Kickstarting Indian economy

The only way to kickstart the Indian economy towards a higher growth trajectory is by concentrating attention on expanding the domestic purchasing power of our people. This would expand the domestic demand providing the necessary impetus for manufacturing and industrial growth and, hence, for overall GDP growth accompanied by growing employment. We had also repeatedly argued that such a course can only be ensured if the government substantially increases the levels of public investment in building our much needed infrastructure rather than providing whopping tax concessions for India Inc., and providing concessions to foreign capital to invest in India. But being prisoners of international finance capital as well as having been heavily funded in the election campaign and the projection of PM Modi by India Inc., this government out of its own compulsions is aggressively pursuing neo-liberal economic reforms that permit higher and faster ways of maximising profits at the expense of further exploiting the Indian people and mercilessly looting Indian material and mineral resources.

Under these circumstances, this Modi government, in order to continue to maintain its hype of improving the well being of the Indian people – ache din aanewale hain – continues to spread longer the red carpet for foreign investors and domestic big capital to invest more in India. As the product of such increased investment cannot find either a global or a domestic market, this strategy is bound to fail…

It is not too often that the Governor of the Reserve Bank of India agrees with the Marxist analysis on the ailing economy as discussed in these columns repeatedly. Delivering the Bharat Ram memorial lecture last month, RBI Governor cautioned the government on PM Modi’s `Make in India’ mantra suggesting that India would have to look for domestic demand for growth. Clearly, he was suggesting that `Make in India’ must be primarily aimed at the Indian domestic market as an export-led growth strategy would be ineffective; as the industrial world stagnated and many emerging markets’ were re-thinking their export-led growth model.

“There is a danger when we discuss `Make in India’ of assuming it means a focus on manufacturing, and attempt to follow the export-led growth path that China followed …. But the world as a whole is unlikely to be able to accommodate another export-led China.” Further he said, “If external demand growth is likely to be muted, we have to produce for the internal market …India will have to work on creating the strongest sustainable unified market”.

What we have been arguing in these columns appears to have found yet another unlikely ally. The Associated Chambers of Commerce of India (Assocham) said that even if an investment revival were to happen, there would be a time lag of at least 18 months before it reflects in the manufacturing sector. “In any case, where is the question of investment revival in the private sector when the existing capacity remains unutilised to the extent of 30-40 percent in several industries?” it asked. Hence, it said, “Under these circumstances, the only way left for investment to return is through state funding of the infrastructure — both economic and social”.

Responding to the union finance minister’s already put in operation across the board 10% cut in non-plan expenditures and his active consideration of slashing across-the-board 20% of plan allocations to save about Rs 47,000 crore to meet the fiscal deficit target in the face of an expected tax revenue shortfall of Rs 1.05 lakh crore and a big shortfall in meeting the disinvestment target of Rs 58,425 crore, the Assocham “strongly urged” him not to slash plan spending to meet the fiscal deficit target. It also told the FM that it is the government and State-owned companies, rather than the private sector, which should lead the investment revival in the country.

“Heavens would not fall if the fiscal target of 4.1 percent in the current financial year (FY15) is not met and the deficit moves up somewhat. But it will be quite detrimental to the efforts for economic revival if different ministries are asked to squeeze their planned budget and it saves the day for the fiscal consolidation,” the industry body stated (as reported in Business Standard, January 12, 2015).

The government’s chief economic advisor, Arvind Subramanian, in the mid-year economic analysis also underlined the need for increased public investment to revive the economy since the private sector was woefully short of funds, the banking sector was already overstretched and the governance structure for the much-hyped public-private-partnership projects (once again exposing the vacuity of the PPP model) exposed them to several kinds of financial risks and weaknesses.

This comes in the background of the fact that the total cash reserves with the public sector companies at the end of March 2013 (the latest date for which these figures are available) were estimated at Rs 2.66 lakh crore.

(Excerpts from an article in People’s Democracy)