THE index of industrial production for 2015-16 which has recently been released shows that the growth rate of the industrial sector for the financial year (over the previous year) comes to a meagre 2.4 percent. This virtual stagnation in industrial output is not just some sporadic occurrence. In fact the industrial growth rates for the last four financial years have been as follows:

2012-13: 1.1 percent

2013-14: -0.1 percent

2014-15: 2.8 percent

2015-16: 2.4 percent

This constitutes industrial stagnation with a vengeance. But this stagnation comes on top of a general slowdown in the growth rate of industry that has characterised the period of liberalisation as a whole. In the decade prior to liberalisation, ie, between 1980-81 and 1990-91, the annual compound rate of growth of the index of industrial production was 7.83 percent. By contrast, in the period between 1990-91 and 2011-12, ie, even before the current stagnation began, the growth rate was 6.28 percent. The period of liberalisation in other words has been characterised by a general slowing down of industrial growth compared to the preceding decade.

Even if one goes further back in time and takes the entire pre-liberalisation period as a whole, and compares it with the entire period of liberalisation, one still finds that there has been a decline in industrial growth rate in the liberalisation period. Between 1950-51 and 1990-91, ie, taking the entire period of dirigisme, we find that the rate of growth of the index of industrial production was 6.32 percent per annum. Between 1990-1991 and 2011-12, by contrast, it was, as we have seen, 6.28 percent; and if we include the years after 2011-12 when there has been a palpable stagnation, then the figure for the liberalisation period turns out to be distinctly lower.

Since the period of liberalisation has also seen a reduction in the rate of growth of agricultural production (including in particular of foodgrain production) compared to the earlier years, it follows that the rate of growth of the material production sector as a whole in the period of liberalisation has been lower than in the period of dirigisme. The much-trumpeted acceleration in GDP growth that liberalisation is supposed to have ushered in refers exclusively therefore to the service sector. But the inclusion of this sector in GDP has itself been a matter of debate because of the conceptual and statistical problems associated with service sector “output”, ie, problems relating to what exactly this output is, and whether the figures purporting to capture this output really do so.

An example will make the conceptual problems clearer. Consider a simple economy where only 100 units of corn are grown and nothing else. Of these 100 units the landlords take 50 units, of which they themselves consume nothing (for simplicity) but with which they maintain 50 goons to terrorise the peasants. The GDP of this economy as officially measured will be not 100 but 150, consisting of 100 corn and 50 “service sector output” (which is the salary of the goons). Now, suppose the landlords take away not 50 but 70 units out of the 100 grown by the peasants, and pay these goons not 1 unit per head but 1.4 units per head, then the GDP will show an increase from 150 to 170! Not only in other words are those living off the surplus assumed to be “producing” an output, but an increase in the rate of exploitation of the actual producers (in this case the peasants) is shown as constituting an increase in the GDP.

It is because of this absurdity which is invariably attached to the concept of service sector output, that the former Soviet Union and other socialist countries never included the service sector in their National Income estimates. They took only the material production sector in counting their GDP, and on this measure the period of liberalisation in India shows a lower rather than a higher rate of growth of GDP compared to the period of dirigisme.

The point however is not just whether the GDP growth rate has accelerated or declined in the period of liberalisation. We are now in a situation where the industrial sector is not just growing slower than before liberalisation; it has virtually stopped growing and has ground to a complete halt.

Industrial stagnation of course is not a new phenomenon in India, but there is a difference between the current industrial stagnation and the kind of stagnation that used to occur during the dirigiste era. In the mid-sixties for example there had been a period of industrial stagnation, but the proximate reason behind that stagnation had been the sharp drop in foodgrain production in 1965-66 and 1966-67 which had even produced a famine-like situation in Bihar.

Under dirigisme in other words, the ebb and flow of industrial production had been closely associated with the ebb and flow of agricultural production: bad crop years meant lower incomes for the producers but higher food prices for the consumers (until procurement and public distribution, which picked up after the mid-sixties, mitigated somewhat the impact of crop failures on the prices paid by the consumers). This left less purchasing power in the hands of both the producers and also the consumers, notably the workers and the salariat, for spending on industrial goods. In addition, when food prices rose because of a bad crop, the government cut back its own expenditure in order to control inflation, which also had a contractionary effect on industrial demand. Hence industrial demand, and industrial output, were linked to the performance of the agricultural sector.

But this is no longer the case. What is noteworthy about the current industrial stagnation is that it has occurred even when agricultural output, including foodgrain output, has not witnessed any sharp fall. On the contrary, both 2011-12 and 2013-14 were good agriculture years, and even though the output after 2013-14 has been less, this reduction is nowhere near what had been witnessed in the mid-sixties. And, in any case, good agricultural years like 2011-12 and 2013-14 should have been followed by high rates of industrial growth in 2012-13 and 2014-15 respectively (assuming a one-year lag), and not the meagre growth rates we actually find.

The fact that the current industrial stagnation, unlike what had been experienced in the mid-sixties, cannot be attributed to a fall in agricultural output is noteworthy. It shows that the basis of recent industrial growth has been quite different from earlier, less dependent on the demand of those sections of the population whose purchasing power varies with the performance of the agricultural sector. In other words it is not the domestic mass market which tends to be dependent on the size of the agricultural output, but the “elite market” and the export market which have provided the stimulus for the recent industrial growth; and with world capitalism engulfed in a crisis, this market has been adversely affected. Unlike in the dirigiste period the Indian economy is now much more closely integrated with the world capitalist economy; and the explanation for industrial stagnation must be found in the health of the world capitalist economy.

If we take the month of March 2016 alone, we find that the growth-rate of the index over the previous March was virtually nil (0.05 percent). Just a few days ago however the media had prominently announced that the growth rate of the index for the “core sector” alone was 6.4 percent for March and that this was indicative of a strong industrial recovery that was underway. Not only is there no such recovery, but the fact of stagnation in the overall index despite “core sector” growth, suggests that there has been a strong contraction in the non-core sector. Since the government occupies a significant position in the core sector, the contraction in the non-core sector is indicative of a contraction in the domain of the private industrial sector. And since contraction in the private sector has second-order effects via cutbacks in investment which in turn bring down capital goods output, this implies that the industrial scenario is set to worsen in the days to come.

In fact a serious contraction in capital goods sector output is already evident. In the month of March 2016, the index of industrial production for capital goods contracted (compared to the previous March) by 9.5 percent, which contributed to a contraction in manufacturing as a whole by 1.2 percent in that month. But in April the capital goods sector contracted by 15.4 percent!

This is a phenomenon occurring everywhere in the capitalist world and is a hallmark of the capitalist system itself. In any industrial slowdown in capitalist conditions, the consumer goods output invariably falls less than the capital goods output. This phenomenon (to which Rosa Luxemburg had drawn attention) can be explained as follows: imagine a situation where the consumption goods sector’s growth-rate is zero. In such a case, capitalists will make zero addition to the capacity of the consumption goods sector. Hence, barring replacement of old equipment and the capital goods sector’s own internal investment, both of which we ignore for the moment for simplicity, the investment in the economy, and hence the output of capital goods, will be zero.

In other words a zero growth-rate in the consumption goods sector produces a zero output of the capital goods sector in this simple example. (Economists call this phenomenon the operation of the “accelerator”). Capital goods production therefore tends to shrink much more than consumption goods production in a crisis. And by the same token the real sign of a recovery from the crisis is when the growth rate of the capital goods output picks up and capacity utilisation improves in this sector, for that indicates that capitalists are beginning to make investments. This however is not happening anywhere in the world now, not even in the US, which only underscores the persistence of the world capitalist crisis.

When the capitalists all over the world are reluctant to invest at all, the Modi government’s call to them to “make in India” (ie, to invest in India) is bound to go unheeded. And making this the cornerstone of a strategy for the revival of the Indian economy, which the Modi government has done, only indicates its utter bankruptcy. The fact that months after the “make in India” policy was announced, with its plethora of concessions to capitalists, the economy continues to be mired in industrial stagnation, is proof of the vacuity of that policy.