Vinod Anand

IN Part 3 of this Paper we had looked at the distributional effects of the economic growth in India since the inception of the First Five Year Plan. We continue with the same in this Part too.

Prices: Wholesale and Consumer:

Wholesale price indices include prices of primary articles (food articles, non-food articles, and minerals), fuel power, light and lubricants, and manufactured products (food products, textiles, chemicals and chemical products, basic metals, alloys and metal products, and machinery and machine tools), and consumer prices indices take into account  industrial workers, urban non-manual employees and agricultural labourers.

Most developed countries use the Consumer Price Index (CPI) to calculate inflation but India uses the Wholesale Price Index (WPI) because the government cannot collect quickly the data to create the CPI. The main problem with WPI calculation is that more than 100 out of the 435 commodities included in the Index have ceased to be important from the consumption point of view. Retail prices are normally much higher than wholesale price.

That is the reason when the people on the streets are experiencing at least 30 percent increases in prices the published figure from the government indicate only 7.4 percent increase. Consumers are currently paying as much as 60 per cent more than the wholesale price of essential commodities, which marks a threefold increase over the normal average difference between retail and wholesale prices. Farmers had also been hit hard due to the huge difference in wholesale and retail prices because the middlemen and traders normally benefits from these price increases.

 As far as the wholesale prices are concerned, the following are the main trends: The wholesale prices have been continuously rising. During the first decade, the price rise was modest, but the inflationary pressures increased in the second and third decades, when prices continued to rise at an alarming rate, though in between there were individual years of respite (like 1968-69, 1975-76, 1976-77. 1977-78, and 1978-79),  when the price rise was modest. But the later part of the fourth decade witnessed one of the worst droughts and the wholesale prices went up enormously. During the decade of nineties the inflationary pressures continued, essentially because of persistence of structural rigidities and ineffectiveness of fiscal and monetary policies.

Talking of consumer prices it is seen that the trend has been in line with that of wholesale prices, but leaving a few limited periods (like the later part of eighties); it has been, somewhat, higher than the wholesale level.

Thus, the country has always faced inflationary pressures, though in varying degrees, and the reasons are supply shortages (both natural and man-made) and the accompanying inflationary psychology coupled with distorted government policies pertaining essentially to procurement and distribution.

Inflation in India is still rising. Between March 2006 and March 2007, year-on-year wholesale price index inflation excluding food and energy rose from 2 per cent to 7.9 per cent.
Leading indicators of inflation point one-way: continued price pressures. Excess capacity has shrunk to a 14­year low (according to the NCAER). In addition, there are signs of overheating in real estate and labour markets, with surveys showing the salaries of skilled workers rising by around 15 per cent annually. The Public Distribution System has virtually collapsed and the means that were available at least in theory to protect poorer sections of society have disappeared.

Apart from what is happening now because of the world-wide recession, it must be noted that although Indian authorities and Indian observers are holding international situation as the culprit, such developments across the world have no relevance for India, except for the increasing price of crude petroleum. The country normally suffers because of core inflation as against the non-core inflation.

Imports and Exports:

As can be seen the available data on imports and exports are in terms of rupees and that too at current prices, and hence the inflated figures over certain years/periods may be due to factors like inflation, devaluation and continuous depreciation in the exchange rate of rupee. And hence, one has be careful in interpreting them. These two factors have not been accounted for in the given figures, which show an upward rising trend through out with imports being always more than exports, resulting in negative trade balance through out, though with varying degree. India has, thus, always faced a trade deficit, which has increased at an increasing rate. The end of the fourth decade (1990-91) had witnessed a trade deficit of more than Rs.10, 000 crores, but then in the following year, because of strict import restrictions, the deficit came down to Rs.3810 crores. And then came the era of liberalization because of which trade deficit started going up in 1992-93, and this trend continued with the result that in 1996-97 it touched a high of Rs.20, 102 crores. It is understandable that in a growing economy imports should rise, but then exports have also to keep pace with it. This, somehow, has not happened in the Indian scenario, and hence the picture is rather gloomy, though not completely disheartening because of the fact that Indian exports, unlike earlier years, now include quite a number of non-traditional items like gems and jewellery, garments, and engineering goods and this is coupled with a vigorous strategy of export promotion involving capacity expansion for export production, up gradation of technology, improved access to capital goods and raw materials at or near international prices, and  strengthening of  marketing capacity of exporters.

Per Capita Availability of Certain Important Articles of Consumption:

Per capita availability of important articles of consumption is yet another micro criterion of assessing the performance of the economy at the macro level.  A rising per capita availability with rising population indicates, among other things, success in terms of self-sufficiency in the production of that commodity. Per capita availability does not always mean that the commodity in question actually becomes available to the people. Much depends upon the public distribution system, and other related policies.  The commodities on which per capita availability data are available in India are: Edible Oil, Vanaspati, Sugar, Cotton Cloth, Manmade Fibre Fabrics, Tea, Coffee, and Electricity (Domestic). But there are quite a number of other important articles of consumption that are used by the majority of Indian people. In order to have a clear picture in respect of per capita availability, we must have relevant time series data on all such commodities. But looking at the commodities on which data are available from 1955-56 onwards, we find that the trend in per capita availability in most of the cases is encouraging.  Between 1955-56 and 1996-97 it is seen that the per capita availability of the commodities that have been considered was the highest during the nineties; it was the lowest during the earlier periods. Talking in terms of the percentage increase between the minimum and the maximum values, we find that it is the highest (2279.2%) in the case of electricity, and lowest (40%) in the case coffee. This increase is 999.7% in the case of manmade fibre cloth and in other cases varies between a low of 71.6% (for cotton cloth) and a high of 239.5% (for sugar). The scenario is almost the same in recent times.

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Afghanistan: America’s last stand

Sawraj Singh writes from Washington

IT is becoming increasingly clear that the days of America’s reign as the only superpower of the world are numbered. Will America’s fate be similar to the other superpower, the Soviet Union and will it receive the last fatal blow in Afghanistan as did the Soviet Union? The answer to both these questions seems yes. It almost looks like a classic Greek tragedy that fate is taking America to Afghanistan in a big way.

There seems to be a general consensus in America that the time has come to take a last stand against the Islamic fundamentalists in Afghanistan. President Karzai also looks like a character from a classic Greek tragedy. His name means “One who is under debt” in Punjabi. He is in a perpetual state of melancholy as if he knows his tragic end. He has cried a few times before the reporters.

President Bush got a welcome with shoes in Iraq. Throwing shoes at someone is considered the ultimate humiliation. However, these shoes were not from just one reporter, but represented the prevailing feeling of the majority of Iraqis. The people of Iraq have given a clear message about how they feel about Bush and America. The journalist became an instant hero and thousands of people protested by burning the American flag. The message is clear that America is not welcome in Iraq and should leave as soon as possible. The Iraq war is lost.

There is an almost consensus in America that the Iraq war is lost. Afghanistan is the next and probably the last stop. If America meets a similar fate in Afghanistan, then the game is over. America is no longer the only superpower in the world and the world has become Multipolar instead of the present unipolar world.

America wants all of its friends such as India, Israel, and the European countries to come to its help in the last stand. On one side will be America and all of its friends, and on the other side will be the Islamic fundamentalists supported by the majority of the Muslims of the world. No Islamic country can side with America in this confrontation .America has alienated all of the Islamic countries of the world.

Is this war going to be a war between the Christians, Jews, and Hindus on one side and the Muslims on the other side? Absolutely not. The vast majority of the Christian countries of the third world will not support America. Russia, a Christian country, is very likely to support the other side. Nepal, the only Hindu country in the world (India is a secular country according to the Indian constitution), will not support America or India against the Islamic countries.

At this stage, the American defeat in Afghanistan looks as certain as turned out in Iraq. However, the role played by Russia and China can determine the pace of the defeat. Afghanistan is surrounded by Iran on the west and Pakistan on the east. If Russia supports Iran, and China supports Pakistan, then the American defeat in Afghanistan can be a quick defeat. However, if Russia and China decide to stay neutral, then the defeat can be very slow, taking several years. This is the only uncertain element in the equation.

[The writer is Chairman, Washington State Network for Human Rights]

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Contemporary global capitalism: Multi-pronged crises-1

THE grand failure of many a financial institution in the US is one of three such crises that have affected the world today; the others related to oil prices and food shortages. These in sum have broken the back of neoliberal triumphalism, and have resulted in a spatial shift in global capitalism. No wonder, it is time to address alternatives to this greed driven, unregulated and excess-motivated system. Such an alternative must be based on the principles of ecological sustainability, social justice and democratic participation writes Professor Pritam Singh who teaches at the Oxford Brookes University Business School, Oxford.

With the wave of financial crises sweeping across the United States and west Europe the project of “free” market capitalism stands now in tatters. The fallout from the liquidation of Lehman Brothers has thrown the global financial system into a turmoil not seen since the Great Depression of the 1930s. The current global capitalist economy is beset by not one but a variety of crises. The three interlocking crises most dominant in severity are: a credit crunch leading to financial meltdown, fluctuations in oil price with a trend toward upward movement, and food shortages. As an offshoot of the crises in the credit, energy and agricultural markets, an acute crisis has also developed in the housing, aviation, and automobile markets. The convergence of crises in credit, energy and agriculture markets is linked, to some degree, with the spatial shift in global capitalism. The hitherto unquestioned economic dominance of older capitalist nations in the world economy is now being increasingly challenged by the rise of new economic powers. The so-called BRIC (Brazil, Russia, India and China) nations, in particular, symbolise these new economic powers. According to one estimate, if the current growth rates persist, by 2050 China and India will be the dominant global suppliers of manufactured goods and services respectively, while Brazil and Russia will become the principal suppliers of raw materials [Daniels et al 2009: 218]. To emphasise this global shift in the world economy, it is argued sometimes that the 18th century was a French century, the 19th century was a British century, the 20th century was an American century and the 21st century would be an Asian (or perhaps Chinese) century.

This changing balance of economic power in global capitalism is a manifestation of what can be described as “the law of uneven and combined development”. According to this idea, the world capitalist economy is one integral whole. Its various national and regional components are influenced and shaped in different ways by the specific mode of functioning of this economy. The national differences in technology, marketing, product range, agriculture-industry linkages, financial institutions, natural and human resources, political and legal structures, sociocultural hierarchies, military institutions and the bargaining power of competing classes – all of these combine in complex ways to determine the competitive power of nations in the global economy. Changes in the matrix of these forces inevitably lead to a decline in the economic, political and military power of some nations and to the rise of others.

Neoliberal Triumphalism Deflated

The collapse of the Soviet Union led to the strengthening of the economic, technological and, more importantly, ilitary hegemony of the USA in the global political economy in the 1990s. This resulted in the triumph of the so-called Washington Consensus, led by the International Monetary Fund and the World Bank, as well as to the infamous boast by the political theorist Francis Fukuyama (1992) about the “end of history”. This triumphalism now stands severely torn apart.

At a military level, American hegemony has been undermined by the continuing crises in Iraq and Afghanistan. Due to their interventions in these countries, the American military, as with the militaries of its allies, is showing signs of having overstretched itself. Were this not the case, it is possible that the US government would not have opted for what is essentially a non-interventionist approach to the radical political transitions that have been taking place in Latin America and, more specifically, in Nepal.

At an economic level, neoliberal triumphalism has suffered a serious setback due to the crisis in the largely unregulated financial markets. The sub-prime mortgage crisis that started in America was a direct outcome of the fierce competition in the unregulated financial markets where banking and other financial institutions resorted to unsustainable levels of lending for the sake of short-term gains.1 The class and racial inequality embedded in American capitalism is closely linked with the rise in sub-prime mortgages. The financing of big multinational corporate businesses has been moving in the direction of less reliance on banks and more on complex financial instruments such as bonds and derivatives. This forced the banks to a greater reliance on home mortgage lending to expand their businesses. Faced with the unbridled competition in the saturated mortgage market, the banks started resorting to aggressive lending to financially less secure, poor and, most often, black and migrant households.2 These households could not meet their repayment obligations once the initial two year fixed low interest rate period was over and they were faced with the subsequent high variable interest rate. Re-possessions (called foreclosures in USA) followed, leading to tightening of credit availability.

Speculative capital has also played its role in aggravating the financial crisis, but the degree of its contribution to this crisis is a debatable subject. Politicians prefer to resort to the populist measure of blaming the speculators for causing the financial chaos and, thus, evade accepting the fundamental flaws in the functioning of financial capitalism. The recent temporary ban on short selling both in the US and the UK is partly a populist measure and partly a panicky response to the danger of financial crisis spiralling out of control.

Credit Crunch

The sub-prime mortgage crisis that manifested itself in the credit crunch crisis in America had its fallouts in Europe too, due to the close integration of financial institutions in Europe and America. The credit crunch, in turn, is leading to a rise in borrowing costs by businesses. This is adversely affecting general economic activity and manifesting itself through slowing down of the economic growth rate in the US and Europe. In an unprecedented move, the central banks in the US and Europe are being forced to come together to devise regulatory structures to deal with the credit crisis and its offshoots.

Interest rates have been slashed in the US, UK and some other European countries, and central banks have come under powerful pressure to pump extra liquidity into the credit markets. The deliberate supply of extra money is becoming increasingly necessary to ease the massive shortage in credit availability. The US Federal Reserve gave central banks in the UK, the euro-zone, Japan, Canada and Switzerland $ 180 billion to lend on to local banks that were in need of emergency cash [Anon 2008]. Taking into account the previous cash injection that took the total size of the Fed’s agreements with other central banks to $ 247 billion [Saltmarsh 2008].

A number of key financial institutions in the US and UK that were under threat of liquidation had to be literally nationalised.These include the mortgage companies Fannie Mae and Freddie Mac in the US and the Northern Rock bank in UK. Fannie Mae and Freddie Mac provide over half of all US mortgages and their takeover by the US federal government is the biggest banking bailout in American history. A staggering sum of $ 5 trillion of mortgage debt has been transferred from private ownership to state control. Such a high level of state intervention is a stark admission of the failure of the ideology of deregulation of markets, which has been the corner stone of the neoliberal economic doctrine. This level of high state intervention cannot be sustained without the state improving its revenue position to fund its interventions. This would necessitate increasing taxes, especially on high income groups – a measure that is anathema to the free marketers.

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