INDIAN ECONOMY IN AN EXTREME SITUATION OF FULL-FLEDGED STAGFLATION AS MODI GEARS UP FOR THE 2020 BUDGET - PJ JAMES
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05 February 2020

When all eyes are on the upcoming 2020-21 General Budget, according available macro-economic indicators, Indian economy has been experiencing an irreversible downward trend since the second quarter of 2018, from the claimed 7.6 percent GDP growth (financial year 2018-19) to 4.5 percent in September 2019 (financial year 2019-20). By mid-2019, unemployment growth rate has risen to 7.4 percent, the highest in five decades. And by December 2019, retail price inflation had reached 7.35 percent. Usually, in terms of conventional economic analysis, the continuance of such trends in more than four quarters is sufficient enough to characterise the phenomenon as stagflation defined as a peculiar situation of economic stagnation and huge unemployment coupled with high inflation. In fact, over the past six consecutive quarters since mid-2018, India has been in the grip of a full-fledged stagflation. In conventional economics, there is no remedy to resolve stagflation for obvious reasons.  That is, any move to address unemployment and lack of demand arising from economic stagnation will lead to a further rise in inflation, while efforts to tackle inflation will aggravate stagnation. 

Meanwhile, Modi regime and its ideologues are engaged in interpreting the grave situation as “cyclical” and not “structural” in character. According to this logic, India’s economic downturn is just an extension of world economic crisis.  Thus, economies are cyclic in nature with periodic peaks and troughs. The protagonists of this view this view argue that no economy can keep going in one direction and is subject to the principle of ups and downs or boom and recession. Hence the current cyclical downtrend or the poor state of the economy can be treated with the standard neoliberal medicine currently in vogue.  The policy thus is centred round a further boost toward unleashing the power of corporate capital with the state acting as its facilitator. The prescriptions therefore include a whole set of “supply-side oriented” investor-friendly measures directed at achieving “ease of doing business” such as reduction in corporate taxes, liberal and easy corporate financing, facilitating unfettered entry and exit of foreign corporate financiers, and so on.

This neoliberal-corporate orientation has been the hallmark of Modi government’s policies since 2014 which gathered further momentum under Modi.2.  For instance, the first budget of Modi.2 in July 2019 followed by successive ‘booster packages’ that overshadowed the budget itself have channelled millions of crore worth of national assets and public money in to the coffers of the most corrupt corporate class. Stagflation is the direct outcome of the unbridled speculation and money-spinning businesses indulged by this tiny financial elite who owns lion’s share of the national income. More than three-quarters of the national income generated in India today is appropriated by one percent of the upper strata who is not at all interested in investing in employment-oriented productive activities. Modi’s policies since 2014 have evolved along with a close integration of the regime with these richest crony capitalists. Its outcome is an unprecedented wealth concentration in the hands of a billionaire class, horrific levels of inequality and destitution of the broad masses of population, speculation-induced sky-rocketing prices of items of mass consumption, massive unemployment and hitherto unknown levels of corruption.

Of course, like all fascists, Modi also came to power effectively using populist slogans pertaining to employment generation and elimination of corruption thereby hoodwinking the people along with the unleashing of Hindutva polarisation. For instance, he promised the creation of 20 million additional jobs every year. He assured people of depositing Rs.15 lakh each in their accounts after bringing back black money hoarded in foreign tax havens. After coming to power for a second time, he proclaimed the goal of transforming India in to a $ 5 trillion economy within 5 years, i.e., almost doubling the present $ 2trillion economy. To achieve this, his policy managers envisaged an annual average GDP growth rate of 8 percent.

But all his claims are now exposed as mere post-truth statements.  No new employment opportunities have been created. On the other hand, unemployment today is the highest in five decades. GDP growth rate is plummeted to 4.5 percent (according to some US-based experts, it may even fall towards 3.5 percent) and is even below that of neighbouring Bangladesh, Nepal and even Pakistan, such that the goal of achieving the target of $5trillion by 2024 has become a mere illusion.  Under Modi regime, over $1trillion (more than Rs. 72 lakh crore) in black money being hoarded abroad by wealthy Indians (BJP leader Subramanian Swamy’s estimate), India has become the most corrupt country in Asia. Unemployment growth rate at 7.4 percent, as mentioned in the beginning, has become alarming. The wealth appropriated by 63 billionaires at Rs. 28.97 lakh crore is more than Modi’s 2019 budget estimates worth Rs. 24.42 lakh crore. Under Modi, based on Gini coefficient (a statistical tool to measure inequality) India has become the second most unequal economy in the world after Russia. According to Oxfam, inequality is fracturing India such that today 57 billionaires control 70 percent of the country’s wealth.

Exports have gone down and the external value of rupee under Modi has undergone an unprecedented steep fall. When the external value of rupee under UPA regime was approaching Rs. 60 = $1, Modi accused the central government as anti-national. Now following his 6-year rule since 2014, it has now plunged to  Rs.72 = $1, indicating the extent of neo-colonial drain from India—much larger than the “colonial drain” estimated at $71 trillion during two centuries of British rule over India. The much trumpeted FDI-depended “Make in India” initiative that envisaged to boost the ratio of manufacturing to GDP from 17 percent to 25 percent has become not only a non-starter, but that ratio itself has gone down below 13 percent. In fact, the country is going through an unparalleled deindustrialisation and agricultural retrogression. In the same vein, the Digital India Initiative that Modi proposed with much fanfare is in doldrums.

To be precise, this economic collapse of India as manifested in what is called stagflation cannot be explained as a mere extension of world economic recession or as a “cyclical” one. For, as neoliberal centres have put on record, when Modi came to power in 2014, India was the “best performing” economy of the world. It was from that relatively better off position that India was transformed as the worst performing economy today. It is directly connected with a series of onslaughts facilitating the reckless loot and plunder of the country and its people by the most corrupt corporate thugs and crony capitalists under the umbrella of the Hindutva fascist regime. The first of these anti-national offensives was demonetisation which has no economic logic either in neoclassical or in neoliberal theory or practice, an aspect clearly pinpointed by several world-famous mainstream economists and experts. It was a traitorous and brutal experiment designed and superimposed by Modi in unholy nexus with criminal-corporate global centres enabling the financial elite to centralise nation’s wealth in their hands by sucking out the life blood of the Indian people. Demonetisation will be recorded in history as a classic post-truth program since it was imposed in the name of eliminating black money and counterfeit notes, but led to the biggest accumulation of both in India. Its economic outcome by blocking the entire circulation system was a total paralysis and freezing of all productive activities on the one hand, and a further ballooning of the cyber-based speculative sphere led by corporate financiers.

The second death-blow has been the super-imposition of GST that transferred economic power to the corporate class through an alteration in country’s federal character. Together with Demonetisation, GST has led to a collapse of all productive spheres including agriculture, medium and small industries, informal and organised sectors where more than 95 percent of the Indian people find their sustenance, leading to utter collapse of the purchasing power of the broad masses. At a time when the superrich billionaires with whom the country’s wealth is concentrated are reluctant to invest in job-oriented productive investment, GST by putting the tax burden on the small scale sector and retailers led to further shrinkage of not only production but consumption too.  Paving the way for a breakdown in tax mobilisation and reduction in state finances, GST also resulted in further reduction in public expenditures social service spending again leading to economic downsizing and stagnation. Very revealingly, at the behest of neoliberal centres, when Modi regime was initiating steps towards GST in mid-2017, confronted with an economic breakdown, Malaysia was withdrawing from it.

In addition to Demonetisation and GST, looting of public sector banks under the euphemism of NPAs, appropriation of precious national assets of PSUs through disinvestment, budgetary and extra-budgetary fund transfers, booster packages, central and state grants for PPP projects, plunder of natural resources, speculation in money and stock markets, hoarding and black marketing, and other direct and indirect cash receipts, concentration of wealth in the hands of a few financial elite reached epic proportions. On the other hand, collapse of employment together with a whole set of austerity measures and enforced reduction in real wages, vast majority of the common people are subjected to unprecedented poverty, deprivation and destitution. Thus, closely integrated with the Hindu Rashtra project through CAA, NPR and NRC has been the superimposition on the people of the tyranny of the most reactionary corporate financiers allied with the Hindutva forces.

Modi.2’s second budget to be presented to parliament on February 1 is being drafted at this critical juncture. Meanwhile, the IMF after taking serious not of the grave economic situation of India had hinted at the orientation of the forthcoming budget including an advice for further opening up of the economy with a more liberal FDI regime. On January 9, Modi himself at NITI Aayog has taken the initiative for the forthcoming budget through a brainstorming discussion with around 30 top economists and policy experts. Very revealingly, the finance minister Nirmala Sitharaman was conspicuously absent in that discussion (according to observers, pre-budget discussion without finance minister having no precedent was shocking!)in which other leading ministers such as Amit Shah, Nitin Gadkari, Piyush Goyal, Narendra Singh Tomar were present. According to reports, the discussion was mainly centred on real estate development, PPP projects in social overheads and infrastructure projects along with a series of measures to boost foreign and domestic corporate investments through investor-friendly measures including a further reduction in corporate taxes. Of course, Modi’s interaction with top business tycoons is an ongoing process. Even at this time of stagflation, Modi is reluctant to interact with the representatives of peasants, workers, small traders and other sections who bear the burden of the worst-ever crisis. Meanwhile, a decision was also taken to have another round of fund appropriation worth Rs. 45000 crore from RBI.

 The stagflation in India which is rooted mainly in country-specific domestic factors and directly connected with the pro-corporate, fascist policies of the Modi regime is currently a topic of discussion even among neoliberal experts.  For instance, according to Arvind Subramanian, India’s former Chie Economic Adviser, Indian economy is currently moving towards the ICU. To quote him: “Clearly, this is not an ordinary slowdown. It is India’s Great Slowdown, where the economy seems headed for the intensive care unit, and”, and all indicators are “close to negative territory.”However, even such experts like Subramanian and Reguram Rajan who are opposed to the majoritarian Hindutva fascism now led by Modi, on account of their adherence to neo-liberalism, have no solution to the crisis confronting India. While vehemently criticising Modi, they fail to recognise that the material foundation of fascism including Hindutva fascism is neoliberal-corporatisation itself. Being proponents of neo-liberalism, their criticism is centred round the question of implementation only. It implies that the present crisis can be resolved through a replacement of the existing regime.  Though some among them speak on increasing productive capacity, employment generation and even real income of the people, they are reluctant to recognise that the logic of neoliberal corporatisation totally lacks such an orientation.

Since Modi’s advisers, though in varying degrees, also belong to this category, his interactions and brainstorming sessions with corporate chieftains and experts intended to formulate the blueprint for the forthcoming budget are bound to put still more heavy burdens on the backs of the common people. In the guise of boosting investment for overcoming stagnation, the General Budget will resort to several fiscal measures for pumping more funds in to the coffers of the parasitic billionaire class.  Under the cover of fighting economic contraction, still more pro-corporate, neoliberal measures along with further direct tax deductions can be expected for boosting the stock, financial and real estate and other money-spinning sectors. On the other hand, in the name of curtailing prices and keeping inflation under check, public spending on education, health and other social expenditures will be cut. Ingenious methods for salary-wage freeze including many austerity measures also cannot be ruled out. Other things remaining the same, the coming budget with still more far-right policies including a more stringent GST regime is going to deepen and widen the stagflation that is already set in. There little sense in expecting anything from the forthcoming budget of the far-right Hindutva fascist regime in the direction of alleviating the multi-dimensional deprivation of the broad masses of working and oppressed people in India. The working class, peasants, retail traders and all toiling and oppressed masses will be thrown in to a ‘do or die’ situation with no other option except resisting and defeating the corporate-saffron menace.

The Communist movement in India has a history of almost a century after the salvos of October Revolution in Russia brought Marxism-Leninism to the people of India who were engaged in the national liberation struggle against the British colonialists. It is a complex and chequered history.