A hail of neoliberal bullets

Published : Mar 18, 2000 00:00 IST

THERE has been much post-Budget comment in the media about Finance Minister Yashwant Sinha's pre-Budget remarks on the need to bite the bullet given the harsh fiscal realities. A view being strenuously put forward, in an attempt to manufacture consent f or the Union Budget 2000-2001, is that no bullets have been bitten. This perception may not be far off the mark as far as the large domestic private corporate sector and the rural rich are concerned. As far as foreign capital is concerned, the Union Budg et is ample cause for celebration, with several budgetary measures undertaken explicitly and exclusively for their benefit. However, as far as all other social classes are concerned, Sinha's Budget constitutes not an exercise in biting the bullet, but in fact a hail of neoliberal bullets that is bound to cause grievous injury. Going beyond social classes, the Budget also has serious negative implications for the country in terms of economic sovereignty and political democracy.

Consider the key measures of resource mobilisation. An increase in excise duties that will yield Rs.3,252 crores in additional revenue in a full year, accompanied by a decrease in customs duties that will cause a revenue loss of Rs.1,428 crores, constitu tes a double blow against the domestic economy. It directly contributes to de-industrialisation by making domestic output more expensive and imports cheaper. The reduction in customs duties also worsens the fiscal situation. Another measure, warmly welco med by speculative foreign finance capital, is the enhancement of the limit on foreign institutional investors' holdings in any company from 30 to 40 per cent.

An important step that, in the long run, will enable the dominance of foreign capital in our economy is the decision, announced in last year's Budget speech, to reduce the government's share of equity in the so-called non-strategic sector enterprises to 26 per cent. In this year's Budget speech, the Finance Minister has reiterated this stand, even while making the untenable claim that in thus reducing government's share of equity to 26 per cent, "the interests of the workers will be fully protected". Si nha's statement that "the entire receipt from disinvestment and privatisation will be used for meeting expenditure in social sectors, restructuring of PSUs and retiring public debt" should be recognised for the complete non sequitur that it is.

The Budget has proposed measures that will render the economy even more vulnerable to speculative flows of international finance than it currently is. These measures include more liberalised terms for investment of capital abroad by Indian investors, inc entives for so-called venture capital and the reduction of government equity in public sector banks to 33 per cent, leaving plenty of room for a takeover of these banks by foreign capital. Along with the proposal to privatise public sector banks (which i s exactly what the proposal implies, notwithstanding the Finance Minister's incomprehensible protestation that the banks would still remain in the public sector), there is the proposal to "accord greater operational flexibility to the RBI for conduct of monetary policy and regulation of the financial system".

The entire gamut of measures announced in the Budget favouring further liberalisation of India's financial sector and its integration with global finance capital imply not only enhancement of India's economic vulnerability and a weakening of its economic sovereignty. They also imply a serious abridgement of political democracy, inasmuch as erstwhile public sector institutions such as banks and industrial enterprises cease to be accountable to Parliament. The progressive loss of sovereignty and democracy implicit in the direction and thrust of the Union Budget, which has been mistakenly dismissed as "directionless" by a section of expert and media commentators, also implies a widening of inequalities in respect of both opportunities and living standards , bearing out the fears expressed by the President of India in his Republic Day Address.

The contribution of the Union Budget to widening inequality - a process under way since the economic reforms a la the World Bank-IMF were initiated in 1991, and greatly accelerated during the period that BJP-led coalitions have been in power - is sharply evident in the decision to hike food and fertilizer prices. It has become fashionable to decry any budgetary or other support to the poor as inefficient subsidy, but what is conveniently overlooked is that the largest subsidies in our economy accrue to the corporates - domestic and foreign - and the rural rich. In a deft use of language to justify the subsidies to the rich, these are called "incentives", while support to the poor is condemned as "subsidies". The fertilizer price hike will seriously hu rt poor and middle farmers, raising their cost of production at a time when simultaneously agricultural imports are being liberalised. Further, the resulting rise in product prices will seriously undermine food security. Viewed against the background of declining rate of growth of foodgrains output in the 1990s, the decision to raise fertilizer prices and hike issue prices of foodgrains is nothing short of disastrous.

Taken together with the rise in unemployment that will result from the lowering of import duties and the further opening up of the economy, as well as the inflationary impact of hikes in excise duties, these measures constitute a systematic attack on the livelihoods of working people. But the matter does not end here. One must also reckon with the fact that the Budget leaves a fiscal deficit, estimated optimistically by the Finance Minister at 5.1 per cent of GDP. Last year's Budget estimate of fiscal d eficit at 4 per cent of GDP has been proved way off target, with the revised estimate putting it at 5.6 per cent. This year, too, a credit of Rs.10,000 crores on account of disinvestment in Public Sector Units (as against a realisation of Rs.2,600 crores last year) has been taken; this is most unlikely to be realised unless PSU shares are offloaded at ridiculously low prices. The projected revenue increases are based on optimistic assumptions of a GDP growth rate of 7 per cent, which even captains of in dustry consider unrealistic. One is led to conclude that the estimates in this year's Budget will fare even worse than last year's with resultant inflationary consequences.

As for expenditures, two items stand out. Interest payments exceeded Rs.1,00,000 crores for the first time last year, a 'first' for which Sinha was not keen to take credit. Defence expenditure - by no means the best indicator or guarantor of the nation' s security - is set to rise by a big margin. These two items signal the essential character of the Budget and its underlying strategy: tax the poor, spare the rich, borrow from the rich, and pay them high real interest rates; adopt a bellicose attitude in relations with neighbours, with a touching belief in the efficacy of the nuclear bomb, and raise the defence budget; and finally, use communal ideology to promote jingoism and divide people on communal lines. In the resulting confusion, the neoliberal agenda can be pushed through without much debate.

Unfortunately, with the major Opposition party supporting neoliberal reforms uncritically, the strategy may work. If it does, the nation and the people will be the losers.

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