People's Democracy

EDITORIAL

Foreign Capital’s Pressure & A Pliant Govt

IMPERIALIST globalisation, led by international finance capital, is in a desperate search for newer avenues for profit maximisation. It is in the very nature of the capitalist system to ensure that capital can never remain unemployed. In order to employ itself to earn profits, it consigns a large body of human beings as a reserve army of labour. However, in the current global situation which is today in the eve of the fifth wave of capitalist crisis, its hitherto available options for profit maximisation appear to be exhausting. Hence this desperation. 

Imperialist globalisation, by maximising profits, had sharply widened the economic inequalities, both between and within countries. The consequent decline in the purchasing power in the hands of the people created a demand constraint for profit maximisation. This was sought to be overcome by advancing cheap credit (sub-prime loans) whose spending bolstered the aggregate demand in the short term. However, when the time came for the repayment of loans, the large-scale defaults led to the global financial meltdown in 2008. 

In order to overcome this crisis, massive bailout packages were given to those very financial corporations who were responsible for the crisis in the first place. These bailout packages were funded by the capitalist states who borrowed to do so. While the financial corporates were resurrected, many governments in Europe plunged into severe debt bordering insolvency. Corporate bankruptcies were, thus, converted into sovereign bankruptcies. In order to overcome this wave of crisis, severe austerity measures were imposed on the people to reduce governmental expenditures.  Countries like Greece, Spain, Ireland etc had to be bailed out through massive loan packages given by the IMF and the European bank. When the time comes for these countries to repay these loans in 2014, they will invariably find themselves unable to do so. Thus begins the next wave of global capitalist crisis. Each wave of this crisis was sought to be overcome by imposing greater burdens on the people and intensifying exploitation.

Under these conditions, newer avenues have to be created for profit maximisation by international finance capital. Thus come the pressures on countries like India to embark on a path of greater financial liberalisation to permit international finance capital to maximise its profits at the expense of the Indian people and deforming India’s economic fundamentals. 

It is now President Obama’s turn to ‘advise’ (read pressurise) India to go in for big ticket ‘reforms’ of financial liberalisation. He says, “The time may be right for another wave of economic reforms” and “In too many sectors, such as retail, India limits or prohibits foreign investment.” The pressure, thus, is to prise open our economy further for international finance capital to maximise profits at a time when the economies of the advanced countries continue to flounder in the current protracted global recession.  Championing the cause of the US business community, who, according to president Obama, are “one of the great champions of the US-India partnership,” he seeks to pressurise India to fall in line by going in for further ‘reforms.’ 

President Obama’s comments should not be seen as an ‘one off’ effort. Earlier, international credit agencies had downgraded the ratings, hoping to pressurise India to go in for further ‘reforms.’ In April, Standard and Poor’s, one of the three major global rating agencies, reversed India’s outlook from ‘stable’ to ‘negative.’ Its report titled Will India be the first BRIC fallen angel? had the cheek to say, “Paramount political power rests with the leader of the Congress party, Sonia Gandhi, who holds no cabinet position, while the government is led by an unelected prime minister, Manmohan Singh, who lacks a political base of his own.”

Following this report, Fitch Ratings revised India’s outlook from ‘stable’ to ‘negative’ in June.  Of the three, only the Moody’s retains a ‘stable’ outlook for India. All three agencies have virtually threatened that unless India goes in for further ‘reforms,’ they will not improve the ratings which continue to be the yardstick for the flow of foreign investments into India. 

There are strong suspicions that these agencies promote the agenda of international finance capital by manipulating their ratings. They had earlier given AAA rating to mortgage-based debt of companies like Enron. In 2008, on the eve of the global financial meltdown, they had given a similar rating to Lehman Brothers and the insurance giant AIG. These two were mainly responsible for the Wall Street collapse. Reports say that the US justice department is probing the issue of the agencies assigning high ratings to complex financial instruments. 

Another instance, in the line of such pressures on India, is the July 16 issue of the Time magazine which had our prime minister on the cover, calling him “The underachiever.” It says, “India needs a reboot. Is Prime Minister Manmohan Singh up to the job?” It goes on, “India is stalling. To turn it around, Prime Minister Manmohan Singh must emerge from his private and political gloom.” It urges India to go for a host of bold ‘reforms.’ 

There is a long list that all these pressures are demanding: Open up the retail trade sector for foreign investments, i.e., allow retail giants like WalMart to enter India; sharply reduce subsidies; decontrol the prices of diesel and other petroleum products; hike foreign investment ceiling in the insurance sector to 49 per cent from the current 26; allow foreign investment in pension funds  to go in for market investments, i.e., speculation; allow foreign banks to take over Indian private banks etc, etc. 

The retail sector in India conservatively contributes 11 per cent of the GDP and employs over 40 million people.  According to the fourth economic census, 38.2 per cent in rural and 46.4 per cent in urban employment is in this sector.  Permitting multinational giants in retail will only displace these millions into poverty and misery.  India, to a large extent, protected itself from the global financial meltdown because it did not allow its financial sector to be open to international speculation. If the current proposed ‘reforms’ are implemented, then India will subject itself to international volatility and, thus, become extremely vulnerable. Allowing international speculation in pension funds and the insurance sector will only ruin the lives of millions of working people. 

Despite this reality, unfortunately such pressures seem to be working. Soon after Pranab Mukherjee resigned as finance minister to become the presidential candidate, the prime minister took charge of the ministry, chaired several meetings of officers urging them to “reverse the climate of pessimism” and to “release the animal spirit.” He transferred 19 officers in the revenue department. Within hours, the anti-avoidance tax rules (GAAR) on foreign investments in India was reversed. 

If the UPA-2 government proceeds on the course of such ‘reforms,’ then it may generate the so-called ‘feel good factor’ for international finance capital and India Inc. But for the bulk of Indian people, the situation will worsen. The opening up of the financial sector, where the life long savings of the majority of Indian people are parked, will create uncertainty and insecurity for the future of millions. Further, none of these ‘reforms’ will address, leave alone solve, the problems faced by the people like price rise, unemployment, poverty and misery. Realistic definitions of poverty estimate that nearly four-fifths of Indian people, more than 80 crores, would be below the poverty line. Given this reality, the proposed ‘reforms’ may enlarge profits for private capital and give prettier balance sheets to India Inc, but they would simultaneously enlarge the growing divide between the two Indias, heaping further misery on the already groaning majority.

What the Indian economy and the people require is a significant growth in domestic demand through employment generated by public investments that can sustain a healthy growth. The massive tax concessions, of Rs 5.28 lakh crore, as a stimulus to India Inc resulted in the fall of industrial growth rate from 8.8 per cent in June 2011 to minus 3.1 in April 2012. This course must be abandoned and the legitimate taxes thus collected must be used for public investments.

There is, therefore, neither a dearth of resources in the country nor avenues for economic growth. What is required is a set of correct policies that can provide relief to the people while building our much-needed infrastructure. Popular people’s mobilisations must be strengthened to pressurise this UPA government to change its policy direction in the interests of India and its people. 

July 18, 2012