September 15, 2019

Whose Market was it Anyway?

Surajit Mazumdar

IT was way back in February of 2019, when the Central Statistical Office (CSO) declared the GDP figures for the third quarter (October-December) of 2018-19 that the talk first began in the media about the Indian economy heading towards a slowdown. It didn’t, however, become the centre of attention on account of the Lok Sabha elections. However, with the GDP figures for the last quarter (January-March) of 2018-19 and the first quarter of the current financial year (April-March) now being available, it is clear that the controversial new GDP series introduced in 2015 (with 2011-12 as base year) is also capturing a trend of successive slowing down of the growth of production in the Indian economy. This picture is confirmed by another piece of data – that of growth of tax revenues of the central government. Even when compared to the previous already very poor year for revenues from central taxes, the growth in gross revenues from such taxes in April-July 2019 over the same period the previous year was a little over 6.6 per cent in the first four months of this year. The GST collections for April-August 2019 show an even bleaker picture with an increase of just 4.5 per cent over the last year – indicating that the revenue growth rate will fall further as more data becomes available.

Even without the GDP data, the signs of a crisis in the economy have been visible all around for several months. A whole range of sectors, from those like automobiles whose purchasers are typically higher income groups to those producing biscuits which are the only ones India’s poverty-stricken millions can afford, have reported sharp drops in sales and are laying off workers in large numbers. Even before such news started getting reported, the financial sector was under strain – banks were saddled with a large burden of stressed assets and the downfall of the IL&FS drew attention to the crisis brewing in the NBFCs segment. All in all, what we are witnessing is a collapse of the cycle of spending – because people and businesses either can’t or won’t spend enough, they don’t have the means or incentive to spend either. Since sales are poor, production is being cut and workers are being laid off. This means that purchases from suppliers are cut down, investments in expanding production capacity are not undertaken and workers have less money to spend. This way the problem spreads from sector to sector – but where does it originate?

Deepening agrarian distress, a huge deficit of jobs and extremely low wages and incomes have been part and parcel of the lives of millions of India’s working people. They have only been capable of constituting the market in a limited sense and Indian growth has for long been heavily dependent on the growth of consumption and business spending by a relatively small section of the population. It is the limits of this highly iniquitous growth process of Indian capitalism over the last few decades that is showing up in the form of the current crisis. By ensuring that those whose labour produces and moves around all that is produced and consumed get very little in return for their work, India’s big corporate sector, foreign investors and the high income population was able to corner most of the benefits of the expansion of production that took place. This expansion simultaneously meant that it was based on a progressively narrowing market base and was also hurtling towards hitting the maximum degree of inequality possible – and the difficulties in sustaining spending expansion for assets (not consumption) in such circumstances had revealed themselves long ago with the collapse of investment growth and the real estate boom witnessed in the previous decade.  This way, the beneficiaries of unequal growth themselves eliminated part of the market on which their income growth depended. This was reinforced by the stagnation in exports – a consequence of the combination of the state of global demand and India’s relative lack of international competitiveness. These were inevitably going to hit their consumption expenditure growth at some point – and the disruptions of economic activity caused by demonetisation, the introduction of GST and even other factors like the attack on the cattle trade pushed the process of contracting the market further. It is the spread of the effects of these body blows from sectors which were the worst affected to others that were relatively better off initially that we are witnessing today in the form of a collapse of spending. Since the government did nothing to compensate for this contraction of demand, and instead cut back its own expenditure, in the face of the adverse impact on revenues, in order to meet fiscal deficit targets, it only acted to make things worse.

The GDP data, even while indicating that Q 1 of the current year was the worst in 25 months, may not be capturing the extent of the slowdown. There are two reasons for this. The first is the general problem of overestimation of GDP growth by the new GDP series, that even the former chief economic advisor, Arvind Subramanian, has accepted could have been significant and the GDP growth rate perhaps averaged around 4.5 per cent per annum till 2016-17 rather than being closer to 7 per cent. This was, however, the story before demonetisation and GST, which brought to the fore an additional problem – namely that exceptional adverse effect that these inevitably had to have had on the unorganised sector, could not have been captured by the sample surveys conducted several years ago which formed the basis for projecting forward and estimating the unorganised sector GDP for subsequent years. The problem of overestimation thus may have become worse after 2016-17 in which case the GDP growth rate may be way below the 5 per cent level shown by official data.

The question of the GDP growth rate is relevant because it is a higher than actual figure which has allowed the government to be in denial of the extent of the crisis and even today to argue that things are not that bad. It therefore makes it less likely that proper corrective action will be taken – and the continued obstinate insistence of the government that there will be no fiscal stimulus is proof of that. A long period of visible sluggish tendencies in the Indian economy has not managed to force a rethink on fiscal conservatism either among India’s capitalists or those adhering to their class outlook. Denial of the extent of the crisis helps in avoiding any compulsions to change track. They don’t want greater mobilisation of taxes from the rich, the wealthy and big business and a big stepping up of public expenditure. When they speak of a ‘stimulus’ or of ‘structural reforms’, they mean something entirely different – more concessions to ‘encourage’ private investment by sacrificing further the interests of, and even targeting, the working people. Their present crisis only makes them even more desperate to aggravate further the almost permanent crisis of the Indian people.