September 01, 2019

Dismal Economic Scene

THE bad news about the economy continues to pour in. The deteriorating employment situation is becoming alarming. Around 3.5 lakh jobs have been lost in the automobile sector, with the prospect of more loss of jobs. In the consumer goods segment, the biggest biscuit manufacturer, Parle, has announced that 10,000 jobs may have to be axed. The corporates are utilising the recession to cut jobs and protect their profits. The steady stream of job losses in various sectors comes in the background of the National Sample Survey data which showed that the unemployment rate of 6.1 per cent for the year 2017-18, was a 45 year high. The steady rise in unemployment is one of the main reasons for the recession which has set in.

The Modi government does not have a clue as to how to tackle the situation. Despite all its blandishments, private investment is not forthcoming. In fact, the 2018 report of the task force for drafting the new income-tax law has estimated that corporate investments fell by an astounding 60 per cent in 2016-17 – to Rs 4.25 trillion from Rs 10.33 trillion in the previous year.

The key problem in the economy is the shrinking demand. The lack of purchasing power among the people due to growing unemployment and the existence of low-paid employment is resulting in lack of demand for consumer goods and other commodities like two-wheelers. The stagnation in real rural wages has led to a slump in rural demand.

In such a situation, the steps announced by union finance minister, Nirmala Sitaraman of rolling back additional surcharge on income tax of foreign institutional investors, removal of angel tax on start ups, infusion of Rs 70,000 crore credit in banks and Rs 20,000 crore for housing finance companies will not help revive economic growth or tackle the problem of lack of demand and the rampant unemployment.

Since the budget proposed the surcharge on foreign portfolio flows, FIIs have pulled out $ 3 billion from the Indian markets. This has forced the government to cave in and roll back the surcharge. The measures announced will gladden the foreign hot money investors and banks but will do nothing to increase productive capacities and generate employment. Lowering interest rates and easing lending restrictions by banks will only help debt-ridden business houses to retire earlier high cost loans or help unscrupulous borrowers to misuse the money.

The government has now appropriated an unprecedented Rs 1.76 lakh crore from the Reserve Bank of India’s reserve and surplus funds. This desperate act is meant to reduce the fiscal deficit and make up the revenue loss incurred through GST implementation and the tax concessions given to big business and foreign finance capital. It will harm the economy and the livelihoods of the working people unless the government uses this money for spending on rural employment guarantee scheme, infrastructure and other measures which will create demand. As of now, the government shows no such indications.

The only way the economy can be revived is by boosting public spending. The government has to step up public investment in infrastructure, agriculture and education and health sectors. This would generate jobs and incomes. Unless the government breaks out of the neoliberal shibboleths about fiscal consolidation and steps up government expenditure, the economic crisis cannot be overcome.

This is especially so when the global economy is heading for a recession and exports from India are bound to fall further. Focus on public investment and creating demand and hence jobs in the economy is the only way forward.The government should also give up its privatisation spree in the public sector which is going to strip public assets and add to joblessness.

The working class is already on the path of struggle against the privatisation drive of the Modi government. 82,000 employees and 40,000 contract workers of the defence production sector went on a historic five day strike as part of the first phase of the struggle against corporatisation of the Ordnance Factory Board. More and more sections of the working people will have to conduct united struggles to defend their jobs and livelihoods. The policies which favour big capital and foreign financial interests at the cost of employment and growth must be resisted and reversed.

(August 28, 2019)