M Aseem //
“What is the robbing of a bank compared to the founding of one?”, asked Bertolt Brecht. But there are many different ways of robbing a bank. Recommendation by an RBI Internal Working Group to allow industrial houses and NBFCs owned by such houses to promote banks is one of these many ways. This has for long been a complete ‘no go’ for RBI and majority of bourgeois economists and financial analysts have been advising against it. However, there are many reasons why Indian bourgeosie might opt for it now. Besides there are some more economic developments worth note.
One is the Regional Comprehensive Economic Partnership (RCEP) Treaty integrating manufacturing supply chains of 15 participating nations which went ahead recently for signing the same without waiting for India to join. China is the key player in RCEP but Japan and Australia also joined the very day they joined much hyped Quad Naval exercises with India and US called Operartion Malabar off Kerala coast, though Indian government and media has for long been tom-tomming an Economic agreement with them to integrate Supply Chains of the three countries as well as a military-political alliance named Quad (also includes US), both ostensibily to challenge aggressive Chinese policy in the Asia-Pacific region. There has been much hue and cry and hand wringing in Indian capitalist class over this as it finds itself neither able to join RCEP out of the fear of being overwhelmed by cheaper chinese imports nor can reconcile to being left out of this big and crucial trade block as that will not only block part of its exports but will also increase cost of constant capital for Indian producers thus further debilitating their ability to compete in global markets.
Gross Domestic Product (GDP) statistics for the quarter ending September 2020 were also published on 27th November. The GDP in this quarter has shrunk 7.5% compared to September 2019 quarter. However, the bourgeois financial press has gone quite gaga over this treating it as if the GDP has expanded by this rate. The real reason is that Indian industry suffering for quite long time with falling rate of profit has seen a large profit increase despite lower production and sales (per CMIE data sales of tracked declined by 9.7% but profits increased by 17.8%) as they cut number of workers, slashed wages and increased working hours not only on industrial sites but, quite significantly, also for those working from home in socalled digital economy.
The long running RCEP saga demonstrates the deep crisis of Indian capitalism which has had high ambitions of becoming a global economic & military super power able to sit on the same table as the big imperialist countries but has severe and debilitating competitive weaknesses because of its historical practices (‘Bag a concession from the state, inflate costs, pay bribes, get financing from dominant state-run banks, fleece consumers, siphon off funds into private accounts in Singapore or Switzerland. This, with some variation, was the business model.’) It tried to get rid off these practices to some extent during the liberalisation period starting in 1980s and had been claiming much success as its share in world trade had shown an increasing trend in the intial decades of these economic ‘reforms’. However it lost its way again after the 2008 financial crisis and has again resorted to growth based on political connections, patronage, public sector bank loans, siphoning off money, astronomically priced government contracts, high profits based on protectionist tariffs, loot of public natural resources, robbery in the name Public Private Partnerships (PPP), etc. The strong rupee policy adopted by Modi government post 2014 has further cheapened imports. The megalomaniac policies of Modi like demonetisation, GST and now lockdown have created havoc with aggregate demand in Indian economy resultig in less than optimum level of capacity utilisation leading to higher costs of production making Indian products uncompetitive in international market. That is the reason exports have been weak now for several years.
Indian capitalist economy has now become so much uncompetitive that it is now turning against globalisation. In a recent ‘keynote’ speech External Affairs Minister S Jayshankar has said that Globalisation based growth is not good for India and it has paid for this economic growth by ‘deindustrialization’ and trade agreements have created ‘employment challenge’ as India has become ‘over reliant on imports’. This view seems to have been reinforced by the recent statistics that Industry share in Indian GDP hit 20 year low in 2019 and India now has one of the smallest industrial sectors at 27.5%. There seems to be a class wide agreement on this as opposition bourgeois Congress, Social Democrats like CPI, CPM, socalled social justice parties like SP, JDU, RJD, DMK/AIADMK, BJD, TDP, etc and right wing BJP/RSS/SJM all seem to be in apparent agreement on this anti-trade policy in the name of protecting small industries, farmers, agrobased industries like dairy, etc. They all welcomed Modi’s decision to withdraw from RCEP after Rahul Gandhi had opposed it.
Same trend is reflected in the likely option to permit big industrial houses to promote and own banks. Indian capitalists class had opted to nationalise much of the banking and financial sector in many tranches starting right after independence in 1947 and continued this policy upto 1980 when 8 more private banks were put in goevrnmnet ownership. The reason was that saving public did not have much confidence in privately owned banks at that time as they failed quite regularly. Hence precious metals gold, silver, etc and hoarding of currency were the preferable options for savings. But the capital starved Indian capitalist class required financialisation of savings which became possible with public owmership as savers felt more confidence in these due to implicit governemtn guarantee for their money. This benefited private industrialists as they were not only able to obtain much loan capital but were also able to siphon off a part of these loans without much consequences as governemnt would, from time to time, replenish the unpaid capital, i.e., NPAs, from the budget.
However, after the 1980s as the Indian capitalists have accumulated huge capital and are also able to obtain capital directly from the capital markets without the intermediation of public sector banks their dependence on them has gradually reduced and clamour has been growing for their privatisation. Still, they have been till now of much use to many capitalists for cheap loan capital and swindling of funds. But after the recent crisis government itself finds itself in such dire financial straits that it is no longer able to replenish their capital. Thus many of these banks have now started to lose their utlity for the Indian bourgeoisie and their number has been reduced through a series of mergers and they are gradually becoming smaller players in new business compared to private banks. However, their large networks and highly valuable strategic real estate owned by them is of much attraction to private capital similar to what has been seen in case of other public sector enterprises. Hence we might see these now being allowed to be transferred to the private ownership as Ambanis, Tatas, etc now so wish. This suspicion has also gained strength as the RBI IWG also recommended conversion of a Payment Bank to Commercial Bank in 3 years. and all know that Mukesh Ambani has a payment bank licence, and this bank also has an alliance with the largest Indian bank SBI.
Even from the established bourgeois economic point of view this proposal has generated much opposition even from ex RBI governors and Modi government’s own erstwhile Economic and financial advisors. The debate is not about bank assets but is about liabilities. A bank takes public deposits and as has been seen, even privately owned scheduled banks are not allowed to fail. They get bailed out. “Given the high failure rate observed in large conglomerates in India, we believe this would add to financial stability risk.” says well known analyst Ashish Gupta. Ratings agency S&P also sounded alarm bells. “We are sceptical of allowing corporate ownership in banks given India’s weak corporate governance amid large corporate defaults over the past few years,” wrote S&P Director Geeta Chugh. She argued that in addition, any weakness in the corporate sector will have a contagion impact on the financial sector. In a blog along with former RBI DG Viral Acharya, Raghuram Rajan has argued, “Industrial houses can get financing easily if they have an in-house bank” and the “History of such connected lending has invariably been disastrous.” This probably refers to Southeast Asian countries like Indonesia where a long period of corporates in banking created losses equal to a third of the country’s GDP.
Rajan and Acharya point to other negative ramifications for the entire political economy: Corporates in banking will further exacerbate concentration of economic power in certain biz houses. Highly indebted, politically connected business houses will have the greatest incentive and ability to push for licenses,” they argued, adding, “The move will increase importance of money power yet more in our politics.” This development portends the further concentration of economic power in India, gives scope for non-transparent structures, and poses a potential threat to financial stability. Even under the existing financial regime, the RBI was unable to detect at an early stage the connected lending which felled large regulated financial entities like IL&FS, Yes Bank (Rana Kapoor and his entities held 10.6% as on end September 2018), Punjab and Maharashtra Co-operative Bank and DHFL (promoter holding 39%). Will it be able to effectively regulate and monitor large, complex industrial houses which are well versed in disguising financial transactions through a vast web of opaque domestic and foreign-based entities?
Many bourgeois analysts have argued that both these recommendations by the IWG raise a significant question mark on the credibility and neutrality of the RBI. Recent developments in the telecommunications and airport infrastructure sectors, and the general preferential treatment meted to top corporate houses, heighten concerns of crony capitalism and the growing and intrusive influence of large corporates in policy formulation. That an IWG of the RBI can boldly recommend a reversal of a 50 year regulatory policy without presenting a detailed argument indicates the intention of top bosses. That it first permits Uday Kotak and KMB to remain non-compliant with RBI regulations, then carves out an exception for Kotak, later invites him as a consultant to the IWG, and finally recommends that the policy be changed for everyone else as well, reflects on what is happening at the RBI. Events have demonstrated the erosion of institutions and the unabashed concentration of political and economic power. The recommendations by the RBI’s IWG are to be seen through this lens. Many have said that industrial houses being given banking licenses is like first giving Adani a company to buy, then a bank to borrow money from to pay for it & finally free govt insurance to bail it out when it fails.
This brings us to the question of growing concentration of economic power in the hands of few favoured Oligarchs like Mukesh Ambani, Gautam Adani and a few more, that has been noted by many observers, and has led to their wealth growing by leaps and bounds even during the period of economic downturn. Adani’s wealth increased by $19.4 billion so far in 2020, Ambani’s by $16.9 billions while millions of people are sinking into poverty in India and million others are being pushed into extreme poverty says even the World Bank report on ‘Poverty and shared prosperity 2020’. It is being noticed that there seems to be a design in the way these few favoured oligarchs are being facilitated to grow their dominance in whole sectors of the economy, for example, Ambani in Petrochemicals, Telecom, Retail, Entertainment & Media, Payments, etc and Adani in Ports, Airports, Electricity, Coal, Railways, etc. Ambani seems to be going by the ill famous dictum of American tycoon JD Rockfeller who said ‘Own nothing. Control Everything’. He obtains capital from many financial capitalists in return for favours from the powers that be in Delhi. For example, WhatsApp was not allowed to get a licence for Payments business till its owner Facebook invested substantial amount in Reliance. Once that was done, it was not only given a licence to enter the business but new rules were formulated to give it a strong push by limiting business share of existing players like Google Pay, PayTm and PhonePe (Walmart) to maximum 30% of the total market.
I rest my case by quoting at some length from a highly circulated and commented upon recent piece by Andy Mukherjee, an avowedly anti-communist analyst writing for one of the biggest capitalist media houses Bloomberg, who accepts his support to the Gujarat Model of Strong muscular leader in 2014.
“The structural demand deficiency, as Rathin Roy, an economist at the London-based Overseas Development Institute, describes it, was a problem even before Modi’s Covid lockdown in March left millions of scared migrant workers without jobs, shelter or food. Their long, lonely journeys to the safety of their village homes revealed the shaky legs of India’s urban growth story. Workers will eventually return. But getting back to pre-Covid levels will only pull 40% of a billion people of working age into the labor force, Mahesh Vyas at the Centre for Monitoring Indian Economy says. At least 10 million jobs are needed annually — matching China’s rate between 1990 and 2014 — to raise the participation rate toward the world average of 66%. But the post-pandemic developed world will nurse a massive unemployment hangover. The “End of History” ebullience that greeted my generation of Indians in the early ’90s is unlikely to repeat.
But there are questions: One, how will supply-side reforms fill the demand gap? Two, when will the broken financial system be made whole? Finally, will the narrow elite running India by proxy agree to compete fairly, or will it simply hijack the direction and pace of reforms for its own advantage, leaving a majority of people behind? Modi’s government adopted a bankruptcy code in 2016 and bandied it as a weapon against crony capitalism. But after the domestic business class lobbied hard against losing prized assets, the insolvency reform lost its sting. Once the Covid-19 disruption began, the bankruptcy tribunal closed its doors to new cases. Out-of-court restructurings are a mess. A resource-starved country is unable to free the capital trapped in dying firms.
Resuscitating society’s trust is more crucial now because New Delhi can’t put itself back in the driver’s seat. The pandemic has sapped the little fiscal strength it had. But trust requires honesty.
Indians are surrounded by social media spin and empty slogans like “$5 trillion economy by 2024” — from $2.7 trillion before Covid. How exactly will this miracle happen? When Toyota Motor Corp. recently said it was halting expansion because high taxation is suppressing demand, ministers rushed to do damage control by calling it fake news. To acknowledge and fix shortcomings in the 2017 goods and services tax — the five-rate GST is a compliance nightmare — is to doubt Modi’s acumen.
Independent voices that could challenge the official narrative are being muffled; institutions that could force the executive branch to right its wrongs have been defanged. All this runs contrary to our hopes that our media, judiciary, regulators, professional bodies and civil society groups would get stronger over time.
India’s central bank has seen off two governors in the last four years after unsuccessful attempts to force bankers and their politically connected borrowers to clean up their acts. Electoral financing is now via anonymous bearer bonds, with no checks on the source. Recent judgments of the top court, as well as its dithering on important constitutional issues, have invited criticism that its approach is “more executive-like than the executive itself.” In the absence of institutional protection — not even of habeas corpus — trying to engage with the state has become a crime. Protesting peacefully, demanding rights, exposing wrongdoing by powerful people, criticizing policies have all become risky ventures.
Call it buyers’ remorse. Those of us who thought that muscular leadership would revive India’s dream of mimicking Chinese-style double-digit expansion are not just disappointed. For many of my generation, our long-cherished hope for a better, greater India is all but gone. We wanted to trade some of our democratic chaos for a little bit more growth. We ended up with less of both.”
[Originally published in The Truth: Platform for Radical Voices of The Working Class (Issue 8 / December 2020)]