People's Democracy

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


No. 03

January 20, 2013




Criminality of the Neo-Liberal Trajectory


THE excitement usually associated with the run-up to the annual budget has begun to build up. It is only natural that people in general and different sections in particular have their respective wish lists. 


This budget is coming in the background of one of the worst years of economic growth in our country.  The GDP growth rate for this fiscal year ending will be announced soon and by no estimation is likely to be anywhere close to 6 per cent.  This has led to the large-scale slowing down of the economy accompanied by the natural consequences of greater unemployment and lower levels of incomes.  On top of this, the real earnings of the people continue to be significantly devalued because of the relentless rise in the prices of all commodities particularly food items.  It is only natural that under these conditions, different sections hope for some relief leading to better levels of livelihood and, therefore, seek specific concessions to achieve this. 


Amongst all these various wish lists, the most influential are the demands of international finance capital led neo-liberalisation. This seeks to prise open our economy further for profit maximisation.  As we go to press, the sensex almost breached the 20,000 mark in anticipation of this UPA-2 government’s budget. This optimism is fed by the fact that this government is more than willing to bend over backwards to satisfy international finance capital and Indian big business.  Already FDI in retail trade has been permitted despite widespread opposition.  Banking reforms have been legislated which completely undo the gains of bank nationalisation and pave the way for foreign banks to takeover private Indian banks.  The FDI cap in the insurance sector is slated to be raised.  The General Anti-Avoidance Rules (GAAR) have been deferred by two years.  This was introduced in the last budget by the then finance minister and current president of India.  This deferment has come as a great relief to foreign investors, especially those coming through the Mauritius route to escape all taxes on profit that they make in our country. Further, the GAAR has also been modified to the effect that even after it becomes effective from 2016-17, only those who earn profits of more than Rs Three crores need to pay tax. Further, GAAR would not apply on non-resident foreign institutional investors and those who don’t take tax benefit under any double taxation avoidance treaty.  In a move that will permit a large-scale increase in speculative capital flows into our country, these new modifications exempt those investing in stock markets through participatory notes to pay any tax on profits.  Readers will recall that the participatory note route, where individuals or companies need not divulge their identities, is the source for large-scale money laundering and tax avoidance.  By making these announcements prior to the budget, the finance minister has signaled the strengthening of the neo-liberal reform trajectory which is bound to increase the hiatus between the two Indias even further.  It will not be surprising to see the budget having more such proposals that appease international foreign capital. 


The UPA government’s justification stems from a misleading and deceptive understanding that greater flow of foreign capital will increase the availability of funds for investment which, in turn, would lead to a higher growth rate and general prosperity of our people.  On the contrary, the greater flow of foreign capital will increase its profit maximisation, in a situation of global recession and the absence of profit maximisation in the developed countries, rather than making available for funds for investment domestically.  Further, even if such funds were made available, the consequent investment can lead to a higher growth only on the condition that the produce of such investment is purchased by the people for consumption.  In a situation, as discussed above, when the purchasing power in the hands of the Indian people is declining, such hopes of growth are mere illusions.  Thus, this strategy will only increase the profits of those who are already rich while imposing greater economic burdens on the vast mass of the people. 


As a part of such a strategy, the government may well continue with the massive tax concessions that it has put in place during the past few years.  The last year’s budget papers show that such concessions amounted to a whopping Rs 5.28 lakh crores.  The unprecedented high fiscal deficit of 6.9 per cent of the GDP translates into Rs 5.22 lakh crores, ie, 6,000 crores less than the legitimate tax foregone by the government. 


Now, in the name of fiscal discipline, in order to reduce this high level of deficit, the government has mercilessly hiked the prices of petroleum products and cut subsidies across the board.  It has warned that such a strategy will continue.  The prime minister mocked at those who oppose such blatant injustice of impoverishing the poor at the expense of enriching the rich by saying that “money does not grow on trees”. 


The worst sufferers of such a policy direction are the vast majority of our people in rural India.  The agrarian distress continues and so does farmers’ distress suicides.  Studies show that 40 per cent of the farmers are in heavy debt. The government has not been able to provide crop insurance to more than 10 per cent of crops during the past 20 years.  The cost of inputs and, hence, production is growing faster than what the farmers get as price for their produce.  Producing cereals and pulses on a farm of five acres does not give even Rs 3,000 per month to the farmer. 


In answer to a question in the Rajya Sabha on November 30, 2012 regarding rise in cost of production, the union agricultural minister, on the basis of the data provided by the Commission for Agricultural Costs and Prices, informed the parliament that between 2010-11 and 2011-12, the cost of production per quintal of paddy went up by Rs 146 but the minimum support price went up by only Rs 80.  Likewise for wheat when the cost of production  between 2011-12 and 2012-13 increased by Rs 171 per quintal, the Minimum Support Price was increased by only Rs 65.  Thus, the government’s claim that it is providing the farmer a handsome support price is a sham. 


There is a further criminality in this policy trajectory.  Today the government is sitting on a food stock of 665 lakh tones or three times the buffer requirement at this time of the year. With the market prices of rice and wheat rising, imposing severe burdens on the people, the government refuses to release this excess stock at the BPL prices to the states which would have had a sobering effect on the open market prices.  Every month, the cost of storing one ton of grain in the godowns costs the government Rs 200 a ton.  Bulk of the food subsidy, therefore, is consumed by this high carrying cost and not for providing relief to the people.  It is expected that another bumper wheat harvest is in the offing.  This will further add to the carrying costs and, therefore, to the food subsidy without benefiting the people.  Despite these bumper harvests, the per capita availability of cereals which had reached over 490 grams per day per head before the reforms began in 1990-91 fell to 440 grams in 2007-09.  Clearly the growth in foodgrain production is not keeping pace with the population growth.  As a result, the percentage of people consuming less than 2200 calories (India’s poverty norm) in rural India increased from 58.5 in 1993-94 to 75 in 2009-10.  Likewise, the 2100 calorie norm for urban India could not be consumed by 57 per cent in 1993-94.  By 2009-10, this increased to 73 per cent. 


Clearly, with such huge food stocks, the government can achieve universal food security by providing 35 kilos of foodgrains for every family (both BPL and APL) in the country at Rs 2 per kg. 


Apart from this, the budget must reverse the current policy trajectory of providing greater tax concessions for the rich and, instead, collect these legitimate taxes and use this revenue to substantially increase the levels of public investment to build our much-needed infrastructure and simultaneously provide large-scale fresh employment which, in turn, will lead to higher levels of domestic demand and, hence, a sustainable growth trajectory. 


Such a shift is most unlikely to happen unless formidable pressure is put on the government by people’s mobilisations. This is what that has to be strengthened in the coming days. 

(January 16, 2013)