After
the onset of the world capitalist crisis, there was
a brief period when most countries in the world attempted
to use the State to stem the severity of the crisis,
a period often described as ''the Keynesian moment''.
Some provided a very deliberate fiscal stimulus; others
simply did not cut back on State expenditures even
as State revenues fell owing to the recession, reducing
thereby the intensity of the crisis. India too had
its ''Keynesian moment'', with a wide-ranging cut in
the excise duty (from 14 to 8 percent in the standard
rate on non-petroleum goods) and an increase in the
fiscal deficit in relation to the GDP. In India's
case moreover the ''Keynesian moment'' came on top of
some increases in relief and welfare expenditures
under the UPA-I which had occurred because of the
pressure of the Left, the most notable instance being
the launch of the MGNREGS. All this did not amount
to any abandonment of neo-liberalism: in this very
period there were massive tax concessions for the
corporate sector, persistent efforts to introduce
FDI in multi-brand retail, and privatization of public
property at throwaway prices, with unbelievable levels
of ''corruption'' associated with it. But it meant tempering
neo-liberalism with some relief, giving it a bit of
a ''human face''. If MGNREGS was a prominent feature
of this ''human face'', then the proposed food security
legislation was meant to enhance it.
The 2012-13 budget represents a reversal of this trend.
Such a reversal indeed is evident all over the world,
with ''the drive to austerity'' replacing the ''Keynesian
moment''. If the ''Keynesian moment'' had provided some
barrier against the free fall of the world economy,
the return to ''austerity'' at the expense of the people,
which represents a reassertion of the hegemony of
finance capital after a period of temporary shakiness,
will only accentuate the global crisis. India will
have to bear the impact of this world development,
and that too in an exacerbated manner because of its
own ''drive to austerity'' at the expense of the people,
which the 2012-13 budget heralds.
This reversal is evident from the very statement of
the objective of the budget, which is ''fiscal consolidation''.
The point at issue here is not whether the relative
size of the fiscal deficit should be reduced; the
point is how this reduction is to be effected. The
Left too is opposed to a burgeoning fiscal deficit,
but for a reason which is very different from that
of finance capital and which the bourgeois media gloss
over. This reason is as follows.
Suppose the State is to spend Rs.100. It can finance
this expenditure either by borrowing or by raising
taxes. Let us for simplicity ignore for a moment all
foreign borrowing and indeed foreign transactions.
Then borrowing this amount domestically does not involve,
as is commonly supposed, drawing from some fixed,
pre-existing pool (and thereby leaving less for others);
it involves, on the contrary, generating an additional
Rs.100 of savings in private hands over and above
the private sector's own investment. In other words
what is borrowed is itself put into the hands of those
(i.e. the capitalists) from whom it is borrowed. Now,
savings constitute addition to wealth; borrowing-financed
State expenditure therefore adds to the wealth of
the private sector, i.e. of the capitalists. If what
is borrowed would have been simply impounded from
them through taxation, then this additional wealth
would have been snatched away from them. Everything
else remaining unchanged, borrowing-financed State
expenditure therefore entails a greater wealth inequality
compared to the same State expenditure financed by
direct taxes on the capitalists. The Left opposes
a fiscal deficit for this reason; it always argues
for curtailing the fiscal deficit and imposing direct
taxes on the capitalists instead, which has the same
effect on employment as if the fiscal deficit were
not curtailed, which does not squeeze the consumption
of the poor, and which at the same time checks the
increase in wealth inequalities.
This however is not the way that spokesmen for finance
present the consequences of a fiscal deficit. They
deliberately use the obfuscating term ''fiscal consolidation'',
which suggests that a reduction in fiscal deficit
brought about not at the expense of the rich, but
just anyhow, is preferable to no reduction. They thereby
suggest that a fiscal deficit is always bad per se,
and use this argument to justify ''austerity'' at the
expense of the people. The view that a fiscal deficit
is bad per se (and not because its effect on wealth
inequalities is worse than if the same expenditure
would have been financed through taxing the capitalists),
was called by Joan Robinson, the renowned Left Keynesian
economist, the ''humbug of finance''. The 2012-13 budget
uses this ''humbug'' to launch a ''drive to austerity''
at the expense of the people.
Ironically, the Budget document itself (in its Key
Features) attributes the ''deterioration'' in the fiscal
balance in 2011-12 to ''slippages in direct tax revenue
and increased subsidies''. Now, increased subsidies
are inevitable in a period of inflation; but if there
were slippages in direct tax revenue, then it obviously
followed that the budget should have made an effort
to undo these slippages by raising direct tax revenue.
Instead we find that total direct tax revenue is budgeted
to increase by only 13.9 percent over 2011-12 (RE),
while customs, excise and service tax revenues together
are to increase by 26.7 percent. In fact the share
of direct tax revenue in GDP is to marginally come
down in 2012-13; the entire adjustment for ''fiscal
consolidation'' is to occur through cuts in subsidies
and relief expenditures and increases in indirect
and service tax revenue. It is to be achieved in short,
in the midst of inflation, by exacerbating inflation
through indirect tax hikes, and cutting back on subsidies,
i.e. by squeezing the people.
The fact that the virtually unchanged food subsidy
bill (the increase is trivial, from Rs.73000 crores
to Rs.75000 crores), is rather like ''the dog that
did not bark'', and amounts to a scuttling of the much-awaited
food security programme as has been noted by many.
But looking at the food subsidy bill alone in this
context is inadequate. The fertilizer subsidy bill
is slated to come down from Rs.67199 cr. In 2011-12
(RE) to Rs.60, 974 crores in 2012-13, and the petroleum
subsidy bill from Rs.68481 crores to Rs.43580 crores.
This would certainly increase the cost of production
for the farmers; and the increase will be particularly
sharp if the world oil prices climb still higher,
as seems likely. If the procurement prices offered
to the peasants reflect this increase in cost of production,
then the unchanged food subsidy bill will entail not
just no expansion in the scope of the public distribution
system, contrary to the objective of the food security
programme, but an actual contraction, or alternatively
a rise in issue prices. What the budget entails therefore
is not just no expansion in the scope of food security,
but an actual contraction.
Much the same can be said about the MGNREGS, where
the reduction is from Rs.40,000 crores in last year's
budget to Rs.33000 crores in the current year's. Jairam
Ramesh has justified this cut on the following grounds:
expenditure in the current year on MGNREGS would be
only Rs.38000 crores, compared to which the budgetary
provision of Rs.33000 crores plus the carry-over balance
with states of Rs.6000 crores plus their own contribution
of Rs.3300 crores (together adding to Rs.42300 crores)
is ample increase. The problem however lies in the
fact that basing MGNREGS outlays on past expenditure
itself amounts to a scuttling of the programme. It
is rather like saying that nothing need be done about
ensuring dalit entry into temples because past records
show not many dalits as having entered temples! MGNREGS,
though nominally a rights-based programme, is far
from being one in practice; and there is a whole array
of vested interests that are opposed to its continuance.
What is necessary therefore is increasing outlays
on it and forcing its implementation as a rights-based
programme; but to cut down outlays on the grounds
that they are not being used is a de facto abandonment
of it.
Thus both the major schemes, MGNREGS and the food
security programme, which were supposed to provide
neo-liberalism with a human face are being given a
slow and quiet burial. It will of course be argued
that social sector outlays have gone up in the current
budget, but the increase in school education by 17
percent entails only marginal increase in outlay relative
to GDP. And the increase in health and family welfare
outlay by 22 percent, though higher than the expected
nominal GDP growth, will still keep central government's
health expenditure at an abysmal 0.3 percent of GDP!
We have in short a return with a vengeance to neo-liberal
orthodoxy and a snuffing out of the ''Left-inspired''
(UPA-I) and the ''Keynesian'' moments.
This fact is of great significance. There was a time
when neo-liberal policies were justified on the grounds
that the inequalities they generate would usher in
high growth whose effects would eventually ''trickle
down'' to the poor. The fact that this did not happen
then produced another apologia: the high growth ushered
in by the inequalities engendered by neo-liberalism
would raise government resources which can then be
used for the poor. The more savvy neo-liberal apologists
these days use this latter argument. And for a while
because of the specificity of the ''moments'' mentioned
earlier, it appeared to many that the apologists might
well have a point. Such however is not the case. The
interests of finance capital and of the corporate-financial
elite that promotes neo-liberalism are opposed to
those of the people. There is never any ''trickle down'',
neither an automatic nor a State-mediated one. The
only way that the people's interests can be defended
is if there is fight for them, against the corporate-financial
elite, against the hegemony of finance capital and
the neo-liberal policies it promotes.
Government spokesmen, at least those who do not merely
mouth platitudes, may defend the strategy of the budget
on the following lines: with the world economy slowing
down, India will face a major current account deficit
if it maintains its growth rate; to finance this deficit
it will be necessary to attract financial inflows
for which a return to orthodox hard-nosed neo-liberalism,
of the sort that enthuses international finance capital,
becomes necessary. The strategy underlying the budget
therefore is the only one that can achieve both high
growth and balance of payments equilibrium.
It may appear at first sight that within the logic
of a neo-liberal regime these spokesmen may have a
point. But even within this logic, the denouement
is likely to be the very opposite of what they suggest.
The return to neo-liberal orthodoxy has obviously
not been up to the expectations of the corporate-financial
elite, as shown for instance by the stock market's
response to the budget. It is quite likely therefore
that even as the ''drive to austerity'' at the expense
of the people brings down the growth rate, the balance
of payments will get into a crisis because of the
outflow of finance. Such outflow will be even greater
if the anti-people thrust of the budget brings about
widespread popular resistance which makes India a
less than attractive destination for globalized finance.
The budget would then have pushed the economy into
the worst of both the worlds, in terms of growth and
balance of payments, even while attacking the people,
and indeed because of its very attack on the people.
