The prime minister has of late been on the defensive, and yet not quite. Yes, things are bad on the economic front, exports have dipped, the rupee has crashed and foreigners are taking funds out. But it was worse in 1991: at that point of crisis 22 years ago, the country’s foreign exchange holdings had declined to a level worth barely one month’s imports; at the present moment, while no doubt we are in sticky waters, our exchange reserves will see us through at least for six months.
If the prime minister enjoys a sense of personal satisfaction over this, he is welcome to it, though what about the party he belongs to that has made him what he is today? For the person who was primarily responsible for the mess in 1991 belonged to the Congress too; his name was Rajiv Gandhi. On the day he was sworn in to replace his assassinated mother as prime minister, the country had no trade deficit in the current account; we exported roughly the equivalent of 5 per cent of our gross domestic product, imports too stayed in that neighbourhood; even if it was a sluggish economy, there was no foreign exchange crisis. The new prime minister wanted to change all that. He had no time for the philosophy of economic self-reliance and wanted rapid infusion of foreign goods and foreign technology so as to transform India overnight into another United States of America. The outcome was spectacular. In the four years of his prime ministerial tenure, imports jumped from 5 per cent to over 10 per cent of the GDP. Exports, however, were static at the same level of 5 per cent of the GDP. His immediate successors had to face the consequences of that exuberance.
Scoring such debating points are however a waste of time at this juncture. The need is to sit back and do some quiet introspection on the basic issues underlying today’s crisis. The recently installed governor of the Reserve Bank of India is reared in the climate of the Washington Consensus and identifies himself with its tenets. He has taken a number of measures to pep up the stock exchanges. Both shares and the rupee have, as a result, rallied back. The outflow of international institutional capital, so-called, has also stemmed. But there is still no escape from the harsh, hard reality: the share market is not the economy. A substantial proportion of the country’s population can barely afford the wherewithal to survive even at the minimum level of existence; the prospect of a spur in domestic demand to make up for falling exports is therefore near zero. Financial investors are no fools; given the global slowdown of economic growth, they are unlikely to sink funds in a country where the domestic market happens to be so close to stagnancy. Should the stock exchanges show some signs of revival, a lot of footloose capital will rather pull out of the productive sectors and concentrate on speculative activities. Rejuvenation of the share markets might then further depress GDP growth.
Perhaps the country’s finance minister and the relatively green RBI governor are not worried on this score, but the prime minister ought to be. His range of experience is certainly wider. That apart, 22 years ago, he had agreed to be the face of the economic ‘reforms’ that pledged to yank the economy away from one particular historical course and set it out on hitherto uncharted seas. The pre-independence commitment to build a self-sustaining economy, with the public sector at the fore and an overwhelming emphasis on the well-being of hitherto deprived and exploited sections, was abandoned. Open season was declared for big business and foreign capital, all controls, including on external economic accounts, were either relaxed or abolished, protection for the weaker sections was abandoned, free competition was ordained for every sphere. In an unequal society with a horridly skewed assets structure, the free market in no time reduces itself to an unfair market, and what Ratan Tata has euphemistically described as vested interests, corner the opportunities; they also come to exercise de facto control over crucial areas of the nation’s decision-making process. The phenomenon is otherwise known as crony capitalism. The prime minister has much to answer for.
Some of us who kept protesting in 1991 against the onslaught of economic liberalization had, of course, some immediate worries — such as that in the absence of any obvious potential area of export spurt, opening up the system might provide no tangible solution to the external accounts problem. We were equally pessimistic about the entry of foreign capital. Foreign direct investment is kind of a finicky guest: it takes a hard look at the domestic circumstances in the country it is being called upon to get involved in, its overall political climate, the nature of its economic institutions, and, so to say, the general feel. India’s administrative structure, for instance, was littered with too many points of decision-making. On most of these grounds, China scored over us and, in fact, the accretion of FDI in that country has been consistently more than 25 times larger than in India year after year for the past three decades.
In one area India was lucky; the mathematical aptitude of its educated middle class enabled it to break into the global information technology market. Even here, though, the country’s policy-makers were inclined to be myopic. They were enamoured by the relatively easy gains from software exports and shunned the more difficult process of developing a parallel line of hardware. We are now paying the price. We have not quite succeeded in coping with the challenge of fluctuating fortunes in the global outsourcing business. China has, again, performed better because it asked its mathematical brains to concentrate on hardware. Besides, the export boom India enjoyed for a while at the dawn of the new venture was much too dependent on conventional lines, shipping out extracted minerals, agricultural raw materials and relatively low-cost semi-manufacturers. Once the deep recession set in in the West, irrespective of whether it symbolizes the long-term crisis of capitalism or not, it has comprehensively capsized India’s ambitions for runaway export-based growth.
From the very beginning, the overarching issue has been the structural malady. A country with a huge land mass and carrying the burden of an equally huge population, riven by linguistic, ethnic, religious, inter-caste fissures, and flaunting a supposedly ‘free’ and open economy that is perseveres with a multi-party democratic apparatus based on adult suffrage, cannot but live dangerously. The government here does not lead, but follows the signals beamed by private enterprise. The situation does not promote either efficiency or growth. The inherent organic inequalities make a mockery of market perfection and encourage monopolization accompanied by crony capitalism. Monopoly, with its stress on profit maximization, does not promote but restricts growth. It expects and receives special dispensations from the government that are costly to the economy, as so glaringly revealed by the Spectrum, coal allocation and natural gas pricing scandals.
Domestic prices, in consequence, continue to rise, leading to spiralling inflation. Subsidies, both in an effort to sustain exports as well as to quieten restless segments of the inflation-hit electorate, add to pressure on the budget, prices rise further and, the standard vicious cycle sets in. With exports already wobbling, the global recession deals the final blow. A stunted domestic market cannot compensate for the debacle in exports. The colossal crisis notwithstanding, crony capitalism demands more and more freebies. The government yields, prices keep soaring, the multitude of common people at the receiving end of inflation and joblessness are on the war path. Even when some growth had been taking place, employment did not rise because of accelerated technological shifts. Now that growth is defunct, there is total eclipse of employment, zero economic growth and zero job accretion. High prices and the naked display of luxury and power by elements enjoying the patronization of the corporate sector constitute a deadly combination of circumstances. The outcome is not just economic chaos, but worse — large-scale breakdown in civil administration alongside outbursts of fierce, disorganized violence. People’s anger will spew out. It is out, here, there, everywhere, and it can be in any form, linguistic or ethnic or inter-community or inter-caste feud or something else. Are we not fast approaching that state?
This is where, dear prime minister, a summing up is called for. Perhaps one of the worst fallouts of economic liberalization is the enfeeblement of the trade union movement. A protest-and-get-sacked milieu disperses organized labour and dissuades major sections of discontented constituents of the middle and working classes from organized protests. It also disables the political Left. Whatever one’s verdict on the general political line of the Left, it tried to foster a broad national outlook in judging issues and problems. The two major national parties are in cohorts in their objective to strengthen the citadels of the free economy and crony capitalism. They experience no political opposition, the Left is no longer there, and the regional parties mostly think caste is the only issue worth fighting for. Mass discontent will, nonetheless, explode in fury. It explodes at unpredictable spots on this or that ground. The administration, both at the Centre and in the states, is failing to cope with the phenomenon. Often those in the position of authority do not have the courage or the will to cope, since we still display the insignia of a parliamentary democracy; elections have to be fought and won. Awareness is growing fast of a distinct possibility. To form a government in New Delhi following next year’s Lok Sabha polls, you might badly need the help of a regional party currently in power in a state. Therefore, even where there is clinching evidence of purposive dereliction of duty by a state administration, those in charge in New Delhi will keep mum.
Why not say it, the seeds of anarchy were sown in July, 1991; an open, unregulated economy is irreconcilable with our delicate democratic structure; we either re-do our course, or face the prospect of disintegration.