February 22, 2015

Modi Govt’s First Full Budget:Fulfilling Peoples’ Aspirations?

NEXT Monday (February 23, 2015), the budget session of the parliament begins.  Naturally, all attention will be focused on this Modi government’s first full budget presentation. Two contradictory objectives – realisation of the `dreams’ sold by the Modi campaign to the majority of people, on the one hand, and, on the other, to fulfill the expectations of more concessions for accumulating greater wealth by India’s super rich and corporates – both of which, ironically, contributed together to fashion the Modi victory in 2014 general elections, will be attentively watched by two very different sets of Indians. 

A very large majority of Indian people, whose aspirations were roused by the Modi campaign with the slogans of ache din aanewale hain etc – the real India – will be in attention watching if any of these promises will be seriously addressed and their livelihood conditions will see the much-needed improvement.  During these last nine months of the Modi government, however, the hopes and aspirations of this section of India have been severely dampened by various decisions by the central government.  Prices continue to soar.  Notwithstanding the fact that the Wholesale Price Index (WPI) is an inadequate measure of pressures on people’s livelihood as opposed to the Consumer Price Index (CPI), the government continues to focus on the WPI as it suits its propaganda objectives.  We are told that the WPI breached a five and a half year low.  This is because the government got the benefit of the tumbling of international fuel prices which resulted in more than halving its foreign exchange payments for importing crude oil.  This, however, has not directly benefited the consumer.  The marginal decrease in the price of petrol and diesel was only a small fraction of the fall in the international prices.  Instead of passing on the benefit to the consumers, the government hiked the excise duties four times totaling Rs 7.75 per litre on petrol and Rs 7.50 on diesel.  The prices of petrol and diesel were reduced only by Rs 2.42 per litre and Rs 2.25 respectively during this period.  Thus, the government earned a windfall profit which amounts to more than three times the reduction in prices that it passed on to the people.  As we go to press, however, both the prices of petrol and diesel have, once again, been hiked by 82 and 61 paise respectively.  Hence, more burdens on the  people are already in the offing. 

Even though the WPI has fallen `significantly’ as claimed in December, it was up from last month’s WPI of minus 0.17 per cent. Worse is the fact that food prices are continuing to rise and this rise in prices will continue unless there is a very good crop harvest in this Rabi season.  This, however, is unlikely because of the fact, discussed in these columns earlier, of a decrease in the total sown acreage. 

Earlier, this column discussed the manner in which the official statistics of the country have been manipulated to show the economy in a rosier light.  Notwithstanding such manipulation, the inflated indices of growth and industrial output are not encouraging. 

India’s factory output growth slowed to 1.7 per cent in December from 3.9 per cent in November last year (latest available data).  With rising food prices and rising unemployment as reflected in lower manufacturing growth, any sign of the fall in overall prices can only be a reflection of the fall in consumer demand.  This critically means that a very large majority of our people simply have a lower purchasing power today notwithstanding all the pumped up balloons of illusions of prosperity let loose by this Modi campaign.  This lower consumer demand is reflected in the statistics that the government of India released through the CSO.  Amongst the large group of consumer durables that are statistically  tabulated in three categories, the growth rates in December 2014 over December 2013 basic goods grew at 2.4 per cent, capital goods at 4.1 per cent and intermediate goods (mostly, but not only, consumer durables) at a mere 0.1 per cent.  According to these statistics, consumer durables and consumer non-durables recorded a growth of minus 9 per cent and minus 5.7 per cent respectively with the overall growth in consumer goods being a miniscule 0.7 per cent.  Amongst these, those that are commonly `consumed’ by the vast sections of our people recorded negative growth.  The group that includes radios, TVs etc has shown the highest negative growth of minus 70.4 per cent.  Telephone instruments (mainly mobile phones and accessories) recorded a growth of minus 80.1 per cent. Colour TV sets – minus 26.6 per cent, computers – minus 36.0 per cent. In what should be worrying for the growth potential of the agriculture sector, tractors saw a negative growth of minus 42.6 per cent and sugar machinery (essential indicator of converting the sugarcane crop into refined sugar) minus 48.6 per cent.  Reflecting a sharp fall in residential construction, the growth under category `steel structures’ was minus 24.3 per cent, PVC pipes and tubes – minus 22.2 per cent, glass sheets (window panes) minus 31.6 per cent, wood furniture minus 26.5 per cent etc. 

Clearly, therefore, that the overall economic activity is declining is seen in these figures.  This becomes worse if seen in combination with the agrarian crisis and distress discussed in these columns earlier.  It is in this background that the vast majority of our people are looking towards this budget with a  hope that it will address their basic concerns and take steps to improve the health of their lives. 

Such hopes, however, have been severely dampened by a slew of measures that the Modi government has undertaken even before presenting this budgetary exercise.  The sharp reduction in the allocations for the central schemes that provide some relief to the people are the case in point.  In various columns in this paper during the past few weeks, we had detailed the severe curtailing of the MGNREGA depriving crores of Indian rural poor their economic lifeline for survival.  People are seeing the manner in which the Food Security Act is being diluted with its coverage proposed to be reduced from the present inadequate 67 per cent of the Indian households to 40 per cent.  The public distribution system is all but ready to be severely curtailed.  Thus, whatever meager protection the vast mass of our people had on food security and rural employment guarantee are being further weakened. 

Further, through an ordinance, the Modi government has brought about a dilution of the Land Acquisition law.  Minimum protection and rights granted to the poor farmers and agricultural labour including those whose livelihood depends on the land are severely eroded.  The conditions for acquiring cultivated land, adequate compensation and rehabilitation to the vast mass of our rural population being uprooted are being given the go-bye by this Modi government, thus, providing a bonanza to India Inc. and land sharks to unscrupulously acquire land for their profit maximisation.  There is widespread apprehension that even the bare minimum subsidies for the poor, particularly our kisans for fertilizer use, for electricity  to allow them to pump water for irrigation purpose etc., will be withdrawn.  Already the inadequate minimum support price is not even matching the officially estimated costs of production in agriculture, thus, deepening agrarian distress and driving many more of our kisans towards distress suicides.  The measures now being contemplated by this Modi government will only heighten agrarian crisis and distress even further.  Thus, the record of these nine months of this Modi government has already proved disastrous for the vast sections of our people, particularly, urban and rural poor.  The contemplated measures in the budgetary exercises will only compound people’s miseries further. 

However, as the disconnect between the miniscule section of people constituting the `shining India’ and the vast majority of our people constituting `real India’ widens, the measure of a successful budget is invariably pegged to the share market behaviour.  A rising Sensex is considered – by international finance capital and domestic corporates –  as the positive fall out of a budget.  Following P Chidambaram’s example of presenting such a `dream budget’  in 1997, every finance minister seeks to emulate it. The current finance minister is no exception.  Economic dailies report that despite volatility, the Indian stock market indices – the Sensex and the Nifty – `engineered a smart reversal in stock prices last week despite a quavering start’ (Business Line, February 16, 2015). Though such a recovery is primarily based on the rally of the global equity markets with major global benchmarks hitting record highs last week, the tendency in India would be to show case such a rally by the stock markets as an indicator of the success of the budget.   The stock markets are being prepared for such an applause of this Modi government.  This is captured by a headline “All set for pre-budget rally?” (Business Line,  February 16).

All this is happening despite the fact that foreign portfolio investors have turned net sellers, ie, leaving Indian markets, in February. This is also happening despite a further fall in the value of the rupee notwithstanding the sharp fall of international oil prices.  The rupee value rose above Rs 62 per dollar. Despite this fall in the rupee value that makes our exports cheaper in foreign markets, Indian exports registered a decline of 11.2 per cent. 

In sum, therefore, whatever be the statistical manipulation, whatever be the  hyped up stock market upturn, all this data clearly points to the fact that our economic fundamentals are becoming weaker. 

Under the current dispensation of economic reforms, the effort will be to overcome the situation by making more attractive larger quantum of investments. This directly implies greater concessions to foreign capital and domestic Indian capital.  As repeatedly argued in these columns, mere increases in investment (leaving aside the damaging affects of opening up our resources and markets to foreign capital’s profit maximisation) does not automatically lead to higher employment and growth. This can only happen if the purchasing power in the hands of the Indian people grows correspondingly to consume the products of such investments.  But this purchasing power, as we have seen above, is severely contracting precisely due to the economic policy trajectory of this Modi government.   Thus, the already widening hiatus between the two Indias is destined to further widen, with further profit maximisation for foreign and domestic capital and further misery for the vast majority of our people.

Unless this economic policy trajectory of this Modi government is reversed through powerful popular people’s mobilisations, the livelihood health of our people cannot be stopped from deteriorating further, leave aside improving. 

(February 18, 2015)