Nos. 36 & 37, March 2004

Nos. 36 & 37
(March 2004):

Introduction: Growth Suppressed, Parasitism to the Fore

Appendix I: The Real Scale of Unemployment

Appendix II: Starving and Stunting the People

The Real State of India's Economy
Growth Suppressed, Parasitism to the Fore

At the start of 2004, the Government is making a desperate effort to whip up a sense of euphoria about the state of India's economy. The mass media have been making out that there is a basis for the euphoria. Stock prices have risen at breakneck speed — the Bombay Stock Exchange's Sensitive Index (the Sensex) has doubled between late April 2003 and January 2004, and foreign institutional investors are bringing in large funds. Corporate profits appear to have picked up in the first three quarters of the financial year. The foreign exchange reserves have risen by an unprecedented $30 billion over the last year, and have recently crossed $100 billion amid much celebration. The Central Statistical Organisation projects that GDP (Gross Domestic Product) growth in the whole year might touch eight per cent. Amid such seeming achievements, the finance ministry has coined the slogan "India Shining" for its media campaign; the Government is rushing to spend Rs 500 crore (Rs five billion) of public funds on this campaign; and elections will be held in April. The press and electronic media too have been retailing the Government's slogan relentlessly in their reportage.

The sudden growth of the foreign exchange reserves is not an achievement to boast about. It is largely due to the huge influx, through a variety of channels, of foreign speculative capital, which sees the opportunity to make huge gains in India's financial markets. On the other hand, when these funds are added to the country's foreign exchange reserves, they have to be invested abroad by the Reserve Bank at a rate of return of just one or two per cent a year. Further, foreign investors can draw these funds out as fast as they have brought them in, with devastating effect.

The stock market boom is driven by such foreign speculators, who, with the $30 billion (net) they have brought in since 1992, dictate the movements of share prices. They reportedly hold 45 per cent (by market price) of the 'free float' shares (ie those shares that are ordinarily available to investors) of the Bombay Stock Exchange.1 It is estimated that they hold 30 per cent of the shares of the top 10 Indian companies, and 20 per cent of the top 50 Indian companies.2 However, such foreign investment in India's stock markets has not given any boost to productive investment by the Indian corporate sector in the 1990s.3

In fact the entire "India Shining" campaign is a cheap statistical fraud. There is no significant turnaround in the economy as a whole. The actual condition of the people and their productive future — the only real measure of economic performance — is appalling.

In the following piece we take apart the claims of the Government. We apologise to our readers for the large number of figures and calculations below. As the propaganda of the Government and the ruling elite comes in the form of a shower of figures, it is necessary for us to expose these figures as bogus or misleading.

Moreover, we have not separated the period of BJP rule from the periods of Congress or United Front rule. For there has been no break in policy in any respect. As such none of the major parliamentary parties is in a position to attack the current economic policies, as all have been party to them either while in office, or in giving support to the regime in power at one stage or the other. For example, the entire programme of `structural adjustment', `liberalisation', and `globalisation' was inaugurated by the Congress regime in 1991. Repeated hikes in rations prices followed, but the greatest reduction in food consumption has come about since 1997, after the introduction of the Targeted Public Distribution System. This system was introduced by the United Front regime, and continued to be implemented by the BJP-led NDA regime thereafter. The largest giveaways in income taxes, and the largest-ever (and most appalling) amnesty scheme, were carried out by the United Front government. The BJP, which campaigned on the slogan of swadeshi, or self-reliance, has gone further than any other regime in subordinating the economy to multinationals, but along a path clearly set in 1991 itself.

Hence our critique of the current state of affairs is aimed at the policies adopted throughout this period, at the wide range of political parties with indistinguishable economic policies which share responsibility for this state of affairs, and at the existing order which promotes such parasitism.

  • First, we look at the claim of a dramatic turnaround in GDP growth in 2003-04 to 8.1 per cent.
  • Secondly, we look at the actual performance of the industrial sector and the sorry state of industrial investment.
  • Thirdly, we look at where the corporate sector drew its profits from even as the economy remained depressed.
  • Fourthly, we show how, even as productive sectors are starved of finance, finance is being steered further and further away from promoting productive activity.
  • Fifthly, we show how the present policies, in preparing the ground for foreign capital, are deepening regional inequalities.
  • Sixthly, we show how hunger and poverty (in any meaningful sense of the term) have deepened to terrible levels since the onset of the new economic policy. (This has been dealt with at greater length in another article in this issue.)
  • Seventhly, we reveal the vast scale of unemployment and its rapid growth since the 1990s (this too has been dealt with more elaborately in a separate article).
  • Lastly, we look at the state of Indian agriculture, still the base of the economy, and now in a profound crisis.


1. V. Sridhar, Frontline, 5/12/03. (back)

2. Paranjoy Guha-Thakurta, Tribune, 8/11/03. (back)

3. Sushil Khanna, "Has India Gained from Capital Account Liberalisation? Private Capital Flows and the Indian Economy in the 1990s", December 2002, (back)



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