I. The Choice Posed Once More by the Covid-19 Crisis

Continuing Subordination to Global Finance, or Taking a Course of Democratic National Development

Summary 

This article makes the following points.

1. Even before the advent of Covid-19, India’s economy was in a depression. The condition of vast masses of people, particularly those in the unorganised sector, was grave.

2. In its response to Covid-19, the Government imposed the most stringent lockdown measures in the world. Given the character of India’s economy, this had a particularly severe impact on vast masses of people.

3. At the same time, the Government’s spending to cushion the impact of these measures on the people has been vanishingly small. In comparison with other countries in the world, the Indian government has committed among the least additional spending (as a percentage of GDP). While some further expenditures will no doubt be forthcoming in the coming weeks and months, it is already clear that, taken together, they will be abysmally low. As a percentage of GDP, the maximum expansion of spending being talked of is much below the expansion of India’s fiscal deficit in the wake of the Great Financial Crisis of 2008; whereas the crisis in the real economy now is far, far greater than it was in 2008-09.

4. What explains this extraordinary tight-fistedness? Global financial interests explicitly oppose any sizeable expansion of government spending by India, for reasons we outline in the article. Global finance is in a position to dictate this because Indian governments of all hues have over the years made the country dependent on increasingly volatile flows of foreign capital. India’s seemingly ample foreign exchange reserves have been built up through funds from foreign borrowings and volatile foreign investments. Given this dependence, a sizeable expansion of Government spending could lead to foreign investments exiting the country, in turn drawing down the foreign exchange reserves, crashing the stock market and driving down the value of the rupee. The frame of Indian policy-makers is thus set by the drive to attract and retain foreign capital inflows.

5. In response to the present crisis, the Government is faced with a choice. In theory, it could defy the pressure of global finance, and address the basic needs of its people (which objective is otherwise within the reach of India’s material capacity). This would, however, require imposing controls on destabilising flows of foreign capital, and being prepared to forgo future such foreign capital flows, and all that this implies, in order to pursue a course of democratic national development. Or it can submit to the regime of foreign finance, awaiting signals on how much it can spend at different junctures, giving up any pretence of economic sovereignty.

6. The rulers have adhered to the latter course. Now, anxious to shore up the sandcastle of foreign exchange holdings, they are trying to attract even more risky foreign investments. They are also appealing to the U.S. for help in addressing the foreign exchange crisis, which will require a quid pro quo, in the form of more complete subordination. Whether or not these investments and aid materialise, or bridge the gap in foreign exchange requirements, the country will be rendered even more dependent on unstable flows, thereby setting the stage for further crises and further arm-twisting.

7. The famine of Government spending, in the face of an unprecedented depression, will result in enormous hardship, which in turn may result in unrest and upsurges. The response so far has been punitive and severe. As the situation unfolds, the prevailing emergency conditions give scope for the even freer resort to repressive methods – reliance on the security forces, State surveillance, detention of political activists, communal propaganda, censorship of independent media, and other such – in the name of controlling the pandemic.

These conditions pose more urgently before the people the choice we outlined above – namely, whether to be resigned to further subordination of the Indian economy and people’s lives to global finance, or take the path of democratic national development.

The following article is in several parts, in which we address the above points.