It is clear by now that the global financial crisis has graduated into a global economic crisis of serious proportions. The advanced economies are set to experience a protracted recession and the developing countries across the world, including the Indian economy, will also be adversely affected.
The UPA Government’s responses to this evolving situation, however, have been extremely disappointing. Ever since the Government has come out of its initial state of denial, the measures adopted by it reflect on the one hand a sheer lack of comprehension of the causes behind and the proportions of the current crisis and on the other hand a proclivity towards appeasing myriad financial interests and corporate lobbies. The fact that the UPA Government is relying upon only one policy instrument, namely the interest rate, to both control inflation as well as reverse the growth slowdown betrays the illogic behind its policy paradigm. It is a rudimentary lesson in economic theory that two policy goals cannot be achieved using a single policy instrument.
The UPA Government has so far chosen to meet only the corporate bigwigs and bankers in order to discuss policy responses; neither have the State Governments nor other political parties, trade unions, farmers’ organisations and other organisations representing crucial stakeholders been consulted. It is indeed strange that at a time when the neoliberal vision of putting corporate profits over peoples’ interest and relying upon ‘trickle down economics’ is getting discredited across the world, the economic managers of the UPA Government are clinging on to it. In this backdrop, the CPI (M) is putting forward a set of concrete suggestions in order to tackle the adverse impact of the global recession on the Indian economy and protect the interests of the people.
Broad-based Growth through Fiscal Stimulus
- A special fiscal package should be announced by the Central Government directed at increasing public expenditure in ways which increases the income and consumption of the working people, especially the vulnerable sections, and ensure broad-based growth.
- This is an appropriate time to expand the fiscal deficit not only by the Central Government, but also the State Governments. The FRBM Act should be scrapped and a comprehensive debt relief scheme for the State Governments adopted to encourage them to adopt expansionary fiscal stances.
Protecting Existing Jobs
- Protection of domestic jobs must be the priority of the Government in the backdrop of the global recession.
- The Government should announce a moratorium on job or wage cuts in the organised sector, in the interest of the national economy, since such job or wage cuts would further depress demand and aggravate the situation. The extant labour laws should be duly invoked by the State Governments to prevent retrenchments and lay offs.
- The burden of cost adjustment should first fall on profits and executive pay, which have ballooned during the recent period. India requires an Inco3mes Policy whereby executive pay is linked to prices and the minimum wage earned by workers.
Specific Measures to Boost the Real Economy
- The Government has to undertake massive public investment directed at sectors which are employment intensive and capable of creating employment demand for those likely to lose jobs in the export-oriented sectors.
- Employment Guarantee: The NREGA should be strengthened and extended to the urban areas. Extending the period of guaranteed employment beyond 100 days should also be considered.
- Agriculture: Foodgrains production has to be encouraged and public procurement operations expanded for all major crops across the country. The allocations for the Food Security Mission and the Rashtriya Krishi Vikas Yojana should be enhanced substantially. Public investment in irrigation also needs to be stepped up substantially. For cash crops like cotton and oilseeds, import protection should be accorded through higher tariffs. Protection should also be extended to cash crops like rubber, cashew etc. to prevent sharp falls in prices.
- Food and Fuel Prices: The hikes in the prices of diesel and petrol by Rs.4 and Rs.2 respectively, must be withdrawn without further delay, in view of the sharp fall in international oil prices (which have fallen below $60 per barrel). The PDS needs to be universalized and strengthened drastically by reducing the issue price so that subsidised foodgrains can reach every settlement in the country. This is essential for boosting consumption demand in the economy.
- Retail Trade: With slower growth in consumption, the businesses of small and unorganised retailers are bound to be hit, affecting their livelihood. In this backdrop, allowing big organised retailers to expand their businesses and capture greater market shares would only aggravate the situation. A policy to strictly regulate the operations of domestic corporate retailers and restrict their unbridled expansion is urgently required.
- Small-Scale Industries: Crisis affecting the small-scale industries would cause massive job losses and affect livelihoods on a massive scale. The Government needs to devise sector specific relief packages, especially for export-oriented and labour intensive sectors like garments and leather, keeping the interests of the small-scale industries and their workers in mind. The relief packages should include rescheduling of bank credit as well as direct subsidies and should also incentivise job protection.
- Tariff Protection: In order to ensure that the demand injected into the economy through public investment does not leak out through increased imports, increasing customs duties should be considered. Further tariff concessions under NAMA or entering into structurally unequal trade agreements like the proposed EU-India FTA should be ruled out.
Tightening Financial Regulation and Reviving Development Finance
- Regulation should be strengthened in the financial sector and state control over finance need to be reasserted in order to revive development finance. While curbing reckless flow of credit to fuel elite consumption and asset price bubbles, credit should be directed towards employment intensive sectors like agriculture and small-scale industries.
- Capital Account Convertibility: Measures undertaken to liberalize the capital account as per the Tarapore Committee recommendations need to be reversed and strict controls reimposed on the outflow and inflow of capital.
- Participatory Notes: PNs, which are non-transparent derivative instruments used by the FIIs to invest money in the Indian capital market on behalf of undisclosed entities and individuals, should be prohibited. Allowing speculative hedge funds and other dubious entities to invest in Indian markets without any adherence to disclosure norms is the antithesis of prudential regulation.
- Banking and Insurance Sector Deregulation: The Government should abandon the moves to further deregulate the banking and insurance sectors through legislation like the Banking Regulation (Amendment) Bill, the State Bank of India (Amendment) Bill and increasing the FDI cap in the insurance sector from the present 26% to 49%.
- Pension Reforms: Pension reforms should be abandoned by the UPA Government and the PFRDA Bill scrapped. The Pension Scheme for Government employees should be reworked to ensure minimum guaranteed pension.