OFFICIAL EXPLANATION

Currently, our industry is in a state of recession. Agricultural output is anticipated to fall below target, while foodgrain output grows at a rate lower than that of population growth. The fiscal deficit has ballooned. Exports have sharply fallen in dollar terms, despite a virtual 15 per cent devaluation of the Indian rupee.

The official explanation for this state of affairs is that the country faces a shortage of capital. Hence the policy of bending over backwards to woo the multinational corporations and hence the policy measures to make capital available to the corporate sector at a cheaper rate. In other words, a greater dose of liberalisation, further opening up of the Indian economy, and further reduction of government expenditure are being paraded as the solution to the current economic mess.

STAGNANT MARKET

Such a diagnosis misses the woods for the trees. The basic problem with Indian economy is not so much the shortage of capital but the restricted size of our domestic market. It is by now a well-recognised fact that an overwhelming majority of our population is being bypassed in the present liberalisation process. They do not constitute a market capable of purchasing the commodities that are being produced.

Further, in a situation of sluggish growth of the economy, purchasing power in the common people's hands does not grow adequately to constitute a demand that will sustain high levels of industrial growth. Worse still, with growing unemployment and high rates of inflation, the real earnings of the people decline if not stagnate. Thus, with a stagnant and highly restricted domestic market, no amount of availability of capital can recharge the economy. What is required is to expand domestic demand. To put it in a nutshell, the problem with the Indian economy, today, is that those who have money do not need the goods being produced since they already possess them. On the other hand, those who need these products do not have the money to buy them.

Any alternative trajectory must therefore be directed at expanding domestic demand in the country. However, repeatedly over these years, the policy measures put into effect by successive governments have only tended to reduce, in aggregate terms, the purchasing power available with the people.

The annual budgetary exercise is the appropriate occasion to effect such a change of course.

POSSIBLE MEASURES

The first step in this direction would be to increase the government's capital expenditures in social and economic infrastructure. This would generate employment and boost domestic demand. Secondly, in order to do so, the government would need to expand the tax base to bolster its revenues. Apart from removing the gross irregularities in export-import trade that siphon off thousands of crores annually, and taking measures to recover the written-off loans from the nationalised banks which some years ago were estimated to be over a whopping Rs 40,000 crores, the government should consider taxing the rural rich.

Thirdly, the efforts at revenue mobilisation should be based on direct taxes and not indirect taxes, as has been the practice so far. Indirect taxes pass the burden on to the consumers through price hikes, resulting in a fall in their capacity to buy other products. This is particularly true of levies on essential items like food, petroleum, etc. On the other hand, direct taxes tap the rich who can afford to part with a portion of their resources, if for nothing else, to ensure the maintenance of their present living standards.

Finally, innovative programmes such as "food for work" must be introduced alongwith a massive rural infrastructure development initiative that will generate rural employment and consequently bolster domestic demand.

However, given the present BJP-led government's dispensation, such a direction in the budget appears unlikely. While its politics is dominated by religious fundamentalism, its economics appears to be dominated by what may be called fiscal fundamentalism. In the name of reducing fiscal deficit, the government may well end up further contracting its expenditure, thereby compounding the recessionary tendency. The government must be told that it is possible to reduce the fiscal deficit by enlarging its revenues also, rather than by curtailing its capital expenditures.

VICIOUS CIRCLE

Further, such a contraction of expenditure can come only by attacking the already merger food and other subsidies for the people. This is so because 82.4 per cent of the estimated fiscal deficit in the budget presented last year was due to interest payments alone. This must well have gone up substantially given the virtual 15 per cent devaluation of the Indian rupee, making our foreign loans and interest payments more expensive in rupee terms. Given this, contraction of government expenditure would only lead to further abdication of its social responsibility, meaning further reduction in expenditure meant for the people, especially the poor. This would lead to further impoverishment and consequent contraction of domestic demand, compounding the recessionary trends.

We are thus trapped in a vicious circle: to reduce the fiscal deficit the government reduces its expenditures; reduction of expenditure contracts domestic demand which in turn contracts economic activity; and this in turn reduces government's revenues since this is predominantly based on indirect taxes that are related to the level of economic activity. Next year, therefore, the gap between revenue and expenditure will further increase, forcing the government to reduce its expenditure. Thus the cycle is likely to continue till the country is totally mortgaged and the vast majority of the people are impoverished.

Effecting a change from the present ruinous course, however, requires a political will and determination. But this transitional era of coalition governments, it is often argued, robs the country of such will and determination of purpose since governments remain preoccupied with their survival. It would, however, be wrong to conclude that coalitions per se are unstable. Coalition governments have successfully worked in West Bengal and Kerala for more than two decades. What is required is a commonality of purpose (other than seeking to share the spoils of office) amongst the parties, which form coalition governments. It is the divergences within coalitions and the inability to accept (beyond formality) and implement a common minimum programme that renders such governments, as the present one, rudderless.

Also, with different social and regional groupings asserting themselves, coalition governments would be inevitable for some time to come. Again, the coalition governments per se cannot be regarded as a regression of Indian democracy. On the contrary, they reflect a process of maturing of Indian democracy. It is India's social plurality that is asserting itself in its polity, and this is no negative development.

RSS AND CONGRESS VISIONS

As argued in these columns many months ago ("The Meaning of People's Mandate," People's Democracy, June 23, 1996), the churning process which the country is currently undergoing is a battle between three alternative visions that emerged during the course of India's freedom struggle. The right-wing vision, the core of which the RSS forms, represented by its political wing, the BJP, today seeks to convert the secular democratic Indian republic into a rabidly intolerant "Hindu Rashtra."

Then there was the Congress vision, which occupied the central place and dominated during the first four decades of independence, with a commitment to maintain the secular democratic character of our polity and to strengthen economic sovereignty through self-reliance. (Of course this commitment was to a large extent insincere and wavering.) During the course of these decades, this vision degenerated into one of deceitful compromises on both the scores -- to the extent that today there is a virtual convergence between the right wing and the centrist vision as far as the economic policy framework is concerned. As far as the question of secular democracy is concerned, the Congress's compromising philosophy of "pale saffron" is only too well known.

THE LEFT VISION

In such a situation any shift away from the present ruinous trajectory can be brought about only by the Left vision, which is distinct from the other two. This vision too emerged during the freedom struggle, wielding considerable influence, and envisaged not only political freedom but also economic emancipation of the people in a society free from exploitation of man by man.

This vision, however, did not remain confined to the economic sphere alone. It extended to embrace all the spheres of civil society. Recognising the predominance of the caste structure and the inherent social oppression, while supporting interim measures such as reservations, the Left maintains that unless basic economic relations are not altered by giving land ownership to the tiller, social justice in a real sense can never be achieved. This, incidentally, even the Mandal Commission recognised.

Recognising the vast and complex character of India, the Left vision holds that regional disparities, that form the basis for divisive separatist movements, can be overcome only by a planned process of economic development. Under the current dispensation of unrivalled supremacy of "market forces," only islands of prosperity can emerge at the expense of impoverishing the vast deserts of backwardness. This will only feed divisiveness, rupturing the unity of our country. The fast degenerating political morality can be checkmated only by infusing a value system where politics means changing unequal social order and not mere profits of office through electoral politics. Only this can check corruption and criminalisation of politics, so glaring today. The Left's credentials on this score are impeccable.

More important now, there is the need to maintain the unity of our country and integrity of our social fabric in the face of relentless communal onslaughts. The Left's credentials on this score too are incontestable. Recognising India's social, linguistic and religious plurality, central to the Left vision is a strengthening of the federal essence of our constitution. This is in sharp contrast to both the right wing and centrist visions, which have robbed India of its federal essence through their efforts to impose a unitary structure.