst our people. 


This UPA-II government appears more keen to appease international finance capital and provide it with greater opportunities for profit maximisation in India instead of pursuing policies that will economically empower the Indian people and thereby generate a sustainable growth trajectory.  Clearly, in the interests of the Indian people, this government must be forced to reverse its current thinking on these neo-liberal financial sector reforms and adopt a policy trajectory that will ensure sustainable growth while improving the livelihood status of our people. 


(April 25, 2012)