This is an attempt to introduce a regular update on general tendencies of crisis development in India – motivated by Greek shock-waves, naked shorts and potential spillovers. Apart from short glimpses on the macro-level of things we focus on general trends in agriculture and automobile sector: the current demise of the past and the toxicity of the future.
The Macro Crisis
To put the core of the social crisis in symbolic-statistical terms: Export constitutes around 15 per cent of the Indian GDP – it’s share increasing over the last years. IT related-services constitute 20 per cent of the export. IT stands for less than 0.1 per cent of total employment. This is the character of the boom. More than half of the children in India are malnourished, rural hunger in India is higher than in Sub-Saharan Africa. That’s the core of social reality. The current attempt of the Indian state is two-pronged in order to control the blib inbetween: push money in more substantial manufacturing/export at all cost, spend the rest of the credit money on keeping rural crisis at bay, be it through farmers’ subsidies or through counter-insurgency. This two-front war costs more money than the 8 per cent GDP growth creates. The state is compelled to attack proletarian living standards more harshly: the increase of fuel prices in June 2010 was a necessary play with fire. Things can get hotter than the token general strike of July 5!
At this point we also want to hint towards the velvet glove of counter-insurgency: the instrumentalisation of well-meaning NGO work by those in power. Currently the states discover the importance of ‘small-scale’ farming and artisan-work as a way to individualise or ‘cooperativise’ the misery created by the mass loss of jobs and bankruptcies. Here one example about the flag-ship of feminist NGO’s SEWA being hailed by the US officials during the bi-state summit in July 2010:
“The miracle of SEWA is a treasure of India. It is also a treasure that the world is getting to share and benefit from it more and more. They have a huge fan in the Secretary of State (Hillary Clinton),” Verveer said. As SEWA expands its operations outside India in countries like Afghanistan and Sri Lanka, she said the US would like to collaborate with this Indian NGO. Referring to the recent strategic dialogue between India and the US, she said the two countries have agreed to take SEWA’s self help lesson and grow it more broadly in terms of capacity building regionally and also to grow the work that SEWA has been doing in Afghanistan.”
The Euro Crisis
How can we summarise two month of global crisis in India? May and June have see publicly displayed insecurities of the elite concerning ripple-effects of the Euro crisis.
“To some extent, it will have some influence, but… the adverse impact will be limited… I think the European crisis is not going to have as adverse an effect as happened in the 2008-09 crisis.”
(Finance Minister Pranab Mukherjee, 21 May 2010)
His official added, that in any case, India had very little direct exposure to European countries at the centre of the crisis, with the country’s banking system having no direct links with them and exports to Greece, Spain, Portugal and Italy only 4 per cent of total exports.
A day after this statement the media announced the worst ever week for the Rupee since 1995, the rate of the Rupee to the USD dropped significantly (about 5.5 per cent sice end of April) after short-term investors withdrew about 20 billion USD from Indian finance markets during May 2010 – the sharpest reversal in foreign capital inflows since the Lehman Brothers collapse. The Reserve Bank of India had to jump in and induce 3.5 billion USD its 280 billion USD foreign currency reserves into the draining market. RBI governor Duvvuri Subbarao seemed much more worried than the Finance Minister some days previous, when he announced during the G20 summit: “India’s reserves comprise essentially borrowed resources and we are, therefore, more vulnerable to sudden stops and reversals compared with countries with current account surpluses”. And the impact is palpable not only in fiscal terms: “After a positive trend in April India’s apparel export, impacted by events in Europe, dropped by an annual 6.8 per cent to USD 820 million in May 2010″ (ET, 6th of July 2010). “Exports of passenger cars from India declined by over three per cent in June to 36,874 units, mainly due to slowdown in demand from Europe (ET, 9th of July 2010). In July 2010 Reuters announced a ‘widening trade deficit’ due to the EU crisis: “India’s trade deficit was $117.3 billion in 2009/10, down from $118.7 billion in 2008/09. This gap is likely to widen to $132.70 billion in 2010/11 and $154.50 billion in 2011/12″.
Just to give some broad figures relating to the 20 billion USD flight from Indian market:
Total GDP 2009: 1,367 Billion USD
Total Export 2009: 165 Billion USD
External Debts 2009: around 200 Billion USD
Public debts of GDP 2009: 60 per cent
The Limits of Deficit Spending
Together with the US the Indian state is the global defender of ‘stimulus-policies’, warning of the dangers of deflation see discussions on last G20 meeting in Toronto. The Indian state tries to stimulate the manufacturing/export sector, thereby increasing fiscal deficit and inflation. At the beginning of June the press reported that the fiscal deficit increased by 25 per cent in 2009 to 2010. Indian inflation hit double digits in May 2010, the highest in any G20 nation, sparking concerns that prices were running out of control and putting pressure on the Reserve Bank of India (RBI) to raise rates even before a quarterly review. Inflation is the result of a ‘soft-approach’ to the looming recession. Seeing deficits and inflation grow the state has to tackle things the hard way. Major part of the Indian state deficit is attributed to the ‘subsidy’-bill, or in better terms ‘the areas of low taxation’. Money has to be shifted, the ‘unproductive or unprofitable subsidies’ are supposed to be cut down.
Fuel accounts for a quarter of the state’s estimated subsidy bill of 1.2 trillion rupees. But does that mean that the government of India is ‘net subsidising’ the oil sector? Comrades from Sanhati come to a different conclusion:
“In fact, direct subsidy is a tiny fraction (less than 1 percent) of the total tax revenues from the oil sector. Second, the total contribution of the oil sector to the exchequer has been higher than the sum of under recoveries of the OMCs and direct subsidies on petroleum products for all the years since fiscal 2004. Third, even the sum of duties (customs and excise) and (sales) taxes on petroleum products, which is only a fraction of the total contribution of the oil sector to the exchequer, has exceeded the sum of under recoveries of the OMCs and direct subsidies in all the years since 2004-05. (…) The oft-repeated assertion that petroleum products are subsidized in India is simply not true.” (Click for Sanhati report)
Regardless of the question of ‘actual net subsidies’ or ‘less taxation’, inflation has been high – the state officials announce beginning of June that the double digit inflation will be reduced to around six to seven per cent anytime soon; then they pour more oil into the inflation-fire: end of June the government decided to ‘reform’ the state-controlled fuel market and to free-float the prices of petrol and diesel, triggering an immediate petrol price-rise of five to ten per cent using the ‘high subsidy bill’ as an excuse. Who pays is the proletarian population. Asfia Malik, who is a schoolteacher, said to The Hindu: “Daily wage workers and even salaried people will not be able to afford the cooking kerosene cylinder now. Its price has increased from Rs 310 to Rs 345″. The reform sat well with the markets, days after the decision the oil stock prices rose, and with the G20 summit, which urged the phasing out of fossil fuel subsidies. Finance Minister Mukherjee said the recent fuel prices will have a direct impact on inflation by 0.9 per cent in the short-term. Still, there would be some cascading impact on food inflation and primary articles inflation. The food inflation will also potentially be aggravated by the recent decision by Agriculture Minister Sharad Pawar to “consider a proposal to levy import tax on wheat”.
The inflation does not only hit the consumption side. Following example shows the impact of costlier fuel and power for certain industries: “The recent hike in electricity duty from 10 to 13 per cent has made power in Punjab the second-most expensive in India. Registering protest against the hike, members of the Apex Chamber of Commerce and Industry (ACCI) today threatened to shut down their factories and move to other states”. Obviously these are only snap-shots, but they show how the state tries to juggle its ‘subsidy’ debts, how ‘stimulus’ and ‘stifling-inflation’ interact. One of the general explanations for the source of the inflation are the stimulus package and low interest rates by the government plus the inflow of short-term investment from crisis ridden North towards the emerging markets during 2009 – 2010. On 16th of June one of the leading bankers in India delivered another reason for the inflation: a decline in productive investment within India. “The industry is behind its cycle of investment. The demand is outstripping supply and the industry has been slow to invest in capacity,” Banking major HSBC India country head Naina Lal Kidwai said. This sheds a quite different light on the ‘manufacturing back on full-capacity’-success stories of the government.
If you cannot save enough money – because you might be afraid of the popular reaction – or you cannot tax a struggling economy more, you have to sell your assets. In May 2010 the Indian state sold third generation (3G) bandwidth for mobile phone services, the state earned 15 billion USD, twice the sum expected – the auction caused a short-term liquidity crunch on the market trying to raise money. In May 2010 the commerce and industry ministry was expected to propose 100 per cent foreign direct investment (FDI) in multi-brand retail, opening the doors to the likes of Wal-Mart, Carrefour and Tesco. The opening of the market is a major ‘hot-issue’ given the tens of millions of small traders in India, one of the main ‘social parking-spaces’ for the under-employed and failed peasants. An official of the ministry tried to counteract the widespread fear of mass bankruptcy: “The idea is that big multi-brand retail outlets should enable growth of small retailers and not threaten their existence”. A week later the media reported from the US: “The world’s largest retailer Wal-Mart has solicited support from the US government for entering the multi-billion dollar Indian retail market, where foreign investment norms are posing hurdles to its entry. The company is lobbying with the US Congress members as also the departments of commerce, trade and treasury, among others, to put forward its case on issues like “discussions on India and Foreign Direct Investment”, and “enhanced market access for investment in China and India.” Three weeks later we could read from India: “The Department of Training and Technical Education (TTE) will sign an MoU with Bharti Wal Mart (BWM) Private Limited to provide free skill development training to students enrolled in certain courses to help them obtain employment. The agreement will be signed by principal secretary, Department of TTE, Anand Prakash and vice-president, Corporate Affairs of the Bharti Wal Mart, Arti Singh. The expenditure will be borne by BWM”. Just a minor example how the world’s biggest companies are more intensively pushing into remaining markets, how capital concentrates and is about to be crushed by it’s weight.
The Response of the Labour Movement
Concerning the response of the labour movement there are certain global parallels. In response to inflation and petrol price hikes the opposition parties and unions called for a general strike on 5th of July 2010 – matching the general trend for ‘popular’, but largely symbolic mobilisations like in the PIIGS-states. There have been sporadic local protests against the fuel-price-hike immediately after announcement of the ‘reform’. On 5th of July the CPI announced a ‘major success’ of the general strike, while about 4,380 people, mostly workers of BJP and Left parties, were detained during the protests in Delhi alone – we will try to present some more accurate ‘local picture’ of the stage-show: “The all India hartal to protest against the steep increase in the prices of petroleum products has been an unprecedented success. Despite detention and arrests of thousands of protesters, there was a bandh like situation in all parts of the country with shops, business establishments, transport and educational institutions being closed. This has been the most widespread protest action in the country in recent years”. A friend from Manesar said on the phone: “Well, the shops are shut, the busses run infrequent… but the factories are running.” A similar impression – but from the other side of the barricade – had a reporter of the ET (Click).
Air India and British Airways workers’ unions had to go to court over ‘legal right to strike’ at about the same time. The crisis hits the airlines hard, the question of resistance to large-scale re-structuring is on the political and legal agenda. “Air India staff have called off a two-day strike that left tens of thousands of passengers stranded after an Indian court declared the stoppage illegal. Aviation analyst Kapil Kaul said it was the first time in 20 years he had seen union leaders being dismissed. The Delhi high court granted the injunction on Wednesday and directed the striking employees to return to work. The government had called the strike “irresponsible.” The government had given a $168m bailout to the ailing state-run airline and promised $252m more. Analysts say the airline’s 30,000-strong workforce needs to be cut by half to make it competitive.” (ET, 27th of May 2010).
While Honda workers struck in China Hyundai workers struck in India, the police arrested 200 workers in Chennai – at a time when Asia is hailed as the last resort of the global car industry. While Foxconn workers in China expressed anger and desperation about their electronic misery, workers at Nokia in India laid down tools in mid-July 2010: The industrial action at the Sriperumbudur factory, which employees about 8,000 people, is the third dispute to hit the Finnish company in the last 12 months. Another proletarian crisis-related outburst worth mentioning were the protests of Vietnamese, Indian and other Asian construction workers in Dubai – following non-payment of wages in May 2010. These parallels are obviously still ‘non-communicating parallels’, but they follow a pattern. Finally we want to document a good strike report on the dispute of railway-workers in Mumbai (Click).
In terms of counter-insurgency the Indian government declared the possibility of using army air-force against the Maoists, after Dantewada land-mine attacks end of May. The state withdraw the official threat at first. On 5th of July the state announced using Border Security Force (BSF) in specific special operations against Maoists. The BSF is deployed in Kashmir and northeastern states, using army helicopters. Apart from militarisation the focus of repression shifted towards the radical wings of workers’ unions in states like Punjab and Gujarat – states which have so far been seen as being outside the so-called ‘Red Corridore’. The state force arrested several unionists in end of June in Punjab and Gujarat. On 22nd of June 2010 we could read in Chandigarh Tribune: “The Punjab Police has sought a special Central assistance of Rs 100 crore to build capacity to counter the ‘growing’ Maoist threat to the state. Security agencies claim Maoists have entrenched themselves among several extreme-Left organisations which are taking on the state through a series of mass movements. The organisations named by Punjab Police sources for ‘harbouring’ Maoists include the BKU – Ugrahan, Dakonda, Ekta and Krantikari groups, Punjab Kisan Union, two Kisan Sangharsh Committee groups, Kirti Kisan Sabha, Punjab Kisan Union, Jamhoori Kisan Sabha, Dehati Mazdoor Sabha, Punjab Khet Mazdoor Union and two groups of Pendu Mazdoor Union, Mazdoor Mukti Morcha and Krantikari Pendu Mazdoor Union. A total of nine alleged Maoist sympathisers have been arrested including one “permanent” member Harnek Singh, who was arrested with a revolver from Ferozepur”. A longer summary of the arrests can be found at Sanhati (Click):
The Rural Crisis
As we have said earlier on, capitalism in India will have to push and pull at two main developmental front-lines in order to steer through social crisis: the rural and the urban-industrial. We have a monthly glance at the main tendencies within the agrarian and automobile sector representing these two front-lines.
GDP and Food Grain Production
While general GDP growth was put at 7.4 per cent in financial year 2010, growth of agriculture was at 0.2 per cent. Given the bad rainfall and the bad food grain harvest – accounting for 70 per cent of the total output – most commentators thought that the announcement of a positive growth was surprising. Total food grain production fell by nearly 7 per cent in FY10. Major commercial crops like oil seeds and sugarcane had also recorded a decline in their output in the range of 4 to 8 per cent. In June the state announced a 0.5 per cent increase in the Minimum Support Price for paddy paid to farmers. Wheat and rice are the main ‘procurement crops’, the state often procures directly from farmers, while pulses – the other main food grain – is mainly bought by private traders. The government procured 33 million tonne rice last year. India’s total rice production is around 98 million tonne. The picture looks different when it comes to pulses. India is a net importer of pulses and the sharp rise in prices is on account of higher commodity prices globally. The country produced 14.77 million tonnes in 2009-10 against a requirement of 18-19 million tonnes. While pulses – and to a certain extend wheat – have to be imported, commercial crops like cotton are exported. China, India and Argentina urged the US during the last WTO summit to drop import tariffs – protecting cotton industry in the US. Cotton prices have dropped severely during 2009, China turned from major import destination to export hub, due to internal overproduction.
In the public discussion about the state’s deficit the subsidies for the rural world is seen as the mill-stone around the neck of national prosperity. On 8th of June 2010 the Financial Express summarised some of the ‘main culprits’, with a demand for ‘reform’:
India provides cheap foodgrains and pulses to nearly 180 million poor or low-income families through a public distribution system that will cost nearly $12.6 billion in the year to end-March 2011.It accounts for about 5 percent of the budget.
To help farmers and boost farm output, the government fixes the prices of some fertilisers and pays a subsidy to producers to compensate for selling below cost. The bill is pegged at $11.2 billion in the current fiscal year, an increase of 5.7 percent on the previous year. It accounts for 4.5 percent of the budget.
The government guarantees each rural household 100 days of work in a year, a scheme that costs it just under 1 percent of GDP, or 3.6 percent of the budget.
The government subsidises the interest costs on some farm and housing loans and for some pension plans, at a cost of about $1 billion in 2010/11 budget.
If the land does not provide profitable returns as soil, it can be sold. The mass-bankruptcies of small farmers demand a more regulated legal frame-work for selling-and-buying of land. One of the other ‘reforms’ requested by state and advisors like the IMF is the de-regulation of the land-market. In large parts of India it is still about the introduction of proper land-titles, a legal proof for owner-ship over land, in order to trade it. On 29th of May a small column in the ET mentioned these quite substantial changes in over-all commodity relations: (Column : Why giving land titles is hard) “The rural development ministry’s Department of Land Resources now has a draft Land Titling Bill 2010. The overall idea is the Torrens system, implemented in several common law countries, after its origins in Australia. Obviously, there are several prerequisites before the proposed land titling authority can guarantee titles. There has to be a title registry and there have to be survey settlements. The land information system and use of this for valuing property will follow. The proposed Land Titling Tribunal, to supplant recourse to courts, is also a subsequent matter. Enough technology is available to match satellite-based images with survey records and digitise cadastral maps”. Put a name to it, then a price tag. Shortly after draft for the ‘Land Titling Bill 2010′ the Punjabi government announced the introduction of a new land purchase policy in July 2010.
The policy “allows the state to buy land for various projects from owners through a process of tender-based bidding. As part of the new policy, various urban development agencies of the state can buy land from the owners at the rate quoted by them if the rates suit the government. The policy, he added, has the nod of the Cabinet”. By introduction of this policy the state wants to further individualise the issue of ‘compensation for land grab’, by facilitating individual exchange relation-ships. The state formalises, what has happened behind the doors informally anyway. The state also hopes to speed-up the dealing, hoping to get hold of land within 2 to 3 months.
The Rural proletariat
Those who have nothing to sell and nothing to lose depend on the rural labour market. One of the main state-measures to control the reproduction of the rural proletariat is the National Rural Employment Guarantee Scheme (NREGS). While official minimum wages have been hiked in various states (up to 40 per cent in Delhi and UP), the following example from Rajasthan shows the current trend of actual wages. It is too early to say, but it seems that with the crisis the wage gap between urban and rural proletarians seems to widen.
JAIPUR: About 2,000 MGNREGA workers from across the state would demonstrate on Thursday near the Statue Circle over the poor payments in the scheme and against the state government’s alleged step-motherly attitude towards them. According to the state’s MGNREGA website, the average payment of workers of this scheme which was Rs 89 per day last year has now fallen to Rs 70 per day. `While the prices of goods have sky-rocketed over the year the average payment for MGNREGA workers, according to the government’s own estimate, has gone down.
(Times of India, 24th of June)
The Automobile Crisis
In May 2010 all major car manufacturers in India reported an increase in passenger car sales between 20 and 40 per cent for April 2010 compared to last year’s sales. Domestic car sales were 143,976 in April, up from 103,227 in the same month last year, led by Maruti Suzuki, which sold 80,034 units. The over-all annual growth of the passenger car market has slowed down: in 2010-11 the market grew 12 to 13 per cent, compared to 25 per cent in 2009-10. Not only did certain cheap credit schemes run out, car prices went up, as well: SIAM president Pawan Goenka said over the past six months prices of natural rubber had increased 40 per cent, while that of pig iron and steel had risen by 25 per cent and 10 per cent respectively. As we wrote in the last ‘Social Tsunami Impact’ export sales grow substantially faster than domestic sales – we can currently observe the emergence of actual ‘global car production’ in Asia. The ‘boom’ in India is accompanied by strikes of car workers at Honda and Toyota in China, by 200 arrests of striking workers at Hyundai in India.
With the entry of Indian car factories into the global market, global production standards are adopted. Despite the generally lower wage levels, the final assembly in India is using a composition of labour/capital similar to the North: At Maruti Suzuki 340 programmed robots are involved in spot welding (joining sheets), handling and sealing robots come from behind to complete the welding process, which was largely manual until a few years ago. Things will not be much different at other major exporters. In May 2010 Nissan said it has started commercial production of small car ‘Micra’ from its plant in Chennai, which it plans to make a global export hub. The India-made Micra will be exported to “strategic markets” such as Europe, the Middle East and Africa as part of its plans to sell the car in over 100 countries. The new Micra will be produced in five countries — Thailand, India, China and Mexico. The fifth location is yet to be decided. Two-wheeler manufacturer Honda Motorcycle and Scooter India (HMSI) is planning to raise its exports to 110,000 units of motorcycles and scooters this fiscal over 80,000 units last year. “In a span of eight years the export destinations have crossed 50. We not only export to developing countries, we also export to the developed nations of Europe,” said Shinji Aoyama, HMSI president and chief executive officer.
Apart from ‘ready-made’-automobile the global supply-chain for car parts extends, as well. India’s Apollo Tyres announced in June to supply tyres to German car maker Volkswagen in Europe. Chinese parts manufacturers are looking towards India as a cheaper and – compared to their home-turf – more peaceful production hub. In June the Economic Times reported: “Chinese automobile and component manufacturers are queuing up to drive into the Indian market, second only to their own in pace of growth, with the intention of using it as a low-cost export base”. We expect that some of the recent industrial unrest in China is bound to be exported, too.