Volume 1, No. 10, December 2000

However much the media seeks to hide it, the Indian economy is once again slowing down, pointing towards yet another crisis. Barely had the economy displayed a semblance of recovery in the last year (1999-2000) after three years of recession, that it has once again lapsed into sluggish growth. All indicators are down even though the much pampered exports have grown by 24%.

‘Economic reforms’ have in fact, been a total fiasco. Except for the two years 1994 to 1996, and, to a lesser extent the last year, growth rates throughout the decade have been sluggish and below that of the 1980s. This is inspite of the massive benefits being doled out to big-business in the form of tax concessions, subsidies, grants, commissions etc. In fact, the biggest and largest profit-making industrial house in the country, Reliance, paid a mere 2.8% of its profit of Rs. 4800 crores, as tax over the period 1997-99. While, the top 100 companies, on average, had paid just 18% of the profit as tax.

While the cause lies in the very ‘economic reforms’ itself, the governments and their imperialist sponsors says the answer lies in speeding up economic reforms still further. But, the so-called second generation reforms of the BJP was nothing but a speed-up of the reform process. Yet, the slowdown.

Let us then look at the present state of the economy and its disastrous impact on the lives of the people.

All indicators for the first six months of the current financial year (April to September 2000) are down, not only compared to last year, but also to the predictions made by the CMIE (Centre for Monitoring Indian Economy) and others.

The growth rate is down in all sectors of the economy, even in the much hyped service sector which now accounts for half our GDP (Gross Domestic Product). The GDP growth rate has dropped from 6.4% last year to 5.8% in the current year. While the projections for the current year was as high as 7%, the Vajpayees and Sinhas are still boasting that India will have a growth rate of 7 to 8%. The major sphere of economic activity, agriculture, is witnessing a second year of stagnation. With the worst monsoon in 11 years, and floods in two states, agriculture is expected to grow at a maximum of 1%. When we turn to industry the situation is even more dismal. Industrial growth has dropped from 8.1% last year to 5.4% this year. Within this, car sales are showing a growth of just 2%, capital goods production is showing a negative growth of 1% and cement of minus 8.6%. Also, indigenous crude oil production has dropped by 1% (while imports have sky rocketed). Even the much promoted service sector is to witness a small decline in growth rate from 8.5% last year to 8.1% this year. This stagnation in industry and manufacturing is primarily due to a lack of demand for commodities as a result of the low purchasing power of the bulk of the Indian people.

Then if we look at the sphere of capital investment the situation is as bleak. Government spending on infrastructure is down 27% since 1997. Also central government capital expenditure (mainly in infrastructure) has dropped from 6.8% of GDP in the 1985-90 period, to a mere 2.6% last year. The money raised from new public issues on the stock market has dropped drastically from Rs. 2,071 crores in March to less than Rs. 200 Crores in August. The bank prime lending interest rates are high (increased from 11.8% to 12.5%) in order to attract dollars and cushion the fast deteriorating value of the rupee. These high interest rates are dampening investment potentialities by making capital investment more expensive. Domestic savings (which is then recycled through banks, insurance companies, etc back as capital) has dropped from 24.7% of GDP to 22.3% of GDP inspite of Vajpayee’s boast that it will increase to 30%. Finally, even foreign direct investments on which our comprador government and business houses depend, in this six month period, has stayed stagnant at a little over $1 billion. The result is that overall investment in the economy (gross domestic capital formation) has declined from 26.2% of GDP in 1997-98 to 23.4%. This excessively low rate of investment in all spheres is an indication of the all-round stagnant nature of the economy. Yet the Finance Minister keeps repeating the mantra, that India’s fundamentals are sound.

If one turns to the balance of payments position, the situation is turning desperate. Even though exports have increased, the trade deficit in the current year is expected to increase by a massive 21% from $9.9 billion last year to $12 billion this year. Besides, the scenario on the external aid front is particularly dangerous with a net outflow of as much as $3.5 billion in just the first five months of the current financial year April-August 2000. This is double the amount for the same period last year. This would mean an outflow of a huge Rs. 40,000 crores in foreign exchange from the country, in the current financial year. All this has resulted in a massive drain on the foreign exchange reserves which has depleted by $3.3 billion (Rs. 15,000 crores) in the first seven months to November 2000. The government has saved itself from a BoP (Balance of Payments) crisis and default on its foreign debt, only by floating the India Millennium Deposit (IMD) for NRIs, at a massive cost. Though this has attracted $5.5 billion, the government is paying a defacto interest rate of 14% (after taking into consideration depreciation of the rupee at 6% a year) on it. This rate is far more expensive than borrowing in the domestic market, and is usurious compared to international standards where interest rates vary from 3% to 5%. In the long run, such loans will drain the exchequer of foreign exchange even further. Such high interest loans may save the economy from a BoP crisis immediately, but will only postpone this crisis to a later date.

Finally, the value of the rupee continues to depreciate and prices continue to rise. The rupee has lost over 7% of its value since April and inflation (official) is at 7.2% compared to 3% last year. In addition the stock market has crashed by 2,600 points or 40% in 8 months.

Though the economy is in such a dismal state, the World Bank chief, Wolfensohn, has been showering praise on the Indian economy. After an extensive 8 day tour of India, where he openly dictated terms to various chief ministers, as also to the Prime Minister, this wolf promised a three-fold increase in ‘assistance’ to India. Having received assurances on the conditionalities imposed (privatisation, reduction of subsidies, fiscal deficit, massive retrenchment in the public sector etc.) he has promised to hike the aid from $1.2 bn to $3 billion in the next year. What bothers this imperialist chieftain is not the state of India’s economy or well-being, but the extent to which the economy has been opened out to the sharks of international finance. On this count he was pleased as our chief ministers and central ministers lined up to pay obeisance to the overlord.

But, in real terms, what economic reforms have achieved, is the destruction of indigenous industry and mass scale unemployment. This, coupled with rural stagnation (through neglect and cheap imports), is continuously sapping people’s purchasing power. This is in turn reducing the demand for industrial goods, notwithstanding the high export growth, leading to the economic slowdown. It is estimated, that as a result of globalisation, India is losing every year 1% of its GDP or a massive Rs. 20,000 crores.

Due to implementation of the WTO regime, cheap imports have destroyed vast sections of Indian indigenous production. This is going to be further accentuated by the removal of all remaining QRs (quantitative restrictions) on imports by April 2001. Besides, with TNCs penetrating each and every sphere of the economy, they are virtually wiping out the indigenous producer. With their massive money power, they can undercut their competitors, bearing losses for years, and thereby wiping them out. Also, enormous expenditure on advertising gives the small producers little chance of survival. After gaining a monopoly they will then hike prices ten-fold and make up their losses. Only those industries will be able to survive this blitzkrieg, that are ancillaries of the TNCs and comprador houses, serving them with cheap goods and parts.

Already thousands of small and medium industries have been killed — according to one estimate, a minimum of 4 lakhs. A number of industries have closed down, in Mumbai, Thana-Belapur, Bhiwandi, Aurangabad, Aligarh, Kanpur, Indore and several other towns. In Bhiwandi 60% of the powerlooms are silent. In Aligarh, small firms making locks and other hardware for generations are downing shutters. In Mumbai if you travel down Thana-Belapur road every other factory is closed. In Ludhiana 1.5 lakh workers in the small scale units supplying hosiery and other clothing items to the Army for more than six decades are on the verge of losing their jobs. The army is now issuing tenders to its Ordinance factories, and getting its supplies at rates that are double and even tripple that supplied from Ludhiana. In Ambala, 500 small scale and cottage industries, employing 25,000, face closure. These companies, manufacturing scientific instruments, are being pushed out, as the government is now going for global tenders. Here too the rates are much higher than those supplied from Ambala. In the east zone 50% of the vanaspati units have closed down due to cheap imports. The list goes on and on.

And where competition is not wiping out units, state intervention appears to be doing the job. Over one lakh small units in Delhi are now threatened with closure in the name of environmental protection.

What impact such massive de-industrialisation will have on the job situation of the country can well be imagined. But this is not all. Even the growth today is reflected as a ‘jobless growth’.

Even according to the official figures (which does not picture the reality) total employment in all sectors grew by only 1.1% a year between 1990 and 1998 compared to 1.6% between 1983 and 1990. In the rural areas, during the 1980s there was a movement away from agricultural to non-agricultural work. However, this was reversed in the 1990s, as labour shifted back to agriculture, due to lack of opportunities elsewhere. This clearly indicates the de-industrialisation taking place in the country, which is increasing, even further, the pressure on land.

The actual situation is horrifying with a whole new generation facing the prospects of no regular employment. We have already seen the impact of the closure of small scale industries on employment. In addition to this the stagnation in industry and manufacture, together with the wholesale retrenchment in the public sector, is taking its toll.

Today the manufacturing sector is in a perpetual state of stagnation. There is continuous talk of the economy shifting more and more to the service sector to the neglect of manufacture. So we find in the last three years, manufacturing investment committed by the private sector has slumped by 48%. Investment in textiles in down by 50%, cement by 35% and chemicals by 40%. All investments are going towards the more profitable IT (Information Technology) sector. But here, the number working in the entire private IT sector is barely 5 lakhs.

On the other hand stagnation and modernisation in manufacturing has seen a massive drop in employment in most companies. To take just a few examples : Bajaj Autos is reducing its workforce by 2000 in the current year and by a further 3000 in the next three years. 8 years back they produced one million vehicles with 21,000 employees; today 1.5 million vehicles are produced by 17,000 employees. Within three years they plan to produce 3 million vehicles with 13,000 employees. Tisco is to reduce its work force by 4,000 by March 2001. Today, Tisco’s strength is 52,000, compared to 72,000 in 1972. Also, Indian Rayon has planned to cut its work force by 800, and Grasim by 300. Such cuts in the work force, through VRS (Voluntary Retirement Scheme) and other methods, is to be seen in nearly every industry. Particularly, where mergers and acquisitions have taken place, these are invariably followed by a massive reduction of the workforce. In addition industries are contracting out more and more of their work, in order to utilise the cheap labour of the unorganised sector. This is resulting in a further reduction of the regular work force.

Recently the central government announced that for the next 12 months it will make no fresh recruitments, cut the existing staff strength by 10%, and abolish posts that have not been filled up over the last year. All state governments are retrenching employees, cutting wages and refusing to pay bonus. For example, the Maharashtra government refused to pay bonus and has been pressing for a 10% wage cut for all its 20 lakh employees. The finance minister, Jayant Patil, vowed to bring down the salary bill to 50% of the total expenditure from the current 73%. The Mumbai Port Trust has declared almost half its work force as surplus. It has offered VRS to 14,000 employees, out of a total of 30,000.

Besides this, the Banks plan a huge reduction of its work force. The State Bank of India has already announced that it plans to remove one lakh employees out of its 2.5 lakh work force, by 2003-4. Other banks will be following the SBI example, once they raise funds for VRS schemes.

In addition, the privatisation of successful PSUs combined with the closure of loss making units (like HFCL and NTC mills) will add to the numbers thrown out of jobs.

So, besides the ICE sectors (information, communication, entertainment), which will provide a minuscule number of jobs to the English-speaking upper-middle class, in all other sectors of the economy we find a total reversal of job opportunities. And this is the essence of ‘economic reforms’. It results in the devastation of the lives of crores of people, to fatten a few elite within the country and foreign TNCs abroad.

But, with such massive unemployment, how can the demand for commodities grow ? Not surprising retailers complained, that this Diwali was the worst they have ever seen. In Mumbai, the head of the Traders Association said that while Diwali had been a dull affair for the past few years, this year it was the worst. Apna Bazar said sales were 30% less than last Diwali. Today people have no money for the basic necessities, let alone indulge in festivities.... a gift of economic reforms.

In the existing framework of development, the economy can only go from one crisis to the next. And at each dip it will be pushed further into the arms of the imperialist octopus. The weaker the economy, the more vulnerable it is to the sharks of international finance capital. Like vultures they wait to pounce upon their prey. India will be littered with the bones of a devastated population, while these vultures fatten on our misery.

As unemployment increases, the domestic demand for commodities with shrink further and further. The clamour for exports will increase .... and, of course, for these exports to be competitive in world markets, the rupee will have to be continuously depreciated. So our exports will get cheaper and cheaper, while the price of imports (in $ terms) will continue to rise. A trap created by the ‘economic reforms’, that will strangulate the country. And as industry after industry collapse, they will be taken over at dirt-cheap rates by the TNCs and international bankers.

And through this entire process of destruction of our country the hypocritical rulers will get fat commissions to push through second, third and fourth generation economic reforms. Whether it is the BJP, Congress or the regional outfits, all are responsible for the destruction of the Indian economy and selling the country to the imperialist monster. Stagnation in the economy will be a permanent feature, minor recoveries will be the exception.

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