Volume 2, No. 9, September 2001

The results of the first quarter of the current financial year (Apr.-June 2001) shows a major drop in all economic indicators compared with the previous year. The previous year itself witnessed the lowest growth rate in decades. the stagnation in the Indian economy is now continuing since the past 5 years, with no sign of significant recovery. And what with the US economy in a state of slowdown, and the Indian economy tied to its apron strings, the situation here is all set to deteriorate further. The crisis has now touched every sector of the economy, including the much-hyped IT sector.

The illness is endemic, the disease globalisation; but the cure prescribed is more globalisation. That the economy is in a severe state of stagnation cannot be denied by even the most brilliant manipulators of economic data. But the very cause of the disease is given as the cure. Article after article repeats parrot-like that the slow speed of ‘economic reforms’ is the cause for the crisis. They are blind to the reality that the crisis has deepened precisely in the period of ‘economic reforms’, and also to the fact that those countries (like S.E. Asia, Turkey, Argentina etc) that have had a higher pace of ‘reforms’ are in an even more serious situation.

Besides, they ignore the human dimensions of the crisis, with success and failure only measured in terms of profits gained by big business. But the fact is that globalisation and liberalisation is creating havoc, playing with the lives of crores of people. It has destroyed agriculture, it is crushing small scale industry, and lakhs and lakhs are being thrown out of jobs. The already existing inhuman poverty is being magnified 10-fold. Economic indicators are of significance only when related to the lives of the people.

After a disasterous year 2000-2001, the economy continues to slide further. In the first two months of the current financial year (Apr.-May 2001) growth in industrial production was a mere 2.6% as against a growth rate of 6.2% in that period last year.1 The infrastructure sector recorded a dismal 1% growth in the first quarter of the current financial year (Apr.-June) compared to 9.3% in the same period last year. For the first time in 18 months exports registered a decline (of 4.6%) in the month of June’ 01.2 Also, for the first quarter, imports registerd a negative growth of 2.4%. Though there has been a flood of consumer goods imports, the drop is due to low capital goods imports as a result of industrial stagnation. The Stock Exchange crashed from an index (on the BSE) of 5934 on
Feb. 11, 2001 to 3184 on Apr.-12. 3

Now if we look at the pathetic situation in the previous year itself, we can understand the gravity of the situation facing the country, with the further deterioration in the current financial year.

The overall GDP growth rate in the year 2000-01 was a mere 5.2% compared to 6.4% in the previous year. 4 This figure was even lower than the average for the entire 1980s, which stood at 5.6%.

Foodgrain production dropped by as much as 12 million tonnes 5 and the growth rate in agricultural production was a mere 0.2% in the last financial year. Even the much hyped service sector saw a decline in growth rate to 8.3%, from 9.5% in 1999-2000. 6 The crash in the stock market saw Rs. 2 lakh crores wiped off market capitalisation during the fiscal year 2000-’01. Exports have stagnated, being barely 0.6% of the world’s total. Finally the slump in the international IT sector and the US slowdown has hit India the hardest. 70% to 90% has been wiped off the value of the technology stocks in the year to Apr.12, 2001. For example Azim Premji’s holdings in Wipro fell in value from $ 24 bn to $ 3.6 billion in the one year to Apr. 12, 2001. Similar was the state of other ICE Stocks like Zee, Satyam, Infosys, HFCL, DSQ Software etc. 7

The trade deficit continues to increase and the Balance of Paymant (BoP) situation is dangerous. In the year 1999-2000 the trade deficit reached a huge $ 17.1 billion, or 4% of the GDP. Bourgeois economists consider a trade deficit of 2% to be high; so, even by their standards the current rate is unsustainable. Even the Current Account Deficit [i.e. after minusing the surplus from invisibles from the trade deficit — invisible inflows come from software exports ($ 4.6 bn), remittances from overseas Indians ( $ 9.8 bn), tourism and transport; while invisible outfows were interest on foreign debt, dividend on foreign investments, transport and financial services] was a huge $ 4 bn. With FDIs falling, this is balanced by the big FII inflows. But, FIIs are volatile and any sudden withdrawal can precipitate a BoP (Balance of Payment) crisis. In fact during the BoP crisis of 1990-91, where India was forced to mortgage its gold, the trade deficit was a mere $ 9.44 billion !! So, the much propagated large foreign exchange reserves is an illusion. These can dissappear overnight if the foreign sharks decide to withdraw their funds, as was done in S.E.Asia.

So we find an all-round crisis in the Indian economy — in agriculture, in manufacturing, in foreign trade and even in the service sector. 8

Today, what little growth is there, it is because of the high growth rates in the service sector. The GDP is calculated not only by the value added in tangible material goods, but also in ‘services’. As mentioned in the Aspects of India’s Economy (Vol. 30, 31) : "Services encompass a very wide range — from train rides, telephone calls, medical treatment and haircuts on the one hand to, on the other, banking, other financial services, trade, litigation, the cost of public administration and even the police and the military.’’

So, in a real sense, the bulk of the ‘services’ acts as a parasitic existance on the commodity-producing sectors. In developed countries, where the industrial base is strong, a large service sector, though not healthy, can be sustained. But in a backward country like India, where the ‘service’ sector comprises nearly half the GDP, it drains away the energy from the wealth-producing areas of the economy, leaving it emaciated.

So, let us now look at the two major wealth creating areas of the economy — agriculture and manufacturing.

Globalisation of the Indian economy has hit the agricultural sector the worst. While the growth rate in agriculture was 3.6% in the 1980s, it has dropped to 1.6% in the 1997-2000 9 period, and has dropped further to a mere 0.2% in the first year of the new century. Besides, agriculture’s contribution to the GDP has been dropping drastically from 31% in 1990-91, (in 1980/81 it was 38%) to 25% today. While the population dependent on agriculture continues to be high, at 65% of the total. In other words the bulk of the rural population is getting a smaller and smaller amount of the entire income generated in the country.

In the developed capitalist countries too the percentage of agriculture in the GDP is small, but in these countries the percentage of the population dependent on agriculture is also very small. In addition, agriculture is also heavily subsidised. It is for these reasons that in these countries there is no big rural-urban divide.

In backward semi-feudal countries like India, with its imperialist dependent development, industrial development is unable to absorb the surplus population in agriculture. In the period of globalisation of the economy this has got accentuated, due to the flood of imports, closures of small scale industries and the massive retrenchments in the organised sector. So, in a country like India, due to lack of industrial development, the urban sector is unable to absorb the surplus rural population. In addition in the period of globalisation, with unemployment skyrocketing and other sources of income drying up, more and more people are being forced to depended on the land or live in semi-starvation.

While the pressure on the land is increasing, the last decade has witnessed a massive drop in investment in agriculture. This decline is to be seen in public investment, private investment and in bank credit. This drop in investments is deepening the agricultural stagnation and is resulting in further impoverisation of the peasantry. This, together with the flood of cheap agricultural goods allowed in by the government open-door policy (all QRs were removed on Apr. 1, 2000) is devastating Indian agriculture.

Let us look at these aspects in detail, to understand that present crisis in the economy is not merely a cyclical downturn but a cancerous disease eating into the vitals of our economy.

The government has time an again stated that it cannot ‘waste’ money on rural development, though it spends thousands of crores on subsidising big business or developing the infrastructure for the info-tech industry. In his budget speech Yeshwant Sinha openly stated that NABARD must take the responsibility for funding agriculture. But, as NABARD itself depends on the market for its funds, Sinha’s statement entails handing over agricultural investments to the sharks of financial/debt capital.

The extent of the neglect of agriculture in this period of globalisation can be seen from the fact that : the ministry of agriculture’s spending plummetted in real terms by 44.3% between 1990/91 and 2000/01. In the same period the expenditure of the ministry of water resources shrank by 8.5%, IRDP (Integrated Rural Development Project) expenditure fell 53.2%, and allocation for rural development schemes fell 36.9%. Looked at from another direction, while in 1990 the Central government’s expenditure on ‘Agriculture and Allied Activities’ amounted to 40% of that spent by state governments, by 1999-2000 it was a mere 17%.10

The number of families assisted under the IRDP fell by 64% between 1993-94 and 1999-2000. From 25.4 lakhs to a mere 9.2 lakhs. In the current budget the expenditure on the IRDP has been slashed by half — from Rs. 900 crores last year to Rs. 450 crores in the current budget. 11

The allocation for Rural Employment programmes has also dropped drastically from Rs. 4,771 crores in 1995/96 to Rs. 2,925 crores in the current budget. The number of man days generated has plummetted from 1,242 million in 1995/96 to 457 million in 1999-2000. 12 In the current year it will fall even further.

Even the government expenditure for children’s mid-day meals has been reduced this year by as much as 38% from Rs. 1,500 crores last year to Rs. 930 crores in the current budget. 13

If we turn to private investments in agriculture here too we find a decline. With the process of the privatisation of banking speeding up, and the RBI turning a blind eye to priority sector lending, credit to agriculture has declined. The proportion of bank credit to agriculture (of the total net bank lending) has dropped from 15.6% in June 1991 to 10.8% in June 2000. 14 Even the number of branches of Scheduled Commercial Banks in the rural areas bas dropped from 34,791 in 1990 to 32,773 in 2000. 15 The share of agriculture in priority sector lending (includes also SSI, handicrafts, etc.) has dropped from 18% in 1985 to less than 12% in 1999-2000. 16 Even withdrawals from NABARD, of medium and long-term loans, has dropped by 50% between 1996/97 and 1999/2000.

As a result of this decline in investments, both public and private, gross capital formation in agriculture has halved between 1980-81 and 1999-2000 — from 2.1% of GDP to 1.1 of GDP.17

This decline in investment in agriculture has prevented growth. This is particularly so, as vast sums are required for the regeneration of the land resulting from the havoc caused by decades of ‘green revolution’, deforestation etc. This has resulted in salination of the soil, depletion of the ground water table and dropping productivity, and would require large investments for the regeneration of the soil. Low investment also results in poor irrigation facilities (still merely 35% of the cultivable area) making the peasantry dependent on the vagaries of the monsoon.

Not only has the agriculturalist been hit by low investments, but also by the flood of cheap imports. With the removal of all QRs, cheap imports have depressed prices of agricultural commodities. Though the government has increased import duties on foodgrains to 70%, imported wheat is still cheaper than the Indian quality due to the huge subisidies given aboard. Besides, on most agricultural commodities, like fruit, rubber, etc., import duties continue to be at a low 25%.

All this is leading to a greater impoverisation of the rural masses. That is why we find that the percentage living below the poverty line in the rural areas has been steadily increasing — from 37.3% in 1993/94 to 42.6% in 1998.18 What is at stake is the livlihood of 70 crore (700 million) people — the bulk of the 73 crore rural population.

Jindal Aluminium Ltd was not merely a factory, but an institution on the outskirts of Bangalore. It ran a virtual township with housing, schools, hospitals, etc. The 34-year old company has announced a closure on Aug 16, 2001, rendering 2000 workers unemployed. The cause is said to be losses resulting from the import/export policies of economic reforms.

Jindal is not an isolated instance. A large number of industries, big and small, are facing closure. The BIFR (Board for Industrial and Financial Reconstruction) has 3,296 units registered as sick. Of these 830 were registered in the 14 months between Jan 1, ‘99 and Feb 28, 2000. All units together employ roughly 2 million (20 lakh) people and their accumulated losses are Rs. 55, 260 crores.

Yet it is the Small Scale sector (SSIs) which have been the worst hit. All government policy has been geared to crushing it. First the ceiling for defining a small scale unit was raised, thereby allowing large units within the SSI
sector; then the RBI stopped enforcing priority sector lending; government departments and PSUs stopped purchasing from small scale units; it hiked the price of basic raw materials like electricity, diesel etc and service charges; it has de-reserved a number of items like toys, stationary, motors, textiles, and it has removed QRs on all items allowing a flood of imports even in those sectors still reserved for SSI production.

A picture of any of the industrial belts in the country gives an idea of the havoc unleased. A few examples:-

The small scale sector is being destroyed by government policies, TNC competition and cheap imports. Only those will survive that act as ancilliaries of big business.

According to a BJP MP 19, 7 lakh small units shut shop, 7000 medium and large units closed down and 10 million lost jobs in the last five year. Even if this is an exaggeration, the Labour Ministry’s latest estimates show that total jobs in the organised sector shrank by 0.15% in 2000 — i.e. 45,000. Add to this the lay offs and retrenchments, and also closures of SSIs the total jobs lost in the last five years is, according to an India Today survey, well over a million. The actual figure may be somewhere in between. In the current year, with even the central government introducing a VRS (voluntary retirement scheme) job losses are expected to be around 20%.

Besides, while the average annual growth of job seekes has now risen to 2.5%, the average growth of employment in the organised sector has fallen from 2.1% in the 1970s and 1980s to a mere 0.8% in the 1990s. In fact in the last three years (1998-2000) the average annual growth was negative — minus 0.1%. These three years added 2 million young people to the educated unemployed list. 20

This massive job loss is a major indication of de-industrialisation taking place in the country. A high-tech service sector, modernisation, and giant TNCs only add to the job losses. Such ‘modernisation’ is meaningless if it pushes the vast masses into unemployment or underemployment eking out a subsistence on daily wages. Unlike the developed countries, which have a social security system, in India lack of employment can mean starvation.

The reason for this retrogression in manufacturing is due to three basic factors : first the takeover of industry by large TNCs which are capital intensive; second, the flood of cheap imports as a result of the open-door policy of ‘economic reforms’; and third falling investments in manufacturing with major funds being channelled into the service sector and in speculative activity. In addition there has been a continuous shrinking of the home market for goods. The increasing impoverisation of the masses (and their reduced purchasing power) together with a drastic reduction in government investments has resulted in declining demand for goods.

All the above factors indicate that industrial stagnation is endemic to the prevalent system of ‘economic reforms’ and globalisation of the economy — it is not just a cyclical downturn.

While the decline has been there for a number of years, it was more pronounced in the last three years.

Growth rate of industries which was 7.1% in the 1980s dropped to 5.2% in the 1997-2001 period. The service sector has been expanding rapidly in this period of globalisation, at the cost of both industry and agriculture. While the service sector grew by 10% in the first four decades after 1947 (from 28% of GDP to 38% of GDP); it has grown an equivalent amount in just this last decale of globalisation — to 48% of GDP. Today less than 2% of the total new jobs created are manufacturing jobs.

First let us take a look at the attitude of the government. Central government capital expenditure fell from 4.4% of GDP in 1990/91 to 2.5% in 1999-2000. But this includes also the huge military purchases, which has grown by 69% in the above period, as part of the non-plan capital expenditure. So, if we look only at the Plan Capital Expenditure, the situation is much worse, with it dropping from 2.8% of GDP in 1990/91 to 1.5% of GDP today. In the last 3 years public sector investments was slashed by 1% of GDP.

If we look at other spheres of investment, the situation is nearly as bleak. Overall investment in manufacturing has fallen from 27% of GDP five years back to 24% today. The share of manufacturing to total investments has dropped from 37% in April ‘97 to under 20% today. 21 Also gross capital formation in manufacturing by both public and private sectors (i.e. excluding the household sector) has fallen from 17.5% of GDP in 1995/96 to 15.1% in 1999/2000.22

So we find that both public and private investment in manufacturing is dropping. As for the much propagated foreign investments, an insignificant amount goes towards employment generation. The bulk of the small amounts of FDI coming in, go towards taking over Indian industries and then displacing labour through so-called rationalisation and introduction of hi-tech machinary. The bulk of foreign capital though, comes in as FII (foreign institutional investments) which goes for spectulative purposes. Besides, much of indegenous capital also goes for speculative purposes. The recent scams have shown that a large part of domestic savings (which have also been falling from 25.1% of GDP in 95/96 to 22.3% in 99/2000) have been siphoned off by the UTI, banks, etc into the stock market. No wonder then that speculative activity on the stock market increased 5-fold in just 3 years — from Rs. 1,43,800 crores in 95/96 to Rs. 7,25,300 crores in 1998/99. 23

Since the last five years bourgeois economists and ‘experts’ in the media keep imagining an ‘economic turnaround’ as being round the corner. Many even manipulate data to prove it has been reached. They hope thereby to create an artificial boom in the stock market. They now pin their hopes on a good monsoon to stimulate demand. Unable to find a scientific solution to the crisis, the ‘experts’ are busy preying to Ram, for a good monsoon.

But, a good monsoon can at best give-temporary relief. The stagnation in Indian agriculture is more than just monsoon-related. Small fluctuations will no doubt occur due to good or bad rainfall but the revival of the economy is related to more basic questions. Can a continuously expanding home market be created ? Can people’s purchasing power be constantly increased ? Can thereby, the market be expanded for industrial goods ? Can the massive loot by foreign capital be stopped ? Can the gigantic wasteful governmental expenditure be ended ? Can the super profits, bodering on extortion, extracted by the big bourgeoisie and their hangers-on, be curtailed ? Unless these basic questions are answerd, mere tinkering with the economy cannot bring any real turnaround.

The revisionist, so-called ‘left’ economist, are either for globalisation with a human face or a return to the bureaucratised (nationalised) economy of the past. Neither are the solution. Globalisation with a human face is an utopia put forward by the revisionists and NGOs to dupe the masses. Globalisation means the ruthless power of big capital which crushes under its fascist boots, not only the masses of the people the world over, but also small capital . To plead for a human face for globalisation, is like pleading to Hitler to be tolerant.

And as for a return to nationalisation, it was the deep crisis in the bureaucratised economies that resulted in its bust-up throughout the world. Its disasterous impact is to be seen in Russia and East Europe today, which have ruined economies. Though this gave relative security to that small section of workers/employees in the public sector, it is not the answer to the ills of capitalism and globalisation.

Unfortunately, there are no short-cut solutions as hoped for by the liberals. Globalisation has entailed deep structural changes, which when implemented, has its own dynamics. Globalisation is nothing but an extreme degeneration of the capitalist/imperialist system. It cannot just be reversed, it can only be smashed. The structure of the economy is now fully geared to pampering the top 5% of the population, with those at the top of the pyramid getting the maximum of benifits. The rest of the population is being marginalised. It has also been structured to make the Indian economy an appendage of the imperialist economy. Though this was always the case, in the period of globalisation the imperialist knot has been tightened further, particularly by the US. So the entire economy has been so deeply structured in a particular way that no change is possible without first destroying what exists, and then building anew. It is not possible to renovate a building whose very foundation is weak. The building would have to first be pulled down, and only then something new constructed. If globalisation of the economy is to be done away with, it can only be done by drastic changes in the entire structure, not through minor reforms to give it a ‘human face’.

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