The Indian Economy Is On A Nose Dive


The downturn in the Indian economy is not a sudden development that had come about now, nor due to any “technical reasons,” as is made out to be by the ruling BJP leaders. Unable to explain why industry sector, exports and agriculture and domestic consumption are stagnant if not going down with each passing year since BJP came to power, they try to downplay the issue or try to blame it on the economic actors and the officials. But strangely this time, the very agencies which were supposed to strengthen the arms of the government have turned critical of the government’s performance. This is without doubt a government that caters to the interests of big business as the only priority before it. But, notwithstanding the smaller companies, which are anyway hit hard by both demonetization and GST, even bigger business entities are turning out to be open critics of the present dispensation. Demonetisation ultimately turned out to be an unmitigated disaster. The Reserve Bank had conceded that 99% of cash had come back to the banks, thus rendering the whole purported “daring experiment” of flushing out black money, which in the end turned out to be a wasteful exercise in terms of destruction of livelihoods, wrecking havoc with the economy  at enormous social and economic costs, loss of more than 150 lives and ultimately, acting as a brake on the economy. Millions of poor workers in small and medium industries, small producers and vendors, construction sector, services and most importantly, in the agricultural sector had lost their livelihoods as all sectors of the economy suffered from shortage of cash. Black money is there where it is supposed to be – in benami assets, gold and stashed away in foreign banks. The whole exercise is akin to searching for a non-existent black cat in a dark room. The rich are safe in their luxiurious villas and their money is well stacked in overseas tax havens. Nothing for them to sneer at Modi – he had indeed succeeded in making them appear like innocent kittens in the proverbial basket. It is the poor vendors in the market place, the small workshops in the dusty industrial lanes and the smaller traders who are shown to be villains. The little money that is kept for a rainy day by poor families had been sucked in to banks. This money that had comeback is now being poured down the bottomless pit of NPAs. More than 2.2 lakh crores of NPAs were written off and the burden of this write-off is on the poor, to be paid back as steep increases in taxes in the name of GST. This is a classic case of Reverse-Robin-Hood-Effect – rob the poor and feed the rich.

The much advertised “Loan Waiver” to farmers turned out to be a cruel joke being played out on the poor and marginal farmers across the length and breadth of the country and they are up in arms against the government. Whereas lakhs of crores of rupees of tax payers’ money is being drained off to give tax concessions to big-biz Agro MNCs, poor farmers had to contend with a few rupees as compensation. All this proves that other than populist rhetoric, the real intention of the ruling party is to please big business and destroy the livelihoods of tens of crores of rural poor, to enable the big companies to capture agriculture and rural markets. Another failed experiment is the “Digital India Initiative,” an attempt to force digital transactions down the throat of 120 crore poor and semi-literate Indians, who survive on a few rupees of daily earnings. The obvious beneficiaries of this so-called “Cashlees India” are the digital MNCs, who palm off commissions from every transaction, running into lakhs of crore of rupees annually. It is again the poor majority who have to feed the rich.

The shameless cases of corruption, inept handling of the economy and bad decisions that had wrecked havoc with the country’s economy are far too many to be listed elaborately, but here are a few glaring examples:

  1. How was Jay Shah, son of the BJP President, succeeded turning Rs 50,000 company in to a towering Rs 80 crore enterprise in just one year?
  2. Even the CBI was helpless to explain how 32 crores worth on new Rs. 2000 rupee notes ware acquired by Mr. Sekhar Reddy, TTD Board Member.
  3. Whose helping hand was there to help big sharks to draw bank loans and turn them into Non Performing Assets, that had jumped from 2.23 lakh crores in 2015 to 7.28 lakh crores by 2017?
  4. What action was initiated after the sensational revelations of Panama Papers? Nothing of any substance can be expected from the Paradise revelations also, as the BJP government appears to be working overtime to protect the black sharks, and profit from such an exercise.
  5. While paring down corporate taxes with every budget from 32% to 28% (virtually 20% if some more unseen concessions are taken in to consideration), and writing off 2.2 lakh crores of bad corporate debts, the government wants to meet its expenses by increasing taxes on essential goods up to 28%, in the form of ill thought-out GST.

The reasons for the poor, if not negative performance of the vital sectors are not far to seek. With the grand unveiling of the Make-In-India initiative, the Modi Government had gone in to high gear claiming that India is set to become the world’s manufacturing hub, soon to overtake China, but the reality has the nasty habit of always kicking us in the butt. It was a damp squib, one more hot air balloon floated by the Modi dispensation for immediate political gains, without any responsible consideration for the actual conditions existing in the world economy. The world is burdened by industrial over capacity of around 30%, while China alone has 40% unutilized industrial capacity. The top priority before world manufacturers is to make use of this extra capacity and definitely, this is not the time when they will be prepared to make further investments in new capacities. And further, intense competition had set in to safeguard the export share of major countries. For example, China is dumping its goods to keep its industries running. The major capitalist countries, USA and those of Europe had resorted to protectionism, where they will not allow imports in to their countries, but force their products down the throats of poorer countries. In short, Globalization had turned sour for the major capitalist economic powers. Unable to bear the social and political pressures of soaring unemployment due to vanishing jobs and ever widening wealth disparities at home, the politicians of West now talk of import tariffs and scaling down overseas investments. Surely, India rushed to the station by the time the train had already left. Added to this international scenario is the horror story of falling domestic consumption, throwing many businesses in to the red. Mr. Modi rode to power by garnering the votes of youth with the promises of weeding out black money, bringing back and distributing the booty in foreign banks to all Indians and creation of 10 crore jobs – the hype of “Acche Din”. After nearly 4 years, the dreams had fizzled out. Black money is where it is, the bank accounts of most of the Indians show zero balance and the unemployed youth are prodding along looking for work. Surely, no more can be expected from the dream merchant par excellence. Enough is enough.

Let us look at the performance of the economy in the last 3 years:

  • Since 2015, in India the creation of organised-sector jobs in large companies and factories in the last seven years had shown a significant downturn.
  • While the proportion of jobs in the unorganised sector, without formal monthly payment or social security benefits, is 93%, demonetization and now GST have dealt a death blow to SMEs and micro business units, thus swelling the ranks of jobless in both rural and urban areas.
  • Rural sectors, which accounts for 47% of jobs have shown a progressive deterioration.
  • As many as 60% of the 45 crore of the nation’s working people survive on temporary jobs. A majority of them get wages for hardly 2 to 3 months in a year.
  • The formation of companies has slowed to 2009 levels, and existing companies are growing at 2%, the lowest in five years.
  • Economic experts, including former Prime Minister Dr. Manmohan Singh and former finance minister Yashvan Sinha had exposed the fallacy of bloated GDP figures. Though India recorded the lowest GDP growth rate in recent years at a mere 5.7%, down by about 2% points from the projected figure, if inflation is considered, it is a mere 3.7%. Any developing country, with a GDP growth rate below 4% is considered to be in recession.
  • While many business units have seen deterioration in the business environment, profitability has gone down significantly for many companies. As a result of which, capital formation has gone down and industry and financial analysts are alarmed that money required for productive activities is being diverted to speculation in the financial markets, where the returns are significantly higher than in production activity. But this can lead to an unstable speculative bubble and further drag down the economy in to a bottomless pit.
  • Public Sector Banks are burdened with galloping NPAs, significantly dragging down their performance. To keep the banks afloat, the government, true to its nature, is writing off the NPAs and common man is being burdened with this write-off, while letting off the thieves.
  • The Organised Sector, which accounts for 10% of employment is showing a decline in intake and workforce is being reduced in many companies. Many new industries being set up, including those with FDI are going higher levels of automation, thus their workforce intake has reduced significantly in the last 10 years.
  • Of the 11 million students graduating from colleges each year, only 20 percent could get jobs relevant to their skill sets. And though women comprise 49 percent of India’s population, they form only 21 percent of the workforce. Overall, only 50% of those that seek work, both in the skilled and unskilled categories are able to get some jobs, though most of them are temporary in nature.
  • While agriculture is still India’s largest employer, as agriculture sector contracts, menial rural labour has grown to 34%.
  • 75% of India’s 75 crore youth have not crossed 5th standard and 83% have not gone beyond high school. There is just no way, they can get employment as skilled workers in most of the industries running with state-of-the-art technology.
  • It is argued that service sector can absorb all those displaced from agriculture. But the only sector that can absorb unskilled labour to some extent is construction. But this sector is also under stress and its labour intake has significantly comedown.
  • Moreover the tertiary sectors, including service and financial sectors can only facilitate wealth generation in the primary sectors. Wealth is produced only in the primary sectors, that is agriculture, industrial production and mining, power, transport etc. Hence there is a natural limit to the expansion of service sector as it cannot grow in thin air, while the primary sectors are languishing.
  • Modi’s Skill India initiative claims to train 40 crore Indians over the next six years—that amounts to 10 lakh trainees every week. In 2014, as was reported, no more than seventy lakh were trained; in short, fewer than 2.5% of Indians have ever received formal skills training.
  • India will need to generate 28 crore jobs in the coming 30 years, when the working-age population will reach its peak.

Radically new approach needed

The neoliberal economic policies being followed by successive governments in the last 26 years have wrecked havoc with the rural economies, small businesses and the much needed welfare measures have taken a back seat.

  • 63% of health care industry in India is in private hands. Education is being increasingly privatized, with the closure of municipal and panchayat schools. The net result is that both education and health care have gone out of the reach of the middle and lower sections of the nation’s population, who constitute about 85%. Most of the health care schemes floated by various governments are meant for publicity and are little help to the needy. This explains why 75% of our young citizens remain virtually illiterate. There is no need to mention the condition of their health. About 9 out of 10 children in this country are undernourished. What is urgently needed is a free public health and education infrastructure, through which we will be able to raise healthy and skilled manpower, which can run our industries and services. There is just no short-cut for this.
  • Modern industries running with latest technology cannot absorb all the aspirants. But a majority of unemployed youth come from families with crafts background, with thousands of years of craft skills in their veins. A little attention and financial assistance can enable most of them to seek gainful livelihoods in their traditional occupations. Their skills and business opportunities can be progressively upgraded to world standards, by building up the necessary infrastructure and necessary technology inputs. We have the experience of Japan and China in this respect.
  • Renewable energy, mini-cold storage facilities, solar powered drinking water production – there are so many options for creation of tens of crores of livelihoods for the youth across the length and breadth of the country.
  • Fundamentally Indian economy relies on agriculture and its allied industries such as agribusiness industries besides textile, silk, handicrafts, and other small scale industries. These are the main sources of employment. Their well being is vital for sustaining our rural economy.
  • The improvement of employment opportunities in agriculture and its allied sectors will make the rural economy more prosperous. There are at present 15 crores people engaged in rural Small Scale and Micro and Cottage Industries, besides 45 crores who are directly dependent on agriculture.

Modi’s flop initiative of ‘Notebandi’ only proved that adhoc and ill-thought about measures at curbing black money can backfire and cause enormous suffering to the poor majority. Upwards of 35 lakh crore rupees of unaccounted transactions generate black money annually, out of which, 10%, ie., 3.5 lakh crore rupees is siphoned-off to foreign banks and tax havens abroad. What is required is to close the tap at the source itself. By making businesses, big and small transparent using Information and Communication Technologies, all business transactions can be accounted for, without the tedious procedure of filing tax returns. Smaller businesses and micro units can be given tax concessions and big fish can be made accountable. This will enable the tax system to be effective and improve revenues enormously. With so much money being tapped, there is no need to crave after FDI. With our own capital assets, we can bargain with MNCs on our terms and own the technology in a short time, as China had done.

But in the end, the overriding condition is that an alternative perspective, free from the neo-liberal dogma is an absolute necessity, if we have to repair the damage inflicted on the poor of this country in the last quarter century. As the Nobel Laureate Economist Amartya Sen said, “we know of no country where poor, emaciated and illiterate people had built up a vibrant and prosperous economy.” Political sales talk is not the answer, but concrete and down-to-earth efforts are required to create opportunities for the vast majority of Indians to grow and prosper. This needs a radically new non-capitalist approach and a radical and progressive political alternative.

Dr. K. Narayana, National Secretary, Communist Party of India

([email protected])

The article is published in on 10th November 2017.


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