The Indian economy has been in a crisis for a long time now. The crisis is reflected in growing unemployment, stagnation or even reduction in real wages of workers, and reduced consumption of goods by the working people.
Major indicators of economic growth are the value of Indian goods and services produced and consumed in the Indian and export markets. The other is the capital investment in the economy by capitalists and the government.
In the first quarter of this fiscal year 2019-20, domestic consumption fell to 6.66% of GDP as against 8.41% in the same period last year. Exports as a share of the Gross Domestic Product decreased to 19% from 20%. The capital investment required to sustain production is expressed as fixed capital formation. This has decreased from about 31% of the GDP to 29.8%.
All these factors are inter-related. When unemployment is high and real wages go down, people have less money in their hands to buy goods and services. This decrease in demand leads to cut down in production, closure of factories and downsizing of enterprises by the capitalists. As more workers lose their jobs, demand further falls.
This is a vicious cycle that capitalist society cannot overcome. The greed of big capitalists and monopolies for maximum profits drives them to extract more and more surplus value from workers, get more work done by lesser number of workers, and reduce cost of production by throwing out permanent workers and hiring contract workers in their place.
The only way to overcome this economic crisis is to replace the capitalist system of exploitation of workers and peasants and reorient the economy to fulfil the needs of people instead of greed of capitalists.
The capitalist state, controlled by big monopolies, actually uses the crisis to mount more attacks on workers and peasantry in the name of “economic reforms”. Monopolies use the crisis to further grow by swallowing competitors affected by the crisis and increase their stranglehold on the economy. When demand for capital to increase productive capacity in the society is low due to low demand, more and more capital is used in speculative activities to generate profit. This is what we are witnessing today in the country. Capital, both Indian and foreign, is flowing into the economy but not to produce goods and services but for speculation. Stock market is scaling new peaks when the economy is touching new lows. Foreign investors alone have put in more than Rs 80,000 crore into Indian stock market in 2019. The wealth of the richest Indian has risen by 50% during last year to 60 billion dollars ( Rs 4,25,000 crore) when the wages for workers have falling and the economy is in dumps.
Monopolization is growing in every sector. Telecom, touted as the success story of liberalization, is moving towards the highest level of monopolization. The Insolvency and Bankruptcy Code (IBC) is helping big monopolies to grow bigger. Tatas, Jindals, Mittals have acquired large steel capacities of other capitalists through the IBC.
The fiscal deficit is rising but the expenditure of the state is not on providing relief to workers and peasants but writing off debts of capitalists and other measures to shore up their profit.
In August 2019, the Finance Minister announced capital infusion of Rs 70,000 crores into public sector banks. She claimed that this will enable banks to expand credit to the needy. But it was particularly done to benefit capitalists in specific sectors such as real estate, automobiles and telecom where unsold stocks have been rising or profit margins have been going down leading to losses.
In August, the Income Tax department announced waiver of “angel tax” (which is income tax payable on capital raised by unlisted companies through issue of shares where the share price is seen in excess of the fair market value of the shares) for startups with a value up to 25 crores. Most of the startups are actually financed by big Indian and global funds such as Softbank.
In November, the government announced the setting up of a Rs 25,000 crore alternative investment fund (AIF), aimed at providing handouts to real estate capitalists with unfinished projects. The government justified this saying that this will benefit thousands of home buyers who are waiting for their homes to be delivered. While for home buyers there will be no compensation for the delays, the capitalists will get the full benefit of this handout.
Capitalist monopolies are advising the government to use the economic crisis to accelerate “economic reforms”. The aim of capitalist economic reforms is to provide incentives to make it attractive for capitalists to invest in creation of new productive capacities. Workers are told that this is done for their benefit as it would create new jobs.
A number of steps have already been taken in this direction and many others are being planned.
In September, the government announced reduction of corporate tax from 30% to 22% for companies not availing other tax breaks, and from 25% to 15% for new manufacturers.
In October, the Reserve Bank of India cut interest rates for the 5th time in the year. The total reduction in interest rate so fa is 1.35%. This was touted as a big boon to home loan customers. But what was hidden was that reduction in interest rates mainly benefit the big capitalists who account for a major portion of loans taken from banks. Interest rate cuts mainly help capitalists and monopolies to cut down their financial expenses and increase their profits. On the other hand millions of people who have put their life’s savings in bank deposits get reduced interest income.
Telecom companies have not paid dues amounting to $13 billion to the government as part of airwave auction payments that these companies had agreed to make. In October, the Supreme Court upheld the demand by the Department of Telecommunications (DoT) for collecting the dues. But the telecom companies have now forced the government to set up a special panel to take a decision on reducing airwave charges and allow a reduction in the contribution of these monopoles to a fund set up by the government to ensure that telecom services reach all villages.
Capitalists are putting pressure to make privatization of public sector enterprises more attractive. They want the entire outstanding loan of Air India to be put aside before it is sold. In order to facilitate the sale of Air India, the government is now planning to allow 100% FDI into the airlines industry. Attractive terms are being laid down to make the operation of 150 private trains attractive to capitalists. They are being given the freedom to decide the rail fare based on demand. Passenger fares have been recently revised for all categories to make them more attractive to capitalists.
The drop in economic activity has resulted in lower GST collection during the current year. The government has announced that it may consider an increase in GST rates to make up for the shortfall. So the burden of indirect tax on people is planned to be increased while profits of capitalists are being shored through reduction corporate tax rates.
While big capitalists have already staked out various demands that will help the capitalists to retain or shore up their profits, there are also contentions among capitalists from different sectors of the economy for a greater pie in the handouts from government.
This government is a government of the capitalist class. It is doing what is expected of it – to transfer more and more wealth to the capitalists from the working and other oppressed classes. Its mandate is also to reconcile contradictions between capitalists through the budget consultation exercise.