by Michael Roberts
This week marks the start of the biggest democratic election in
human history, at least if we mean by democracy a vote for a parliament.
Around 814m Indians are eligible to vote over the next six weeks to
elect a parliament from which a government will be formed in late May.
The incumbent Congress party-led coalition is heading for a big
defeat. The Congress party, India’s main bourgeois party that has ruled
for most of the years since independence from British imperial rule in
1949, has been controlled by a family dynasty based on its leader Nehru
and the Gandhis. Rahul Gandhi and his mother Sonia currently control the
party. But the failure of their government to sustain economic growth
and make sufficient jobs available for the impoverished agricultural
peasants and the unemployed and underemployed of the teeming cities has
lost them support. As the mainstay of the Indian capitalist class, the
Congress leaders have been caught in a series of scandals and corruption
that has turned the people away. Congress will be lucky to return half
the 200 or so seats they won last time in 2009.
Voter opinion at a national level has turned towards the Bharatiya
Janata Party (BJP), led by Narendra Modi. The BJP has ruled before from
1998 to 2004. But the BJP proved to be an unreliable tool for Indian
capital, riddled as it is with former members of what is basically a
Hindu religious fascist party, the Rashtriya Swayamsevak Sangh (RSS), an
organisation modelled on Mussolini’s Black Brigades. Modi is a long
time member and worker of the RSS who has moved seamlessly into the
BJP. He claims, of course, that he has moved on and will now be doing
the bidding of capital as a whole and will no longer push his former
Hindu communalism. But Modi has been chief minister in Gujarat state
since 2001, where pogroms of Muslims have taken place without a blink
from the Modi government.
But that does not matter to India’s capitalist class, as long as it
does not get out of hand. For them, Modi is now seen as leading a
‘business-friendly’ government as he proved in Gujarat, where
multi-national companies were welcomed with cheap land deals, reduced
taxes and deregulated environmental laws. This is what he likes to call
The irony is that while Modi has made much of his success in boosting
growth in Gujarat with neo-liberal policies, the reality is that
Gujarat has done little better than other states led by Congress or by
more radical ‘social-democrat’ governments. Amartya Sen, the Nobel
laureate economist, has said the Gujarat state’s social and economic
progress is poor. Others claim that keeping growth at healthy levels in
Gujarat, a mid-sized state with a strong tradition of trade and a better
infrastructure than much of the country, is easier than elsewhere.
Gujarat’s growth rate in the 1990s was 4.8%, compared to the national
average of 3.7%; in the 2000s it was 6.9% compared to the national
average of 5.6%. The difference between Gujarat’s growth rate and the
national average increased marginally, from 1.1 percentage points to 1.3
percentage points. Maharashtra, the top-ranked state in terms of per
capita income in the 2000s, improved its growth rate from 4.5% in the
1990s to 6.7% in the 2000s. The difference between Maharashtra’s growth
rate and the national average grew from 0.8 percentage points to 1.1
percentage points. Contrast this with the performance of Bihar, the
state that has been in the bottom of the rankings in terms of per capita
income throughout: its growth rate was 2.7 percentage points below the national average in the 1990s, but 1.3 percentage points higher in the 2000s. So Modi’s performance is nothing special.
And the problems for Indian capitalism are mounting. After achieving
spectacular growth averaging above 9% over the past decade, India has
started to slow in the last few years.
The slump in infrastructure and corporate investment has been the
single biggest contributor to India’s recent growth slowdown. India’s
investment growth, averaging above 12% during the last decade, fell
towards zero in the last two years.
Mainstream Indian economists blame high interest rates and ‘too rigid’ labour rights. The IMF in turn blames “heightened uncertainty regarding the future course of broader economic policies and deteriorating business confidence”.
The IMF wants the new Indian government to raise energy prices to make
the state-owned companies profitable and stop labour unions trying to
preserve wages and employment, so that the young unemployed can get work
(at lower wages, of course).
Two-thirds of Indian workers are employed in small businesses with
less than ten workers, where labour rights are ignored – indeed most are
paid on a casual basis and in cash rupees, the so-called ‘informal’
sector that avoids taxes and regulations. India has the largest
‘informal’ sector among the main so-called emerging economies.
But small businesses are not very productive. Indeed, India has the
lowest productivity levels in Asia. Productivity would rise if generally
underemployed peasants could move to the cities and get manufacturing
jobs in the cities. This is how China has transformed its workforce, of
course to be exploited more by capital, but also to raise productivity
and wages. China has done this through state planning of labour
migration and huge infrastructure building. India cannot, so its rate of
urbanisation is way behind that of China. So Indian and foreign capital
are still not fully exploiting the huge reserves of mainly youthful
labour for profit.
As a result, employment growth is pathetically slow. An estimated
10-12m young Indian people are entering the workforce each year but many
cannot find jobs due to their paucity or because they lack the right
skills. Congress says it will find jobs for low caste rural people by
introducing ‘affirmative action’ in companies. This would do little
except enrage large and small capitalists alike. At the same time, it
goes along with the IMF for “a more flexible labour policy”.
And there is the issue of basic resources for India’s 1.2 billion
people. Mechanically pumped groundwater now provides 85% of India’s
drinking water and is the main water source for all uses. North India’s
groundwater is declining at one of the fastest rates in the world and
many areas may have already passed “peak water”. The World Bank
predicted earlier this year that a majority of India’s underground water
resources will reach a critical state within 20 years.
The big demand from Indian capital is to cut back the size of the
state. Bureaucratic and inefficient as it is, India’s central and state
government, as well as state enterprises set up in the early days of
‘socialist’ India, have provided some solidity to India’s economy. But
the multi-nationals and large Indian capitalists want this to go.
Central and state government run up significant annual budget deficits
because they subsidise food and fuel for the millions of poorer Indians.
Those deficits are funded by borrowing and the cost of that borrowing
has steadily eaten into the available revenue from taxes, leaving little
for education, health or transport.
Government tax revenues are low because Indian companies pay little
tax and rich individuals even less. Inequality of income in India is not
as high as in China, Brazil or South Africa, but it is probably higher
than the official gini index because of huge hidden income among the
rich and it has been rising. According to the OECD, income inequality
has doubled in India since the early 1990s. The richest 10% of Indians
earn more than 12 times as much money as the poorest 10%, compared to
roughly six times in 1990.
The answer for Indian capital and endorsed by Modi is privatisation,
cuts in food and fuel subsidies and a new sales tax, a tax that is the
most regressive way to get revenue as it hits the poor the most. The
aim here, as it always is with neoliberal economic policy, is to raise
the rate of exploitation of labour so that the profitability of capital
is boosted and thus provide an incentive to invest, something Indian
capital is refusing to do right now.
Indian companies are increasingly heavily in debt: corporate debt to
GDP is one of the highest in Asia. And the cost of servicing that debt
has risen sharply as the Reserve Bank of India has been hiking interest
rates to try and control the highest inflation in Asia.
Indian capital’s profitability had been falling steadily (if from a
high ‘emerging market’ level) even before the global economic slump
started. It has fallen further since and is now some 20% below levels in
the 1980s. The boom double-digit growth years of the early 2000s, when
all the talk was about India’s software outsourcing industry and new
auto companies, seem unlikely to return without drastic reductions in
the share of value going to labour.
A victory for Modi is likely and that is making India’s business
class beam. The Indian stock market has reached new highs. But India’s
electorate is faced with a choice at a national level between a corrupt
family-run party backed by big business and landholder interests and an
extreme nationalist party that has adopted Modinomics to ‘solve’ Indian
capitalism’s failure to deliver sufficient growth and better
profitability. It is a choice that will make many vote instead for
various regional parties or small radical parties which may well hold
the balance of power in parliament, as before.
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