VIII. India’s Economy in the Light of Covid

[This is the concluding instalment of this series.]

India’s economy was in a depression well before Covid-19. In sections II to VII, we described how the period of bubble growth which began around 2003 ended around 2008 or 2010. It was followed by a long downturn. Since then, anxious to please foreign investors (including potential foreign investors in government bonds), the rulers have kept government spending to the minimum, even in the wake of Covid. This refusal to spend is both increasing the immediate suffering of the people and deepening the depression of demand. In fact, it is not merely that government spending has failed to increase; it appears that, since tax revenues of the Centre and the states will collapse this year, their total spending might even shrink.

Having forsworn revival through stepping up government spending, the rulers are instead attempting to revive the economy by promising various incentives to private investors, to arouse their ‘animal spirits’ via the scrapping of labour laws, provision of cheap/free land, cheap credit, deregulation, privatisations, and so on. However, such measures will not on their own revive private investment, since private investors want to see signs of a demand revival before they invest. On the other hand, these measures may further depress workers’ incomes, further destroy peasant livelihoods, and further reduce the meagre social claims of the working people, thereby aggravating the inadequacy of demand.

The Prime Minister is also pushing the idea that India can revive growth by integrating further with global supply chains, and getting multinationals to leave China and come to India. He terms this a policy of ‘self-reliance’.

However, even if some more foreign investment does come to India as a result of such efforts, it will not lead to growth in employment in India and revival of India’s economy, for two reasons.

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VII. Covid as Geopolitical Opportunity: India as Player, or Pawn?

In the period since the emergence of Covid-19, the US has quite openly decided to use the crisis as a weapon against its perceived rival, China. As early as January 30, just days after the confirmation of human-to-human transmission of the virus, the US Commerce Secretary said that the disease, while “very unfortunate”, could prompt companies to reconsider operating inside China. This was not an off-the-cuff remark. The Commerce Department followed up with an emailed statement saying “It is also important to consider the ramifications of doing business with a country [i.e., China] that has a long history of covering up real risks to its own people and the rest of the world.”

On April 9, Japan announced that it would subsidize its firms if they moved their production base from China.[1] The European Union is preparing a report claiming that “China has continued to run a global disinformation campaign to deflect blame for the outbreak of the pandemic and improve its international image.”[2] The French President Macron has questioned China’s handling of the virus outbreak[3]. The European Commission chief has asked for an investigation into the origins of the virus.[4] And of course the US President has pressed US intelligence agencies to find the source of the virus, threatening in his distinctive manner to sue China $10 million for every US Covid-related death.[5]

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VI. Deepening Dependence and Uncertainty

In a previous instalment of this article, we saw that the Government’s refusal to undertake public spending in response to the Covid-19 epidemic stems from its anxiety to woo foreign financial investors. Foreign investors, in general, are strongly opposed to increased government spending by Third World countries.

In a further instalment, we explained why foreign investors generally oppose Third World countries’ government-spending: Reducing government spending leaves the field open for private capital to set its terms, and enables private investors to extract all sorts of concessions and giveaways as the price of investment. That is, foreign investors especially stand to gain when government spending is kept down. In the present situation, it is foreign investors (and a handful of the top Indian capitalists) who are best positioned to take advantage of these opportunities.

We showed how the economic collapse triggered by Covid-19, and the rulers’ refusal to spend, are helping usher in a major restructuring of India’s economy in favour of foreign capital (even though the restructuring had in fact begun before the virus entered India).

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V. Why Do Foreign Investors Oppose Government Spending in India?

Summary

A. Inadequate/misleading explanations for foreign capital’s opposition to Government spending

B. The real reasons for foreign investors’ opposition

C. Examples of how foreign finance makes use of a crisis in weak and subordinate countries

D. India’s credit boom and bust

E. Result of debt spree followed by stagnation/decline: Major restructuring of India’s economy on the cards

F. The restructuring has already started

Endnote: Financial crisis as opportunity for foreign investors

Summary

The standard explanations given for foreign investors’ opposition to Government budgetary spending in India (namely, that foreign investors are worried about inflation, or that they are worried there will be runaway growth of Government debt) are unconvincing. An additional explanation, that foreign investors oppose Government spending due to their neoliberal ‘ideology’, is inadequate: the same foreign investors embrace government spending in their home countries whenever it suits their own interests, such as when the government there bails out the financial sector during each crisis.

The real reason for foreign investors’ systematic opposition to Government spending in countries like India is that, when such spending is suppressed, private investment is the ‘only game in town’. In such a situation, private investors are able to extract various concessions from the Government to induce them to invest. Further, during a regime of fiscal cuts, the Government carries out so-called ‘reforms’ in favour of big capitalists; and it sells off valuable public assets at distress prices in the name of bridging the fiscal deficit. These are major windfall gains to private capitalists, and in crisis periods foreign capitalists are best positioned to take advantage of these opportunities. Further, the lack of Government spending aggravates the paucity of demand in the economy, and pushes a large number of domestic private firms to sell off their assets at depressed prices; foreign investors, relatively flush with funds from the economic stimulus packages in their home countries, are able to step in and buy prize assets very cheaply. The crises suffered by South Korea, Thailand, and Greece are striking illustrations of this process (see Endnote).

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