Policy of neglect

Migrant labourers in search of work in New Delhi.-RAMESH SHARMA

NOW that the economic slowdown is truly upon us, and the government is no longer in complete denial about the vulnerability of the economy, the discussion is dominated by the possible effectiveness of the policy measures that have been announced to deal with it. But this depends upon two different features: first, what has caused the recession in the first place; and second, how it will affect different economic agents.

By both counts, the measures announced so far appear to be lacking. On the first count, there is an official presumption that this is simply an imported crisis. And there is an associated blindness to important lessons about the regulation of finance that are coming from the developed world. Unlike possibly any other government in the world today, the Indian government is going in for more financial liberalisation, even when the results of such deregulation, in terms of creating unsustainable bubbles and spawning major crises, are there for all to see.

While this may provide some immediate relief by propping up the rupee and stopping the bleeding of foreign exchange reserves, it will create the conditions for a much worse country-specific financial crisis in the near future.

On the second count, the policy response thus far seems to have ignored most of the people who are likely to be badly affected, in favour of a few who happen to be more well connected. This particular economic crisis, because it has both financial and real economic aspects, is going to affect different people very differently. The financial sector is clearly hit. Stock market investors have lost (at least nominally) huge amounts, and the credit crunch has adversely affected both large corporates and smaller businesses.

This, inevitably, has knock-on effects on the real sector, adding reduced domestic demand to the problem of depressed export markets. This affects real economic activity, in both tradeables and non-tradeables, and translates directly into employment losses.

Most of the governments measures are designed to ease the credit crunch and revive the stock market and investor confidence by lowering interest rates, by propping up the banking system through promises of fresh capitalisation, by injecting new liquidity through relaxed credit norms. Clearly, all this will not be enough in the current liquidity-trap conditions, but at least it will directly benefit some large banks, corporate houses, builders and export units. The idea is that this will, in turn, benefit those who are employed by such agents and, therefore, prevent job losses that would otherwise occur.

Yet, in all this, the government has ignored two major groups of workers who are already directly hit and who together account for the majority of the workers in the country: farmers and migrant labourers.

Cultivators in India have already been through more than a decade of agrarian crisis, which persisted even through the period of rising international crop prices. They have then been on a complete roller coaster in price terms in the past year, as world trade prices of most crops doubled and then collapsed within a few months and by the end of the year came to settle at levels below those of two years ago.

Many cash crop cultivators, who had begun their sowing operations on the basis of crop prices determined by the relative prices of just a few months ago, now find that their cultivation is simply financially unviable at prevailing input and output prices. With particular regions of the country, including some of the fragile dryland areas, increasingly dominated by such cash crop cultivation (such as cotton, groundnut and soya bean), it is not difficult to imagine what will happen to livelihoods in these cases.

This is a major economic catastrophe that is not just waiting to happen it is already unfolding. So a series of monetary and fiscal packages that do not even mention, let alone address, the inevitable problems of cash crop cultivation, is bizarre, to say the least.

The other major group that has been affected already comprises workers employed on casual contracts, who now find that even their fragile jobs no longer exist. Many of them are migrant workers, often short-term migrants whose very existence tends to be ignored by our official statistics.

The economic boom of the past decade relied heavily on such workers. This was very obviously true in the construction industry. It was also the case in some labour-intensive services, such as cleaning, maintenance, private security and driving and related services, which catered to the requirements of the expanding corporate sector and, in effect, subsidised it by providing a cheap and flexible external labour force. A lot of manufacturing also relied increasingly on informal contract workers, who could be hired and fired at will, especially in sectors such as garments, leather goods, gems and jewellery and metal products where exports have been seriously hit by the world recession.

Many of these workers have already been laid off and many more will now indeed be fired, or at any rate lose their jobs at least temporarily. And so they will be forced either to stay in precarious conditions in the urban areas or go back to their places of origin villages or smaller towns.

They will change from being providers of remittance-incomes to their households to becoming dependants, even as their households face more fragile material circumstances than before. And so the negative multiplier effects will permeate geographically.

The potential for social and political upheaval caused by such economic changes should not be underestimated. The heat will be felt by State governments, which (despite the paltry provision of more borrowing facility announced recently) will also be reeling under the pressure of coping with reduced tax revenues and increased salary expenditure because of the recent Pay Commission award. State governments will not be in a position to deal with the consequences unless explicit provision is made by the Centre for them to cope with these new and adverse circumstances.

This has significant implications because many of these migrant workers, for obvious reasons, come from the most depressed and backward regions of the country, where there is little potential currently for productive income generation. These are often also the regions of dry land agriculture, where remittance incomes are essential for sheer survival. They are also no surprise! the regions where extremist Maoist activity is widely prevalent, because of the anger bred by persistent backwardness and rising inequalities.

So the economic geography of this unfolding crisis is likely to have a huge political fallout. In an electoral democracy, the government or at least the political parties that know they have to face the people in a general election in just a few months might be expected to take note of these negative effects on the majority of voters.

It is both extraordinary and alarming to realise that thus far nothing in the policy pronouncements suggests that the welfare of such people cultivators and migrant workers is at all a consideration for the Central government. Their future is being sacrificed because our rulers seem unable to stop paying homage to a different type of mobility at the altar of international finance capital, however discredited this might be in the present global situation.