People's Democracy

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


No. 39

September 30, 2012

The Debate Over “Reforms”


WHEN India had embarked on neo-liberal “reforms” in 1991, the critics had argued that opening the economy to the free flow of goods and services, and capital, would make the living standards of millions of the working people in India, vulnerable to the whims and caprices of a group of international speculators. If speculators lose “confidence” in the economy and take funds out, then measures perforce would have to be taken to revive this “confidence”. These would invariably hurt the people, since it is only such measures that can revive this “confidence”, any other measures, i.e. those against the rich, the corporates and the financiers, having, naturally, the opposite effect. Thus, like the tail wagging the dog, the whims of a small group of international speculators would determine the lives of millions, which would mean a negation of democracy, equality and sovereignty.


The then Finance Minister Manmohan Singh and other proponents of neo-liberalism had pooh-poohed this argument, calling the critics habitual prophets of doom. They had argued that opening up the economy would make it so strong, “efficient” and internationally competitive that it would emerge as a successful exporter, and a favourite destination for international capital. The balance of payments crisis of the sort that hit the country in 1991 and against the backdrop of which the “reforms” were being undertaken, was a result of the “inefficiencies” inherited from the pre-reform “inward-looking” regime. Once this legacy was overcome through “reforms”, such payments crises would be a thing of the past.


Manmohan Singh’s television address to the nation on September 21 amounted to a clear admission that the critics had been right and his own neo-liberal arguments wrong. He drew an explicit parallel between the 1991 crisis and now. But if a 1991-type crisis could visit the economy in 2012, when the earlier “inward-looking” strategy had been long buried, then it would follow that this strategy is not to blame, that even the crisis of 1991 had nothing to do with strategy; that the 1991 crisis itself had been caused, not by this strategy, but for precisely the opposite reason, as the critics had argued then, namely its progressive abandonment from the 1980s, when the economy had been opened to global financial flows in the form of footloose and potentially volatile NRI deposits.


By the same token, notwithstanding all the talk of India’s “export-success” under the neo-liberal regime, and all the hullabaloo about India emerging as an “economic superpower”, it remains vulnerable, precisely as the critics of neo-liberalism had anticipated, to the sudden loss of speculators’ confidence, which can bring it to its knees overnight, and push the government into adopting desperate measures that further accentuate people’s misery. In short, it is the economy’s openness to financial flows that makes it vulnerable to financial crises, and gives rise to a situation where the “confidence of the speculators” acquires paramount importance and people’s living conditions have to adjust to maintain this “confidence”.


Let us assume, with Manmohan Singh, that the anti-people measures he has already announced, and the forthcoming ones his government is contemplating, such as handing over public sector assets, financed out of people’s money, to domestic and foreign capitalists, will actually stem the tide of financial outflows from the economy and end the downward slide of the rupee. Let us even go further and assume that there would be a further inflow of finance that would cause a new “bubble” and revive GDP growth. But after some time if global or domestic developments cause a collapse of speculators’ “confidence”, as invariably happens from time to time, then this bubble, and with it the GDP growth, will once again collapse, and further measures of squeezing the people will have to be announced to revive this “confidence”. The people who do not benefit from this growth, but, on the contrary, experience absolute immiserisation even when growth occurs, have to be squeezed further and further to keep stoking “speculators’ confidence”. It is travesty of the promises of our constitution that an economic trajectory of this kind is being followed in our country.


Apologists for neo-liberalism would claim that there is “no alternative” to such a trajectory, that globalisation, including above all globalisation of finance, has come to stay and we just have to adjust to it. Even assuming that this is the case, there is no need to make a virtue out of necessity, no need to pretend that something which is coercively imposed upon the country also happens to be good for the people. More importantly, however, this is obviously not true, and a country can always get out of the vortex of globalised finance by imposing capital controls, as Malaysia under Mahathir Mohammed has shown in our own neighbourhood. And if a government believes that there is no alternative to violating the vision of our constitution, because we have to encroach upon the people’s rights and livelihoods under a regime of globalisation of finance to which there is no alternative, then it has no moral right to continue in office.