Indian economy, a fatigued elephant fumbling on road

Karl Marx famously wrote the opening sentence of the Communist Party Manifesto — “A specter is haunting Europe.”

Ironically, this line could easily describe for the contemporary political scenario.

The other irony, of course, is that the words of the man who theorised the downfall of capitalism had used the same expression that the mandarins of contemporary capitalism must be muttering under their breath now.

The days of euphoria in the immediate aftermath of the Soviet Union are over. For two decades, capitalism and its contemporary avatar — neo-liberal globalisation — obliterated boundaries of sovereign nations to pave the way for unleashing the ‘animal spirit’ of market forces. But again, ironically, those very forces are now threatening to devour its creators. 

In several European countries, harsh austerity measures are eating into the vitals of life and livelihood of the people. And the aggressive neo-liberalisers are eating humble pie at the hustings. The most significant blow was delivered by the Greek people with various Left groups showing great improvements in their electoral support. The parliament was so hung that no government could be constituted.

Nicholas Sarkozy’s ‘austerity’ measures were rejected by the French people. Many other European countries face an equally bleak economic situation. While there is an overwhelming sense of uncertainty in the European mainland, the claim that the US economy is on its path to recovery has proved to be premature, with the latest unemployment figures registering further downturn.

During the last fortnight, the situation has assumed alarming proportions in India. Even a year back, the apologists of neoliberal globalisation were claiming that the Indian economy, along with the Chinese, will rescue the world economy from the global financial meltdown and the recession. But that was not to be. In recent weeks, international observers have come to describe Indian economy as an ‘elephant’, which has shown signs of fatigue, clearly unable to move forward.

So far as macroeconomic indicators are concerned, this prognosis seems correct. In the past, whenever concerns were expressed over the growing inequality and joblessness of the people and steep decline in the real income through sharp increases in the prices of essential commodities, they were pooh-poohed by the top brass of the establishment.

The denial was based on the comparatively impressive GDP growth figures — that it was based on a brittle foundation was simply wished away. Can reality be so summarily dismissed? During the two decades of ‘reforms,’ the change in the composition of GDP itself brings out unpalatable facts. The share of profit in the GDP went up dramatically while that of labour came down drastically. This indicated a plunge in the real income of working people. 

For the last few years, a major factor for this is the intense rise in food prices. Last April, food inflation touched 10.49%. Actually, increases in rate of retail prices are even higher. With 92% of our population working in the unorganised sector and without an allowance for neutralising the price rise, their real income is bound to fall. UPA-II’s three-year report card shows total food inflation has surpassed 29.5%, 1% more than what it registered during UPA-I’s entire five-year tenure.

Without addressing people’s concerns and initiating steps to bring prices down, investing public resources in the domestic economy by making infrastructure or social sector spending, the purchasing power erosion is leading to a depression in demand. This has led to an abysmal performance in growth both in agriculture and manufacturing. Obviously, overall GDP growth — a single-point obsession of our policy brass — has nosedived to 5.3% during the last quarter of FY 2011-12.

To add salt to the injury, the sliding value of the rupee with respect to the dollar is making imports costlier and due to the productive economy’s internal weaknesses, exports are not growing and trade deficit is on the rise. The overall condition of the Indian economy is showing signs of uncertainty and prospects of higher returns on investment are receding. This is inducing further flight of finance capital. While last year the trend was disconcerting, this year it is pathetic. In April, outflow was $920 million. This was bound to happen and the growing deficit on the current account, which in the past has been financed by the flow of hot money, is failing to work. And that is accentuating the rupee’s downslide.

So, the prospect is indeed bleak and the mandarins clueless. The only course they knew was that of dovetailing our economy with the neo-liberal paradigm. That course is threatened in the US and Europe. But they continue on the same beaten track. Prune subsidy, open retail sector to FDI, initiate austerity and so on and so forth remain the mantra.

That this course will inevitably lead to a confrontation with people’s livelihood is crystal clear.  Unless there is a non-dogmatic relook at policy options and a mid-course correction, we are heading nowhere.

The people who find themselves at the receiving end of the current economic downturn will fight back and try to force such a rethink like elsewhere in the world.