After state capitalism, what?
INDIA, the country with the second largest population in the world, is in the throes of a drastic neo-liberal economic programme with all the usual ingredients — privatizations, lifting of barriers to foreign capital and removal of subsidies. This programme will mean a new twist in the crisis
International Viewpoint #244 April 1993 livelihood, was extremely backward and in the grip of a feudal-type parasitic class, the zamindars.
The majority of the urban population lived in conditions as miserable as those in of the Indian state and implies terrible additional suffering for that country's poor.
The "state capitalist" legacy built up since independence is being dismantled by a government based on the very party that built it — the Congress Party. THIERRY MASSON - March 17, 1993
HE government formed by Narasimha Rao on June 23, 1991 has only a relative majority in parliament based on the Congress(I) party. The latter won 233 of the 511 seats in the May 1991 elections which took place against the background of the assassination of the party's leader Rajiv Gandhi during the election campaign itself.
This is the first time since independence that there has been a minority government in India and it has come at a critical turning point in the country's history. Even so, Narasimha Rao's government has survived two motions of censure since the spring. Its success in this respect is not explained only by support from small regionalist formations but also because the neo-liberal economic course it is proposing is not challenged by any of the parties represented in the assembly. Indeed, the main opposition party, the far right Hindu fundamentalist BJP is seeing its own economic programme put into practice by the
It has fallen to the lot of a government issued from the Congress(I to dismantle the economic heritage of the founders of modern India and leaders of the Congress party, Nehru and his daughter Indira Gandhi. The aim of their endeavours was to create the conditions that would enable Indian capital to stand up to the pressure of world capital in the Indian market.
Despite the boom during the Second World War, Indian big capital had not been able to build up a solid industrial base before independence. Thus, the Indian bourgeoisie felt the need to use the state to compensate for their weaknesses in terms of accumulation. They applied the well-known principle: socialize the losses and privatize the profits!
After 1944, the two great Indian industrial magnates, Tata and Birla, were behind a plan for the economic development of India known as the "Bombay Plan". The central idea was to develop a big public sector infrastructure which would permit the Indian bourgeosie to root itself in national realities. Unlike many other countries that had suffered imperial domination, India had a real national bourgeoisie which was no more inclined to bow before United States's domination than it had been to that of British colo-
After 1927, this bourgeoisie took up the struggle for national independence. G.D. Birla saw that there was no likelihood that the British government would impose restrictions on its own businessmen to aid their Indian colleagues. From this he deduced that the only solution was that "each Indian businessman should strengthen the hands of those who were fighting for their country's
The form of planning introduced was not inspired by the Soviet model despite the rhetoric about socialism and social justice used to give it a progressive look. A report by a government commission in 1961 found that 1.6% of companies held 53% of total private capital while 86% of joint-stock companies had only 14.6%. The four giants, Birla, Tata, Salm and Martin Burn controlled 25% of all shares and a large part of industry, trade, banking and the press.?
At the same time, they directly influenced state policy through their placemen in the bureaucracy and on most occasions were able to impose their views. Furthermore, they financed both the Congress Party and its
On the social level, the country had to face the legacy of two centuries of colonial oppression. Some 70 to 80% of the population lived below the poverty line. 84% of India's 353 million inhabitants at the time of independence were illiterate. Agriculture, from which 72% of the population drew their the countryside. The development of state industry by successive Congress governments allowed them to foster the belief that they were entering upon the road to socialism and permitted that party to mobilize the rural masses and a significant part of the urban population over two decades.
However, while the masses tasted none of the fruits of their efforts, the employers, organized in the Federation of Chambers of Commerce and Industry, had no fear of all the anti-capitalist rhetoric. As one of them declared: "If you look at the Nehru epoch, it is clear that while Nehru talked abundantly about socialism, nothing that he did really affected the interests of business circles".
The Indian bourgeoisie has maintained an aggressive approach on the regional level, with the intention of establishing its dominant position in relation to its neighbours. Every kind of means has been used: periodic wars with Pakistan, and with China in 1962, an economic blockade of Nepal between March 1989 and June 1990, intervention in the north of Sri Lanka against Tamil separatists from August 1987 to the start of 1990, and the annexation of Sikkim.
To underpin its regional pretentions and counteract American and Chinese interference, India signed a treaty of alliance with the Soviet Union in August 1971, but since the disintegration of its Soviet ally the Indian bourgeoisie has increasingly looked towards the United States. It was no accident that American planes from the US base on the Indian Ocean island of Diego Garcia were allowed to refuel in Bombay during the Gulf
Furthermore, relations between India and the USA have always been ambiguous: while Indian diplomacy has always refused to line up unconditionally behind Uncle Sam, it remains the case that the Americans are the leading foreign investors in India.
After providing the country with an infrastructure, the economic policies yielded impressive growth - 5% a year between 1980 and 1985 and 5.5% between 1986 and 1990. However, despite this success, the sys-
1. Quoted in Tariq Ali, The Nehrus and the Gandhis, Picador 1991.
2. Quoted in Max Jean Zins, Histoire politique de l'Inde indépendante, PUF 1992.
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Dossier: INDIA
Prime Minister Narasimha Rao
International Viewpoint #244 April 1993 tem proved unable to deal with the thorny problem of reintegration into the world mar-
Here, all the signals turned red at the same time. The trade deficit, the result in particular of the progressive abandonment of import substitution, rose from 67 billion rupees in 1984-85 to 140bn in 1988-89. The state debt has grown even faster. Domestic debt rose from 356bn rupees in 1982 to
The foreign debt has seen a dizzying rise in a country that once had the reputation of being the Third World's model for financial rigour, progressing from $20.6bn in 1987 to $65bn in 1990. It at present represents a third of foreign exports and income. Inflation is starting to become alarming — over 30% in 1991. In July 1991, the financial crisis reached a climax. Lacking outside support — notably from the IMF and World Bank -India could no longer honour its debts.
There are many reasons for this situation. Low productivity in the public industrial sector has obliged the state to devote increasing amount of capital to produce goods that are both more expensive and of lower quality than those that can be found on the world market. Steel-making is a typical example: India employs eight to nine times as many workers to produce the same amount of steel as does South Korea.
The omnipotence and corruption of the bureaucracy make considerable inroads into economic life and it will take more than paper "reforms" to root out the feudal empires that infect the state apparatus.
The middle class consumer boom has meant massive imports of hi-tech consumer goods and black-marketeering has become as popular a sport as cricket. The outdated and dysfunctional fiscal system — the budgetary deficit went from 6.1% of GNP in 1981 to 8.2% in 1989 — has favoured the development of a considerable underground econo-
The massive importation of arms - in 26
1990, India was the second biggest arms purchaser in the Third World after Iraq - and an increasingly aggressive policy towards its neighbours have greatly inflated the budget of the armed forces. The defense budget officially makes up 3.5% of the GNP, but is much more in reality taking into account all the different paramilitary forces.
The tensions within the bourgeoisie itself over how fast to proceed with the reduction of State control of the economy and the frequent changes of political personnel after the fall of short-lived governments have worsened an already difficult situation. One could also point to the colossal expenses incurred as a result of the political instability of the last few years in the form of under the table payments and other "fees" — for which there are as yet no reliable statistics.
The relative successes of the 1980s have shed light on the critical lack of indigenous capital to spur growth. India's external trade makes up only 1% of the world total, and thus the only way to acquire the required capital is through borrowing on the world
The IMF and the World Bank had advice for the Indian authorities on a "way out" of the crisis. Essentially, this involved lifting all the barriers to investment by multinational corporations in India. It should be recalled that in the 1970s IBM and Coca Cola preferred quitting India altogether to working under the legislation in place at the time.
The Indian government's resistance was weak and the traditional pressures exerted by the big international financial organizations worked perfectly. In January 1991, the Chandra Sekhar government requested $2.5bn in aid from the IMF and $500m from the World Bank. The IMF granted $150m while the consortium of countries which aid India
It was only at the end of September that year that the same consortium agreed to offer $6.7bn dollars in aid in 1991-92 while the IMF offered $1.8bn "to help India face its transitory difficulties". This came two months after the government had announced its economic programme, largely inspired by the IMF's team in New Delhi.
Indeed, on July 24, 1991, the newly-elected government of Narasimha Rao and his new team (the minister of finances, Manmohan Singh and the minister of trade, M. Chidambaran?) presented an ultra-liberal programme whose aims are to foster the redeployment of Indian capital while attempting to lure foreign capital:
• The limits imposed on the participation of foreign capital in joint ventures went from 40% to 51%, with authorizations up to 100%;
• The rupee was devalued by 25% and many subsidies eliminated. For example the cost of chemical fertilizers, whose prices had not changed for 10 years, increased by 30% as a result of the cuts in subsidies;
• The planned reduction of the budgetary deficit from 8.5% to 6.5%, as demanded
• The planned privatization of public enterprises and nationalized banks, with a plan to restrict the scope of the public sector to arms, ammunition, atomic energy, railways and various mining activities;
• The scrapping of the anti-monopoly
• The scrapping of the Licensing Raj (through which investments were previously
The February 1992 budget confirmed this orientation. In 1989 the dollar fetched 14.48 rupees; in February 1992 it fetched 26 and 33 today in March 1993. The idea was to make the rupee freely convertible, to liberalize the gold trade, to reduce the rate of personal taxes and to reduce import duties. "It is no longer a crime to make money," rang the triumphant declaration of a Batliboi & Company executive in March 1992.
Life for India's poor will be even more difficult under a government unanimously considered "pro-rich" and tied to the IMF. Out of 850 million Indians, 420 million live on less than $370 every year. On July 25, 1991, the secretary of state for planning estimated that 40% of the population lived below the poverty line, that is to say a standard of living that did not allow for a diet of 2400 calories per day in the countryside and 2100
The percentage of people employed in agriculture has not changed since the beginning of the century: 64% of the country's inhabitants depend on the soil for their livelihood in spite of the industrialization of the past period. 12.8% of the population depend on industry and 22.7% work in the service 3. M. Chidambaran was implicated in the Bombay stockmarket scandal and resigned in July 1992.
World Trade Centre - the sequel
ON March 12, the financial capital of India, Bombay, was struck by a wave of bombings over a 90-minute period. Targets of the 12 bombs included the Stock
Exchange, the Air India commercial centre and three luxury tourist hotels. Up to
300 were killed and more than 1,000 injured in the blasts.
The Home Affairs Minister S.B. Chavan immediately denounced the attack as an
Internationa/ Viewpoint #244 April 1993 sector. Unemployment figures are difficult to calculate, and they vary from 20 million to
50 million people depending on the source, out of an active population of 300 million in
1989.
The IMF-inspired policy will have severe effects on the rural population of the poor
"international conspiracy" - essentially holding the Pakistani government resand backward areas of the country. "Eighty ponsible. Prime Minister Narasimha Rao made similar insinuations.
percent of Indian villages are more than five
The only "evidence" for these accusations is the precision of the attacks and the miles from the nearest road. During the monclaim that such sophisticated explosive devices are "unavailable" in India. Using soon season, they are cut off for months on similar arguments, others have pointed a finger at the Sri Lankan Tamil Tigers - end. The people that live there are almost who, since the assassination of Prime Minister Rajiv Gandhi in 1991, have becototally cut off from the world. "4 me a favourite scapegoat for India's growing number of ills.
These peasants live at the mercies of usu-
In the aftermath of the destruction of the Ayodhya mosque in December and rous creditors, barely make ends meet, do not again in January, Bombay itself — previously hailed as the showpiece of Indian have enough work and endure an enormous
"modernity" and tolerance — was the scene of some of the worst rioting and larburden of indirect taxes. The developing gely anti-Muslim communal carnage, with the Hindu-majority police forces often recession could have tragic effects for these layers of the population, with inflation and underemployment threatening to ruin an even
As such, it is all too convenient — and highly irresponsible — for the governgreater number than today. Indian economic ment to point the finger at the Muslim state of Pakistan. There are at least as likely "domestic" sources of the terrorist attack - Hindu communalists, Congress development, while generally serving the
Party malcontents linked to the recently deposed Chief Minister of the state of interests of the national bourgeoisie, has not
Maharashtra (of which Bombay is the capital city), a fringe of Kashmiri separabeen able to fill the deficit in the very kinds tists funded by non-Pakistani Islamic fundamentalists, or perhaps even agents of industrial employment that could have lessened the reigning misery in the countryside.
However, a class of peasant capitalists
In any case, the Congress) leadership is attempting to turn this new crisis to its developed during the "Green Revolution" of advantage, using it as a pretext to tighten its hold over the party and the coun the 1960s, which made the country self-suffitry, increase its bellicose stance towards its Muslim neighbours, and further strengthen its political and economic orientation towards the imperialist concient in the production of food grains. This tries — with whom it has concluded a number of pacts to fight "international terclass of capitalist farmers reaps substantial profits which are not taxed. It handsomely profited from the indebtedness of the country
In the wake of the December-January communal violence, the Congress Party and certainly has no intention of bearing the received blessings from a host of visiting Western leaders - including German burden of repayment. These "kulaks" (as
Chancellor Kohl, British Prime Minister Major and Spanish Prime Minister Gonthey are known in India) are influential zalez. Russian President Yeltsin also put in an appearance.
enough to have obtained, in June 1990, the
Their purpose was to make a public show of support for whatever course of total cancellation of all farmers' debts to action the Congress takes to "stabilize" the political situation, and to encourage banks up to 10,000 rupees. This measure cost and reap the spoils from the government's programme of harsh neo-liberal the V.P. Singh government 140 billion rupees. Small peasants, day labourers and
There were further bomb attacks after the Bombay blasts - notably in Calcutta, tenant farmers do not have access to bank and Jabalpur in central India. No link has been established between the various loans, and therefore did not benefit from the bombings; rather, it seems that various mafia-type criminal outfits and political bosses are taking advantage of the current disarray to settle scores and destabimeasure.
The workers, meanwhile, are more and lize their respective governments. - Raghu Krishnan * more disturbed by the government's neoliberal policy. Manmohan Singh's economic policy has slated a cut of 25% of the workforce over two years in the railways, banks and steel manufacturing.
On June 16, 1992, ten to 15 million workers observed a national general strike. The most combative workers were in the banks
(slated for privatization), insurance companies, the post office, the airlines and railways, steel, coal, as well as in the textile industry and the plantations. Repression was fierce, as is the custom; police carried out thousands of preventive arrests. There were confontations between strikers and members of the BJP, the main opposition party - which, in spite of its periodic chest-thumping, supports the government's economic policy. The union linked to the CongressI), the Indian National
Trade Union Congress (INTUC) — the larleading the charge. of the Indian government itself. rorism".
reforms. gest in the country - was opposed to the strike movement.
The Indian working class is extremely divided. Each political party has its own union. There is a union for each of the CPI, CPM, Janata Dal, BJP, and regionalist parties such as the Dravida Munnetra Kazhagam DMK) in Tamil Nadu and Telugu Desam in Andhra Pradesh. Then there is a veritable constellation of other independent unions.
The Indian working class has been absent from the national political scene since • the big railway strike in May 1974 which was brutally repressed. The Indian bourgeoisie has never tolerated attempts by the working class to break away from its tutelage.
The bourgeoisie is trying to avoid loo king too closely at what may be the eventual consequences of its policy for the Indian state. For the moment, it is savouring the euphoric feeling of having once and for all put the much hated "socialism" behind it.
An article in the July 31, 1992 issue of India Today (a fortnightly newsmagazine oriented towards the business community) is entitled "Walking the tightrope". In a round-up of discussions at the Paris Club, we learn that the aid consortium promised $7.2bn and that the IMF committed itself to $1.6bn, the balance of which was delivered in 1991. Of the $7.2bn, only $1.8bn were paid in 1992 and the rest were to be delivered based on subsequent negotiations.
4. W.A. Lewis, Développement économique et planification, Petite Bibliothèque Payot, 1979.
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International Viewpoint #244 April 1993
Re-payment of the debt, payment of interest and a deficit in the balance of payments forced India to borrow at least $9.8bn in 1992 and about $12bn for each of the next four years. In other words, the IMF is dripfeeding the country.
The pressure exerted on the Indian government by the IMF and the Paris Club is enormous. In June 1992, when the Indian government contacted the IMF to borrow $4bn in order to avoid missing debt repayments, the agency suddenly placed new conditions on its loans: to limit the growth of the money supply to 10.5% in 1992 (it had grown by 19.5% in the previous year); reduce inflation to 8% (it had been 13%); and reduce the budgetary deficit to 5% of the Gross Domestic Product (GDP) - conditions which were quickly accepted.
Foreign investors aren't exactly breaking down doors to get into India. The American agency Standard and Poor's put India in the category of countries "in a very vulnerable position, with too heavy a burden of foreign debt, whose repayment is impeded by an enormous budgetary deficit, high inflation and a low level of development."
gn investment than it does with actual fact.
The budgetary proposals for 1993-1994, announced on February 27 by the minister of finance, confirm that the government will hold on in spite of the deleterious political situation in the country. On March 1, the rupee was made fully convertible and customs duties were lowered to stimulate exports. Unfortunately, all the structural measures put in place in the past few years have not produced the predicted miracles and the level of exports remains dramatically low for a country desperately seeking hard currency to balance its accounts. This insistence on pursuing a policy of liberalization in a context marked by recession in the imperialist countries will inevitably result in the deepening of the recession in India.
The government has announced measures aimed at reassuring the middle classes. Aside from the fact that this is profoundly unjust in a country where half the population lives in conditions of extreme misery, these measures will only deepen the budgetary deficit. Inflation is far from under control and the growth of the money supply is still far above the rate promised to the IMF (16% instead of 10.4%).
At the same time, the production of food grains has decreased since growers have been forced to plant more remunerative crops as a consequence of the withdrawal of state support. The lowering of investment in the agricultural sector combined with the free access to imports threatens the self-sufficiency in food achieved at great expense in the 1960s and 70s.
Industry, meanwhile, has just begun restructuring, but already it is clear that many jobs are threatened. Many sectors are not competitive on the world market and management is demanding the widening of their freedom to fire workers. Two years after the decisive adoption of the neo-liberal agenda in India, the social, economic and political prospects for the great majority of the population appear very bleak indeed. *