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[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. (more…)

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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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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). (more…)

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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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By Rahul Varman [1]

Back in the headlines
Even as we were getting used to a new set of technical terms and headlines, from the brand new name of the virus to social distancing to quarantine, suddenly there reappeared a word that we all assumed had receded for ever from the front page, namely, labour.

When is the last that we heard of ‘labour’ attracting the headlines and the attention of the elite commentariat on our pages and screens? All this while we have been hearing about the aam aadmi, about Hindus or Muslims, Dalits or Brahmins, women or  men, but we thought ‘labour’ as a category was a thing of the past. Somehow it was taken for granted that 21st century capitalism, with its entire production machine, can work without labour, or labourers could be pushed to remote places in China and elsewhere, placed on the margins of the whole system, made invisible like Mr. India. When have you last met someone who holds the labour beat in any of the media conglomerates, a labour-related function in the corporate sector, or a job learning and teaching about labour in the academia? At best labourers were some numbers, with employment going up according to the State agencies, going down according to the critiques, so many employed in this or that industry, but who cared; anyway there was too much population!

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Government officials stick to the version that national income will grow in 2020-21, even bizarrely claiming that it will grow by 1-2 per cent in the April-June quarter, two-thirds of which period will have been under the lockdown. It is now amply clear to any real-world observer that the economy will not grow in 2020-21, but shrink; the question is to assess: by how much. This assessment may be useful in order to gauge the extent of suffering of people and the damage to the nation’s productive capacity, and accordingly to assess how much the Government should spend to alleviate that suffering and revive productive capacity.

Why does the Government persist in unreal optimistic predictions of growth? Because it carries out the above two steps backwards: it first assesses how much it can spend without angering foreign investors, then understates the economic loss so as to justify such a low increase in Government expenditure. Since the Government has decided (in the economic packages of March 27 and May 12) to make only a tiny increase in expenditure, its official economists must claim that GDP growth will remain positive, only slowing in one quarter, followed by a rapid recovery to earlier levels.

The Prime Minister’s speech of May 12
On May 12, the Prime Minister announced what he called a Rs 20 lakh crore (Rs 20 trillion) package, amounting to 10 per cent of GDP. At first glance, the figure seems huge. The media have by and large swallowed the Government claims about the size of the package, and inundated us with details of sundry schemes and slogans.

The package, however, turns out to be empty. For three days the Finance Minister has held press conferences reading out laundry lists of assorted schemes, virtually devoid of actual Government expenditure. There is little point in our discussing the details; they merely confirm that the Government’s response to the biggest economic crisis in post-1947 India will rank among the most meagre in the world. Instead of spending in order to provide services and to compensate people for the effects of the lockdown, most of the measures announced relate to making more credit available to different sections (which will flow to big business, if the past is any guide). The burden of even such paltry measures has thus been thrown onto the shoulders of the public sector banks. However, even before Covid-19, big businesses were not interested in investing, for lack of demand. Banks have no interest in lending to medium, small and micro units. And for small and micro-units, loans are no solution for the devastating loss suffered due to the lockdown: this is akin to knocking down someone’s home and offering her/him a loan to re-construct it. (more…)

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In the previous instalment of this article, we had ended by saying,

No doubt the Government will come forward with another stimulus package shortly, but it is hesitating and dragging its feet. Why? We address this question below.

The second stimulus package has since been announced on May 12. While it talks of a sum of 10 per cent of GDP, it turns out to be virtually devoid of expenditure by the Government. At best there are some schemes for extending credit to different sections, which will be of little use in addressing the unprecedented depression we are now witnessing.

In order to understand the Government’s policy, let us look at three questions:

(i) Why does the Government fear increasing its expenditure even in the face of an unprecedented crisis?

(ii) What is the Government’s alternative growth strategy, since it has ruled out any significant increase in spending?

(iii) What accounts for the political confidence of the Government in embarking on a policy which has caused such upheaval and may spark mass unrest? (more…)

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In our previous post (May 10), part of a longer article, we noted the extraordinary miserliness of the Government’s economic package in the wake of Covid-19 – officially 0.8 per cent of GDP, in reality perhaps half that. We said: “No doubt the Government will come forward with another stimulus package shortly, but it is hesitating and dragging its feet.” The Government had on May 8 announced plans to borrow an additional Rs 4 lakh crore, or 2 per cent of GDP, beyond its earlier estimates. This indicated that the additional spending would be in the range of 2 per cent of GDP.

However, in his speech of May 12, the Prime Minister announced what seems, on the face of it, to be a big economic package:

The economic package that is being announced today, if added, comes to around Rs. 20 lakh crores. This package is about 10 percent of India’s GDP. With this various sections of the country and those linked to economic system will get support and strength of 20 lakh crore rupees.

In a speech of over 2,000 words, the Prime Minister chose to provide no details of this package. This vagueness ensured that the night’s news and the following day’s headlines would be dominated by the figure of Rs 20 lakh crore, or 10 per cent of GDP, without the slightest notion of what it means. There is no hint of the respective shares within this of additional spending, re-labeling of existing spending, RBI liquidity measures, credit guarantees, and so on. Apparently all that is to be revealed by the Finance Minister over the next few days: (more…)

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The Indian rulers’ response to Covid-19 has been to ‘lock down’ the entire country for at least 54 days (or more, if the lockdown is extended on May 17). This is an action without historical parallel. It finds few comparisons globally even in these times of a ‘pandemic’; the New York Times called India’s lockdown “the largest and one of the most severe anywhere”. It has been backed by punitive measures, left to the imaginative coercion of local authorities and the police in different regions.

As Jean Dreze notes, the word ‘lockdown’ does not capture what India has done: “it’s more like a curfew, or an attempted curfew.” A staggering 114 million lost their jobs/livelihoods in the month of April 2020. Locked out of their jobs, with negligible savings after months of labour, millions tried to return to their villages, many of them walking hundreds of kilometres, some of them attacked by the police on the way. Those who were forced to stay back in the cities were trapped in slum rooms or tiny tenements, starving, many forced to line up for food hand-outs. Agricultural supply chains were disrupted, agricultural markets stopped functioning and cultivators made huge losses on perishable crops. More than 5 lakh trucks were reported to be stalled at state borders. All this, and many other aspects, are now well-known.

(more…)

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The present economic calamity has overshadowed the immediately preceding one. But even to understand the present situation, we need to remind ourselves of the situation prevailing before Covid-19.

By 2017-18 itself, Government surveys were revealing a dire economic situation. The following two years, 2018-20, showed even further deterioration. These matters are usually discussed in an abstract way, as relating to something called ‘the economy’, but it is important to see in them the lives of the people. We will look at employment, poverty, wages, and consumption. We will also touch on the state of industry and investment, as these indicate the state of employment and prospects for the future.

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