National Situation

The Budget of 2009, and capitalist goals

Situating the Budget in the Wider Context of the Indian Capitalist Class and its Goals

At first glance, the one day drama enacted when the Finance Minister rises to present the budget could be dismissed as a media spectacle. But the reality is more complex. It is true that television channels, newspapers, all try and milk the maximum benefit, and therefore the incident has a carnivalesque look. A lot of politicians, so-called experts, all turn up before TV channels to produce comments. CEOs of diverse concerns provide ratings out of ten. The salaried middle class looks at the income tax level, while investors look at particular industries and tax breaks before investing. But this is a shallow way of looking at the role of the budget. We need to relate the budget to the overall dynamics of Indian capitalism, and to the general policy of the government.

For too many sections of the Indian left, whether reformist, social-liberal, or “revolutionary”, rhetoric and outdated assumptions dominate their assessment of the economic policies of the state. For the reformist left, caught in the trap of an imagined developmentalist state, the goal seems one of desiring a return to an imagined golden age. For the “revolutionary” left, it is all a set of manoeuvres by comprador capitalism. Neither assessment captures the real dynamics of Indian capitalism. We can therefore use the analysis of the budget of 2009 to question these analyses. Thus, the CPI(ML) Red Star argues that the budget’s plan for privatisation of PSUs and so on implies a comprador bourgeoisie. The CPI(M) for its part issued a statement that was just a routine condemnation, as befits a party that now has to flex some oppositional muscles. But all it has to say, in sum, is that “this Budget neither provides a stimulus for growth nor meets the needs of “inclusive growth” for the aam admi.” In other words, some key aspects of te economic policies are simply ignored by the bulk of the left.

The key change that has been becoming evident is that India is beginning to emerge as an autonomous centre of capital accumulation. Indian capitalism came into being within the matrix of colonial imperialism. During the colonial period, "self"-expansion of Indian capital beyond the physical horizons of India was implausible because this would have required an Indian State committed to these interests. Colonialism ruled this out almost axiomatically. However, there were other channels available. The simultaneous existence of various socio-economic formations at diverse levels of Indian society allowed some possibility of 'internal' colonialism and "enclosures", thus, providing the basis for capitalist expansion. Even after Independence, Indian capital relies heavily on the 'diversity' (or unevenness) of Indian economy and society for primitive accumulation and expansion. Additionally, so-called semi-feudal conditions at various locations within the country provide a vast reserve army of labour. The important characteristic of this insecure and docile population is that they can be pulled out of their original locations and thrown into the growing labour market without disturbing the essential fabric of society. In other words, pre-capitalist forms of exploitation provide vast and near permanent pools of cheap labour, which competes with the urban proletariat, thereby bringing the latter under political and economic control. These, together with the state-protected capitalist growth of the first three-to three and a half decades, provided the basis for significant accumulation of capital. The turn to globalisation was, in the case of India, not something the IMF forced upon a reluctant regime. Michel Chossudovsky noted that the World Bank and IMF found Indian administrators and politicians much more willing to go along wit their proposals tan their counterparts in many other countries. This of course does not mean there were no contradictions between the established imperialist powers and the Indian bourgeoisie. But this does mean that the Indian bourgeoisie saw the neoliberal turn as an instrument to insert the Indian economy into the world market in terms suitable for its growth.

It is by recognising this general orientation that we can talk about the budget of 2009-10. The basic thrust of all the budgets for the past two decades has been similar – disinvestment, and a series of measures to transfer greater surplus from the working class and the other working people to the bourgeoisie. This reflects a balance of forces in the class struggle. It is worth noting that the period between 1991 and the present has seen a Congress government, a coalition government with CPI participation and CPI(M) support, a BJP-led coalition government, and a Congress-led coalition government with Left Front support for all but the last few months. Despite such seemingly divergent positions, the basic thrust of the economic policy had not changed. Chidambaram could move from being minister of Commerce under Narasimha Rao to Finance Minister in the United Front to again Finance Minister in the Manmohan Singh government, just as Singh himself could put on a “socialist” image when the Indian state needed such an image and become an open advocate of neoliberalism when it was necessary. The failure of the old left is a major aspect of this transformation, this shift of class forces. The Economic Survey had given the basic orientation of the government clearly enough. The general expectations from the budget included large tax concessions, a major privatisation thrust and substantial financial liberalisation.

The Budget of 2009-10

However, the Finance Minister was operating under certain constraints. The budget of 2009-10 comes after a major world capitalist crisis. So the immediate goal was to cut the losses, and to ensure that the burden did not fall on the bourgeoisie.

Finance Minister Pranab Mukherjee stated that he intends to reverse the recent economic downturn and restore the buoyancy the economy has displayed in recent years. In large measure, this was political rhetoric. Till now, there are major uncertainties about how deep the current crisis is – and not merely among Marxists. But certainly, the government had and has aims to minimise and reverse the downturn. Commentators noted the political dimension of the rapid implementation of the 6th Pay Commission – that it was done in an election year. However, to focus on only this is to miss an important point. Indian capitalism, a late comer, has found only niche markets in the world market, in many cases. So an expanding economy has to depend on a sizeable internal market. India has seemingly solved the problem by separating the industrial islands from the rural areas, were primitive accumulation of capital still continues under different names. So tee is a need for an internal market. The sixth pay commission was part of the government’s attempt to create and sustain such a market. But coming at the time of the crisis, it meant a significant rise in deficit financing. This is particularly striking, because at the same time, social sector spending by the state has declined, despite the much touted NREGA.

The gross tax receipts are budgeted at Rs. 6,41,079 crore, lower than  last year while the non tax revenue receipts have been estimated at Rs. 1,40,279 crore -  higher as compared to last year.  The revenue deficit as a percentage of GDP is projected at 4.8% compared to 1% in BE 2008-09 and 4.6% as per  provisional accounts of 2008-09.  The fiscal deficit as a percentage of GDP is projected at 6.8% compared to 2.5% in BE 2008-09 and 6.2% as per provisional accounts 2008-09. The Budget estimates 2009-10 provide for a total expenditure of Rs. 10,20,838 crore.  Out of it, Rs. 6,95,689 crore is non-Plan expenditure and Rs. 3,25,149 crore is Plan expenditure.  Thus, the total expenditure this year is 36 percent over that of 2008-09.  The increase in Non-Plan expenditure comes to 37 percent whereas the increase in Plan expenditure is 34 percent.

These gross statistics of course do not provide us with a clear picture. In terms of new fiscal initiatives the Finance Minister has done little. He has tinkered with direct taxes, offering marginal concessions to personal income tax payers and imposing new minimum tax requirements for the corporate sector, which together with other manoeuvres are revenue neutral. Direct taxes are projected to earn as much revenue as they would have before the new proposals. In the case of indirect taxes, the large excise duty reductions offered a few months earlier to stimulate demand and revive growth have been retained. To make up for the revenue loss, some steps have been taken, such as adjustments in other areas. Excise duties at the 4 per cent level have been raised to ensure convergence in preparation for the proposed goods and services tax or GST. In the net, these measures are projected to yield additional revenues to the tune of Rs.2,000 crore in 2009-10. Perhaps we need to set this against the one clause in the Finance Act (Section 35AD) that gives a gift of Rs. 20,000 crore rupees to Mukesh Ambani by allowing 100 per cent tax exemption on the entire capital expenditure incurred on setting up and operating a natural gas or crude oil pipeline.

Defence and Home Affairs

In the expense side, the major hike has been the military expenditure. It is a measure of the moral and political collapse of the major parliamentary parties claiming to be leftist, that they remain silent on this question. The defence budget has seen a 34 per cent hike. Last year, India raised defence spending by 10 percent before announcing plans to spend more than US$30 billion over the next five years to upgrade its largely Soviet-era weapons systems. Defence outlay amounts to 16 percent of the budgeted expenditure which is almost equal to the central government’s total Plan expenditure.

As part of that, it is planning one of its biggest-ever deals, the US$10 billion purchase of 126 fighter jets.

Now India is integrating its three armed forces and increasing security along its coasts after militants from Pakistan attacked Mumbai from the sea route. “We will do all that is necessary to modernize the security and intelligence services and that's a commitment which is essential even to deal with problems of development,” Singh said after the budget was announced. It is also to be noted that a large part of military expenditure, for example on nuclear power, is concealed under other headings.

The Indian army plays several functions that make it clearly the target of serious questioning even by someone who considers herself or himself a consistent democrat, let alone a revolutionary socialist. The army, and the paramilitary forces, are continuously used to tackle political opposition. Several parts of India face so-called insurgencies. These are, in most cases, (the Maoists excepted), the result of regional, ethnic or national aspirations, which has been deliberately trampled upon, and in good measure due to the capital accumulation strategies of the Indian state already discussed. In the case of Maoism, there are two issues involved. In the first place, regardless of our criticism about mistaken Maoist strategies that weaken rather than strengthen the potential for the self-emancipation of the working people, or their instrumentalist attitude to democracy (good when it can be invoked to defend Maoists, to be ignored otherwise), we recognize that popular support to Maoism represents a form of class struggle response to the ruling class offensive. So when the ruling class argues that it needs more funds for the military and paramilitary sectors, and one dimension of it is that it needs to combat Maoists, there is a clear need to recognize that it is calling for more money to wage the class struggle on the political plane.

A further dimension to be recognized is that the rulers, supported out of a mistaken sense of strength and glee by some ultraleft forces, have been presenting the Maoist “threat” in a greatly overblown manner. The UPA government set up a committee, which reported that Maoism “has spread from one police station, one district and one state to 560 police stations, 160 districts and 14 states”. India has some 600 and a couple of districts. Out of which, about 160 are affected/controlled. So, one out every four (in fact, even more) is under the control of the Maoists insurgents alone - that's how the claim goes (This is without considering that there are also other varieties of insurgents, in the north-east and J&K.) So the situation looks utterly grim. Never mind that our day-to-day experiences do not reflect any such grimness. Now look at the corresponding number of police stations: 560 out of some 12,600. So, less than one out of twenty. Arundhati Roy, in a letter to The Economist, said that the figure that 25% of India is under Maoist insurgency is probably a slight exaggeration. It is not a slight exaggeration. It is a downright falsehood whose principal purpose is to strengthen the hawkish tendencies among the ruling class and to silence democratic criticisms. In such circumstances, any action short of opposing all sections of the budget dealing with the military, the police, and the related issues, amounts to supporting the ruling class in its war against the oppressed and exploited.

Some Key Issues for capitalist Development

The budget was only one of several instruments. But it was certainly an important one. So how did Finance minister Mukherjee set out to implement his vision? Mr. Mukherjee announced a number  of UPA’s “flagship” anti-poverty programs aimed at the so called ‘aam admi.’ Thus the budget enhances funding for the National Rural Employment Guarantee Program, which provides a minimum of 100 days of menial labour to one member of every poor rural household will be boosted to Rs. 39100 crore so that the participants are given a daily wage of 100 rupees. But in real terms the increase in the allocation for this is only 6.5 percent relative to the previous year. The budget also provided increased or new allocations for housing, farm credit, the urban poor, rural health, and a National Food Security program that will serve the Congress election pledge to provide 25 kilograms of wheat or rice per month to every poor family at a price of Rs. 3 per kilogram. The question is, who are the poor? The Planning Commission in 2004-05 had said that 28.5 per cent of the country’s population was poor. The estimate was based on a National Sample Survey Organisation (NSSO) survey’s finding which said an income of Rs 560 per month for urban families was enough to purchase 2,100 calories of nutrition and an income of Rs 368 per month was enough to purchase 2,400 calories of nutrition in rural areas. The Economic Survey 2007-08 put the poor at 22 percent for the entire country. By contrast, the World Bank’s definition of poverty, based on an international price survey, suggests that the percentage of India’s people living below the $1.25-a-day poverty line stood at 42 percent in 2005. In June 2009, a rural development ministry-sponsored committee headed by N C Saxena to fix criteria for the Below Poverty Line survey in India had estimated that 50 per cent of Indians were poor. Clearly, poverty is a highly political issue. The rulers want to downplay poverty for two reasons. The most obvious one is that they want to spend less on any poverty alleviation measures, or on social security for the poor. But there is also the ideological dimension. Growth must be shown be “inclusive” growth. So some amount of creative statistical performance, not unlike that displayed by Satyam before its eventual collapse, has to be produced. Not surprising, then, that the government rejects the Saxena Committee assessment and wants to stress the Planning Commission figure of 28%.

The NREGS was perceived to be one of the major programmes that won the UPA its votes. So we have seen an attempt to shore it up. But the seemingly huge rise in allocation is huge only if we compare the original allocation of 2008-09. The allocation for it in the 2008-09 Budget was just notional, with the promise that more would be provided in response to demand. Even with the still-limited implementation of the NREGS, actual allocations in 2008-09 were much higher than budgeted for and rose to Rs.36,750 crore. Compared with this, the budgetary allocation for 2009-10, at Rs.39,100 crore, is just Rs.2,350 crore or 6.4 per cent higher. Assuming that all the laggard states, such as West Bengal, decide that for their own electoral purposes, they must perform better from now, the demand will be much more than the allocation.

The National Rural Health Mission (NRHM) has been allocated only Rs.1,730 crore (or around 1.2 per cent) more than what was spent last year. Health care is becoming immensely expensive and is leading to rising rural indebtedness, something the state does not address at all in the present budget.

Above all, while the UPA has made much of its proposed Food Security Act (which will, in fact, reduce allocations of rice or wheat to the poorest from 35 kg to 25 kg a month), the subsidy on food is expected to increase by just Rs.8,862 crore even though the minimum support price and, therefore, the required subsidy per kg have gone up substantially.

As against this, we need to look at policies that mean more in the long run. The budget provides corporates and high-income earners a series of targeted tax concessions, including the abolition of  fringe benefit tax, a personal income tax surcharge, and a commodity transaction tax. It pledges to extend till March 2010 credit-guarantee and interest-subsidy programs for exporters though such schemes have no impact on exports in view of the market contraction in America and Europe which are India’s major export markets in addition to the protectionist policies pursued by the latter. Modest estimates put such concessions to big businesses in this budget alone at almost one lakh crore rupees.

More than this, the Budget pushes ahead with or promises to undertake further economic reforms that would please financial capitalists. While promising to sustain public control over public sector assets, the Finance Minister has made the case in the Budget for creeping privatisation. To quote him: “The public sector undertakings are the wealth of the nation, and part of this wealth should rest in the hands of the people. While retaining at least 51 per cent government equity in our enterprises, I propose to encourage people’s participation in our disinvestment programme.” This means that disinvestment will in fact continue till 49 per cent (as of now) of the public sector are sold off. If we remember that to start with the Public Sector Undertakings were entirely owned by the state, this promise of retaining 51 percent government equity is just a statement made for the present. Mr. Mukherjee knowsd well that the genuinely ordinary Indian citizen does not buy shares. The vast majority do not have any savings. Many of those who do can only go in for small savings. The steady lowering of interest on small savings shows how much care the government has for such people. The “people” he speaks of as public stakeholders are members of the small elite who directly or indirectly participate in trading in the stock market. Less thasn one percent of the people own stocks and bonds. The idea is to sell public assets to them so that they can sell it on to higher bidders, leading inevitably to influence if not control by big private capital. It is these interests that the Budget primarily serves, even if the measure did not impress the stock market, which wanted more.

Much was made, by sections of the mainstream left, of the fact that the stock market had fallen immediately after the budget, showing it was a meaningless budget that pleased nobody. Mukherjee’s subsequent meetings with industrialists, and his clarifications to the media, changed the situation. Moreover, there were other measures that directly benefited industry. the Finance Minister has chosen to extend for one more year (until 2010-11) the deduction from taxable income of the export profits of the Software Technology Parks of India (STPI) units, and units in the Special Economic Zones (SEZs), the Export Processing Zones (EPZs) and the Free Trade Zones (FTZs). This tax holiday was originally available until 2008-09 and was then extended to cover 2009-10. The major beneficiaries of this concession are the Software Development Agencies and the IT-Enabled Services Providers/Business Process Outsourcing units, in whose case the effective tax rates are as low as 12 and 15 per cent respectively. Revenue forgone under this head in 2008-09 was Rs.20,366 crore. Overall corporate tax concessions have meant that the revenue forgone by the government stood at Rs.68,914 crore in 2008-09, which was Rs.6,715 crore higher than in 2007-08.

Budgetary support for the corporate sector came in other forms as well. The Finance Minister continued with the excise duty exemptions granted in the stimulus packages of December 2008 and February 2009. There was an across the board excise duty cut of 4 percentage points on December 7, 2008. On February 24, 2009, the mean excise duty rate of 10 per cent was further reduced by 2 percentage points from 10 per cent to 8 per cent. These changes were responsible for a large part of the excise revenues forgone, rising from Rs.87,468 crore in 2007-08 to Rs.1,28,293 crore in 2008-09. With the Budget keeping the cuts intact, the revenue forgone in 2009-10 would be much larger. If the corporate sector does not pass on the benefits of the excise duty cuts to the consumers it will increase its profits. And to the extent that it does pass it on, it may spur demand for private sector products. So excise cuts are a form of state support for the corporate sector during the recession.

Beyond the Budget

Economic policy does not end with the budget. A few points stand out. The regime is trying its best to ensure economic recovery. It is therefore persisting with bank rates that it hopes will help investors. For example, it is trying to ensure a revival of the building boom. Moreover, the budget speech saw Mukherjee promising a new tax regime soon. That has now been unveiled. It will still take a couple of years to put it in place, after getting parliament to pass the bill. But the sum of the proposals are – there will be no income tax for incomes up to 1 million rupees per year. This means a tax break of up to Rs. 217000, without taking into consideration the further break offered – that savings in certain types of instruments will be tax free up to Rs. 300,000. This will free up a large amount of money which will either be used for the purchase of luxury items or for investments. This will have the effect of further reducing the available funds with the state, and therefore lead to further cuts on meaningful forms of social security, like public schooling, public medical care, and so on.

Increasingly, moreover, important policy measures have been moved out of parliamentary control. After the elections, India has been gradually reversing its stand on the next round of WTO negotiations. This needs to be seen in the correct context. The aim of Indian capitalism was integration in the world market under better conditions, and getting rid of the now no longer needed model of the ‘developmental state’. In 1991, the share of merchandise exports and imports as a part of the GDP was 14 percent. It grew to 38.9 per cent in 2008-09. Taking trade in goods and services together, the share of imports and exports in GDP was at 47 per cent in 2007-08. Also, gross capital flows into India rose to 9 per cent of GDP from a much lower figure of 1.9 per cent in 2000-01. But this also meant that unlike in the past, the Indian economy was more open to the stresses and strains of the global disequilibrium. The Economic Survey noted that as a result, the US sub-prime crisis eventually had important repercussions in India. What is significant is that many of the important issues no longer get discussed in parliament. The notion that in a bourgeois democracy there should be accountability by the state to the elected representatives is no longer entirely operational. Over the years, parliamentary control has been given up, because economic policy is being sought to be taken away entirely from the people. And as long as issues are publicly discussed in parliament, people have some ability to influence such discussions, even if the more powerful classes of course retain their ultimate domination.

So does the economic policy of the regime inevitably mean a “sell-out”? Not at all. The growth model it has adopted involves exploitation of the Indian poor in the interests of capital, including Indian capital. The regime needs to keep up a pretence of looking after the interests of the toilers. The blatant “India Shining” campaign of the BJP in 2004 had resulted in an unmitigated disaster for the BJP. But exploiting the poor is a necessary precondition for enrichment of the ruling class. So this is not a matter of selling out India’s vital interests, as it is being argued. The argument has to be made in class terms, rather than in nationalistic terms as the bulk of the left are doing.