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Monday, 02 October 2017 09:28

Modi Regime's Policies Lead India to an Economic Catastrophe - PJ James

CONTRARY to the claims of the Modi government, the incoming data from official sources such as the Ministry of Statistics and Program Implementation (MOSPI), Central Statistical Organization (CSO), etc. depict a frightening disruption in productive and employment-oriented economic activity in India. On account of global recession that continues without any let up, India’s export growth rate is facing the biggest-ever collapse—from 10.3 percent in the last quarter of financial year 2016 to 1.2 percent in the first quarter of 2017—in seven decades. Indices such as Purchasing Managers’ Index (PMI) pertaining to domestic industrial and service sectors are declining. Overall GDP growth rate during the first quarter of current year has plummeted to 5.7 percent from 7.9 percent during the corresponding period in 2016. In spite of the adoption of a new series of economic data with effect from 2011-12 that is expected to have imparted a “window-dressing” effect on government statistics, the down-turn in economic activity is broad-based and not confined to any specific sectors. Thus, even according to usually doctored official data, economic contraction in India today is the worst since the fiscal year of 2008-09 when the country was confronting the global meltdown.

Obviously, the most important reason for this economic disruption has been the sudden deterioration in the purchasing power of the vast majority of Indian people since the ascendancy of Modi regime in 2014. As estimated, during the two years between 2014 and 2016, the share of national wealth with the upper one percent of the super-rich further rose from 47 percent to 59 percent while that of the poor, the lowest 70 percent, declined from 9 percent to 7 percent during these two years. The immediate reason for this sharp increase in economic inequality and shrinking consuming power of the workers, peasants and toiling masses has been the ultra-rightist and pro-corporate shift in economic policies including an unprecedented massive subsidization of the financial elite through several corporate tax exemptions and transfer of national wealth to the crony capitalists along with a steep cut in all kinds of social spending. Since the last quarter of 2016, this economic collapse assumed qualitative dimensions with the promulgation of demonetization followed by the superimposition of anti-federal, anti-people and pro-corporate GST. If Modi-bhakts themselves characterized the former as a “surgical strike” against the country, the latter has been interpreted by well-meaning people as “carpet bombing” on the masses.

Impact of Demonetization on Common People

A NUMBER of analyses and studies on demonetization as an imperialist-sponsored guinea-pig experiment super-imposed on India are already there. Though initially Modi claimed demonetization as a weapon to break the grip of corruption, black money, counterfeiting and terrorism, within a span of three weeks he himself had shifted the goal post by changing his narrative to digital payments and cashless economy. The chief law officer of the country had informed the Supreme Court that around Rs. 3-4 lakh crore will never return to the RBI. But now the RBI has conceded that almost 99 percent of demonetized currency has been deposited with the banks exposing the tall claims of demonetization in destroying corruption and black money. As pointed out by many analysts, demonetization has been an ingenious move to legalize and whiten black money by channeling it through the formal banking system. Most of the black income has been converted into white by depositing it in Jan Dhan accounts, depositing in individuals own accounts by breaking into smaller chunks, by exchanging for new currency notes through hawala dealers, by buying last-minute luxury items like gold and high priced mobiles, by paying advance wages to employees and so on. It is proved beyond doubt that the whole agenda behind demonetization was to fill corporate coffers with cash, the life-blood of the economy and hard-earned savings and income of the common people.

As pointed out by experts, demonetization has brought about a decline in Indian GDP by around 2 percent. This is due to the unavailability of cash in cash-intensive sectors like unorganized, manufacturing and construction sectors. Agriculture, fisheries, retail trade and other subsistence sectors are the worst-affected. Even the ‘automobile boom’ India was experiencing under corporatization has seen a contraction following demonetization. As digital transactions account for just 6-7 percent of the population, demonetization has broken the backbone of Indian economy which is highly cash-driven. The small and medium-sized enterprises (SMEs) sector where more than 50 percent of industrial production takes place and where wages are always paid in cash has come to a standstill. Similar has been the case with transport operators, vegetable markets and restaurants. Demonetization crippled the agriculture sector as peasants found it difficult even to sell their produce. The newly printed high denomination 2000 rupee notes rather than alleviating the problem made matters worse with both buyers and sellers in retail markets. In the employment front, all labour-intensive sectors like textiles, garments, leather and artifacts where semi-skilled and even unskilled workers depend on sustenance still continue to witness slowdown and even closing-down and millions are rendered jobless.

Statistics given by the government and espoused by mainstream media coupled with the propaganda blitzkrieg peppered with such misnomers as ‘make in India’, ‘swacchh bharat’, ‘beti bachao-beti padhao’, ‘cashless India’, etc. have nothing to do with the experiences of common people. The tall claims of the government often exposed as overestimates are solely based on data pertaining to the organized sector economic activity. It is a widely recognized fact that government agencies notoriously lack data on the unorganized or informal sectors of the economy which are the sole source of employment and earnings for the vast majority of Indians. And government spokespersons often speak at length on the ‘little’ impact of demonetization based on data from the organized sector. Moreover, the so called nominal increase in organized industrial sector appears to be arising from the recent revision of the Index of Industrial Production (IIP). In fact, based on the old series of data or previous methodology, even the organized sector would have shown a negative growth.

Repercussions of GST

IN THIS context the impact of the superimposed Goods and Services Tax (GST) with effect from the midnight of June 30, 2017 is like falling from the frying pan to the burning fire. The most serious negative macro-impact of GST on production and consumption is the huge cost needed for switch over to the new GST-compliant software. Millions of self-employed and unorganized enterprises that form the sustenance of vast majority of the people will have to find out additional investment for buying new software and train employees regarding the IT-based GST. Before GST implementation, only manufacturing business with a turnover exceeding Rs. 1.50 crore had to pay excise duty, whereas now onwards, every business firm which has a turn-over of more than Rs 20 lakhs (though a composition option is available for those having turn-over of up to Rs. 75 lakhs, such entities are ineligible for input-tax credit) is bound to submit 37 returns (3 returns per month plus an annual return) per year. Apart from this mounting tax burden, majority of economic enterprises in India is still not completely aware of the nuances of the new tax regime. Even before businesses can reach the filing stage they have to issue GST-compliant invoices. For a traditionally pen-and-paper economy like India, this change to digital record-keeping is going to be cumbersome. Invoices after July 1, 2017 will need to be GST-compliant with all details such as GSTIN, place of supply, HSN code etc. as mandated by the law. As professional assistance is inevitable to file computerized returns and become GST-compliant, the gainers will be software companies and their professionals who have command over ‘GST accounting software’, while operating and overhead costs of all the small businesses in the country will grow steeply.

As a consumption-based goods and services indirect tax system, the ultimate burden of tax will be on the consuming people. Government’s super-imposition of GST on the goods and services whose prices are arbitrarily determined by corporate-market forces is pushing up retail prices all over the country. The corporate forces who control the market can withhold the benefit arising from reduction in average taxes rates arising from GST to the consumers by marking-up the prices of goods and services. And the envisaged Anti-profiteering Authority even if comes in to being as scheduled will be incapable of dealing with such issues. Common people, including the masses and small entities and petty traders will be the sufferers. No doubt, the unusual rise in prices and nation-wide inflationary trend are now directly linked to GST.

Biggest-ever Loot through Petroleum Price Fixing

DURING his tenure as Gujarat chief minister, Modi was in the forefront of the campaign to stabilize domestic petroleum prices in the interests of common people and he had been a vehement critic of UPA government’s policy of the abolition of administered price mechanism (APM) in the petroleum sector. When Modi came to power in August 2014, international crude oil prices were hovering around $ 100 per barrel and the then domestic petrol price was around Rs.65 per litre. But today, global crude oil prices are now in the range of $ 50 per barrel while the domestic price of petrol has reached Rs. 75 on an average and that of diesel around Rs. 65. Thus, when global crude prices have halved, domestic prices of petroleum products under Modi regime have gone up further surpassing all other countries of the world in this regard. For instance, in Pakistan, a litre of petrol costs only Rs. 45 while in Malaysia, only Rs. 36.

In 2014, when Modi ascended to the throne, the central excise duty on petrol was Rs. 9.20 and that of diesel Rs. 3.46. However, during the three year- period, Modi regime has raised the excise duty on petrol by about two-and-a-half times (approximately to Rs. 22 as of now) and that on diesel by around four-and-a-half-times (to Rs.17.4) pushing the Indian petrol and diesel prices respectively to Rs. 75 and Rs. 65. In addition to this hike in taxes, Modi government also handed over the power to fix petroleum prices on a daily basis to corporate players like Reliance and Essar, even as dealers’ commission has been raised by more than 70 percent during the three year-period. Apart from well-entrenched corporate interests that push up fuel prices today, petroleum products like petrol and diesel are an important source of revenue for State governments too. It is estimated that the combined central and state taxes and duties on petrol now come almost 60 percent of its price in India. Thus, as already noted, the combined effect of taxation on petroleum products by the centre and the state governments is that the prices of petrol and diesel have gone up even more than the 2014 January -level prices when the global crude oil price was hovering around $106 per barrel!

It is very revealing to note Modi regime’s duplicitous double-stand towards GST when it comes to the case of petroleum products. While most of the taxable articles in India have moved under the GST regime, petroleum products are still governed by VAT system having varying rates in different states. It is estimated that at the existing global crude prices and domestic refining costs, petrol can be made available for Rs. 38 at 12 percent GST rate and at around Rs. 40 at 18 percent of GST and at a maximum price of Rs. 44 with a GST rate of 28 percent which is the maximum allowable rate in India (which is also the highest GST rate in the world). The reason why both central and state governments are reluctant to bring petroleum products under GST is obvious. The combined revenue of central and state governments from petroleum products which stood at Rs 3.32 lakh crore in 2014-15 has grown to almost Rs 5.50 lakh crore in mid-2017. During its three-year regime the Modi government has raised excise duty on petrol by 12 times. Of course, demolition of APM in petrol and diesel has been the handiwork of successive governments. But Modi regime has granted unfettered freedom to corporate oil companies to fix domestic oil prices on a daily basis. As a result, with effect from June 2017 oil companies, including Reliance and Essar, the leading private players in the field have started revising petrol and diesel prices on a daily basis instead of the bi-weekly revision that was prevailing till then. Thus, within three months alone, quite unprecedentedly, the price of petrol has gone up by Rs. 12 and that of diesel has gone up by around Rs. 10 on an average. The cascading effects of sky-rocketing petroleum prices combined with the impact of GST on goods and services and the consequent rampant inflation throughout the country are self-explanatory.

India Becoming the Most Corrupt Country under Modi Regime

SPEAKING against corruption from roof top and propping up the most corrupt corporate-financial elite have become the hall mark of the present regime. As already noted, demonetization is a typical example in this regard. It provided an opportune moment for the black money holders to whiten their unaccounted wealth through the legal route. As a result of the corporate-politician-bureaucrat nexus, corruption is ingrained in to the decision-making process itself. Recently, quoting a study by Transparency International (TI) the Forbes magazine, one of the leading bourgeois journals, has identified India as the most corrupt country in the world. The study was based on a sample survey of 20000 respondents in 16 countries in the Asia-Pacific region. According to the study that covered the last one-and-a half years, India has surpassed Pakistan, Myanmar, Thailand and Vietnam in terms of corruption. India has become an example of flourishing ‘crony capitalism’ where the bureaucracy itself, notes Forbes, has become ‘notorious’ for corruption. According to Forbes, through demonetization, apart from immorally harming its own people, India has set a bad example for the rest of the world. It says: “India is the most extreme and destructive example of the anti-cash fad currently sweeping governments and the economics profession.”

In fact, the extent of devastation of Indian people unleashed by more than three years of Modi rule has no parallels. The entire government machinery over the past three years has been centered round the ‘larger-than-life stature’ of Modi. Tens of thousands of crores of people’s tax-money are used for the media blitz that project Modi at the centre of every program. For instance, while welfare expenditures of the government are dwindling, the advertisement costs set apart for propagating the government’s image with regard to “welfare schemes” during this year alone amount to Rs. 1153 crore, Rs. 200 crore more than last year. However, of late, the steep decline in GDP to a three-year low, the latest RBI report underlining the utter failure of demonetization, the withdrawal from Doklam, gruesome death of children in Gorakhpur, increasing unemployment and underemployment, rampant inflation, etc. are heavy blows to Modi and the regime, though corporate media are hesitant to take up such issues for discussion. People are becoming increasingly conscious that the “ache din” promised by Modi are meant only for the most corrupt financial elite in the country. And people’s simmering discontent against the ruling regime is gathering momentum. It is high time that the revolutionary democratic forces should rise to the occasion for giving political leadership to these emerging nationwide struggles of the workers and all oppressed