Manmohan Singh Govt: Heed At least This Warning

LITERALLY throwing cold water over the optimism being generated by the prime minister and the pundits of neo-liberalism that the Indian economy after an year of sluggish growth is now destined to bounce back, the World Bank has issued an ominous warning that the developing countries, India in particular, should be prepared for a crisis that will be on par or worse than the 2008-09 global economic meltdown. 

Speaking in the early hours of Wednesday, January 18, the Head of the Macro Economics of the World Bank said: “The motor of the global economy – developing countries – is slower at the same time as the world’s largest economic area – the EU – is in recession and these could feed each other”, reports the Financial Times, London.  The World Bank’s economic forecasts are significantly lower than those in June 2011.  The fears articulated in 2011 seem to have already materialised.  The global economy is likely to grow by 2.5 per cent in 2012 and 3.1 per cent in 2013 compared with the forecasts of 3.6 per cent for both years.  The Euro zone economy is expected to contract no longer in individual countries but as a whole, i.e., decline in real terms in 2012.  The other advanced countries can at best register a 2.1 per cent growth rate. 

The hopes in India that further financial liberalisation will  attract an inflow of foreign funds providing an impetus for our growth also appear remote with the World Bank warning that the rich countries had little monetary or fiscal ammunition available to stem any vicious circle of continuing recession. 

Despite this, the UPA-II government appears all set to bring in crucial financial reform legislations in the budget session of the parliament, legislations that the Left parties had prevented from being made into law for the last seven years.  Refusing to learn from our own experience that the prevention of such opening up of our financial sector is what helped India in resisting the devastating impact of the global meltdown, in the first place, this government appears to blind itself to this latest warning by the World Bank also. 

Apart from the legislation to increase the ceiling of financial flows into our insurance sector, banking reforms that will permit foreign banks to acquire private Indian banks and the privatisation of the pension funds, the government appears all set to open up the retail trade sector to the FDI soon after this round of state elections.  So far the government has not been able to answer  with any degree of  conviction, the arguments detailed in these columns on the negative impact this would have for our economy by generating huge job losses and further attacking the livelihood status of the vast majority of our people. 

The main reason to open up the retail trade sector to FDI appears to be to attract foreign capital to come and make superprofits from India. This inflow of capital, they hope, will generate confidence in the economy bolstering the `feel good factor’, allowing the sensex to rise and, thus, make India more shining for the very few.  The thrust is not on the impact this will have on retail trade or Indian people.  The thrust is on attracting foreign capital, which according to the World Bank forecasts, is least likely to happen, surely, to the levels that the Manmohan Singh government expects. This is similar to the arguments that were advanced justifying  the massive concessions given to Enron in the name of creating energy security for India.  What happened to Enron is now well known. Enron’s investments in India were supposed to provide  the similar `feel good factor’. The net result has been a disaster.  Likewise, the concern for the farmers and consumers in relation to allowing FDI in retail trade is a mere eyewash. 

The World Bank says that amongst the developing countries, it is only China that has the capacity and will to implement policies to counter this new imminent global economic downturn.  But even China’s capacity to do so is today much weaker than in 2008, the World Bank warns. 

Clearly, India cannot  ward off the impact of the global economic recession by furthering the neo-liberal agenda.  This will only worsen the crisis in our country.  Repeatedly through these columns, we had been suggesting that instead of giving staggering amounts of tax concessions to the rich, these amounts should be collected and used for  public investments to build our much needed social and economic infrastructure while generating large-scale employment.  The consequent growth of domestic demand in India is what that can sustain a healthy economic growth rate. 

Mahathir Mohamod, prime minister of Malaysia for 22 long years from 1981 – years of reform in South Asia – invokes a Malaysian saying (similar wisdom can be found in almost all civilizations) which means that when you lose your way, go back to the beginning and start again. Global capitalism is, however, obdurate in not learning from such wisdom. Instead, the neo-liberal prescriptions advocate the imposition of austerity. This, as we have seen in these columns in the past, will only aggravate the situation and further accentuate the crisis. 

The latest New York Review of  Books says: “How could we have so misread history and treat with contempt the teachings of John Maynard Keynes?” Recollect that, post-1930’s Great Depression, Keynes had advocated active State intervention as the only manner in which capitalism could achieve full employment through public investments. This, according to him, was the only way to save capitalism and, thus, protect it from the imminent takeover of socialism. 

The Manmohan Singh government, instead of accepting our suggestions stated above, continues to pursue vigorously the neo-liberal agenda.  This can only be disastrous for our economy and the vast majority of our people. Capitalism has a tendency to even ignore the boldest of writings on the wall.  Marx had once said that capitalism “has conjured up such gigantic means of production and of exchange, it is like the sorcerer who is no longer able to control the powers of the nether world whom he has called up by his spells.”  The crisis is systemic.  It is not because of the greed or avarice of individuals.  The only true liberation for humanity can come with the overthrow of this system. 

In the meanwhile, in India, it is necessary to mount further pressures on the UPA government to change its neo-liberal policy direction and heavily invest in public spending  for building our much needed infrastructure and generating large-scale employment.  This is the only way in which the livelihood status of the people can be improved. 

 (Editorial in "People's Democracy", Issue dated 22-1-2012)