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Is India heading
along the road taken by the South East Asian countries two years back ? Are we
heading for a similar crash of the economy? All the economic indicators released
by government sources, indicate many of the symptoms that led to the crash in
South East Asia. People’s March has continuously warned of this possibility,
given the large trade deficits, precarious Balance of Payments position and the
huge foreign debt. What are the current indicators ?
In the one month from
July 4 to August 4 the stock exchange has crashed by 18% resulting in a drop in
market capitalisation on the Bombay Stock Exchange of a huge Rs. 112 lakh crores.
The major losers have been the much hyped IT (Information Technology) stocks
whose share values have dropped from any thing between 30% and 38%.
In the first quarter
of this financial year from April to July, the foreign exchange reserves have
plummeted by a massive $1.8 billion (Rs. 8,100 crores).
The trade deficit in
the same period has gone up by an enormous 26% over the same period last year.
Finally, since May,
the value of the rupee has been continuously dropping. Panic stricken the RBI
intervened to stop the decline (by hiking bank interest rates, etc). But the
decline continued. The rupee value dropped from Rs. 43.6 to the dollar in end
April to Rs. 45.9 to the dollar by the second week of August. That means a
massive devaluation of over 5% in just three months. This will result in the
value of our exports dropping; in a 5% rise in the import bill; and a leap in
the foreign debt. All these measures gives enormous benefits to the
imperialists, and a big loss to the country.
Of course, the crisis
itself has been precipitated by the imperialists, with the FIIs withdrawing over
half a billion dollars in just two months. These were done when the stock
exchange prices were high, giving them windfall profits. Now, the hike in
interest rates will further dampen industrial growth, in an economy which had
already drifted into stagnation. This is exactly what had happened in South East
Asia.
What do all these
facts mean ? It means that the reserves were used to pay for imports (as exports
fell short), to try and prop up the rupee (by selling dollars in the market) and
that part of the reserves were depleted by the FIIs pulling out their money. So
the so-called high foreign exchange reserves are at the total mercy of the
imperialists. This was also seen in the South East Asian crisis where the
reserves vanished overnight.
In contrast while the
imperialists have made massive gains by being able to buy our goods cheap; for
the Indian people, with inflation rates having gone up over three-fold, goods
will become more expensive. The official rate of inflation for the last week of
June was 6.3% compared to 1.9% for the same period last year.
Even if a crash is
not immediately imminent due to the large foreign exchange reserves still
remaining, what are the implications of this crisis resulting from the
anti-national, pro-imperialist government policies ? It means that, on the one
hand, the masses of the people of our country will suffer even more due to a
drop in their purchasing power; while for the TNCs, FIIs, etc., it is windfall
gains — speculative profits on the stock exchange, availability of cheaper
exports from India, a hike in the prices of imports from their countries; an
overnight gain of Rs. 25,000 crores in the foreign debt to them......
On this occasion, so
panic stricken was the government by the fact that even the drastic measures of
the RBI (including the release of over one billion dollars into the market)
could not stop the continuing crash of the rupee, that an urgent meeting of
senior central ministers was called by the Prime Minister. They took the
unprecedented step of demanding that exporters and corporates bring back funds
parked abroad.
Yet, all the business
papers say devaluation is good for exports; inflation indicates economic growth
.... India’s fundamentals are sound ! Yes, private exporters gain, but the
country loses as the value of our goods sold internationally falls. Besides, the
cost of imports have risen so much that the government is already talking of yet
another major hike in prices of petrol, kerosene and LPG. Inflation no longer is
a measure of growth. Even if there was growth — it is that of the industrial
houses, while the purchasing power of the masses falls. So, devaluation may be
good for a few exporters, inflation good for business, but both are disasterous
for the masses of our country. If this trend continues, India will once again,
reach the brink, as it did in 1991/92. The BJP-led government is pushing the
economy in that direction.
— August 20, 2000
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