Archive for March, 2012

The following article from the Hindu Business Line offers some useful insights regarding the growing financialisation of India’s corporate sector.

It shows that in the period of rapid growth during the 2000s, the large corporate sector was flush with funds with which to expand its productive capacity – indeed, it was able to fund its capital expenditure from its savings.

However, instead of using these funds to expand its productive capacity, it diverted a large and growing share of these funds to the financial sphere – as a lender and an investor (or, more bluntly, a rentier and a speculator). The share of funds devoted to fixed assets, plant and machinery actually declined; the share of funds devoted to financial investments spurted. A much larger share of the funds raised from the share market was placed in “liquid assets” – such as shares and bonds – than in capital expenditure.
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First, a correction: In our Budget post (March 19), we had said:

“The Government provided Rs 40,000 crore in the 2011-12 Budget for the [National Rural Emloyment Guarantee Scheme, or NREGS], but spent just Rs 31,000 crore; this would have funded less than 1.8 billion person-days of employment.[5] This is a drop of 37 per cent in two years.”

The statement of the Minister for Rural Development, Jairam Ramesh, makes clear that in fact anticipated expenditure during the current financial year was Rs. 38,000 crore. (http://www.thehindu.com/news/national/article3007009.ece) This level of expenditure would have funded 2.2 billion person-days of employment – a fall of 21 per cent, not 37 per cent, over the figure for 2009-10.

Moreover, Ramesh clarified that while the Union Budget allocates Rs 33,000 crore to NREGS in 2012-13, the state governments already have on hand as their opening balance Rs 6,000 crore; and the state governments’ contribution of Rs 3,300 crore raises the figure available for 2012-13 to Rs 42,300 crore. Assuming inflation of just 6 per cent, this would allow for the creation of 2.31 billion person-days of employment in 2012-13 – still 19 per cent lower than in 2009-10.

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Montek Singh Ahluwalia has earned widespread scorn for saying that poverty is falling rapidly, and for placing the poverty line at Rs 28/day in the urban areas and Rs 22/day in the rural areas. But once you accept his methodology, even if the poverty line is revised upward, poverty will be shown to be falling. The problem is in the methodology. There is a madness in the method: Whereas India’s poverty line is supposedly based on a cut-off level of calorie consumption, the percentage below that cut-off calorie level is rising even as the Planning Commission claims poverty is falling. We explain below.

On March 21, the Opposition roundly attacked the Planning Commission estimates of poverty in India, which showed a steep drop in recent years (2004-05 to 2009-10). The Opposition members focussed their attack on the deputy chairman of the Planning Commission, Montek Singh Ahluwalia. Said one: “He needs to be removed as every time he speaks, things go wrong. He has never spoken a good thing. He is not worthy to be in that post. No one is agreeing with the latest data.”

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At the start of this year’s Budget speech on March 16 , Finance Minister Pranab Mukherjee spelled out his world-view:

“Our presence at the high table of global economic policy makers is a matter of some satisfaction. It, however, places new responsibilities on our shoulders. If India can continue to build on its economic strength, it can be a source of stability for the world economy and provide a safe destination for restless global capital.”

For all his labours, he may not succeed in his fond wish: his Budget appears to have left Capital restless, and the share market promptly signalled its disappointment with a 200-point dip. Given the sort of sweeping demands being made by foreign investors, Indian big business and their lapdog media in the run-up to the Budget, it would have been almost impossible for the Finance Minister to have satisfied them. And, having just suffered humiliating defeats in the U.P. and Punjab elections, the UPA government could hardly afford to trumpet the pro-‘reform’ (read: pro-Capital and anti-people) nature of this Budget. But a closer examination of the Budget reveals that it is in fact packed with hand-outs for Capital and thefts from the working people.
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