Industrial Stagnation & Economic Retrogression

There is a misnomer that foreign capital that enters the country leads to growth, development and modernization of production relations. In this period of globalisation there has been much hype that India will achieve an 8% growth rate and that unemployment will be a thing of the past. But, this has not happened, though the politicians keep dreaming of it even now. In fact, the growth rate in the 1990s actually dropped when compared to the earlier decade. But this is only one aspect of the impact of globalisation here. The other factor is that with the type of ‘development’ promoted by globalisation, even a high growth rate will not lead to the development of the country and its people. On the contrary, what we see is de-industrialisation and economic retrogression in the Indian economy.

Unfortunately, this reality gets hidden by a powerful media that focuses only on the lives of the elite, the newest in consumerism, the info-tech and telecom sectors, the computer and communications revolution, and the glitter and glamour of the world of films, sports and life-styles of the upper crust. Let alone the masses, not even the middle-classes have a space in this artificial world, creating expectations, longings and desires that are unrealizable for the bulk of the viewership and readers. But the real world lies elsewhere — in the vast backward countryside and in the slums and one-room tenements in the urban ghettos.

What then should be the real measure of real progress for this country? It is not the hi-tech imported gadgets owned by the few that can be a measure, but the only real measure can be the pulling out the vast masses from their existing stagnant semi-feudal relations and bringing them into modern production relations — whether capitalist or socialist. Given that socialist relations are inconceivable within the existing system, growth of modern capitalist relations within the womb of semi-feudalism is the maximum that can be expected. But, globalisation has even retarded this when compared to the earlier three decades in India. Let us see how.

i) Massive Unemployment

Greater and greater employment in the organized sector — whether public or private — is the major factor for drawing the masses into modern production relations. This not only results in a better standard of living, but also brings the people in touch with modern industry and evolves social relationships based purely on the work-place, thereby breaking free (to an extent) of the thousands of petty ties linked with the semi-feudal relations of the past. Marginalisation of the work force has exactly the opposite impact.

To take some example of the extent of retrenchment:

If we turn to the Public Sector the situation has been even worse:

So, we see that not only has the organized sector been declining, but there are plans afoot to further cut it drastically. The reasons for this are many, the prime factor being maximization of profits by the moneybags. As we have seen the vast amounts of FDI that come into the country go chiefly to buy up existing business, and so, not only do they not add to the employment, but actually reduce it through ‘rationalisation’ and use of hi-tech machinery imported. The second most important factor is the contractualisation of the labour force in both the public and the private sector. Here, instead of having permanent workers much of the work is done through contract labour. For this even the Contract Act is being amended. The third important fact for its decline is the increased outsourcing of work, where the same jobs are done in sweatshops at a fraction of the wage-rate of the permanent worker.

The gains from contract labour and outsourcing can be understood by a few facts.

If we take just one example of outsourcing, we find that in textiles, the share of the organized mill sector’s share in total cloth production has dropped from 80% in 1950 to 5% today; with power looms accounting for 75%.

If the organized sector is thus shrinking, a large section of the population is being pushed into the unorganized sector, where the bulk of India’s population already exists. Here, working conditions are mostly medieval; wage-rates are a pittance, insufficient even for survival; and the relation with the employer is slave-like with his authority being the final word in all matters. Here too, caste, communal and patriarchal (where women are employed) relations often dominate, to keep better control and exploit to the maximum. No laws apply in practice, and the total lack of any democratic environment makes life a suffocating hell. Even the smallest forms of union activity are not tolerated and brutally crushed. Insecurity of job and life is generally, the rule. It stands in direct contrast to the sphere of modern industry with its organized labour force. The two worlds are far apart, with little in common.

About half the Indian population can be counted as the working population between the age of 20 and 60 (Census figures). In other words the working population in 2001 should be roughly 50 crores. But based on the same percentage of the 1991 census the number of ‘main workers’ (i.e. actually those employed in work) in 2001 would work out to about 35 crores. In other words 15 crore of the working people are unemployed. But even of those employed, a large proportion would be under-employed, as a ‘main worker’ is defined as any person who works for just half the year. In other words the real unemployment rate would work out to about 35% of India’s labour force. Of these 18 crore unemployed people, just over 4 crore are registered on the employment exchange, the bulk of whom would comprise the educated unemployed. This amounts to a massive destruction of the productive forces of a country.

Not only that, such a vast populace left out of the productive process, the bulk of whom live in the backward rural areas, comprise the most extreme end of India’s marginalized population. Unlike what is seen as the ‘reserve army’ of the unemployed in a developed capitalist society, this mass of humanity are the products of backwardness and the semi-feudal conditions prevailing here — they are not a displaced force, held in reserve, but a product of lack of development itself. They have no social security whatsoever and are forced to eke out an existence in sub-human conditions. Many just die prematurely of small illnesses to which they become easily prone due to malnutrition.

But, such conditions are not confined to merely the unemployed. The bulk of those working in the unorganized sector, live a life in semi-starvation. With no regularity of work, with wages well below what is stipulated as minimum, with no benefits at all, and with long hours of work. In the book ‘Working in the informal Sector’ by Jan Bremen (1996), the author portrayed the situation thus: "The informal sector is dominated by simple and obsolete technology. Most employers face uncertain markets and are dependent on traders and merchants for orders. By keeping their fixed costs low, and the size of their labour force variable, they can easily pass on the risks of production to this class. In the workforce, few workers come in touch with machines, but those that do, and possess some skills get a higher wage. Few women enter higher paid jobs, and even in the low category jobs they are being steadily replaced by male migrants. The labour regime in the informal sector with work hours extending anywhere from 10 to 16 hours in most industries, seems to have further intensified in recent years. Working conditions are extremely difficult and degrading, more so for women and children". An estimated 50% of labour in this sector lives below the poverty line.

With globalisation this marginalisation of the workforce has increased. In a semi-feudal economy like India, imperialist sponsored development creates a warped and distorted growth, incompatible with any genuine, over-all, healthy, dynamic progress. It does not unleash an internal dynamics of self-generating growth. What is actually achieved is a few oasis of development in a desert of backwardness. Even this is sustained through infusion of funds and thousands of links (dependencies) with the foreign market, which can crumble overnight. This is best brought out by the fact that while ‘development’ has phenomenally reduced the share of agriculture in the national income, while that of manufacturing and particularly services has increased, the proportion of the population employed in agriculture continues to be the same.

The main reason for this growing unemployment is the lack on industrialization of the country, which is unable to absorb the labour displaced from agriculture, as happened in countries that went through an industrial revolution. As Lenin once said, it is industry that is the main motor that turns a backward economy into a modern capitalist one. Here, in India it is not playing that role, because comprador capital thrives on its dependence on imperialism and not on the expansion of the Indian home market. Growth of the home market, would act as the engine for industrialization of the country. So, now let us look at this factor, generally, and in the specificity of globalisation.

ii) Threat to Small-scale Sector

Finance Minister Yashwant Sinha himself had provided the epitaph for India’s small-scale industry. According to the Statesman, April 22, 2000, in a briefing to the BJP Members of Parliament, Sinha revealed, "the country’s small scale sector is likely to be wiped out". Because of WTO commitments, he said, "The Government might not be able to provide any protection to the country’s small scale sector and they would have to face competition. It would not be possible for the Government to raise import duty or extend the time period for the small-scale sector to gear up for the competition. Either they prepare for the competition or are phased out by 2001."

Though the small-scale sector in the country is huge, it receives step-motherly treatment. This has become more pronounced in this period of globalisation. While big business and their associations (CII, FICCI, Assocham), find representation in hundreds of policy-making bodies of the government, we find the small-scale sector represented nowhere. They have their independent associations, but these have hardly any voice. Besides, due to their huge numbers and with each having limited capital, they are dispersed and disorganized.

There is a dual aspect to the small-scale sector in India in this period of globalisation. First, that section of it that has an independent market of its own is sought to be killed through a flood of cheap imports, de-reservation of the sector and the opening out of this sector to big business in general, and foreign capital in particular. Second, with the promotion of outsourcing by big business, and the greater contracting of work out (both production and services), there will be a spurt in this aspect of the small-scale sector.

As a result of this we will soon see the total ancilliarisation of the small-scale sector, with the winding up, (or take-over by big business) of those that have an independent existence. This sector will exist only to service big business, the TNCs and also the Public Sector , giving the latter the benefits of, not only cheap labour, but also their ability to do away with all social security expenditures like provident fund, DA, bonus, ESIS, etc. This will result in enormous savings to them, but will push the entire labour market into a hell-hole.

Both the SSS and the HVIS have been under consistent attack during the period of globalisation.

Second, with the removal of Quantative Restrictions on all imports the flood gates have been opened, that will crush that section of the SSS that has an independent market of its own. The export-import policy of March 31, 2000, removed the restrictions on 714 such items, and on the remaining 715 were removed in 2001. It, defacto amounts to the de-reservation of the entire SSS, as cheap imported goods can enter any and every sphere. The Commerce Minister openly stated, "to shape up or ship out". But, with the huge reductions in import tariffs, the importers paid less in taxes and duties, than the indigenously produced goods. Small enterprises are faced with the age-old problems concerning availability of adequate and timely credit, uninterrupted power supply, provision of basic infrastructural facilities, and also the taxes, excise duties and bribes to be paid the numerous officials and bureaucrats. With no level-playing fields, what the Commerce Minister actually meant was " ship out and let TNCs take-over". According to Rajiv Dixit, of the Azadi Bachao Andolan, by 1999 itself, 3,000 products had entered the Indian market since ‘liberalisation’; he added that on account of the EXIM policy over 8,000 products would flood the Indian market.

Against the excise duty of 16 per cent paid by SSIs and the high cost of raw materials in the country, imports are enjoying a clear edge in the market.... Market sources said large-scale import orders have already been placed in segments like plastic articles, writing instruments, process control equipment, various motors and computer-related items like floppy disks and printed circuits... The basic customs duty for stepper motors used in computers (now largely manufactured by SSI units in Mumbai, Bangalore, Hyderabad and Chennai) has been slashed to five per cent from the earlier 40 per cent... So is the case with plastic/printed bags, belts, labels, buttons and hangers, imports of which are attracting zero customs duty. Various spare parts supplied with outboard motors now attract a basic customs duty’ of five per cent against the earlier 40 per cent. Sources said another segment that is hit badly is units manufacturing greeting cards, diaries, and calendars."

In another report of April 26, 2000, the same newspaper reported that "While multinational giants like Hindustan Lever Ltd and Procter and Gamble are turning towards imports aggressively, Indian cosmetics manufacturers and suppliers of MNCs, mostly small scale units, are crying foul...." According to the All-India Small Scale Cosmetics Manufacturers’ Association, many units are already on the verge of closure. Business Today (May 7) reports that Indian small-scale toy makers are being displaced by imports in the Rs 500 crore Indian market. An Indian institute of Foreign Trade study concludes that "As and when QRs on textile products (apart from handloom), including, readymade garments, are phased out, it be a tough task for the SSIs to compete."

Third, with the increased privatization of banking and the policy to cut-down on lending to the priority sector at lower rates of interest, the capital starved SSS has been pushed to the wall. This has particularly hit the tiny sector, where, in just the course of one year, loans to the tiny sector dropped from 27% of the total to the SSS in March 1998, to 20.7% in March 1999. Thus, against a target of 60% of SSS credit to tiny units, the actual flow was one-third of that amount.

Though, till now, there has been an overall growth in the SSS, sickness in this sector is reaching epidemic proportions. It is obvious that the overall growth recorded reflects the booming ancillary industries, while the rest are languishing. Some facts give a picture.

The danger of more deaths is getting compounded by the fact that, in this liberalized atmosphere, a large number of ancillary industries have even been closed down with big business shifting production to China, where labour is even cheaper. Even a company like Bajaj Electrics is sourcing home appliance products from China, as they claim it is cheaper than manufacturing here. So, the death knell of the SSS is sounding. The ancillaries that remain will themselves be squeezed by big business, utilizing the competition between them, thus forcing the further deterioration of labour conditions.

As for the HVIS sector for long it has been surviving on oxygen — except for those involved in the export market. With the cut in government concessions and the raising of the bank interest rate on credit to this sector from 4% to 12% in 1997, the government has sought to consciously kill it. The plight of the over two million weavers is an indication of the state of affairs here. The recent report of the 10 lakh handloom weavers of Tamil Nadu, teetering on the edge of starvation gives the picture of what exist throughout the country. With the Tamil Nadu government winding up the free saree/dhoti scheme in the 2002/03 budget, over 10 lakh sarees and dhotis, worth more than Rs 9 crores are piled up at 1,414 primary weavers cooperatives societies. Weavers have not been paid wages for six months since the beginning of this year and are in a state of starvation. Such a condition is not only confined to TamilNadu, it exists in the handloom sector in all parts of the country.

So, with globalisation hitting the SSS and HVIS badly, the already marginalized workers are being further hit; and from a state of semi-starvation they are being pushed to starvation. The numbers involved are not small, they amount to a large proportion of the 2.4 crore (24 million) employed in these two sectors. Such policies can only lead to further de-industrialisation of the country and extensive marginalisation of its population from the modern productive forces and production relation of the country.

iii) The Home Market

The so-called great Indian middle class is a misnomer. Of course given the huge size of India, with a population of one billion, compared to most other countries, it is bound to have a sizable market. But, as it has turned out, the hype in the earlier stages of ‘economic reform’ did not quite turn out as expected. Firstly, with the mass impoverisation, 80% of the population was anyhow written off as they had little purchasing power. The focus was on the top 20%, and more particularly the top 10%. After all, official estimates said that the population that lives on less than one dollar a day was 52.3% of the total, while that on less than $2 per day was 88.8%.

The figures projected for 1997/98 was at the peak of the boom; since then there has been six years of industrial stagnation and continuous decline in employment, which will get reflected in all but the last (>78,000) category. Anyhow let us first take the figures as presented above. What we see from above is the richer categories have been growing at a much faster rate. (D) has grown four-fold in the 8 yeas represented; (C) has grown three-fold; (B) has just less than doubled; while (A) has barely grown. The income of (A), though middle-class, is barely sufficient to make two ends meet, and is hardly likely to be able to afford anything more than the bare necessities of life. (B) & (C) too would be able to mostly afford only the mass consumer goods, with incomes of less than Rs 6,500 per month. (D) alone could purchase consumer durables in any significant quantity. Those of the more expensive kind would only be affordable not to the entire category, but the top section within it. In 1997/98 this comprised less than one crore households.

Now, given that the market in India is extremely restricted and confined to a few, since the period of globalisation, and particularly since the huge cut-backs in jobs, a reduced purchasing power is shrinking the market even further. This is further aggravated with the massive hike in the basic necessities of life, the increased expenditure on health, education, transport, electricity and even water and other municipal charges. Not only that, the recent attacks on the middle-classes, through a reduction in interest on savings and provident funds, the huge scams that have swallowed up crores of people’s savings, bringing all-and-sundry into the tax net, the removal of a host of tax concessions, etc. has had a debilitating impact on the middle-classes’ purchasing power. And coupled with all this has been the total stagnation in the rural economy, which has been further aggravated each year by series of droughts and floods, reducing an already impoverished mass to utter destitution, with purchasing power not even to buy the huge stock-pile of foodgrains at the hiked-up PDS rate. Even the middle peasant and a section of the rich peasantry’s purchasing power would have shrunk.

Not surprisingly, with the increased privatization of health care, it is the pharmaceutical market that has been booming, having witnessed a massive jump in sales of 65% in the 5 years from 1993/94 to 1998/99. Their sales have jumped from Rs 19,543 crores in 1993/94 to Rs 32,293 crores in 1998/99, and is still growing. Peoples’ expenditure on medicine has increased from 3.4% of their total expenditure to 4.25% of the total in the same period. More spent on medicine, doctors and hospitals, means less on other item of basic consumption, and in some cases even food.

The trend is clear; even the limited market in the country is shrinking further, and if employment trends seen in the last section are to materialize, the drop in consumption will be substantial. Looked at from the point of employment generation an added factor to this shrinking market, is the flood of cheap imports that is killing local industry and adding to the unemployment. In such a dismal scenario, with industrial growth fallen to its lowest level in the last decade, quite naturally the ruling elite is looking to exports as the only means to survive. But, with worldwide recessionary conditions, this too is a gamble.

So, it is quite clear, globalisation has further restricted the home market, which was already pathetic due to the semi-feudal, semi-colonial character of the economy. Without the growth of the home market there is no question of any significant development of industry and the country as a whole.

iv) Backwardness, Inevitable Product of Globalisation

Globalisation has merely aggravated all the aspects of neo-colonial exploitation in India that had existed for the earlier four decades after the British left. Though it is a continuation of the past, there is also the aspect of a quantum leap in the level of its destructive capacity. East Asia of 1997 was witness to it; today Argentina and now Uruguay are witness to it; Africa is experiencing its horrors; and now so is India. Except for the top 5% elite, devastation will hit one-and-all. The process will only get catalysed by the impending drought in the country. But, unlike East Asia and Latin America, which has greater resilience due to a much higher per capita income and human development index, in India the results will be even more horrifying. Already, since the last few years there has been a veritable epidemic of suicides of agriculturalists, of the retrenched, of the unemployed and even of bankrupt petty businessmen. Worse is to come.

Exactly one year back an article in the July 29, 2001 issue of EPW (Reviving the Economy, Some Explorations, by S.L.Shetty) gave a picture of the depressed industrial scene in the country It said: "The depressed state of the Indian industry has reached crisis proportions. Apart from the persistently low level of industrial growth for the sixth year in succession with the average annual rate working out to 5.7 per cent for the five-year period 1996-97 to 2000-01 and the actual rate further dipping to a meagre 2.8 per cent during April-May 2001 against the 10 to 12 per cent target rate per annum that was hoped for following liberalisation, there are now other all-round signs of deep industrial recession. Every indicator of corporate performance in the non-financial sector shows a setback after a flicker of improvement during 1994-95 and 1995-96 in the post-reform period. The annual growth of company sales has slipped from about 20 to 24 per cent during those years to 10 to 12 per cent and now further to 5 to 8 per cent. Profit after tax on net worth has slumped from over 14 per cent to a range of 6 to 8 per cent. Above all, the business environment has been so adversely affected that there is not only curtailment of current output growth but also persistent postponement of investment projects in the pipeline and slowdown in the flow of proposals for fresh investment. The year 2000-01 has been the fifth year in succession when the quantum of proposed investment as revealed by the industrial entrepreneurs memoranda (IEMs) and letters of intent (LoI) has dropped rather drastically. After attaining a peak of Rs 1,39,774 crore worth in 1995, such investment proposals in nominal terms have steadily fallen thereafter to Rs 1,03,210 crore in 1996, to Rs 61,907 crore in 1997 and further to Rs 60,663 crore in 1998. Due to a major project proposal, the proposed investment was higher at Rs 1,28,892 crore in 1999 but it again slumped to Rs 73,374 crore worth in 2000".

In fact, the Reserve Bank of India’s Currency and Finance Report of 2001, has clearly stated that the economy is in the grip of a structural stagnation that makes a revival of industry and investment almost impossible.

There are a number of ways in which the decline in public investment is related to liberalization. To start with, the latter involves substantial reductions in customs duties and cuts in direct taxes and excise rates, aimed at providing incentives to the private sector. Second, liberalization has involved the abolition of government access to low-interest borrowings from the central bank ……. Thirdly, liberalisation has involved the emphasis on reduction of the fiscal deficit of the government and so reduction on investment projects. Fourthly, with increased impoverisation and threats of revolt, vast sums have been diverted to the police and armed forces. And lastly, with liberalization, even the limited controls have ceased to exist on the profligate expenditure, both legal and illegal of the top politicians and bureaucrats.

Now if one takes all major indicators for the period of globalisation they are worse than that of the 1980s. The following tables will give a rough picture:

With imperialism in general and globalisation in particular, foreign capital swamps the economy, leading to a massive drain of the wealth of the country. This continuous drain retards growth.