Road map to a failed state

Print edition : June 24, 2016

A woman and a girl scrounge for spilt rice grain at a procurement centre in Chandigarh on October 26, 2015. Not only per capita foodgrain production but also per capita foodgrain absorbtion has shown a decline in the two years of NDA rule. Photo: Akhilesh Kumar

As the Modi government’s hard-nosed neoliberal policies lead the country to a dead end of economic stagnation and more hardships for the people, there is a real danger of an exponential rise in state-promoted intolerance and fascist tendencies.

There is a common view that the Modi government’s economic policy is no different from that of the United Progressive Alliance (UPA) government. Indeed, even a senior Bharatiya Janata Party (BJP) leader has reportedly said that Modi’s policies were “Congress plus a cow”. This perception, however, is inaccurate. No doubt both the UPA and the National Democratic Alliance (NDA) governments pursue broadly the same neoliberal policies, but there is a difference. Since there were divergent views inside the Congress, with a segment around Sonia Gandhi insisting on certain measures of relief for the people even within the overall trajectory of neoliberalism championed by Manmohan Singh and P. Chidambaram, what the UPA actually ended up pursuing was an eclectic neoliberalism, or “neoliberalism with a human face”. The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), the “Right to Food” (which was legislated but never got implemented because the UPA got defeated), the Forest Rights Act, the Right to Information Act, each of which was disliked by the neoliberal segment of the UPA, were all, nonetheless, pursued at the instance of the Sonia Gandhi group, with strong pressure from the Left during the tenure of the UPA I government.

Hard-nosed neoliberalism

Within the BJP or the NDA, however, there are no divergent views, there is only one view held by their supreme leader. Instead of an eclectic neoliberalism we have a hard-nosed neoliberalism, a neoliberalism that shuns the human face. The running down of the MGNREGS, the non-implementation of the “Right to Food” legislation, the repeated promulgation of the land acquisition ordinance (demanded by the corporate-financial oligarchy but not translatable into law because of the NDA’s lack of numbers in the Rajya Sabha), the insistence upon the Goods and Services Tax (GST) which, again, is demanded by the corporate lobby but which would completely take away the State governments’ freedom to decide on tax rates and hence subvert the federal nature of our polity, are all instances of this hard-nosed neoliberalism.

On each one of these, no doubt, there would be very little difference between what Modi-Jaitley want and what Manmohan-Chidambaram had wanted, but Manmohan-Chidambaram did not always have their way. They had to compromise; Modi does not. What he and Jaitley are pursuing, therefore, is what I have called a hard-nosed neoliberalism.

The question of whether Modi subscribes to such unadulterated neoliberalism, or indeed what his theoretical beliefs are, if he has any, is beside the point. Towards the end of the tenure of the UPA II government, as the Indian economy started slowing down under the impact of the world capitalist crisis, the corporate-financial oligarchy succeeded in propagating the view that it was not neoliberalism itself (which had hitched the Indian economy to the vicissitudes of world capitalism) but rather the “human face” put upon it that was to blame. The Manmohan Singh government was portrayed to be “weak”, inter alia because it had succumbed to this “populism” (associated with putting a “human face” on neoliberalism) instead of being “decisive” on “development”, that is, pursuing hard-nosed neoliberalism. Hard-nosed neoliberalism was presented as the panacea for the crisis which the UPA government’s “populism” had allegedly brought about.

Modi in his quest for power bought into this idea and projected it, for which he obtained massive corporate backing, and finance, during his election campaign. This backing, together with the Rashtriya Swayamsewak Sangh spadework and the Muzaffarnagar riots, won the election for the NDA; and the corporate-communal alliance that had thus come into being interpreted the election victory as a mandate as much for hard-nosed neoliberalism as for Hindutva “nationalism”, which is but a euphemism for communal-fascism.

Corporate-communal alliance

In fact, hard-nosed neoliberalism and Hindutva “nationalism” complement one another and constitute the ideological brew of the corporate-communal alliance. If hard-nosed neoliberalism is presumed to be essential for “development”, and if any provision of relief for the poor constitutes “populism” that is inimical to “development”, then it follows that anyone who opposes wooing international capital, which is an essential component of neoliberalism, and demands decent wages and work conditions or transfers to the poor, is, ipso facto, “anti-national”: such a person is holding up the “nation’s development”. A metaphysical “nationalism” that sees the “nation” as being entirely distinct from and placed above the people is, thus, as much pro-corporate as it is pro-Hindutva: not only, ironically, does such “nationalism” kow-tow to the metropolitan corporations and banks, but its very emptiness implies that it can be filled in by Hindutva shibboleths. Anything, from observing karva chouth to lynching beef-eaters and those celebrating Mahishasur, can be construed as an act of “nationalism”, and its opponents denounced as “anti-national”.

Not surprisingly, the last two years have seen substantial social retrogression, marked by an upsurge of casteism and communalism, together with a pursuit of hard-nosed neoliberalism. The “Make in India” campaign, whose basic thrust is to entice international capital to locate plants on Indian soil for meeting global demand, is the logical denouement of such a hard-nosed neoliberalism. But the irony is that the Modi government is pursuing a hard-nosed neoliberalism at a time when neoliberalism itself has reached the end of its tether.

The world capitalist crisis that began in 2007-08 is not just persisting but getting accentuated: it has now spread to countries like China and India that earlier appeared immune to it. Not only is there no initiative to end it, by way, for instance, of a coordinated fiscal stimulus among several advanced countries, but countries are currently vying with one another to effect exchange rate depreciations vis-a-vis the United States dollar, while the U.S. itself is resorting increasingly to protectionism. We have, in other words, a spate of “beggar-my-neighbour” policies, with each country making a futile bid to capture a larger share of a stagnant world market. In the absence of a new “bubble” getting formed (of which there is no sign), the crisis will persist, unless fiscal activism on the part of the state gets restored. But this will require the imposition of capital controls and a degree of protectionism, which mean a retreat from the neoliberal regime.

Capitalist crisis

Within the neoliberal framework itself there is, thus, little prospect of a recovery from crisis, a fact by now so well recognised that even conservative economists like Lawrence Summers are propagating a “stagnationist thesis” (and ironically claiming originality for it notwithstanding the fact that the Left has been advancing it for quite some time). With the world economy mired in stagnation and crisis, and with neoliberal capitalism at a dead end, Modi’s hard-nosed neoliberalism is bound to come a cropper. In the current situation, where the inducement to invest is low everywhere, the Make in India campaign, quite apart from being objectionable per se for kow-towing to foreign corporates, will not even generate much investment. With the consequent persistence of stagnation, the people who, even during the boom years of 2004-12 had witnessed an increase in deprivation (on this more later), will be hit still harder. This is because if a boom brings suffering, then its reversal, far from reversing the suffering, only accentuates it further.

Assiduous efforts will be made, no doubt, to project an image of the Indian economy as one that is in good health. Indeed the claim about India being the “fastest growing economy of the world in 2015-16” is one such effort. This claim means little: the conceptual and statistical problems associated with the GDP (gross domestic product) estimates are well known; and the recently revised GDP estimates on the basis of which such claims are made have drawn flak even from government economists. To get a better picture of what is happening, let us just consider a few undeniable facts.

Foodgrain production in million tonnes over the last four years, starting with 2012-13, has been as follows: 257.1, 265.0, 252.0 and 253.2. Since the per capita foodgrain output for the peak year 2013-14 was more or less the same as that for 1990-91 (215 kilogrammes compared with 212), given the low level of foodgrain output in the two Modi years, there has clearly been a sharp fall in per capita foodgrain output in these two years compared with even 1990-91.

Dubious growth

The rate of growth in the Index of Industrial Production over the last four years has been: 1.1 per cent, -0.1 per cent, 2.8 per cent and 2.4 per cent respectively. Clearly, the industrial stagnation that set in towards the end of the UPA II government’s tenure persists even today. It follows, therefore, that the main material production sectors, agriculture and industry, witnessed no noticeable absolute increase in output in the Modi years compared with before (agriculture, especially foodgrains, even witnessed an actual decline during the Modi years). Thus, the hype over “the highest growth rate in the world” is hardly justified. Such growth as has occurred has been mainly in the service sector, and that is growth of a very dubious kind. The decline in foodgrain absorption has been even sharper than in output. Even though we have seen that per capita foodgrain output in recent peak years was more or less similar to the early 1990s, per capita absorption even in such peak years has been distinctly lower. Consider the proportion of the population below the calorie “norms” of 2,200 per person per day in rural areas and 2,100 per person per day in urban areas (which are the official benchmarks for defining poverty). Compared with 1993-94, when the percentage of the rural population whose total spending on all goods and services was not enough to ensure that the food spending part gave 2,200 calories per person per day, was 58.5, the percentage in 2011-12, which was a peak output year, was 68 (both these were years when the National Sample Survey Office conducted large sample surveys). The percentages of the urban population not able to spend enough to obtain 2,100 calories per person per day were 57 and 65 respectively in those two years. Since these figures relate to a peak year, 2011-12, and since the two Modi years have witnessed lower output than 2011-12, the nutritional deprivation in these two years must have been even greater. In short, the growing nutritional poverty of the neoliberal period as a whole (which has made India worse off nutritionally than sub-Saharan Africa or the Least Developed Countries), far from abating, has got accentuated during the two Modi years.

Abysmal export performance

The world capitalist crisis has left its impact, though it is not the only factor, on the abysmal performance of India’s exports. For 17 consecutive months until April 2016, the latest month for which we have data, the growth of merchandise exports in dollar terms in each month over its level a year ago has been negative. For the fiscal year 2015-16, the decline in dollar value of exports compared with the previous fiscal year has been as large as 15.85 per cent. Such a sharp decline in exports would normally have caused a serious balance of payments crisis; what has come to the country’s rescue is the fall in oil prices which has also restricted imports in dollar terms.

In fact, but for the decline in oil prices the economy would have been in more dire straits by now: the depreciation of the currency would have been sharper, which, together with the higher dollar price of oil (in the absence of such a decline), would have greatly accelerated the rate of inflation through cost-push effects. And to balance the payments, in addition to the exchange rate depreciation, interest rate would have had to be raised to attract adequate foreign finance, which would have restricted the domestic level of activity even further. The fact that these have not happened is because of the low oil prices which have prevented Modi’s two years from becoming even more abysmal in economic terms than they have been.

Oil prices, of course, can rise even in the absence of any recovery in the world economy, since all that such a rise requires is an agreement among oil producers to curtail output. And, in all likelihood, oil prices will rise in the coming months as efforts at a truce among warring oil producers seem to be heading for greater success. In such a case, the impact of an oil price rise on the Indian economy will get superimposed upon that of the world stagnation. Hard-nosed neoliberalism of the Modi variety, which has already seen two years of aggravated nutritional deprivation along with industrial stagnation, thus promises even greater hardships in the coming days.

It may be thought that even if there is no international or local “bubble” in asset prices, and no loosening of the so-called “fiscal responsibility” demanded by neoliberalism, the level of activity can still be stimulated in the Indian economy by the government directing nationalised banks to provide credit for increasing private investment, especially in infrastructure. The fact of having nationalised banks, in short, allows the government to mimic a “bubble” through directives to such banks. Something of this sort has indeed been happening in the economy, which has mitigated to an extent the impact of the world crisis; but a consequence of it has been the growing vulnerability of the nationalised banks (the relative size of the so-called “stressed assets” in their portfolio), which, ironically, is being made an excuse for further privatising them. Clearly, the scope for further stimulating the economy through such means is limited.

Ways to counter stagnation

Since monetary policy cannot help (there is an asymmetry here as a rise in interest rate can restrict activity while a reduction in it will not stimulate activity because of the way expectations operate in a crisis), there is no alternative to the use of the fiscal instrument if a government is serious about countering stagnation. And here, the main form of stimulation will have to be through enlarging mass consumption via government welfare expenditures, social expenditures and transfers to the poor. (Stimulation through raising public investment that is not geared towards people’s needs will only lead to a piling up of idle capacity.) But such an increase in mass consumption through transfers and social expenditure not only runs contrary to neoliberalism, since it requires, inter alia, some capital and trade controls, but is also against the predilections of the Modi government. The Modi government threatens, therefore, to push people into greater hardships.

There is a contrast here between the classical fascism of the 1930s and our own brand of communal-fascism which needs to be noted. Classical fascism, because of its rearmament drive for pursuing annexations, actually got the economies under its control out of the Great Depression. Japan was the first country to come out of the Depression through larger government military expenditure (a “military Keynesianism” even before Keynes himself had tumbled to Keynesianism), followed shortly by Nazi Germany. But our brand of communal-fascism, committed as it is to a hard-nosed neoliberalism, lacks any such ability. Countries like India, therefore, are likely to experience a simultaneous persistence of economic crisis and communal-fascism.

Dangers ahead

But this only means that communal-fascism would use, to an even greater degree than until now, other instruments to get “popular” support. As the promise of achhe din recedes to the background, the “need” for “tolerating” communal riots engineered by the Hindutva fringe, for suppressing dissent and drumming up jingoism through tom-tomming a kitsch “nationalism”, and for creating hysteria by locating “anti-nationals” under the beds everywhere, will only increase. This, apart from being dangerous in itself, can only portend the emergence and strengthening of other, rival, communal-fascisms. And if this happens, then India will be well on its way to joining the burgeoning ranks of the so-called “failed states” of the Third World.

Escaping such a fate requires a state that must directly intervene to bring about an immediate improvement in the living conditions of the large masses of the working people by not just eschewing hard-nosed neoliberalism but going beyond the framework of neoliberalism altogether.

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