January 19, 2020

Price Rise Adds to Economic Woes

THE Indian economy is in dire straits. The government has projected a growth rate of GDP of 5 per cent for 2019-20, a full 2 percentage points less than what was assumed in the budget presented in July 2019. The actual outcome may be worse, with the State Bank of India projecting a growth rate of 4.6 per cent. But the story of the Modi disaster on the economic front does not end here.

The latest news is that retail inflation has risen to 7.35 per cent in December 2019 which is the highest rate of retail inflation since July 2014.  While the consumer price index has risen by this rate, the rise in inflation is much higher for food items at 14.12 per cent with the sharp rise in prices of onion, potato, vegetables and pulses. The wholesale price index has also shot up to a seven-month high of 2.6 per cent in December.  The retail prices of petrol and diesel have been steadily increased all through 2019 – Rs 5.1 per litre of diesel and Rs 6.3 per litre of petrol. This has contributed to inflation and it seems there will be no respite on this  front given the tensions in the Middle-East due to the US aggressive postures towards Iran.

Many economists have noted that the Indian economy is not merely sliding towards a recession but is, at the same time, facing a rising rate of inflation. In other words, the Indian economy is now experiencing “stagflation” – rising prices and slowing output growth.

The budget presented by the finance minister in July 2019 is in shambles. All the figures presented in it have been completely off the mark by huge amounts. The government has taken measures ostensibly aimed at reviving growth even while not admitting officially that the economy has slowed down. But they have all consisted essentially of huge tax concessions to Indian big business and foreign finance capital. The first measure taken was to mollify foreign portfolio investors by removing the surcharge on capital gains tax imposed in the budget. Later, subsidies to the tune of Rs 50,000 crores towards exports and Rs 20,000 crores for real estate and housing were announced. With no improvement in the economy, a whopping 1.45 lakh crores in tax concessions were gifted to the corporate sector, by bringing the corporate income tax rate to a flat 22 per cent (from the existing 30 per cent rate for corporates with annual turnover exceeding Rs 400 crores and from 25 per cent for all other corporate entities). As a result, despite bulldozing RBI into parting with 1.76 lakh crore rupees, the government saw its deficit increase further.

With a slowing economy, the tax collections have also been much lower than estimated, hurting the states in particular, with the centre deferring payments of GST compensation to states. These steps have done nothing to address the crisis of demand in the economy, but merely undermined government revenues. Instead of expanding the allocation for MNREGS, increasing public investment in agriculture, rural infrastructure and the social sectors, and initiating a similar employment programme in urban areas, all of which would have put money in people’s hands and improved economic viability of agriculture, the government has been cutting down allocations in all these areas.

The much publicised announcement recently of Rs 102 lakh crore of investment in infrastructure over the next six years not only involves a dilution of the commitment to do so in five years, but far worse, is unlikely to happen anywhere on the scale mentioned. The centre says only 39 per cent of the funds for this will come from government of India, another 39 per cent has to come from all the states and the remaining 22 per cent will come from the private sector. With state finances in bad shape after demonetisation, ham handed GST implementation and the centre’s tax giveaways that will hurt tax  revenues of states badly, and with the economy on the verge of recession as well as experiencing stagflation, the big announcement is largely hype.

What is happening is that the centre has embarked on disinvestment of PSUs on  a massive scale at throw away prices, putting many profitable PSUs on the chopping block and causing the country immense losses, both current and future. This is completely unacceptable.

The government’s own reports show the massive rise in unemployment, the continuing agrarian distress and the absolute decline in real per capita consumer expenditure in rural India of the order of 8.8 per cent between 2011-12 and 2017-18. While all these, primarily caused by neoliberal policies substantially worsened by demonetisation and poorly designed and implemented GST, have caused economic growth to collapse, we now have the additional problem of severe inflation in essential commodities. Given the nature of this government, it will  not heed sound advice to reverse these policies and promote demand in the economy as well as improve supply infrastructure through massive public investment. Instead, it will seek to further liberalise the labour and land markets as demanded by international finance capital and Indian monopoly capital. 

The common people are faced with the dual burden of depressed wages and rising unemployment on the one hand and price rise of food items and other essential commodities on the other. 

There is no other way but to build up popular resistance to the harmful policies of the Modi government and to intensify the class and mass struggles.

(January 15, 2020)