Kranti Kumara
After coming under severe criticism from Indian big business and foreign capital for not recognizing the depth of the crisis facing the country’s economy, India’s Hindu supremacist Bharatiya Janata Party (BJP) government has announced a slew of new economic measures, just weeks after tabling its budget for the 2019-20 fiscal year.
The new measures are principally aimed at shoring up the country’s beleaguered financial system, which is weighed down by tens of billions of dollars in bad loans, and at placating capitalist investors.
In the hopes of inducing banks to be less reticent in extending credit to businesses and consumers, the government has sought to “clean up” their balance sheets by injecting capital and forcing bank mergers.
To boost “investor sentiment,” Finance Minister Nirmala Sitharaman has rescinded a tax surcharge on the very rich in her July 5 budget that provoked howls of opposition from the Indian elite and foreign investors. The government has also raised foreign investor limits in several industries, including allowing 100 percent FDI (Foreign Direct Investment) in coal mining, and vowed to accelerate the sell-off of public assets.
Boosting India’s auto manufacturers, who are shutting down production lines for weeks as unsold new cars pile up in their inventory, is also a government priority.
Indian and domestic capital have welcomed the measures taken by the Narendra Modi-led government. But many Indian business leaders and the financial press are pressing for more radical steps, arguing that the crisis is “structural,” and not simply the product of a temporary, cyclical fall in demand. The Times of India, the flagship publication of India’s largest media group, has published editorial after editorial urging Prime Minister Modi to act with “Kashmir type” urgency to push through further neo-liberal reforms, referencing the government’s illegal power-play stripping Jammu and Kashmir of its special, semi-autonomous constitutional status.
Falling investment and consumer demand, rising joblessness
India’s growth rate has been declining for more than a year and a half, but the decline has accelerated in recent months. In the April-June quarter, GDP growth plunged to a six-year low of 5 percent. Economists and Indian government officials have long held that India needs at least 8 percent growth to create enough jobs for new entrants.
Consumer demand has fallen steeply as workers’ real incomes, in an already low-wage economy, have fallen due to rising unemployment—the jobless rate is currently at a 45-year high—and the proliferation of low-paid, precarious contract work, even in the so-called “formal” sector comprised of large firms.
New investment by Indian companies has declined sharply, falling from 22 trillion rupees (Rs.) ($350 billion) in 2014-15 to Rs. 11.3 trillion ($160 billion) in 2018-19.
Although India’s central bank, the Reserve Bank of India, has, under government pressure, repeatedly slashed interest rates, banks have been unable to increase lending since they are weighed down by about Rs. 10 trillion ($140 billion) in NPAs (Non Performing Assets), and have to provision reserves against losses.
Manufacturing activity has plunged with the auto sector experiencing an up to 50 percent sales decline.
When the BJP came to power in 2014, Modi coined the slogan “Make in India” to exhort transnational corporations to manufacture their goods in India for the world market. He grandiosely promised to create 100 million jobs and enhance manufacturing’s share of India’s GDP (Gross Domestic Product) from 16 percent to 25 percent by 2025.
Neither of these goals are being fulfilled. Despite some new investments, manufacturing still makes up less than 17 percent of nominal GDP and, instead of job creation, more and more job seekers confront long-term unemployment or have to settle for low-wage jobs in sales or marketing. India’s exports are still predominantly comprised of commodities such as gems, rice and mineral oil, rather than manufactured goods.
Anemic economic growth in the advanced capitalist countries and the Trump administration’s trade war policies have undercut Modi’s push for India to become a production-chain hub rivaling China; although sections of the Indian elite cling to the hope that Washington’s drive against China will cause US and other western-based transnationals to relocate production facilities to India.
In recent years exports as a percentage of GDP have fallen sharply. In 2017-18 exports represented just 11.65 percent of India’s total GDP, its lowest level since the 2003-04 fiscal year.
Increasing unemployment is now a chronic feature of the economy, with 34 percent of youth between 20 and 24 years old and about 38 percent of young urban workers unemployed. In other words, Indian economic growth, such as it is, has occurred at the expense of jobs and incomes. Household consumption from automobiles to Rs. 5 packets of biscuits (cookies), a common snack for impoverished workers, have declined sharply.
Corporate incomes have also fallen, with demand contracting even as corporations’ debt load has ballooned. Corporate debt now amounts to 56 percent of India’s GDP.
Auto and auto parts companies have slashed hundreds of thousands of jobs, while idling plants for weeks. The auto companies are pressing the government to cut the national sales tax, the GST, on cars from 28 to 18 percent. This appears to be not forthcoming, at least for the moment, since the government cannot afford the Rs. 300 billion revenue loss.
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