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Food Price Spike: How Farmers’ Protest Saved the Country

sabrang — Tue, 26 Sep 2023 04:24:50 +0000

The current upsurge in prices in India is led by food prices. In July 2023, while retail inflation was 7.44% (over July of the previous year), food price inflation, which covers all food items, including foodgrains, vegetables, milk products and such like, was 11.5%. Food price inflation came down a little in August to around 10%, largely because of some supply management measures adopted by the government relating to vegetables like tomatoes. This was responsible for bringing down the overall retail inflation rate to 6.83%; but obviously food price inflation, and with it, overall retail inflation, continues to remain a serious problem.

It is not just in India that food prices are rising sharply. This is a global phenomenon characterising not just the Third World but even the advanced capitalist countries. The usual explanation attributes it to the scarcity caused by the Ukraine war, but while the Ukraine war can, in principle, be such a cause of inflation by generating scarcity, the current rise in food prices is, if at all, more in anticipation of such a scarcity than a result of any actual scarcity.

There is plenty of evidence from all over the world which shows that even before any actual scarcity has occurred, profit-margins have increased in the retail foods sector, which indicates a jacking up of prices by monopolists in anticipation of scarcity. The same is true in India, because of which many are talking about “inflationary expectations” being at play, which drive up actual prices because of a rise in expected prices.

But inflationary expectations can play a role only when, despite there being no actual shortage, the actual supply situation is not characterised by great abundance. After all, when there are huge foodgrain stocks lying around, prices are not jacked up by suppliers in anticipation of inflation: if such stocks are held by the government, suppliers know that they would be released to consumers at prices that would negate any jacking up.

Even if the stocks are held by private sellers, their priority would be to bring down the level of stocks rather than jack up prices. What is more, even if some suppliers jacked up prices, others would see in it an opportunity to take away customers from these sellers and reduce their levels of stocks. “Inflationary expectations”, in other words, play a role only when the underlying situation is one where supplies are not too comfortable.

This has been the case with the world foodgrains market for quite some time. The annual per capita world cereal production, for instance, (taking a triennium average divided by mid-triennium population) was 355 kg for the triennium 1979-80 to 1981-82 (or 1980-82 for short); it fell to 343 kg by 2000-02, and even over the period 2016-18 it was only 344 kg.

Moreover, a rising proportion of cereal output 2002 onward has been diverted to ethanol production, which means that the per capita availability of cereals for consumption purposes for the world’s population must have shrunk.

If this shrinking availability did not give rise to any persistent and significant inflationary pressures till now, the reason lies in the fact that under the neoliberal regime there has been a drastic squeeze on the purchasing power of the working people, especially in the Third World. There has been, in short, a precarious balance maintained between shrinking availability and shrinking demand because of income compression imposed on the working people. Because of this even while poverty and undernutrition have increased greatly in the neoliberal era (though this fact is usually sought to be concealed by the numerous “poverty studies” under the aegis of the Bretton Woods institutions), this deprivation has generally not taken the form of an inflationary squeeze. There have been occasional upsurges in food prices, but these have been “controlled” by compressing the incomes of the working people, which again restores the precarious balance between demand and supply in a non-inflationary manner.

Exactly a similar situation has prevailed in India. In 1991, the per capita availability of foodgrains was 510.1 gm per day. This had slightly gone down to 501.8 gm per day in 2019-20. In the next two years, government distribution of foodgrains during the pandemic, which was made possible through a decumulation of government foodgrain stocks, raised the figure to 511.7 gm and 514.6 gm, respectively, but clearly over the entire neo-liberal period, per capita availability of foodgrains, according to official data, scarcely increased. There was, in other words, a precarious balance between demand and supply which was maintained without any significant and steady increase in prices because the purchasing power in the hands of the working people was kept adequately squeezed through the modus operandi of a neoliberal regime.

This precarious balance can be upset at any time, giving rise immediately to a rise in foodgrain prices and hence to inflationary expectations that compound the problem, until under capitalist conditions a squeeze on purchasing power is further tightened through the so-called anti-inflationary policy adopted by the government.

The Ukraine war and the global rise in foodgrain prices provides the context for the generation of inflationary expectations in India as well. This is further reinforced by the fact that the foodgrain stocks with the government, while higher than what is required to manage the public distribution system, is lower than what it has been for some time.

August 22, for instance, the total foodgrain stocks with the Food Corporation of India were 52.335 million tonnes, consisting of 24.296 million tonnes of rice and 28.039 million tonnes of wheat. These stocks were higher than the operational stocks required for the public distribution system but were lower than at any time during the preceding six years, which would have given a signal to speculators to hoard grains and push up the open-market price.

This running down of stocks was itself a result of an extraordinarily unwise policy of the Narendra Modi government, which thought it could bring down foodgrain inflation in the open market by disgorging the stocks it held. The speculators just bought up what the government disgorged, so that inflation continued as before, while government stocks were gratuitously run down, thereby further strengthening inflationary expectations and hence the inflationary process. And, of course, when foodgrain prices rise, fuelled by inflationary expectations, this tends to have the general impact of raising prices of other food items as well.

There are two alternative ways of combating the food inflation that is occurring. One is through monetary policy, raising interest rates and tightening credit in general. In the old days, on such occasions, only the credit given to the foodgrain sector was tightened, under a policy called “selective credit control”, But in the neo-liberal era this has fallen into disuse, because of which interest rate policy is used, which necessarily hurts the viability of small enterprises and causes significant unemployment. This way of controlling food price inflation, in short, entails the creation of unemployment; and this, alas, is the generally favoured panacea for inflation under capitalism.

The other way of controlling inflation is to widen the reach of the public distribution system so that government stocks are not disgorged in the open market, but consumers are taken off the open market and government stocks are distributed among them, so that speculators cannot have access to these stocks.

Of course, enlarged sales through the public distribution system will have to be followed by enlarged procurement by the government through the Food Corporation of India, if the system of food distribution is to survive; and any way, the government is planning to procure 52.1 million tonnes of rice in this year’s kharif season. This is an absolutely essential measure for beating the current food inflation.

The extraordinary silliness of the measures that were sought to be put in place through the three infamous farm laws now becomes obvious. If those measures had not been withdrawn because of the agitation of the farmers, then procurement would have been privatised and the government would have had no means of combating inflation which would have continued unabated under the aegis of the private sector.

Fortunately, the farmers saved the country, and public procurement of foodgrains continues to prevail; and the government still has a weapon in its hand to combat inflation without generating mass unemployment.

Courtesy: Newsclick

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Criminal Callousness of Modi Government in Hiding Data

Fri, 22 Nov 2019 04:30:13 +0000

The National Statistical Office (NSO) has decided not to release the quinquennial survey data on consumer expenditure for 2017-18. This is because these data, leaked by The Business Standard (November1 5), show a drop of 3.7% in real per capita consumer expenditure between 2011-12 and 2017-18, from Rs 1,501 per month to Rs 1,446 per month (at 2009-10 prices).

An actual drop in per capita consumer expenditure is an extremely serious matter. Such a drop has occurred for the first time in over four decades; the previous occasion when a drop had occurred was in 1972-73, when a poor harvest had combined with the first oil shock by Organisation of Petroleum Exporting Countries (OPEC) to push up inflation and to squeeze drastically the real purchasing power in the hands of the people.

Those, however, had been erratic disturbances: either external factors (OPEC price-hike) or episodic factors (poor harvest) for which the government could not be held responsible, though it could, of course, be faulted for the way it handled these disturbances.

In 2017-18, there are no such erratic disturbances outside of the government’s control. The only disturbances that had shaken the economy during the 2017-18 survey period, were the demonetisation of currency notes and the rolling out of the Goods and Services Tax (GST), for both of which the Narendra Modi government was solely responsible.

To be sure, these disastrous decisions alone cannot explain the fall in per capita consumer expenditure.

The incidence of the fall has been particularly sharp in rural India where per capita expenditure has declined by 8.8% between 2011-12 and 2017-18, compared with a rise, though by a mere 2%, in urban India between these dates. And in rural India, signs of distress had been visible for quite some time, quite apart from demonetisation and GST. The latter, in short, acted on an already distressing situation to make it more distressing; but it is not as if the situation was tolerable otherwise.

The clearest proof of the distressing situation comes from production data. The government is claiming that production data run contrary to the data on consumer expenditure, but this is a false claim. If we take the current price net value added in “agriculture and allied activities”, which is the source of all incomes derived within this sector, and divide it by the agriculture-dependent population (estimated by assuming that its ratio in total population did change over a short period), then we find that, deflated by the consumer price index for rural India, the per capita real income of the agriculture-dependent population declined slightly between 2013-14 and 2017-18.

Since the agriculture-dependent population also includes landlords and agricultural capitalists, who have a large share despite being few in number and whose incomes could be safely assumed not to have fallen over this period, the decline for the bulk of the rural population, the working people of rural India, must have sharper. (And even if the ratio of the agriculture-dependent population in total population is assumed to have fallen over this period, the fall could not have been large enough to negate this conclusion).

The same conclusion holds if we change the terminal date from 2017-18 to 2016-17, i.e., before demonetisation could have had any impact. It follows that whatever impact demonetisation (and the GST) had, was superimposed upon an agrarian economy already in distress because of the neo-liberal policies being pursued by successive governments, and pursued with particularly ruthless single-mindedness by the Modi government.

The decline in food expenditure has been especially sharp, by as much as 10% in per capita terms between 2011-12 and 2017-18 in rural India. This must have increased the magnitude of poverty quite significantly.

Contrary to official claims, the magnitude of poverty, which is defined with respect to a calorie norm in India, had been rising both in urban and in rural areas over the period of neo-liberal policies. This is evident if we compare the figures for 1993-94 and 2011-12 (both quinquennial survey years). This magnitude must have got a further sharp upward push in 2017-18.

It is typical of the Modi government to suppress these data on consumer expenditure, which it finds uncomfortable. It had done the same with employment data before the Lok Sabha elections in May this year, which had shown an unemployment rate higher than ever before in the last 45 years; but these data at least were officially released afterwards.

With regard to the consumer expenditure data, however, the government has decided not to release these at all. It will wait till 2021-22 for the next quinquenninal survey, by which time it would have suitably modified the method of data collection to ensure that it gets a prettier picture, before it comes out with any figures on consumer expenditure.

The argument it has advanced for suppressing the consumer expenditure data are quite absurd: the “data quality” according to it, is “poor”. But this is a matter that could have been left to the researchers and the public at large, instead of being decided by a set of bureaucrats and hand-picked “experts”. The government could have just released the data and taken the stand that not much should be read into them because of poor “data quality”.

In fact, when the quinquennial survey on consumer expenditure in 2009-10 showed a substantial increase in poverty compared with 2004-05, the government of that time ordered a fresh large sample survey in 2011-12. The argument advanced was that the 2009-10 survey could not be taken seriously because it had been carried out during a drought year; but that did not prevent the government of the time from releasing the data for 2009-10. And indeed, 2011-12, which was a good crop year, showed a substantial increase in per capita consumer expenditure compared with 2009-10, though it did not negate the conclusion about a rising trend of poverty (in terms of calorie deprivation) in the neo-liberal period.

In fact, this is the first time that the data thrown up by an official statistical survey have been entirely suppressed, with all the expenditure undertaken for the survey going down the drain. For a government to waste so much of the nation’s resources, by commissioning a survey whose results are then suppressed, just because it does not want its hype about acchhe din destroyed, shows a level of megalomania that is unimaginable.

What is even more worrying is that the Centre’s megalomania would destroy the statistical system that the country had built up so painstakingly under the leadership of Professor P C Mahalanobis, when Jawaharlal Nehru was Prime Minister.

The National Sample Survey that Mahalanobis had set up was the largest sample survey in the world, a source of information unparalleled anywhere in the Third World, a matter of pride for the country, and an immensely valuable input for research. To muck about with it, to destroy this valuable source just so that the hollowness of the government’s claims about its “achievements” is not exposed, constitutes an instance of criminal callousness.

The government argues that the consumer expenditure data are not in keeping with other official indicators, and that this is the basis of its argument that the “data quality” is poor. But these data are completely in conformity with what one gleans from all other sources. They are in conformity with the unemployment data mentioned above. They are in conformity with the agricultural income figures mentioned above. They are in conformity with the massive downturn that the economy is experiencing at present, when not a day passes without some fresh news appearing about its miserable performance. The fact that the sales of even simple consumer items, such as biscuits, have been falling of late is in conformity with the absolute decline in per capita consumer expenditure.

When the nation is in the grip of a severe economic crisis, instead of using every bit of available information to understand the crisis, the Modi government is suppressing valuable information. This is the measure of its seriousness in overcoming the crisis.

Courtesy: News Click

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How the Corporate-Hindutva Axis is Assaulting India’s Federalism

Fri, 20 Sep 2019 05:35:46 +0000

‘One nation-one language’ is as dangerous to our federal polity as ‘one nation-one tax’, which is how the GST was sold. Both are moves for greater centralisation.

The anti-colonial struggle saw the emergence of a pan-Indian national consciousness that was superimposed upon a pre-existing “nationality” consciousness based on linguistic regions. The pan-Indian national consciousness, in other words, was superimposed upon a Bengali or Gujarati or Tamil or Odiya consciousness; and the anti-colonial struggle saw the flourishing of both kinds of consciousness.

Comrade EMS Namboodiripad is somewhat unconventional in tracing the roots of the regional-linguistic consciousness to a period even pre-dating the Bhakti Movement; but that is a debate we need not enter into here. The point is that every Indian is imbued today with a dual national consciousness. Both forms of consciousness have to be nurtured; a delicate balance has to be maintained between the two. Overemphasis on any one consciousness to the exclusion of the other will lead to a break-up of the nation.

The federal structure of our polity is an expression of this dual consciousness. In fact, below the linguistic-regional consciousness, there are other levels of consciousness, for which again the polity has devised various means of accommodation, such as “autonomous councils”; these may or may not be adequate or sufficient, but the basic point is that Indian federalism requires mutual accommodation, not centralisation, as is the current tendency.

This derives from the very nature of our anti-colonial nationalism. No other kind of nationalism, such as religious nationalism, can provide the basis for such accommodation, which is why re-fashioning the polity on the lines of the Hindutva ideology, will lead inevitably to a break-up of the nation. This point will be recognised immediately with regard to the oppression that Hindutva unleashes on the religious minorities; but it has a general validity, beyond the communal divide that Hindutva stokes, encompassing regional revolts that any centralisation would inevitably generate.

Hindutva “nationalism” assumes that the (Hindu) “nation” has already existed, so that there is no need for any accommodation between the Centre and the states; that any demand for such accommodation can come only from some “corrupt regional elites” wishing to line their own pockets; and that riding roughshod over any demand for accommodation is in the “nation’s interest”. It is, therefore, essentially centralising; and every such centralisation pushes the country either towards an eventual partition, or towards authoritarianism to prevent such a partition.

Such authoritarianism then becomes a self-justifying phenomenon: “look at the law and order situation, the number of violent incidents perpetrated by the ‘terrorists’; surely the suspension of civil liberties and the imposition of a clampdown is justified under these circumstances” (the kind of official argument advanced in the case of Jammu and Kashmir that has reportedly impressed even the Supreme Court of India).

The disastrous consequences of such centralisation are evident in the case of Jammu and Kashmir. Articles 370 and 35A were expressions of an accommodative nationalism, which took into account the exceptional circumstances of the state’s accession to India: a Muslim-majority state ruled by a Hindu ruler, which, instead of acceding to Pakistan, acceded instead to India on the basis of these special Articles. To suddenly and unilaterally abrogate these Articles represents a violation of that pledge, which, no matter how strongly cheered by Hindutva votaries in the rest of India, is a blow against the foundations of the entire Indian nation.

The fact that religion cannot be the basis of nationalism, because it presumes the existence of a nation from time immemorial, and hence precludes the accommodativeness that must inform the emergence of a modern nation after long years of colonial rule, was demonstrated very clearly by the break-up of Pakistan, where the eventual secession of the eastern part had begun with a language movement. Hindutva nationalism is pushing India in the same direction; and those celebrating the humiliation of the Kashmiris will come one day to rue the government’s decision.

In fact, not content with the disaster it has unleashed in Jammu and Kashmir, the Narendra Modi government is now pushing for the imposition of Hindi all over the country, which is another horrendous measure of over-riding the aspirations of the various regional-linguistic nationalities. It is another move for fracturing the nation in the name of unifying the nation; and the tendency towards fracturing will inevitably call forth, for the sake of countering this tendency, further curbs on human rights and civil liberties for all.

This tendency to over-ride the aspirations of the regional-linguistic nationalities, which takes the form of increasing centralisation within our federal arrangement, does not arise from Hindutva alone; in its economic form, it also conforms to the demand of the corporate-financial oligarchy. The introduction of the Goods and Services Tax (GST), which took away the states’ rights to impose commodity taxes as they liked and vested this right in a GST Council before which every state must now come as a supplicant if it wishes some adjustment in rates, was an astonishing measure of centralisation. The states which had then agreed to such centralisation under various erroneous expectations are now realising the gravity of their mistake. “One nation-one language” is as dangerous to our federal polity as “one nation-one tax” which is how the GST was portrayed.

A view is commonly advanced that it is not the GST as such but the haste with which it was introduced that is the cause of the troubles that have arisen. This is simply not true. The travails of the economy arising from the GST do so because of the GST itself. The reason is simple: in an economy like ours where the large-scale sector often buys inputs from the small-scale and petty production sector (so that it can take advantage of the latter’s low wages), for the former to get tax refunds it must ensure that the latter, i.e. its input suppliers in the small-scale sector, file their GST returns.

This implies two things: first, the small-scale sector has to incur larger costs than it did before. In fact, because of “indivisibilities”, the cost of complying with the GST procedure is even greater per unit of output for the small-scale sector than for the large-scale sector. Second, many small units that did not pay taxes earlier are now dragged into the tax net. And given the fact that the GST rates had to be fixed so as to make them “revenue-neutral” as far as possible, and also the fact that the rates had to be uniform across the country for individual goods, many small units that did not pay taxes earlier end up paying hefty taxes.

Not surprisingly, many small units are going under because of the GST burden. When this happens, it adds to the recessionary effects on the Indian economy of the global slowdown that has itself arisen because of the contradictions of neo-liberalism. Such recessionary tendencies, in turn, result in reduced tax revenue collections from the GST which is what we find today.

All this, to repeat, is not because of any haste or clumsiness in introducing the GST; that is just a neo-liberal myth. It arises because of the GST itself. A tax amount that was raised earlier from only one segment of the economy, excluding many small producers, is now sought to be raised from a much larger segment of the economy that includes these small producers. Little wonder then that the small producers are getting squeezed in a manner they had not been before.

The GST idea that was “sold” using all kinds of spurious arguments, such as the fact that it would unify the “national” market (as if the world’s mightiest capitalist economy the US which does not have a GST lacks a unified “national” market), is now getting exposed for what it really is: a way of passing off a part of the commodity tax burden that was earlier borne by the large-scale sector to the shoulders of the small-scale sector as well.

The assault on the federal structure of the Indian polity arises, therefore, from two sources: the Hindutva elements on the one hand, and the corporate-financial oligarchy, on the other. Since the country is currently ruled by an alliance where these two elements play a pivotal role, a corporate-communal axis if you like, the centralising tendency is overwhelming. It is riding roughshod over the regional-linguistic nationalities that are an essential component of our dual national consciousness; this fact will spell disaster for the nation in the days to come.

The Bharatiya Janata Party often claims that it has done in 70 days what earlier governments had not been able to do in 70 years. It is correct. The nation had not allowed bulls into its China Shop all these years; now these are running rampant.

Courtesy: News Click

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JNU Registrar Asks for Romila Thapar’s CV To “Evaluate” Her Work

Tue, 03 Sep 2019 06:05:50 +0000

Professor Romila Thapar, the well-known historian and my long-time colleague at the Jawaharlal Nehru University (JNU), received a letter from the Registrar of JNU in July 2019, asking her to submit her curriculum vitae (CV) so that a committee appointed by the university could evaluate her work and decide whether she should continue as professor emerita of the JNU. Thapar retired in 1991 and was made emeritus soon after.

The current Executive Council of the JNU seems to be unaware of even the meaning of an emeritus professorship. It seems to think that it is an appointment against a post for which there are multiple applications.

An emeritus position is completely different. There are no posts and nobody ever applies for it. It is an honour conferred for life by the university on a retiring or retired professor in appreciation of their outstanding past work. This is true of every university in the world.

This current action of the JNU contradicts the very basis on which the status of professor emeritus was conferred on retired faculty in the JNU.
It needs to be reiterated that in the letter conferring the title of professor emeritus/emerita, it is described as honorary and is for life. It is clearly stated that it is in recognition of the outstanding contribution in teaching and research of the professor so honoured, and as an esteemed faculty member for outstanding academic achievements.

The current Executive Council and administration of JNU have either not understood, or have chosen to overlook, the import of this. Hence it needs to be explained for their benefit.

That the emeritus professorship is honorary means just that. The university does not have to make any special arrangements, financial or otherwise, to accommodate such professors. It is only a status that is conferred by the university on the retirement of a selected faculty member.
So the question of making positions available for other potential candidates does not arise. It costs the university nothing. The choice of professor emeritus is a comment on the academic values of the university. There can be any number of such professors. It is quite clearly an honour that is given for life; therefore any periodic reassessment is out of the question.

The honour is not conferred for work in the future, work that is yet to be done, but for the work that the faculty member has done before retirement. This means that it is based on the work that the professor has done before the award was conferred. It is a lifetime achievement award as well; therefore any assessment of work subsequent to the award is not required. The continuity of the award is not dependent on future work.

When a university confers this honour, there is no question of any prior submission of an application for it nor of a CV. Detailed information about the academic achievements and activities of its faculty should in any case be known to the university from its own website and records, provided these are properly maintained by the administration. There should be no need to ask for CVs. Nor is there any need for testimonials and peer group views since it is conferred.

In her response to the registrar, Thapar has reminded the university administration that they should be aware of what it means to confer an emeritus professorship, as has been explained above.

Furthermore, she has quite rightly asked, what exactly is the committee going to assess and how? Is it going to give a grade to the books that she has published since becoming a professor emerita, the major one, The Past before Us, being a pioneering study of historiography in early India? Is it going to evaluate the fact that she was awarded the Kluge Prize in History in 2008, which is regarded as equivalent to the Nobel and is given specifically in disciplines not covered by the Nobel Prize? How is the committee going to grade the other publications and the other awards?

Ironically, just prior to receiving this letter from the registrar of JNU, Thapar received a letter from the American Philosophical Society (APS), informing her that she has been selected for the society. The APS is the oldest scholarly society in the United States with a restricted membership selected on the basis of intellectual achievement.

The contrast in the treatment of a reputed Indian scholar by a foreign learned society, and the university that the scholar has served for decades and of which she was among the founding professors, is too stark to be missed. The Centre for Historical Studies of the JNU has also objected to this attempt to reconsider the status of emeritus for Thapar.

There is much talk these days about improving the quality of our higher education. This would remain a chimera if our outstanding scholars are treated in this manner by their own universities.

First published in Indian Cultural Forum

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Why the Debate on RBI Reserves is Entrapped in Neo-Liberal Homily

Sat, 05 Jan 2019 08:24:10 +0000

By not doing anything disliked by global finance – taxing capitalists and fiscal deficits – the neo-liberal regime is being depicted as the only possible universe that could possibly exist.

Entrapping all intellectual discussion within a particular discourse is the commonest method that neo-liberalism uses for establishing its hegemony. There was, for instance, the recent debate on the “autonomy” of the Reserve Bank of India (RBI), where one side wanted control over the RBI by the government and its coterie of “crony capitalists”, while the other wanted an RBI catering to the whims and caprices of globalised finance. The question of popular or parliamentary control over the institution was simply never raised. The same phenomenon of entrapping intellectual discussion within a particular discourse can be seen in the debate on a related issue, namely the use of RBI’s reserves to boost government expenditure.

The question to ask is: why should the government, which has the power to tax and borrow resources, feel the need to turn to the RBI’s reserves for increasing its expenditure? The answer is that it does not have real power within the neo-liberal dispensation to do anything that is disliked by globalised finance; and since finance dislikes both taxes on capitalists and fiscal deficits (taxes on the working people to finance larger expenditure would increase neither employment nor welfare), it finds itself in a bind. Its compulsion to turn to the RBI’s reserves for increasing expenditure in this election year derives from this fact, which is rooted in the reality of the neo-liberal regime.

Camouflaging Fiscal Deficit
There is a further point to note here. Using the RBI’s reserves actually amounts to an increase in the fiscal deficit, though it would not figure as such in the government’s budget. An obvious way that these reserves can be drawn down is by increasing the dividend payments from the RBI to the government, which owns it. In the budget, such dividend payment would appear as an additional income for the government and if its expenditure rises by an equal amount, then the fiscal deficit would have remained unchanged; higher expenditure, in other words, would have been financed without raising the fiscal deficit.

But this conclusion arises entirely because we are focusing attention on the government proper. If we take the government sector as a whole, including not only the government proper but also government-owned institutions, like the RBI, then for this sector as a whole while expenditure would have gone up (because of larger government spending), income would not have.

Dividend payment by the RBI to the government amounts merely to a transfer from one entity to another within the government sector, but not to an increase in the income of the sector as a whole. Hence, the deficit of the government sector as a whole would have gone up by an amount equal to the increase in government spending, even though it would not show itself as an increase in fiscal deficit in the government budget. Its macroeconomic effects, however, should be exactly the same as that of a fiscal deficit. In other words, increasing government spending by using the RBI’s reserves amounts to a camouflaged fiscal deficit.

Why Finance Capital Dislikes Fiscal Deficits
The question immediately arises: why not an open fiscal deficit? The proximate answer, already given, is that finance capital disapproves of fiscal deficits; and when finance is globalised while the State remains a nation-State, the writ of finance must run, for otherwise there would be a flight of finance from the country in question causing a financial crisis. But why does finance dislike a fiscal deficit? The theoretical argument usually advanced against a fiscal deficit, namely that it causes inflation, cannot stand scrutiny.

Inflation, leaving aside the “cost-push” variety which in any case has nothing to do with a fiscal deficit, arises from excess aggregate demand at base (i.e. pre-inflation) prices, which cannot be eliminated through an increase in supply. To say that a fiscal deficit gives rise to inflation amounts, therefore, to assuming that the economy is always at “full employment”, i.e. there is never any deficiency of aggregate demand in the economy and the so-called “Say’s Law” holds. This is a palpably absurd assumption, though much used in “mainstream” economic theory.

In fact, capitalism is typically a demand-constrained system, where “full employment” has never characterised even the top of the boom, let alone “normal times”. Enlarging the fiscal deficit in these conditions can increase employment and output without raising prices to any significant extent. India, in particular, has been characterised by unutilised capacity in industry and above-“normal” levels of foodgrain stocks virtually throughout the period of economic liberalisation. Hence, an increase in fiscal deficit would not give rise to inflation via excess aggregate demand but would instead raise output and employment. True, it can spill over into larger imports and hence a larger current account deficit on the balance of payments, but that needs to be checked not by keeping demand low but by imposing import restrictions which even Donald Trump has now introduced in the United States.

The dislike of finance towards a fiscal deficit, therefore, has nothing to do with its purported ill-effects which cannot arise in a demand-constrained economy. It has to do with the fact that if larger government expenditure, and that too financed not through taxation but through larger borrowing which does not immediately hurt anyone, is institutionalised as an essential element in the economy’s functioning, then that serves to de-legitimise the role of the capitalists. Having a bunch of capitalists whose “animal spirits” have to be carefully nurtured through concessions and subsidies, would then no longer be deemed necessary.

The opposition of finance capital to fiscal deficits, though sought to be justified by all sorts of spurious theoretical arguments, such as linking these deficits to inflation in all circumstances, arises for this fundamental reason, and gets institutionalised everywhere through “Fiscal Responsibility” legislation. The need to camouflage a larger fiscal deficit arises because of this. And using the RBI’s reserves for increasing government expenditure, though it is nothing else but an increase in the fiscal deficit, does not appear as such in the government budget, and hence can be passed off as “harmless”.

The whole argument about drawing down the RBI’s reserves for financing larger government expenditure thus takes the neo-liberal economy and the constraints it imposes upon the government for granted; but it seeks to find a way around these constraints because of electoral compulsions. The theory advanced is that while a fiscal deficit is bad because it is inflationary, using the RBI’s reserves is not the same as enlarging the fiscal deficit. The opponents of this argument likewise take the constraints imposed by the neo-liberal economy for granted and also accept this theory; their objection is that the government should not order the RBI around.

The debate is within the context of a neo-liberal regime but nowhere is this fact recognised. A discourse confined to the context of a neo-liberal regime is sought to be portrayed as a general theoretical discourse, which means that the neo-liberal regime is sought to be depicted as the only possible universe that could possibly exist. By entrapping everyone within this discourse, the hegemony of neo-liberalism is ensured, since everyone discusses the issue while confining attention to the neo-liberal regime itself, but not looking beyond it.

Once we recognise that using the RBI’s reserves is no different from enlarging the fiscal deficit, and also that such an enlargement is not necessarily deleterious (though no doubt deficit-financed government expenditure is worse than tax-financed government expenditure), it becomes possible to critique the neo-liberal regime itself. It becomes possible to argue that government expenditure should be expanded, on welfare and social-sector programmes, through raising larger tax revenue from the rich, but, failing that, even through a higher fiscal deficit, irrespective of whether RBI reserves are used for this purpose.

When the government is running even the MGNREGS to the ground, the idea that there are no resource constraints per se but only the caprices of finance capital that come in the way of government spending, is an important point to bear in mind. This point is sought to be obscured by the public discourse that neo-liberalism promotes. The Left must expose this entrapping discourse.

Courtesy: Newsclick.in

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Neo-Liberalism and the Diffusion of Development

Mon, 19 Nov 2018 05:04:04 +0000

Capitalism in short was the panacea for mass poverty in the third world and not its progenitor as the Marxists had been arguing. The crisis that is enveloping the third world economies at present, is putting an end to that claim.

The level of economic activity under capitalism is subject to prolonged ebbs and flows. When the economy is on an upswing, this very fact acts as an elixir that emboldens capitalists, who begin to expect that the “good times” are going to continue; this makes them less worried about taking risks, more “adventurous”, and hence more prone to taking “bolder” decisions in their asset preference. And because of this they also undertake investment in physical assets like construction, equipment and machinery which makes the boom continue, and thereby justifies their euphoria.

The opposite happens when there is a downturn. It introduces a gloomy outlook among the capitalists; they become more acutely conscious of risks, become scared in their asset preference, and curtail their investment, preferring to hold money instead which is a riskless asset (though it earns nothing). This very fact in turn makes the slump prolonged, and thereby justifies their fear of taking risks.

This very obvious feature of capitalism, namely the self-sustaining euphoria associated with a boom and the self-sustaining gloom associated with a slump, has a bearing on the issue of diffusion of development to the third world. We are talking here of diffusion that spontaneously occurs through the working of unfettered capitalism of the sort that neoliberalism typifies, not diffusion brought about through deliberate third world State action involving protectionism and such like.

For capital, whether of the metropolis or of the third world, the latter constitutes a site of greater risk. The metropolis is the home base of capitalism and capitalists of all description, whatever the colour of their skin, feel safer there than even in their own countries (which is why there is so much of siphoning of funds from the third world by its own capitalists). In a boom however, which is a period of euphoria, the risk of holding third world assets gets underestimated. The euphoria of a boom extends to the realm of asset preference where not only is greater investment in general undertaken by capital (rather than its holding on to the barren but riskless asset, money), but even third world assets are demanded to a greater extent. The differential preference for metropolitan compared to third world assets gets reduced, which, apart from bringing greater direct investment to the third world, also brings greater finance for buying up third world assets. The relative price of third world assets compared to metropolitan assets increases; or, put differently, for any given price of metropolitan assets, the price of third world assets rises, which increases the production of such assets (i.e., increases investment) and hence raises the growth rate in the third world.

Exactly the opposite happens in a world economic recession. As capitalists become more risk-averse, not only do direct investment flows to the third world dry up (which may be further aggravated by protectionism in the metropolis of the sort that Trump is introducing), but finance capital too stops coming to the third world; indeed there develops a tendency for finance, whether originating in the metropolis or even within the third world, to move towards the metropolis. The relative price of third world assets compared to those from the metropolis drops which further chokes off local investment, causing a fall in the third world growth rate.

The foregoing has two implications. The first, which is fairly indubitable is that booms in world capitalism in conditions of neoliberalism are associated with higher growth rates in the third world, while slumps in world capitalism have the opposite effect. The second implication which is stronger is that the fluctuations in growth rates in the third world are greater than the fluctuations in the growth rates in the metropolis, since the impact of risk-aversion on investment falls even more heavily on the third world than on the metropolis, with third world asset prices relative to metropolitan asset prices also fluctuating. In short, euphoria or gloom in world capitalism has an even greater impact on the third world than on the metropolis in conditions of neoliberalism.

What this means is that the very “pundits” who were lauding the higher growth in the third world compared to its own past during the boom years of neoliberalism, and employing such growth as evidence of the beneficial effects of neoliberalism (conveniently forgetting even at that time that a process of primitive accumulation of capital was being unleashed against peasants and petty producers, which swelled the labour reserves to the detriment of all working people including even the unionised workers of the organised sector), will now have to eat their words. As the world capitalist recession continues and even gets accentuated, as finance begins to flow back increasingly to the metropolis as is already happening (resulting in a depreciation of several third world currencies, including above all the rupee, vis-à-vis the US dollar), investment and growth rate in the third world will dry up to an even greater extent than in the metropolis.

Since there is no end to the capitalist recession in sight, and since protectionism as is being practiced by Trump will only worsen the world crisis by intensifying the gloom about the future (even though the US may temporarily gain from this “beggar-my-neighbour” policy, only until others retaliate), the particularly acute distress of the third world that this recession brings with it, will also be a prolonged phenomenon. The third world in short is sinking into a prolonged period of stagnation. This will bring acute distress to the working people, since the primitive accumulation of capital at the expense of the peasants and petty producers that had accompanied the capitalist boom, will continue unabated, while stagnation will only further reduce employment generation within the capitalist sector.

The hype about the diffusion of development to the third world in short will soon disappear. This is not the first time that such a reversal is happening. In the late nineteenth and early twentieth centuries, during the late Victorian and Edwardian booms, there was also a hype about the diffusion of development to the third world. But many of the third world countries which were among the fastest growers of that time are today being counted as the world’s “least developed” countries, Myanmar being a classic example. To be sure, the diffusion of development to the third world during the capitalist boom of the recent neoliberal period has been more pronounced than earlier; and Myanmar’s fortune was tied to its oil resources whose exhaustion spelled its doom. But the point is that the phenomenon of yesterday’s champions being tomorrow’s laggards is by no means uncommon.

The Great Depression of the 1930s had followed the collapse of the long Victorian and Edwardian boom, and during the Depression only those third world countries had flourished which had managed to delink themselves from the web of unfettered world capitalism by imposing controls over trade and capital flows. Notable among these were the Latin American countries that had embarked on a “nationalist strategy” of import-substituting industrialisation after overthrowing the local oligarchies that had been in cahoots with imperialism. Colonised economies like India, by contrast, though they did see some industrialisation since even the colonial regime had to introduce a meagre amount of what was called “discriminating protection” to appease the local bourgeoisie, did not see enough of it.

We are once more entering a period of significant political upheavals and economic changes within the world capitalist system, as a consequence of the crisis whose impact on the third world, as suggested above, will be particularly acute.

One thing however is indubitable. An impression had been created of late that the third world can overcome its economic misery even while remaining within the orbit of world capitalism, that neoliberalism was giving rise to a diffusion of development to the third world from the metropolis which was so pronounced that the earlier argument about socialism alone creating conditions for overcoming the third world’s economic travails, had become passé; and even if some residual poverty remained within the third world despite rapid growth, it was only a matter of time before that too would disappear through a “trickle down” of growth. Capitalism in short was the panacea for mass poverty in the third world and not its progenitor as the Marxists had been arguing. The crisis that is enveloping the third world economies at present, is putting an end to that claim.

Courtesy: Newsclick.in

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200th Anniversary : Marx And Capitalism

Sat, 05 May 2018 09:22:19 +0000

The difference between socialism and capitalism lies in the fact that socialism is not driven by any immanent economic tendencies, so that the working people can consciously shape their economic destiny through collective political intervention.

Marx’s contribution to the understanding of capitalism can be usefully seen through two profound insights that he had into this system. The first concerns the origin of surplus value. In a world of commodities where exchange between commodity-owners, among whom are also the workers, occurs voluntarily and at equivalence, without any swindle, how can surplus value arise?

The solution to this riddle that Marx discovered lies in a distinction between labour and labour-power. What the workers sell is not their labour but their labour-power, i.e. their capacity to work, which becomes a commodity, and like all commodities, has a value equal to the total amount of direct and indirect labour-time that goes into the production of a unit of it, which in this case implies what is embodied in the subsistence basket required for the production and reproduction of a unit of labour-power. Labour-power as a commodity, however, has this unique property that its use, which is the actual expenditure of labour-time, creates value. The origin of surplus value lies in the fact that the value which labour-power is made to create is larger than its own value. Even with equivalent exchange therefore, i.e. even when all commodities exchange at their values, a surplus value arises.

This profound insight has a number of implications. First, it provides a succinct and rigorous definition of capitalism, as a system of generalised commodity production where labour-power itself has become a commodity. This also means that the duality that characterises any simple commodity-producing economy, between the “thing”-aspect of entities and their relational aspect, such as use value-exchange value, labour process- value creation process, product-commodity, concrete labour-abstract labour, now becomes even more pervasive: means of subsistence-variable capital, surplus product-surplus value, and so on.

Secondly, surplus value is created in this system not in the sphere of exchange, but in the sphere of production. Since capitalist firms as commodity producers are engaged in competition against one another where the high-cost producers are eliminated over time, the pressure to cut costs necessarily takes the form of introducing new methods and new products, i.e. of continuously revolutionising the methods of production. This incessant drive to revolutionise production is what distinguishes capitalism from all previous modes of production, and it is linked to the fact that surplus value originates in the sphere of production.

Thirdly, since the ability to introduce new methods depends upon the size of the capital-unit, with larger capitals having an edge over, and driving out, smaller capitals, every unit of capital is under pressure to increase its size through accumulation. Accumulation of capital, in short, occurs because of the pressure exerted upon each unit of capital by the fact of competition within the system. But of course, even though each unit of capital desperately acts to avoid losing out in this Darwinian struggle for existence, some necessarily do lose out, because of which there is a process of centralisation of capital, i.e. the formation of larger and larger blocs of capital, which occurs over time. (This ultimately leads to the emergence of monopoly capitalism where explicit or implicit price agreements are reached among capitalists without of course eliminating competition which now takes other forms).

Fourthly, for the appropriation of surplus value by the capitalists to continue, the value of labour-power must always be less than the value it creates, which means that the system must never run short of labour-power. This, in turn, requires that there must always be a reserve army of labour in addition to the active army of labour employed by the capitalists. This reserve army is created by capital accumulation itself which through the process of centralisation of capital and through the destruction of petty production, continuously pushes people into the ranks of labourers. Since the absolute size of the reserve army keeps increasing, alongside that of the active army, as capital accumulation occurs, the growth of wealth at one pole is necessarily accompanied by the growth of poverty at another.

English Classical economists had attributed the fact that wages were kept at a subsistence level to the tendency among workers to breed excessively in the event of getting above subsistence wages. This utterly repugnant idea was rejected by Marx who called the Malthusian Theory of Population, upon which it was based, “a libel on the human race”. He adduced instead the social reasons we have mentioned for wages being stuck at the subsistence level.

Fifthly, the origin of the system itself lies in a separation of producers from their means of production and a concentration of these means of production in fewer hands so that two classes of commodity-owners, one with means of production and subsistence in their hands and the other with nothing to sell but their labour-power get created and come “face to face and into contact”. This fundamental dichotomy is reproduced over time through the operation of the system itself.

Sixthly, through the continuous revolutionising of the methods of production, labour productivity increases over time. But the existence of the reserve army of labour always acts ceteris paribus to keep wages at a historically-determined subsistence level, which may at best increase slowly over time. Since wages are more or less fully consumed, while only a proportion of surplus value is, this keeps down consumption demand in the economy relative to the value of output; if all unconsumed surplus value was used for accumulation solely in the form of additions to the stock of constant and variable capital, then there would never be any problem of deficiency of aggregate demand relative to the value of output, as Say’s Law had postulated. But since accumulation can take the form of adding to money capital, the rise in the share of surplus value in the total value of output gives rise to a tendency towards crises of over-production.

Marx had drawn attention to several different kinds of crisis which could arise within the system, including through a rise in the organic composition of capital, i.e. in the ratio of constant to variable capital. But his recognition of over-production crises because of the money-using nature of capitalism, which necessarily made money a form of holding wealth, not only marked an advance over English Classical economists who had accepted Say’s Law, but anticipated by three quarters of a century the so-called Keynesian Revolution, which was developed during the Great Depression of the 1930s in order to comprehend it.

This fundamental insight into the nature of exploitation under capitalism and the fact that the system reproduces its exploitative nature and the contradictions arising from it, through its own operation, was integrated in turn into his insight into a basic characteristic of the system, namely that it is a spontaneous system.While it functions through the actions undertaken by a host of individual entities, these individuals act the way they do because they are coerced by the system into doing so. The system therefore is essentially a self-driven one, whose self-driven nature is mediated by individual actions but actions that are themselves determined by the logic of the system. Any individual who does not act in ways demanded by the system loses his or her place within it and falls by the wayside, such as for instance a capitalist who decides not to undertake accumulation. And the actions of individuals in their totality give rise to certain immanent tendencies that characterise the system, such as the tendency towards centralisation of capital, the tendency towards pervasive commoditisation, the tendency towards an expanded reproduction of the reserve army of labour, the tendency towards the expropriation of petty producers, the tendency towards the production of wealth at one pole and poverty at another; and so on.

This second insight of Marx too has a number of profound implications. Contrary to its claim that it ensures individual freedom, capitalism is characterised by universal alienation, where every economic agent is coerced to act in ways not of his or her own volition. Even the capitalist is alienated under capitalism, with no freedom to act according to own volition, but coerced to act in specific ways because of the Darwinian struggle in which all capitalists are engaged. Marx called the capitalist “capital personified”, indicating that the capitalist’s persona was simply a vehicle for the acting out of the immanent tendencies of capital.

Secondly the “spontaneity” of the system means that it was not a malleable one where any change in its economic functioning and outcome can be brought about through political intervention. Indeed the normal role of political intervention by the capitalist State is to reinforce the “spontaneity” of the system, in the sense of hastening the achievement of its immanent tendencies. But even if perchance under certain circumstances the “spontaneity” of the system is restricted through political intervention, such restriction makes the system dysfunctional, necessitating either further intervention to alter the system or a rolling back of the original intervention itself to restore the “spontaneity”.

The case for socialism arises precisely because of this “spontaneity”. If capitalism had been a malleable system where any kind of “reforms” could be successfully and enduringly carried out for making it more humane, more “worker-friendly”, more “socially responsible”, more egalitarian, and more “welfarist”, then there would be little point in arguing for its transcendence by a socialist order. But the “spontaneity” of the system prevents such malleability, makes any significant reforms in it untenable, makes “welfare capitalism” a contradiction in terms as a sustainable phenomenon, which is why it has to be transcended.

Socialism correspondingly has to be seen as an altogether different order, a non-“spontaneous” one. The difference between capitalism and socialism lies not just in the fact that the latter is associated with the ownership of the means of production by the State on behalf of society as a whole: if State-owned firms competed against one another on the market as capitalist firms do, then they would reproduce the anarchy of capitalism together with crises, unemployment and many of the immanent tendencies of capitalism. This difference does not also lie just in the fact that incomes are better distributed under socialism: that too can be undone over time if the tendency towards creating a reserve army of labour is allowed to persist. The difference lies in the fact that socialism is not driven by any immanent economic tendencies, so that the working people can consciously shape their economic destiny through collective political intervention. A socialist economy has to be one that makes this possible.

But how can socialism ever come into being if capitalism coerces all individuals to act in ways demanded by its own logic? Marx’s answer was that capitalism, despite promoting competition, fragmentation and alienation among the workers, also enables them to come together through “combinations”. This represents a rupture in the enactment of its inner logic; and this rupture, aided by a theoretical understanding that sees the system from the “outside”, i.e. from a perspective of “epistemic exteriority”, leads to praxis for socialism.

A basic difference between Marxism and liberalism is that the latter, notwithstanding all its emphasis on individual freedom, sees this freedom as being constrained only by the State or by some individuals or groups, but never by the system itself. That is because it takes all economic relationships to have been entered into voluntarily; it never recognises that individuals may have been coerced into entering economic relationships.

The coercion of the economic system which Marx highlighted, does not reside only in its acting as a constraint upon individual projects and actions. On the contrary, capitalism is driven by immanent tendencies within whose web the individual is caught. Freedom of the individual therefore, far being realised under capitalism, requires for its realisation the transcendence of capitalism by socialism which is free of any immanent tendencies. The existence of these immanent tendencies under capitalism also explains why a necessary condition for all emancipation, whether from caste or gender or ethnic or other oppressions, is the transcendence of this system. Socialism is a necessary condition for ending all oppression.

Marx’s analysis of capitalism in Capital looks at the capitalist system in isolation; its interactions with the pre-capitalist modes of production surrounding it, are not discussed, despite their obvious importance. This is curious since at the very time that Marx was working on Capital he was also reading extensively on British colonial impact on India on which he wrote a series of articles for the New York Daily Tribune. His not integrating imperialism into his analysis of capitalism was perhaps because he was pre-occupied at the time with a Proletarian Revolution in Western Europe which he thought was imminent. But in later life he turned his attention to other regions, as the prospects of a West European Revolution receded. And just two years before his death he wrote a letter to N.F. Danielson the Narodnik economist where he talked about the massive “drain” of surplus from India to Britain.

Marx’s analysis of capitalism in short must be seen as the starting point, not the end, of such analysis. The task of developing Marxism both by incorporating imperialism into the analysis, in Marx’s own context, and by examining subsequent developments, falls on later Marxist authors, which is precisely what Lenin had done. And when such filling in is done, several of Marx’s basic insights into capitalism are vindicated even more strongly.

For instance when the persistent encroachment by capitalism into the surrounding petty production economy is considered, which squeezes or displaces such producers without absorbing them into capitalism’s active army of labour, Marx’s insight that the system produces wealth at one pole and poverty at another gets immensely strengthened. In fact those who argue against Marx’s prognosis by saying that such polarisation has not occurred in lands where capitalism had first triumphed, ignore typically this dialectical relation between capitalism and its surrounding world. Marx’s insights are actually strengthened by “going beyond” what Marx had originally written.

The same is true of Marx’s revolutionary project. When capitalism is seen in its totality, incorporating imperialism, the prospects and possibilities of revolution become immensely greater; for we then talk no longer only of a proletarian revolution in developed capitalist countries but also of a democratic revolution based on a worker-peasant alliance even in countries where capitalism is less developed, with even the latter revolution proceeding in stages towards socialism. The prospects of a worker-peasant alliance which Lenin had conceptualised as arising from capitalism’s incapacity to carry forward the anti-feudal revolution in countries where it arrived late, become additionally strengthened when we cognise capitalism’s encroachment upon the economy of the petty producers, which pushes the latter into destitution and suicides even in the current highly “modern” era of globalisation.

Courtesy: Newsclick.in

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The Nirav Modi Scandal

Fri, 23 Feb 2018 08:18:37 +0000

Nirav Modi, and his uncle Mehul Choksi, are the latest additions to the list of the so-called “entrepreneurs of new India” who have looted public money and decamped with the loot.

Image Courtesy: The Indian Express

Nirav Modi, and his uncle Mehul Choksi, are the latest additions to the list of the so-called “entrepreneurs of new India” who have looted public money and decamped with the loot. The Punjab National Bank, the second largest bank in the country, kept giving them loans without any collateral (which is basically what happened through the complicated procedure of the so-called “Letters of Undertaking”); and one fine day Nirav Modi simply left the country with his immediate family, to be followed by his uncle a few days later.

Several characteristics are shared by all these decamping “entrepreneurs” whose list includes Lalit Modi and Vijay Mallya. First, all of them are high-profile “celebrities”. Lalit Modi for years appeared everyday on television screens in lakhs of homes across the country during IPL matches, alongside political and Bollywood heavyweights, and was hailed as the “brain” behind this event. Vijay Mallya was a member of parliament elected with much fanfare, and also a regular TV presence during IPL matches involving the team that he owned, the Royal Challengers Bangalore,. And Nirav Modi, whose diamonds adorned Hollywood and Bollywood stars, was in addition related through marriage to the country’s top “entrepreneur” family, the Ambanis.
Secondly, all of them were close to the ruling party. Lalit Modi’s proximity to Sushma Swaraj and to Vasundhara Raje continued openly even after he had fled the country. Vijay Mallya had been elected to the Rajya Sabha with the surplus votes of the BJP. And not only was Mehul Choksi “Mehulbhai” to Prime Minister Narendra Modi, but Nirav Modi actually appeared in a photograph , after having fled the country, as part of Modi’s team of Indian “entrepreneurs” at the Davos summit. The government’s subsequent claims that he merely slunk into the photograph are absurd: nobody can just slink into a Prime Minister’s photograph.

Indeed the closeness of all these persons to the ruling Party is evident from the fact that their escapes can be shown to have been “assisted escapes” by the government (as a report in The Wire establishes). In the case of Vijay Mallya, who misappropriated Rs.9000 crores, a “lookout” notice issued on October 16, 2015, was conveniently and unaccountably “downgraded” on November 25, allowing him to escape from the country on March 1, 2016. And in the case of Nirav Modi, who defrauded PNB of Rs.11400 crores, the government took no action whatsoever despite being informed about his misdemeanour in July 2016.

Thirdly, each one of them continues to be absolutely brazen about his criminal deed without an iota of remorse. Lalit Modi struts around the world pretending that he is the victim. Vijay Mallya has the temerity to march into a function at the Indian High Commission in London. And Nirav Modi has even written a letter suggesting that it is PNB’s impetuousness, leading to a media blitz on his borrowing, that is responsible for his default, ignoring conveniently that he fled the country on January 1, long before any news of his default had reached the media.

It is ironic that a government which screams its opposition to economic malfeasance, which put millions to acute hardship through an act of demonetization supposedly for fighting black money, and whose insistence on Aadhar for plugging “loopholes” in public distribution has already starved several destitute persons to death, has presided over a plunder of banks by some of the country’s richest people, and even “assisted” their escape! And there is a deafening silence till now from both the Prime Minister and the Finance Minister on this latest case of plunder by Nirav Modi.

It is also ironic that Assocham should use the instance of this plunder to demand that public sector banks should be privatized! This is tantamount to a demand for handing over the banks to the very same tribe whose members are responsible for looting them: a Nirav Modi loots the PNB and sits cozily in New York, while this very loot then becomes the reason for the PNB to be handed over, say, to his relatives, the Ambanis! Or, even more ironically, the same Nirav Modi can use a front to buy the same PNB with the same money that he has looted from it!

But while Assocham can always be expected to make such outlandish demands, even the Chief Economic Advisor to the government, Arvind Subramaniam, has asked for an increase in private equity in public sector banks on the grounds that this would bring greater share-holder vigilance to check such malpractices. One wonders if his views are those of the government; and if not, then one wonders how he can freely air them while holding a responsible official post. But there are two obvious flaws in his position.

First, vigilance alone by those holding an interest in the bank cannot stop such malpractices, as the Barings Bank case shows, where the funds of Britain’s oldest merchant bank were used for rampant speculation by one of its employees, Nick Leeson, which brought down the bank. In the PNB case where LOUs anyway have a very short life-span, either there was a bunching of LOUs just before the scam burst, or fresh LOUs were issued to cover expiring LOUs, so that audit could not catch the misdemeanor. The share-holders therefore could scarcely have been able to prevent it.

The more important issue here relates to the fact that lending practices were bent with impunity by a bunch of employees to favour Nirav Modi; and preventing this requires a change in practices rather than greater share-holders’ vigilance. The Modi government’s culpability in this case lies in not taking action despite being warned, which again calls for a change in practices. Such a change for instance, should involve greater parliamentary vigilance over PSB affairs rather than greater share-holder vigilance through privatization.

Secondly, suppose for a moment that PNB was a private bank. Then with a scam of this order, there would have been a run on the bank from depositors, leading either to its collapse with disastrous consequences, or to a government bail-out at heavy cost. But because PNB happens to be a government-owned bank, there is still enough confidence among depositors, despite Jaitley’s and Modi’s deafening silences, not to panic into withdrawing their deposits.

Privatization, whether involving private control or only greater private equity, will not per se prevent such occurrences, but banks will still require government funds to keep afloat in the event of such occurrences. And if government funds are to be used in such eventualities, then there is no reason why the government should not own the banks or should dilute its equity. For preventing such occurrences what is required therefore is the devising of appropriate institutional mechanisms of supervision even while retaining government ownership.

There is however a deeper problem here. Capitalism exhorts private economic agents, such as businesses, corporations and banks to pursue economic gain, indeed that is supposed to be its modus operandi; yet it wants employees of these agents to obey command and not to pursue their own private gain even clandestinely. It promotes hedonistic behavior, of maximizing gain, in the realm of the economy; but it wants the State, and its employees, not to be contaminated by such individual hedonism. It wants profit maximization by private agents, but it can work only if they do so within legal bounds; yet there is nothing to prevent them from pursuing profit-maximizing behavior at the expense of the law (through offering bribes to law-enforcers for instance).
There is in other words a basic contradiction at the heart of capitalism, namely that it is tenable only if the behaviour it exhorts is kept bounded within limits; but there is nothing in the system to keep it so bounded.

This problem has not in the past assumed the seriousness that it potentially can, because for a long time, the personnel in institutions outside of the economy, such as the State, had ideas of what is “done” and what is “not done” that were either derived from an earlier mode of production (e.g. “a sense of honour”, “the badge of a public school” etc.), or, under Social Democracy, based on a certain commitment to the community-values of workers (“can’t let my folks down”). In countries like ours, the legacy of the freedom struggle had introduced ethical considerations to the personnel of the State and the public sector that shunned the private aggrandizement associated with capitalism. The contradiction at the heart of capitalism in short had not assumed the intensity that would have made the system dysfunctional.

With neo-liberalism however this restraint goes. The quest for private gain gets generalized, which manifests itself in the kind of institutional break-down that we find of late. Nirav Modi’s therefore is not a case of “crony capitalism” supplanting “genuine capitalism”; it is rather a case of “genuine capitalism” coming into its own and displaying its fundamental unworkability.
To be sure, having institutional restraints, as suggested above, can stem the rot for a while; but soon even these restraints themselves will get subverted, and the fundamental unworkability of a system based on the pursuit of private gain will again manifest itself.

This article was first publish on NEWSclick.

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