All big financial and industrial capitalists, their paid ‘experts’ and controlled media are elated and overjoyed by the budget for FY22 and the stock market immediately jumped nearly 2500 points and is going up since then. On the other hand, vast majority of the people – workers, farmers, small traders, small and tiny enterprises, middle class salaried people, small professionals, etc all find themselves cheated and disappointed. There is now a veritable sense among the people that the government is working for the interests of only big moneybags and for some favoured corporate houses. This sense has come about because many still had hopes, against all reason and prior experience, that the government would have some care for their suffering, give at least some relief to them in view of the pain and misery of Covid lockdown following in the wake of the sufferings from a long protracted economic slowdown. But all those hopes have now been dashed.
Despite all the contrary evidence and experiences of last 7 years, many well-intentioned people are still surprised that Modi government, instead of offering some concessions and relief to farmers, workers, and other suffering sections of the people due to its anti-people neoliberal policies, is hellbent on unleashing more and more of such devastating policies. Although Modi’s psychopathic megalomania of being a ‘Strong’ and charismatic leader is responsible to some extent for the way he announces and implements the series of disastrous policies one after the other from Demonetisation to Covid Lockdown, there are compelling reasons in current Indian political economy, which forces him not to backout from these measures despite massive resentment being generated. We need to understand that compulsion before we review the budget.
Business Standard reported the following on 31st January, a day prior to this budget, “India Inc’s profit contribution to the country’s gross domestic product (GDP) fell to 1.8 per cent in 2019-20 (FY20) — the lowest reading since at least 1999-2000. At its peak in FY08, the contribution stood at 7.8 per cent. Since then, it has been on a downward slope. Corporate earnings growth has largely remained stagnant in the last five years. India’s corporate profit-to-GDP ratio is among the lowest in the world.” What does it mean?
It means Indian capitalist economy is in the throes of a mortal crisis leading to certain political and economic response from ruling capitalist class. The crisis has arisen from the inherent dynamics of the capitalist economy wherein every capitalist constantly endeavours to produce more by higher investment in constant capital (machines, technique, raw materials, etc) as compared to variable capital (wages paid to labour), i.e., they try to produce more employing less labour per unit of output by deploying ever new machines with higher productivity so that they can sell it at a price little lower to their competitors to drive them out of the market and capture more market share. However, it reduces the profit per unit of output for them since value can only be created by human labour and value created by labour minus wages=surplus value which is the source of all profit in capitalist production. Still, their profit is not affected till they can sell sufficiently higher number of units of output to cover lower profit per unit. It appears that economy is booming. Though modern capitalism uses all types of credit (Loans to dealers/sellers, Credit Card, Consumer Loans, EMIs, etc) to keep increasing sales, it ultimately results in overproduction which chokes the veins of capitalist system, first circulation and then production, as stocks of commodities lie unsold from shops to warehouses. Then comes the bust as existing production capacities remain unused and the rate of profit on capital deployed falls. These capacities then need to be destroyed by bankruptcies of weaker capitalists and laying off workers resulting in huge unemployment. Moreover, owing to danger of bankruptcies credit lines get choked as no capitalist has confidence to lend to any other.
This is, in essence, what happened to Indian economy. After liberalisation, capitalists invested humongous amounts of constant capital by borrowing loan capital from banks and other financial institutions and created huge production capacities. Banking also expanded greatly to provide credit at all stages of production and circulation, i.e., sales. All round boom was the effect for nearly 2 decades despite small crises visible intermittently and resolved by injection of great amount of money liquidity into the markets by Reserve bank of India. Hence the height of profitability was reached in the boom up to 2007-08.
In 2008 all hell broke loose. Overproduction was visible everywhere and a credit crisis ensued. UPA government postponed it through nudging Public Sector banks to sanction huge amounts of loans to capitalists especially infrastructure companies. Still crisis could not be postponed beyond 2011. Since then Indian industry has been operating at 65% to 73% of its existing installed capacity. Hence rate of profit per unit of capital employed has been coming down and the industrial capitalists are unable to meet their loan repayment obligations since they pay loans and interest only from the profits earned. Result is all-round crisis in both industry and finance which has been further exacerbated by Modi’s series of disastrous policies Demonetisation onwards.
This crisis of falling rate of profit has generated a specific political economic response from Indian ruling capitalist class which brought Narendra Modi government to further that agenda with greater urgency and force as UPA, though not averse in principle, was considered too weak willed to implement it. This economic response involves handing over of all natural resources and existing productive public assets to capitalists for profiteering, reduction of expenditure on all social sector programmes to push privatisation of all social services, formalisation and financialization of all economic activity to benefit monopolies and bankrupt small producers/traders, reduction of any public subsidies to poor, etc along with the curtailment of all labour and democratic rights to prevent any resistance to this. This agenda of Modi government is quite evident from the recent economic policies and further reinforced and speeded up through the Economic Survey presented on 29th January and the annual budget for FY22 presented on 1st February.
First response is opening the flood gates of ample credit capital from banking system at cheap interest rates. Since the existing banking system is hampered in credit expansion because of huge amounts of NPAs, government has taken several steps like creation of a DFI for Infrastructure with initial capital of Rs 20,000 crores aiming to release loans of 5 lakh crores in next 3 years, Rs 20,000 crore recapitalisation of public sector banks and creation of Bad Bank or Asset Reconstruction Company with capital of Rs 10,500 crores which will take over at least Rs 1.50 lakh crores NPAs of all banks and will be guaranteed by government. This cleaning of bank balance sheets will free up banking system to provide more loans to corporates. All this will enable industrial capitalists to get more capital funds on cheaper interest rates as the government in essence plans to borrow on its sovereign guarantee and pass it on to corporates since in this time of crisis no capitalist is willing to lend to other capitalists. This will start another cycle of the loot of banking funds which will ultimately burden poor working people.
Second theme of the whole of Economic Survey and Budget is privatisation and monetisation of assets. Budget has targeted revenue of 1.75 lakh crores by disinvestment and privatisation of public sector enterprises. Moreover, government also plans to monetise its assets like government land, railway lines and other infrastructure, dedicated freight corridors, airports, roads, ports, pipelines, etc. Effectively private capitalists will be allowed to make profits on existing public assets built through public funds without making any productive investments since there is already dearth of demand in economy or the natural resources will be handed over to them cheap for profiteering. This means that capitalists will not be required to invest in high amounts of fixed capital with long gestation period. They will instead be allowed to use fixed capital created by state in public sector by paying some nominal fees and will be able to earn high profits quickly by investing only in circulating capital. This will also allow them to liquidate these ‘business operations’ after squeezing them of all possible profits and leave them for state again as loss making assets. Moreover, most if this privatisation/monetisation will be financed by loan capital made available by the public financial institutions as detailed above. The privatisation programme also includes 2 public sector banks, a General Insurance company and Public sale of LIC shares.
We can immediately notice the effect of this on jobs in an environment of high unemployment. The privatisation will result in culling of the most of relatively better paid and secured public sector jobs and, because of high supply of skilled and educated unemployed labour, will convert those jobs into barely subsistence level jobs paying 10-12,000 rupees per month after long working hours type of jobs. The impact will naturally be higher on the weaker and long deprived sections of the society who had found some limited succour because of the public education and public sector jobs for few decades after independence but are now again being pushed back into high exploitation and dire poverty.
Third underlying theme of the budget, in line with neoliberal policy of the government, is to reduce already meagre budget allocations for all social sector schemes. Though FM announced with great fanfare 137% hike in health budget, but it was found later that this was done through jugglery of adding allocations of water, sanitation, and nutrition programmes to health budget, which had in fact gone down by 9.5%. Similarly, allocation for education has been reduced by more than 6 thousand crores. Allocations for scholarships, anganwadis services and maternity benefits have also been cut. This is in direction of dismantling whole of government education, healthcare, maternity, childcare and nutrition programmes and pushing up privatisation of all these leading huge burden on working class people. Even out of this meagre budget much is going to spent on public facilities being handed over to private industrialists in the name of Public Private Partnerships (PPP), for example, district hospitals being handed over to pharma companies and schools being handed over to NGOs, most probable NGOs close to RSS, for example, the proposal to open 100 ‘Sainik’ schools to be run by NGOs.
The low budget allocation for the healthcare sector reflects government neglect for the same. India ranks 179th out of 189 countries in prioritisation of health in consolidated government budgets of the centre and states. The National Health Policy in 2017 stated that an increase from 1 percent to 2.5-3 percent of the GDP would decrease the Out-Of-Pocket Expenditures from 65 percent to 30 percent of the overall healthcare spend. It is to be noted that the bulk of health care in India is provided by the private sector. India’s score in quality healthcare in the Economic Survey 2020-21 was staggering – 145th out of 180 countries, only above certain sub-Saharan countries and Nepal and Pakistan in access to quality healthcare. The budget allotment also indicates the deployment of comparatively lower human resources for health. The aggregate human resource for health density in India is close to the lowest possible threshold of 23 per 10,000 people. According to the Sustainable Development Goals (SDG), as dictated under the World Health Organisation, this figure should be at 44.5.
Economic Survey had made it clear that government was no longer willing to provide cheap rations through PDS for long saying that food subsidy bill was becoming ‘unmanageable’ and poor should pay more for wheat and rice they buy through PDS. This has been executed in Budget wherein there is no sufficient provision to remove debt burden of Rs 3.81 lakh crores on Food Corporation of India (FCI) which is crippling its operations and many of its warehouses are already being built/operated by private companies. Food subsidy reduction in FY22 BE compared to FY21 RE is 42% from Rs 422618 crore in FY21 to Rs 242836 crore in FY22. This is likely to lead to scuttling/privatisation of FCI through all round bleeding. Moreover, the budget allocation has been cut this time for Integrated Child Development Scheme (ICDS), Midday Meal Scheme (MDM), maternity benefits and Anganwadi services despite there being large increase in under and malnutrition in children per the report of National Family health Survey – 5. Hence, it is amply clear that government is moving towards putting an end to food subsidy and public distribution system.
Similarly allocation for MNREGS has been reduced 34% from current FY Revised Estimate of Rs 1.115 lakh crores to Rs 73,000 crores in next Financial Year, though even the higher amount was insufficient to provide 100 days guaranteed employment to all those who demanded per the provisions of the law since unemployment rate has reached quite high owing to economic crisis and Covid lockdown. Besides this, expenditure on all rural development schemes have also been cut from Rs 2.16 lakh crores to Rs 1.95 lakh crores. Petroleum subsidy, which goes to subsidise LPG & Kerosene for poor has also been drastically cut by 68%, from Rs.40,915 crore to Rs.12,995 crore.
While outlay for Agriculture and allied activities cut by 6% from Rs.1,54,775 crore to Rs.1,48,301 crore, central government has replaced excise duties of Rs 4 on Petrol and Rs 2.5 on diesel with Agri Infrastructure Development Cess. Since the budget for agriculture and rural development is cut, there is no rational for this and immediate purpose appears to be depriving states of funds from central pool of sharable revenue as Cess/Surcharges are not shared with states. This withholding of funds to states will have cascading effect on social sector expenditure like health and education as majority of the expenditure on these is incurred by states which will now be forced to reduce it.
Without going into further details of budget provisions we can say that this budget is the continuation of neoliberal policies which are the consequence of the dynamics of the contradictory capitalist ‘development’ which inevitably leads it into the crisis of overproduction and falling rate of profit. To overcome this contradiction, capitalist governments everywhere are forced to resort to neoliberal economic policies to increase the rate of exploitation of labour not only by increasing productivity, i.e., higher relative surplus but also by resorting to increasing absolute surplus value by increasing hours of work and doing away with rests and breaks and other health and safety measures for workers. This is what we are seeing through new labour codes. Besides, to resolve this contradiction, capitalist governments are compelled to formulate policies which increase concentration and centralisation of capital and favour monopoly corporate houses by bankrupting and dispossessing small producers both in industry as well as agriculture. The same is being reflected in the new farm bills which has created the danger of alienation from land for tens of millions of Indian farmers. However, both these courses create resentment among the suffering workers and small producers like the farmers. This is reflected in the current farmers movement as they have risen up to resist their likely dispossession tooth and nail. However, it is clear that the capitalist crisis has created a situation whereby this government has no option to but to move ahead on these policies despite all protest because that was the very reason capitalist class installed a ‘strong government’ in power in the first place that it will implement such policies with urgency and by force suppressing all people’s movements. If they show weakness and withdraw, they will have no utility left for the ruling class. Hence it is strongly likely that this confrontation between this government on one hand and the workers as well as farmers on the other can only grow more fierce in the times to come.
[Originally published as Editorial in The Truth: Platform for Radical Voices of The Working Class (Issue 10 / February 2021)]
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