IT used to be said of the Bourbon kings of France, whom the French Revolution overthrew, that “they learned nothing and they forgot nothing”. These words could well describe the UPA government; and Chidambaram’s budget speech gave ample proof of it. The economy is in a serious crisis; inflation is playing havoc with people’s lives; the unemployment rate is climbing up alarmingly, with the growth in “usual status” employment falling far below the natural rate of growth of the work-force, even in a situation where lakhs of peasants are migrating to cities in search of jobs because they find “simple reproduction” difficult; the working population is getting drastically squeezed by the combined effects of inflation and unemployment. But for Chidambaram all this does not exist. On the contrary, he claims, 140 million people have been lifted out of poverty during the last decade. If his claims were true, then the current dire state of the Congress Party would be difficult to explain; and so would the looming threat of communal-fascism which has never been as serious in the entire history of post-independence India as it is now. PATENTLY UNTRUE CLAIMS His claims however are patently untrue. Take the case of poverty. The official definition of poverty in India is based on calorie norms and no amount of sophistry should be allowed to hide this fact. A person is considered poor in urban India if he or she cannot access 2100 calories per day, and in rural India if he or she cannot access 2200 calories per day (initially it was 2400 but scaled down for no apparent reason). On this basis, the proportion of poor in urban India in 2004-5 was 64.5 per cent which climbed up to 73 per cent in 2009-10 (these are two years of large sample surveys). The corresponding figures for rural India were: 69.5 per cent and 76 per cent respectively.(Source: Utsa Patnaik’s article in the Economic and Political Weekly of October 5, 2013). So, precisely during the period when Chidambaram claims that 140 million persons were lifted out of poverty, the percentage of the absolutely poor in total population, both in rural and urban India, was increasing quite dramatically. This quinquennium was also the period of extraordinarily high growth when the rate of growth of employment should have been higher than otherwise. If poverty increased during these years (and the annual “usual status” employment growth rate was a paltry 0.8 per cent), then the situation in the more recent period when inflation has accelerated and employment growth rate must have fallen owing to the deceleration in GDP growth, must have been far worse. But Chidambaram again was unfazed. The deceleration in growth, he claimed on the basis of virtually non-existent evidence, was being reversed. The economy’s growth rate, on which the UPA government had been fixated all these years, has now fallen, it should be noted, to levels lower than in the much reviled dirigiste period, i.e., before neo-liberal “reforms” began. In the year 2013-14 the overall growth rate was supposedly 4.9 per cent; but this was based on an agricultural growth rate of 4.6 per cent which was the outcome of a good monsoon. The “normal” agricultural growth rate, i.e., the average rate over good and bad monsoon years, would not exceed 3 per cent per annum. In addition we should take note of the fact that initial GDP growth rate estimate for any year is invariably scaled down subsequently when firmer data come in, so that even the current rate of 4.9 per cent will in all probability not exceed 4.5 per cent. Putting these two facts together, we get a current growth rate that is barely above 4 per cent annual. And this is certainly lower than the average for the period 1951-91. The fact that the earlier growth itself, far from being poverty-alleviating, actually saw an increase in the extent of poverty, does not mean that stagnation will reverse poverty accentuation. On the contrary, such stagnation, within the same neo-liberal framework, will only compound the problem. The question therefore assumes importance: why has it appeared? The NDA attributes stagnation to the paralysis of policy, which basically means that neo-liberalism is not being pursued with vigour. Thus the NDA says that stagnation is because of the government’s pussyfooting on neo-liberalism (and offers Modi as the embodiment of a “muscular neo-liberalism”). The UPA on the other hand says that there is no policy paralysis, no pussyfooting and no stagnation either, just a minor blip that is already being left behind. Both the NDA and the UPA in short are agreed that the pursuit of neo-liberal policy itself cannot possibly be the cause of stagnation. On economic matters there is no difference between them, as indeed a recent hagiographic biographer of Narendra Modi has proudly claimed: he has argued in Modi’s favour(!) that his economic policy is the same as Chidambaram’s. But, in fact, the stagnation, unlike what the UPA claims, is very much there. And the stagnation, unlike what the NDA claims, is not because of any policy paralysis; it is because of the policy itself (to which the NDA too subscribes). Growth in a neo-liberal setting occurs necessarily through credit-sustained bubbles, and such bubbles inevitably collapse, leaving the economy in a state of stagnation and crisis. Such a state of stagnation and crisis can be overcome within the neo-liberal regime only through the appearance of a new bubble (which too will collapse sooner or later); but nobody can either deliberately generate or even predict such a new bubble. The Indian growth of the earlier period was the outcome of two bubbles, whose simultaneous occurrence is what made it so rapid: one was the bubble in the United States which boosted the world capitalist economy, and with it the Indian economy; the other was a domestic bubble caused by credit-sustained consumption, and stock market euphoria (that boosted both consumption and investment expenditures of the capitalists and their “hangers on”). The American bubble collapsed in 2008, but its impact on the Indian economy was muted by the persistence for a while longer of the domestic bubble; that too however has collapsed now. It is obvious therefore that if the economy is to overcome stagnation without waiting for a new bubble which is nowhere on the horizon, and which would also be an evanescent one when it comes, it will have to do two things: one, boost public investment, and, two, put more purchasing power in the hands of the people through income redistribution via the fiscal instrument, i.e., by taxing the rich and increasing welfare expenditure and transfer payments to the poor. There is nothing revolutionary about these steps; indeed in the most powerful capitalist country of the world this is precisely what President Franklin Roosevelt had done in the midst of the Great Depression through his “New Deal”. But such a policy runs contrary to neo-liberalism. Neo-liberalism forces the government not only to curb its fiscal deficit but also to reduce taxes upon the rich; and both these contribute to fiscal austerity rather than fiscal activism in the direction of enlarging the home market. Chidambaram’s interim budget, predictably, has tried to find a way out of our predicament within the neo-liberal framework, i.e., in a direction that is the opposite of what is needed at present. To overcome stagnation, he has offered excise duty concessions on consumer durables, especially automobiles; to counter threats to the value of the rupee from our enormous current account deficit (a depreciation of the rupee would also exacerbate inflation), he has underscored the need for attracting foreign capital; and on inflation he has blandly stated that we have to put up with “some amount of inflation”. Will these steps overcome our present predicament? The demand for any particular set of consumer durables necessarily reaches saturation sooner or later because they are durables (their flow demand, after such saturation has been reached, consists only of what is needed to replace the decay of existing stock). What can stall such saturation, in the absence of any income redistribution, is product innovation; but that requires investment and hence the prevalence of euphoric expectations that typically come with a new bubble. Lowering prices of consumer durables may have some limited impact upon demand, but it cannot basically overcome stagnation. TRANSFER OF RESOURCES TO THE AFFLUENT SECTIONS But lowering such excise duty means a bonanza for the producers and/or the consumers of durables like automobiles, who are among the affluent. In the name of combating stagnation therefore fiscal resources are being transferred to the affluent segments of the population. The government would no doubt argue that such excise duty cut would protect employment in this sector; but a far greater impact on employment could have been made if the same resources had been made available to the working people to boost their demand and hence the size of the home market. Thus the stagnation is being used by the government merely to line the pockets of the affluent. (And this is quite apart from the disastrous environment impact of a possible automobile-sustained boom). As regards attracting FDI and FII for financing the current account deficit, even assuming that such investment comes in at present to sustain the value of the rupee, it does nothing to overcome the current account deficit. On the other hand it increases the vulnerability of the economy to future speculative capital flights. Giving greater concessions to globalised speculative finance to manage an existing payments crisis only increases the magnitude of the potential crisis in the future. In contrast, imposing import controls via tariffs and quantitative restrictions, which is against neo-liberalism, brings down the current account deficit itself (as the case of gold imports has shown) while increasing domestic employment via the production of import substitutes. Likewise, the current inflation is largely of the cost-push variety caused by adherence to the neo-liberal tenet of withdrawing subsidies and passing on increases in prices of imported oil to domestic consumers. (Wherever excess demand factors have contributed, such as in the case of food-grains, these too have been created artificially by the government through its holding of large stocks, which it has preferred to export rather than distribute at affordable prices to the working people at home). It follows therefore that not an iota of relief against inflation will be provided to the people by an even more aggressive pursuit of neo-liberalism, but this is precisely what the assiduous wooing of FDI and FII would entail. Thus the policy direction outlined in Chidambaram’s budget would not provide any solution to the crisis; but it forecloses the possibility of pursuing an alternative course that could provide such a solution. The UPA’s swansong is no different from the tune it has sung all along, which is why it invites comparison with the Bourbons.